BASIS OF PRESENTATION (Policies) | 12 Months Ended |
Sep. 30, 2013 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
Description of Business | ' |
Description of Business |
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Daleco Resources Corporation (“DRC”) is a Nevada corporation (organized in Nevada during 2002). DRC’s Articles provide for, among other things, authorized capital stock of 150 million shares of common stock and 20 million shares of preferred stock. During June 2013, DRC’s authorized shares of common stock were increased to 150 million shares from 100 million shares. DRC and its consolidated subsidiaries are referred to as the “Company”. The Company's segments consist of two separate categories: oil and natural gas and non-metallic minerals. DRC is a holding company whose subsidiaries are engaged in: (i) the exploration, development and production of oil and gas; (ii) the exploration for naturally occurring minerals; (iii) the marketing and sales of such minerals; and (iv) the marketing and sales of products utilizing such minerals. DRC’s wholly-owned subsidiaries include Westlands Resources Corporation (“WRC”), Deven Resources, Inc. (“DRI”), DRI Operating Company, Inc. (“DRIOP”), Tri-Coastal Energy, Inc. (“TCEI”), Clean Age Minerals, Inc. (“CAMI”), CA Properties, Inc. (“CAPI”), International Aggregation and Trading Company, LLC (IATC”), Sustainable Forest Industries, Inc. (“SFI”) and The Natural Resources Exchange, Inc. (“NREX”). |
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IATC, TCEI, SFI and NREX are inactive. |
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All of the Company’s oil and gas properties are located onshore within the continental United States of America. The Company, through its wholly-owned subsidiaries, WRC, DRIOP and DRI, owns and operates oil and gas properties located in Pennsylvania, Texas and West Virginia. The Company owns overriding royalty interests in (i) two wells in Pennsylvania and (ii) one well in Texas. The Company does not own working interests in the two wells located in Pennsylvania that it operates. |
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The Company does not refine any crude oil or market, at retail, any oil or petroleum products. The Company does not own any drilling rigs. All of its drilling activities are performed by independent drilling contractors. |
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DRI is the managing general partner of Deerlick Royalty Partners I, a Pennsylvania general partnership, which owns overriding royalty interests in seventy wells in the Deerlick Coalbed Methane Field located in Tuscaloosa County, Alabama. DRI is also the sole shareholder of DRIOP which operates wells and has oil and gas interests in West Virginia and Pennsylvania. |
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As of September 30, 2013, the Company owned working interests in 28 wells in Texas and West Virginia. Throughout 2013, the Company has experienced an average increase of 3% in the unit of production weighted average sales price it received for its oil and natural gas products as compared to 2012. |
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CAMI, through its wholly-owned subsidiary, CAPI (collectively “CAM”), owns a fee title interest, leasehold interest and Federal Placer and Lode mining claims containing non-metallic and other minerals in Texas, New Mexico and Utah. CAM is presently engaged in the exploration for such minerals. CAM intends to mine the minerals through the use of contract miners and arrangements with its joint venture partner. |
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The Company is primarily engaged in oil and gas operations and non-metallic minerals activities. |
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We follow accounting standards set by the Financial Accounting Standard Board, commonly referred to as “FASB”. The FASB sets generally accepted accounting principles (“GAAP”) that we follow to ensure we consistently report our consolidated financial position, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification, sometimes referred to as the “Codification” or “ASC”. From time to time, the FASB may issue an Accounting Standards Update (“ASU”) which may impact the consolidated financial statements and disclosures therein (see “Recent Accounting Pronouncements”). |
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Use of Estimates | ' |
Use of Estimates |
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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. |
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Significant estimates made in preparing these consolidated financial statements include, among other things, estimates of the proved oil and natural gas reserve volumes used in calculating depletion, depreciation and amortization expense (“DD&A”); the estimated future cash flows and fair value of properties used in determining the need for any impairment write-down; volumes and prices for revenues accrued; estimates of the fair value of equity-based compensation awards; deferred tax valuation and the timing and amount of future abandonment costs used in calculating asset retirement obligations. Future changes in the assumptions used could have a significant impact on reported results in future periods. The significant estimates are based on current assumptions that may be materially affected by changes to future economic conditions such as the market prices received for sales of volumes of oil and natural gas, interest rates and our ability to generate future income. |
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Basis of Consolidation | ' |
Basis of Consolidation |
