Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CAK > SEC Filings for CAK > Form 10-Q on 11-Aug-2014All Recent SEC Filings

Show all filings for CAMAC ENERGY INC.

Form 10-Q for CAMAC ENERGY INC.


11-Aug-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Business

CAMAC Energy Inc. is an independent oil and gas exploration and production company focused on energy resources in Africa. Our strategy is to acquire and develop high-potential exploration and production assets in Africa through strategic partnerships with national oil companies, indigenous local partners and other independent oil companies. Our shares are traded on the New York Stock Exchange under the symbol "CAK" and on the Johannesburg Stock Exchange ("JSE") under the symbol "CME".

The Company's asset portfolio consists of nine licenses across four countries covering an area of approximately 43,000 square kilometers (approximately 10 million acres), including current production and other projects offshore Nigeria, as well as exploration licenses offshore Ghana and The Gambia, and both offshore and onshore Kenya.

The Company's operating subsidiaries include CAMAC Energy Ltd., CAMAC Petroleum Limited, CAMAC Energy International Ltd., CAMAC Energy Ghana Limited, CAMAC Energy Kenya Limited, CAMAC Energy Gambia A2 Ltd. and CAMAC Energy Gambia A5 Ltd. and the Company's related parties include CAMAC Energy Holdings Limited, CAMAC International Nigeria Limited, CAMAC International Limited, Oceanic Consultants ("Oceanic"), and Allied Energy Plc ("Allied"). The terms "we," "us," "our," "Company," and "our Company" refer to CAMAC Energy Inc. and its subsidiaries and affiliates.

In February 2014, the Company completed the acquisition of the remaining economic interests that it did not already own in the Production Sharing Contract ("PSC") covering Oil Mining Leases 120 and 121 ("OMLs 120 and 121") offshore Nigeria, which include the currently producing Oyo Field (the "Allied Assets"), from Allied (the "Allied Transaction"). Pursuant to the terms of the Transfer Agreement, the Company, as partial consideration for the Allied Assets, paid $85.0 million in cash, issued 497,454,857 shares of the Company's common stock and delivered a $50.0 million Convertible Subordinated Note (the "Convertible Subordinated Note"), of which $25.0 million was deemed advanced, with interest accruing per the terms of the Convertible Subordinated Note.

To fund the cash portion of the Allied Transaction and a portion of the anticipated capital expenditures for development of the Oyo Field, the Company also entered into a Share Purchase Agreement (the "Share Purchase Agreement") with the Public Investment Corporation (SOC) Limited, a state-owned company incorporated in the Republic of South Africa ("PIC"), for an aggregate cash investment of $270.0 million through a private placement of 376,884,422 shares of common stock (the "Private Placement"). The Share Purchase Agreement provided that the Private Placement would be completed in two installments. The first installment of $135.0 million (the "First Closing") in exchange for 188,442,211 shares of the Company's common stock was completed at the closing of the Allied Transaction in February 2014. The second installment (the "Second Closing") of $135.0 million in exchange for 188,442,211 shares of the Company's common stock was completed in May 2014.

Following the Second Closing with the PIC, the Company paid to Allied the additional $85.0 million in cash due under the Transfer Agreement, and the remaining $25.0 million Convertible Subordinated Note was deemed advanced, with interest accruing per the terms of the Convertible Subordinated Note.

Nigeria

The Company currently owns 100% of the economic interests under the PSC and related assets, contracts and rights pertaining to OMLs 120 and 121 including the currently producing Oyo Field located in deepwater offshore Nigeria.

From September 2013 to November 2013, the first phase of drilling operations was conducted on the Oyo-7 well. Based on logging-while-drilling ("LWD") data, the well encountered gross oil pay of 133 feet (net oil pay of 115 feet) and gross gas pay of 103 feet (net gas pay of 93 feet) in the gas cap from the currently producing Pliocene reservoir, with excellent reservoir quality. As a secondary objective, the Oyo-7 well confirmed the presence of hydrocarbons in the deeper Miocene formation. This marked the first time a well had been successfully drilled into the Miocene formation on OML 120. Hydrocarbons were encountered in three intervals totaling approximately 65 feet, as interpreted from the LWD data. The Oyo-7 well has been temporarily plugged and suspended but is expected to be re-entered and completed horizontally in the Pliocene reservoir as an oil producer in late 2014.

