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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

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FORM 10-Q

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(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2013

 

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                    

 

Commission File Number: 01-34525

 

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CAMAC ENERGY INC.

(Exact name of registrant as specified in its charter)

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Delaware	30-0349798
(State or Other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1330 Post Oak Blvd., Suite 2250, Houston, Texas	77056
(Address of principal executive offices)	(Zip Code)

 

(713) 797-2940

(Registrant’s telephone number, including area code)

 

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No   ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

At August 7, 2013 there were 156,864,970 shares of common stock, par value $0.001 per share, outstanding.  

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PART I. FINANCIAL INFORMATION		Page
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012	5
	Consolidated Statements of Operations for the three months ended June 30, 2013 and 2012 (unaudited)	6
	Consolidated Statements of Operations for the six months ended June 30, 2013 and 2012 (unaudited)	7
	Consolidated Statements of Comprehensive Loss for the three months ended June 30, 2013 and 2012 (unaudited)	8
	Consolidated Statements of Comprehensive Loss for the six months ended June 30, 2013 and 2012 (unaudited)	9
	Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited)	10
	Notes to Unaudited Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.	Controls and Procedures	20
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 6.	Exhibits	21
Signatures
Exhibits

      

 

 

 

 

 

 

 

 

       

 

 

 

 

 

 

INDEX OF CERTAIN DEFINED TERMS USED IN THIS REPORT

 

 

Throughout this quarterly report on Form 10-Q, the terms “we,” “us,” “our,” “Company,” and “our Company” refer to CAMAC Energy Inc. (“CAMAC”) and its subsidiaries and affiliates.

 

When used in this report, the terms:

 

●

“Allied” refers to Allied Energy Plc.;

●

“ASU” refers to the FASB Accounting Standards Update;

●

“Block” refers to the asset exploration area under lease;

●

“CEHL” refers to CAMAC Energy Holdings Limited;

●

“CEO” refers to the Chief Executive Officer;

●

“Cost Oil” as stated in the OML 120 and 121 PSC, refers to the amounts recoverable of operating costs and capital costs incurred;

●

“CPL” refers to CAMAC Petroleum Limited;

●

“Exchange Act” refers to the Securities Exchange Act of 1934;

●

“FASB” refers to the Financial Accounting Standards Board;

●

“GNPC” refers to the Gambia National Petroleum Company;

●

“IMPCO” refers to Inner Mongolia Production Company Limited;

●

“Kenya PSCs” refers to four production sharing contracts with the Government of the Republic of Kenya, covering exploration Blocks L1B, L16, L27 and L28;

●

“Leyshon” refers to Leyshon Resources Limited;

●

“NAE” refers to Nigerian Agip Exploration Limited;

●

“OML 120 and 121” refers to two offshore oil mining leases in Nigeria;

●

“Oyo Field” refers to the production field where OML 120 and 121 reside;

●

“PAPL” refers to Pacific Asia Petroleum Limited;

●

“PFO” refers to the Principle Financial Officer;

●

“Profit Oil” as stated in the OML 120 and 121 PSC, refers to the balance available of crude oil proceeds after the allocation of Royalty Oil, Cost Oil and Tax Oil;

●

“Promissory Note” refers to CPL’s Promissory Note with Allied;

●

“PSC” refers to Production Sharing Contract;

●

“Royalty Oil” as stated in the OML 120 and 121 PSC, refers to the portion of the available crude oil proceeds owned by royalty interests;

●

“SEC” refers to the Securities and Exchange Commission;

●

“Tax Oil” as stated in the OML 120 and 121 PSC, refers to the amount of petroleum profit taxes owed on the sale of crude oil;

●

“The Gambia Licenses” refers to two petroleum exploration, development and production licenses with the Republic of The Gambia, for explorations Blocks A2 and A5;

●

“U.S. GAAP” refers to the Generally Accepted Accounting Principles of the United States.

 

 

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

 

 

All statements, other than statements of historical fact, included in this Form 10-Q, including without limitation the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are, or may be deemed to be, forward-looking statements. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements contained in this Form 10-Q.

 

We may from time to time make written or oral forward-looking statements with respect to our long-term objectives or expectations which may be included in our filings with the SEC, reports to stockholders and information provided on our website.

 

The words or phrases “will likely,” “are expected to,” “is anticipated,” “is predicted,” “forecast,” “estimate,” “project,” “plans to continue,” “believes,” or similar expressions identify “forward-looking statements.” Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution you not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We are calling to your attention important factors that could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

 

The following list of important factors may not be all-inclusive, and we specifically decline to undertake an obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Among the factors that could have an impact on our ability to achieve expected operating results and growth plan goals and/or affect the market price of our stock are:

 

●

Limited operating history, operating revenue or earnings history.

