Oakridge Energy 10QSB 2008 Q3 Quarterly report (small business)

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-QSB

(Mark One)
x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2007.

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

For the transition period from to .

Commission file number 000-08532

OAKRIDGE ENERGY, INC.

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

Utah		87-0287176
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)

4613 Jacksboro Highway

Wichita Falls, Texas 76302

(Address of principal executive offices)

(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 14, 2008: Common Stock, $.04 par value, 4,260,242 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, 2007 (Unaudited) and February 28, 2007 (Audited)	1

	Statements of Operations (Unaudited) For the Three and Nine Months Ended November 30, 2007 and 2006	3

	Statements of Cash Flows (Unaudited) For the Nine Months Ended November 30, 2007 and 2006	4

	Notes to Financial Statements	5

	Item 2. Management’s Discussion and Analysis or Plan of Operation	7

	Item 3. Controls and Procedures	18

Part II — Other Information
	Item 1 A. Risk Factors	19
	Item 6. Exhibits	19

Signatures		19

Part 1. Financial Information

ITEM 1. FINANCIAL STATEMENTS

OAKRIDGE ENERGY, INC.

BALANCE SHEETS

	November 30,		February 28,
	2007		2007
	(Unaudited)		(Audited)
Assets
Current assets:
Cash and cash equivalents	$	2,484,114	$	2,410,827
Trade accounts receivable	258,034		275,953
Investment securities available for sale	37,271		101,138
Prepaid expenses and other	20,380		19,187
Total current assets	2,799,799		2,807,105

Oil and gas properties, at cost, using the successful efforts method of accounting, net of accumulated depletion and depreciation of $6,302,523 and $6,275,612, at November 30 and February 28, 2007, respectively	1,007,153		974,749

Coal and gravel properties, at cost, net of accumulated depreciaton of $7,923,719	260,488		260,488

Other property and equipment, net of accumulated depreciation of $410,656 and $430,819, at November 30 and February 28, 2007, respectively	141,294		159,503

Real estate held for sale	3,074,857		3,074,857

Deferred income taxes	167,394		139,582

Other non-current assets	730,989		852,079

Total assets	$	8,181,974	$	8,268,363

	November 30,			February 28,
	2007			2007
	(Unaudited)			(Audited)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	176,436		$	278,190
Accrued expenses	93,517			49,684
Current portion of asset retirement obligations	87,221			80,155
Total current liabilities	357,174			408,029

Asset retirement obligations	437,844			425,023
Total liabilities	795,018			833,052

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	16,616,422			16,582,854
Accumulated other comprehensive (loss)	(71,620		)	(7,753		)
Stockholders’ equity before treasury stock	17,756,206			17,786,505
Less treasury stock, at cost; 5,897,561 shares and 5,894,886 shares, respectively	10,369,250			10,351,194
Total stockholders’ equity	7,386,956			7,435,311

Total liabilities and stockholders’ equity	$	8,181,974		$	8,268,363

STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended					Nine Months Ended
	November 30,					November 30,
	2007		2006			2007			2006
Revenues:
Oil and gas	$	481,464	$	307,934		$	1,164,970		$	1,054,425

Operating expenses:
Oil and gas	246,701		235,233			791,774			745,372
Coal and gravel	8,825		34,748			25,747			75,117
Real estate development	29,622		24,438			75,405			159,295
General and administrative	124,777		136,363			380,399			426,794
Total operating expenses	409,925		430,782			1,273,325			1,406,578

Income (loss) from operations	71,539		(122,848		)	(108,355		)	(352,153		)

Interest and other, net	36,966		82,390			132,858			218,527

Income (loss) before income taxes	108,505		(40,458		)	24,503			(133,626		)

Income tax (benefit) expense	21,996		(14,958		)	(9,065		)	(49,402		)

Net income (loss)	$	86,509	$	(25,500	)	$	33,568		$	(84,224	)

Basic and diluted income (loss) per common share:
Net income (loss)	$	0.02	$	(0.01	)	$	0.01		$	(0.02	)

Weighted average common shares outstanding	4,260,771		4,220,537			4,262,207			4,267,228

