INVESTMENT IN OIL AND GAS PROPERTIES

6 Months Ended

Dec. 31, 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 and six month periods ended December 31, 2011, we capitalized $2,048,000 and $3,517,000 of such costs, respectively, as compared to $623,000 and $1,083,000 for the three and six month periods ended December 31, 2010.

The following table provides detail of total capitalized costs (in thousands) for our Guinea Concession as of December 31, 2011 and June 30, 2011:

	December 31, 2011		June 30, 2011
Geological and geophysical cost	$	46,682	$	26,974
Other exploration costs	60,585		9,226
Unevaluated properties not subject to amortization	$	107,267	$	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 $107,267,000 and $36,200,000 as of December 31, 2011 and June 30, 2011, respectively, are excluded from amounts subject to amortization. Evaluation activities are expected to be completed within the next one to three years. As of December 31, 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 and six month periods ended December 31, 2011, we incurred $17,889,000 and $19,708,000 respectively of geological and geophysical costs, primarily related to our second 3-D seismic survey covering approximately 4,000 square kilometers offshore Guinea. The new deep water survey is adjacent to our Survey A, initial 3,635-square-kilometer 3-D seismic survey in 2010. We incurred $36,243,000 and $51,359,000 respectively of other exploration costs during the three and six month periods ended December 31, 2011, primarily related to the drilling of our first well which commenced in October 2011.

We made payments of $5,000,000 in connection with a prospective oil and gas investment on September 20, 2011 and November 15, 2011. We have classified the $10,000,000 in total payments as a long-term deposit on our balance sheet at December 31, 2011.