●

Ability to raise capital to fund our business plan, including participation in the Oyo Field development and other oil and gas leases we may participate in, on terms and conditions acceptable to the Company.

●

Ability to develop oil and gas reserves.

●

Dependence on key personnel, technical services and contractor support.

●

Fluctuation in quarterly operating results.

●

Possible significant influence over corporate affairs by significant stockholders.

●

Ability to enter into definitive agreements to formalize foreign energy ventures and secure necessary exploitation rights.

●

Ability to successfully integrate and operate acquired or newly formed entities and multiple foreign energy ventures and subsidiaries.

●

Competition from large petroleum and other energy interests.

●

Changes in laws and regulations that affect our operations and the energy industry in general.

●

Risks and uncertainties associated with exploration, development and production of oil and gas, and drilling and production risks.

●

Expropriation and other risks associated with foreign operations.

●

Risks associated with anticipated and ongoing third party pipeline construction and transportation of oil and gas.

●

The lack of availability of oil and gas field goods and services.

●

Environmental risks and changing economic conditions.

 

  

PART I.-FINANCIAL INFORMATION

 

ITEM1. FINANCIAL STATEMENTS

 

CAMAC ENERGY INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share amounts)

 

		June 30, 2013				December 31, 2012
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	1,985			$	3,806
Accounts receivable			5,395				6,103
Other current assets			936				1,013
Total current assets			8,316				10,922
Property, plant and equipment, net:
Oil and gas properties (successful efforts method of accounting), net			186,216				188,630
Property, plant and equipment, other, net			805				456
Total property, plant and equipment, net			187,021				189,086
Other assets			52				11
Noncurrent assets of discontinued operations			-				36
Total Assets		$	195,389			$	200,055
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	14,692			$	15,112
Accrued expenses			5,839				2,770
Total current liabilities			20,531				17,882
Long-term note payable - related party			872				872
Other long-term liabilities			54				55
Total Liabilities			21,457				18,809
Commitments and Contingencies
Equity
Stockholders' equity - CAMAC Energy Inc.
Preferred stock $0.001 par value - 50,000,000 shares authorized, none issued and outstanding			-				-
Common stock $0.001 par value - 300,000,000 shares authorized, 156,864,412 and 156,095,346 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively			157				156
Paid-in capital			463,689				462,801
Accumulated deficit			(290,138	)			(281,929	)
Accumulated other comprehensive income			224				224
Total stockholders' equity - CAMAC Energy Inc.			173,932				181,252
Noncontrolling interests of discontinued operations			-				(6	)
Total Equity			173,932				181,246
Total Liabilities and Equity		$	195,389			$	200,055

 

 See accompanying notes to unaudited consolidated financial statements.

 

 

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for share and per share amounts)

 

 

 

		Three Months Ended June 30,
		2013				2012
		(Unaudited)
Continuing Operations
Crude oil sales, net of royalties		$	1,941			$	-
Operating costs and expenses:
Lease operating expenses and production costs			(109	)			1
Exploratory expenses			1,899				603
Depreciation, depletion and amortization			1,174				31
General and administrative expenses			3,402				2,861
Total operating costs and expenses			6,366				3,496
Operating loss			(4,425	)			(3,496	)
Other expense, net			6				29
Loss from continuing operations before income taxes			(4,431	)			(3,525	)
Income tax expense			-				-
Net loss from continuing operations			(4,431	)			(3,525	)
Discontinued Operations
Net loss from discontinued operations, net of tax			-				(451	)
Net loss			(4,431	)			(3,976	)
Net loss attributable to noncontrolling interests - discontinued operations			-				1
Net loss attributable to CAMAC Energy Inc.		$	(4,431	)		$	(3,975	)
Net loss per common share attributable to CAMAC Energy Inc. - basic:
Continuing operations		$	(0.03	)		$	(0.02	)
Discontinued operations		$	-			$	-
Total		$	(0.03	)		$	(0.03	)
Net loss per common share attributable to CAMAC Energy Inc. - diluted:
Continuing operations		$	(0.03	)		$	(0.02	)
Discontinued operations		$	-			$	-
Total		$	(0.03	)		$	(0.03	)
Weighted average common shares outstanding:
Basic			156,151				155,605
Diluted			156,151				155,605

 

See accompanying notes to unaudited consolidated financial statements.