Comprehensive income for the three months ended November 30, 2007 was $53,264 and comprehensive loss

for the nine months ended November 30, 2007 was $30,299. Included in comprehensive income (loss) is the

change in available for sale securities. Comprehensive income (loss) is not applicable to the three months and

nine months ended November 30, 2006 as there were no available for sale securities.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended November 30,
	2007			2006
Operating Activities
Net income (loss)	$	33,568		$	(84,224	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depletion and depreciation	45,136			36,432
Accretion of discount on asset retirement obligations	19,887			4,810
Reduction of reclamation bond	121,090			—
Deferred income taxes	(27,812		)	(58,545		)
Gain on sales of property and equipment	(18,516		)	(53,929		)
Changes in operating assets and liabilities:
Trade accounts receivable	17,919			20,634
Prepaid expenses and other	(1,193		)	10,380
Accounts payable	(101,754		)	29,566
Accrued expenses	43,833			10,241
Asset retirement obligations	—			(562,153		)
Net cash provided by (used in) operating activities	132,158			(646,788		)

Investing Activities
Additions to oil and gas properties	(59,315		)	(39,135		)
Additions to other property and equipment	—			(68,860		)
Proceeds from sales of property and equipment	18,500			56,720
Net cash used in investing activities	(40,815		)	(51,275		)

Financing Activity
Purchases of treasury stock	(18,056		)	(25,875		)

Net increase (decrease) in cash and cash equivalents	73,287			(723,938		)
Cash and cash equivalents at beginning of period	2,410,827			3,367,361

Cash and cash equivalents at end of period	$	2,484,114		$	2,643,423

Supplemental Disclosure of Cash Flow Information
Income taxes paid	$	18,590		$	16,603

Supplemental Disclosure of Non-Cash Information
Change in unrealized loss on investment securities	$	(63,867	)	$	—

Notes to Condensed 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, 2007 and 2006 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, 2007 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, 2007 are not necessarily indicative of the results that may be expected for the year ending February 28, 2008. The Company’s operating segments are set forth in the annual financial statements and accompanying notes for the fiscal year ended February 28, 2007.

Information regarding operations and assets by segment is as follows:

	Three Months Ended						Nine Months Ended
	November 30, 2007			November 30, 2006			November 30, 2007			November 30, 2006
Business segment revenue:
Oil and gas	$	481,464		$	307,934		$	1,164,970		$	1,054,425

Business segment profit income (loss):
Oil and gas	$	234,763		$	72,701		$	373,196		$	309,053
Coal and gravel	(8,825		)	(34,748		)	(25,747		)	(75,117		)
Real estate development	(29,622		)	(24,438		)	(75,405		)	(159,295		)
General corporate	(124,777		)	(136,363		)	(380,399		)	(426,794		)
Income (loss) from operations	71,539			(122,848		)	(108,355		)	(352,153		)
Interest and other, net	36,966			82,390			132,858			218,527
Income (loss) before income taxes	$	108,505		$	(40,458	)	$	24,503		$	(133,626	)

	As of November 30,
	2007		2006
Total assets:
Oil and gas	$	3,948,246	$	3,984,370
Coal and gravel	260,488		260,488
Real estate development	3,074,857		3,074,857
General corporate	898,383		934,928
	$	8,181,974	$	8,254,643

In 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 Accounting for Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 as of March 1, 2007, as required.

The current Company policy classifies any interest recognized on an underpayment of income taxes as interest expense and classifies any statutory penalties recognized on a tax position taken as selling, general and administrative expense. There were no interest or selling, general and administrative expenses accrued or recognized related to income taxes for the three or nine months ended November 30, 2007. The Company has not taken a tax position that would have a material effect on the financial statements or the effective tax rate for the three or nine months ended November 30, 2007 or during the prior three years applicable under FIN 48. It is determined not to be reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within 12 months of the adoption of FIN 48. The Company is currently subject to a three year statute of limitations by major tax jurisdictions.

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, 2007 and the Notes to Condensed Financial Statements contained in this report.

Results of Operations

Overview. The Company had net income of $86,509 ($.02 per share) for the three months ended November 30, 2007, compared to a net loss of $25,500 ($.01 per share) for the three months ended November 30, 2006. For the nine months ended November 30, 2007, the Company had net income of $33,568 ($.01 per share) compared to a net loss of $84,224 ($.02 per share) for the nine months ended November 30, 2006. Oil and gas revenues increased in both the three-month and nine-month periods ended November 30, 2007, as a result of rising energy prices. In general, the Company’s expenses decreased in both the three and nine-month periods ended November 30, 2007, as compared to the 2006 periods. However, oil and gas operating expense increased $11,468 (4.9%) and $46,402 (6.2%), respectively, in the three and nine-month periods ended November 30, 2007, compared to the November 30, 2006 periods. Also, real estate development expense increased $5,184 (21.2%) during the three-month period ended November 30, 2007, compared to the same period in 2006 as a result of increased ad valorem taxes on the property in Durango, Colorado (the “Colorado Property”). Real estate development expense decreased $83,890 (52.7%) for the nine-month 2007 period as compared to the same period in 2006, as all categories of expense decreased with the exception of ad valorem taxes.

