UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
Mark
One:
þ Annual Report Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the fiscal year ended December 31, 2007;
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 No. 1-32158
GEOGLOBAL
RESOURCES INC.
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(Name
of small business issuer in its charter)
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Delaware
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33-0464753
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification No.)
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Suite
310, 605 – 1 Street SW, Calgary, Alberta,
Canada T2P
3S9
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(Address
of principal executive
offices) (Zip
Code)
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(403)
777-9250
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(Issuer’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act:
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Title
of each class
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Name
of each exchange on which registered
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None
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Securities
registered under Section 12(g) of the Exchange Act:
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Common
Stock, par value $.001 per share
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(Title
of Each Class)
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Check
whether the registrant is a well-known seasoned issuer as defined in Rule 405 of
the Securities Act
¨ Yesþ No
Check
whether the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act
¨ Yesþ No
Check
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.¨ Yesþ No
Check if
there is disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(Section 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form
10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
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Large
accelerated filer
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¨
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Accelerated
filer
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þ
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Non-accelerated
filer
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Smaller
reporting company
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¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨Yesþ No
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of June
30, 2007, the last business day of the registrant’s most recently completed
second fiscal quarter, was $201,880,033.
The
number of shares outstanding of each of the registrant's classes of common
stock, as of May 30, 2008, was 72,205,756 common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
None
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Part
I
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36
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Part
II
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40
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52
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53
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Part
III
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59
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66
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69
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PART
IV
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70
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General. On
April 1, 2008, we issued a press release announcing that based on the advice of
our Audit Committee and outside consultants, with the concurrence of our
Independent Registered Public Accountants for those periods, our Board of
Directors concluded that the financial statements in the Company’s Quarterly
Reports on Form 10-Q for each of the three fiscal quarters ended September 30,
2007, the three fiscal years ended December 31, 2006 and each of the three
fiscal quarters within those fiscal years contained errors and should no longer
be relied upon. We concurrently filed a Current Report on Form 8-K in
response to Item 4.02.
Non-Reliance on
Previously Issued Financial Statements or a Related Audit Report or Completed
Interim Review.
The
errors occurred in connection with the Company’s compliance with FAS 123R and
the calculation of the Company’s stock based compensation for the fiscal periods
involved. The errors resulted in an understatement of stock-based
compensation and net loss and comprehensive loss for the three fiscal years
ended December 31, 2006 and an overstatement of stock based compensation and net
loss and comprehensive loss for the three fiscal quarters ended September 30,
2007.
The error
affects the consolidated balance sheets, the consolidated statements of
operations, the consolidated statements of cash flows and certain of the notes
to the consolidated financial statements contained in those reports. The
restatements will also result in a reclassification of the stock based
compensation expense to the line item in which the consultants' fees are
recorded. The restatement has no effect on our current assets or current
liabilities or its overall financial condition. Amendments to the
reports will be filed as soon as practicable.
The
restatements do not reflect events occurring after the filing of the original
periodic reports filed containing the financial statements that have been
restated or modify or update those disclosures. Information not affected by the
restatements is unchanged and reflects the disclosure made at the time of the
original filing of the periodic reports with the Securities and Exchange
Commission.
On May
27, 2008, we issued a press release announcing that as a consequence of
its failure to file with the Securities and Exchange Commission its Quarter
Report on Form 10-Q for the period ended March 31, 2008 when due, it received,
on May 20, 2008, a letter from the American Stock Exchange LLC (the
“Exchange”) notifying it that, as required by Sections 134 and 1101 of the Amex
Company Guide, the timely and complete filing of the quarterly report Form 10-Q
is a condition to the continued listing of our Common Stock on the
Exchange. The Exchange further advised us that its failure to file
the quarter report is a material violation of our listing agreement with the
Exchange and therefore, under Section 1003(d) of the Amex Company Guide, the
Exchange is authorized to suspend and, unless prompt corrective action is taken,
remove our Common Stock from the Exchange listing.
As a
result of the foregoing, and our delinquent Form 10-K for the year ended
December 31, 2007, we remain subject to the procedures and requirements for
Section 1009 of the Company Guide. We are not required at this time
to submit an additional plan of compliance in connection with the deficiency of
the filing of the quarterly report Form 10-Q. Our Plan of compliance,
as accepted by the Exchange on April 30, 2008 demonstrates our ability to regain
compliance with its filing obligations by July 1, 2008.
PART
I
Our
Oil and Gas Activities
GeoGlobal
Resources Inc. is engaged, through our subsidiaries and ventures in which we are
a participant, in the exploration for and development of oil and natural gas
reserves. We initiated these activities in 2003. At
present, these activities are being undertaken in locations where we and our
joint participants have been granted exploration rights pursuant to Production
Sharing Contracts (“PSCs”) we have entered into with the Government of India
(“GOI”). As of May 12, 2008, we have entered into contracts with
respect to ten exploration blocks as follows:
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The
first of our agreements, entered into in February 2003 under NELP-III,
grants exploration rights in an area offshore eastern India in the Krishna
Godavari Basin in the State of Andhra Pradesh. We refer to this
KG-OSN-2001/3 exploration block as the "KG Offshore Block" and we have a
net 5% carried interest ("CI") under this
agreement.
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We
entered into two agreements which grant exploration rights in areas
onshore in the Cambay Basin in the State of Gujarat in western
India. These agreements were entered into in February 2004
under NELP-IV and we have a 10% participating interest ("PI") under each
of these agreements. We refer to the CB-ONN-2002/2 exploration
block as the "Mehsana Block" and the CB-ONN-2002/3 exploration block as
the "Sanand/Miroli Block".
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Pursuant
to an agreement entered into in April 2005, we purchased from Gujarat
State Petroleum Corporation Limited ("GSPC"), a 20% PI in the agreement
granting exploration rights granted under NELP-III to an onshore
exploration block in the Cambay Basin in the State of Gujarat in western
India. We refer to this CB-ON/2 exploration block as the
"Tarapur Block".
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In
September 2005, we entered into agreements with respect to two areas under
NELP-V. One area is located onshore in the Cambay Basin located
in the State of Gujarat south-east of our three existing Cambay blocks, in
which we hold a 10% PI. We refer to this CB-ONN-2003/2
exploration block as the "Ankleshwar Block". The second area is
located onshore in the Deccan Syneclise Basin located in the northern
portion of the State of Maharashtra in west-central India for which we
hold a 100% PI and are the operator. We refer to this
DS-ONN-2003/1 exploration block as the "DS 03
Block".
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In
March 2007, we signed agreements with respect to four additional locations
awarded under NELP-VI.
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One
location is onshore in the Krishna Godavari Basin in the State of Andhra
Pradesh adjacent to our KG Offshore Block in eastern India in which we
hold a 10% PI. We currently refer to this KG-ONN-2004/1
exploration block as the "KG Onshore
Block".
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The
second and third locations include two agreements onshore in north-west
India in the Rajasthan Basin in the State of Rajasthan and we hold a 25%
PI in each of these agreements. We currently refer to the
RJ-ONN-2004/2 exploration block as the "RJ Block 20" and the RJ-ONN-2004/3
exploration block as the "RJ Block
21".
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The
fourth location is onshore in the Deccan Syneclise Basin in the State of
Maharashtra adjacent to our DS 03 Block in west-central India in which we
hold a 100% PI and are the operator. We currently refer to this
DS-ONN-2004/1 exploration block as the "DS 04
Block".
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To date,
we have not earned any revenue from these activities and we are considered to be
in the development stage. The recoverability of the costs we have
incurred to date is uncertain and dependent upon us achieving commercial
production and sale of hydrocarbons, our ability to obtain sufficient financing
to fulfill our obligations under the PSCs in India and upon future profitable
operations and upon finalizing agreements with GSPC.
All of
the exploration activities in which we are a participant should be considered
highly speculative.
All
dollar amounts stated in this annual report are stated in United States
dollars.
Unless
the context should otherwise require, references to "we," "us" and "our" in this
annual report refer to GeoGlobal Resources Inc. and our wholly-owned
consolidated subsidiaries. When we refer to GeoGlobal Barbados, we
are referring to GeoGlobal Resources (Barbados) Inc., our wholly-owned
subsidiary incorporated under the Companies Act of Barbados
that is the contracting party under our four PSCs covering four blocks in the
Cambay Basin, our two PSCs covering two blocks in the Deccan Syneclise Basin,
our two PSCs covering two blocks in the Rajasthan Basin and one PSC covering the
KG Onshore Block in the Krishna Godavari Basin. When we refer to GeoGlobal
India, we are referring to GeoGlobal Resources (India) Inc., our wholly-owned
subsidiary continued under the Companies Act of Barbados
that is the contracting party under our PSC covering one KG Offshore Block in
the Krishna Godavari Basin.
The map
of India below shows the relative locations of the exploration blocks that are
the subject of our ten PSCs with the GOI.
Map of
India
[this map
denotes our locations in general and does not indicate specific size of blocks
or basins]
Our oil
and gas activities are currently conducted in four geographic areas in geologic
basins offshore and onshore India where reserves of oil or natural gas are
believed by our management to exist. These areas
include:
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The
Krishna Godavari Basin offshore and onshore in the State of Andhra Pradesh
in eastern India;
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The
Cambay Basin onshore in the State of Gujarat in western
India;
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The
Deccan Syneclise Basin onshore in the northern portion of the State of
Maharashtra in west central India;
and
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The
Rajasthan Basin onshore in the State of Rajasthan in north western
India.
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Our PSCs
relating to the exploration blocks in India provide that by the end of each
phase of the exploration phases the contracting parties shall have met certain
exploration commitments and/or drilled a certain number of
wells.
Our
Krishna Godavari Basin Agreements
KG Offshore Block
PSC
We, along
with our joint venture partners GSPC and Jubilant Offshore Drilling Pvt. Ltd.
("Jubilant") are parties to a PSC dated February 4, 2003 which grants to the
three parties the right to conduct exploratory drilling activities in the
offshore waters of the Krishna Godavari Basin. The PSC covers an area
of approximately 1,850 square kilometers ("sq kms") (457,145 acres) and was
awarded under NELP-III. We have a net 5% CI in this exploration
block. Under the original terms, this PSC extended for a term of up
to 6.5 years commencing on March 12, 2003 with three exploration
phases. The agreement provides that the first two phases cover a
period of 2.5 years each, and the last phase covers a period of 1.5
years. During the first exploration phase, the parties are to
acquire, process and interpret 1,250 sq km of 3-D seismic data, reprocess
2,298.4 line kilometers ("LKMs") of 2-D seismic data and conduct a bathymetric
survey, all of which has been completed. In addition, we are to drill
a total of fourteen exploratory wells between 900 to 4,118
meters. During the second and third phases, if the parties elect to
proceed with them, in addition to bathymetric surveys in connection with each
phase, the parties are to drill four exploratory wells between 1,100 to 2,850
meters and two exploratory wells to 1,550 and 1,950 meters,
respectively. GSPC is the operator on the KG Offshore
Block.
The first
phase of the exploration period relating to the PSC for the KG Offshore Block
has expired without the required minimum of at least fourteen exploration wells
being drilled during the first phase. GSPC, as operator and on behalf
of the contracting parties, sought from the GOI its consent to an extension of
the expiration date of the first phase of the exploration period and also to
proceed to the second phase of the exploration period without relinquishing any
of the contract area at the end of the first phase. In connection with the
process of seeking these consents, on February 24, 2006, the Management
Committee for the KG Offshore Block, which includes members representing the
GOI, recommended an extension of the first phase of twelve months to March 11,
2007. On February 9, 2007, GSPC proposed to the Directorate General
of Hydrocarbons, a body under the Ministry of Petroleum & Natural Gas
(“DGH”) and to the GOI that the contracting parties proceed to the next
exploration phase (Phase II) upon completion of Phase I which was to expire on
March 11, 2007. It was also requested, on behalf of the contracting
parties, to not relinquish any of the contract area at the end of Phase
I. On March 12, 2007, DGH noted the option of GSPC, on behalf of the
contracting parties, to enter Phase II and advised that entry into Phase II,
effective March 12, 2007, would be subject to the following conditions: (1) Any
decision by the GOI on the substitution of the Work Program of Phase I will be
binding on the contracting parties; and (2) Any decision by the GOI on
relinquishment of the 25% of original contract Area (ie. 462 sq. kms.) under the
PSC would be binding on the contracting parties. The extension of
Phase I to March 11, 2007 would be deducted from Phase II. As such,
Phase II had a term of one year and was to expire March 11, 2008 and four
additional wells would be required to be drilled between 1,100 and 2,850
meters.
On July
4, 2007, the DGH advised GSPC and GeoGlobal that, because of the worldwide
supply and availability shortage of offshore drilling rigs, on June 27, 2007 the
GOI had issued two new policy guidelines. Policy I covers the merging
of the duration of the exploration phases I and II of PSCs granted under NELP
III and NELP IV into a new phase to be called New Phase I and to merge the
minimum work program ("MWP") of Phase II and III to be called New Phase
I. Policy II covers the substitution of additional meterage drilled
in deeper wells against the total meterage commitment as part of the MWP in the
PSCs.
In July,
2007, GSPC, on behalf of the contracting parties and with the approval of the
Operating Committee under the PSC, notified the DGH that it was exercising the
option granted under the Policy I of the new policies to: (1) request a merger
of the duration of the exploration Phases I and II of the KG Offshore Block work
program, now referred to as the New Phase I with the effect of establishing a
new work program phase expiring March 11, 2008; and (2) to merge the MWP of
Phase II and Phase III into a new phase to be called New Phase II. In
addition, GSPC exercised the option under Policy II to substitute a total
meterage drilled commitment in the new work program phase that would be
irrespective of the number of wells drilled. Under these new
policies, any contractor who exercises this option would be required to
relinquish 50% of the contract area at the end of the New Phase I.
If the
merger is granted, the MWP for the New Phase I would be to drill 33,102
meters. GSPC informed DGH that as at September 17, 2007 a total of
33,224 meters have been drilled, and as such, subject to the GOI approval of the
merger of Phases I and II, the MWP for the New Phase I has been
completed. At the end of the New Phase I on March 11, 2008, the
contracting parties were required to relinquish 50% of the Contract Area of the
KG Offshore Block that is not a Discovery or Development Area as defined in the
PSC. The New Phase II would have a term of 1.5 years expiring
September 11, 2009 and the drilling of a further 12,250 meters would be required
in order to meet the MWP. Approval of the merger of the Phase I and
II into a New Phase I and the merger of the MWP of existing Phase II and Phase
III as New Phase II from the GOI along with the relinquishment of 50% of the
Contract Area is currently outstanding.
