Note 14 - Supplemental Oil and Gas Reserve Information (Unaudited) 

The Company’s oil and gas properties and proved reserves are located in the United States.

Results of operations from oil and gas producing activities

The results of operations from the Company’s oil and gas producing activities for the years ended December 31, 2017 and 2016 are summarized below:

Results of operations for producing activities comprise all activities associated with our exploration for and production of oil and gas. Net revenues from production include only the revenues from the production and sale of oil, natural gas, natural gas liquids, and residue gas. Production costs are those incurred to operate and maintain wells and related equipment and facilities used in oil and gas operations. Income tax expense is calculated by applying the current statutory tax rates to the revenues after deducting costs, which include depreciation, depletion, and amortization allowances, after giving effect to permanent differences. The results of operations exclude general office overhead, and interest expense attributable to oil and gas activities.

Capitalized costs

Capitalized costs and accumulated depletion, depreciation, and amortization relating to the Company’s oil and gas producing activities as of December 31, 2017 and 2016 are summarized below:

Costs incurred in oil and gas property acquisition, exploration, and development activities

The following table summarizes the Company’s costs incurred in property acquisition, exploration and development activities for the year ended December 31, 2017:

Estimated quantities of proved reserves

The supplemental unaudited presentation of proved reserve quantities and related standardized measure of discounted future net cash flows provides estimates only and does not purport to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserves estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, significant changes to these estimates can be expected as future information becomes available. All of the Company’s reserves are located in the United States.

Proved reserves are those estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well. Proved undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure is required to rend them capable of production.

The standardized measure of discounted future net cash flows is computed by applying the average first day of the month price of oil and gas during the 12 month period before the end of the year (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves, less the estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates, with consideration of future tax rates already legislated) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows.

The reserves estimates set forth below were prepared by a third party engineering firm using reserves definitions and pricing requirements prescribed by the SEC. Chapman Petroleum Engineering Ltd. (“Chapman”) prepared our reserves report at January 1, 2018. Chapman is an independent consultant, does not own any interest in the Company’s properties, and is not engaged contingent upon the value of the Company’s properties. Chapman prepared reserves estimates under a discounted cash flow analysis of estimated future net revenue, applying knowledge of concepts including uncertainty and risk, probability and statistics, and deterministic and probabilistic estimation methods in properly using and applying reserves definitions. The data utilized were furnished to Chapman by the Company or obtained from public data sources. Chapman is a professional engineering firm specializing in the technical and financial evaluation of oil and gas assets.

Estimated quantities of oil and natural gas reserves 

The following table sets forth certain data pertaining to changes in reserves quantities of the proved, proved developed, and proved undeveloped reserves for the years ended December 31, 2017 and 2016.

Standardized measure of discounted future net cash flows

As required by the Financial Accounting Standards Board, the standardized measure of discounted future net cash flows is computed by applying first-day-of-the-month average prices, year-end costs and legislated tax rates and a discount factor of 10 percent to net proved reserves. The standardized measure includes costs for future dismantlement, abandonment, and rehabilitation obligations. The Company believes the standardized measure does not provide a reliable estimate of the Company’s expected future cash flows to be obtained from the development and production of its oil and gas properties or of the value of its proved oil and gas reserves. The standardized measure is prepared on the basis of certain prescribed assumptions, which represent discrete points in time and may cause significant variability in cash flows from year to year as prices change.

Changes in standardized measure of discounted future net cash flows

The principal sources of changes in the standardized measure of the future net cash flows for the years ended December 31, 2017 and 2016 are: