XFRA:U8P Camac Energy Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2012
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from__________to__________
 
Commission File Number: 01-34525
 
CAMAC ENERGY INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
30-0349798
(State or Other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
1330 Post Oak Blvd.,
Suite 2575, Houston, Texas
 
77056
(Address of principal executive offices)
 
(Zip Code)
 
(713) 797-2940
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
¨
Accelerated filer
þ
Non-accelerated filer
o
Smaller reporting company
¨
(Do not check if a smaller reporting company)      
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
At May 2, 2012 there were 155,394,787 shares of common stock, par value $0.001 per share, outstanding.
 


 

 
CAMAC ENERGY INC.
TABLE OF CONTENTS
 
 PART I.    FINANCIAL INFORMATION   Page  
         
 Item 1.
Financial Statements (unaudited):
    4  
           
 
Consolidated Balance Sheets at March 31, 2012 and December 31, 2011
    4  
           
 
Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011
    5  
           
 
Consolidated Statements of Comprehensive Income (loss) for the three months ended March 31, 2012 and 2011
    6  
           
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011
    7  
           
 
Notes to Unaudited Consolidated Financial Statements
    8  
           
 Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    16  
           
 Item 3.
Quantitative and Qualitative Disclosure about Market Risk
    20  
           
 Item 4.
Controls and Procedures
    20  
           
 PART II.   OTHER INFORMATION        
           
 Item 1.
Legal Proceedings
    21  
           
 Item 1A.
Risk Factors
    21  
           
 Item 2. 
Unregistered Sales of Equity Securities and Use of Proceeds
    21  
           
 Item 3.
Defaults Upon Senior Securities
    21  
           
 Item 4.
Mine Safety Disclosures
    21  
           
 Item 5.
Other Information
    21  
           
 Item 6.  
Exhibits
    22  
           
 
Signatures
    23  
           
 
Exhibits
       
 
 
Page 2 of 23

 
 
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

All statements, other than statements of historical fact, included in this Form 10-Q, including without limitation the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business,” 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 CAMAC Energy Inc. and its subsidiaries and joint-ventures, (i) Pacific Asia Petroleum, Limited, (ii) Inner Mongolia Production Company (HK) Limited, (iii) Pacific Asia Petroleum (HK) Limited, (iv) Inner Mongolia Sunrise Petroleum  Co. Ltd., (v)  Pacific Asia Petroleum Energy Limited, (vi) Beijing Dong Fang Ya Zhou Petroleum Technology Service Company Limited, (vii) CAMAC Petroleum Limited, (viii) CAMAC Energy Ltd., (ix) CAMAC Energy Kenya Ltd., (x) CAMAC Energy Gambia A5 Ltd., and (xi) CAMAC Energy Gambia A2 Ltd. (collectively, the “Company”), to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements contained in this Form 10-Q.

In our capacity as Company management, 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 Securities and Exchange Commission (the “SEC”), reports to stockholders and information provided in our web site.

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 participation in the Oyo Field development and other oil and gas leases 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.
 
Fluctuation in quarterly operating results.
 
Possible significant influence over corporate affairs by significant stockholders.
 
Ability to enter into definitive agreements to formalize foreign energy ventures and secure necessary exploitation rights.
 
Ability to successfully integrate and operate acquired or newly formed entities and multiple foreign energy ventures and subsidiaries.
 
Competition from large petroleum and other energy interests.
 
Changes in laws and regulations that affect our operations and the energy industry in general.
 
Risks and uncertainties associated with exploration, development and production of oil and gas, and drilling and production risks.
 
Expropriation and other risks associated with foreign operations.
 
Risks associated with anticipated and ongoing third party pipeline construction and transportation of oil and gas.
 
The lack of availability of oil and gas field goods and services.
 
Environmental risks and changing economic conditions.
 
 
Page 3 of 23

 
 
PART I. – FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS
 
CAMAC ENERGY INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share amounts)
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
ASSETS
  (unaudited)    
Current Assets
           
Cash and cash equivalents
  $ 8,520     $ 13,626  
Accounts receivable
    11,414       22,099  
Other current assets
    1,801       1,714  
      Total current assets
    21,735       37,439  
                 
Property, plant and equipment, net
               
Oil and gas properties (successful efforts method of accounting)
    193,441       196,129  
Property, plant and equipment, other
    221       257  
      Total property, plant and equipment, net
    193,662       196,386  
Other assets
    404       205  
                 
Total Assets
  $ 215,801     $ 234,030  
                 
LIABILITIES AND EQUITY
               
Liabilities
               
Accounts payable
  $ 19,411     $ 35,897  
Accrued expenses
    9,616       6,922  
      Total current liabilities
    29,027       42,819  
                 
Long-term note payable - related party
    3,034       6,000  
                 
      Total liabilities
    32,061       48,819  
                 
Commitments and Contingencies
               
                 
Equity
               
Stockholders' equity - CAMAC Energy Inc.
               
Preferred stock, Authorized - 50,000,000 shares at $0.001 par value issued and outstanding - none as of March 31, 2012 
and December 31, 2011, respectively
    -       -  
Common stock, Authorized - 300,000,000 shares at $0.001 par value issued and outstanding - 155,394,231 shares as of
March 31, 2012 and 155,385,563 shares as of December 31, 2011, respectively
    155       155  
Paid-in capital
    460,791       461,157  
Accumulated deficit
    (277,134 )     (275,838 )
Accumulated other comprehensive loss
    (67 )     (265 )
      Total stockholders' equity - CAMAC Energy Inc.
    183,745       185,209  
Noncontrolling interests
    (5 )     2  
      Total equity
    183,740       185,211  
                 
Total Liabilities and Equity
  $ 215,801     $ 234,030  

See accompanying notes to unaudited consolidated financial statements.

 
Page 4 of 23

 
 
CAMAC ENERGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

   
Three Months Ended March 31,
 
   
2012
   
2011
 
   
(unaudited)
Revenues
           
Crude oil, net of royalties
  $ 5,672     $ -  
Total revenues
    5,672       -  
                 
Costs and operating expenses
               
Lease operating expenses and production costs
    178       24,477  
Exploratory expenses
    622       177  
Depreciation, depletion and amortization
    3,327       66  
General and administrative expenses
    2,817       3,536  
Total costs and operating expenses
    6,944       28,256  
Operating loss
    (1,272 )     (28,256 )
                 
Interest (expense) income
    (31 )     8  
Loss before income taxes
    (1,303 )     (28,248 )
Provision for income tax expense
    -       -  
Net loss
    (1,303 )     (28,248 )
Net loss attributable to noncontrolling interests
    7       50  
Net loss attributable to CAMAC Energy Inc.
  $ (1,296 )   $ (28,198 )
                 
Net loss per common share attributable to CAMAC Energy Inc.
         
