Investment in oil and gas properties consists entirely of our Guinea concession in offshore West Africa. We own a 77% participating interest in our Guinea Concession.

We have been conducting exploration work related to the area off the coast of Guinea since 2002. On September 22, 2006, we, acting through SCS, entered into the PSC with Guinea. Under that agreement, we were granted certain exclusive contractual rights by Guinea to explore and exploit offshore oil and gas reserves, if any, off the coast of Guinea. We are conducting our current work in Guinea under the PSC, as amended on March 25, 2010.

The PSC Amendment clarified that we retained a Contract Area of approximately 9,650 square miles, which is approximately equivalent to 30% of the original Contract Area under the PSC, following a December 31, 2009 relinquishment of approximately 70% of the original Contract Area. The PSC Amendment requires that we relinquish an additional 25% of the retained Contract Area by September 30, 2013. Under the terms of the PSC Amendment, the first exploration period ended and the Company entered into the second exploration period on September 21, 2010. The second exploration period runs until September 2013, may be renewed to September 2016 and may be extended for one (1) additional year to allow the completion of a well in process and for two (2) additional years to allow the completion of the appraisal of any discovery made. Under the PSC Amendment, we were required to drill an exploration well, which had to be commenced by the year-end 2011, to a minimum depth of 2,500 meters below seabed. This requirement was satisfied with the drilling of the Sabu-1 well which was commenced during October of 2011 and reached the minimum depth of 2,500 meters below the seabed in February of 2012. We are required to drill an additional exploration well, which is to be commenced by the end of September 2016, to a minimum depth of 2,500 meters below seabed. The PSC Amendment requires the expenditure of $15 million on each of the exploration wells ($30 million in the aggregate). We were also required to acquire a minimum of 2,000 square kilometers of 3D seismic by September 2013 with a minimum expenditure of $12 million. This requirement was satisfied with the first 3D seismic survey acquired in 2010. Fulfillment of work obligations exempts us from expenditure obligations and exploration work in excess of minimum work obligations for each exploration period may be carried forward to the following exploration period.

Under the PSC Amendment, Guinea may participate in development of any discovery at a participating interest of up to 15% of costs being carried for its share. The cost of that carry is to be recovered out of 62.5% of Guinea's share of cost and profit oil. The PSC Amendment removed the right of first refusal held by us covering the relinquished acreage under the original PSC. The PSC Amendment clarified that only those eligible expenditures, which were made following the date the PSC was signed, on September 22, 2006, are eligible for cost recovery. We are required to establish an annual training budget of $200,000 for the benefit of Guinea's oil industry personnel, and we are also obligated to pay an annual surface tax of $2.00 per square kilometer on our retained Concession acreage. The PSC Amendment also provides that should the Guinea government note material differences between provisions of the PSC Amendment and international standards or the Petroleum Code, the parties will renegotiate the relevant articles.

Under the PSC and PSC Amendment our Guinea Concession is subject to a 10% royalty interest to Guinea. Of the remaining 90% of the first production, we will receive 75% of the revenue for recovery of the cost of operations, and Guinea will receive 25%.

After recovery cost of operations, revenue will be split as outlined in the table below:

Daily production (b/d)

From 0 to 2,000	25	%	75	%
From 2,001 to 5,000	30	%	70	%
From 5,001 to 100,000	41	%	59	%
Over 100,001	60	%	40	%

The Guinea Government may elect to take a 15% working interest in any exploitation area.

In May 2010, the government of Guinea issued a Presidential Decree approving the PSC, as amended.

On December 4, 2009, we entered into a Sale and Purchase Agreement ("SPA") with Dana Petroleum (E&P) Limited ("Dana") for Dana to acquire a 23% participating interest in the PSC. On January 28, 2010, the Company closed on the transaction with Dana assigning it a working interest in our Concession offshore Guinea. In connection with the closing of the transaction, we entered into an Assignment of Participating Interest (the "Assignment") with Dana, a Deed of Assignment and Joint Operating Agreement ("JOA"). Pursuant to the Assignment, we assigned to Dana an undivided 23% of our participating interest in the contractual interests, rights, obligations and duties under the PSC. As required by the PSC, the Deed of Assignment was delivered as the necessary notice of the Assignment to be given to the Ministry of Mines, Energy and Hydraulics of Guinea.

