BPZ Resources, Inc. - Shareholder.com

investment under the cost method. As such, the Company records its share of cash received or paid attributable to this investment as
other income or expense and amortizes its investment into income over the remaining term of the license agreement which expires in
May 2016.
Use of Estimates
The preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles
(“GAAP” or “U.S. GAAP”) requires management to make certain estimates and assumptions. These estimates and assumptions affect
the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements, and the disclosure of
contingent assets and liabilities. Actual results could differ from these estimates.
Estimates of crude oil reserves are the most significant of the Company’s estimates. All of the reserves data in this Form 10-
K are estimates. Reservoir engineering is a subjective process of estimating underground accumulations of crude oil and natural gas.
There are numerous uncertainties inherent in estimating quantities of proved crude oil and natural gas reserves. The accuracy of any
reserves estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a
result, reserves estimates may be different from the quantities of crude oil and natural gas that are ultimately recovered.
Other items subject to estimates and assumptions include the carrying amounts of property, plant and equipment including
impairment and asset retirement obligation and deferred income tax assets. Management evaluates estimates and assumptions on an
ongoing basis using historical experience and other factors, including the current economic and commodity price environment.
Current credit market conditions combined with volatile commodity prices have resulted in increased uncertainty inherent in such
estimates and assumptions. As future events and their effects cannot be determined accurately, actual results could differ significantly
from these estimates.
Reclassification
Certain reclassifications have been made to the 2009 and 2008 consolidated financial statements to conform to the 2010
presentation. These reclassifications were not material to the accompanying consolidated financial statements.
Revenue Recognition
The Company recognizes revenues when they are realized or realizable and earned. Revenues are considered realized or
realizable and earned when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been
rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured.
The Company sells its production in the Peruvian domestic market on a contract basis. Revenue is recorded net of royalties
when the purchaser takes delivery of the oil. At the end of the period, oil that has been produced but not sold is recorded as inventory
at the lower of cost or market. Cost is determined on a weighted average based on production costs. See Note — 13, “Revenue” for
further information.
Reporting and Functional Currency
The U.S. Dollar is the functional currency for the Company’s operations in both Peru and Ecuador. Ecuador has adopted the
U.S. Dollar as its official currency. Peru, however, uses its local currency, Nuevo Sol, in addition to the U.S. Dollar and therefore its
financial results are subject to foreign currency gains and losses. The Company has adopted Accounting Standard Codification
(“ASC”) Topic 830, “Foreign Currency Matters”, previously Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign
Currency Translation,” which requires that the translation of the applicable foreign currency into U.S. dollars be performed for
balance sheet monetary accounts using current exchange rates in effect at the balance sheet date, non-monetary accounts using
historical exchange rates in effect at the time the transaction occurs, and for revenue and expense accounts using a weighted average
exchange rate during the period reported. Accordingly, the gains or losses resulting from such translation are included in other income
and expense in the consolidated statements of operations. Due to the relatively low level of activity to-date and the relatively steady
exchange rate in Peru, foreign exchange gains and losses for the year ended December 31, 2010, 2009, and 2008 were not material to
the Company’s financial statements.
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