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The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of DRC and its wholly-owned subsidiaries. The Company’s investments in oil and gas leases are accounted for using proportionate consolidation whereby the Company’s pro rata share of each of the assets, liabilities, revenues and expenses of the investments are aggregated with those of the Company in its consolidated financial statements. The Company’s investments in minerals are accounted for using purchase accounting methods. |
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Certain reclassifications have been made to prior period consolidated financial statements to conform to the current presentation. |
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Cash and Cash Equivalents; Restricted Cash Deposits | ' |
Cash and Restricted Cash Deposits |
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Cash totals $140,607 and $190,738 at September 30, 2013 and 2012, respectively. |
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Restricted cash deposits - operations totaling $109,681 and $109,609 at September 30, 2013 and 2012, respectively, are classified as other assets in the accompanying balance sheets as they support financial assurance requirements for the Company’s operations of its mineral properties and its oil and gas properties in certain states as follows: |
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| 2013 | | 2012 | | |
Texas and West Virginia oil and gas operations bonding requirements | $ | 60,012 | | $ | 60,010 | | |
New Mexico minerals operations bonding requirements | $ | 49,669 | | $ | 49,599 | | |
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Restricted cash deposits – equity issuances total $693,808 as of September 30, 2013 as discussed in Note 1. |
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Accounts Receivable | ' |
Accounts Receivable |
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Our trade accounts receivable, which are primarily from oil and natural gas sales and joint interest billings, are recorded at the invoiced amount and include production receivables. The production receivables are valued at the invoiced amounts and do not bear interest. Accounts receivable also include joint interest billing receivables which represent billings to the non-operators associated with the drilling and operation of wells and are based on those owners’ working interests in the wells. We have assessed the financial strength of our customers and joint owners and determined that an allowance of $25,000 for estimated uncollectible amounts was necessary at September 30, 2013 and 2012. |
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Subscriptions Receivable and Interest Receivable | ' |
Subscriptions Receivable and Interest Receivable |
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As of September 30, 2013, management of the Company believes that the collection of the principal balance of and interest due pursuant to a certain note receivable is in doubt (see Note 11). As of September 30, 2012, the Company changed to the recovery method in accounting for the notes receivable and interest thereon. Accordingly, the principal and interest will be recorded when, and if, collected. This change to the recovery method resulted in the recognition of $207,025 as an impairment of the interest receivable at September 30, 2012. The principal balance of the notes receivable ($576,000) was previously reflected as subscriptions receivable. Additional paid-in capital was reduced by $576,000 as of September 30, 2012, to reflect the impairment of the notes receivable. |
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Inventory | ' |
Inventory |
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At September 30, 2013, we have $40,500 of inventory relating to our minerals activities. During September 2013, the company produced saleable minerals from its zeolite mineral deposit in Texas and shipped the material to a processing and fulfillment facility in Pennsylvania. Such inventory is recorded at the lower of average cost or market. Sales of the processed and unprocessed product to identified customers commenced in October 2013. We had no inventory at September 30, 2012, relating to our minerals activities. |
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We have no inventory at September 30, 2013 or 2012 relating to our oil and gas activities. |
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Prepaid Consulting Services Agreements Fees | ' |
Prepaid Consulting Services Agreements Fees |
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Consulting Services Agreement |
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The Company issued 2,400,000 shares in connection with the Consulting Services Agreement with the Musser Group during 2011 which has been extended to February 2014. The shares of common stock issued to individuals associated with the Musser Group were valued at $360,000, the market price at time of issuance ($0.15 per share). Also, the Company issued to individuals associated with the Musser Group warrants for the purchase of 2,500,000 shares of Common Stock at an exercise price of $0.15 per share. The warrants may not be exercised unless and until the average bid and asking closing price of the Company’s Common Stock exceeds $1.00 per share for a period of thirty consecutive trading days. The warrants are exercisable through February 24, 2016. The fair value of the warrants was determined to be $375,153 using the Black-Scholes valuation model and the following assumptions: a contractual term of 5 years, risk free interest rate of 2.16%, dividend yields of 0%, and volatility of 163%. The Company filed a registration statement under the Securities Act of 1933 on Form S-8 for the shares of Common Stock issued to individuals associated with the Musser Group. The total fair value of the shares of Common Stock and the warrants issued individuals associated with to the Musser Group amounted to $735,153 and such amount was recorded as prepaid consulting fees. |