Basic
  $ (0.01 )   $ (0.18 )
Diluted
  $ (0.01 )   $ (0.18 )
                 
Weighted average common shares outstanding
               
Basic
    155,581       153,735  
Diluted
    155,581       153,735  

See accompanying notes to unaudited consolidated financial statements.

 
Page 5 of 23

 
 
CAMAC ENERGY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
   
(unaudited)
 
Net loss
  $ (1,303 )   $ (28,248 )
Other comprehensive income - net of tax:
               
Foreign currency adjustments
    -       13  
Unrealized gain on investments
    198       4  
Total other comprehensive income
    198       17  
                 
Comprehensive loss
    (1,105 )     (28,231 )
Comprehensive loss atrributable to noncontrolling interests
    7       48  
Comprehensive loss attributable to CAMAC Energy Inc.
  $ (1,098 )   $ (28,183 )

See accompanying notes to unaudited consolidated financial statements.

 
Page 6 of 23

 

CAMAC ENERGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
   
(unaudited)
Cash flows from operating activities
           
Net loss
  $ (1,303 )   $ (28,248 )
Adjustments to reconcile net loss to cash used in operating activities:
         
Currency transaction gain
    (10 )     (4 )
Stock-based compensation
    (367 )     1,159  
Dry hole costs
    (38 )     48  
Depreciation, depletion and amortization
    3,327       66  
Changes in operating assets and liabilities:
               
Decrease in accounts receivable
    10,685       30  
(Increase) decrease in other current assets
    (87 )     381  
Increase in inventories
    -       (3 )
(Decrease) increase in accounts payable
    (16,486 )     601  
Increase in accrued expenses
    2,694       22,815  
Net cash used in operating activities
    (1,585 )     (3,155 )
                 
Cash flows from investing activities
               
Net sales of available for sale securities
    -       256  
Decrease in other assets
    -       14  
Capital expenditures
    (566 )     (5,528 )
Net cash used in investing activities
    (566 )     (5,258 )
                 
Cash flows from financing activities
               
Repayment of long-term note payable - related party
    (2,966 )     -  
Proceeds from exercise of warrants and stock options
    3       30  
Net cash (used in) provided by financing activities
    (2,963 )     30  
                 
Effect of exchange rate on cash and cash equivalents
    8       17  
                 
Net decrease in cash and cash equivalents
    (5,106 )     (8,366 )
Cash and cash equivalents at beginning of period
    13,626       28,918  
Cash and cash equivalents at end of period
  $ 8,520     $ 20,552  
                 
Supplemental disclosure of cash flow information
               
Cash paid for:
               
Interest
  $ 31     $ -  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Page 7 of 23

 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.  Company Description

CAMAC Energy Inc. (the “Company” or “CAMAC”) is a publicly traded Company which engages in the exploration, development, and production of oil and gas outside the U.S., directly and through joint ventures and other ventures in which it may participate. The Company’s name was changed from Pacific Asia Petroleum, Inc. (“PAP”) to CAMAC Energy Inc. upon the acquisition of oil and gas properties located in offshore Nigeria on April 7, 2010.

The Company operates in the upstream segment of the oil and gas industry in exploration and producing activities. The Company’s corporate headquarters is located in Houston, Texas.  Currently the Company has interests in OML 120/121 oil and gas leases in deep water offshore Nigeria, has or is in process of acquiring exploratory acreage in several other African countries and has the rights to gas acreage under contract in China.

2.  Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The terms “we,” “us,” “our,” ” Company,” and “our Company” refer to CAMAC Energy Inc. (“CAMAC”), formerly Pacific Asia Petroleum, Inc. (“PAP”), a Delaware corporation, and its present and former subsidiaries, including Pacific Asia Petroleum, Limited (“PAPL”), Pacific Asia Petroleum Energy Limited (“PAPE”), Inner Mongolia Production Company  (HK) Limited (“IMPCO HK”), Pacific Asia Petroleum (HK) Limited (“PAP HK”), Inner Mongolia Sunrise Petroleum  Co. Ltd. (“IMPCO Sunrise”), Beijing Dong Fang Ya Zhou Petroleum Technology Service Company Limited  (“Dong Fang”), and CAMAC Petroleum Limited (“CPL”) and collectively, the “Company”. References to "CAMAC" as a corporate entity refer to CAMAC Energy Inc. (formerly Pacific Asia Petroleum, Inc.) prior to the mergers of Inner Mongolia Production Company LLC ("IMPCO") and Advanced Drilling Services, LLC ("ADS") into wholly-owned subsidiaries of CAMAC Energy Inc.

The accompanying unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for filing of Form 10-Q. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. We believe that the presentations and disclosures herein are adequate to make the information not misleading. The unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the interim periods. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. Prior interim period data has been reclassified to reflect the reporting and classification used in our 2011 annual consolidated financial statements.  These reclassifications have no effect on previously reported results of operations.  The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for any subsequent quarter or for the year ending December 31, 2012.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates based on assumptions. Estimates affect the reported amounts of assets and liabilities, disclosure of contingent liabilities, and the reported amounts of revenues and expenses during the reporting periods. Accordingly, our accounting estimates require the exercise of judgment. While management believes that the estimates and assumptions used in preparation of unaudited consolidated financial statements are appropriate, actual results could differ from those estimates. Estimates that may have a significant effect include oil and natural gas reserve quantities, depreciation, depletion and amortization relating to oil and natural gas properties, stock-based compensation and income taxes. The accounting estimates used in the preparation of the unaudited consolidated financial statements may change as new events occur, more experience is acquired, additional information is obtained and our operating environment changes.

In the interim period ended March 31, 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-05 amending Accounting Standards Codification (“ASC”) Topic 220 related to the presentation of comprehensive income, with the exception of the portions of ASU 2011-05 for which the effective date has been deferred by ASU 2011-12.  The Company is now presenting, in both interim and annual financial statements, items of net income (loss), other comprehensive income (loss) and total comprehensive income (loss) in two separate consecutive statements.

On February 10, 2012 the Company requested the Office of the Chief Accountant of the Securities and Exchange Commission (the “OCA”) to review the facts and circumstances regarding the Company’s April 2010 acquisition of certain interests relating to the Oyo Field offshore Nigeria, with regard to the Company’s historical accounting for that transaction.  After review, on March 29, 2012, the Staff of the OCA informed the Company that the OCA would not object to the Company’s accounting for this transaction as an asset purchase.

 
Page 8 of 23

 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (continued)
 
Recently Issued Accounting Standards Not Yet Adopted

In December 2011, Financial Accounting Standards Board (“FASB”) issued ASU 2011-11 regarding disclosure requirements for assets and liabilities that have been offset in the balance sheet.  The scope includes financial instruments and derivative instruments that are either (i) presently offset as permitted under existing accounting principles for offsetting of financial instruments and derivatives in certain cases or (ii) subject to an enforceable master netting agreement or similar agreement whether or not they have been offset.  The new disclosures related to offsetting include the gross amounts, amounts offset and net amounts as recorded.  For amounts subject to enforceable master netting agreements, disclosure is required for the amounts of financial instruments and other derivative instruments not offset, amounts related to financial collateral, and the net amounts.   The ASU is effective for annual and interim periods beginning on or after January 1, 2013 and requires retrospective application for comparative prior periods presented.  At March 31, 2012 the Company did not have any transactions of the types subject to this ASU.

3.  Acquisitions

Nigeria - OML 120/121 Transaction

On December 10, 2010, the Company entered into a Purchase and Continuation Agreement (the “Purchase Agreement”) with CAMAC Energy Holdings Limited (“CEHL”), superseding the October 11, 2010 agreement.  Pursuant to the Purchase Agreement, the Company agreed to acquire certain of the remainder of CEHL’s interest (the “OML 120/121 Transaction”) in the OML 120/121 PSC (the “Non-Oyo Contract Rights”).  In April 2010 the Company had acquired from CEHL the Oyo Contract Rights in the OML 120/121 PSC. The OML 120/121 Transaction closed on February 15, 2011 under the terms of the Purchase Agreement.

In exchange for the Non-Oyo Contract Rights, the Company agreed to an option-based consideration structure and paid $5.0 million in cash to Allied Energy Plc. (“Allied”) upon the closing of the OML 120/121 Transaction on February 15, 2011. The Company has the option to elect to retain the Non-Oyo Contract Rights upon payment of additional consideration to Allied as follows:

a.
First Milestone:  Upon commencement of drilling of the first well outside of the Oyo Field under the PSC, the Company may elect to retain the Non-Oyo Contract Rights upon payment to CEHL of $5 million (either in cash, or at Allied’s option, in shares);
b.
Second Milestone:  Upon discovery of hydrocarbons outside of the Oyo Field under the PSC in sufficient quantities to warrant the commercial development thereof, the Company may elect to retain the Non-Oyo Contract Rights upon payment to CEHL of $5 million (either in cash, or at Allied’s option, in shares);
c.
Third Milestone:  Upon the approval by the Management Committee (as defined in the PSC) of a Field Development Plan with respect to the development of non-Oyo Field areas under the PSC, as approved by the Company, the Company may elect to retain the Non-Oyo Contract Rights upon payment to Allied of $20 million (either in cash, or at Allied’s option, in shares); and
d.
Fourth Milestone:  Upon commencement of commercial hydrocarbon production outside of the Oyo Field under the PSC, the Company may elect to retain the Non-Oyo Contract Rights (with no additional milestones or consideration required thereafter following payment in full of the following consideration) upon payment to Allied, at Allied’s option of (i) $25 million in shares, or (ii) $25 million in cash through payment of up to 50% of the Company’s net cash flows received from non-Oyo Field production under the PSC.

If any of the above milestones are reached and the Company elects not to retain the Non-Oyo Contract Rights at that time, then all the Non-Oyo Contract Rights will automatically revert back to CEHL without any compensation due to the Company and with CEHL retaining all consideration paid by the Company to date.  As of March 31, 2012, none of the above noted milestones were reached.

The Purchase Agreement contained the following conditions to the closing of the Transaction: (i) CPL, CAMAC International (Nigeria) Limited (“CINL”), Allied, and Nigerian Agip Exploration Limited (“NAE”) must enter into a Novation Agreement in a form satisfactory to the Company and CEHL and that contains a waiver by NAE of the enforcement of Section 8.1(e) of the OML 120/121 PSC (providing for the continued waiver by NAE of its entitlement to “profit oil” in favor of Allied), and that notwithstanding anything to the contrary contained in the OML 120/121 PSC, the profit sharing allocation set forth in the OML 120/121 PSC shall be maintained after the consummation of the OML 120/121 Transaction; (ii) the Company, and CEHL must enter into a registration rights agreement with respect to any shares issued by the Company to Allied at its election as consideration upon the occurrence of any of the above-described milestone events, in a form satisfactory to the Company and CEHL; and (iii) the Oyo Field Agreement, dated April 7, 2010, by and among the Company, CEHL and Allied, must be amended in order to remove certain indemnities with respect to Non-Oyo Operating Costs (as defined therein). In addition, CEHL must deliver the certain data and certain equipment to the Company in as-is condition.  The Company agreed to limited waivers of certain of these closing conditions under the Limited Waiver Agreement. See Note 19 in our Annual Report on Form 10-K for the year ended December 31, 2011, for more information regarding the Limited Waiver Agreement.

 
Page 9 of 23

 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (continued)
 
Award of Gambia Offshore Exploration Blocks
 
In January 2012, the Company announced it has entered into an agreement with the Gambian Ministry of Petroleum (on behalf of the Government of the Republic of The Gambia) on the provisional award of two offshore exploration blocks located in the West African Transform Margin.  The Company will be the operator with 85% interest in the blocks A2 and A5, having a total surface area of 2,666 square kilometers in water depths of between 600-1,000 meters.  Gambia National Petroleum Company will be carried as a 15% interest through first oil.  The agreement sets forth the negotiated fiscal terms and work program for the two blocks and is subject to signing of the final petroleum exploration licenses.

Award of Kenya Exploration Blocks

In February 2012 the Company announced it has entered into a heads of agreement with the Kenyan Ministry of Energy for the award of three exploration blocks (the “Blocks”).  Onshore Block 11A covers 10,913 square kilometers in northwest Kenya near the Ugandan border; onshore Block L1B covers 12,197 square kilometers in eastern Kenya on the Somali border; and Block L16 covers 1,699 square kilometers onshore and 89 square kilometers offshore on Kenya’s southeast coast.  The Company will be the operator with 75% interest in the Blocks. The Government of Kenya will be carried at 10% through the time of commercial discovery, and the remaining 15% will be held by a local partner.