In January 2014, a long-term drilling contract was signed for the drillship Energy Searcher. The rig arrived on location in the Oyo Field on OML 120 in June 2014 and commenced drilling the Oyo-8 well. The drilling agreement is for an initial term of one year, with an option to extend the contract for an additional one year. The minimum commitment pursuant to the initial term of the agreement is approximately $86.0 million.

In August 2014, the Oyo-8 well was drilled to a total depth of 6,059 feet, and successfully encountered four new oil and gas reservoirs with total gross hydrocarbon thickness of 112 feet, based on results from the LWD data, reservoir pressure measurement, and reservoir fluid sampling. The well will be completed horizontally as a producing well in the Pliocene formation of the Oyo Field.

Page 14 of 23


Current plans are to shut-in the currently producing Oyo-5 and Oyo-6 wells and recover their subsea equipment, which will be used to complete the Oyo-7 and Oyo-8 wells.

In addition to the development wells in the Oyo Field offshore Nigeria, the Company has identified ten exploration prospects and twelve leads in OMLs 120 and 121, and is in the process of maturing several prospects to drill-ready status, each containing substantial prospective resources. The Company currently plans to commence exploration well drilling in 2015.

In February 2014, a long-term contract was signed for the floating, production, storage, and offloading vessel ("FPSO") Armada Perdana, which is the vessel currently connected to the Company's producing wells Oyo-5 and Oyo-6. The contract provides for an initial term of seven years beginning January 1, 2014, with an automatic extension for an additional term of two years unless terminated by the Company with prior notice. The FPSO can process up to 40,000 barrels of liquid per day, with a storage capacity of approximately one million barrels. The annual minimum commitment per the terms of the agreement is approximately $35.0 million in the first year and approximately $48.0 million thereafter.

Kenya

In May 2012, the Company, through a wholly owned subsidiary, entered into four production sharing contracts with the Government of the Republic of Kenya (the "Kenya PSCs"), covering onshore exploration blocks L1B and L16, and new offshore exploration blocks L27 and L28. For all blocks, the Company is the operator, with the Government having the right to participate up to 20%, either directly or through an appointee, in any area subsequent to declaration of a commercial discovery. The Company is responsible for all exploration expenditures.

The Kenya PSCs for onshore blocks L1B and L16 each provide for an initial exploration period, now extended through June 2015, with specified minimum work obligations during that period. Prior to the end of the initial exploration period, the Company was required to conduct, for each block, a gravity and magnetic survey and acquire, process and interpret 2D seismic data. The gravity and magnetic survey was completed in April 2013. In December 2013, the Company initiated an Environmental and Social Impact Assessment ("ESIA") study which was successfully completed in March 2014, and the reports were submitted for approval to the Kenya National Environment Management Authority in order to obtain the license to carry out the required additional 2D seismic survey in the two blocks. The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the acquisition of 3D seismic data and the drilling of one exploratory well on each block during each such additional period.

The Kenya PSCs for offshore blocks L27 and L28 each provide for an initial exploration period of three years, through August 2015, with specified minimum work obligations during that period. Prior to the end of the initial exploration period, the Company is required to conduct, for each block, a regional geological and geophysical study, acquire 2D seismic data and acquire, process and interpret 3D seismic data. The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploratory well on each block, during each such additional period. The Company participated in a multi-client combined gravity / magnetic and 2D seismic survey covering blocks L27 and L28. The survey was successfully completed in March 2014. The 2D seismic data is currently being processed. Further, in March 2014 the Company started the regional geophysical study for these two blocks.

In addition to the minimum work obligations, each of the Kenya PSCs requires annual surface rental payments, training fund payments and contributions to local community development projects.

The Gambia

In May 2012, the Company, through a wholly owned subsidiary, signed two Petroleum Exploration, Development & Production Licenses with The Republic of The Gambia, for offshore exploration blocks A2 and A5. For both blocks, the Company is the operator, with the Gambian National Petroleum Company ("GNPCo") having the right to elect to participate up to a 15% interest, following approval of a development and production plan. The Company is responsible for all expenditures prior to such approval even if the GNPCo elects to participate.

