Note 3 - Oil and Gas Properties and Equipment

12 Months Ended

Dec. 31, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE 3 — OIL AND GAS PROPERTIES AND EQUIPMENT.

Oil and Gas Properties and equipment consisted of the following:

	December 31, 2014			December 31, 2013
Oil and gas properties, successful efforts method
Unevaluated costs, not yet subject to amortization	$	1,212,701		$	1,325,405
Evaluated costs		1,869,537			1,525,122
Asset retirement costs		39,600			39,600
		3,121,839			2,890,127

Well equipment, furniture and software		183,809			183,809
		3,305,648			3,073,936
Less accumulated depreciation, depletion, impairments and amortization		(1,662,916	)		(1,260,075	)

Oil and gas property and equipment	$	1,642,731		$	1,813,861

Unevaluated Oil Properties

Costs directly associated with the acquisition and evaluation of unproved properties is excluded from the amortization computation. The following table shows, by year incurred, the unevaluated oil and gas property costs (net of transfers to evaluated costs and net of sales proceeds) excluded from the amortization computation:

	Net Costs Incurred
Year Incurred
Year ended December 31, 2014		(112,704	)
Year ended December 31, 2013	$	(67,274	)
Year ended December 31, 2012		842,811
Year ended December 31, 2011		(592,569	)
Year ended December 31, 2010		916,532
Year ended December 31, 2009		225,905
	$	1,212,701

Costs associated with unevaluated properties are primarily lease acquisition costs. At December 31, 2014 and December 31, 2013, we drilled 3 and 3 dry holes respectively and recorded an impairment expense of $37,145 and $120,557, associated with dry holes. Pending costs of $0 and $1,640 for wells-in-progress existed at December 31, 2014 and 2013, respectively. There are no unevaluated costs relating to significant development activities. Reclassification of other unproved property costs to evaluated costs is largely dependent on (i) how quickly we drill on the unevaluated property, (ii) the results of such drilling, (iii) if third-parties pay drilling costs to earn a portion of our interest, and (iv) quarterly assessments of such costs for impairments.

Prospect leasing and acquisition normally require one to three years, and the subsequent evaluation normally requires an additional one to three years.

Acquisitions and sales of oil properties

On January 23, 2013, per a Memorandum of Understanding the Company participated and permitted 25% working interests as the operator in the Betty McCoomas Well #7 at the cost of $18,500 and is responsible for 32% of the all costs associated with the well.

On April 17, 2013 per Memorandum of Understanding the Company sold 27.5% working and royalty interest to two individuals and/or entities in the Millard Willis Well #1 for $22,000 and is responsible for 35% of all the costs associated with the well.

On April 23, 2013, per a Memorandum of Understanding the Company participated and permitted 60% working interests as the operator in the Millard Willis Well #1 at the cost of $18,500 and is responsible for 65% of the all costs associated with the well.

On May 16, 2013 per Memorandum of Understanding the Company sold 27.5% working and royalty interest to two individuals and/or entities in the Millard Willis Well #2 for $22,000 and is responsible for 35% of all the costs associated with the well.

On May 16, 2013, per a Memorandum of Understanding the Company participated and permitted 60% working interests as the operator in the Millard Willis Well #2 at the cost of $18,500 and is responsible for 65% of the all costs associated with the well.

On July 9, 2013 per Memorandum of Understanding the Company sold 37.5% working and royalty interest to two individuals and/or entities in the Millard Willis Well #3 for $30,000 and is responsible for 45% of all the costs associated with the well.

On July 9, 2013, per a Memorandum of Understanding the Company participated and permitted 50% working interests as the operator in the Millard Willis Well #3 at the cost of $18,500 and is responsible for 55% of the all costs associated with the well.

On July 9, 2013 per Memorandum of Understanding the Company sold 37.5% working and royalty interest to two individuals and/or entities in the Millard Willis Well #4 for $30,000 and is responsible for 45% of all the costs associated with the well.

On July 9, 2013, per a Memorandum of Understanding the Company participated and permitted 50% working interests as the operator in the Millard Willis Well #4 at the cost of $18,500 and is responsible for 55% of the all costs associated with the well.

On September 11, 2013, the Company completed the sale to Aquilo Resources, LLC of its 60% working and operating interests in the Millard Willis Well #1 for a cash payment of $229,250, which included a commission payment of $5,000 to Beaver Excavating.

On September 17, 2013, per a Bill of Sale the Company purchased a truck to add to their fleet for approximately $12, 000.

On September 30, 2013 per Memorandum of Understanding the Company sold 37.5% working and royalty interest to two individuals and/or entities in the Millard Willis Well #5 for $30,000 and is responsible for 45% of all the costs associated with the well.

On September 30, 2013, per a Memorandum of Understanding the Company participated and permitted 50% working interests as the operator in the Millard Willis Well #5 at the cost of $18,500 and is responsible for 55% of the all costs associated with the well.

On October 11, 2013 per Memorandum of Understanding the Company sold 37.5% working and royalty interest to two individuals and/or entities in the Millard Willis Well #7 for $30,000 and is responsible for 45% of all the costs associated with the well.

On October 11, 2013, per a Memorandum of Understanding the Company participated and permitted 50% working interests as the operator in the Millard Willis Well #7 at the cost of $18,500 and is responsible for 55% of the all costs associated with the well.

On October 25, 2013, per a Bill of Sale the Company purchased a new truck to add to their fleet for approximately $15, 500.

On December 19, 2013, per a Memorandum of Understanding the Company participated and permitted 43.75% working interests as the operator in the William Johnson Well #1 in Fentress County, Tennessee at the cost of approximately $16,500 and is responsible for 50% of the all costs associated with the well. The Company is responsible for 50% of the costs on this well and Mr. Daniel (Allen) Page is responsible for the remaining 50% of such costs.