 

 

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for share and per share amounts)

 

		Six Months Ended June 30,
		2013				2012
		(Unaudited)
Continuing Operations
Crude oil sales, net of royalties		$	4,393			$	5,672
Operating costs and expenses:
Lease operating expenses and production costs			(173	)			179
Exploratory expenses			3,097				1,156
Depreciation, depletion and amortization			2,554				3,355
General and administrative expenses			7,114				5,357
Total operating costs and expenses			12,592				10,047
Operating loss			(8,199	)			(4,375	)
Other expense, net			10				60
Loss from continuing operations before income taxes			(8,209	)			(4,435	)
Income tax expense			-				-
Net loss from continuing operations			(8,209	)			(4,435	)
Discontinued Operations
Net loss from discontinued operations, net of tax			-				(844	)
Net loss			(8,209	)			(5,279	)
Net loss attributable to noncontrolling interests - discontinued operations			-				8
Net loss attributable to CAMAC Energy Inc.		$	(8,209	)		$	(5,271	)
Net loss per common share attributable to CAMAC Energy Inc. - basic:
Continuing operations		$	(0.05	)		$	(0.03	)
Discontinued operations		$	-			$	-
Total		$	(0.05	)		$	(0.03	)
Net loss per common share attributable to CAMAC Energy Inc. - diluted:
Continuing operations		$	(0.05	)		$	(0.03	)
Discontinued operations		$	-			$	-
Total		$	(0.05	)		$	(0.03	)
Weighted average common shares outstanding:
Basic			156,188				155,593
Diluted			156,188				155,593

  

See accompanying notes to unaudited consolidated financial statements.

 

 

 

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except for share and per share amounts)

 

		Three Months Ended June 30,
		2013				2012
		(Unaudited)
Net loss		$	(4,431	)		$	(3,976	)
Other comprehensive loss:
Unrealized loss on investments, net of tax			-				(51	)
Total other comprehensive loss			-				(51	)
Comprehensive loss			(4,431	)			(4,027	)
Comprehensive loss attributable to noncontrolling interests - discontinued operations			-				1
Comprehensive loss attributable to CAMAC Energy Inc.		$	(4,431	)		$	(4,026	)

 

See accompanying notes to unaudited consolidated financial statements.

 

 

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except for share and per share amounts)

 

 

 

 

		Six Months Ended June 30,
		2013				2012
		(Unaudited)
Net loss		$	(8,209	)		$	(5,279	)
Other comprehensive loss:
Unrealized gain on investments, net of tax			-				147
Total other comprehensive loss			-				147
Comprehensive loss			(8,209	)			(5,132	)
Comprehensive loss attributable to noncontrolling interests - discontinued operations			-				8
Comprehensive loss attributable to CAMAC Energy Inc.		$	(8,209	)		$	(5,124	)

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

		Six Months Ended June 30,
		2013				2012
Operating activities		(Unaudited)
Net loss		$	(8,209	)		$	(5,279	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation, depletion and amortization			2,554				3,362
Stock-based compensation			889				37
Currency transaction loss			-				21
Dry hole expenses			-				(37	)
Changes in operating assets and liabilities:
Decrease in accounts receivable			708				10,685
Decrease (increase) in other current assets			77				(133	)
Decrease in accounts payable			(420	)			(20,128	)
Increase in accrued expenses			3,069				2,433
Net cash used in operating activities			(1,332	)			(9,039	)
Investing activities
Capital expenditures			(489	)			(3,206	)
Net cash used in investing activities			(489	)			(3,206	)
Financing activities
Proceeds from long-term note payable - related party			-				5,000
Payments to long-term note payable - related party			-				(2,966	)
Proceeds from exercise of warrants and stock options			-				3
Net cash provided by financing activities			-				2,037
Effect of exchange rate on cash and cash equivalents			-				(22	)
Net decrease in cash and cash equivalents			(1,821	)			(10,230	)
Cash and cash equivalents at beginning of period			3,806				13,626
Cash and cash equivalents at end of period		$	1,985			$	3,396
Supplemental disclosure of cash flow information
Cash paid for:
Interest, net		$	9			$	60

 

 See accompanying notes to unaudited consolidated financial statements.

    

 

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Company Description

 

CAMAC Energy Inc. is engaged in the exploration, development, and production of oil and gas outside the United States, directly and through other ventures in which it may participate. Our shares are traded on the NYSE MKT under the symbol “CAK”.

 

The Company’s corporate headquarters is located in Houston, Texas and has offices in Nairobi, Kenya, Banjul, The Gambia and Lagos, Nigeria. The Company’s principal assets include certain rights to interests in OML 120 and 121, which include the currently producing Oyo Field and interests in six exploration blocks in Kenya and The Gambia.

 

2. Basis of Presentation and Recently Issued Accounting Standards

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for the filing of Form 10-Q. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation. Prior interim period data has been reclassified to conform to the current period presentation. These reclassifications have no effect on previously reported results of operations. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for any subsequent quarter or for the year ending December 31, 2013. This Form 10-Q should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

In July 2012, the Company signed a definitive share sale and purchase agreement to divest its interest in the Zijinshan Gas Block in China. This transaction was completed on August 6, 2012. The Company has classified the current and historical results of its China operations, including other inactive operations not involved in this sale, as discontinued operations, net of tax, in the accompanying consolidated statements of operations. See Note 3, Discontinued Operations, for more information regarding the sale. Unless otherwise indicated, the information in these notes to the consolidated financial statements relates to the Company’s continuing operations.