4.  Property, Plant and Equipment

Property, plant and equipment is comprised of the following:

   
As of
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
Oil and gas Properties:
 
(In thousands)
 
Proved oil and gas properties
  $ 206,212     $ 206,212  
      Less:  Accumulated depreciation, depletion and amortization
    18,521       15,233  
Proved oil and gas properties, net
    187,691       190,979  
Unproved oil and gas properties
    5,750       5,150  
Oil and gas Properties, net
    193,441       196,129  
                 
Property, plant and equipment, other
    783       779  
      Less:  Accumulated depreciation
    562       522  
Property, plant and equipment, other, net
    221       257  
      Total property, plant and equipment
  $ 193,662     $ 196,386  

5.  Operating Segment Data

The Company manages its operations on a geographical basis.  The Company’s two operating segments are Africa and Asia.  Our segments derive revenues from the sale of oil and gas products.  The Company has no intersegment revenues and is not dependent on a single significant customer for a substantial portion of its revenues.

Segment performance is measured on an after-tax operating basis.   Corporate income and expense items for interest income and expense, corporate administrative costs, stock-related compensation and noncontrolling interests are not allocated to segments.  Assets assigned to the two reportable segments exclude intercompany receivables and payables, intercompany investments, cash and cash equivalents, short-term investments and marketable securities.

 
Page 10 of 23

 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (continued)
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Revenues
 
(In thousands)
 
Africa
  $ 5,672     $ -  
Total revenues
  $ 5,672     $ -  
                 
Net Income  (Loss) attributable to CAMAC Energy Inc.
               
Africa
  $ 1,804     $ (24,489 )
Asia
    (394 )     (691 )
Corporate
    (2,706 )     (3,018 )
Net loss attributable to CAMAC Energy Inc.
  $ (1,296 )   $ (28,198 )
 
 
As of
 
   
March 31,
2012
   
December 31,
2011
 
Assets
(In thousands)
 
Africa
  $ 205,718     $ 218,702  
Asia
    252       272  
Corporate
    9,831       15,056  
Total assets
  $ 215,801     $ 234,030  
 
6.  Long-Term Note Payable – Related Party

On June 6, 2011, CAMAC Petroleum Limited (“CPL”), a wholly owned subsidiary of the Company, executed a Promissory Note (the “Promissory Note”) in favor of Allied (the “Lender”). Under the terms of the Promissory Note, the Lender agreed to make loans to CPL, from time to time and pursuant to requests by CPL, in an aggregate sum of up to $25.0 million. Interest accrues on outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum.  CPL may prepay and re-borrow all or a portion of such amount from time to time, but the unpaid aggregate outstanding principal amount of all loans will mature on June 6, 2013.  During the three months ended March 31, 2012, the Company reduced the outstanding principal by $3.0 million with the net proceeds from prior liftings.  As of March 31, 2012, $3.0 million was outstanding.

Pursuant to the Promissory Note and as a condition to the obligations of the Lender to perform under the Promissory Note, on June 6, 2011, the Company, as direct parent of CPL, executed a Guaranty Agreement (“Guaranty Agreement”) in favor of the Lender. Under the Guaranty Agreement, the Company irrevocably, unconditionally and absolutely guarantees all of CPL’s obligations under the Promissory Note.

 
Page 11 of 23

 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (continued)
 
7.  Accrued Expenses

Accrued expenses are as follows:

   
As of
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
   
(In thousands)
 
Accrued contracting and development fees
  $ 2,076     $ 1,963  
Accrued royalties
    5,741       3,160  
Accrued contingent consideration
    890       890  
Accrued payroll and benefits
    411       494  
Other
    498       415  
Total accrued expenses   $ 9,616     $ 6,922  

8.  Equity

During the three months ended March 31, 2012, the Company issued 7,000 shares of Common Stock on exercises of options.
 
Under the Company’s 2009 Equity Incentive Plan, the Company may issue stock, options or units and restricted stock awards to result in issuance of a maximum aggregate of 12,000,000 shares of Common Stock. Options awarded expire 10 years from date of grant or shorter term as fixed by the Board of Directors. During the three months ended March 31, 2012, the Company granted a total of 560,000 stock options and 254,546 shares of restricted stock awards with vesting periods from 12 months to 36 months. As of March 31, 2012, approximately 4,933,000 shares remain available for future grants under the 2009 Equity Incentive Plan.

9.  Earnings (Loss) Per Common Share

Basic earnings (loss) per common share (“EPS”) are computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic and diluted EPS for the three months ended March 31, 2012 and 2011, were as follows:

   
Three Months Ended March 31,
 
   
2012
   
2011
 
   
(In thousands)
Basic
    155,581       153,735  
Diluted
    155,581       153,735  

The number of stock options, warrants issued in stock offerings and restricted stock awards that were excluded from dilutive shares outstanding as these potentially dilutive securities are anti-dilutive because the Company was in a loss position, were as follows:

   
Three Months Ended March 31,
 
   
2012
   
2011
 
   
(In thousands)
 
Stock options
    11       201  
Warrants issued in stock offerings
    -       242  
Nonvested restricted stock awards
    316       101  

10.  Financial Instruments and Fair Value Measurements

The March 31, 2012 unaudited consolidated balance sheet includes an available-for-sale equity investment in a nonsubsidiary company carried at a fair value of $357,000. The fair value was determined using “Level 1” inputs as defined in ASC Topic 820 (Fair Value Measurements and Disclosures). Level 1 inputs, represent inputs observable in an active market, which in this case is a public active stock market.

At March 31, 2012, the carrying amounts of the Company’s other financial instruments, which include cash equivalents, short-term and long-term investments, trade receivables, deposits, long-term advances, accounts payable, accrued expenses and long-term debt at floating interest rates approximate their fair values, principally due to the short-term nature, maturities or nature of interest rates of many of the above listed items.

 
Page 12 of 23

 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (continued)
 
11.  Commitments and Contingencies

Workover Commitment

As of March 31, 2012, the Company had an unpaid workover commitment for rig rental and other costs related to Oyo Field well #5 of approximately $20.5 million.

Contingencies

On June 28, 2011, Mr. Abiola Lawal, former Executive Vice President and Chief Financial Officer of the Company, filed a lawsuit in Harris County, Texas District Court against the Company, alleging breach of contract and unlawful termination in connection with Mr. Lawal’s June 6, 2011 termination from the Company. On September 16, 2011, the Court issued an order staying the proceedings pending arbitration in view of the mandatory arbitration clause in the plaintiff’s employment agreement. On October 31, 2011, the plaintiff issued a written demand for arbitration making the same allegations as the stayed lawsuit. An Arbitrator has been chosen, discovery has commenced and the hearing is scheduled for September 2012.  The Company believes the claims are without merit and intends to vigorously defend itself against such claims.

