6. ASSET RETIREMENT OBLIGATION
ASC 410-20, Asset Retirement and Environmental Obligations, requires that an asset retirement obligation ("ARO") associated with the retirement of a tangible long-lived asset 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 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 Company's 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 using the units of production method. Should either the estimated life or the estimated abandonment costs of a property change materially upon the Company's quarterly review, a new calculation is performed using the same methodology of taking the abandonment cost and inflating it forward to its abandonment date and then discounting it back to the present using the Company's credit-adjusted-risk-free rate. The carrying value of the asset retirement obligation is adjusted to the newly calculated value, with a corresponding offsetting adjustment to the asset retirement cost related to oil property accounts.
The following table reflects the changes in the ARO during years ended September 30, 2013 and 2012:
|
| Year Ended |
| |||||
|
| 2013 |
|
| 2012 |
| ||
| Asset retirement obligation - beginning of year | $ | 500 |
|
| $ | - |
|
| Current year revision to previous estimates |
| (155 | ) |
|
| - |
|
| Asset retirement obligation on properties drilled or acquired |
| 20,969 |
|
|
| 500 |
|
| Current year accretion |
| 330 |
|
|
| - |
|
| Asset retirement obligation - end of year | $ | 21,644 |
|
| $ | 500 |
|