COMMITMENTS AND CONTINGENCIES

3 Months Ended

Sep. 30, 2011

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

9. COMMITMENTS AND CONTINGENCIES

LITIGATION AND OTHER LEGAL MATTERS

From time to time, we and our subsidiaries are involved in business disputes that may occur in the ordinary course of business. We do not believe the outcome of such disputes or legal actions will have a material effect on our unaudited condensed consolidated financial statements.

COMMITMENTS AND CONTINGENCIES

Contingent notes payable

Our subsidiary, SCS, has $350,000 committment to the former owners of SCS Corporation’s assets. It is payable in our common stock and it is payable only if SCS has net income in any given quarter. If SCS experiences net income in a quarter, 25% of the income will be paid against the note, until the committment is satisfied. As of September 30, 2011 this committment is not probable of occurence.

AGR Peak Well Management Limited

We have contracted with AGR Peak Well Management Limited (“AGR”) to manage our exploration drilling project in offshore Republic of Guinea. AGR will handle well construction project management services, logistics, and tendering of materials as well as overall management responsibilities for the drilling program. The drilling project management contract, entered into on November 30, 2010, was for an estimated $6.8 million, of which we expect our 77% share to be $5.2 million of that amount.  In the event we terminate this contract, AGR would invoice us for services carried out to date and for any commitments made on behalf of us, including termination fees. In the event we terminate this contract without cause and we enter into direct contracts for the drilling rig, vessels or third party services previously held by AGR, we would then reimburse AGR cancellation fees of $500,000. The costs incurred as of September 30, 2011 amount to $2,953,000 with our 77% share being $2,274,000 and is capitalized in unevaluated oil and gas properties.

CGG Veritas

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 off the coast of the Republic of Guinea (“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 is expected to begin in November 2011, using the survey vessel Oceanic Endeavour.  The cost for the survey, processing and other services is expected to total approximately $29.0 million gross, with our 77% share being $22.3 million.

The area of the 3D acquisition is just southwest and adjacent to one of the 3D surveys obtained by us in 2010. The new 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 second half of 2012.

Operating Leases

We lease office space under long-term operating leases with varying terms. Most of the operating leases contain renewal and purchase options. We expect that in the normal course of business, the majority of operating leases will be renewed or replaced by other leases.

The following is a schedule by years of minimum future rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year as of September 30, 2011:

Years ending June 30: (in thousands)
2012	$	326
2013	326
2014	336
2015	228
2016	—
Total minimum payments required	$	1,216

Rent expense included in net loss from operations for the three months ended September 30, 2011 and 2010 was $77,000 and $61,000, respectively.