The Gambia Licenses provide for an initial exploration period of four years with specified minimum work obligations during that period. Prior to the end of the initial exploration period, the Company will conduct, on each block, a regional geological study, acquire, process and interpret seismic data, drill one exploration well and evaluate drilling results, with the first two work obligations (regional geological study and 3D seismic data acquisition and processing) due prior to the end of the second year. The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploration well during each additional period for each block.

Page 15 of 23


In addition to the minimum work obligations, The Gambia Licenses require annual surface rental payments, training and resources, and community development fees.

Ghana

In April 2014, the Company signed a Petroleum Agreement relating to the Expanded Shallow Water Tano block in Ghana. The Company has been named technical operator and will hold an indirect 30% participating interest in the block. The block contains three discovered fields, and the work program requires the partners to determine, within nine months of the effective date, the economic viability of developing the discovered fields. In collaboration with its joint venture partners, the Company is working on plans to conduct basin modeling and field studies.

Results of Operations

The following discussion pertains to the Company's results of operations, financial condition, liquidity and capital resources and should be read together with our unaudited consolidated financial statements and the notes thereto contained in this report, and our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2013.

As stated above, the Company completed the Allied Transaction in February 2014. Allied is a subsidiary of CEHL, the Company's majority shareholder and deemed to be under common control (transactions between subsidiaries of the same parent). Accordingly, the net assets acquired from Allied were recorded at their respective carrying values as of the acquisition date. The results of operations presented for all periods included herein are reflected as though the transfer of the Allied assets had occurred at the beginning of the first period presented.

Three months ended June 30, 2014, compared to the three months ended June 30, 2013

Revenues

Revenue is recognized when a lifting (sale) occurs. Crude oil revenues for the three months ended June 30, 2014 were $14.9 million, as compared to $20.0 million for the three months ended June 30, 2013. For the three months ended June 30, 2014, the Company sold approximately 135,000 net barrels of oil at an average price of $110.40/Bbl. In the three months ended June 30, 2013, the Company sold approximately 194,000 net barrels of oil at an average price of $103.12/Bbl.

During the three months ended June 30, 2014, the average net daily production from the Oyo Field was approximately 1,600 barrels of oil per day ("BOPD"), as compared to approximately 2,000 BOPD for the three months ended June 30, 2013.

Operating Costs and Expenses

Production costs for the three months ended June 30, 2014 were $15.5 million, as compared to $21.5 million for the three months ended June 30, 2013. The reduction in production costs is primarily due to lower contractual operating day rates for the FPSO vessel.

During the three months ended June 30, 2014, the Company incurred $0.4 million of exploration expenses, primarily spent in The Gambia. During the three months ended June 30, 2013, the Company incurred $1.9 million of exploration expenses, including $0.9 million spent at the corporate level for exploration activities, $0.8 million in Kenya, and $0.2 million in The Gambia.

Depreciation, depletion and amortization ("DD&A") expenses for the three months ended June 30, 2014 were $6.0 million, as compared to $5.1 million for the three months ended June 30, 2013. In the three months ended June 30, 2014, DD&A expenses increased as compared to the three months ended June 30, 2013, primarily due to higher average depletion rates, partially offset by lower sales volumes for the current period. The average depletion rate for the three months ended June 30, 2014 was $44.23/Bbl., as compared to $26.53/Bbl for the three months ended June 30, 2013.

General and administrative expenses for the three months ended June 30, 2014 were $4.3 million, as compared to $3.4 million for the three months ended June 30, 2013. The increase in general and administrative expenses for the three months ended June 30, 2014, as compared to the three months ended June 30, 2013, was primarily due to increased corporate overhead costs to support the development of the Oyo Field offshore Nigeria and the Company's expanding exploration activities. The Company incurred non-cash stock-based compensation expenses of $0.9 million and $0.6 million for the three months ended June 30, 2014 and 2013, respectively.

Page 16 of 23


Other Income (Expense)

Other expense for the three months ended June 30, 2014 was $0.7 million, primarily for interest expense on the related party notes payable. Other expense was approximately $6,000 for the three months ended June 30, 2013.

Income Taxes

Income taxes were nil for the three months ended June 30, 2014 and 2013.

