Quarterly report pursuant to Section 13 or 15(d)

CRUDE OIL AND NATURAL GAS PROPERTIES

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CRUDE OIL AND NATURAL GAS PROPERTIES
6 Months Ended
Jun. 30, 2014
CRUDE OIL AND NATURAL GAS PROPERTIES [Abstract]  
CRUDE OIL AND NATURAL GAS PROPERTIES
NOTE 3     CRUDE OIL AND NATURAL GAS PROPERTIES

The value of the Company’s crude oil and natural gas properties consists of all acquisition costs (including cash expenditures and the value of stock consideration), drilling costs and other associated capitalized costs.  Acquisitions are accounted for as purchases and, accordingly, the results of operations are included in the accompanying statements of comprehensive income (loss) from the closing date of the acquisition.  Purchase prices are allocated to acquired assets based on their estimated fair value at the time of the acquisition.  In the past, acquisitions have been funded with internal cash flow, bank borrowings and the issuance of debt and equity securities.  Development capital expenditures and purchases of properties that were in accounts payable and not yet paid in cash at June 30, 2014 and December 31, 2013 were approximately $205.0 million and $163.0 million, respectively.

Acquisitions

For the six months ended June 30, 2014, the Company acquired approximately 11,681 net acres, for an average cost of approximately $1,671 per net acre, in its key prospect areas in the form of effective leases.  During the same period, the Company separately acquired working interests in 74 gross (6.2 net) wells in undrilled locations in which it does not hold the underlying leasehold interests, for a total cost of approximately $6.6 million.

For the six months ended June 30, 2013, the Company acquired approximately 10,497 net acres, for an average cost of approximately $1,075 per net acre, in its key prospect areas in the form of effective leases.

Unproved Properties

Unproved properties not being amortized comprise approximately 59,500 net acres and 60,600 net acres of undeveloped leasehold interests at June 30, 2014 and December 31, 2013, respectively.  The Company believes that the majority of its unproved costs will become subject to depletion within the next five years by proving up reserves relating to the acreage through exploration and development activities, by impairing the acreage that will expire before the Company can explore or develop it further or by determining that further exploration and development activity will not occur.  The timing by which all other properties will become subject to depletion will be dependent upon the timing of future drilling activities and delineation of its reserves.

All properties that are not classified as proved properties are considered unproved properties and, thus, the costs associated with such properties are not subject to depletion.  Once a property is classified as proved, all associated acreage and drilling costs are subject to depletion.

The Company historically has acquired its properties by purchasing individual or small groups of leases directly from mineral owners or from landmen or lease brokers, which leases historically have not been subject to specified drilling projects, and by purchasing lease packages in identified project areas controlled by specific operators.  The Company generally participates in drilling activities on a heads up basis by electing whether to participate in each well on a well-by-well basis at the time wells are proposed for drilling.