Unless
approval is granted by the GOI to merge Phases I and II of the work program
under the new policy guidelines, we may be liable for the consequences of
non-fulfillment of the minimum work commitment in a given time frame under the
PSC. The PSC has provisions for termination of the PSC on account of
various reasons specified therein including material breach of the
contract. Termination rights can be exercised after giving ninety
days written notice. This failure to timely complete the minimum work
commitment, though we have been advised by GSPC there is no precedence for
taking such action, may be deemed by the
GOI to be a failure to comply with the provisions of the contract in a material
particular.
The
termination of the PSC by the GOI would result
in our loss of our interest in the KG Offshore Block other than areas determined
to encompass "commercial discoveries". The PSC sets forth procedures
whereby the operator can obtain the review of the Management Committee under the
PSC as to whether a discovery on the exploration block should be declared a
commercial discovery under the PSC. Those procedures have not been
completed at present with respect to the discovery on the KG Offshore Block and,
accordingly, as of May 30, 2008, no areas on the KG Offshore Block have been
determined formally to encompass "commercial discoveries" as that term is defined
under the PSC.
In the
event the PSC for the KG Offshore Block is terminated by the GOI, or in the
event the work program is not fulfilled by the end of the relevant exploration
phase, the PSC provides that each party to the PSC is to pay to the GOI its
participating interest share of an amount which is equal to the amount that
would be required to complete the MWP for that phase. We are of the
view that GSPC, under the terms of our Carried Interest Agreement ("CIA"), would
be liable for our participating interest share of the amount required to
complete the MWP for the phase.
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Carried Interest
Agreement
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On August
27, 2002, we entered into a CIA with GSPC, which grants us a 10% CI in the KG
Offshore Block. The CIA provides that GSPC is responsible for our
entire share of any and all costs incurred during the Exploration Phase prior to
the date of initial commercial production.
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Under
the terms of the CIA, all of our and Roy Group (Mauritius) Inc.'s ("RGM"),
a related party (see "Participating Interest Agreement"), proportionate
share of capital costs for exploration and development activities will be
recovered by GSPC without interest over the projected production life or
ten years, whichever is less, from oil and natural gas produced on the
Exploration Block. We are not entitled to any share of
production until GSPC has recovered our share of the costs and expenses
that were paid by GSPC on behalf of us and
RGM.
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Our net
5% CI in the KG Offshore Block reflects our agreement to prospectively assign
half of the original 10% interest under the PSC to RGM pursuant to a
Participating Interest Agreement ("PIA") we entered into on March 27, 2003,
which assignment is subject to GOI consent. Absent such consent, the
assignment will not occur and we are to provide RGM with an economic benefit
equivalent to the interest to be assigned. At May 30, 2008, we have
not obtained the consent of the GOI to this assignment.
Carried Interest Agreement
Dispute
We have
been advised by GSPC, that GSPC is seeking payment of the amount by which the
exploration costs attributable to us under the PSC relating to the KG Offshore
Block exceeds the amount that GSPC deems it is obligated to pay on our behalf
(including the net 5% PI of RGM) under the terms of the CIA. GSPC
asserts that we are required to pay 10% of the exploration expenses over and
above gross costs of $59.23 million (10% being $5.92 million). Based
upon the most recent letter dated February 4, 2008 received from GSPC, GSPC
asserts they have incurred costs of Rs. 246.20 crore (or approximately $57.3
million) on our behalf as of December 31, 2007 of which, 50% is for the account
of RGM.
We have
advised GSPC that, under the terms of the CIA, the PSC, and the Joint Operating
Agreement dated August 7, 2003 (the "JOA"), GSPC has no right to seek the
payment and that we believe the payment GSPC is seeking is in breach of the
CIA. We further reminded GSPC, that under the terms of the CIA, we
shall be carried by GSPC for 100% of our entire share of any costs during the
exploration phase prior to the start of commercial production. We
obtained the opinion of external Indian legal counsel which supports our
management's position with respect to the dispute. We intend to
vigorously protect our contractual rights in accordance with the dispute
resolution process under the CIA, the PSC and the JOA as may be
appropriate.
We have
been engaged in discussions with GSPC seeking a resolution to this dispute,
however, no agreement has been reached as of May 30, 2008.
We have
been advised that the annual budget for the KG Offshore Block has been prepared
for the twelve month period April 1, 2008 to March 31,
2009. Estimated gross costs for that budget period are approximately
$599 million. Accordingly, GSPC is expected to incur costs of
approximately $59.9 million (10% PI) on behalf of us (including the 5% of RGM)
under the terms of the CIA.
Participating Interest
Agreement
On March
27, 2003, we entered into a PIA with RGM, whereby we assigned and hold in trust
for RGM subject to GOI consent, 50% of the benefits and obligations of the PSC
covering the KG Offshore Block and the CIA leaving us with a net 5% PI in the KG
Offshore Block and a net 5% CI in the CIA. Under the terms of the
PIA, until the GOI consent is obtained, we retain the exclusive right to deal
with the other parties to the KG Offshore Block and the CIA and are entitled to
make all decisions regarding the interest assigned to RGM, RGM has agreed to be
bound by and be responsible for the actions taken by, obligations undertaken and
costs incurred by us in regard to RGM's interest and to be liable to us for its
share of all costs, interests, liabilities and obligations arising out of or
relating to the RGM interest. RGM has agreed to indemnify us against
any and all costs, expenses, losses, damages or liabilities incurred by reason
of RGM's failure to pay the same. Subject to obtaining the government
consent to the assignment, RGM is entitled to all income, receipts, credits,
reimbursements, monies receivable, rebates and other benefits in respect of its
5% interest which relate to the KG Offshore Block. We have a right of
set-off against sums owing to us by RGM. In the event that the Indian
government consent is delayed or denied, resulting in either RGM or us being
denied an economic benefit either would have realized under the PIA, the parties
agreed to amend the PIA or take other reasonable steps to assure that an
equitable result is achieved consistent with the parties' intentions contained
in the PIA. As a consequence of this transaction we report our
holdings under the KG Offshore Block and CIA as a net 5% PI.
KG Onshore Block
PSC
We, along
with our joint venture partner Oil India Limited ("OIL") are parties to a PSC
dated March 2, 2007. The PSC covers an area of approximately 548 sq
km (135,414 acres) onshore in the Krishna Godavari Basin, is located directly
adjacent to and south-west of our KG Offshore Block and was awarded under
NELP-VI. The two exploration phases for this PSC extend for a term of
up to 7.0 years commencing February 18, 2008. The Phase I work
commitment which covers a period of 4.0 years, consists of reprocessing 564 line
kilometers ("LKM") of 2-D seismic, conducting a gravity and magnetic and
geochemical survey, as well as a seismic acquisition program consisting of 548
sq km of 3-D seismic. This Phase I commitment further consists of the
drilling of 12 exploration wells to various depths between 2,000 and 5,000
meters. The Phase II work commitment which covers a period of 3.0
years is to drill one exploration well to a depth of 4,600 meters.
We hold a
10% PI in this exploration block, while OIL, as operator, holds the remaining
90% PI. On September 14, 2006, prior to submission of our NELP-VI
bid, we entered into an agreement with OIL to increase our PI up to 25% in this
exploration block, subject to the availability of sufficient net worth and GOI
consent. GOI consent is currently outstanding.
Our
Krishna Godavari Basin Exploration Activities
KG Offshore
Activities
With
respect to the KG Offshore Block, prior to January 1, 2007, GSPC as operator,
completed the acquisition, processing and interpretation of a 1,298 sq. km.
marine 3D seismic program, completed the acquisition, processing and
interpretation of an additional 300 sq. km. marine 3-D seismic program and
drilled five wells, (KG#1, KG#11, KG#8, KG#17 & KG#15). Two of
these wells (KG#1 & KG#11) did not proceed into a testing program and both
were subsequently abandoned.
As of May
12, 2008, GSPC as operator is in the process of acquiring land and is seeking a
contractor to build an onshore gas facility which will be used in connection
with bringing natural gas to shore from the KG Offshore Block development
activities. GSPC anticipates that the acquisition of the land and the
securing of a contractor will occur in the year 2008.
As at May
12, 2008, eleven wells have been or are being drilled on this block and activity
during the year ended December 31, 2007 and through May 12, 2008 is as
follows:
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Saipem
Perro Negro 3 Rig
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GSPC
currently has contracted with Saipem SPA, part of ENI, Italy, for the
Saipem Perro Negro 3 jack-up drilling rig ("PN#3") to drill 10 wells, with
an option of extending the contract for 2 additional wells. As
of March 13, 2008, the PN#3 has drilled six exploratory wells, one of
which has been classified for purposes of the PSC as an appraisal
well.
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On
February 6, 2007, the PN#3 Rig commenced drilling the KG#28 well from the
KG#8 platform. The KG#28 well is the sixth well drilled by the
PN#3 and has been classified by the Management Committee as an "appraisal
well" for the purposes of the PSC. The well was drilled
directionally deviating approximately 1,640 meters east of the KG#8
platform to a total depth of 5,258 meters MD (4,879 meters total vertical
depth or "TVD") and was then cased to total depth with a 7 inch
liner.
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Testing
of the KG#28 appraisal well entailed the completion of 3 drill stem tests
("DST’s").
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DST-1
involved 49.5 meters of perforations across the interval depth from
5,037.5 to 5,112 meters measured depth ("MD"). During clean-up
flow, the following stabilized gas/condensate rates were measured through
various choke sizes at the following flowing wellhead pressures
("FWHP"):
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16/64
inch choke – 6.7 MMSCFD Gas plus 12 BBLS/D Condensate at 4,550
psi FWHP
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20/64
inch choke – 8.5 MMSCFD Gas plus 16 BBLS/D Condensate at 4,000
psi FWHP
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32/64
inch choke – 10.6 MMSCFD Gas plus 22 BBLS/D Condensate at 1,950 psi
FWHP
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DST-2
involved 54.0 meters of perforations across the interval depth from
4,951.0 to 5,005.0 meters MD and flowed through a 20/64 inch choke at a
stabilized gas rate of 5.5 MMSCFD at 2,750 psi
FWHP.
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DST-3
involved 74.0 net meters of perforations over the interval depth of 4,556
to 4,759 meters MD and flowed through a 20/64 inch choke at a stabilized
gas rate of 6.5 MMSCFD at 3,250 psi
FWHP.
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On
March 13, 2008, the PN#3 rig moved from the KG#8 platform location to the
shipyard in Vizag (also known as "Vishakhapatnam"), on the east coast of
the State of Andhra Pradesh for maintenance and
inspection. Upon completion of the maintenance, it is intended
that the PN#3 will be mobilized to a new location to be determined on the
KG Offshore Block.
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Atwood
Beacon Rig
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GSPC
has entered into a 25 month contract for the Atwood Beacon jack-up
drilling rig ("Atwood") to drill additional exploration wells on the KG
Offshore Block.
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On
January 3, 2007, the Atwood rig commenced drilling its first well, the
KG#16 exploratory well, which was drilled to a total depth ("TD") of 5,372
meters MD. The KG#16 well is situated in shallow water of
approximately 109 meters and is approximately 5 kilometers east of the
KG#8 platform.
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The testing program was completed
on August 1, 2007. DST-1 and DST-1A involved 31 meters and 21
meters of perforations across the interval depth from 4,951 – 5,046 and
4,800 – 4,833.5 meters MD respectively. Both zones were tight
and did not flow hydrocarbons to the surface. DST-2 was chosen
from encouraging independent log analyses over the interval depth of 4,642
to 4,754 meters MD but was abandoned without perforating due to
operational problems. DST-3 involved 75 meters of perforations
over the interval depth of 4,483 to 4,590 meters MD at a stabilized flow
rate of 2.21 MMSCFD of gas and 15 BBLS/D of condensate at a FWHP of 880
psi through a 24/64 inch choke. DST-4 involved 133 meters of
perforations over the interval depth of 4,302 to 4,435 meters measured
depth at a stabilized flow rate of 2.52 MMSCFD of gas and 106 BBLS/D of
condensate at a FWHP of 1,880 psi through a 16/64 choke.
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On
September 24, 2007, GSPC informed the GOI that the discovery of
hydrocarbons in the KG#16 well is of potential commercial interest and
merits further appraisal, however, for technical reasons, the KG#16 well
has been presently abandoned with the possibility of attempting to
re-enter the well at a later date.
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On
September 20, 2007, the Atwood Rig spud the KG#31 well. The
surface location of KG#31 well is situated approximately 3 kilometers
north of the KG#8 platform in shallow waters of approximately 62.5 meters
in depth. The KG#31 well was drilled directionally 600 meters
north-west of the present surface location to a depth of 3,892 meters TVD
(4,058 meters MD), to test the Upper Cretaceous. Based on log
results, GSPC elected to go up-hole to the 13-3/8" casing shoe at 2,272.5
meters MD and set a bridge plug and whip stock the
well.
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GSPC
commenced drilling the KG#31 Side Track-1 ("KG#31 ST-1") well in a more
horizontal direction below the 13-3/8" casing shoe directionally 900
meters west of the present surface location, to an approximate TVD of
4,800 meters to target the Lower Cretaceous. On November 22,
2007, while drilling the KG#31 ST-1 well at 3,855 meters MD (3,671 meters
TVD), the well took a kick, possibly indicating a presence of hydrocarbons
in the Upper Cretaceous in this area. Due to drilling
complications, the well was ultimately plugged back with cement up to
3,750 meters MD. Thereafter, the KG#31 ST-1 well was logged and cased with
9-5/8" casing down to 3,750 meters MD. After detailed review of
the available data, it was decided by GSPC to continue drilling in an
attempt to test the Upper Cretaceous zone not previously tested in the
KG#31 ST-1 well.
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GSPC
elected to side-track the well, and commenced drilling the KG#31 Side
Track-2 (KG#31 ST-2) well on December 29, 2007, with an 8-1/2" drill bit
below the 9-5/8" casing shoe from approximately 3,750 meters MD to 3,990
meters MD.
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Based
upon independent logs and dual packer MDTs ("Modular Formation Dynamics Tester")
on wire-line, the operator decided to do a barefoot test of the Upper Cretaceous
interval from 3,899 to 3,946 meters MD with an approximate initial reservoir
pressure of 9,000 psi and reservoir temperature of 320 degrees
Fahrenheit. On February 2, 2008, the KG#31 ST-2 well recorded a flow
of approximately 0.3 MMSCFD of gas though a 12/64" choke at a flowing well head
pressure of 480 psi. While tests confirmed the presence of
hydrocarbons in the Upper Cretaceous in this part of the block, the results from
this test are inconclusive to determine reservoir rock
properties. GSPC decided to drill ahead to 5,400 meters MD (4,800
meters TVD). After several failed attempts to recover the packer, the
well was plugged back below the 9 5/8" casing shoe and GSPC again elected to
side track the well.