Six months ended June 30, 2014, compared to the Six months ended June 30, 2013

Revenues

Revenue is recognized when a lifting (sale) occurs. Crude oil revenues for the six months ended June 30, 2014 were $34.8 million, as compared to $42.0 million for the six months ended June 30, 2013. For the six months ended June 30, 2014, the Company sold approximately 317,000 net barrels of oil at an average price of $109.66/Bbl. In the six months ended, June 30, 2013, the Company sold approximately 397,000 net barrels of oil at an average price of $105.80/Bbl.

During the six months ended June 30, 2014, the average net daily production from the Oyo Field was approximately 1,600 BOPD, as compared to approximately 2,000 BOPD for the six months ended June 30, 2013.

Operating Costs and Expenses

Production costs for the six months ended June 30, 2014 were $38.4 million, as compared to $43.6 million for the six months ended June 30, 2013. The lower production costs in the six months ended June 30, 2014 compared to the same period in 2013 is primarily due to lower contractual operating day rates for the FPSO.

During the six months ended June 30, 2014, the Company incurred $2.7 million of exploration expenses, including $2.1 million spent in Kenya, and $0.6 million spent in The Gambia for seismic acquisition activities. During the six months ended June 30, 2013, the Company incurred $3.1 million of exploration expenses, including $1.4 million spent at the corporate level for exploration activities, $1.4 million in Kenya, and $0.3 million in The Gambia.

Depreciation, depletion and amortization ("DD&A") expenses for the six months ended June 30, 2014 were $11.0 million, as compared to $10.6 million for the six months ended June 30, 2013. In the six months ended June 30, 2014, DD&A expenses increased as compared to the six months ended June 30, 2013 primarily due to higher average depletion rates, partially offset by lower sales volumes for the current period. The average depletion rate for the six months ended June 30, 2014 was $34.49/Bbl., as compared to $26.73/Bbl for the six months ended June 30, 2013.

General and administrative expenses for the six months ended June 30, 2014 were $8.8 million, as compared to $7.1 million for the six months ended June 30, 2013. The increase in general and administrative expenses for the six months ended June 30, 2014, as compared to the six months ended June 30, 2013, was primarily due to increased corporate overhead costs to support the development of the Oyo field offshore Nigeria and the Company's expanding exploration activities. The Company incurred non-cash stock-based compensation expenses of $1.4 million and $0.9 million for the six months ended June 30, 2014 and 2013, respectively.

Other Income (Expense)

Other expense for the six months ended June 30, 2014 was $0.8 million, primarily for interest expense on the related party notes payable. Other expense was approximately $10,000 for the six months ended June 30, 2013.

Income Taxes

Income taxes were nil for the six months ended June 30, 2014 and 2013.

Headline Earnings

In addition to the Company's primary listing on the New York Stock Exchange, the Company's common stock also began trading on the JSE on February 24, 2014. The Company is required to publish certain documents filed with the SEC with the JSE. The JSE requires that we calculate Headline Earnings Per Share ("HEPS") which, per the SEC, is considered a non-GAAP measurement.

Page 17 of 23


As defined in the Circular 3/2009 of The South African Institute of Chartered Accountants, headline earnings is an additional earnings number that excludes certain separately identifiable remeasurements, net of related tax, and related non-controlling interest.

The number of shares used to calculate basic and diluted HEPS is the same as basic and diluted EPS. In the three and six months ended June 30, 2014 and 2013, there were no separate identifiable remeasurements required and headline earnings was the same as net loss per share as disclosed on the unaudited consolidated statements of operations. Therefore, HEPS for the three months ended June 30, 2014 and 2013, were $(0.01) and $(0.03), respectively, and for the six months ended June 30, 2014 and 2013 were $(0.03) and $(0.06), respectively.

Liquidity and Capital Resources

As of June 30, 2014, the Company had current asset and current liability balances of $65.7 million and $64.3 million, respectively, resulting in a net positive working capital of $1.4 million.

During the six months ended June 30, 2014, net cash used in operating activities was $25.4 million as compared to $6.0 million for the six months ended June, 2013. The net increase in cash used in operating activities of $19.4 million was primarily due to $4.4 million higher net loss and $15.9 million negative variance in changes in operating assets and liabilities, partially offset by positive $0.9 million non-cash adjustments to net income.