From time to time we may be involved in various legal proceedings and claims in the ordinary course of our business. As of March 31, 2012, and through the filing date of this report, we do not believe the ultimate resolution of such actions or potential actions of which we are currently aware will have a material effect on our consolidated financial position or our net income or loss.

12.  Related Party Transactions

Agreements with Related Parties

For certain related party agreements entered into in prior periods, including executive officers, refer to Note 19 - Related Party Transactions in the Company’s Notes to Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011.

Employment Agreement and Separation and Release Agreement with Alan W. Halsey
Effective June 6, 2011 the Company and Mr. Halsey entered into an Employment Offer Letter (the “Halsey Employment Agreement”) pursuant to which Mr. Halsey became a full-time employee of the Company as Senior Vice President, Exploration and Production.  Pursuant to the Halsey Employment Agreement, Mr. Halsey received an annual base salary of $290,000.  Additionally, Mr. Halsey received (i) a one-time stock option award of 1 million shares of the Company’s common stock vesting in 1/3 annual installments on the anniversary date of hire, subject in each case to Mr. Halsey’s continued service on such anniversary date, commencing with the first 333,333 shares vesting on the first year anniversary of hire and the final 333,334 shares vesting on the third anniversary of date of hire,  (ii) a one-time award of 175,000 shares of restricted shares of the Company’s common stock pursuant to a Restricted Stock Award Agreement, and (iii) a one-time relocation allowance of $12,500.  The restricted stock award was to vest 50% on the one year anniversary of the date of hire, and the remainder was to vest on the two year anniversary of the date of hire, subject in both cases to continued service of Mr. Halsey on such anniversary date. Both the option award and restricted stock award were made under the Company’s 2009 Equity Incentive Plan.  Mr. Halsey was also eligible for a discretionary cash performance bonus each year targeted at between 0% and 100% of his then-current base salary, as well as additional equity grants, in the discretion of the Company’s Board of Directors.  In addition, if the Company terminated Mr. Halsey’s employment without Cause (as defined in the Halsey Employment Agreement), (i) the Company must pay to Mr. Halsey an amount equal to the base salary plus target annual bonus as determined by the Board of Directors for the year of termination, (ii) any outstanding restricted stock and stock options shall have their vesting period immediately accelerated by 12 months, with all vested Company stock options (including accelerated options) remaining exercisable for a period of 12 months following the date of separation, in exchange for a full release of all claims against the Company and its related parties, and (iii) the Company shall reimburse Mr. Halsey for up to 12 months for the excess, if any, of his cost of COBRA Continuation Coverage under the Company’s group medical plan above the amount Mr. Halsey would have paid for such coverage had Mr. Halsey remained an employee of the Company.

 
Page 13 of 23

 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (continued)
 
On February 14, 2012 in connection with Mr. Halsey’s resignation effective February 29, 2012, the Company agreed to provide Mr. Halsey with the following severance and other benefits pursuant to a Separation Agreement and General Release of Claims entered into by and between Mr. Halsey and the Company: (i) the Company agreed to pay Mr. Halsey a severance amount total of $72,500 in cash, in three equal installments on March 30,2012, April 30, 2012 and May 31, 2012 subject to the execution and non-revocation by Mr. Halsey of the Supplementary Release; and (ii) the Company agreed to pay Mr. Halsey a bonus for year 2011 of $84,583.  In addition, the Company and Mr. Halsey agreed to certain other customary terms and conditions, including a release of potential claims, preservation of proprietary and confidential information, and indemnities.  For the three months ended March 31, 2012, the Company paid $108,750 per the terms of the agreement.

The Separation Agreement and General Release of Claims extinguished all rights, if any, which Mr. Halsey had, contractual or otherwise, relating to his employment with Company, including any rights to severance benefits under the Halsey Employment Agreement.

Employment Agreement and Separation and Release Agreement with Edward G. Caminos
Effective July 1, 2011 the Company and Mr. Caminos entered into an Employment Offer Letter (the “Caminos Employment Agreement”) pursuant to which Mr. Caminos became a full-time employee of the Company as Senior Vice President and Chief Financial Officer.  Pursuant to the Caminos Employment Agreement, Mr. Caminos received an annual base salary of $290,000.  Additionally, Mr. Caminos received (i) a one-time stock option award of 1 million shares of the Company’s common stock vesting in 1/3 annual installments on the anniversary date of hire, subject in each case to Mr. Caminos’ continued service on such anniversary date, commencing with the first 333,333 shares vesting on the first year anniversary of hire and the final 333,334 shares vesting on the third anniversary of date of hire,  and (ii) a one-time award of 200,000 shares of restricted shares of the Company’s common stock pursuant to a Restricted Stock Award Agreement. The restricted stock award would vest 50% on the one year anniversary of the date of hire, and the remainder would vest on the two year anniversary of the date of hire, subject in both cases to continued service of Mr. Caminos on such anniversary date. Both the option award and restricted stock award were made under the Company’s 2009 Equity Incentive Plan.  Mr. Caminos was also eligible for a discretionary cash performance bonus each year targeted at between 0% and 100% of his then-current base salary, as well as additional equity grants, in the discretion of the Company’s Board of Directors.  In addition, if the Company terminated Mr. Caminos’ employment without Cause (as defined in the Caminos Employment Agreement), (i) the Company must pay to Mr. Caminos an amount equal to the base salary plus target annual bonus as determined by the Board of Directors for the year of termination, (ii) any outstanding restricted stock and stock options shall have their vesting period immediately accelerated by 12 months, with all vested Company stock options (including accelerated options) remaining exercisable for a period of 12 months following the date of separation, in exchange for a full release of all claims against the Company and its related parties, and (iii) the Company shall reimburse Mr. Caminos for up to 12 months for the excess, if any, of his cost of COBRA Continuation Coverage under the Company’s group medical plan  above the amount Mr. Caminos would have paid for such coverage had Mr. Caminos remained an employee of the Company.