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Investor Relations Firm Consulting Agreement |
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In March 2013, the Company engaged an investor relations firm (“IR Firm”) to assist management in such activities for one year. The Company issued 600,000 shares (valued at $0.11 per share) of Common Stock to the IR Firm and such contract requires monthly payments of cash of $5,000 during the term of the agreement. The Company is amortizing the prepaid consulting fees of $66,000, the value of the shares, over the term of the contract with the IR Firm and unamortized consulting fees total $30,559 at September 30, 2013. |
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The prepaid consulting fees are being amortized over the lives (initial terms) of the respective agreements. At September 30, 2013 and 2012, prepaid consulting services agreement fees totaled $30,559 and $151,237, respectively, and was classified as a current asset. Amortization of $186,678 and $366,575, respectively, is included in general and administrative expenses during 2013 and 2012. |
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Intangible Assets | ' |
Intangible Assets |
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The Company follows FASB issued authoritative guidance for recording intangible assets, including prepaid mineral royalties, which discontinues the amortization of identifiable intangible assets that have indefinite lives. In accordance with FASB issued authoritative guidance, these identifiable intangible assets that have indefinite lives are tested for impairment on an annual basis, or whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. Should we determine that such carrying amounts are greater than the estimated future benefit of the expected production from the mineral properties, we consider the asset to be impaired. The impairment to be recognized is measured by the amount that the carrying amount of an asset group exceeds the fair value of such asset group. |
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Prepaid Mineral Royalties | ' |
Prepaid Mineral Royalties |
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The Company receives a credit in the nature of prepaid mineral royalties for advance royalties paid on the Texas zeolite lease located in Presidio County, Texas. At September 30, 2013 and 2012, recoupable mineral royalties were $539,237 and $509,254, respectively. At September 30, 2012, such amount of prepaid mineral royalties is classified as an Other Asset in the accompanying Consolidated Balance Sheets. No portion was classified as a current asset as the Company’s agreements concerning sales of such mineral do not have any minimum supply requirements (as discussed in Note 8). As part of our annual impairment test as of September 30, 2013, and in connection with the Company entering the production phase of its Texas Zeolite minerals in the fourth quarter of fiscal 2013, we assessed the estimated future benefit of the royalty advances paid. This assessment was based on the expected production from the mineral properties. Although we are optimistic about the future cash flow of our mineral properties, the future results from our sales efforts and market growth cannot be assured. Based upon this information, we have determined that we are uncertain when we will be able to realize the prepaid mineral royalties at September 30, 2013, and that these assets may not be recoverable through future operations; therefore, we recognized an impairment expense of $539,237 in 2013. |
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Patent Rights and Patent License Rights | ' |
Patent Rights and Patent License Rights |
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At September 30, 2013, the intangible assets consisted of patent rights of $6,620. The patent rights will be amortized over the life of such patents commencing in fiscal 2014. |
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The patent license rights were amortized over the initial term of the agreement. Such initial term expired in 2013. See Note 5. |
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Mineral Properties and Reserves | ' |
Mineral Properties and Reserves |
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The Company has not produced large-scale quantities of any of its mineral deposits. During September 2013, the company produced saleable minerals from its zeolite mineral deposit in Texas (“Texas Zeolite”). The Company is in the production phase of its Texas Zeolite as saleable minerals have been extracted (produced) from such mineral deposit. By definition, the Company is in the Development Stage in respect to its Texas Zeolite and is in the Exploration Stage in respect to its Sierra Kaolin mineral holdings in New Mexico (“Sierra Kaolin”) and its zeolite mineral holdings in Utah (“Utah Zeolite”). As such, no proved reserves are estimated. At September 30, 2013 and 2012, net mineral properties were $9,782,128. The Company previously amortized its mineral properties at a nominal amortization rate as the Company has not produced commercial quantities of any of its mineral deposits. Once the Company produces commercial quantities of any of its mineral deposits, we will use the unit-of-production method in calculating cost depletion. |
