Oakridge Energy (OAKR) 10QSB 2007 Q3 Quarterly report (small business)

U.S. Securities and Exchange Commission

Washington, D.C.  20549

FORM 10-QSB

(Mark One)

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2006.

oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission file number 0-8532

OAKRIDGE ENERGY, INC.

(Exact name of small business issuer as specified in its charter)

Utah	87-0287176
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4613 Jacksboro Highway
Wichita Falls, Texas	76302
(Address of principal executive offices)	(Zip code)

(940) 322-4772

(Issuer’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x        NO o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o   NO x

The number of shares outstanding of each of the issuer’s classes of common equity, as of January 15, 2007: Common Stock, $.04 par value, 4,266,917 shares.

Transitional Small Business Disclosure Format (check one):
YES o   NO x

INDEX

	Page #
Part I — Financial Information
Item 1. Financial Statements
Balance Sheets at November 30, 2006 (Unaudited) and February 28, 2006 (Audited)	1
Statements of Operations (Unaudited) For the Three and Nine Months Ended November 30, 2006 and 2005	3
Statements of Cash Flows (Unaudited) For the Nine Months Ended November 30, 2006 and 2005	4
Notes to Financial Statements	5
Item 2. Management’s Discussion and Analysis or Plan of Operation	6
Item 3. Controls and Procedures	16
Part II — Other Information
Item 6. Exhibits	17
Signatures	17

OAKRIDGE ENERGY, INC.

BALANCE SHEETS

	November 30,		February 28,
	2006		2006
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,643,423	$	3,367,361
Trade accounts receivable	183,503		204,137
Prepaid expenses and other	8,252		18,632
Total current assets	2,835,178		3,590,130
Oil and gas properties, at cost, using the successful efforts method of accounting, net of accumulated depletion and depreciation of $6,260,884 and $6,242,138, respectively	980,924		960,535
Coal and gravel properties, at cost, net of accumulated depreciation of $8,051,719	260,488		260,488
Other property and equipment, net of accumulated depreciation of $422,054 and $421,868, respectively	168,268		117,094
Real estate held for sale	3,074,857		3,077,648
Deferred income taxes	77,331		18,786
Other non-current assets	857,597		857,597
Total assets	$	8,254,643	$	8,882,278

See accompanying notes to financial statements.

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OAKRIDGE ENERGY, INC.

BALANCE SHEETS (continued)

	November 30,		February 28,
	2006		2006
	(Unaudited)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	129,903	$	100,337
Accrued expenses	62,852		52,611
Current portion of asset retirement obligations	75,308		642,308
Total current liabilities	268,063		795,256
Asset retirement obligations	425,060		415,403
Total liabilities	693,123		1,210,659
Stockholders’ equity:
Common stock, par value $.04 per share, 20,000,000 shares authorized, 10,157,803 shares issued	406,312		406,312
Additional paid-in capital	805,092		805,092
Retained earnings	16,673,310		16,757,534
Stockholders’ equity before treasury stock	17,884,714		17,968,938
Less treasury stock, at cost; 5,890,886 shares and 5,886,386 shares, respectively	10,323,194		10,297,319
Total stockholders’ equity	7,561,520		7,671,619
Total liabilities and stockholders’ equity	$	8,254,643	$	8,882,278

See accompanying notes to financial statements.

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OAKRIDGE ENERGY, INC.

STATEMENTS OF OPERATIONS
(UNAUDITED)

	3 Months Ended November 30,					9 Months Ended November 30,
	2006			2005		2006			2005
Revenues:
Oil and gas	$	307,934		$	424,558	$	1,054,425		$	1,169,888
Gravel	—			7,500		—			27,500
Total revenues	307,934			432,058		1,054,425			1,197,388
Operating expenses:
Oil and gas	235,233			210,416		745,372			608,282
Coal and gravel	34,748			10,961		75,117			40,397
Real estate development	24,438			140		159,295			163
General and administrative	136,363			116,937		426,794			472,937
Total operating expenses	430,782			338,454		1,406,578			1,121,779
Income (loss) from operations	(122,848		)	93,604		(352,153		)	75,609
Interest and other, net	82,390			35,437		218,527			529,509
Income (loss) before income taxes	(40,458		)	129,041		(133,626		)	605,118
Income tax expense (benefit)	(14,958		)	47,707		(49,402		)	223,713
Net income (loss)	$	(25,500	)	$	81,334	$	(84,224	)	$	381,405
Basic and diluted income (loss) per common share:	$	(0.01	)	$	0.02	$	(0.02	)	$	0.09
Weighted average shares outstanding	4,220,537			4,283,001		4,267,228			4,283,890

Comprehensive income for the three months and nine months ended November 30, 2005 was $68,643 and $231,637, respectively.  Included in comprehensive income (loss) is the change in available for sales securities.  Comprehensive income (loss) is not applicable to the three months and nine months ended November 30, 2006 as all available for sale securities have been sold.

