COMMITMENTS & CONTINGENT LIABILITIES

6 Months Ended

Jun. 30, 2014

COMMITMENTS & CONTINGENT LIABILITIES [Text Block]

13.   COMMITMENTS & CONTINGENT LIABILITIES

Legal actions and claims (Kyrgyz Republic, Republic of Tajikistan, Mongolia and Chile)

In the ordinary course of business, members of the Group doing business in Mongolia, Republic of Tajikistan, the Kyrgyz Republic, and Chile may be subject to legal actions and complaints from time-to-time. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition, the results of future operations or cash flows of the associates/subsidiaries in Mongolia, Republic of Tajikistan, the Kyrgyz Republic and Chile.

During the initial phase of applying for its Chilean Exploration license, the Company formed a joint bidding group with Improved Petroleum Recovery Tranquillo Chile (commonly referred to as “IPR”) and a start-up company called Energy Focus Limitada (“Energy Focus”). Each had a one-third interest. Of its own accord, Energy Focus left the bidding group. The three parties signed a side letter which provided that Energy Focus would have an option to rejoin the bidding group under certain conditions.

Even though Energy Focus was asked many times to re-join the group and contribute its prorated share of capital, it failed or neglected to do so. Despite this, Energy Focus maintains that it is entitled to participation in a consortium that was subsequently formed. The Company and IPR believe that Energy Focus no longer has a right to join the bidding group or consortium because the conditions specified in the side letter were not met, and cannot now be met.

Energy Focus commenced litigation for specific performance and damages in an unspecified amount in Santiago de Chile, claiming interest in the Tranquilo Block from the Company and IPR, and their respective subsidiaries. The Company, IPR and their respective legal counsel were of the view that the Energy Focus claim was without merit, that it was brought in the wrong jurisdiction and that Energy Focus failed to properly serve the parties. The trial court in Santiago dismissed the Energy Focus case. Energy Focus took an Appeal, which was also dismissed. Energy Focus took a second Appeal and the matter is returned to the trial court. The Company’s legal advisors are of the opinion that Energy Focus will not succeed at trial on several grounds, including jurisdiction, service and on the substantive issues. The Company and IPR are also considering a further Appeal. The Company’s management believe that ultimate liability, if any, arising from the Energy Focus litigation will not have a material adverse effect on the financial condition, the results of future operations or cash flows of the Company.

As of June 30, 2014, there had been no legal actions against any member of the Group in the Kyrgyz Republic, Republic of Tajikistan and Mongolia.

Management believes that the members of the Group are in substantial compliance with the tax laws affecting their respective operations in the Kyrgyz Republic, Republic of Tajikistan and Mongolia. However, the risk remains that relevant authorities could take differing positions with regards to interpretative issues.