 

Recently Issued Accounting Standards

 

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in ASU 2013-02 to Topic 220, Comprehensive Income, update, supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 and 2011-12. ASU 2013-02 requires either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The new guidance is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted the guidance required as of January 1, 2013, and determined that there were no significant amounts reclassified in the current period that would require enhanced disclosure.

 

In February 2013, the FASB issued ASU 2013-04, Obligations Resulting From Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. The amendments in ASU 2013-04 to Topic 405, Liabilities, provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the update is fixed at the reporting date, except for obligations addressed with existing U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation, as well as other information about those obligations. The amendment is effective retrospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

 

In April 2013 the FASB issued ASU 2013-07, Liquidation Basis of Accounting. The amendments in ASU 2013-07 to Topic 205, Presentation of Financial Statements, clarify when an entity should apply the liquidation basis of accounting and provide principles for the recognition and measurement of associated assets and liabilities. In accordance with the amendments, the liquidation basis is used when liquidation is imminent. Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either: (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties; or (b) a plan for liquidation is being imposed by other forces. The amendments in ASU 2013-07 are effective prospectively for entities that determine liquidation is imminent for reporting periods beginning after December 15, 2013, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In July 2013 the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in ASU 2013-11 to Topic 740, Income Taxes, clarify that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in ASU 2013-11 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. The Company is currently evaluating the possible impact of ASU 2013-11, but does not anticipate that it will have a material impact on the Company’s consolidated financial statements.

 

3. Discontinued Operations

 

In August 2012, the Company divested its wholly owned Hong Kong subsidiary Pacific Asia Petroleum Limited for cash consideration of $2.5 million and 9.6 million fully paid ordinary shares, net of selling expenses, of Leyshon Resources Limited, a natural resources mining company based in Beijing, China. The Leyshon shares had a fair market value of $1.9 million, and have since been sold.

 

PAPL held the Company’s interest in the Zijinshan production sharing contract relating to the Zijinshan Block in the Shanxi Province of China. Since 2008, the Company engaged in exploration activities on this Block in search of coalbed methane and other gas. The Company made a strategic decision to monetize this asset and withdraw from activity in China in order to focus its efforts and capital resources on its core Africa activities.

 

The Company has reclassified all the results of its China operations, including other inactive operations not involved in this sale, to discontinued operations for all periods presented.

 

Results of operations from discontinued operations are as follows:

 

 

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

  

		Three Months Ended June 30, 2012				Six Months Ended June 30, 2012
Costs and expenses:		(In thousands)
Exploratory expenses		$	107			$	176
Depreciation, depletion and amortization			4				7
General and administrative expenses			340				661
Total costs and expenses			451				844
Loss before income taxes			(451	)			(844	)
Income tax expense			-				-
Net loss before noncontrolling interests			(451	)			(844	)
Noncontrolling interests			1				8
Net loss		$	(450	)		$	(836	)

 

Assets and liabilities of discontinued operations are as follows:

 

		December 31, 2012
		(In thousands)
Other assets		$	36
Total assets		$	36

  

 

4.  Property, Plant and Equipment

 

Property, plant and equipment is comprised of the following:

 

		June 30, 2013				December 31, 2012
Oil and gas properties:		(In thousands)
Proved oil and gas properties		$	206,212			$	206,212
Less: Accumulated depreciation, depletion and amortization			(28,236	)			(25,822	)
Proved oil and gas properties, net			177,976				180,390
Unproved oil and gas properties			8,240				8,240
Oil and gas properties, net			186,216				188,630
Property, plant and equipment, other			1,477				989
Less: Accumulated depreciation			(672	)			(533	)
Property, plant and equipment, other, net			805				456
Total property, plant and equipment		$	187,021			$	189,086

  

 

5. Long-Term Note Payable – Related Party

 

In June 2011, CPL, a wholly owned subsidiary of the Company, executed a Promissory Note in favor of Allied. Under the initial terms of the Promissory Note, Allied agreed to make loans to CPL from time to time for purposes of making payments relating to the workover of Oyo well #5 in an aggregate sum of up to $25.0 million. Interest accrues on the outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum. In August 2013, CPL and Allied agreed to amend the Promissory Note to, among other things, allow for borrowings up to an aggregate of $10.0 million for general corporate purposes other than making payments relating to the workover of Oyo well #5. Pursuant to the initial terms of the Promissory Note, the outstanding principal amount of all loans was to mature on June 6, 2013. In August 2012, the Promissory Note was amended to extend the maturity date to October 15, 2013, and in March 2013 the Promissory Note was again amended to extend the maturity date to July 15, 2014.  The Company has guaranteed all of CPL’s obligations under the Promissory Note.   As of June 30, 2013, $0.9 million was outstanding.