See accompanying notes to financial statements.

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OAKRIDGE ENERGY, INC.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

	9 Months Ended November 30,
	2006			2005
Operating Activities
Net income (loss)	$	(84,224	)	$	381,405
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depletion and depreciation	36,432			76,130
Accretion of discount on asset retirement obligations	4,810			13,808
Gain on sales of investment securities	—			(445,130		)
Deferred income taxes	(58,545		)	198,038
Gain on sales of assets	(53,929		)	—
Changes in operating assets and liabilities:
Trade accounts receivable	20,634			(88,285		)
Prepaid expenses and other	10,380			10,102
Income taxes payable	—			10,955
Accounts payable	29,566			24,801
Accrued expenses	10,241			23,268
Asset retirement obligations	(562,153		)	—
Net cash provided by (used in) operating activities	(646,788		)	205,092
Investing Activities
Additions to oil and gas properties	(39,135		)	(8,712		)
Additions to real estate held for sale	—			(38,118		)
Additions to other property and equipment	(68,860		)	—
Proceeds from sales of assets	56,720			596,952
Net cash provided by (used in) investing activities	(51,275		)	550,122
Financing Activity
Purchases of treasury stock	(25,875		)	(8,599		)
Net increase (decrease) in cash and cash equivalents	(723,938		)	746,615
Cash and cash equivalents at beginning of period	3,367,361			2,294,548
Cash and cash equivalents at end of period	$	2,643,423		$	3,041,163
Supplemental Disclosure of Cash Flow Information
Income taxes paid	$	16,603		$	17,295
Supplemental Disclosure of Non-Cash Information
Change in unrealized gain on investment securities, net of income taxes	$	—		$	149,768

See accompanying notes to financial statements.

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OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(Unaudited)

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-QSB of Regulation S-B for the three and nine month periods ended November 30, 2006 and 2005 and reflect, in the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods.  The foregoing financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended February 28, 2006 included in the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission.  The interim unaudited financial statements should be read in conjunction with the annual financial statements and accompanying notes.  Operating results for the three and nine months ended November 30, 2006 are not necessarily indicative of the results that may be expected for the year ending February 28, 2007.  The Company’s operating segments are set forth in the annual financial statements and accompanying notes for the fiscal year ended February 28, 2006.

Information regarding operations and assets by segment is as follows:

	For the Three Months Ended November 30, 2006			For the Three Months Ended November 30, 2005			For the Nine Months Ended November 30, 2006			For the Nine Months Ended November 30, 2005
Business segment revenue:
Oil and gas	$	307,934		$	424,558		$	1,054,425		$	1,169,888
Gravel	—			7,500			—			27,500
	$	307,934		$	432,058		$	1,054,425		$	1,197,388
Business segment profit (loss):
Oil and gas	$	72,701		$	214,142		$	309,053		$	561,606
Coal and gravel	(34,748		)	(3,461		)	(75,117		)	(12,897		)
Real estate development	(24,438		)	(140		)	(159,295		)	(163		)
General corporate	(136,363		)	(116,937		)	(426,794		)	(472,937		)
Income (loss) from operations	(122,848		)	93,604			(352,153		)	75,609
Interest and other, net	82,390			35,437			218,527			529,509
Income (loss) before income taxes	$	(40,458	)	$	129,041		$	(133,626	)	$	605,118
							As of November 30, 2006			As of February 28, 2006
Total assets:
Oil and gas							$          3,926,252			$          4,591,890
Coal and gravel							260,488			260,488
Real estate development							3,074,857			3,077,648
General corporate							993,046			952,252
							$          8,254,643			$          8,882,278

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion should be read in conjunction with Items 6 and 7 of the Company’s Annual Report on Form 10-KSB for the fiscal year ended February 28, 2006 and the Notes to Financial Statements contained in this report.

