NOTE 5—OIL AND GAS PROPERTIES

Sale of La Cuerva and LLA 62 Blocks

During the first quarter of 2012, the Company sold all of its interest in Hupecol Cuerva, LLC ("HC, LLC"), which holds interests in the La Cuerva block and, pending approval of the Colombian authorities, the LLA 62 block, together covering approximately 90,000 acres in the Llanos Basin in Colombia.

HC, LLC sold for $75 million, adjusted for working capital. 13.3% of the sales price of HC, LLC will be held in escrow to fund potential claims arising from the sale. Pursuant to its 1.6% ownership interest in HC, LLC, the Company received 1.6% in the net sale proceeds after deduction of commissions, overriding royalty interest, and transaction expenses; subject to the escrow holdback and a further contingency holdback by Hupecol of 1.3% of the sales price. Following completion of the sale of HC, LLC, the Company has no continuing interest in the La Cuerva and LLA 62 blocks.

At December 31, 2011, the Company's estimated proved reserves associated with the La Cuerva and LLA 62 blocks totaled 94,619 barrels of oil, which represented 82% of the Company's estimated proved oil and natural gas reserves. Sales of oil and gas properties under the full cost method of accounting are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and reserves. Since the sale of these oil and gas properties would significantly alter the relationship, the Company recognized a gain on the sale of $315,119 during 2012, computed as follows:

Sales price	$	1,224,393
Add: Transfer of asset retirement and other obligations		34,471
Less: Transaction costs		(30,330	)
Less: Prepaid deposits		(54,857	)
Less: Carrying value of oil and gas properties, net		(858,558	)
Net gain on sale	$	315,119

The following table presents pro forma data that reflects revenue, income from continuing operations, net loss and loss per common share for 2012 and 2011 as if the HC, LLC sale had occurred at the beginning of each period and excludes the gain on sale.

Pro-Forma Information (unaudited):	2012		2011

Oil and gas revenue	$	148,163	$	148,266
Loss from operations	$	(56,566,181)	$	(5,943,911)
Net loss	$	(56,847,211)	$	(4,366,837)

Basic and diluted loss per common share	$	(1.47)	$	(0.14)

Impairments

During 2012, the Company completed operations on three test wells on the CPO 4 block in Colombia. Each of the test wells was determined to be noncommercial and was plugged and abandoned. As a result of the determinations to plug and abandon each of those test wells, the Company included the costs related to those wells in the full cost pool for inclusion in the ceiling test. The Company recorded an impairment charge of $46,235,574 during 2012 to write off costs not being amortized that were attributable to the drilling of the test wells on the CPO 4 block as well as to write off seismic exploration and evaluation cost, general and administrative cost and environmental and governmental cost that were attributable to the test wells through December 31, 2012.

Unevaluated Oil and Gas Properties

Unevaluated oil and gas properties not subject to amortization at December 31, 2012 included the following:

	North America		South America		Total
Leasehold acquisition costs	$	972,005	$	2,015,850	$	2,987,855
Geological, geophysical, screening and evaluation costs		880		2,820,562		2,821,442
Total	$	972,885	$	4,836,412	$	5,809,297

Unevaluated oil and gas properties not subject to amortization at December 31, 2011 included the following:

	North America		South America		Total
Leasehold acquisition costs	$	861,169	$	4,464,200	$	5,325,369
Geological, geophysical, screening and evaluation costs		880		17,564,695		17,565,575
Total	$	862,049	$	22,028,895	$	22,890,944