On
February 17, 2008, the KG#31 Side Track-3 ("KG#31 ST-3") well commenced drilling
with an 8-1/2" drill bit below the 9-5/8" casing shoe from approximately 3,746
meters MD targeting the Lower Cretaceous conformity. As at May 12,
2008, the KG#31 ST-3 well has been drilled to approximately 5,875 meters MD
(approximately 5,528 meters TVD). Logs have been run to total
depth. Recent delays occurred after completion of the logging program
while running a wiper trip to condition the hole to be cased, the drill string
became stuck. The drill string was cut and a cement plug has been set
at approximately 5,533 meters MD. GSPC intends to case the well with a 7" liner
and side track from the top of the cement plug by drilling a 5 7/8" hole and cut
cores based on wellsite geological observations during drilling.
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Deep
Driller 1 Rig
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GSPC
contracted the Deep Driller 1 drilling rig ("DD#1") which is owned by
Sinvest ASA out of Norway and is a jack-up rig capable of operating in
water depths of approximately 120 meters. The term of the
contract is for two years from the date of spud of the first
well.
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On
May 8, 2007, GSPC commenced drilling the KG#30 exploratory well with the
DD#1 rig which was drilled vertically to a TVD of 3,951
meters. The KG#30 well was situated approximately 15.5
kilometers northeast of the KG#11 well and was the first exploratory well
to test the deepest part of the northern graben in the KG Offshore
Block. On August 13, 2007, GSPC abandoned the KG#30 well as the
testing results did not reveal sufficient hydrocarbons at this
location.
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The
DD#1 Rig was thereafter moved to a location approximately 7.5 kilometers
northeast of the KG#8 platform in shallow waters of approximately 91
meters in depth, where, on August 27, 2007, GSPC commenced the drilling of
the KG#22 well. The KG#22 well was originally intended to be
drilled directionally to approximately 5,974 meters
MD (approximately 5,078 meters TVD) deviating approximately
2,900 meters southeast of the KG#22 well surface
location.
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The
KG#22 well was drilled to approximately 2,800 meters MD when the drill
string became stuck. GSPC elected to cut the drilling string
and side-track the well.
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The
KG#22 ST-1 commenced drilling directionally from 1,275 meters MD.The KG#22
ST-1 was drilled and cased with 9-5/8" casing to approximately 4,396
meters MD. On November 27, 2007, drilling continued with an
8-1/2" drill bit. On December 6, 2007, the well saw a gas kick at 4,776 m
MD (4121.65 m TVD). This was successfully controlled and
drilling resumed reaching 5,576 meters MD by January 15,
2008. Upon freeing the drill string after encountering a
mechanical problem, the hole was plugged back with cement to approximately
4,415 meters MD. On January 29, 2008, the KG#22 ST-2 commenced
drilling.
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As
of May 12, 2008 the KG#22 ST-2 well has reached TD of 6,007 meters MD
(5,068 meters TVD). The well has been cased with a 7" liner to
approximately 5,616 meters MD. Logs have been run to
TD. GSPC intends to case the well with a 5" liner to
TD. A testing program is currently being designed based upon
independent log analysis, samples, MDT's and hydrocarbon shows while
drilling.
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Essar
Wildcat Rig
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The
Essar Wildcat is a self propelled semi-submersible drilling rig suitable
for deployment in water depths of 400 meters and has a drilling depth
capacity of 7,600 meters. The Essar Wildcat has recently
undergone upgrading and maintenance work which included being equipped
with a top drive, automatic pipe handling system and a rough weather
15,000 psi BOP (Blow-Out Preventer) launch
system.
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GSPC
spud the KG#19 well on May 2, 2008, which is the first well being drilled
using the Essar Wildcat rig. The KG#19 well has been drilled to
approximately 897 meters MD. As at May 12, 2008, GSPC is
running 20" casing to approximately 890 meters MD, after which, drilling
will continue.
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The
KG#19 well is situated in deeper waters of approximately 150 meters in
depth and approximately 11 kilometers northeast from the KG#8
platform. The well is intended to be a near-vertical
exploration well drilled to a TD of approximately 5,250 meters in order to
target reservoirs below the Lower Cretaceous
unconformity.
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KG Onshore
Activities
On March
24, 2007, OIL, as operator for the KG Onshore Block applied for the Production
Exploration License (“PEL”) from the State of Andhra Pradesh. On
September 14, 2007, OIL notified DGH that it has amended its PEL application
into two parts. One covers the non-forest area of approximately 337
sq. km. while the second covers the remainder of the exploration block which is
in an environmentally sensitive forested area. OIL had done this in
an attempt to expedite the granting of the PEL over the non-forest area in order
to commence the planned 2-D seismic program.
On
February 18, 2008, the Government of Andhra Pradesh issued a PEL over 511 sq km
(334.66 over non-forest area and 176.34 over forest area). OIL has
requested the Government of Pondicherry to grant the PEL over the remaining 37
sq kms lying in the district of Yanam. With the partial PEL issued,
OIL intends to commence a 50 kilometer experimental 2-D seismic acquisition
program followed by the subsequent drilling of the first of 12 exploration
wells. The surveys, seismic acquisition and interpretation are
expected to commence in the second quarter of 2008 and will take approximately
five to seven months. Therefore, the KG Onshore drilling program
could potentially start by December 31, 2008.
Financial
Commitment. We will be required to fund our proportionate
share of the costs incurred in the KG Onshore activities estimated to be
approximately $8.5 million over the four years of the first phase of the work
commitment with respect to a 10% PI in the block and approximately $21.4 million
with respect to a 25% PI in the block. The budget estimate for the
period April 1, 2008 to March 31, 2009 has been prepared and our proportionate
share of that budget at 10% is $4.2 million and at 25% is $10.5
million. This budget entails performing the required surveys and
studies for Phase I, as well as a 50 LKM 2-D seismic acquisition program and the
interpretation and processing thereof and the drilling of 3 exploratory
wells.
Further,
on March 14, 2008, we supplied the GOI a bank guarantee secured by a letter of
credit in the same amount for $1,475,000 with respect to a 10%
PI. Upon receipt of approval from the GOI with respect to our
increase in our PI to 25%, this bank guarantee and corresponding letter of
credit will be increased to $3,690,000.
Our
Cambay Basin Agreements
Mehsana Block
PSC
On
February 6, 2004, we, along with our joint venture partners GSPC and Jubilant,
signed a PSC with respect to this onshore Mehsana Block. This PSC
covers an area of approximately 125 sq kms (30,888 acres) and was awarded under
NELP-IV. We hold a 10% PI, GSPC holds a 60% PI, and Jubilant, who is
the operator, holds the remaining 30% PI. The PSC provides that the
exploration activities are to be conducted in three phases commencing May 21,
2004 with the first phase covering a period of 2.5 years, the second phase
covering a period of 2.0 years and the last phase covering a period of 1.5
years, for a maximum total duration of 6.0 years for all three
phases.
During
the first exploration phase on this exploration block, the parties are to
acquire 75 sq kms of 3-D seismic data, reprocess 650 LKM of 2-D seismic data and
conduct a geochemical survey, all of which has been completed. In
addition, we are to drill seven exploratory wells between 1,000 to 2,200
meters. During the second and third phases, the parties are to drill
two exploratory wells to 2,000 meters in each phase.
The first
exploration phase relating to the PSC for the Mehsana Block expired without the
required minimum of seven wells having been drilled. In October, 2006
the Management Committee under the PSC for the Mehsana Block approved a proposal
to seek from the GOI an extension of the first exploration phase for a six month
period from November 21, 2006 to May 20, 2007. On April 6, 2007 the
members of the Operating Committee under the Mehsana Block resolved to submit an
application to the GOI for extension for an additional six months to November
20, 2007 to complete the MWP under Phase I, which approval was granted on August
6, 2007. Further, on October 8, 2007, Jubilant, upon recommendation
by a resolution of the Operating Committee, submitted an application under a
provision of the New Extension Policy issued by the GOI on June 27, 2007
requesting the grant of an additional extension of 6 months from November 21,
2007 to May 20, 2008 to complete the MWP of drilling seven exploration
wells. Under this new policy, where a MWP has not been completed but
a hydrocarbon discovery is made within the exploration phase, an additional
extension up to 12 months may be given subject to the consortium partners
providing a 50% bank guarantee of the unfinished MWP and the additional work
program reasonably acceptable to DGH. This Policy also allows that
the parties do not have to relinquish any area at the end of this phase and the
period of extension will be set off against the term of the Second
Phase. On February 5, 2008, final consent to the
extension to May 20, 2008 was approved by DGH/GOI subject to the parties
providing a further bank guarantee of 50% of the unfinished MWP and additional
work program and were asked to give an undertaking to appraise, decide on
commerciality and development of the discovery within the time frame provided in
the PSC which has been completed. This period of extension reduces
the term of the Second Phase which requires as a MWP to drill two additional
exploratory wells before November 20, 2008.
Sanand/Miroli Block
PSC
On
February 6, 2004, we, along with our joint venture partners GSPC, Jubilant and
Prize Petroleum Company Limited ("Prize") signed a PSC with respect to this
onshore Sanand/Miroli Block. This PSC covers an area of approximately
285 sq kms (70,425 acres) and was awarded under NELP-IV. We hold a
10% PI, GSPC, who is the operator, holds a 55% PI, Jubilant holds a 20% PI with
the remaining 15% held by Prize. The PSC provides that the
exploration activities are to be conducted in three phases commencing July 29,
2004 with the first phase covering a period of 2.5 years, the second phase
covering a period of 2.0 years and the last phase covering a period of 1.5
years, for a maximum total duration of 6.0 years for all three
phases.
During
the first exploration phase on the Sanand/Miroli Block, the parties were to
acquire 200 sq kms of 3-D seismic data, reprocess 1,000 LKMs of 2-D seismic
data, and conduct a geochemical survey all of which has been
completed. In addition, we are to drill twelve exploratory wells
between 1,500 to 3,000 meters. During the second and third phases,
the parties are to drill three and two exploratory wells to 2,000 meters,
respectively.
The first
exploration phase relating to the PSC for the Sanand/Miroli Block expired
without the required minimum of twelve wells having been drilled. On
December 29, 2006 the Management Committee approved a proposal to seek from the
GOI an extension of the first exploration phase for a six month period from
January 28, 2007 to July 28, 2007. Further on July 23, 2007, GSPC as
operator, on behalf of the consortium partners has requested from the GOI a
further one year extension under a provision of the New Extension Policy issued
by the GOI. Under this new policy, where a MWP has not been completed
but a hydrocarbon discovery is made within the exploration phase, an additional
extension up to 12 months may be given subject to the consortium partners
providing a 50% bank guarantee of the unfinished MWP and the additional work
program reasonably acceptable to DGH. This Policy also allows that
the parties do not have to relinquish any area at the end of this
phase.
On
November 8, 2007 the GOI approved the extension of the first phase of
exploration relating to the PSC for the Sanand/Miroli Block for a period of one
year. The parties are to provide a further bank guarantee in the
amount of $91,860 and the parties were asked to give an undertaking to appraise,
decide on commerciality and development of the discovery within the time frame
provided in the PSC. As such, GSPC has until July 28, 2008 to
complete the drilling of 12 exploratory wells under the Phase I
MWP. Inasmuch as the period of extension of Phase I will be set off
against the term of Phase II, the expiration date of Phase II will remain
January 28, 2009.
Tarapur Block
Agreement
Pursuant
to an agreement entered into with GSPC in April, 2005 and consented to by the
GOI on August 24, 2006, we purchased a 20% PI in the onshore Tarapur Block in
the Cambay Basin which was awarded to GSPC in 2000 under a Pre NELP
round. GSPC as operator owns the remaining 80% PI. Oil and
Natural Gas Corporation Limited of India has the right to participate into the
development of any commercial discovery on the Tarapur Block by acquiring a 30%
PI as provided under the PSC. The exercise of this right would result
in the reduction of our PI to 14%.
The
Tarapur PSC originally covered an area of approximately 1,618 sq kms. Phase I
under the PSC expired on May 22, 2002. GSPC entered into the second
phase after relinquishing, as required under the terms of the PSC, 25%
(approximately 405 sq kms) of the exploration block back to the
GOI. Phase II under the PSC for this exploration block expired on
November 22, 2005 and GSPC entered into the third and final phase without
relinquishing any area. Phase III had a term of 2 years ending
November 22, 2007 and the work commitment was to drill one well to a depth of
3,000 meters or to the Deccan trap, which commitment was fulfilled.
GSPC as
operator, on behalf of the consortium partners submitted an application for an
extension beyond Phase III of the PSC for an additional twelve months to
November 22, 2008 under a provision of the GOI New Extension
Policy. Under this new policy, where the MWP has been completed and
discoveries/commercial discoveries have been made and the contractor wants to
carry out an additional work program beyond Phase III, an additional extension
may be given subject to the consortium partners providing a 35% bank guarantee
and 30% cash payment as agreed pre-estimated liquidated damages for the
additional work program. The contractor may only retain a minimum
area in the Block which is to be determined by GOI/DGH. The
consortium has requested to drill five wells under the additional work program
and to retain the area in the block covered by the 3-D seismic, which
encompasses approximately 545 sq. kms as covered by the exploration
activities. The consortium has agreed that it would provide a 35%
bank guarantee of US$3.1 million and a 30% cash payment of US$2.7 million for
this additional work program (GGR share is US$773,000 and US$662,000
respectively). GOI consent to this application has not yet been
approved or received.
Ankleshwar Block
PSC
On
September 23, 2005, we, along with our joint venture participants GSPC, Jubilant
and GAIL (India) Ltd. ("GAIL") signed a PSC with respect to this onshore
Ankleshwar Block. This PSC covers an area of approximately 448 sq km
(110,703 acres) and was awarded under NELP-V. We hold a 10% PI, GSPC
is the operator and holds a 50% PI, Jubilant holds 20% PI and the remaining 20%
PI is held by GAIL. The PSC provides that the exploration activities
are to be conducted in three phases commencing April 1, 2006 with the first
phase covering a period of 3.0 years, the second phase covering a period of 3.0
years and the last phase covering a period of 1.0 years, for a maximum total
duration of 7.0 years for all three phases.
The work
commitment under the first phase is to acquire, process and interpret 448 sq kms
of 3-D seismic and reprocess 650 LKMs of 2-D seismic. In addition, we
are to drill 14 exploratory wells between 1,500 to 2,500 meters. If
the parties elect to proceed, in the second phase we are to drill 4 exploratory
wells, and in the third phase we are to drill 6 exploratory wells, all between
2,500 to 3,000 meters.