On January 4, 2014, per a Memorandum of Understanding the Company participated and permitted 87.5% working interests as the operator in the Todd Anderson Well #4 at the cost of approximately $27,500 and is responsible for 100% of the all costs associated with the well.

On February 16, 2014, per a Memorandum of Understanding the Company participated and permitted 43.75% working interests as the operator in the Gerald Norrad Well #3 at the cost of approximately $15,000. The Company is responsible for 50% of the costs on this well and Mr. Daniel (Allen) Page is responsible for the remaining 50% of such costs.

On March 26, 2014 per Memorandum of Understanding the Company sold 37.5% working and royalty interest to two individuals and/or entities in the Millard Willis Well #8 for approximately $12,000 and is responsible for 45% of all the costs associated with the well.

On March 31, 2014, per a Memorandum of Understanding the Company participated and permitted 43.75% working interests as the operator in the Alvin Parrish Well #1 in Clinton County, Kentucky at the cost of approximately $16,500 and is responsible for 50% of the all costs associated with the well. The Company is responsible for 50% of the costs on this well and Mr. Daniel (Allen) Page is responsible for the remaining 50% of such costs.

On May 9, 2014, per a Memorandum of Understanding the Company participated and permitted 43.75% working interests as the operator in the Lester Clark #1 in Fentress County, Tennessee at the cost of approximately $16,500 and is responsible for 50% of the all costs associated with the well. The Company is responsible for 50% of the costs on this well and Mr. Daniel (Allen) Page is responsible for the remaining 50% of such costs.

On May 29, 2014, per a Memorandum of Understanding the Company participated and permitted 43.75% working interests as the operator in the Alvin Parrish Well #2 in Clinton County, Kentucky at the cost of approximately $16,500 and is responsible for 50% of the all costs associated with the well. The Company is responsible for 50% of the costs on this well and Mr. Daniel (Allen) Page is responsible for the remaining 50% of such costs.

On June 4, 2014, per a Memorandum of Understanding the Company participated and permitted 50% working interests as the operator in the Millard Willis Well #8 at the cost of $18,500 and is responsible for 55% of the all costs associated with the well.

On June 30, 2014 per Memorandum of Understanding the Company sold 37.5% working and royalty interest to two individuals and/or entities in the Millard Willis Well #9 for $35,000 and is responsible for 45% of all the costs associated with the well.

On August 4, 2014, per a Memorandum of Understanding the Company participated and permitted 50% working interests as the operator in the Millard Willis Well #9 at the cost of $18,500 and is responsible for 55% of the all costs associated with the well.

On August 15, 2014, the Company entered into a 50% interest in an 87.5% working interest lease named the Johnny Ringley Lease between the Company and Mr. Daniel (Allen) Page, a related party, for an initial cost to the Company of $1,000. The lease is of approximately 68 acres, located in Cumberland County, Kentucky.

On August 20, 2014, per a Memorandum of Understanding the Company participated in 20% working interests in the Kyle Padgett well #7 at the cost of $4,250 and is responsible for 25% of the all costs associated with the well.

On September 8, 2014, the Company entered into an 87.5% working interest lease named the William Warren II Lease between the Company for an initial cost to the Company of $10. The lease is of approximately 640 acres, located in Overton County, Kentucky.

On September 8, 2014, per a Memorandum of Understanding the Company participated and permitted 43.75% working interests as the operator in the Lester Clark #1 in Fentress County, Tennessee at the cost of approximately $16,500 and is responsible for 50% of the all costs associated with the well. The Company is responsible for 50% of the costs on this well and Mr. Daniel (Allen) Page is responsible for the remaining 50% of such costs.

On September 26, 2014, per a Memorandum of Understanding the Company participated and permitted 43.75% working interests as the operator in the David Wright in Fentress County, Tennessee at the cost of approximately $16,500 and is responsible for 50% of the all costs associated with the well. The Company is responsible for 50% of the costs on this well and Mr. Daniel (Allen) Page is responsible for the remaining 50% of such costs.

On September 30, 2014 per Memorandum of Understanding the Company sold 50% working and royalty interest to four individuals and/or entities in the William Warren II Well #1 for $35,000 and is responsible for 50% of all the costs associated with the well.

On November 18, 2014 per Memorandum of Understanding the Company sold 50% working and royalty interest to four individuals and/or entities in the Billy Walker Well #1 for $35,000 and is responsible for 50% of all the costs associated with the well.

Impairment of Oil Properties

We use the successful efforts-cost accounting method, which requires recognition of an impairment of oil and gas properties when the total capitalized costs (net of related deferred income taxes) exceed a “ceiling” as described in Note 3.

Amortization Rate

Amortization of oil property is calculated quarterly based on the quarter’s production in barrels of oil equivalent (“BOE”) times an amortization rate. The amortization rate is an amortization base divided by the BOE sum of proved reserves at the end of the quarter and production during the quarter. The amortization base consists of (i) the capitalized evaluated oil costs at the end of the quarter before recording any impairment at quarter’s end, plus (ii) estimated future development costs for the proved reserves, less (iii) accumulated amortization at the beginning of the quarter.

- Definition

The entire disclosure for long-lived, physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, accounting policies and methodology, roll forwards, depreciation, depletion and amortization expense, including composite depreciation, accumulated depreciation, depletion and amortization expense, useful lives and method used, income statement disclosures, assets held for sale and public utility disclosures.

+ References+ Details

TN-K ENERGY GROUP INC. 10-K