Revenues

Oil and Gas. Combined oil and gas revenues for the three months ended November 30, 2007 were $481,464 compared to $307,934 for the three months ended November 30, 2006, representing an increase of $173,530 (56.4%). Combined oil and gas revenues for the nine months ended November 30, 2007, were $1,164,970 compared to $1,054,425 for the nine months ended November 30, 2006, representing an increase of $110,545 (10.5%). Increases in revenues for the 2007 three-month and nine-month periods were the result of rising energy prices.

The following table compares the Company’s oil and gas revenues and average prices received by the Company and its sales volumes of oil and gas during fiscal 2008 with those of fiscal 2007:

	Three Months Ended November 30, 2007		Three Months Ended November 30, 2006		Percentage Difference
Oil:
Revenues	$	431,749	$	258,825	+ 66.81	%
Volumes (Bbls.)	5,096		4,460		+ 14.26	%
Average Price (per Bbl.)	$	84.72	$	58.04	+ 45.97	%
Gas:
Revenues	$	36,280	$	38,158	– 4.92
Volumes (MCF)	6,364		6,915		– 7.97
Average Price (per MCF)	$	5.70	$	5.52	+3.26	%

	Nine Months Ended November 30, 2007		Nine Months Ended November 30, 2006		Percentage Difference
Oil:
Revenues	$	994,796	$	895,317	+ 11.11	%
Volumes (Bbls.)	13,907		13,872		+ 0.25	%
Average Price (per Bbl.)	$	71.53	$	64.54	+ 10.83	%
Gas:
Revenues	$	129,246	$	127,774	+ 1.15	%
Volumes (MCF)	19,971		22,539		– 11.39
Average Price (per MCF)	$	6.47	$	5.67	+ 14.11	%

Non-material amounts of natural gas liquids revenues and sales are excluded from the foregoing tables.

Madison County Property. The Company’s principal producing oil and gas property in Madison County, Texas (the “Madison County Property”) is in the process of being waterflooded. Oil sales volumes in the three-month 2007 period increased 727 barrels as compared to the three-month 2006 period as a result of field changes the operator made. A decrease in unforeseen expenses is also expected within the next few months. Oil sales volumes in the nine-month period ended November 30, 2007 decreased 438 barrels (4.9%) as compared to the nine-month 2006 period and operations expense increased $54,691 (11.2%)

during the period. Although there were significant reductions in (i) pumping units and rods costs, (ii) tubing replacement and (iii) well servicing, lease operating expenses for well workovers, small tools and supplies, chemicals and field supervision essentially offset these reductions. Operations expense for the Madison County Property increased $8,407 (5.5%) for the three-month period ended November 30, 2007 as compared to the three-month 2006 period. Gas sales volumes for the Madison County Property decreased 178 mcf (7.3%) and average gas prices decreased only $0.44 (7.5%), as revenues declined $2,047 (14.4%) in the three-month period ended November 30, 2007 as compared to the same period in 2006. In the nine-month period ended November 30, 2007, gas sales volumes decreased 24 mcf (0.3%), and average gas prices increased $0.28 (4.4%), resulting in an increase in gas revenues over the period of $2,158 (4.2%) as compared to the same period in 2006.

Gravel. The Company did not generate any gravel revenues for the three or nine-month periods ended November 30, 2006 and 2007. In the fiscal year ended February 28, 2006, Four Corners Materials (“FCM”) reclaimed its gravel mining operation located on the Colorado Property and the Colorado Division of Reclamation, Mining, and Safety (“CDRMS”) released a portion of FCM’s financial warranty with regard to the reclamation, but retained approximately $104,000 in financial warranties. CDRMS will retain the remaining financial warranties until it confirms that environmental responses, vegetation and re-growth has stabilized.