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We recorded the acquisition of Clean Age Minerals, Inc., and associated minerals rights on September 19, 2000, at cost as based on the stated value of the Series B Preferred Stock issued which was less than the appraised value of the entity acquired. |
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Oil and Natural Gas Property - Depreciation, Depletion and Amortization (bDD&Ab) | ' |
Oil and Natural Gas Property - Depreciation, Depletion and Amortization (“DD&A”) |
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We account for natural gas and oil exploration and production activities under the successful efforts method of accounting. Proved developed natural gas and oil property acquisition costs are capitalized when incurred. Unproved properties with individually significant acquisition costs are assessed periodically on a property-by- property basis, and any impairment in value is recognized. If the unproved properties are determined to be productive, the appropriate related costs are transferred to proved natural gas and oil properties. Natural gas and oil exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether they have discovered proved commercial reserves. If proved commercial reserves are not discovered, such drilling costs are expensed. Costs to develop proved reserves, including the costs of all development well and related equipment used in the production of natural gas and oil, are capitalized. |
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DD&A is calculated using the unit-of-production method on estimated proved oil and gas reserves at the field, lease, unit or well level. In arriving at rates under the unit-of-production method, the quantities of recoverable oil and natural gas are established based on estimates made by our independent engineers. We periodically review estimated proved reserve estimates and make changes as needed to DD&A expenses to account for new wells drilled, acquisitions, divestitures and other events which may have caused significant changes in our estimated proved developed producing reserves. The costs of unproved properties are withheld from the depletion base until such time as they are either developed or abandoned. When proved reserves are assigned, the cost of the property is added to costs subject to depletion calculations. Non-producing properties consist of undeveloped leasehold costs and costs associated with the purchase of certain proved undeveloped reserves. Undeveloped leasehold cost is allocated to the associated producing properties as the undeveloped acreage is developed. Individually significant non-producing properties are periodically assessed for impairment of value. Service properties, equipment and other assets are depreciated using the straight-line method over their estimated useful lives of three to 30 years. |
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When circumstances indicate that an asset may be impaired, we compare expected undiscounted future cash flows at a producing field to the unamortized capitalized cost of the asset. If the future undiscounted cash flows, based on our estimate of future natural gas and oil prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is calculated by discounting the future cash flows at an appropriate risk-adjusted discount rate. When evaluating our unproved oil and gas properties, we utilize active market prices for similar acreage to use as a comparison tool against the carrying value of our properties. If the active market prices for similar acreage do not support our carrying values we then utilize estimates of future value that will be created from the future development of these properties. If future estimated fair value of these properties is lower than the capitalized cost, the capitalized cost is reduced to the estimated future fair value. |
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Expenditures for repairs and maintenance to sustain production from the existing producing reservoirs are charged to expense as incurred. Expenditures to recomplete a current well in a different unproved reservoir are capitalized pending determination that economic reserves have been added. If the recompletion is not successful, the expenditures are charged to expense. |
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Significant tangible equipment added or replaced that extends the useful or productive life of the property is capitalized. Expenditures to construct facilities or increase the productive capacity from existing reservoirs are capitalized. |
Upon the sale or retirement of a proved natural gas or oil property, or an entire interest in unproved leaseholds, the cost and related accumulated DD&A are removed from the property accounts and the resulting gain or loss is recognized. For sales of a partial interest in unproved leaseholds for cash or cash equivalents, sales proceeds are first applied as a reduction of the original cost of the entire interest in the property and any remaining proceeds are recognized as a gain. |
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Natural Gas and Oil Reserve Quantities | ' |
Natural Gas and Oil Reserve Quantities |