Cambay
Basin Financial Commitments
At
December 31, 2007, in connection with these four Cambay Basin PSCs, we have
provided to the GOI four irrevocable letters of credit totaling $2,965,000
(Mehsana $155,000, Sanand/Miroli $920,000, Ankleshwar $950,000 and Tarapur
$940,000) secured by our term deposits in the same amount. These
letters of credit serve as guarantees for the performance of the minimum work
commitments for the budget period April 1, 2007 to March 31, 2008 of these four
Cambay Basin Agreements.
As at May
12, 2008, budgets for certain of these four Cambay basin PSCs have been prepared
and it is anticipated that we will increase the two irrevocable letters of
credit which will be secured by our term deposits in the same amount for
Sanand/Miroli which will increase to $1,300,000 and Ankleshwar which will
increase to $1,490,000. These letters of credit will serve as
guarantees for the performance of the minimum work commitment for the budget
period April 1, 2008 to March 31, 2009 of these two Cambay basin
PSCs,
Our
Cambay Basin Exploration Activities
GSPC has
contracted four onland drilling rigs for two years commencing January 2008 to be
utilized to drill wells on the GSPC operated Tarapur, Sanand/Miroli and
Ankleshwar Blocks over the next two years. Two rigs from John Energy
Ltd. of Ahmedabad, India are 1,000 and 1,500 horsepower and two rigs from
Dewanchand Ramsaran Industries (P) Ltd. of Mumbai, India are 1,000 and 2,000
horsepower.
Mehsana
Block
With
respect to the Mehsana Block, prior to January 1, 2007, Jubilant as operator,
completed a 235 sq km onshore 3-D seismic acquisition program, has had the data
processed and interpreted. Further, one well (CB-2) was drilled and
subsequently abandoned.
As at May
12, 2008, seven wells have been drilled on this block with the IRI 750 Rig 4 and
the WAFA STAR RIG 1. Of the seven wells, one is a discovery well as
reported by Jubilant to DGH (CB-3A); two were drilled and abandoned (CB-2 and
CB-3); and four are currently awaiting a workover rig for testing or further
testing (CB-1, CB-4, CB-5A and Cb-6). Activity during the year ended December
31, 2007 and through May 12, 2008 is as follows:
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The
CB-3 well commenced drilling on January 11, 2007 and was drilled to a
total depth of 2,350 meters TVD. This well did not proceed into
a testing program and was subsequently
abandoned.
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The
CB-3A well commenced drilling on July 31, 2007 and was drilled to a TVD of
2,451 meters (2,620 meters MD). Jubilant as operator, notified
the GOI that based upon the drilling data, mud logs and wireline data,
three hydrocarbon bearing intervals were interpreted to be present, and a
discovery of hydrocarbons in the CB-3A well has been declared under the
terms of the PSC. Jubilant as operator, is in the process
of preparing an appraisal plan on the CB-3A
well.
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The
CB-1 well commenced drilling on October 17, 2007 and was drilled to a
depth of 3,400 meters MD. After multiple packages containing
sand and siltstone were encountered from a depth of 2,700 to 3,360 meters,
Jubilant as operator, recommended, based on this information, to further
drill the well. The well was further deepened to 3,544 meters
and is awaiting a workover rig for further detailed
testing.
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On
January 19, 2008, the CB-4 well commenced drilling and was drilled to a
depth of 2,853 meters MD. The well is awaiting a workover rig
for testing.
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On
February 27, 2008, the CB-5A well commenced drilling and was drilled to a
depth of 2,574 meters MD. The well is currently
awaiting a workover rig for
testing.
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On
March 30, 2008, the CB-6 well commenced drilling and was drilled to a
depth of 2,493 meters MD. The well is awaiting a workover rig
for testing.
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Financial
Commitments. At December 31, 2007, we have incurred costs of
approximately $3.1 million with respect to exploration activities on the Mehsana
Block. Estimated total capital expenditures we will be required to
contribute to the exploration activities on this block during the period April
1, 2008 to March 31, 2009 based on our 10% PI will be approximately $1.0 million
and will entail the drilling of two exploratory wells in the Phase II work
commitment.
Sanand/Miroli
Block
With
respect to the Sanand/Miroli Block, prior to January 1, 2007, GSPC as operator,
completed the required 463 sq km onshore 3-D seismic acquisition program,
reprocessed the 1,000 LKM's of 2-D seismic data and conducted the geochemical
survey and analysis of 200 samples. Further, one well (M-1) was
drilled.
As at May
12, 2008, thirteen wells, one of which has been classified as an appraisal well
under the terms of the PSC, have been or are being drilled on this block with
the DALMA MR4 rig, the DRIPL-1 rig, the JOHN 1000 rig and the JOHN 1500
rig. Of the thirteen wells, four are discovery wells as reported by
GSPC to DGH (M-1, SE-4, SE-2 and M-6); two were drilled and abandoned (M-2 and
M-4); two are currently awaiting a workover rig for testing or further testing
(SE-3 and M-3); two wells are currently being tested (M-7 and SE-8); the one
appraisal well (M1-A1) has tested hydrocarbons and is planned for further
testing after hydrofrac; and two wells are currently still in the drilling
process (M-5 and SE-9). Activity during the year ended December 31,
2007 and through May 12, 2008 is as follows:
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The
M-1 well was drilled in November 2006 to a TVD of 2,300 meters and was
temporarily suspended. However, the well was subsequently
re-entered and drilled to a TVD of 2,479 meters. The well was
logged, cased and tested has been completed. Three of the four
zones tested in the M-1 well were oil bearing intervals. The
uppermost interval was hydraulically fractured and flowed oil at 106
barrels of oil per day (BBL/D). The remaining oil bearing
intervals in M-1 well are planned to be stimulated using hydraulic
fracture stimulation with a workover rig. On June 28, 2007, the
GOI and the Management Committee were made aware of a hydrocarbon
discovery in the M-1 well in accordance with the terms of the PSC, the
commerciality of which is yet to be
established.
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The
M-4 well commenced drilling on February 24, 2007 and was drilled to a TVD
of 2,226 meters. The well was tested and subsequently
abandoned.
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The
M-2 well commenced drilling on March 26, 2007 and was drilled to a TVD of
3,308 meters. The well was tested and subsequently
abandoned.
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The
SE-4 well commenced drilling on July 12, 2007 and was drilled to a TVD of
2,340 meters. This well has been tested and the first object was found to
be water bearing. The second object tested over the interval of
1,810 to 1870.5 encountered oil flow. The third object over the
interval of 1,620 to 1,700 meters also flowed oil. Based upon
these results, the well is awaiting a workover rig to stimulate these
internals using hydraulic fracture stimulation. On December 27,
2007, GSPC reported to DGH that the SE-4 well encountered a 29 meter zone
in the Cambay Shale and was perforated and the mid point perforation is at
1,840.25 meters. GSPC as operator, informed the GOI and the
Management Committee of the discovery in accordance with the provisions of
the PSC, the commerciality of which is yet to be
established.
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The
SE-2 well commenced drilling on July 29, 2007 and was drilled to a TVD of
2,381 meters (2,470 meters MD). On December 27, 2007, GSPC
reported to DGH that the SE-2 well encountered a 33 meter zone in the
Cambay Shale and was perforated and the mid point perforation is at
1,662.5 meters. GSPC as operator, informed the Management
Committee and the GOI of the discovery in accordance with the provisions
of the PSC, the commerciality of which is yet to be
established.
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The
SE-3 well commenced drilling on August 15, 2007 and was drilled to TVD of
2,046 meters; however, because of mechanical problems, while pulling the
drill string out of the hole, a decision was made to set a bridge plug at
a depth of 975 meters and whip stock the well from that
depth. The bridge plug was set and the SE-3 ST exploration well
was drilled directionally to a TVD of 1,794 meters (2,078 meters
MD). This well is awaiting a workover rig to run cased hole
wireline logs and test.
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The
M-3 well commenced drilling December 14, 2007 and has been drilled
vertically to a depth of 3,360 meters. The well is awaiting a
workover rig for testing.
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The
M-7 well commenced drilling on January 28, 2008 and has been drilled
vertically to a depth of 3,270 meters. This well is being
tested.
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The
M1-A1 well commenced drilling on February 2, 2008 as an appraisal well to
delineate the extent of the M-1 discovery. This well was
drilled vertically to 2,490 meters and test results yielded a hydrocarbon
zone at approximately 2,100 meters. This well is planned for a
hydro-frac stimulation and further
testing.
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The
M-6 well commenced drilling on February 5, 2008 and was drilled vertically
to 2,960 meters. On April 28, 2008, GSPC reported to DGH that
the SE-4 well encountered a 15 meter zone in the Cambay Shale and was
perforated and the mid point perforation is at 1560.5
meters. GSPC as operator, informed the GOI and the Management
Committee of the discovery in accordance with the provisions of the PSC,
the commerciality of which is yet to be
established.
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The
SE-8 well commenced drilling March 5, 2008 and has been drilled vertically
to a depth of 2,016 meters. The well is being
tested.
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The
M-5 well commenced drilling March 31, 2008 and the SE-9 well commenced
drilling April 2, 2008. These two wells continue to
drill.
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Financial
Commitments. As at December 31, 2007 we have incurred costs of
approximately $2.2 million with respect to exploration activities on the
Sanand/Miroli Block. Budgets for the estimated total capital
expenditures for the exploration activities on this block during the period
April 1, 2008 to March 31, 2009 have been prepared and submitted for
approval. They entail the drilling of six exploratory wells between
2,000 and 2,500 meters each which includes the remaining three well commitment
from Phase I and the three well commitment from Phase II. Further,
the budget includes the drilling of four wells, classified as appraisal wells
under the PSC, to approximately 2,000 meters each. We anticipate the
estimated total capital expenditures we will be required to contribute to the
exploration activities on this block during the period April 1, 2008 to March
31, 2009 based on our 10% PI will be approximately $3.7 million.
Tarapur
Block
With
respect to the Tarapur Block, prior to January 1, 2007, GSPC acquired a total of
660 sq kms of 3-D seismic. Further, prior to that date, eight wells
were drilled (Tarapur 1, Tarapur P, Tarapur G, Tarapur E, Tarapur D, Tarapur F,
Tarapur 5 and Tarapur 7).
As at May
12, 2008, twenty-one wells, four of which has been classified as appraisal wells
under the terms of the PSC, have been or are being drilled on this block with
the DALMA MR4 rig, the DALMA MR1 rig, the DRIPL-1 rig, the JOHN MR8000 rig, the
JOHN 1000 rig, the JOHN 1500 rig and the DR#1 rig. Of the twenty-one
wells, four are discovery wells as reported by GSPC to DGH (Tarapur 1, Tarapur
G, Tarapur 6 and Tarapur 4); two wells (Tarapur 5 and Tarapur P) have been
drilled and tested and are awaiting tie-in to production facilities along with
the four reported discovery wells; a further two wells (TS-4 and TS-5) have been
drilled and tested and are currently suspended awaiting to be further tested;
four wells were drilled and abandoned (Tarapur E, Tarapur D, Tarapur F and
Tarapur 7); seven are currently awaiting a workover rig for testing or further
testing (TO-1, TDEV-1, TDEV-2, TDEV-3, PNE-1, PNE-2 and P-1) and two wells are
currently being tested (TS-1 and TS-7).
A field
development plan has been filed by GSPC with GOI/DGH for the Tarapur field under
the provisions of the PSC. Further, on January 31, 2008, the
Management Committee for the Tarapur block recommended that GSPC, as operator,
acquire a mineral lease for four independent areas: 1) Tarapur-1 (6.5 sq kms);
2) Kheda-1 (8.84 sq kms); 3) Vaso-2 (8.91 sq kms); and 4) Changara-1 (7.26 sq
kms) so that production can commence upon approval of the
GOI. Approval from the GOI for the field development plan and the
mineral lease has not yet been received.
The wells
included in this Tarapur-1 mineral lease application are Tarapur 1, 4, 5, 6, G,
& P. Tarapur 1 was the first well drilled by GSPC in the Tarapur
Block and with test results of approximately 265 barrels of oil per day (BOPD")
from an EP-IV pay zone. This well is the first oil discovery within
the Tarapur Block.
GSPC
performed workover and stimulation work on three wells previously drilled by
ONGC on this Block, being the Kheda #1 well, the Vaso #2 well and the Changara
#1 well. Based on testing, workover operations and hydro-fracturing
carried out on these three wells, approximately 170 BOPD is expected to flow
from these three wells. Facilities are in place so that upon approval
of the GOI, oil from these wells is expected to be able to be transported for
marketing.
On
February 6, 2008, the Operating Committee recommended that the Tarapur G well be
declared a commercial gas discovery without drilling any further appraisal
wells. GSPC believes that based on test data that the well will
initially flow at a rate of approximately 1.7 Mmscf/d.
On
February 6, 2008, the Operating Committee further recommended that the Tarapur 6
well and the Tarapur 4 well be declared commercial oil
discoveries. Both the Tarapur 6 (1,795 meters) well and the Tarapur 4
(1,901 meters) well were drilled to originally appraise the Tarapur G gas
discovery in adjoining fault blocks. However, both wells turned out
to be oil bearing establishing a fault separating Tarapur G from Tarapur 6 and
Tarapur 4 to be sealing in nature. As such, the gas discovery at
Tarapur G was confined to the Tarapur G fault block only. The
Operating Committee has advised that the Tarapur 6 well test flowed at 410
Bbls/d along with gas of 350 Mscf/d from an 11 meter net pay zone interval from
the EP IV pay section. The Tarapur 4 well encountered a 21 meter net
oil pay section also within the EP IV pay section along with additional pay
within the Intra Cambay Shale. A hydro-frac is planned for this new
section in the Tarapur 4 to enhance the production of this
well. Estimated initial flow from these two wells is approximately
375 Bbls/d of oil.
Additional
activity during the year ended December 31, 2007 and through May 12, 2008 is as
follows:
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Two
wells drilled in the first half of 2007, the TS-4 and TS-5 were drilled to
TVD's of 2,844 and 3,009 meters, respectively. As at May 12,
2008, the TS-4 well has been tested and is currently suspended awaiting to
be further tested and the TS-5 well has been suspended awaiting a higher
capacity drilling rig to deepen the well by approximately 300
meters. GSPC then intends to utilize a workover rig to test
zones currently identified, along with any potential zones encountered in
the deepening of the the well.
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The
TS-1 well commenced drilling on July 23, 2007 and was drilled vertically
to a TVD of 3,000 meters. This well has been tested and the
first object was found to be water bearing. This well is undergoing
further testing.
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The
TS-7 well commenced drilling on August 13, 2007 to a TVD of 3,420
meters. The well is being
tested.
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The
TO-1 well commenced drilling October 3, 2007 and has been drilled
directionally to a TD of 2,645 meters MD (2,502 meters
TVD). The well is suspended awaiting a workover rig for
detailed testing
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The
TDEV-2 well commenced drilling October 25, 2007 and has been drilled
directionally to a TD of 1,943 meters MD (1,803 meters
TVD). The well is suspended awaiting a workover rig for
detailed testing.