Results of Operations

The Company had a net loss of $25,500 ($.01 per share) for the three months ended November 30, 2006 compared to net income of $81,334 ($.02 per share) for the three months ended November 30, 2005. For the nine months ended November 30, 2006, the Company had a net loss of $84,224 ($.02 per share) compared to net income of $381,405 ($.09 per share) for the nine months ended November 30, 2005.  Oil and gas revenues decreased in both the three-month and nine-month periods in 2006, as all categories of expenses increased in both periods, except for general and administrative expense, which decreased approximately $46,000 for the nine months ended November 30, 2006 compared to the nine months ended November 30, 2005. Decreased revenues and increased expenses, as reported below, resulted in a small loss in both the three-month and nine-month periods ended November 30, 2006.

Combined oil and gas revenues for the three months ended November 30, 2006 were $307,934 compared to $424,558 for the three months ended November 30, 2005, representing a decrease of $116,624 (27.5%).  Combined oil and gas revenues for the nine months ended November 30, 2006 were $1,054,425 compared to $1,169,888 for the nine months ended, November 30, 2005, representing a decrease of $115,463 (9.9%).  The decreases in revenues for the three-month and nine-month comparable periods were due to gas price and sales volume decreases in both periods and oil sales volume decreases.  Oil sales volumes decreased by 3,070 barrels for the nine months ended November 30, 2006 period as compared to the nine months ended November 30, 2005.  Average oil prices for the nine months ended November 30, 2006 period increased by $7.68 (13.5%) as compared to the nine months ended November 30, 2005.  In the nine-month 2006 period, gas sales volumes decreased 575 mcf (2.5%), average gas prices decreased $1.84 (24.5%) resulting in a decrease in gas revenues over the period of approximately $45,800 (26.4%) compared with the nine-month 2005 period.

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The Company’s principal producing oil and gas property in Madison County, Texas is in the process of being waterflooded.  Revenues from the property decreased in both the 2006 periods as compared to the 2005 periods primarily due to decreased oil sales volumes from the property as operating expenses increased.  The operator stated that the oil and gas production is declining at a normal rate of decline with the operating expenses increasing due to the replacement of several strings of tubing that have been in these wells since the first date of production, with a new pumping unit being placed on one well, increased workovers and increased chemical usage. Oil sales volumes decreased 1,015 (27.4%) barrels as the average oil price decreased $3.01 (4.9%) for the three months ended November 30, 2006 compared to the three months ended November 30, 2005.  Revenues fell $69,856 (31%) for the three months ended November 30, 2006 compared to the three months ended November 30, 2005. For the nine months ended November 30, 2006, oil sales volume decreased 1,775 (16.6%) barrels as compared to the nine months ended November 30, 2005. However, the average oil price increased $7.02 (12.2%) for the nine-month 2006 period as compared to the nine-month 2005 period, which resulted in a revenue decrease of approximately $39,300 (6.4%). 1,015 barrels of the 1,775 (57.2%) barrel oil sales volume decrease during the nine-month 2006 period occurred during the three-month 2006 period as a result of the number of wells down during increased workovers in the period.

The Company received no gravel revenues for the 2006 periods, compared to $7,500 and $27,500 for the three-month and nine-month 2005 periods, respectively.  The gravel revenues for the three-month and nine-month 2005 periods were for surface rental only. A dispute developed in fiscal 2004 between the Company and Four Corners Materials, which at the time was conducting gravel mining operations on the Company’s Colorado property. The dispute was detailed in the Company’s Annual Report on Form 10-KSB for the fiscal year ended February 29, 2004. Four Corners Materials is no longer mining the property and has reclaimed its permitted area. The Company would consider leasing the property again for gravel operations but has no intention of conducting any operations itself.