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Our estimate of proved reserves is based on the quantities of oil and natural gas that engineering and geological analyses demonstrate, with reasonable certainty, to be recoverable from established reservoirs in the future under current operating and economic parameters. For the years ended September 30, 2013 and 2012, Hall Energy, Inc. (“HEI”) prepared a consolidated reserve and economic evaluation of our proved oil and gas reserves. The preparation of our proved reserve estimates are completed in accordance with our internal control procedures, which include the verification of input data used by HEI, as well as management review and approval. Reserves and their relation to estimated future net cash flows impact our depletion and impairment calculations. As a result, adjustments to depletion and impairment are made concurrently with changes to reserve estimates. Estimates of our crude oil and natural gas reserves, and the projected cash flows derived from these reserve estimates, are prepared by HEI in accordance with guidelines established by the SEC, including the rule revisions designed to modernize the oil and gas company reserves reporting requirements and which we adopted effective September 30, 2010. The independent reserve engineer estimates reserves annually on September 30. This annual estimate results in a new DD&A rate, which we use for the preceding fourth quarter after adjusting for fourth quarter production. |
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Office Equipment, Furniture and Fixtures | ' |
Office Equipment, Furniture and Fixtures |
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Office Equipment, Furniture and Fixtures are recorded at cost and depreciated using the straight-line method over a period of three to seven years. |
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Impairment of Long-Lived Assets | ' |
Impairment of Long-Lived Assets |
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Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. At September 30, 2013 and 2012, we assessed the recovery of our long-lived assets, including our minerals properties and we determined that the carrying amount of each of the asset groups of mineral properties did not exceed the estimated future net cash flows expected to be generated by each respective asset group. |
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Long-Lived Assets to be Disposed Of | ' |
Long-Lived Assets to be Disposed Of |
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Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The oil and gas leasehold rights subject to a purchase and sale agreement dated October 6,, 2013, have no carrying amount in the accompanying Balance Sheets as of September 30, 2013 and 2012. |
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Environmental Remediation | ' |
Environmental Remediation |
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The Company’s policy is to accrue environmental and cleanup related costs of a noncapital nature when it is both probable that a liability has been incurred and when the amount can be reasonably estimated. The Company accrues for certain environmental remediation related activities for which commitments or cleanup plans have been developed or for which costs or minimum costs can be reasonably estimated. It is reasonably possible that, due to uncertainties associated with defining the nature and extent of contamination, application of laws and regulations by regulatory authorities and changes in remediation technology, the ultimate cost of remediation could materially change in the future. Any liability established would not necessarily be the minimum or maximum liability, but based upon the Company’s experience and the advice of its outside consultants; it would most accurately reflect the Company’s liability based on the information currently available. As a general rule, the Company accrues remediation costs for continuing operations on a discounted basis and does not accrue for normal operating and maintenance costs for site monitoring and compliance requirements. It has not been necessary for the Company to record any environmental remediation costs for 2013 and 2012. |
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Capital Leases | ' |
Capital Leases |
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As of September 30, 2013, we had no capital leases. As a lessee, we determine if a lease is a capital lease if it meets one of four of the following criteria: |
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| • | The ownership of the leased property transfers to us by the end of the lease term, or shortly thereafter, in exchange for the payment of a nominal fee. | | | | | |
| • | The lease contains a bargain purchase option. | | | | | |
| • | The lease term is equal to 75% or more of the estimated economic life of the leased property. | | | | | |
| • | The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executor costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90% of the excess of the fair value of the leased property to the lessor at the lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor. | | | | | |
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Asset Retirement Obligation | ' |
Asset Retirement Obligation |
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The Company may have an obligation to retire property, plant, and equipment at the end of their useful fives. The Company performs periodic reviews for any changes in facts and circumstances that might enable it to determine a reasonable estimate of any asset retirement obligation (“ARO”). When an ARO is necessary, the Company estimates the fair value, establishes a liability, and increases the carrying value of the assets by a corresponding amount. |
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An ARO associated with the retirement of a tangible long-lived asset is required to be recognized as a liability in the period in which it is incurred and becomes determinable. Under this method, when liabilities for dismantlement and abandonment costs, excluding salvage values, are initially recorded, the carrying amount of the related assets (mineral, oil and natural gas properties) is increased. The fair value of the ARO asset and liability is measured using expected future cash outflows discounted at the credit-adjusted risk-free interest rate. Accretion of the liability is recognized each period using the interest method of allocation, and the capitalized cost is depleted over the useful life of the related asset. The estimated residual salvage values are taken into account in determining amortization and depreciation rates. |