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The
TDEV-3 well commenced drilling November 2, 2007 and has been drilled
directionally to a TD of 1,897 meters MD (1,799 meters
TVD). The well is suspended awaiting a workover rig for
detailed testing.
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The
PNE-1 well commenced drilling on November 29, 2007 and has been drilled to
a TD of 2,400 meters MD. This well is suspended awaiting a
workover rig for detailed testing.
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The
TDEV-1 well commenced drilling on December 1, 2007 and has been drilled
directionally to a TD of 1,803 meters MD (1,704 meters
TVD). This well is suspended awaiting a workover rig for
detailed testing.
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The
PNE-2 well commenced drilling on December 6, 2007 and has been drilled to
a TD of 2,400 meters MD. This well is suspended awaiting a
workover rig for detailed testing.
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The
P-1 well commenced drilling on January 6, 2008 and has been drilled to a
TD of 2,287 meters MD. This well is suspended awaiting a
workover rig for detailed testing.
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Financial
Commitments. Through December 31, 2007, we have incurred costs
of approximately $7.8 million under the terms of our agreement with GSPC for our
20% PI share of exploration costs. If the request for the additional
12 months is not granted, the third and final phase of exploratory activities on
the Tarapur Block would be deemed to have expired on November 22,
2007. All areas not encompassing a commercial discovery would be
relinquished back to the GOI. Oil and Natural Gas Corporation Limited
of India has the right to participate in the development of any commercial
discovery on the Tarapur Block by acquiring a 30% PI as provided under the
PSC. The exercise of this right would result in the reduction of our
PI to 14%.
If the
request for the additional 12 months is granted, estimated total capital
expenditures we will be required to contribute to drill five additional wells on
this block over the period ending November 22, 2008 based on our 20% PI will be
approximately $2.2 million plus liquidated damages of $662,000.
Ankleshwar
Block
With
respect to the Ankleshwar Block, prior to January 1, 2007, GSPC as operator,
completed a 494 sq km 3-D seismic acquisition program, reprocessed 650 LKMs of
2-D seismic and completed a geochemical survey and analysis of 500
samples.
As at
December 31, 2007, no wells have been drilled on this block but drilling
activities are anticipated to commence with the drilling of the first of
fourteen wells in the second calendar quarter of 2008.
Financial
Commitments. As at December 31, 2007, we have incurred costs
of approximately $830,000 on the Ankleshwar Block for our 10%
participating. Budgets for the estimated total capital expenditures
for the exploration activities on this block during the period April 1, 2008 to
March 31, 2009 have been prepared and submitted to the Management Committee for
approval. We anticipate the amount we will required to contribute
during this period, based on our 10% PI will be approximately $4.2 million and
will entail the drilling of 14 exploratory wells.
Our
Deccan Syneclise Basin Agreements
DS 03 Block
PSC
On
September 23, 2005, we signed a PSC with respect to this onshore DS 03
Block. The PSC covers an area of approximately 3,155 sq kms (779,618
acres) and was awarded under NELP-V. We hold a 100% PI in this block
and are the operator. The PSC provides that the exploration
activities are to be conducted in three phases commencing September 4, 2006 with
the first phase covering a period of 3.0 years, the second phase covering a
period of 2.0 years and the third phase covering a period of 2.0 years, for a
maximum total duration of 7.0 years for all three phases.
The work
commitment under the first phase is to complete a gravity magnetic and
geochemical survey and acquire an aero magnetic survey of 12,000
LKMs. If we elect to proceed to the second phase, we are to acquire
500 LKMs of 2-D seismic and drill 1 exploration well. During the
third phase, we are to acquire 250 sq kms of 3-D seismic and drill 2 exploratory
wells.
DS 04 Block
PSC
On March
2, 2007, we signed a PSC with respect to this onshore DS 04
Block. The PSC covers an area of approximately 2,649 sq km (654,582
acres) and was awarded under NELP-VI. We hold a 100% PI in this block
and are the operator. The PSC provides that the exploration
activities are to be conducted in two phases commencing June 7, 2007 with the
first phase covering a period of 5.0 years and the second phase covering a
period of 3.0 years, for a maximum total duration of 8.0 years for both
phases.
The Phase
I work commitment, consists of conducting a gravity and magnetic and geochemical
survey, as well as a seismic acquisition program consisting of 325 LKM of 2-D
seismic. We are further committed to drill 10 core holes to a depth
of approximately 500 meters. The Phase II work commitments, consists
of a seismic acquisition program consisting of 500 LKM of 2-D seismic and 200 sq
kms of 3-D seismic and drill 1 exploratory well to a depth of 2,000
meters.
Our
Deccan Syneclise Basin Exploration Activities
DS 03 Block and DS 04
Block
As at May
12, 2008, we have completed the preliminary field work and mapping and are in
the process of finalizing a report on a geological survey taken over both
blocks. We have budgeted and plan to complete before March 31, 2009 a
geochemical survey of 500 stations and a gravity and magnetic survey of 2,500
stations on each block. We further anticipate commencing an
experimental 2-D line before the end of this period.
Financial
Commitments. As at December 31, 2007, we have incurred costs
of approximately $280,000 on the DS 03 block and DS 04 blocks. We
estimate our expenditures for exploration activities during the period April 1,
2008 to March 31, 2009 for both blocks will be approximately US$1.8 million
based upon our 100% PI.
Our
Rajasthan Basin Agreements
RJ Block 20
PSC
On March
2, 2007, we, along with our joint venture partner, OIL, signed a PSC with
respect to this onshore RJ Block 20. The PSC covers an area of
approximately 2,196 sq km (542,643 acres) and was awarded under
NELP-VI. We hold a 25% PI in this block with OIL as operator holding
the remaining 75% PI. The PSC provides that the exploration
activities are to be conducted in two phases commencing January 21, 2008 with
the first phase covering a period of 4.0 years and the second phase covering a
period of 3.0 years, for a maximum total duration of 7.0 years for both
phases.
The Phase
I work commitment is to reprocess 463 LKM of 2-D seismic; conduct a gravity and
magnetic and geochemical survey; acquire, process and interpret 250 LKM of 2-D
seismic, acquire 700 sq kms of 3-D seismic and drill a total of 12 exploratory
wells between 2,000 and 2,500 meters. The Phase II work commitment is
to drill one well to 2,500 meters.
RJ Block 21
PSC
On March
2, 2007, we, along with our joint venture partner, OIL and Hindustan Petroleum
Corporation Limited ("HPCL") signed a PSC with respect to this onshore RJ Block
21. The PSC covers an area of approximately 1,330 sq km (328,650
acres) and was awarded under NELP-VI. We hold a 25% PI in this block,
OIL as operator holds a 60% PI and HPCL holds the remaining
15%PI. The PSC provides that the exploration activities are to be
conducted in two phases commencing January 21, 2008 with the first phase
covering a period of 4.0 years and the second phase covering a period of 3.0
years, for a maximum total duration of 7.0 years for both phases.
The Phase
I work commitment is to reprocess 463 LKM of 2-D seismic; conduct a gravity and
magnetic and geochemical survey; acquire, process and interpret 310 LKM of 2-D
seismic and 611 sq kms of 3-D seismic; and drill a total of 8 exploratory wells
between 2,000 and 2,500 meters. The Phase II work commitment is to
drill one well to 2,000 meters.
Our
Rajasthan Basin Exploration Activities
On
January 21, 2008, OIL, as operator received notification that the PEL's for both
Rajasthan Blocks had been issued thereby enabling the Phase I work program
commitments on both these Rajasthan Blocks to begin.
Financial
Commitments. We will be required to fund our 25% proportionate
share of the costs incurred on both these blocks which is estimated to be
approximately US$18.3 million over the four years of the first phase of the work
commitments for both blocks. The budget estimate for the period April
1, 2008 to March 31, 2009 has been set and our 25% proportionate share of that
budget on both blocks is approximately $7.2 million. This budget
entails performing the required surveys, the 2D and the 3D seismic acquisition
program and the interpretation and processing thereof and the drilling of 3
wells.
Egyptian
Activities
We
entered into a Joint Bidding Agreement with GSPC, as operator (50%) and Alkor
Petroo Limited of Hyderabad, India (20%) to bid on certain exploration blocks in
the Arab Republic of Egypt. The agreement provided that we were to
have a 30% PI in any PSCs entered into. These blocks include offshore
exploration Block 6 (also referred to as N. Hap’y) and onshore exploration Block
8 (also referred to as South Diyur) in the Arab Republic of
Egypt. These blocks were awarded to the consortium subject to certain
terms and conditions
On
January 8, 2008, effective December 31, 2007, we entered into two agreements
with GSPC. An Assignment Agreement sets out the terms whereby we
assigned to GSPC all our rights to receive a 30% participating interest in the
two exploration blocks awarded by the Arab Republic of Egypt in exchange for an
option (the Option Agreement) exercisable on or before April 30, 2008 to
reacquire all or a portion of those rights. GSPC provided us a 45 day
extension of the time for exercising the option to June 15, 2008.
In the
event we exercise the option, we will be required to pay to GSPC our pro rata
share of all costs and expenses from the effective date of the option agreement
(December 31, 2007). We will also have to provide to GSPC bank
guarantees equal to the remaining 98%, based upon our share of the rights we
elects to reacquire, of the total financial commitment for conducting the first
exploration phase on the two exploration blocks. If we elect to
reacquire and participate to the full 30% of the option, these additional bank
guarantees would amount to approximately US$56.4 million. In addition
to the non-refundable US$1.17 million of bank guarantees, our oil and gas assets
included at December 31, 2007 approximately US$2.4 million relating to our
interests in the two exploration blocks which will be carried forward as an
investment in the option pending our determination whether we will exercise any
portion of the option.
Financial
Commitments
Under the
terms of the Joint Bidding Agreement, the bidders were required to submit a bank
guarantee equal to 2% of the financial commitment under the MWP of the First
Exploration Phase which has a term of 4 years. During the third
quarter of 2007, we provided to GSPC two bank guarantees totaling US$1,170,000
secured by our term deposits in the same amount, based on our 30%
PI.
Anticipated
2008 Activities
We expect
our exploration and development activities pursuant to the PSCs we are a party
to, and the related drilling activities in the 10 exploration blocks that we
hold an interest in, will continue through 2008 in accordance with the terms of
those agreements. During the period April 1, 2008 to March 31, 2009,
based on the current budgets, we anticipate drilling thirty-six wells which
entails approximately four wells in the KG Offshore Block, three wells on the KG
Onshore Block, twenty-six wells in three of our Cambay Blocks (Mehsana,
Sanand/Miroli and Ankleshwar) and three wells on our RJ
Blocks. Further, we may drill approximately five wells on the Tarapur
Block pending the outcome of the extension of Phase III requested of the
GOI.
In
addition, we may seek to participate in joint ventures bidding for the award of
further PSCs for exploration blocks expected to be awarded by the GOI in the
future. As of May 30, 2008, we have no specific plans to join with
others in bidding for any specific PSCs in India and elsewhere. We
expect that our interest in any such ventures would involve a minority PI in the
venture. In addition, as opportunities arise, we may seek to acquire
minority PI's in exploration blocks where PSCs have been heretofore
awarded. The acquisition of any such interests would be subject to
the execution of a definitive agreement and obtaining the requisite government
consents and other approvals.
We may
during the year 2008 seek to participate in joint venture bidding for the
acquisition of oil and gas interests in other international countries, however,
as of May 30, 2008, we have made no specific plans regarding such activities and
have not entered into any binding agreements with respect to such
activities.
Depending
upon the scope of our activities during the years 2008 and 2009, we may require
additional capital for the funding of our activities under the PSCs we are
currently a party to as well as support for our bidding for other PSCs that may
be awarded in India or elsewhere. In addition, we may require
additional funds for the possible acquisition of further minority participating
interests in PSCs in drilling blocks heretofore awarded and that we may
hereafter propose to enter into in India and possibly elsewhere. We
believe it can be expected that our interest in further or additional PSCs would
be a participating interest. As the holder of a participating
interest in any such activities, it can be expected that we will be required to
contribute capital to any such ventures in proportion to our percentage
interest.
As of May
30, 2008, the scope of any possible such additional activities has not been
definitively established and, accordingly, we are unable to state the amount of
any funds that may be required for these purposes. As a result, no
specific plans or arrangements have been made to raise additional capital and we
have not entered into any agreements in that regard. We expect that
if we seek to raise additional capital it will be through the sale of equity
securities. As of May 30, 2008, we are unable to estimate the terms
on which any such capital may be raised, the price per share or possible number
of shares involved.
We
believe that our available cash resources will be sufficient to meet all our
expenses and cash requirements during the year ended December 31, 2008 for our
present level of operations. We do not expect to have any significant
change in 2008 in our number of employees.
Additional
Terms of Our Production Sharing Contracts
General
Except
for the size and location of the exploration blocks and the work programs to be
conducted, the PSCs contain substantially similar terms. Under the
PSCs, the GOI has granted to the parties the right to engage in oil and natural
gas exploration activities on the exploration blocks for specified terms of
years with each contract setting forth the exploration activities to be
conducted over periods of years in two or three phases.
The
contracts contain restrictions on the assignment of a PI, including a change in
control of a party, without the consent of the GOI, subject to certain
exceptions which include, among others, a party encumbering its interest subject
to certain limitations.
Each of
the ventures is managed by a Management Committee representing the parties to
the agreement, including the GOI. The contracts contain various other
provisions, including, among others, obligations of the parties to maintain
insurance, the maintenance of books and records, confidentiality, the protection
of the environment, arbitration of disputes, matters relating to income taxes on
the parties, royalty payments, and the valuation of hydrocarbons
produced. The Indian domestic market has the first call on natural
gas produced. The contracts are interpreted under the laws of
India.
Relinquishment on our
Existing Blocks Prior to NELP VI Blocks
Under
each of these contracts, if the parties elect to continue into the second
exploratory phase, the contracts provide that the parties retain up to 75% of
the original contract area, including any developed areas and areas of
discoveries of hydrocarbons, and relinquish the remainder. Similarly,
if the parties elect to continue into the third exploration phase, the contracts
provide that the parties retain up to 50% of the original contract area,
including any developed areas and areas of discovery of hydrocarbons, and
relinquish the remainder. At the end of the final exploration phase,
only developed areas and areas of discoveries are to be retained.
Relinquishment on the Newly
Awarded NELP-VI Blocks
Under
each of these contracts, if the parties elect to continue into the second
exploratory phase, the contracts provide that the parties shall have the option
to relinquish a part of area in simple geometrical shape, such area to be
relinquished shall not be less than 25% of the original contract. At
the end of the second exploration phase, the parties shall retain the balance
which includes any developed areas and areas of discoveries.
