IMPERIAL PETROLEUM INC - 10-Q filing on 2012-03-21

Sale of Oil and Gas Properties	6 Months Ended
Jan. 31, 2012
Sale of Oil and Gas Properties	13. Sale of Oil and Gas Properties In February 2012, Imperial Petroleum, Inc. closed an Asset Sales Agreement (the “Agreement”) with Eleven Energy Corporation finalizing the sale of the Company’s share, effective January 31, 2012, in the ownership of the Coquille Bay Field located in Plaquemines Parish, Louisiana. Per the terms of the Agreement, the Company received consideration of $100 cash, was relieved of plugging liabilities associated with the wells, and was relieved of the requirement to provide a plugging bond with the State of Louisiana Department of Natural Resources in the amount of $1,400,000. Included in the terms of the Agreement was the sale of 100% of the equity of Hillside Oil and Gas, an Approved Operator which had been operating the Coquille Bay facility as a contract operator for the Company. Prior to the Agreement, Hillside Oil and Gas was owned by Greg Thagard, Chairman of the Company’s Board of Directors. In consideration for the sale of Hillside Oil and Gas, Mr. Thagard received $100. In determining the amount of consideration to accept, the Company reviewed the current operating costs of maintaining the assets and the estimated costs associated with returning the assets to an acceptable, operational status. The monthly cost of maintaining the assets totaled approximately $60,000. An independent third party estimated the costs of restoring the assets to a level necessary to continue production at approximately $750,000 to $1,000.000. The fixed assets of the Coquille Bay Field had a net book value of $4,240,783 and had a related asset retirement obligation of $472,855. Cash proceeds from the sale were $100. During the six months ended January 31, 2012, the Company recognized a loss of $3,767,828 relating to this transaction. As a result of the sale of the Coquille Bay Field, the Company will no longer have any business operations related to traditional oil and gas production. During the six months ended January 31, 2012, the Coquille Bay project produced $133,775 in revenue and had related production costs of $395,981 for a net loss of $262,206. During the year ended July 31, 2011, the Coquille Bay project produced $398,988 in revenue and had related production costs of $1,096,727 for a net loss of $697,739. The oil and gas operations of Coquille Bay were not reported as a discontinued operation on these financial statements because the amounts are not material to the financial statements as a whole.

Sale of Oil and Gas Properties

6 Months Ended

Jan. 31, 2012

13. Sale of Oil and Gas Properties

In February 2012, Imperial Petroleum, Inc. closed an Asset Sales Agreement (the “Agreement”) with Eleven Energy Corporation finalizing the sale of the Company’s share, effective January 31, 2012, in the ownership of the Coquille Bay Field located in Plaquemines Parish, Louisiana. Per the terms of the Agreement, the Company received consideration of $100 cash, was relieved of plugging liabilities associated with the wells, and was relieved of the requirement to provide a plugging bond with the State of Louisiana Department of Natural Resources in the amount of $1,400,000.

Included in the terms of the Agreement was the sale of 100% of the equity of Hillside Oil and Gas, an Approved Operator which had been operating the Coquille Bay facility as a contract operator for the Company. Prior to the Agreement, Hillside Oil and Gas was owned by Greg Thagard, Chairman of the Company’s Board of Directors. In consideration for the sale of Hillside Oil and Gas, Mr. Thagard received $100.

In determining the amount of consideration to accept, the Company reviewed the current operating costs of maintaining the assets and the estimated costs associated with returning the assets to an acceptable, operational status. The monthly cost of maintaining the assets totaled approximately $60,000. An independent third party estimated the costs of restoring the assets to a level necessary to continue production at approximately $750,000 to $1,000.000.

The fixed assets of the Coquille Bay Field had a net book value of $4,240,783 and had a related asset retirement obligation of $472,855. Cash proceeds from the sale were $100. During the six months ended January 31, 2012, the Company recognized a loss of $3,767,828 relating to this transaction.

As a result of the sale of the Coquille Bay Field, the Company will no longer have any business operations related to traditional oil and gas production. During the six months ended January 31, 2012, the Coquille Bay project produced $133,775 in revenue and had related production costs of $395,981 for a net loss of $262,206. During the year ended July 31, 2011, the Coquille Bay project produced $398,988 in revenue and had related production costs of $1,096,727 for a net loss of $697,739. The oil and gas operations of Coquille Bay were not reported as a discontinued operation on these financial statements because the amounts are not material to the financial statements as a whole.