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Generally, the salvage value of the Company’s producing wells or mining deposits is expected to exceed the cost of site restoration and abandonment. To date, mining and exploration activities of the Company's mineral deposits have been conducted by contract mining companies. As mining activity increases, the Company may accrue site restoration costs as appropriate. |
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As of September 30, 2013 and 2012, the Company has accrued future abandonment costs of $10,000 of costs associated with the potential abandonment and restoration of a mining deposit that was abandoned prior to fiscal 2010. |
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Fair Value Measurements | ' |
Fair Value Measurements |
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The Company’s only financial instruments are cash, short-term trade receivables, payables and debt. The carrying amounts reported in the accompanying consolidated financial statements for cash, short-term trade receivables, payables and debt approximate fair values because of the immediate nature of short-term maturities of these financial instruments. The Company has no long-term or short-term bank debt outstanding at September 30, 2013. |
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Revenue Recognition | ' |
Revenue Recognition |
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Oil and Gas Sales |
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Oil and natural gas revenue is recognized when the oil or natural gas is delivered to or collected by the respective purchaser, a sales agreement exists, collection for amounts billed is reasonably assured and the sales price is fixed or determinable. Title to the produced quantities transfers to the purchaser at the time the purchaser collects or receives the products. In the case of oil sales, title is transferred to the purchaser when the oil leaves the stock tanks and enters the purchaser’s trucks. In the case of gas production, title is transferred when the gas passes through the meter of the purchaser. It is the measurement of the purchaser that determines the amount of oil or gas purchased (although there are provisions for challenging these measurements if the Company believes the measurements are incorrect). Prices for such production are defined in sales contracts and may be based on certain publicly available indices. The purchasers of such production have historically made payment for oil and natural gas purchases within 30-60 days of the end of each production month. The Company periodically reviews the difference between the date of production and the date the Company collects payment for such production to ensure that receivables from those purchasers are collectible. The point of sale for the oil and natural gas production is at its applicable measurement facility; generally, the Company does not incur transportation costs related to our sales of oil and natural gas production. The Company does not currently participate in any gas-balancing arrangements. The Company does not recognize revenue for oil production held in stock tanks before delivery to the purchaser. |
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To the extent actual quantities and values of oil and natural gas are unavailable for a given reporting period because of timing or information not received from third parties, the expected sales volumes and price for those properties are estimated and recorded as Accounts Receivable in the accompanying consolidated financial statements. |
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Well Management Revenue |
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The amounts which may be charged by the Company for well management are set forth in the joint operating agreements governing the wells operated by the Company. Such well management fees consist of monthly operating charges as well as fees related to certain maintenance and capital improvements charged by the Company as operator of the applicable properties. Revenue is recognized when such fees are earned pursuant to the terms of such underlying agreements and collection for amounts billed is reasonably assured. |
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Mineral Sales |
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Mineral sales revenue is recognized when the mineral is delivered to or collected by the respective purchaser, a sales agreement exists, collection for amounts billed is reasonably assured and the sales price is fixed or determinable. Title to the product transfers to the purchaser at the time the purchaser collects or receives the products. |
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Income Taxes | ' |
Income Taxes |
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We provide for income taxes using the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate our tax positions in a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination. The second step is a measurement process whereby a tax position that meets the more-likely-than-not threshold is calculated to determine the amount of benefit to recognize in the financial statements. See Note 10. |
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Stock-based Compensation | ' |
Stock-based Compensation |
