Armada Oil, Inc. | 2013 | FY | 3

NOTE 6 – ASSET RETIREMENT OBLIGATIONS

The following table provides a reconciliation of the changes in the estimated present value of asset retirement obligations for the years ended December 31, 2013 and 2012.

   
For the Year Ended December 31,
 
   
2013
   
2012
 
             
Beginning asset retirement obligations
 
$
3,507,798
   
$
3,450,252
 
Obligations assumed from acquisition (1)
   
65,263
     
—
 
Revaluation of asset retirement obligations (2)
   
(468,519
)
   
—
 
Accretion expense
   
172,927
     
196,903
 
Sale of Young and Archer County properties
   
(99,891
)
   
—
 
Settlement of asset retirement obligations
   
(15,768
)
   
(139,357
)
Ending asset retirement obligations
 
$
3,161,810
   
$
3,507,798
 

 
(1)
ARO of Archer and Young County, Texas, properties acquired in the Acquisition.
 
(2)
ARO of Texas and Louisiana properties

During the year ended December 31, 2013, the State of Louisiana refunded the deposit of $23,448 made by the Company on the Valentine Sugars #10 well which was plugged and abandoned before it was acquired from TNR on July 22, 2011.  As a result, the asset retirement obligation on the well of $15,768 was eliminated.  In addition, the asset retirement obligation for wells in the Keller Prospect in Young County, Texas, was revalued and increased by $30,794 and then retired upon sale of the properties.  The asset retirement obligation for the wells in Parish and Tribune Prospects in Archer County, Texas, was retired upon sale. Gains on sales and settlements of asset retirements obligations during the year ended December 31, 2013 were $3,428. At December 31, 2013, the Company provided $4,628,125 in letters of credit supporting its asset retirement obligations.

During the year ended December 31, 2012, the Company plugged and abandoned two wells, the Southdown 2D and the LLDSB #7, recognizing a loss on settlement of asset retirement obligations of $116,394. During the year ended December 31, 2011, the Company was required to provide letters of credit in the aggregate amount of $4,704,037 from its credit facility with F&M Bank supporting these obligations in addition to a $600,000 deposit placed with the State of Louisiana Department of Natural Resources, Office of Conservation.  During the year ended December 31, 2012, the Company was refunded $30,579 of the deposit in place with the State of Louisiana Department of Natural Resources, Office of Conservation, and its letter of credit requirement by the State of Louisiana was reduced by $100,912 to $4,603,125. However, the Company was required by the Oklahoma Corporation Commission to provide a $25,000 letter of credit in conjunction with our 2012 drilling activity there.  At December 31, 2012, the Company provided $4,628,125 in letters of credit. 

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