 

 

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 

6. Accounts Payable and Accrued Expenses

 

As of June 30, 2013, the Company had approximately $14.7 million of approved and unpaid workover invoices related to Oyo well #5, and $15.1 million as of December 31, 2012.

 

Accrued expenses are as follows:

 

		June 30, 2013				December 31, 2012
		(In thousands)
Accrued professional fees		$	2,568			$	565
Accrued lease related costs			1,083				524
Accrued payroll and benefits			565				397
Accrued workover costs			540				538
Other			1,083				746
Total accrued expenses		$	5,839			$	2,770

 

7.  Equity

 

During the three and six months ended June 30, 2013, the Company issued 640,124 and 769,063, respectively, shares of Common Stock upon the vesting of restricted stock awards. During the six months ended June 30, 2013, the Company granted employees options to purchase a total of 2,487,282 shares of common stock and 834,943 shares of restricted stock awards with vesting periods from 24 months to 36 months.

 

The Company also grants shares of restricted stock to non-employee Directors. During the six months ended June 30, 2013, the Company granted 700,002 shares of restricted stock to non-employee Directors, which vest after a one year period.

 

8. Earnings (Loss) Per Common Share

 

Basic earnings (loss) per common share are computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2013 and 2012 were as follows:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2013				2012				2013				2012
		(In thousands)								(In thousands)
Basic			156,151				155,605				156,188				155,593
Diluted			156,151				155,605				156,188				155,593

     

 

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 

The number of stock options, warrants and restricted stock awards that were excluded from dilutive shares outstanding as these potentially dilutive securities are anti-dilutive because the Company was in a loss position were as follows:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2013				2012				2013				2012
		(In thousands)								(In thousands)
Stock options			-				5				-				9
Nonvested restricted stock awards			771				448				645				388

         

 

9. Financial Instruments and Fair Value Measurements

 

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, trade receivables, deposits, accounts payable, accrued expenses, other long-term liabilities and long-term debt at floating interest rates approximate their fair values at June 30, 2013, principally due to the short-term nature, maturities or nature of interest rates of the above listed items.

 

10. Commitments and Contingencies

 

Commitments

 

The Company has substantial commitments related to its Kenya PSCs and The Gambia Licenses. To maintain compliance and ownership, the Company is and will be required to fulfill minimum work obligations and to make certain payments as stated in each PSC and License.

 

Contingencies 

 

From time to time we may be involved in various legal proceedings and claims in the ordinary course of our business. As of June 30, 2013, and through the filing date of this report, we do not believe the ultimate resolution of such actions or potential actions of which we are currently aware will have a material effect on our consolidated financial position or our results of operations.

 

11. Related Party Transactions

 

The Company entered into a technical services agreement with Allied effective September 1, 2012, whereby the Company agreed to provide services related to the Oyo Field in Nigeria.  Pursuant to the terms of the Technical Service Agreement, Allied agreed to pay the Company $150,000 per month. The amounts earned under the agreement are recorded as a reduction to lease operating expenses and production costs and general and administrative expenses.

 

During 2012, the Company made cash severance payments totaling an aggregate of $169,167 to two former executives pursuant to the terms of separation agreements entered into with each former executive.

 

In June 2011, CPL, a wholly owned subsidiary of the Company, executed a Promissory Note in favor of Allied. Refer to Note 5, Long-Term Note Payable – Related Party, for details relating to the Promissory Note. As of June 30, 2013, $0.9 million was outstanding.

 

 

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 

The Company has transactions in the normal course of business with its shareholders, CEHL and their affiliates. The following tables summarize related party transactions and balances for the respective periods.

 

     

 

 

		June 30, 2013				December 31, 2012
		(In thousands)
CEHL, accounts payable		$	10,373			$	9,783
CEHL, long-term note payable		$	872			$	872
CEHL, accounts receivable		$	520			$	600
CEHL, other long-term liabilities		$	57			$	-

		Three Months Ended June 30,								Six Months Ended June 30,
		2013				2012				2013				2012
		(In thousands)
CEHL, operating expenses		$	(268	)		$	162			$	(576	)		$	292
CEHL, interest on long-term note payable		$	5			$	30			$	9			$	61

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Our Business

 

CAMAC Energy Inc. is engaged in the exploration, development, and production of oil and gas outside the United States, directly and through joint ventures and other ventures in which it may participate.  The Company’s principal assets include certain rights to interests in OML 120 and 121, which include the currently producing Oyo Field and interests in six exploration blocks in Kenya and The Gambia.