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We account for all stock-based compensation (options) in accordance with FASB ASC 718. Under ASC 718, the fair value of stock options and compensation costs are measured as of the grant date. Under ASC 718, stock-based awards granted prior to its adoption will be expensed over the remaining portion of their vesting period. We amortize stock-based compensation expense on a straight-line basis over the requisite vesting period, which generally ranges from one to five years. |
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ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Stock-based compensation expense has been recorded net of estimated forfeitures for 2013 and 2012 such that expense was recorded only for those stock-based awards that are expected to vest. Options granted to non-employees are recognized in these financial statements as compensation expense (See Note 9) using the Black-Scholes option-pricing model. |
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Comprehensive Loss | ' |
Comprehensive Loss |
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Summary of items of comprehensive loss for fiscal 2013 and 2012 are as follows: |
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| | 2013 | | 2012 | |
Net loss (comprehensive loss) | | $ | -2,024,509 | | $ | -772,579 | |
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During March 2012, management of the Company concluded that the securities available for future sale were permanently impaired and accordingly $5,699 was recognized as impairment of securities available for future sale in the accompanying consolidated statement of operations and is reflected in net loss for 2012. See Note 5. |
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Net Income (Loss) Per Share | ' |
Net Income (Loss) Per Share |
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Net income (loss) per share is computed in accordance with FASB ASC Topic 260, "Earnings per Share". Basic net income (loss) per share is calculated by dividing the net income (loss) available to common stockholders by the weighted average number of shares outstanding during the year. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of an entity. In a loss year, dilutive common equivalent shares are excluded from the loss per share calculation as the effect would be antidilutive. |
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At September 30, 2013 and 2012, options and warrants to purchase 26,144,000 and 5,250,000 shares of common stock, respectively, were outstanding. Such shares were not included in the computation of diluted earnings per share because such shares subject to options and warrants would have an antidilutive effect on net loss per share. The 321,429 shares of Common Stock issuable upon the conversion of the 7.25% Convertible Debentures at September 30, 2013 (see Note 6) have not been included in the computation of diluted earnings per share because such shares would have an anti-dilutive effect on net loss per share. The 1,071,937 shares of Common Stock issuable upon the conversion of the Convertible Note Payable as of September 30, 2012 (see Note 6) have not been included in the computation of diluted earnings per share because such shares would have an anti-dilutive effect on net loss per share and because the price at which such shares are convertible was in excess of the market price of the Common Stock at September 30, 2012.The 1,080,000 shares of Common Stock issuable upon the conversion of the Series B 8% Cumulative Convertible Preferred Stock as of September 30, 2012 (see Note 9), have not been included in the computation of diluted earnings per share because the price ($1.25) at which such shares are convertible was in excess of the market price of the Common Stock at such date. No other adjustments were made for purposes of per share calculations. |
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Concentrations of Credit Risk | ' |
Concentrations of Credit Risk |
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At times during the fiscal years ended September 30, 2013 and 2012, the cash balance exceeded the Federal Deposit Insurance Corporation’s limit of $250,000. There were no losses incurred due to such concentrations. |
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During the fiscal years ended September 30, 2013 and 2012, the Company did not use derivative instruments to hedge exposure to changes in commodity prices. |
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The Company also depends on a relatively small number of purchasers for a substantial portion of our revenue. At September 30, 2013, accounts receivable includes approximately $225,399 of joint interest billings and production receivables due primarily from four customers – ETC Texas Pipeline, Ltd., GulfMark Energy, Inc., Sheridan Production Company LLC and Volunteer Energy Services, Inc. |
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Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements |
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In January 2013, the FASB issued ASU 2013-01, Balance Sheet (topic 210) Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities guidance clarifying the scope of disclosures about offsetting assets and liabilities. The guidance limits the scope of balance sheet offsetting disclosures to derivative instruments, including bifurcated embedded derivatives, repurchase agreements and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement of similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Entities are required to provide the new disclosures retrospectively for all comparative periods. The Company is currently assessing the impact that the adoption may have on its financial statements. |
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