On February 23, 2012 in connection with Mr. Caminos’ resignation effective March 1, 2012, the Company agreed to provide Mr. Caminos with the following severance and other benefits pursuant to a Separation Agreement and General Release of Claims entered into by and between Mr. Caminos and the Company: (i) the Company agreed to pay Mr. Caminos a severance amount total of $96,667 in cash, in four equal installments on March 30, 2012, April 30, 2012, May 31, 2012 and June 30, 2012 subject to the execution and non-revocation by Mr. Caminos of the Supplementary Release; (ii) the Company agreed to pay Mr. Caminos a bonus for year 2011 of $72,500; and (iii) monthly reimbursement of Mr. Caminos’ and his eligible dependents’ benefits under the Company’s group health and dental plan for up to four months following his resignation date.  In addition, the Company and Mr. Caminos agreed to certain other customary terms and conditions, including a release of potential claims, preservation of proprietary and confidential information, and indemnities.  For the three months ended March 31, 2012, the Company paid $104,722 per the terms of the agreement.
 
The Separation Agreement and General Release of Claims extinguished all rights, if any, which Mr. Caminos had, contractual or otherwise, relating to his employment with Company, including any rights to severance benefits under the Caminos Employment Agreement.

 
Page 14 of 23

 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (continued)
 
Transactions With Related Parties

The Company has transactions in the normal course of business with its shareholders, CEHL and their affiliates.  The following tables summarize related party transactions and balances for the respective periods.
 
   
As of
 
   
March 31,
2012
 
December 31,
2011
 
 
 
(In thousands)
CEHL, accounts payable
  $ 185     $ 162  
CEHL, L/T note payable
  $ 3,034     $ 6,000  
U.S. executive bonuses, accounts payable
  $ 13     $ 290  
 
   
Three Months Ended March 31,
 
      2012       2011  
 
 
(In thousands)
 
CEHL, operating expenses
  $ 130     $ 13  
CEHL, interest on L/T note payable
  $ 31     $ -  
 
 
Page 15 of 23

 
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Our Business

CAMAC Energy Inc. is a publicly traded company which engages in the exploration, development, and production of oil and gas outside the U.S., directly and through joint ventures and other ventures in which it may participate. Our shares are traded on the on the NYSE Amex under the symbol “CAK”.  The Company’s corporate headquarters is located in Houston, Texas.  Currently the Company has interests in OML 120/121 oil and gas leases in deep water offshore Nigeria, has or is in the process of acquiring exploratory acreage in several other African countries, and has the rights to significant gas acreage under contract in China. The Company is a strategic partner with major energy companies in oil and gas fields in Nigeria and China. The Company’s current operations commenced in 2005 through IMPCO, formed as a limited liability company under New York State law on August 25, 2005. Members of the Company’s senior management team have experience in the fields of international oil and gas operations, business development, geology, petroleum engineering, energy services, strategy, government relations, and finance and will seek to utilize their experience, expertise and contacts to create value for shareholders. Oil and gas exploration and production operations are managed geographically.

The Company was originally incorporated in Delaware on December 12, 1979 as Gemini Marketing Associates Inc., subsequently changed its name to Pacific East Advisors, Inc., and on May 7, 2007 consummated a reverse merger involving predecessor company IMPCO and ADS (the “Mergers”), in connection with which the Company changed its name to Pacific Asia Petroleum, Inc. The Company’s name was changed to CAMAC Energy Inc. effective April 7, 2010.

Africa Developments

During the three months ended March 31, 2012 and 2011, the Oyo Field had gross crude oil production from two producing wells averaging totals of 2,949 and 4,017 barrels per day, respectively, of which the Company’s net shares including Cost Oil barrels totaled 466 and 1,187 barrels per day, respectively. In March 2012, there was a lifting of approximately 290,000 barrels of crude oil, at a price of $123.73 per barrel.  There were no liftings in the three months ended March 31, 2011.  At March 31, 2012 the Company had a remaining unpaid workover commitment related to the Oyo well #5 workover of $20.5 million which had been charged to expense in prior years.  This amount will be eligible for recovery as future Cost Oil revenue after payment occurs and the rate of recovery will be affected by future production levels.

In December 2011, the Company announced that NAE has signed a definitive agreement to divest its 40% working interest in OML 120/121 to Allied Energy Plc., an affiliate of the Company.  The transaction is subject to customary conditions for closing and is expected to conclude during the second quarter of 2012.

In January 2012, the Company announced it has entered into an agreement with the Gambian Ministry of Petroleum (on behalf of the Government of the Republic of The Gambia) on the provisional award of two offshore exploration blocks located in the West African Transform Margin.  The Company will be the operator with 85% interest in the blocks A2 and A5, having a total surface area of 2,666 square kilometers in water depths of between 600-1,000 meters.  Gambia National Petroleum Company will be carried as a 15% interest through first oil.  The agreement sets forth the negotiated fiscal terms and work program for the two blocks and is subject to signing of the final petroleum exploration licenses.

In February 2012 the Company announced it has entered into a heads of agreement with the Kenyan Ministry of Energy for the award of three exploration blocks (the “Blocks”).  Onshore Block 11A covers 10,913 square kilometers in northwest Kenya near the Ugandan border; onshore Block L1B covers 12,197 square kilometers in eastern Kenya on the Somali border; and Block L16 covers 1,699 square kilometers onshore and 89 square kilometers offshore on Kenya’s southeast coast.  The Company will be the operator with 75% interest in the Blocks. The Government of Kenya will be carried at 10% through the time of commercial discovery, and the remaining 15% will be held by a local partner.

Asia Developments

As of March 31, 2012, our active operations in China were focused on gas reserves exploration and development.

In the Zijinshan Block located in Shanxi province, the Company performed seismic work in 2009 and drilled its first exploratory well in late 2009.   In 2010 the Company completed one additional exploratory well which resulted in finding of the presence of gas at several intervals. However, no flow tests were conducted due to the deteriorated hole condition, and therefore all exploratory costs were expensed. Under the production sharing contract covering this area, the Company is obligated to drill an additional five wells in future periods, estimated to cost approximately $1 million each, for a total of seven wells in the exploratory phase before commencement of formal development. In 2011 two exploratory wells were completed, with another scheduled for completion in 2012.  No revenues are expected from this area in 2012, and the Company has not yet declared any net proved reserves for this area.  In October 2011, the Company retained a financial advisor to assist in the identification and evaluation of opportunities to monetize its Zijinshan gas asset. The proceeds of any such transaction are expected to be invested in the Company’s current or planned core Africa opportunities. However, there can be no assurance when or if a transaction will be consummated. The evaluation is ongoing as of the filing date of this Form 10-Q.

