INVESTMENT IN OIL AND GAS PROPERTIES

3 Months Ended

Sep. 30, 2011

INVESTMENT IN OIL AND GAS PROPERTIES

INVESTMENT IN OIL AND GAS PROPERTIES

2. INVESTMENT IN OIL AND GAS PROPERTIES

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 follow the “full-cost” method of accounting for oil and natural gas property and equipment costs. Under this method, internal costs incurred that are directly identified with exploration, development, and acquisition activities undertaken by us for our own account, and which are not related to production, general corporate overhead, or similar activities, are capitalized. For the three month periods ended September 30, 2011 and 2010, we capitalized $1,470,000 and $460,000 of such costs, respectively.

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

	September 30, 2011		June 30, 2011
Geological and geophysical cost	$	28,793	$	26,974
Other exploration costs	24,342		9,226
Unevaluated properties not subject to amortization	$	53,135	$	36,200

We exclude capitalized costs of unevaluated oil and gas properties from amortization. Currently, geological and geophysical information pertaining to the Guinea Concession is being collected and evaluated and no proved reserves have been attributed to this concession and as a result, net costs associated with such unproved properties of $53,135,000 and $36,200,000 as of September 30, 2011 and June 30, 2011, respectively, are excluded from amounts subject to amortization. The majority of the evaluation activities are expected to be completed within the next year. As of September 30, 2011, based on our impairment review and our intent to continue evaluation activities, there was no impairment indicated for our excluded costs.

During the three months ended September 30, 2011, we incurred $1,819,000 of geological and geophysical costs, and we incurred $15,116,000 of other exploration costs for our Guinea Concession during the three months ended September 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 in October of this year.

On September 20, 2011, we made a payment of $5,000,000 in connection with a prospective oil and gas investment. We have classified this payment as a long-term deposit on our balance sheet as of September 30, 2011.