Procedure for Allocation of
Costs After a Discovery
These
PSCs contain provisions relating to procedures to be followed once a discovery
of hydrocarbons is determined to have been made within the exploration block and
for the further development of that discovery. Following the
completion of a development plan for a discovery, the parties are to apply to
the relevant government entity for a lease with respect to the area to be
developed with an initial term of 20 years for the lease. The GOI and
the other parties to the PSC are allocated, after deduction of the costs of
exploration, development, and production to be recovered, percentages of any
remaining production with the GOI allocated between 20% to 40% of the production
from the KG Offshore Block and Ankleshwar Block, 30% to 55% of the production
from the Mehsana Block and Sanand/Miroli Blocks and 10% to 30% of the production
from the DS 03 Block. The newly awarded blocks under NELP-VI are
allocated between 91% to 9% of the production from the KG Onshore Block, the RJ
Block 20 and RJ Block 21 and between 85% to 15% for the DS 04
Block. This percentage split is based upon pre-determined production
levels with the balance of the production to be allocated to the other joint
venture participants in proportion to their participating
interests.
Bank
Guarantees
The
contracts contain provisions whereby the joint venture participants must provide
the GOI a bank guarantee in the amount of 35% of the participant's share of the
MWP for a particular Phase, to be undertaken during the year. This
work program to be undertaken is presented annually to the Management Committee
for approval for the period April 1 through March 31. The work
programs for the year April 1, 2008 through March 31, 2009 and their related
budgets have been approved for six of our existing PSCs, but have not yet been
approved on four to which we are a party. Accordingly, our estimates
as to capital expenditures pursuant to these for the twelve months ended March
31, 2009 and beyond are subject to revision when the budget is approved and
thereafter during the twelve-month period.
Our
Oil and Gas Interests
We are
engaged in the exploration for and development of oil and natural gas
reserves. At December 31, 2007, we have not produced any oil or
natural gas and we do not claim any proved reserves of oil or natural
gas. We have not reported any proved reserves of oil or natural gas
to any United States Federal authority.
We do not
own any oil or natural gas wells as of May 30, 2008 and at that date we have not
been granted any leases to properties under the terms of our PSCs.
As at
December 31, 2007, we have participated through joint ventures in which we are a
party in the commencement of drilling forty-one wells. Of these
forty-one wells, ten exploratory wells, one of which has been classified as an
appraisal well under the PSC, have been drilled in the Krishna Godavari Basin on
the KG Offshore Block, four exploratory wells have been drilled in the Cambay
Basin in the Mehsana Block, seven exploratory wells have been drilled in the
Cambay Basin in the Sanand/Miroli Block and twenty exploratory wells, three of
which have been classified as appraisal wells under the PSC, have been drilled
in the Cambay Basin in the Tarapur Block.
Of the
forty-one wells, eleven wells have been abandoned, three in the KG Offshore
Block, two in the Mehsana Block, two in the Sanand/Miroli and four in the
Tarapur Block.
None of
the forty-one wells are producing wells as of May 30, 2008. A field
development plan has been filed by GSPC with GOI/DGH for the Tarapur field under
the provisions of the PSC. GOI approval is pending. While
we have discoveries in the KG Offshore Block, the Mehsana Block and the
Sanand/Miroli Block, field development plans have not been submitted on those
blocks.
Development,
Exploration and Acquisition Expenditures
The
following table sets forth information regarding costs we incurred in our
development, exploration and acquisition activities by area as at December 31,
2007 and December 31, 2006.
|
December
31, 2007
|
December
31, 2006
|
|||||||
|
US$
|
US$
|
|||||||
|
Restated
|
||||||||
|
Development
Costs
|
-- | -- | ||||||
|
Exploration
Costs
|
||||||||
|
Krishna
Godavari Basin Blocks
|
9,835,602 | 5,510,272 | ||||||
|
Cambay
Basin Blocks
|
14,288,693 | 6,558,315 | ||||||
|
Deccan
Syneclise Basin Blocks
|
280,188 | 52,747 | ||||||
|
Rajasthan
Basin Blocks
|
135,448 | -- | ||||||
|
Egypt
|
2,447,061 | -- | ||||||
|
Middle
East
|
112,554 | -- | ||||||
|
Acquisition
Costs
|
-- | -- | ||||||
|
Capitalized
Interest
|
-- | -- | ||||||
|
Total
|
27,099,547 | 12,121,334 | ||||||
As at
December 31, 2007, GSPC has incurred costs of Rs 246.20 crore, or approximately
$57.3 million (December 31, 2006 - Rs 114.96 crore, or approximately $26.1
million) for exploration activities on the KG Offshore Block attributable to us
under our CIA with GSPC of which, 50% is for the account of RGM. We
will not realize cash flow from the KG Offshore Block until such time as the
expenditures attributed to us, including those expenditures made for the account
of RGM under the CIA have been recovered by GSPC from future production
revenue. Under the terms of the CIA, all of our proportionate share
of capital costs for exploration and development activities must be repaid to
GSPC without interest over the projected production life or ten years, whichever
is less.
We have
been advised by GSPC, that GSPC is seeking payment of the amount by which the
exploration costs attributable to us under the PSC relating to the KG Offshore
Block exceeds the amount that GSPC deems it is obligated to pay on our behalf
(including the net 5% PI of RGM) under the terms of the CIA. GSPC
asserts that we are required to pay 10% of the exploration expenses over and
above gross costs of $59.23 million (10% being $5.92 million). We are
disputing this matter with GSPC. Based upon the most recent letter
dated February 4, 2008 received from GSPC, GSPC asserts they have incurred costs
of Rs. 246.2 crore (or approximately US$57.3 million) on our behalf as of
December 31, 2007. Should GSPC be fully or partly successful in this
matter, these expenditures would increase our oil and gas
expenditures.
Acreage
Developed
Acreage
At May
30, 2008, we hold no interests in acreage that may be deemed developed or
acreage assignable to productive wells. Productive wells are defined
as producing wells and wells capable of production.
Contract Interests in
Undeveloped Acreage
Under the
terms of the ten PSCs to which we are a party, we have an interest in
approximately 3,409,313 gross acres (1,769,471 net acres) as of December 31,
2007. Substantial work commitments must be performed pursuant to each
of these PSCs before we will have any leasehold, concession or other interest in
such acreage and there can be no assurance that our exploration activities will
result in leases being granted. Failure to fulfill work commitments
or the relinquishment of acreage upon the election to proceed to second and/or
third phases of exploration phases, as applicable under the terms of our PSCs,
would result in the loss of material amounts of this acreage pursuant to the
relinquishment provisions of the PSC (see "Additional Terms of Our Production
Sharing Contracts – Relinquishment on our Existing Blocks"). No
leases as to any of such acreage have been granted and there can be no assurance
that we will be granted a leasehold or other interest in the acreage in the
future. Under the terms of the PSCs, following the completion of a
development plan for a discovery, the parties are to apply for a lease from the
relevant government authority to the area to be developed. Leases are
to have an initial term of twenty years.
All such
acreage is located in India as follows:
|
Contract
Interest in Undeveloped Acreage
|
||
|
Gross
acres
|
Net
acres
|
|
|
Krishna
Godavari Basin Blocks
|
||
|
KG
Offshore
|
457,145
|
(1) 22,857
|
|
KG
Onshore
|
135,414
|
(2) 13,541
|
|
592,559
|
36,398
|
|
|
Cambay
Basin Blocks
|
||
|
Mehsana
|
30,888
|
3,088
|
|
Sanand/Miroli
|
70,425
|
7,043
|
|
Ankleshwar
|
110,703
|
11,070
|
|
Tarapur
|
299,245
|
(4)
59,849
|
|
511,261
|
81,050
|
|
|
Deccan
Syneclise Basin Blocks
|
||
|
DS
03
|
779,618
|
779,618
|
|
DS
04
|
654,582
|
654,582
|
|
1,434,200
|
1,434,200
|
|
|
Rajasthan
Basin Blocks
|
||
|
RJ
Block 20
|
542,643
|
135,661
|
|
RJ
Block 21
|
328,650
|
82,162
|
|
871,293
|
217,823
|
|
|
Total
|
3,409,313
|
1,769,471
|
|
|
(1)
|
excludes
acreage that is subject to the PIA with
RGM
|
|
(2)
|
based
on a 10% PI
|
|
(3)
|
one
square kilometer converts to 247.1054
acres
|
|
(4)
|
the
remaining acreage after relinquishment moving into Phase
III
|
Drilling
Activity
The
following table sets forth information as to the wells we completed drilling
during the periods indicated, all of which are exploratory wells, which include
wells drilled for appraisal purposes under the terms of the
PSCs. Inasmuch as permanent equipment has not been installed for the
production of oil or gas at any of the wells, such wells should not be deemed to
be completed wells. In the table, "gross" refers to the total wells
in which we have an interest and "net" refers to gross wells multiplied by our
interest therein.
|
Year
Ended December 31,
|
||||||||
|
India
|
Prior
Years
|
2005
|
2006
|
2007
|
||||
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
|
|
Development
|
||||||||
|
Productive
Non-
productive
|
0
0
|
0
0
|
0
0
|
0
0
|
0
0
|
0
0
|
0
0
|
0
0
|
|
Exploratory
|
||||||||
|
Productive
Non-productive
|
0
1.0
|
0
0.05
|
3.0
1.0
|
0.45
0.05
|
4.0
4.0
|
0.50
0.80
|
17.0
5.0
|
2.60
0.45
|
Hedging
Activities
At
December 31, 2007, we had not entered into any market risk sensitive
instruments; as such term is defined in Item 305 of Regulation S-K, relating to
our operations.
Marketing
Under the
terms of our PSCs, until India’s total production of crude oil and condensate
meets the Indian national demand, we are required to sell in the Indian domestic
market our entitlement to crude oil and condensate. When and so long
as India attains self-sufficiency in the production of crude oil and condensate,
our domestic sale obligation is suspended and we will have the right to export
our entitlement.
The PSCs
provide that the Indian domestic market will have the first call on natural gas
produced from the areas that are the subject of the contracts.
The PSCs
provide that the parties are to agree monthly on a price for crude oil which is
intended to be on an import parity basis. Prices of natural gas are
intended to be based on Indian domestic market prices.
Our
ability to market any production of crude oil and natural gas will be dependent
upon the existence and availability of pipeline or other gathering system,
storage facilities and an ability to transport the hydrocarbons to
market. Such facilities are yet to be constructed.
We are
not a party to any agreements providing for the delivery of fixed quantities of
hydrocarbons.
Competition
We
experience competition from others in seeking to participate in joint ventures
and other arrangements to participate in exploratory drilling ventures in
India. In addition, the ventures in which we participate experience
competition from other ventures and persons in seeking from the GOI and,
possibly others, its agreement to grant and enter into
PSCs. Management of our company believes that competition in entering
into such agreements with the GOI is based on the extent and magnitude of
exploratory activities that the applicants will propose to undertake on the
exploration blocks under consideration as well as the applicants available
capital and technical ability of the applicants to complete such
activities.
Employees
The
services of our President and Chief Executive Officer, Jean Paul Roy, are
provided pursuant to the terms of a Technical Services Agreement ("TSA") we
entered into with Roy Group (Barbados) Inc. ("RGB"), a corporation wholly owned
by Mr. Roy. The services of Allan J. Kent, our Executive Vice
President and Chief Financial Officer were provided through the year December
31, 2007 through D.I. Investments Ltd., a corporation wholly owned by Mr.
Kent. As such, the services of Messrs. Roy and Kent are provided to
us in their capacity as employees of RGB and DI, respectively, and each devote
substantially all of their time to our affairs.
In
addition to Messrs. Roy and Kent, we employ approximately ten additional persons
at various times and in various capacities as part time consultants to
us.
As of
December 31, 2007, we employed four persons and three full time consultants in
Calgary, Alberta, Canada and also employed six persons in Gandhinagar, Gujarat
State, India.
Incorporation
and Organization
On August
29, 2003, we acquired all of the issued and outstanding shares of GeoGlobal
Resources (India) Inc. ("GeoGlobal India") a corporation then wholly owned by
Mr. Jean Paul Roy. The completion of the acquisition resulted in the
issuance and delivery by us of 34,000,000 common shares and delivery of our $2.0
million promissory note to Mr. Roy. Of such shares, we issued and
delivered 14.5 million shares at the closing of the acquisition and 14.5 million
shares were released from escrow on August 27, 2004 upon the actual commencement
of a drilling program. The remaining 5.0 million shares continued to
be held in escrow at December 31, 2007. These 5.0 million shares held
in escrow will be released only if a commercial discovery is declared on the KG
Offshore Block. If a commercial discovery is not declared, the shares
will not be released from escrow, but will be surrendered back to
us. Common shares held during the term of the escrow retain their
voting rights. As a result of this transaction, Mr. Roy held as of
the closing of the transaction approximately 69.3% of our issued and outstanding
shares. Mr. Roy was also elected our President and a Director on
August 29, 2003. This transaction is considered an acquisition of
GeoGlobal Resources Inc. (the accounting subsidiary
and legal
parent) by GeoGlobal India (the accounting parent and legal subsidiary) and has
been accounted for as a purchase of the net assets of GeoGlobal Resources Inc.
by GeoGlobal India. Accordingly, this transaction represents a
recapitalization of GeoGlobal India, the legal subsidiary, effective August 29,
2003.
As a
consequence of this transaction, a change in control of our company may be
deemed to have occurred.
Through
late 2001, we were engaged in the creation, operation and maintenance of a World
Wide Web-based community, known as Suite101.com, Inc. At the end of
2001, management at that time determined to redirect activities and by mid-2002,
the company was no longer engaged in the former Web-based
activities.
We are a
corporation organized under the laws of the State of Delaware in December
1993. From December 1998 to January 2004, our corporate name was
Suite101.com, Inc. At a meeting held January 8, 2004, our
stockholders approved an amendment to our Certificate of Incorporation to change
our corporate name to GeoGlobal Resources Inc.
An
investment in shares of our common stock involves a high degree of
risk. You should consider the following factors, in addition to the
other information contained in this Annual Report, in evaluating our business
and current and proposed activities before you purchase any shares of our common
stock. You should also see the "Cautionary Statement for Purposes of
the Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995" regarding risks and uncertainties relating to us and to forward-looking
statements in this Annual Report.
There can
be no assurance that the exploratory drilling to be conducted on the exploration
blocks in which we hold an interest will result in any discovery of reserves of
hydrocarbons or that any hydrocarbons that are discovered will be in
commercially recoverable quantities. In addition, the realization of
any revenues from commercially recoverable hydrocarbons is dependent upon the
ability to deliver, store and market any hydrocarbons that are
discovered. The presence of hydrocarbon reserves on contiguous
properties is no assurance or necessary indication that hydrocarbons will be
found in commercially marketable quantities on the exploration blocks in which
we hold an interest.