 
Page 16 of 23

 
 
For enhanced oil recovery and production operations, all active operations ceased in 2010, including consideration of the Chifeng agreement area in Inner Mongolia for a possible enhanced oil recovery and production project. In February 2011, the Board of Directors of Dong Fang approved dissolution of Dong Fang, the operating company. Effective June 20, 2011 a settlement agreement with the noncontrolling interest parties provided for settling of all claims and disputes, termination of existing contracts and agreements, transfers of related patent application rights to Mr. Li Xiang Dong, disposition of remaining assets and liabilities, and agreement to liquidate Dong Fang.  As of March 31, 2012 all patent application rights had been transferred to Mr. Li Xiang Dong and the remaining assets and liabilities had been transferred, settled or disposed of, as applicable.

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 notes to unaudited consolidated financial statements as well as our Annual Report on Form 10-K for the year ended December 31, 2011.

Three months ended March 31, 2012, compared to the three months ended March 31, 2011:
 
   
Three Months Ended March 31,
 
   
2012
   
2011
   
Change
 
Statement of Operations Data:
 
(In thousands, unaudited)
 
Total revenues
  $ 5,672     $ -     $ 5,672  
                         
Lease operating expenses and production costs
    178       24,477       (24,299 )
Exploratory expenses
    622       177       445  
Depreciation, depletion and amortization
    3,327       66       3,261  
General and administrative expenses
    2,817       3,536       (719 )
Total costs and operating expenses
    6,944       28,256       (21,312 )
Operating loss
    (1,272 )     (28,256 )     26,984  
                         
Other (expense) income
    (31 )     8       (39 )
Loss before income taxes
    (1,303 )     (28,248 )     26,945  
Provision for income tax expense
    -       -       -  
Net loss
    (1,303 )     (28,248 )     26,945  
Net loss attributable to noncontrolling interests
    7       50       (43 )
Net loss attributable to CAMAC Energy Inc.
  $ (1,296 )   $ (28,198 )   $ 26,902  

Total revenues.  Our revenues in the three months ended March 31, 2012 were $5,672,000 as compared to $0 for the three months ended March 31, 2011.  The increase was due to the lifting in the current period.  During the three months ended March 31, 2012 the average gross production from the Oyo Field was 2,949 barrels per day, and the Company’s share of average daily net production was 466 barrels per day. The revenue per barrel on crude oil sold during the three months ended March 31, 2012 was $123.73.

Lease operating expenses and production costs.  Lease operating expenses consist of personnel costs and contractor charges directly associated with the production of oil.  Our lease operating expenses in the three months ended March 31, 2012 were $178,000 as compared to $24,477,000 for the three months ended March 31, 2011. The $24,299,000 decrease was primarily due to the workover costs incurred for well # 5 in the Oyo Field of $24,477,000 in the three months ended March 31, 2011.

Exploratory expenses.  Exploratory expense consists of salaries and personnel costs related to exploration activities, drilling costs for unsuccessful wells, costs for acquisition of seismic data and other lease related costs charged to expense. Our exploratory expenses in the three months ended March 31, 2012 were $622,000 as compared to $177,000 for the three months ended March 31, 2011. The $445,000 increase was due to higher salaries and benefits expenses of $329,000 and higher other expenses of $116,000.

 
Page 17 of 23

 
 
Depreciation, depletion and amortization expenses.  Depreciation, depletion and amortization expenses consist of depletion of oil reserves and depreciation of leasehold improvements, furniture and fixtures and computer equipment. Our depreciation, depletion and amortization expenses in the three months ended March 31, 2012 were $3,327,000 as compared to $66,000 for the three months ended March 31, 2011. The $3,261,000 increase was primarily due to recording depletion related to our share of the lifting during the current period.

General and administrative expenses.  General and administrative expenses consists primarily of salaries and related personnel costs of executive management, finance, accounting, legal and human resources,  accounting and legal services, consulting projects and insurance. Our general and administrative expenses in the three months ended March 31, 2012 were $2,817,000 as compared to $3,536,000 for the three months ended March 31, 2011. The $719,000 decrease was due to lower share-based compensation expense of $1,526,000, partially offset by higher consulting and legal expenses of $459,000, higher salaries and benefits expense of $200,000 and higher other expenses of $148,000.

Segment Analysis

The following table compares revenues and net income (loss) attributable to CAMAC Energy Inc. stockholders for each of our business segments for the three months ended March 31, 2012 and 2011. Net loss attributable to CAMAC Energy Inc. consists of our revenues less costs and operating expenses, other income (expense), income tax expense and non-controlling interests.  
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Revenues
 
(In thousands)
 
Africa
  $ 5,672     $ -  
Total revenues
  $ 5,672     $ -  
                 
Net Income  (Loss) attributable to CAMAC Energy Inc.
               
Africa
  $ 1,804     $ (24,489 )
Asia
    (394 )     (691 )
Corporate
    (2,706 )     (3,018 )
Net loss attributable to CAMAC Energy Inc.
  $ (1,296 )   $ (28,198 )

Africa
 
Our revenues in the three months ended March 31, 2012 were $5,672,000 as compared to $0 for the three months ended March 31, 2011. The increase was due to the lifting in the current period.  There were no liftings in the three months ended March 31, 2011, accordingly, no revenues were recorded.

Net income of $1,804,000 in the Africa segment for the three months ended March 31, 2012, as compared to net loss of $24,489,000 for the three months ended March 31, 2011, was primarily due to the recognition in 2011 of workover costs of $24,477,000 related to well #5 in the Oyo Field.

Asia

Net loss for the Asia segment for the three months ended March 31, 2012 was $394,000, as compared to $691,000 for the three months ended March 31, 2011. The decrease of $297,000 was primarily due to reduced operations.

Corporate

Net loss for the Corporate segment for the three months ended March 31, 2012 was $2,706,000, as compared to $3,018,000 for the three months ended March 31, 2011.  The decrease of $312,000 was due to decreased stock-based compensation expense of $1,526,000 primarily related to forfeitures in 2012, partially offset by higher consulting and legal expenses of $556,000, higher salaries and benefits of $363,000 and higher other net expenses of $295,000.