 

In August 2012, the Company divested its wholly owned Hong Kong subsidiary Pacific Asia Petroleum Limited for cash consideration of $2.5 million and 9.6 million fully paid ordinary shares, net of selling expenses, of Leyshon Resources Limited, a natural resources mining company based in Beijing, China. The Leyshon shares had a fair market value of $1.9 million, and have since been sold.

 

As a result of the above transaction, the Company is reporting its China operations, including other inactive operations not involved in this sale, for all presented periods in discontinued operations and, as such, the financial statement information provided in this report for continuing operations for the periods ended June 30, 2013 and 2012 are presented in one reportable segment.

 

Nigeria

 

There was one lifting during the three months ended June 30, 2013 totaling approximately 220,000 barrels of crude oil, 18,800 barrels net to the Company’s interests, at an average price of $103.12 per barrel. There was no lifting during the three months ended June 30, 2012. For the three months ended June 30, 2013 and 2012, the Oyo Field had gross crude oil production from two producing wells (wells #5 and #6) averaging 2,329 and 2,786 barrels per day, respectively, of which the Company’s net share, including Cost Oil, were 199 and 461 barrels per day, respectively. For the six months ended June 30, 2013 and 2012, the Oyo Field had gross crude oil production from two producing wells (wells #5 and #6) averaging 2,339 and 2,867 barrels per day, respectively, of which the Company’s net share, including Cost Oil, were 215 and 464 barrels per day, respectively.

 

At June 30, 2013, the Company had remaining liabilities related to the Oyo well #5 workover of approximately $15.2 million which have been charged to expense in prior periods. This amount will be eligible for recovery as future Cost Oil revenue after payment occurs, and the rate of recovery will be affected by future production levels and other field expenditures.

 

In June 2012, NAE completed the sale of its 40% working interest in OML 120 and 121 to Allied, an affiliate of the Company.  Allied has informed the Company of its plans to drill a new well in the Oyo Field, commencing in the third quarter of 2013.  The new well, Oyo #7, will be designed to both increase production levels from the Oyo field and the test prospective resource potential of the deeper Miocene reservoir on the block.

 

The Company entered into a technical services agreement with Allied effective September 1, 2012, whereby the Company agreed to provide services related to the Oyo Field in Nigeria.  Pursuant to the terms of the Agreement, Allied agreed to pay the Company $150,000 per month.  The amounts earned under the agreement are recorded as a reduction to lease operating expenses and production costs and general and administrative expenses.

 

Kenya

 

In May 2012, the Company, through an indirect wholly owned subsidiary, entered into four production sharing contracts with the Government of the Republic of Kenya, covering previously awarded exploration Blocks L1B and L16, and new offshore exploration Blocks L27 and L28. For all Blocks, the Company will be the operator, with the Government having the right to participate up to 20%, either directly or through an appointee, in any area subsequent to declaration of a commercial discovery. The Company is responsible for all exploration expenditures.

 

The Kenya PSCs for Blocks L1B and L16 each provide for an initial exploration period of two years with specified minimum work obligations during that period. Prior to the end of the initial exploration period, the Company will conduct for each Block a gravity and magnetic survey and acquire, process and interpret 2D seismic data. The gravity and magnetic survey on Block L1B was completed in April, 2013. The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the acquisition of 3D seismic data and the drilling of one exploratory well on each Block during each such additional period.

 

 

The Kenya PSCs for Blocks L27 and L28 each provide for an initial exploration period of three years with specified minimum work obligations during that period. Prior to the end of the initial exploration period, the Company will conduct for each Block a regional geological and geophysical study, purchase 2D seismic data and acquire, process and interpret 3D seismic data. The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploratory well on each Block, during each such additional period.

 

In addition to the minimum work obligations, each of the Kenya PSCs requires annual surface rental payments, training fund payments and contributions to local community development projects. All of the Kenya PSCs also include customary provisions including but not limited to governing law, confidentiality, force majeure, arbitration, and abandonment and decommissioning costs. 

 

The Gambia

 

In May 2012, the Company, through an indirect wholly owned subsidiary, signed two Petroleum Exploration, Development & Production Licenses with The Republic of The Gambia, for previously awarded exploration blocks A2 and A5. For both Blocks, the Company will be the operator, with the GNPC having the right to elect to participate up to a 15% interest, following approval of a development and production plan. The Company is responsible for all expenditures prior to such approval even if the GNPC elects to participate.

 

The Gambia Licenses for both Blocks provide for an initial exploration period of four years with specified work obligations during that period. Prior to the end of the initial exploration period, the Company will conduct, for each Block, a regional geological study, acquire, process and interpret 3D seismic data, drill one exploration well to the total depth of 5,000 meters below mean sea level and evaluate drilling results, with the first two work obligations due prior to the end of the second year. The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploration well during each additional period for each Block.