Risks
Relating to Our Oil and Gas Activities
Because We Are In the Early
Stage Of Developing Our Activities, There Are Considerable Risks That We Will Be
Unsuccessful
We are in
the early stage of developing our operations. Our only activities in
the oil and natural gas exploration and production industry have primarily
involved entering into ten PSCs with the GOI. We have realized no
revenues from our oil and natural gas exploration and development activities and
do not claim any proved reserves of oil or natural gas.
Our
current plans are to conduct the exploration and development activities on the
areas offshore and onshore India in accordance with the terms of the PSCs we are
a party to. There can be no assurance that the exploratory drilling
to be conducted on the exploration blocks in which we hold an interest will
result in any discovery of hydrocarbons or that any hydrocarbons that are
discovered will be in commercially recoverable quantities. In
addition, the realization of any revenues from commercially recoverable
hydrocarbons is dependent upon the ability to deliver, store and market any
hydrocarbons that are discovered. As of May 30, 2008, there are no or
limited facilities for the delivery and storage of hydrocarbons on the areas
covered by our PSCs. The presence of hydrocarbon reserves on
contiguous properties is no assurance or necessary indication that hydrocarbons
will be found in commercially marketable quantities on the exploration blocks in
which we hold an interest. Our exploration opportunities are highly
speculative and should any of these opportunities not result in the discovery of
commercial quantities of oil and gas reserves, our investment in the venture
could be lost.
Our
business plans also include seeking to enter into additional joint ventures or
other arrangements to acquire interests in additional government created and
granted hydrocarbon exploration opportunities, primarily located onshore or in
the offshore waters of India and possibly elsewhere. Opportunities to
acquire interests in exploration opportunities will be dependent upon our
ability to identify, negotiate and enter into joint venture or other similar
arrangements with respect to specific exploration opportunities and upon our
ability to raise sufficient capital to fund our participation in those joint
ventures or other exploration activities. Our success will be
dependent upon the success of the exploration activities of the ventures in
which we acquire an interest and our ability to have adequate capital resources
available at the times required.
GSPC Is Seeking a Payment
From Us In the Amount Of Approximately $57.3 Million as of December 31, 2007 On
Account of GSPC’s Exploration Costs On the KG Offshore Block
Gujarat
State Petroleum Corporation Ltd. ("GSPC"), the operator of the KG Offshore Block
in which we have a net 5% carried interest, has advised us that it is seeking
from us our pro rata portion of the amount by which the sums expended by GSPC
under Phase I of the work program set forth in the PSC for the KG Offshore Block
in carrying out exploration activities on the block exceeds the amount that GSPC
deems to be our pro rata portion of a financial commitment under Phase I
included in the parties’ joint bid for the award by the Government of India of
the KG Offshore Block.
GSPC
contends that this excess amount is not within the terms of the
CIA. GSPC asserts that we are required to pay 10% of the exploration
expenses over and above gross costs of $59.23 million (10% being $5.92 million)
(including the net 5% interest of Roy Group (Mauritius) Inc.).
Based on
the most recent amount provided by GSPC in a letter dated February 4, 2008, GSPC
asserts that the amount payable is $57.3 million as of December 31,
2007. GeoGlobal disputes this assertion of GSPC.
We have
advised GSPC that, under the terms of the CIA, the terms of which are also
incorporated into the PSC and the Joint Operating Agreement dated August 7, 2003
between the parties, it has no right to seek the payment and that we believe the
payment GSPC is seeking is in breach of the CIA. We further reminded
GSPC that we have fulfilled over the past five years our obligations under the
CIA to provide extensive technical assistance without any further remuneration
other than the carried interest, all in accordance with the terms of the
CIA. In furtherance of our position, we have obtained the opinion of
prominent Indian legal counsel who has advised us that, among other things,
under the terms of the agreements between the parties, and in particular the
CIA, we are not liable to pay any amount to GSPC for either costs and expenses
incurred or otherwise before reaching the stage of commercial
production.
We
continue to be of the view that, under the terms of the CIA, we have a carried
interest in the exploration activities conducted by the parties on the KG
Offshore Block for 100% of our share (including the share of Roy Group
(Mauritius) Inc.) of costs during the exploration phase prior to the start date
of initial commercial production on the KG Offshore Block. To date,
commercial production has not been achieved on the block.
We intend
to vigorously protect our contractual rights in accordance with the dispute
resolution process under the CIA, the PSC and the JOA as may be
appropriate. However, there can be no assurance that GSPC will not
institute arbitration or other proceedings seeking to recover the sum or
otherwise contend we are in breach of the PSC or that the effect of GSPC seeking
payment of this sum may not hinder our capital raising and other
activities. In September 2007, we commenced discussions with GSPC in
an effort to reach an amicable resolution, however, no agreement has been
reached as of May 30, 2008.
Possible Inability of
Contracting Parties to Fulfill the Minimum Work Programs for Certain of Our
PSCs
Our PSCs
relating to our exploration blocks in India provide that by the end of the first
phase of the exploration phases the contracting parties shall have drilled a
certain number of wells or performed certain exploration
activities. The first phase of the exploration period relating to the
PSC for the KG Offshore Block expired without the required minimum of at least
fourteen exploration wells being drilled during the first phase. The
first phase of the exploration period of the PSC relating to the Mehsana Block
also expired without the required minimum of seven wells having been drilled and
the first phase of the exploration period of the PSC relating to the
Sanand/Miroli Block expired without the required minimum of twelve wells having
been drilled. GSPC is the operator on the KG Offshore Block and the
Sanand/Miroli Block and Jubilant Oil & Gas ("Jubilant") is the operator on
the Mehsana Block. The PSCs also have provisions for termination of
the PSC on account of various reasons specified therein including material
breach of the contract. This failure to timely complete the minimum
work commitment may be deemed to constitute such a
breach. Termination rights can be exercised after giving ninety days
written notice.
The
termination of a PSC by the GOI would result
in the loss of our interest in the PSC other than contract areas of the PSC
determined to encompass "commercial discoveries". The PSC sets forth
procedures whereby the operator can obtain the review of the Management
Committee under the PSC as to whether a discovery on the exploration block
should be declared a commercial discovery under the PSC. Those
procedures have not been completed at present with respect to the discovery on
the KG Offshore Block. Although GSPC submitted, subsequent to end of
Phase I, an application to have an area declared as a commercial discovery, as
of May 30, 2008, no areas on the KG Offshore Block have been determined formally
to encompass "commercial discoveries" as that term is defined under the
PSC. No areas of the Mehsana Block or the Sanand/Miroli Block have
been determined to encompass commercial discoveries, however, the operators of
each block have notified DGH of discoveries.
GSPC, as
operator of the Tarapur Block, has submitted an application for an extension
beyond Phase III of the PSC for an additional twelve months to complete an
additional work program of drilling five wells under the GOI new extension
policy. The parties to the PSC have agreed to provide a 35% bank
guarantee of US$3.1 million and a 30% cash payment of US$2.7 million for this
additional work programme. GOI consent to this application has not
yet been approved or received. GSPC has previously notified the GOI
under the terms of the PSC of two discoveries of hydrocarbons in this block, the
Tarapur 1 and Tarapur G. These requests remain pending at May 30,
2008.
In the
event a PSC is terminated by the GOI, or in the event the work program is not
fulfilled by the end of the relevant exploration phase, the PSC provides that
each party to the PSC is to pay to the GOI its participating interest share of
an amount which is equal to the amount that would be required to complete the
minimum work program for that phase.
With
respect to the KG Offshore Block, we are of the view that GSPC, under the terms
of our CIA, would be liable for our participating interest share of the amount
required to complete the minimum work program for the phase.
GSPC, as
operator of the Tarapur Block, has submitted an application for an extension
beyond Phase III of the PSC for an additional twelve months to complete an
additional work program of drilling five wells under the GOI new extension
policy which has not yet been approved.. Through December 31, 2007,
we have incurred costs of approximately $7.8 million under the terms of our
agreement with GSPC for our 20% PI share of exploration costs. If the
above request for an additional 12 months is not granted, the third and final
phase of exploratory activities on the Tarapur Block will have expired on
November 22, 2007. The work commitment to drill one well to a depth
of 3,000 meters or to the Deccan trap has been completed and, under the terms of
the PSC, all areas not encompassing a commercial discovery after November 22,
2007 would be relinquished back to the GOI and our investment in exploration
costs on areas that will be required to be relinquished back to the GOI will
have been lost.
Financial Statement Impact
of Our Failure to Exercise Our Options To Reacquire Our 30% Interest in the
Egyptian Exploration Blocks.
We
entered into a Joint Bidding Agreement with GSPC, as operator (50%) and Alkor
Petroo Limited of Hyderabad, India (20%) to bid on certain exploration blocks in
the Arab Republic of Egypt. The agreement provides that we are to
have a 30% PI of any concession agreements entered into. These blocks
include offshore exploration Block 6 (also referred to as N. Hap’y) and onshore
exploration Block 8 (also referred to as South Diyur) in the Arab Republic of
Egypt. On March 22, 2008 GSPC entered into two concession agreements
covering these blocks with the Arab Republic of Egypt.
On
January 8, 2008, effective December 31, 2007, we entered into two agreements
with GSPC. An Assignment Agreement sets out the terms whereby we assigned to
GSPC all of our rights to receive a 30% PI in the two exploration blocks awarded
by the Arab Republic of Egypt in exchange for an option (the Option Agreement)
exercisable on or before April 30, 2008 to reacquire all or a portion of those
rights. GSPC provided us a 45 day extension of time for exercising
the option to June 15, 2008.
In the
event we exercise the option, we will be required to pay to GSPC our pro rata
share of all costs and expenses from the effective date of the option agreement
(December 31, 2007). We will also have to provide to GSPC bank
guarantees equal to the remaining 98%, based upon our share of the rights we
elects to reacquire, of the total financial commitment for conducting the first
exploration phase on the two exploration blocks. If we elect to
reacquire and participate to the full 30% of the option, these additional bank
guarantees would amount to approximately US$56.4 million. In addition
to the non-refundable US$1.17 million of bank guarantees, our oil and gas assets
included at December 31, 2007 approximately US$2.4 million relating to our
interests in the two exploration blocks which will be carried forward as an
investment in the option pending our determination whether we will exercise any
portion of the option.
In the
event we fail to exercise any portion of the option, we will be required to
recognize a charge to the Statement of Operations in the amount of approximately
US$4.1 million.
Because Our Activities Have
Only Recently Commenced And We Have No Operating History And Reserves Of Oil And
Gas, We Anticipate Future Losses; There Is No Assurance Of Our
Profitability
Our oil
and natural gas operations have been only recently established and we have very
limited operating history, no oil and gas reserves and limited assets upon which
an evaluation of our business, our current business plans and our prospects can
be based. Our prospects must be considered in light of the risks,
expenses and problems frequently encountered by all companies in their early
stages of development and, in particular, those engaged in exploratory oil and
gas activities. Such risks include, without limitation:
|
·
|
We
will experience failures to discover oil and gas in commercial
quantities;
|
|
·
|
There
are uncertainties as to the costs to be incurred in our exploratory
drilling activities, cost overruns are possible and we may encounter
mechanical difficulties and failures in completing
wells;
|
|
·
|
There
are uncertain costs inherent in drilling into unknown formations, such as
over-pressured zones, high temperatures and tools lost in the hole;
and
|
|
·
|
We
may make changes in our drilling plans and locations as a result of prior
exploratory drilling.
|
During
the exploration phase prior to the start date of initial commercial production,
we have a carried interest in the exploration activities on the KG Offshore
Block. Our interests in our other exploration blocks are
participating interests which require us to pay our proportionate share of
exploration, drilling and development expenses on these blocks as those expenses
are incurred. Unexpected or additional costs can affect the
commercial viability of producing oil and gas from a well and will affect the
time when and amounts that we can expect to receive from any production from a
well. Because our carried costs of exploration and drilling on the KG
Offshore Block are to be repaid in full to the operator, GSPC, before we are
entitled to any share of production, additional exploration and development
expenses will reduce and delay any share of production and revenues we will
receive.
There can
be no assurance that the ventures in which we are a participant will be
successful in addressing these risks, and any failure to do so could have a
material adverse effect on our prospects for the future. Our
operations were recently established, and as such, we have no substantial
operating history to serve as the basis to predict our ability to further the
development of our business plan. Likewise, the outcome of our
exploratory drilling activities, as well as our quarterly and annual operating
results cannot be predicted. Consequently, we believe that period to period
comparisons of our exploration, development, drilling and operating results will
not necessarily be meaningful and should not be relied upon as an indication of
our stage of development or future prospects. In the future,
operating or drilling results may fall below our expectations or the
expectations of securities analysts and investors and that some of our drilling
results will be unsuccessful and the wells abandoned. In such event,
the trading price of our common stock may be materially and adversely
affected.
We Expect to Have
Substantial Requirements For Additional Capital That May Be Unavailable To Us
Which Could Limit Our Ability To Participate In Our Existing and Additional
Ventures Or Pursue Other Opportunities. Our Available Capital is
Limited
In order
to participate under the terms of our PSCs as well as in further joint venture
arrangements leading to the possible grant of exploratory drilling
opportunities, we will be required to contribute or have available to us
material amounts of capital. Under the terms of our CIA relating to
the KG Offshore Block, after the start date of initial commercial production on
the KG Offshore Block, and under the terms of the nine other PSCs we are parties
to, we are required to bear our proportionate share of costs during the
exploration phases of those agreements. There can be no assurance
that our currently available capital will be sufficient for these purposes or
that any additional capital that is required will be available to us in the
amounts and at the times required. Such capital also may be required
to secure bonds in connection with the grant of exploration rights, to conduct
or participate in exploration activities or be engaged in drilling and
completion activities. We intend to seek the additional capital to
meet our requirements from equity and debt offerings of our
securities. Our ability to access additional capital will depend in
part on the success of the ventures in which we are a participant in locating
reserves of oil and gas and developing producing wells on the exploration
blocks, the results of our management in locating, negotiating and entering into
joint venture or other arrangements on terms considered acceptable, as well as
the status of the capital markets at the time such capital is
sought.
There can
be no assurance that capital will be available to us from any source or that, if
available, it will be at prices or on terms acceptable to us. Should
we be unable to access the capital markets or should sufficient capital not be
available, our activities could be delayed or reduced and, accordingly, any
future exploration opportunities, revenues and operating activities may be
adversely affected and could also result in our breach of the terms of a PSC
which could result in the loss of our rights under the contract.
