2. INVESTMENT IN OIL AND GAS PROPERTIES

Investment in oil and gas properties consists entirely of our Guinea Concession in offshore West Africa. We owned a 77% participating interest in our Guinea Concession prior to the sale of a 40% gross interest to Tullow which closed on December 31, 2012. We now own a 37% interest in the 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 were directly identified with exploration, development, and acquisition activities undertaken by us for our own account, and which were not related to production, general corporate overhead, or similar activities, were capitalized. For the three and nine month periods ended March 31, 2013, we capitalized $0.5 million and $2.8 million of such costs respectively. Capitalization of internal costs was discontinued April 1, 2013 when Tullow became the operator. Geological and geophysical costs incurred that are directly associated with specific unproved properties are capitalized in “Unproved 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.

We exclude capitalized costs of unproved oil and gas properties from amortization until evaluated. Geological and geophysical information pertaining to the Guinea concession was collected and evaluated and no reserves have been attributed to the 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 totaling $116.8 million and determined that these properties were subject to the Full-Cost Ceiling Test. As we have no proved reserves to include in the Full-Cost Ceiling Test, the entire $116.8 million resulted in a Full-Cost Ceiling Test write-down of our unproved oil and gas properties. The net costs associated with properties which remain unproved and unevaluated are excluded from amortization were $21.0 million and $21.2 million as of March 31, 2014 and June 30, 2013, respectively.

The following table provides detail of total capitalized costs for our Guinea concession as of March 31, 2014 and June 30, 2013 (in thousands):

	March 31, 2014		June 30, 2013
Oil and Gas Properties:
Unproved Oil and Gas Properties	$	14,220	$	14,365
Other Equipment Costs	6,809		6,809
Unproved properties not subject to amortization	$	21,029	$	21,174

During the nine month period ended March 31, 2014, our oil and gas property balance declined by $0.1 million as a result of a credit received from Tullow as a correction of costs previously billed to us. Evaluation activities of these unproved properties are expected to be completed within the next one to three years.

In prior periods we had presented oil and gas properties on the Consolidated Balance Sheets and within this footnote on a gross basis with the impaired properties presented as proved oil and gas properties, then fully amortized after applying the Full-Cost ceiling test, resulting in the net amount of unproved oil and gas properties. In the current period we have revised our disclosures to eliminate any amounts identified as proved oil and gas properties, and have presented the Full-Cost ceiling test write-down directly against the unproved property account. All prior periods presented were conformed to follow the current period presentation.

Sale of Interest to Tullow

On December 31, 2012, our wholly owned subsidiary, SCS, closed a sale to Tullow of a 40% gross interest in the Concession. As consideration, SCS received $27 million from Tullow as reimbursement of past costs of SCS in the Concession and, as additional consideration, Tullow agreed to: (i) pay SCS’s participating interest share of future costs associated with the drilling of an exploration well in at least 2,000 meters of water in the deepwater fan area of the Concession, up to a gross expenditure cap of $100 million; and (ii) pay SCS’s share of costs for an appraisal well of the initial exploration well, if drilled, subject to a gross expenditure cap on the appraisal well of $100 million. Tullow is obligated to pay its 40% participating interest share of costs associated with the Concession as of November 20, 2012, the date of execution of the purchase and sale agreement. Tullow began to pay SCS’s costs attributable to the Concession at the commencement of the next exploration period, September 21, 2013. Tullow will continue to pay SCS’s costs, subject to the gross expenditure cap of $100 million, until 90 days following the date on which the rig contracted to drill the exploration well moves off the well location. We are responsible for our share of any costs exceeding the gross expenditure cap of $100 million on either well. Tullow agreed to use reasonable endeavors to provide for the commencement of drilling of the exploration well not later than April 1, 2014. The $27 million payment was received by us on December 31, 2012 and was recorded as a reduction in unproved oil and gas properties, net of transaction costs of approximately $3.3 million.

In connection with the transaction, SCS, Tullow and Dana entered into a Joint Operating Agreement Novation and Amendment Agreement reflecting that as a result of the sale to Tullow, the interest of the parties in the Concession are SCS 37%, Dana 23%, and Tullow 40%, and that Tullow will be bound by the PSC and the Joint Operating Agreement previously entered into between SCS and Dana. Tullow will assume all the respective liabilities and obligations of SCS in respect of the assigned 40% interest. SCS and Tullow executed a Deed of Assignment. The Assignment was approved by Guinea’s Ministry of Mines and Geology by issuing an Arrêté on December 27, 2012 which formally authorized our assignment of a participating interest to Tullow. SCS, Dana and Tullow have elected Tullow as the Operator of the Concession beginning April 1, 2013.