 

In addition to the minimum work obligations, The Gambia Licenses require annual rental payments and training and resource fees. Each of The Gambia Licenses also includes customary provisions including but not limited to governing law, confidentiality, force majeure, arbitration, and abandonment and decommissioning costs. 

 

Results of Operations – Continuing Operations

 

The following discussion pertains to the Company’s results of operations, financial condition, liquidity and capital resources and should be read together with our unaudited consolidated financial statements and notes to unaudited consolidated financial statements as well as our Annual Report on Form 10-K for the year ended December 31, 2012.

 

Three months ended June 30, 2013, compared to the three months ended June 30, 2012:

 

Revenues. Our revenues for the three months ended June 30, 2013 were $1,941,000 as compared to $0 for the three months ended June 30, 2012. During the three months ended June 30, 2013, the Company’s share of cost oil and profit oil was $636,000 and $1,305,000, respectively. The average revenue per barrel on crude oil sold during the three months ended June 30, 2013 was $103.12.

 

Lease operating expenses and production costs. Lease operating expenses consist of personnel costs and contractor charges directly associated with the production of oil. Our lease operating expenses for the three months ended June 30, 2013 decreased $110,000 as compared to the three months ended June 30, 2012. The decrease was primarily due to amounts earned in the current period under the technical services agreement with Allied of $300,000, partially offset by higher salaries and benefits of $126,000.

 

Exploratory expenses. Exploratory expenses consist of salaries and personnel costs related to exploration activities, drilling costs for unsuccessful wells, costs for acquisition of seismic data and lease related costs (surface fees, training and community development expenditures) charged to expense. Our exploratory expenses for the three months ended June 30, 2013 increased $1,296,000 as compared to the three months ended June 30, 2012. The increase was primarily due to current period gravity and magnetic survey expenses in Kenya of $572,000, higher consulting expenses of $475,000 and higher lease related costs in Kenya and The Gambia of $187,000.

 

Depreciation, depletion and amortization.. Depreciation, depletion and amortization expenses consist of depletion of oil reserves and depreciation of leasehold improvements, furniture and fixtures and computer equipment. Our depreciation, depletion and amortization expenses for the three months ended June 30, 2013 increased $1,143,000 as compared to the three months ended June 30, 2012. The increase was primarily due to the lifting in the current period, partially offset by a lower depletion rate in the current period. There was no lifting in the prior period.

 

 

General and administrative expenses. General and administrative expenses consist primarily of salaries and related personnel costs of executive management, finance, accounting, legal and human resources, consulting projects and insurance. Our general and administrative expenses for the three months ended June 30, 2013 increased $541,000 as compared to the three months ended June 30, 2012. The increase was due to higher salaries and benefits of $289,000, higher consulting and legal expenses of $274,000, and higher share-based compensation expense of $146,000, partially offset by amounts earned in the current period under the technical services agreement with Allied of $143,000 and lower other costs of $25,000.

 

Six months ended June 30, 2013, compared to the six months ended June 30, 2012:

 

Revenues. Our revenues for the six months ended June 30, 2013 decreased $1,279,000 as compared to the six months ended June 30, 2012. The decrease was primarily due to lower Cost Oil (cost recovery of workover costs incurred on well #5 in the Oyo Field) of $1,966,000 and lower sales prices, offset by higher Profit Oil sales of $687,000 in the current period. The average revenue per barrel on crude oil sold during the six months ended June 30, 2013 and 2012, was $105.98 and $123.73, respectively.

 

Lease operating expenses and production costs. Lease operating expenses consist of personnel costs and contractor charges directly associated with the production of oil. Our lease operating expenses for the six months ended June 30, 2013 decreased $352,000 as compared to the six months ended June 30, 2012. The decrease was primarily due to amounts earned in the current period under the technical services agreement with Allied of $600,000, partially offset by higher salaries and benefits of $289,000.

 

Exploratory expenses. Exploratory expenses consist of salaries and personnel costs related to exploration activities, drilling costs for unsuccessful wells, costs for acquisition of seismic data and lease related costs (surface fees, training and community development expenditures) charged to expense. Our exploratory expenses for the six months ended June 30, 2013 increased $1,941,000 as compared to the six months ended June 30, 2012. The increase was primarily due to current period gravity and magnetic survey expenses in Kenya of $842,000, higher consulting expenses of $609,000 and higher lease related costs in Kenya and The Gambia of $538,000.