 
Page 18 of 23

 
 
Liquidity and Capital Resources

As of March 31, 2012, the Company had cash and cash equivalents of $8,520,000, accounts receivable of $11,414,000, accounts payable of $19,411,000 and accrued expenses of $9,616,000. The net cash provided by (used in) each of the operating, investing and financing activities are summarized in the following table and discussed in further detail below.
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
   
(In thousands)
 
Net cash used in operating activities
  $ (1,585 )   $ (3,155 )
Net cash used in investing activities
    (566 )     (5,258 )
Net cash (used in) provided by financing activities
    (2,963 )     30  
Effect of exchange rate on cash
    8       17  
Net decrease in cash and cash equivalents
  $ (5,106 )   $ (8,366 )

During the three months ended March 31, 2012, net cash used in operating activities was $1,585,000 as compared to $3,155,000 for the three months ended March 31, 2011. The net reduction in cash used in operating activities of $1,570,000 was primarily due to a decrease in net loss before non-cash expenses (primarily dry hole costs, depreciation, depletion, amortization and stock-based compensation), mostly offset by accruals related to the workover of well # 5 in the Oyo Field in the prior period.

During the three months ended March 31, 2012, net cash used in investing activities was $566,000 as compared to $5,258,000 in the three months ended March 31, 2011. The decrease in cash used in investing activities of $4,692,000 was primarily due to the $5,000,000 payment related to the OML 120/121 Transaction in the prior period.

During the three months ended March 31, 2012, net cash used in financing activities was $2,963,000 as compared to net cash provided by financing activities of $30,000 in the three months ended March 31, 2011. The increase of cash used of $2,993,000 primarily relates to the partial repayment of the Promissory Note during the current period.

On June 6, 2011, CAMAC Petroleum Limited (“CPL”), a wholly owned subsidiary of the Company, executed a Promissory Note (the “Promissory Note”) in favor of Allied (the “Lender”). Under the terms of the Promissory Note, the Lender agreed to make loans to CPL, from time to time and pursuant to requests by CPL, in an aggregate sum of up to $25.0 million. Interest accrues on outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum.  CPL may prepay and re-borrow all or a portion of such amount from time to time, but the unpaid aggregate outstanding principal amount of all loans will mature on June 6, 2013.  During the three months ended March 31, 2012, the Company reduced the outstanding principal by $3.0 million with the net proceeds from prior liftings.  As of March 31, 2012, $3.0 million was outstanding.

Based upon current cash flow projections, management believes that the Company will have sufficient capital resources to meet projected cash flow requirements through March 2013 assuming no additional participation in Oyo Field operating and development costs through such date.

Our ability to execute our business plan will also depend on whether we are able to raise additional funds through equity, debt financing or strategic alliances. Such additional funds may not become available on acceptable terms, if at all, and any additional funding obtained may not be sufficient to meet our needs in the long-term. Through March 31, 2012, significantly all of our financing had been raised through private placements and registered direct offerings of equity instruments.  

 
Page 19 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.

Tabular Disclosure of Contractual Obligations

Please see our Annual Report on Form 10-K for the year ended December 31, 2011, Part II, Item 7 for a table summarizing the Company’s significant contractual obligations as of December 31, 2011.  No material changes to such information have occurred during the three months ended March 31, 2012.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company may be exposed to certain market risks related to changes in foreign currency exchange, interest rates, and commodity prices. Please see our Annual Report on Form 10-K for the year ended December 31, 2011 under Part II, Item 7A. No material changes to such information have occurred during the three months ended March 31, 2012.

ITEM 4.
CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this quarterly report, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that, as of March 31, 2012, our disclosure controls and procedures are effective at a reasonable assurance level in ensuring that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Control Over Financial Reporting.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


 
 
Page 20 of 23

 
 
PART II.  OTHER INFORMATION
 
ITEM 1. 
LEGAL PROCEEDINGS

On June 28, 2011, Mr. Abiola Lawal, former Executive Vice President and Chief Financial Officer of the Company, filed a lawsuit in Harris County, Texas District Court against the Company, alleging breach of contract and unlawful termination in connection with Mr. Lawal’s June 6, 2011 termination from the Company. On September 16, 2011, the Court issued an order staying the proceedings pending arbitration in view of the mandatory arbitration clause in the plaintiff’s employment agreement. On October 31, 2011, the plaintiff issued a written demand for arbitration making the same allegations as the stayed lawsuit. An Arbitrator has been chosen, discovery has commenced and the hearing is scheduled for September 2012.  The Company believes the claims are without merit and intends to vigorously defend itself against such claims.

From time to time we may be involved in various legal proceedings and claims in the ordinary course of our business. As of March 31, 2012 we do not believe the ultimate resolution of such actions or potential actions of which we are currently aware will have a material effect on our consolidated financial position or our net income or loss.
 
ITEM 1A.  RISK FACTORS
 
Please see our Annual Report on Form 10-K for the year ended December 31, 2011, Part I, Item 1A, for discussion on the risk factors.   No material changes to such information have occurred during the three months ended March 31, 2012.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.

Stock Repurchases

The Company did not repurchase any shares of its Common Stock during the quarter ended March 31, 2012.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable

ITEM 5.
OTHER INFORMATION

None.

 
Page 21 of 23

 
 
ITEM 6.
EXHIBITS

The following exhibits are filed with this report:
 
Exhibit
Number
 
Description
     
3.1  
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).
     
3.2  
Amended and Restated Bylaws of the Company as of April 11, 2011 (incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q filed on May 3, 2011).
     
10.1  
Separation Agreement and General Release of Claims effective February 14, 2012 by and between Mr. Alan W. Halsey and the Company (incorporated by reference to Exhibit 10.45 of our Annual Report on Form 10-K filed on March 15, 2012).*
     
10.2  
Separation Agreement and General Release of Claims effective February 23, 2012 by and between Mr. Edward G. Caminos and the Company (incorporated by reference to Exhibit 10.46 of our Annual Report on Form 10-K filed on March 15, 2012).*
     
10.3  
Executive Consulting Agreement effective March 1, 2012 by and between Earl W. McNiel and the Company (incorporated by reference to Exhibit 10.47 of our Annual Report on Form 10-K filed on March 15, 2012).*
     
31.1  
Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2  
Certification of Principal Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1  
Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2  
Certification of Principal Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
*  
Indicates a management contract or compensatory plan or arrangement.
     
101. INS
 
XBRL Instance Document.
     
101. SCH
 
XBRL Schema Document.
     
101. CAL
 
XBRL Calculation Linkbase Document.
     
101. LAB
 
XBRL Label Linkbase Document.
     
101. PRE
 
XBRL Presentation Linkbase Document.
 
Page 22 of 23

 

 SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  CAMAC Energy Inc.  
       
Date:   May 9, 2012
By:
/S/ DR. KASE LUKMAN LAWAL
 
   
Dr. Kase Lukman Lawal
 
   
Chief Executive Officer
 
    (Principal Executive Officer)  
 
 Page 23 of 23

 

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