During the six months ended June 30, 2014, net cash used in investing activities was $192.2 million, including $170.0 million paid to Allied as partial consideration for the Allied Assets, and $22.2 million spent for additions to property, plant and equipment. During the six months ended June 30, 2013, net cash used in investing activities was $0.5 million, primarily for additions to property, plant and equipment.

During the six months ended June 30, 2014, net cash provided by financing activities was $257.1 million, consisting of the $270.0 million investment from the PIC, $0.4 million for the issuance of stock pursuant to employee stock option exercises, and $0.7 million additional borrowings under the Promissory Note, partially offset by a $13.9 million adjustment to the net assets of Allied in connection with the Allied Transaction. During the six months ended June 30, 2013, cash provided by financing was $4.7 million due to an adjustment to the net assets of Allied in connection with the Allied Transaction.

The Company has a $25.0 million borrowing facility under a Promissory Note (the "Promissory Note") with Allied. In August 2014, the Promissory Note was amended to extend the maturity date by one year to July 2015 and to allow for the entire $25.0 million facility amount to be utilized for general corporate purposes. As of June 30, 2014, the Company had the availability to borrow $17.9 million under the Promissory Note.

In February 2014, the Company completed the Allied Transaction and the First Closing of the Private Placement with the PIC, in accordance with the terms of the Transfer Agreement and the Share Purchase Agreement, respectively. In May 2014, the Company completed the Second Closing of the Private Placement with the PIC. In aggregate, the Company received $270.0 million pursuant to the Closing of both the First and Second Private Placements with the PIC. The Company paid Allied a total sum of $170.0 million in cash, resulting in a net $100.0 million retained by the Company.

As partial consideration in connection with the February 2014 closing of the Allied Transaction, the Company issued the $50.0 million Convertible Subordinated Note in favor of Allied. The principal of the Convertible Subordinated Note was deemed advanced in two equal $25.0 million tranches at each of the First Closing and the Second Closing of the Private Placement. Interest on the Convertible Subordinated Note accrues at a rate per annum of one-month LIBOR plus 5%, payable quarterly in cash until the maturity of the Convertible Subordinated Note five years from the closing of the Allied Transaction. At the election of the holder, the Convertible Subordinated Note will be converted into shares of the Company's common stock at an initial conversion price of $0.7164 per share, subject to customary anti-dilution adjustments. The Convertible Subordinated Note is subordinated to the Company's existing and future senior indebtedness and is subject to acceleration upon an Event of Default (as defined in the Convertible Subordinated Note). The Company may, at its option, prepay the note, in whole or in part, at any time, without premium or penalty. The note is subject to mandatory prepayment upon (i) the Company's issuance of capital stock or incurrence of indebtedness, the proceeds of which the Company does not apply to repayment of senior indebtedness or
(ii) any capital markets debt issuance to the extent the net proceeds of such issuance exceed $250.0 million. Allied may assign all or any part of its rights and obligations under the Convertible Subordinated Note to any person upon written notice to the Company.

Although there are no assurances that the Company's plans will be realized, management believes that the Company will have sufficient capital resources to meet projected cash flow requirements for the next twelve months from the date of filing this report.

Page 18 of 23


Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than normal operating leases and employee contracts, that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this report, including without limitation the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" are, or may be deemed to be, forward-looking statements. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements contained in this report.

We may from time to time make written or oral forward-looking statements with respect to our long-term objectives or expectations which may be included in our filings with the SEC, reports to stockholders and information provided on our website.

The words or phrases "will likely," "are expected to," "is anticipated," "is predicted," "forecast," "estimate," "project," "plans to continue," "believes," or similar expressions identify "forward-looking statements." Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution you not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We are calling to your attention important factors that could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The following list of important factors may not be all-inclusive, and we specifically decline to undertake an obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Among the factors that could have an impact on our ability to achieve expected operating results and growth plan goals and/or affect the market price of our stock are:

Limited operating history, operating revenue or earnings history.

Ability to raise capital to fund our business plan, including developing the Oyo Field and other oil and gas licenses we may participate in, on terms and conditions acceptable to the Company.

Ability to develop oil and gas reserves.

Dependence on key personnel, technical services and contractor support.

. . .

  Add CAK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CAK - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.