GENERAL39208

• Permit No: M1982090
• IBM Index Class Name: General Documents
• Doc Name: ROYAL RESOURCES CORP ANNUAL REPORT 1986
• Annual Report Year: 1986
• Media Type: D
• Archive: No

ROYAL RESOURCES CORPORATION
Notes to ConsollAated Flnanclal Statements
1. Summary of Signiflcant Accounting Pollcles:
The Company:
Royal Resources Corporation (the "Company"") was
incorporated under the laws of the Stare of Delaware on
January 5, 1981 and is engaged in oil and gas exploration,
development and production activities, principally in the
continental United States and Australia. The Company was
originally formed pursuant to acourt-ordered reorganization
vfiereby ft acquired the assets and assumed the liabilities of
certain predecessor corporations and limited partnerships in
exchange for =+,998,515 shares of the Company's common
stock. These assets and liabilities were recorded at the
inception of the Company based upon estimate= of rhea
(air market values, adjusted for estimated tax effects ut
differences between their financial reporting basis and
income tax basis.
Basis of Consolidation:
The consolidated financial statement include the accounts
of the Company and ifs wholly owned subsidiaries. All
significant intercompany transactions and account balances
have been eliminated in consolidation.
Oil and Gas Properties:
The Company follows the full-cost method of accounting.
Under the full-cost method, all costs associated with the
acquisition, exploration and development of oil and gas
properties are capitalized. All such costs are ao~ounted for
in hvo cost centers, the United State; and Australia. The
Company sold substantially all of its Canadian oil and gas
properties during the year ended (one 30, 1985 for $ST3,561
in cash which resulted in a gain of $~+%3,71.4. Depletion,
depreciation and amortization of oil and gas property costs,
excluding unevaluated costs, is computed nn (he unit-u(-
production method based on estimated proved reserves
attributable to the respective cost centers. Unless a
signdicant amount u( reserves is im•oh~ed, proceeds from
the sale or dispnsi6on of proved oil and gas properties are
credited to the cost center. In the event ui the sale of a
significant portion of the resen~es related to a cost center,
gairo ur losses are recognized in operations.
Costs capualized are not in excess of their estimated net
realizable value. During the year, the Company recorded a
write-dosa-n of $18,560,996 to reduce the carrying value of
us United States oil and gas properties to their estimated net
malizahle value as defined by the Security and Exchange
Commission's hill cost accounting rules. The estimated net
realizable value was based on the Company's estimate of
the present value, drscouNed at 10 percent, of future net
revenues from productron of proved ail and gas reserves
using current costs and poses for oil and gas h> be received
by the Company. The Company also lowered its estimate of
hrture production from the Tulare Lake Field and some other
of iK properties. The Company also reduced the value of its
Australian properties by $: 09,-}03 to reflect the Company's
recognition that the decreased world price o(crude has
affected [he carrying value of its Australian properties.
Other Property and Equipment:
Property and equipment other Than oil and gas properties are
stated at cost. The Company depreciates other property and
equipment over their estimated useful lives using the strmght-
line method. The cost of normal maintenance and repairs is
charged to expense as incurred. Significant expenditures
which increase the life of the aset are capitalized and
depreciated over the estimated remaining useful life of
the asset. Upon retirement or disposition of other property
and equipment, related gains or losses are recorded in
operations.
Income Taxes:
Income taxes have been calculated bated on laws currently
in effect. The Company will adjust its accounts for the effect
of the 1986 Tax Reform Act at the time the bill is enacted.
Investment tax credits are reflected as a reduction of
income tax expense in the year such credits are utilized.
Foreign Currency Translation:
Asset and liability accounts related to Australian operations
are translated at the rates of exchange in effect at the end
of the year. Revenues and cost and expense accounts are
translated at average rates of exchange fur the year.
Unrealized gains and losses are reflected as adjushnents
of stockholders' equity and realized gains and losses are
included in results of operations.
Per Share Information:
Per share inforrnatiun is computed by dividing net income by
the weighted average number o(common shares outstanding
for 1986 and common share equivalents outstanding for 1985
and 198~f.
2. Marketable Securities:
Marketable sec unties are earned a1 the lower of aggregate
cost ur market value. They consisted o(commun and
preferred stocks and debt instruments at lone 30, 1985. At
lure 30, 1986, the Company's securities portfolio consists
primarily of a pooled equity fund. The aggregate cost and
market value of marketable securities are as follows as of
lone 3U, 1986 and 1985:
MarFel Carrying UnreoLzed
Cml \'ilue Voluc G, in
198b 5 896A5' S `J002fi9 Gi51 S 3.HU
1485 bl,l U11,955 $1,1h3,5?3 Curl RG:r,568
Net realized gains and losses were nut significant for [he
years ended June 30, 1986, 1985 and 1984.
18