 

Depreciation, depletion and amortization.. Depreciation, depletion and amortization expenses consist of depletion of oil reserves and depreciation of leasehold improvements, furniture and fixtures and computer equipment. Our depreciation, depletion and amortization expenses for the six months ended June 30, 2013 decreased $801,000 as compared to the six months ended June 30, 2012. The decrease was primarily due to the lower sales volumes and a lower depletion rate in the current period.

 

General and administrative expenses. General and administrative expenses consist primarily of salaries and related personnel costs of executive management, finance, accounting, legal and human resources, consulting projects and insurance. Our general and administrative expenses for the six months ended June 30, 2013 increased $1,757,000 as compared to the six months ended June 30, 2012. The increase was primarily due to higher consulting and legal expenses of $898,000, higher share-based compensation expense of $852,000 and higher rent expense of $192,000, partially offset by amounts earned in the current period under the technical services agreement with Allied of $300,000.

 

Liquidity and Capital Resources  

 

As of June 30, 2013, the Company had a net working capital (current assets minus current liabilities) deficit of $12,215,000, including cash and cash equivalents of $1,985,000.

 

During the six months ended June 30, 2013, net cash used in operating activities was $1,332,000 as compared to $9,039,000 for the six months ended June 30, 2012. The net reduction in cash used in operating activities of $7,707,000 was primarily due to the timing of receivable collections and payments.

 

During the six months ended June 30, 2013, capital expenditures were $489,000 as compared to $3,206,000 in the six months ended June 30, 2012. The decrease in capital expenditures of $2,717,000 was partially due to The Gambia and Kenya lease bonus payments of $3,240,000 in the prior period.

 

 

During the six months ended June 30, 2013, no cash was used in financing activities. During the same period in 2012, net cash provided by financing activities of $2,037,000 primarily consisted of proceeds received from the Promissory Note of $5,000,000, partially offset by payments made to the Promissory Note of $2,966,000.

 

In June 2011, CPL, a wholly owned subsidiary of the Company, executed a Promissory Note in favor of Allied. Under the initial terms of the Promissory Note, Allied agreed to make loans to CPL from time to time for purposes of making payments relating to the workover of Oyo well #5 in an aggregate sum of up to $25.0 million. Interest accrues on the outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum. In August 2013, CPL and Allied agreed to amend the Promissory Note to, among other things, allow for borrowings up to an aggregate of $10.0 million for general corporate purposes other than making payments relating to the workover of Oyo well #5. Pursuant to the initial terms of the Promissory Note, the outstanding principal amount of all loans was to mature on June 6, 2013. In August 2012, the Promissory Note was amended to extend the maturity date to October 15, 2013, and in March 2013 the Promissory Note was again amended to extend the maturity date to July 15, 2014.  The Company has guaranteed all of CPL’s obligations under the Promissory Note.   As of June 30, 2013, $0.9 million was outstanding.

  

Based upon current cash flow projections, management believes that the Company will have sufficient capital resources to meet projected cash flow requirements for the next twelve months from the date of filing this report, assuming no additional participation in Oyo Field operating and development costs through such date.

 

Our ability to execute our business plan and fulfill substantial commitments related to the Kenya PSCs and The Gambia Licenses will also depend on whether we are able to raise additional funds through equity, debt financing or strategic alliances. Such additional funds may not become available on acceptable terms, if at all, and any additional funding obtained may not be sufficient to meet our needs in the long-term. Through June 30, 2013, substantially all of our capital had been raised through private placements and registered direct offerings of equity instruments.  

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements, other than normal operating leases and employee contracts, that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures.

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its CEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Management of the Company, with the participation of its CEO and PFO, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Company’s CEO and PFO have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.

 

(b) Changes in Internal Control Over Financial Reporting.

 

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time we may be involved in various legal proceedings and claims in the ordinary course of our business. As of June 30, 2013, we do not believe the ultimate resolution of such actions or potential actions of which we are currently aware will have a material effect on our consolidated financial position or our results of operations.

 

Item 1A. Risk Factors

 

Please see our Annual Report on Form 10-K for the year ended December 31, 2012, Part I, Item 1A, for discussion of the risk factors affecting our business.

 

Item 6. Exhibits 

 

The following exhibits are filed with this report:

 

    

 

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).
3.2	Amended and Restated Bylaws of the Company as of April 11, 2011 (incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q filed on May 3, 2011).
31.1	Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101. INS	XBRL Instance Document.
101. SCH	XBRL Schema Document.
101. CAL	XBRL Calculation Linkbase Document.
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document
101. LAB	XBRL Label Linkbase Document.
101. PRE	XBRL Presentation Linkbase Document.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

                                                                                             CAMAC Energy Inc.

Date: August 13, 2013                       

	/S/ Earl W. McNiel
	Earl W. McNiel
	Senior Vice President and Chief Financial Officer (Principal Financial Officer)

 

 

 

 

 

 

 

 

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