Coal. In fiscal 2006, the Company, having 38 disturbed acres under its permit, completed the reclamation of disturbed acres under its coal permit with the exception of approximately 12 acres. The Company maintains a reclamation bond (the “Reclamation Bond”) to cover its liability for returning its disturbed acres to original condition. Annually, the Company files a report with CDRMS to report that requirements under its permit have been fulfilled. As needed, technical revisions are filed by the Company to modify or revise requirements under the permit. In response to a technical revision filed by the Company stating that a portion of the disturbed acres under its permit had been reclaimed to original condition, on November 15, 2007, CDRMS instructed the bonding company who is the holder of the Company’s letter of credit issued for purposes of the Reclamation Bond to decrease the aggregate amount of the Reclamation Bond to $695,435 from $816,526, reducing the Company’s reclamation liability. In addition, in fiscal 2007 the Company submitted a Phase I bond

release to CDRMS requesting a further release of up to 60% of its remaining reclamation liability which would in turn reduce the amount of the Reclamation Bond. A bond release decision is pending.

Expenses

Oil and Gas. The expenses of the Company’s oil and gas operations for the three months ended November 30, 2007 were $246,701 compared to $235,233 for the three months ended November 30, 2006, representing an increase of $11,468 (4.9%). The expenses of the Company’s oil and gas operations for the nine months ended November 30, 2007 were $791,774 compared to $745,372 for the nine months ended November 30, 2006, representing an increase of $46,402 (6.2%).

Depletion and depreciation expense for the three months ended November 30, 2007 was approximately $10,600 compared to approximately $7,300 for the three months ended November 30, 2006, representing an increase of approximately $3,300 (45.1%). Depletion and depreciation expense for the nine months ended November 30, 2007 was approximately $26,900 compared to approximately $18,700 for the nine months ended November 30, 2006, representing an increase of approximately $8,200 (43.6%). These increases were primarily attributable to the Madison County Property.

Lease operating expense was approximately $184,000 and $170,700 for the three months ended November 30, 2007, and 2006, respectively, representing an increase of approximately $13,300 (7.8%). For the nine months ended November 30, 2007 lease operating expense was approximately $622,600 compared to approximately $580,400 for the nine months ended November 30, 2006, representing an increase of approximately $42,200 (7.3%). Production taxes for the three months ended November 30, 2007 were approximately $21,700 compared to approximately $14,000 for the three months ended November 30, 2006, representing an increase of approximately $7,700 (55.4%).

Production taxes for the nine months ended November 30, 2007 were approximately $53,200 compared to approximately $48,400 for the nine months ended November 30, 2006, representing an increase of approximately $4,800 (10.0%). The Company did not incur any exploration expense, dry hole expense or leasehold abandonment charges during any of the three or nine-month periods ended November 30, 2006 or 2007.

Coal and Gravel. The Company’s coal and gravel operating expenses for the three months ended November 30, 2007 were $8,825 compared to $34,748 for the three months ended November 30, 2006, representing a decrease of $25,923 (74.6%). The Company’s coal and gravel operating expenses for the nine months ended November 30, 2007 were approximately $25,747 compared to approximately $75,117 for the nine months ended November 30, 2006, representing a decrease of $49,370 (65.7%). In the three-month 2007 period as compared to the three-month 2006 period there were no legal or engineering expenses and all other expenses decreased. In the nine-month 2007 period as compared to the nine-month 2006 period all categories of expense decreased with the exception of a minimal increase in engineering expense.

Real Estate Development. Real estate development expenses were $29,622 in the three-month period ended November 30, 2007, as compared to $24,438 in the three-month period ended November 30, 2006 representing an increase of $5,184 (21.2%). Real estate development expenses for the nine months ended November 30, 2007 were $75,405 compared to $159,295 in the nine months ended November 30, 2006, representing a decrease of $83,890 (52.7%). Legal expense related to our efforts to sell the Colorado Property was $2,334 and $6,249 in the three and nine-month periods ended November 30, 2007, respectively, as compared to $11,064 and $79,699 in the three-month and nine-month periods ended November 30, 2006, respectively. Engineering expense in the three and nine month periods ended November 30, 2007 were $1,203 and $3,806 as compared to $456 and $47,281 in the 2006 periods, respectively.