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The expenses of the Company’s oil and gas operations for the three months ended November 30, 2006 were $235,233 compared to $210,416 for the three months ended November 30, 2005, representing an increase of $24,800 (11.8%).  The expenses of the Company’s oil and gas operations for the nine months ended November 30, 2006 were $745,372 compared to $608,282 for the nine months ended November 30, 2005, representing an increase of $137,100 (22.5%).  Depletion and depreciation expense for the three months ended November 30, 2006 was approximately $7,300 compared to $17,400 for the three months ended November 30, 2005, representing a decrease of $10,100 (58.0%).  Depletion and depreciation expense for the nine months ended November 30, 2006 was $18,700 compared to $57,200 for the nine months ended November 30, 2005, representing a decrease of $38,500 (67.3%). Such decline was primarily attributable to the Madison County, Texas property and was due to lower production volumes than in the nine month 2005 period and a reduced per barrel amortization rate resulting from the higher quantity of proven oil and gas reserves for the property at the fiscal 2006 year end as compared to the prior year.  The decrease in depletion expense was offset by a large increase in lease operating expense.  Lease operating expense was approximately $170,700 and $133,790 for the three months ended November 30, 2006 and 2005, respectively, representing an increase of $36,900 (27.6%). For the nine months ended November 30, 2006, lease operating expense was approximately $580,360 compared to approximately $403,860 for the nine months ended November 30, 2005, representing an increase of $176,500 (43.7%). In both periods, expenses increased primarily as a result of workovers on properties in Madison County, Panola County, and North Texas. Production taxes for the three months ended November 30, 2006 were $13,972 compared to $19,888 for the three months ended November 30, 2005, representing a decrease of approximately $5,900 (29.8%).  Production taxes for the nine months ended November 30, 2006 were $48,381 compared to $54,519 for the nine months ended November 30, 2005, representing a decrease of approximately $6,100 (11.3%).  The Company did not incur any exploration expense, dry hole expense or leasehold abandonment charges during any of the 2006 or 2005 periods.

The Company’s coal and gravel operating expenses for the three months ended November 30, 2006 were $34,748 compared to $10,961 for the three months ended November 30, 2005, representing an increase of approximately $23,787 (217%). The Company’s coal and gravel operating expenses for the nine months

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ended November 30, 2006 were approximately $75,117 compared to approximately $40,397 for the nine months ended November 30, 2005, representing an increase of approximately $34,720 (86%). A $32,757 increase in reclamation expenses in the 2006 nine-month period resulted from the Company’s supervision of the coal mine reclamation which was in addition to the fixed price contract that was expensed in prior periods and added clean-up work  on the property by the contractor.  The Company entered into a fixed price contract agreement in the amount of $567,000 with a third party contractor to reclaim its disturbed coal lands with the expense being recognized in prior periods. Reclamation activities in the three months ending November 30, 2006 resulted in total payment of this contract which reduced the Company’s cash and cash equivalents by this amount. The Company has applied for a decrease in its reclamation liability for its Carbon Junction Coal Mine in the amount of $114,473 which has been approved by the Colorado Division of Minerals and Geology (“CDMG”), but requires public notice, a comment period and no objections before final approval by the CDMG.  The Company expects no objections and to receive final approval in the Company’s fiscal year 2007. The Company now maintains a coal mine reclamation bond with the State of Colorado in the amount of $816,526.  After approval of the reduction in the amount of $114,473, the remaining amount of the bond required will be $702,053.  In addition, on August 25, 2006, the Company applied for a Phase I release of 60% of the total remaining liability for coal reclamation which will result in an additional reduction in the coal mine reclamation bond in the amount of approximately $421,230 leaving a liability of approximately $280,820. Phase II and Phase III releases will be subject to approvals by CDMG confirming that environmental response, vegetation and re-growth has stabilized which could require a period of a couple of years. Liability reductions will provide a corresponding increase to cash and cash equivalents as releases of liability are issued.

Real estate expenses were approximately $24,438 and $159,295 in the three-month and nine-month 2006 periods compared to immaterial real estate expenses in the 2005 periods. The increase in real estate expenses was the result of a change in financial reporting pursuant to the decision to sell the Durango, Colorado property. Payroll and engineering fees previously capitalized were expensed in the 2006 periods.  Legal expense related to our efforts to sell the Durango, Colorado property was $11,064 and $79,699 in the three-month and six-

9

month periods ended November 30, 2006 with only $140 and $163 expensed in the three-month and nine-month periods ended November 30, 2005, respectively.

General and administrative expenses for the three months ended November 30, 2006 were $136,363 compared to $116,937 for the three months ended November 30, 2005, representing an increase of approximately $19,400 (16.6%).  General and administrative expenses for the nine months ended November 30, 2006 were $426,794 compared to $472,937 for the three months ended November 30, 2005, representing a decrease of approximately $46,100 (9.8%).  For the three-month and nine-month periods ended November 30, 2006, there were decreases in legal, auditing and Securities and Exchange Commission (“SEC”) filings expenses as no amendments of prior period “SEC” returns were required. However, increased shareholder reporting and payroll costs resulted in an increased expense for the three months ended November 30, 2006 as compared to the three months ended November 30, 2005.