As part of the obligation to bear the proportionate share of costs, the SPA required Dana to make a cash payment to us upon closing the assignment of the 23% participating interest to Dana in the amount of $ 1.7 million for Dana's pro-rata portion of accrued expenditures associated with our marine 2D seismic data acquisition program within the Contract Area. The $1.7 million payment was received by us on February 4, 2010 and was recorded as a reduction in the carrying value of our Concession.

The Operating Agreement appoints us as the operator for purposes of conducting oil and gas exploration and production activities within the retained Contract Area. We share operating costs of joint operations with Dana in proportion to the parties' respective participating interests (Hyperdynamics, 77% and Dana, 23%). An operating committee and voting procedures are established in the JOA whereby managerial and technical representatives of the Company and Dana make decisions regarding joint operations, exploration and appraisal of commercial discoveries, and the disposition of commercial production. The JOA places restrictions upon the transfer of the parties' respective participating interests in the form of a right of first purchase that is triggered by a proposed transfer or certain changes in control of us or Dana.

In May 2010, we received an administrative order from the Ministry of Mines and Geology of Guinea, referred to as an arrêté, confirming the Guinea government's approval of the assignment of a 23% participating interest in the PSC, as amended, to Dana. On May 20, 2010, we received a payment of $19.6 million in cash from Dana as payment for the assigned 23% participating interest in the contractual interests, rights, obligations and duties under the PSC, as amended.

We follow the "full-cost" method of accounting for oil and natural gas property and equipment costs. Geological and geophysical costs incurred that are directly associated with specific unproved properties are capitalized in "Unevaluated properties excluded from amortization" and evaluated as part of the total capitalized costs associated with a prospect. The cost of unproved properties not being amortized is assessed to determine whether such properties have been impaired. In determining whether such costs should be impaired, we evaluate current drilling results and available geological and geophysical information. Any impairment assessed to unproved properties is added to the cost of proved properties. The unamortized cost of proved oil and gas properties is limited by the Full-Cost Ceiling Test.

We exclude capitalized costs of unevaluated oil and gas properties from amortization. Geological and geophysical information pertaining to the Guinea concession was collected and evaluated and no reserves have been attributed to this concession. In February 2012, we completed the drilling of the Sabu-1 well, which was determined to be non-commercial. As a result, we evaluated certain geological and geophysical related costs in unproved properties along with the drilling costs of the Sabu-1 well and moved $116,312,000 to proved properties. Since we have no proved reserves to include in the Full-Cost Ceiling Test, the entire $116,312,000 resulted in the full amortization of our proved oil and gas properties. The net costs associated with properties which remain unevaluated were $39,278,000 and $36,200,000 as of June 30, 2012 and 2011, respectively. These costs are excluded from amounts subject to amortization.

The following table provides detail of total capitalized costs (in thousands) for our Guinea Concession as of June 30, 2012 and 2011:

	June 30, 2012			June 30, 2011

Oil and Gas Properties:
Proved oil and gas Properties	$	116,312		$	—
Unproved oil and gas Properties		32,469			36,200
Other Equipment Costs		6,809			—

Less—Accumulated depreciation, depletion and amortization costs		(116,312	)		—

Unevaluated properties not subject to amortization	$	39,278		$	36,200

During the year ended June 30, 2012, we incurred $28,556,000 of geological and geophysical costs, primarily related to our 3D seismic acquisition and processing work which commenced in November 2011, and we incurred $90,834,000 of other exploration costs for our Guinea Concession during the year ended June 30, 2012, primarily related to the drilling of our first well which commenced in October 2011. Internal costs incurred that are directly identified with exploration, development, and acquisition activities undertaken by us, and which are not related to production, general corporate overhead, or similar activities, are capitalized. For the year ended June 30, 2012, we capitalized $6,613,000 of such costs.