General and Administrative. General and administrative expenses for the three months ended November 30, 2007 were $124,777 compared to $136,363 for the three months ended November 30, 2006, representing a decrease of $11,586 (8.5%). General and administrative expenses for the nine months ended November 30, 2007 were $380,399 compared to $426,794 for the nine months ended November 30, 2006, representing a decrease of approximately $46,395 (10.9%). For the three-month period ended November 30, 2007 decreases in employee benefits, payroll, and shareholder reporting more than offset the increases in expenses for the period. In the nine-month period ended November 30, 2007 decreases in employee benefits, letter of credit fees, shareholder reporting and Securities and Exchange Commission reporting more than offset the increases in expenses for the period as compared to the nine-month period ended November 30, 2006. Increases in expenses that were offset by decreases in

both periods included legal, auditing and accountant consultation expenses, as well as the purchase of computers.

Income

Other Income. Other income for the three-month period ended November 30, 2007 was $36,966 compared to $82,390 for the three months ended November 30, 2006, representing a decrease of $45,424 (55.3%). Other income for the nine months ended November 30, 2007 was $132,858 compared to $218,527 for the nine-month period ended November 30, 2006, representing a decrease of $85,669 (39.2%). Essentially, the decreases in both the three and nine-month periods ended November 30, 2007 were due to the sale of a portion of the Company’s coal mining equipment and an electrical easement on the Colorado Property in the comparable 2006 periods with no such sales in the comparable 2007 periods.

Interest and Dividend Income. Interest and dividend income for the three and nine months ended November 30, 2007, compared to the three and nine months ended November 30, 2006, changed minimally as interest and dividend income decreased approximately $4,100 (10.1%) and approximately $7,900 (6.5%) in the three and nine-month periods ended November 30, 2007, respectively, due to a reduction in products or funds in the investment account values.

Stock Repurchases. The Company purchased 2,675 shares of its stock during the three-month period ended November 30, 2007. 1,925 of those shares were purchased from a related party. No other shares were purchased in the 2007 period.

Financial Condition and Liquidity

During the nine months ended November 30, 2007, the Company’s investing and financing activities were net users of funds. However, the Company’s net cash and cash equivalents increased $73,287 as a result of cash flow from operating activities. The Company’s investing activities used $40,815 during the nine months ended November 30, 2007 primarily due to additions to oil and gas properties. The Company’s financing activities used $18,056 during the nine months ended November 30, 2007. The financing use was comprised entirely of purchases of the Company’s common stock. At November 30, 2007, the Company had no indebtedness, and cash and cash equivalents totaled $2,484,114. The Company did not participate in any exploratory

or development drilling during the nine-month period ended November 30, 2007. The Company expects to fund its operations and any purchases of the Company’s stock it makes during the remainder of fiscal 2008 from its cash and cash equivalents and any cash flow from its operations.

Recent Developments

On October 18, 2006, the Company entered into a contract with First City Realty Development Corp (“FCRDC”), owned by Delbert Lawrence Day, Jr., (“Day”) to purchase the Colorado Property. FCRDC failed to pay earnest money deposits in the amount of $2,000,000 and defaulted on the contract following the death of Day. The Company has since petitioned Arapahoe County Court (the “Court”) in the State of Colorado for payment of the earnest money deposit as a result of the default. The Court has approved the petition, and the petition has been approved by the Day estate’s personal representative to the extent that funds of the estate are available for payment. The Company is currently waiting for the Court’s decision regarding whether the inventory of the estate assets allow for payment of the Company’s claim. We are unable to give any assurance that the Company will be able to collect the funds pursuant to the claim.

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 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 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.

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: Effective March 1, 2003, the Company adopted 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.

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 thirdary 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 development. In addition, these forward-looking statements may be affected by general domestic and international economic and political conditions.

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 Securities and Exchange 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 has concluded that our disclosure controls and procedures were effective as required by Exchange Act Rules 13a-15 and 15d-15 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.

Part II — Other Information

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors set forth in our Annual Report on Form 10-KSB for the year ended February 28, 2007.

ITEM 6. EXHIBITS

(31)	Rule 13a-14(a)/Rule 15d-14(a) Certification of Sandra Pautsky, Principal Executive Officer and acting Principal Financial Officer of the Company, filed herewith.

(32)	Section 1350 Certification — Certification of Sandra Pautsky, Principal Executive Officer and acting 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 14, 2008	By	/s/ Sandra Pautsky
		Sandra Pautsky, President and
		Principal Executive Officer

Oakridge Energy (OAKR) Inactive 10QSB2008 Q3 Quarterly report (small business)