Other income for the three months ended November 30, 2006 was $82,390 compared to $35,437 for the three months ended November 30, 2005, representing a decrease of approximately $47,000 (132.5%).  Other income for the nine months ended November 30, 2006 was $218,527 compared to $529,509 for the nine months ended November 30, 2005, representing a decrease of 311,000 (58.7%).  The decrease was due to the sale of a portion of the Company’s investments available for sale in 2005 with no such sale in the 2006 periods. For the nine months ended November 30, 2006 compared to the nine months ended November 30, 2005, interest and dividend income increased approximately $32,800 (67%) due to increase in interest rates.

The Company did not purchase any shares of its stock during the three-month period ended November 30, 2006, but purchased 4,500 shares in the nine-month period ended November 30, 2006.  All of such purchases were from unrelated parties.

Financial Condition and Liquidity

During the nine months ended November 30, 2006, all of the Company’s activities, operating, investing and financing, were net users of funds.  As a consequence, the Company’s cash and cash equivalents decreased by approximately $723,938. The Company did not participate in any exploratory or development

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drilling during the period. The Company’s operating activities used approximately $646,788 in funds as reclamation expenditures incurred during the nine months ended November 30, 2006, resulted in a significant decrease in cash and cash equivalents. However, the Company has requested an approximate $535,700 combined reduction in its reclamation bond liability as explained in its Results of Operations section of this report. As those releases are approved, the Company will receive corresponding increases in cash and cash equivalents.  The Company’s investing activities used approximately $51,275, primarily due to the purchase of office equipment and a field truck, partially offset by the sale of a portion of the Company’s other property and equipment during the period.  The Company’s financing activities used approximately $25,875 during the nine months ended November 30, 2006.  The financing uses were comprised entirely of purchases of the Company’s common stock. At November 30, 2006, the Company had no indebtedness, and cash and cash equivalents totaled approximately $2,643,423. As explained above, reductions in cash and cash equivalents during this period resulting from the reclamation of the Company’s coal mine will be replaced as portions of its reclamation bond liability to the State of Colorado are released.

The Company expects to fund its operations and any purchases of the Company’s stock it makes during the remainder of fiscal 2007 from its cash and cash equivalents and any cash flow from its operations.  Given the Company’s decision to sell its Durango, Colorado property, the Company currently does not expect to make any material expenditure on such property for the remainder of fiscal 2007.

Critical Accounting Policies and Estimates

The foregoing discussion and analysis of the Company’s results of operations and financial condition and liquidity is based upon the financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.  In response to Securities and Exchange Commission (the “Commission”) Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” the Company has

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identified certain of its accounting policies as being of particular importance to the portrayal of the Company’s results of operations and financial position and which require the application of significant judgment by management. The Company analyzes its estimates, including those related to oil and gas revenues, oil and gas properties, income taxes, contingencies and litigation, and bases its estimates on historical experience and various other assumptions that the Company believes to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the Company’s financial statements:

SUCCESSFUL EFFORTS METHOD OF ACCOUNTING: The Company accounts for its natural gas and crude oil exploration and development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells, costs to acquire mineral interests and three-dimensional (3-D) seismic costs are capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses including two-dimensional (2-D) seismic costs and delay rentals for oil and gas leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized.

The application of the successful efforts method of accounting requires managerial judgment to determine the proper classification of wells designated as developmental or exploratory which will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze and the determination that commercial reserves have been discovered requires both judgment and industry experience. Wells may be completed that are assumed to be productive but actually deliver oil and gas in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. Wells may be drilled that target geologic structures that are both developmental and exploratory in nature and an allocation of costs is required to properly account for the results. The evaluation of oil and gas leasehold acquisition costs requires

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managerial judgment to estimate the fair value of these costs with reference to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.

The successful efforts method of accounting can have a significant impact on the operational results reported when the Company is entering a new exploratory area in hopes of funding an oil and gas field that will be the focus of future development drilling activity. The initial exploratory wells may be unsuccessful and will be expensed.

RESERVE ESTIMATES: The Company’s estimates of oil and gas reserves, by necessity, are projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. Estimates of economically recoverable oil and gas reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions governing future oil and gas prices, future operating costs, severance taxes, development costs and workover gas costs, all of which may in fact vary considerably from actual results. The future drilling costs associated with reserves assigned to proved undeveloped locations may ultimately increase to an extent that these reserves may be later determined to be uneconomic. For these reasons, estimates of the economically recoverable quantities of oil and gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of the future net cash flows expected there from may vary substantially. Any significant variance in the assumptions could materially affect the estimated quantity and value of the reserves, which could affect the carrying value of the Company’s oil and gas properties and/or the rate of depletion of the oil and gas properties. Actual production, revenues and expenditures with respect to the Company’s reserves will likely vary from estimates and such variances may be material.

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IMPAIRMENT OF OIL AND GAS PROPERTIES: The Company reviews its oil and gas properties for impairment at least annually and whenever events and circumstances indicate a decline in the recoverability of their carrying value.  The Company estimates the expected future cash flows of its oil and gas properties and compares such future cash flows to the carrying amount of the properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and gas properties to their fair value. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures and a discount rate commensurate with the risk associated with realizing the expected cash flows projected.

Given the complexities associated with oil and gas reserve estimates and the history of price volatility in the oil and gas markets, events may arise that would require the Company to record an impairment of the recorded book values associated with oil and gas properties. The Company has not recognized any impairment this year or in the prior year, but there can be no assurance that impairments will not be recognized in the future.

ASSET RETIREMENT OBLIGATIONS: The Company accounts for its asset retirement obligations in accordance with Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations. The asset retirement obligations represent the estimated present value of the amounts expected to be incurred to plug, abandon, and remediate the producing properties at the end of their productive lives, in accordance with state laws, as well as the estimated costs associated with the reclamation of the property surrounding and including the Company’s previous coal mining operations. The Company determines the asset retirement obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations are recorded as a liability at the estimated present value as of the asset’s inception, with an offsetting increase to producing properties. Periodic accretion of the discount related to the estimated liability is recorded as an expense in the statement of operations.

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The estimated liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells, and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations. Revisions to the asset retirement obligations are recorded with an offsetting change to producing properties, resulting in prospective changes to depletion and depreciation expense and accretion of the discount. Because of the subjectivity of assumptions and the relatively long lives of most of the wells, the costs to ultimately retire the Company’s wells may vary significantly from prior estimates.

Forward-Looking Statements

Certain information included in this Quarterly Report on Form 10-QSB and other materials filed by the Company with the Commission contain forward-looking statements relating to the Company’s operations and the oil and gas industry. Such forward-looking statements are based on management’s current projections and estimates and are identified by words such as “expects,” “intends,” “plans,” “believes,” “estimates,” “anticipates” and similar words.  These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from what is expressed in such forward-looking statements.

Among the factors that could cause actual results to differ materially are crude oil and natural gas price fluctuations, failure to achieve expected production and the timing of receipt of revenues from existing and future exploration and development projects (including, particularly, the secondary recovery project on the Madison County, Texas property), higher than estimated oil and gas and coal reclamation costs and delays with respect to, or failure to obtain, governmental permits and approvals necessary to proceed with real estate. In addition, these forward-looking statements may be affected by general domestic and international economic and political conditions.

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ITEM 3.  CONTROLS AND PROCEDURES.

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act.  This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Commission.  Our management, including our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-QSB.  Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-QSB.

There were no changes to our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 6.   EXHIBITS

(31)		Rule 13a-14(a)/Rule 15d-14(a) Certifications:
	(i)	Certification of Sandra Pautsky, Principal Executive Officer of the Company, filed herewith.
	(ii)	Certification of Carol J. Cooper, Principal Financial Officer of the Company, filed herewith.
(32)		Section 1350 Certifications — Certifications of Sandra Pautsky, Principal Executive Officer of the Company, and Carol J. Cooper, Principal Financial Officer of the Company, filed herewith.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

OAKRIDGE ENERGY, INC.

(Registrant)

Date:	January 16, 2007	By	/s/ Sandra Pautsky
			Sandra Pautsky, President and Principal Executive Officer
Date:	January 16, 2007	By	/s/ Carol J. Cooper
			Carol J. Cooper, Principal Financial Officer

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