During the year ended June 30, 2011, we incurred $26,882,000 of geological and geophysical costs, primarily related to our 3D seismic acquisition and processing work which commenced in August 2010, and we incurred $9,226,000 of other exploration costs for our Guinea Concession during the year ended June 30, 2011, primarily related to the purchase of long lead tangible drilling items such as wellheads and tubular items to prepare for the drilling of our first well which commenced during the second quarter of fiscal 2012. Internal costs incurred that are directly identified with exploration, development, and acquisition activities undertaken by us, and which are not related to production, general corporate overhead, or similar activities, are capitalized. For the year ended June 30, 2011, we capitalized $4,001,000 of such costs.

On June 11, 2010, we entered into an Agreement for the Supply of Marine Seismic Data ("3D Seismic Contract") with PGS Geophysical AS, Norway ("PGS"). Under the terms of the 3D Seismic Contract, PGS agreed to conduct the acquisition phase of a 3,635 square kilometer 3D seismic survey of the area that is subject to our rights, or concession, to explore and exploit offshore oil and gas reserves off the coast of Guinea. The intended purpose of the 3D seismic survey was to obtain detailed imaging of the multiple prospects which were identified from our prior 2D seismic data acquisition over the concession.

Under the terms of the 3D Seismic Contract, PGS agreed to carry out the survey in two separate portions that commenced in August 2010. The 3D Seismic Contract was initially for $21.0 million, including mobilization and demobilization expenses. The acquisition work was completed in December 2010, with a final cost under the 3D Seismic Contract of approximately $24.7 million, including mobilization and demobilization expenses. Our share of the cost was 77% of that amount, or approximately $19.0 million.

Effective November 30, 2010, we contracted with AGR to manage our exploration drilling project offshore Republic of Guinea to handle well construction project management services, logistics, tendering and contracting for materials as well as overall management responsibilities for the drilling program. On June 21, 2012, our wholly-owned subsidiary, SCS, filed suit against AGR following unsuccessful negotiations to address the cost overruns associated with the Sabu-1 well drilled off the coast of the Republic of Guinea. See additional discussion within Note 11.

On September 20, 2011, we entered into an Agreement for the Supply of Marine Seismic Data ("3D Seismic Contract") with CGG Veritas ("Veritas"). Under the terms of the 3D Seismic Contract, Veritas agreed to conduct the acquisition phase of a 4,000 square kilometer 3D seismic survey of the area that is subject to our rights, or Concession, to explore offshore Republic of Guinea. Our goal in contracting for the 3D seismic survey is to investigate multiple possible deepwater submarine fans seen on 2D seismic data that was previously obtained by us. The survey commenced in November 2011, using the survey vessel Oceanic Endeavour. The cost for the survey, processing and other services is expected to total approximately $30.0 million gross, with our 77% share being $23.1 million. The costs incurred as of June 30, 2012 amount to $26.3 million with our 77% share being $20.3 million and is capitalized in unevaluated oil and gas properties.

The area of the 3D acquisition is just southwest and adjacent to one of the 3D surveys obtained by us in 2010. The most recent survey is expected to use Veritas BroadSeis broadband solution, which is expected to provide a more detailed image of the subsurface. After acquisition, the data will be processed by Veritas, with completion of that work expected in the first half of fiscal 2013.

We made payments of $5,000,000 each in connection with a prospective oil and gas investment on September 20, 2011 and November 15, 2011. The $10,000,000 in deposits were to have been credited on the purchase price of the prospective investment. As negotiations terminated without an agreement, we have written off this deposit. The $10,000,000 write off has been included in income from operations in our Statement of Operations for the year ended June 30, 2012.