As of
December 31, 2007, we had cash and cash equivalents of approximately $48.1
million. We currently expect that our available cash will be
sufficient to fund us through the balance of 2008 and through the budget period
ending March 31, 2009 at our present level of operations on the ten exploration
blocks in which we are currently a participant in. Although
exploration activity budgets are subject to ongoing review and revision, our
present estimate of our commitments of capital pursuant to the terms of our PSCs
relating to our ten exploration blocks, excluding the KG Onshore Block and the
Tarapur Block, totals approximately $17.1 million during the period April 1,
2008 to March 31, 2009. We anticipate expenditures on the Tarapur
Block, if the 12 month extension is granted to be $2.2 million for the same
period. Further, we anticipate our expenditures on the KG Onshore
Block to be $4.2 million based upon a 10% PI. Upon receipt of
approval from the GOI for the increase to a 25% PI, these expenditures will
increase to $10.5 million. Any further PSCs we may seek to enter into
or any expanded scope of our operations or other transactions that we may enter
into may require us to fund our participation or capital expenditures with
amounts of capital not currently available to us. We may be
unsuccessful in raising the capital necessary to meet these capital
requirements. There can be no assurance that we will be able to raise
the capital.
India’s Regulatory Regime
May Increase Our Risks And Expenses In Doing Business
All
phases of the oil and gas exploration, development and production activities in
which we are participating are regulated in varying degrees by the Indian
government, either directly or through one or more governmental
entities. The areas of government regulation include matters relating
to restrictions on production, price controls, export controls, income taxes,
expropriation of property, environmental protection and rig
safety. In addition, the award of a PSC is subject to GOI consent and
matters relating to the implementation and conduct of operations under the PSC
are subject, under certain circumstances, to GOI consent. As a
consequence, all future drilling and production programs and operations we
undertake or are undertaken by the ventures in which we participate in India
must be approved by the Indian government. Shifts in political
conditions in India could adversely affect our business in India and the ability
to obtain requisite government approvals in a timely fashion or at
all. We, and our joint venture participants, must maintain
satisfactory working relationships with the Indian government. This
regulatory environment and possible delays inherent in that environment may
increase the risks associated with our exploration and production activities and
increase our costs of doing business.
Our Control By Directors And
Executive Officers May Result In Those Persons Having Interests Divergent From
Our Other Stockholders
As of May
30, 2008, our Directors and executive officers and their respective affiliates,
in the aggregate, beneficially hold 32,543,667 shares or approximately 45.1% of
our outstanding Common Stock. As a result, these stockholders possess
significant influence over us, giving them the ability, among other things, to
elect a majority of our Board of Directors and approve significant corporate
transactions. These persons will retain significant control over our
present and future activities and our other stockholders and investors may be
unable to meaningfully influence the course of our actions. These
persons may have interests regarding the future activities and transactions in
which we engage which may diverge from the interests of our other
stockholders. Such share ownership and control may also have the
effect of delaying or preventing a change in control of us, impeding a merger,
consolidation, takeover or other business combination involving us, or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us which could have a material adverse effect on
the market price of our Common Stock. Although management has no
intention of engaging in such activities, there is also a risk that the existing
management will be viewed as pursuing an agenda which is beneficial to
themselves at the expense of other stockholders.
Our
Reliance On A Limited Number Of Key Management Personnel Imposes Risks On Us
That We Will Have Insufficient Management Personnel Available If The Services Of
Any Of Them Are Unavailable
We are
dependent upon the services of our President and Chief Executive Officer, Jean
Paul Roy, and Executive Vice President and Chief Financial Officer, Allan J.
Kent. The loss of either of their services could have a material
adverse effect upon us. We currently do not have employment
agreements with either of such persons or key man life insurance. The
services of Mr. Roy are provided pursuant to the terms of an agreement with a
corporation wholly-owned by Mr. Roy. We have no direct contractual
agreement with Mr. Roy and, therefore, he is not directly obligated to provide
services to us or refrain from engaging in other activities. At
present, Mr. Kent’s services are provided through an oral agreement with a
corporation wholly-owned by Mr. Kent. There is no written agreement
between us and Mr. Kent which obligates him to refrain from engaging in other
activities.
At
present, our future is substantially dependent upon the geological and
geophysical capabilities of Mr. Roy to locate oil and gas exploration
opportunities for us and the ventures in which we are a
participant. His inability to do the foregoing could materially
adversely affect our future activities. We entered into a TSA with
RGB dated August 29, 2003, a company owed 100% by Mr. Roy, to perform such
geological and geophysical duties and exercise such powers related thereto as we
may from time to time assign to it. The initial term of this contract
was for three years with a provision to continue for successive periods of one
year and currently the TSA is subject to termination on December 31, 2008 in the
event either party gives written notice that it intends to
terminate.
Our
Success Is Largely Dependent On The Success Of The Operators Of The Ventures In
Which We Participate And Their Failure Or Inability To Properly Or Successfully
Operate The Oil And Gas Exploration, Development And Production Activities On An
Exploration Block, Could Materially Adversely Affect Us
At
present, our only oil and gas interests are our contractual rights under the
terms of the ten PSCs with the GOI that we have entered into. We are
not and will not be the operator of any of the exploration, drilling and
production activities conducted on our exploration blocks, with the exception of
the DS 03 Block and the DS 04 Block in which we hold a 100% interest and are the
operators. Accordingly, the realization of success in these
exploration blocks is substantially dependent upon the success of the operators
in exploring for and developing reserves of oil and gas and their ability to
market those reserves at prices that will yield a return to us.
Under the
terms of our CIA for the KG Offshore Block, we have a CI in the exploration
activities conducted by the parties on the KG Offshore Block prior to the start
date of initial commercial production. However, under the terms of
that agreement, all of our proportionate share of capital costs for exploration
and development activities must be repaid without interest over the projected
production life or ten years, whichever is less. Our proportionate
share of these costs and expenses expected to be incurred over the 6.5 year term
of the PSC for which our interest is carried was originally estimated to be
approximately $22.0 million. Additional drilling costs including the
drilling to depths in excess of 5,000 meters, where higher downhole temperatures
and pressures are encountered, versus shallower depths as originally
anticipated, as well as the testing and completion costs of these wells, has
resulted in additional costs exceeding originally estimated
expenditures. We have been advised by GSPC that they have incurred
costs of approximately $57.3 million on our behalf as of December 31, 2007 of
which 50% is for the account of RGM. We have been further advised
that GSPC is expected to incur additional costs of approximately $59.9 million
on our behalf (including the 5% PI of RGM) under the terms of the CIA over the
period April 1, 2008 to March 31, 2009. We are unable to estimate the
amount of additional expenditures GSPC will make as operator attributable to us
prior to the start date of initial commercial production under the CIA or when,
if ever, any commercial production will commence. Of these
expenditures, 50% are for the account of RGM under the terms of the PIA between
us and RGM. We are not entitled to any share of production from the
KG Offshore Block until such time as the expenditures attributed to us,
including those expenditures made for the account of Roy Group (Mauritius) Inc.,
under the CIA, have been recovered by GSPC from future production
revenue. Therefore, we are unable to estimate when we may commence to
receive distributions from any production of hydrocarbon reserves found on the
KG Offshore Block. As provided in the CIA, in addition to repaying
our proportionate share of capital costs incurred for which we were carried, we
will be required to bear our proportionate share of the expenditures
attributable to us after the start date of initial commercial production on the
KG Offshore Block.
Certain
Terms Of The Production Sharing Contracts May Create Additional Expenses And
Risks That Could Adversely Affect Our Revenues And
Profitability
The PSCs
contain certain terms that may affect the revenues of the joint venture
participants to the agreements and create additional risks for
us. These terms include, possibly among others, the
following:
|
·
|
The
venture participants are required to complete certain minimum work
programs during the two or three phases of the terms of the
PSCs. In the event the venture participants fail to fulfill any
of these minimum work programs, the parties to the venture must pay to the
GOI their proportionate share of the amount that would be required to
complete the minimum work program. Accordingly, we could be
called upon to pay our proportionate share of the estimated costs of any
incomplete work programs.
|
|
·
|
Until
such time as the GOI attains self sufficiency in the production of crude
oil and condensate and is able to meet its national demand, the parties to
the venture are required to sell in the Indian domestic market their
entitlement under the PSCs to crude oil and condensate produced from the
exploration blocks. In addition, the Indian domestic market has
the first call on natural gas produced from the exploration blocks and the
discovery and production of natural gas must be made in the context of the
government’s policy of utilization of natural gas and take into account
the objectives of the government to develop its resources in the most
efficient manner and promote conservation
measures. Accordingly, this provision could interfere with our
ability to realize the maximum price for our share of production of
hydrocarbons;
|
|
·
|
The
parties to each agreement that are not Indian companies, which includes
us, are required to negotiate technical assistance agreements with the GOI
or its nominee whereby such foreign company can render technical
assistance and make available commercially available technical information
of a proprietary nature for use in India by the government or its nominee,
subject, among other things, to confidentiality
restrictions. Although not intended, this could increase each
venture’s and our cost of operations;
and
|
|
·
|
The
parties to each venture are required to give preference, including the use
of tender procedures, to the purchase and use of goods manufactured,
produced or supplied in India provided that such goods are available on
equal or better terms than imported goods, and to employ Indian
subcontractors having the required skills insofar as their services are
available on comparable standards and at competitive prices and
terms. Although not intended, this could increase the ventures
and our cost of operations.
|
These
provisions of the PSCs, possibly among others, may increase our costs of
participating in the ventures and thereby affect our
profitability. Failure to fully comply with the terms of the PSCs
creates additional risks for us.
Oil And Gas Prices Fluctuate
Widely And Low Oil And Gas Prices Could Adversely Affect Our Financial
Results
There is
no assurance that there will be any market for oil or gas produced from the
exploration blocks in which we hold an interest and our ability to deliver the
production from any wells may be constrained by the absence of or limitations on
collector systems and pipelines. Future price fluctuations could have
a major impact on the future revenues from any oil and gas produced on these
exploration blocks and thereby our revenue, and materially affect the return
from and the financial viability of any reserves that are
claimed. Historically, oil and gas prices and markets have been
volatile, and they are likely to continue to be volatile in the
future. A significant decrease in oil and gas prices could have a
material adverse effect on our cash flow and profitability and would adversely
affect our financial condition and the results of our operations. In
addition, because world oil prices are quoted in and trade on the basis of U.S.
dollars, fluctuations in currency exchange rates that affect world oil prices
could also affect our revenues. Prices for oil and gas fluctuate in
response to relatively minor changes in the supply of and demand for oil and
gas, market uncertainty and a variety of additional factors that are beyond our
control, including:
|
·
|
political
conditions and civil unrest in oil producing regions, including the Middle
East and elsewhere;
|
|
·
|
the
domestic and foreign supply of oil and
gas;
|
|
·
|
quotas
imposed by the Organization of Petroleum Exporting Countries upon its
members;
|
|
·
|
the
level of consumer demand;
|
|
·
|
weather
conditions;
|
|
·
|
domestic
and foreign government regulations;
|
|
·
|
the
price and availability of alternative
fuels;
|
|
·
|
overall
economic conditions; and
|
|
·
|
international
political conditions.
|
In
addition, various factors may adversely affect the ability to market oil and gas
production from our exploration blocks, including:
|
·
|
the
capacity and availability of oil and gas gathering systems and
pipelines;
|
|
·
|
the
ability to produce oil and gas in commercial quantities and to enhance and
maintain production from existing wells and wells proposed to be
drilled;
|
|
·
|
the
proximity of future hydrocarbon discoveries to oil and gas transmission
facilities and processing equipment (as well as the capacity of such
facilities);
|
|
·
|
the
effect of governmental regulation of production and transportation
(including regulations relating to prices, taxes, royalties, land tenure,
allowable production, importing and exporting of oil and condensate and
matters associated with the protection of the
environment);
|
|
·
|
the
imposition of trade sanctions or embargoes by other
countries;
|
|
·
|
the
availability and frequency of delivery
vessels;
|
|
·
|
changes
in supply due to drilling by
others;
|
|
·
|
the
availability of drilling rigs and qualified personnel;
and
|
|
·
|
changes
in demand.
|
Our
Ability To Locate And Participate In Additional Exploration Opportunities And To
Manage Growth May Be Limited By Reason Of Our Limited History Of Operations And
The Limited Size Of Our Staff
While our
President and Executive Vice President have had extensive experience in the oil
and gas exploration business, we have been engaged in limited activities in the
oil and gas business over approximately the past four years and have a limited
history of activities upon which you may base your evaluation of our
performance. As a result of our brief operating history and limited
activities in oil and gas exploration activities, our success to date in
entering into ventures to acquire interests in exploration blocks may not be
indicative that we will be successful in entering into any further
ventures. There can be no assurance that we will be successful in
growing our oil and gas exploration and development activities.
Any
future significant growth in our oil and gas exploration and development
activities will place demands on our executive officers, and any increased scope
of our operations will present challenges to us due to our current limited
management resources. Our future performance will depend upon our
management and its ability to locate and negotiate opportunities to participate
in joint venture and other arrangements whereby we can participate in
exploration opportunities. There can be no assurance that we will be
successful in these efforts. Our inability to locate additional
opportunities, to hire additional management and other personnel or to enhance
our management systems could have a material adverse effect on our results of
operations.
Our Future Performance
Depends Upon Our Ability And The Ability Of The Ventures In Which We Participate
To Find Or Acquire Oil And Gas Reserves That Are Economically
Recoverable
Our
success in developing our oil and gas exploration and development activities
will be dependent upon establishing, through our participation with others in
joint ventures and other similar activities, reserves of oil and gas and
maintaining and possibly expanding the levels of those reserves. We
and the joint ventures in which we may participate may not be able to locate and
thereafter replace reserves from exploration and development activities at
acceptable costs. Lower prices of oil and gas may further limit the
kinds of reserves that can be developed at an acceptable cost. The
business of exploring for, developing or acquiring reserves is capital
intensive. We may not be able to make the necessary capital
investment to enter into joint ventures or similar arrangements to maintain or
expand our oil and gas reserves if capital is unavailable to us and the ventures
in which we participate. In addition, exploration and development
activities involve numerous risks that may result in dry holes, the failure to
produce oil and gas in commercial quantities, the inability to fully produce
discovered reserves and the inability to enhance production from existing
wells.
We expect
that we will continually seek to identify and evaluate joint venture and other
exploration opportunities for our participation as a joint venture participant
or through some other arrangement. Our ability to enter into
additional exploration activities will be dependent to a large extent on our
ability to negotiate arrangements with others and with various governments and
governmental entities whereby we can be granted a participation in such
ventures. There can be no assurance that we will be able to locate
and negotiate such arrangements, have sufficient capital to meet the costs
involved in entering into such arrangements or that, once entered into, that
such exploration activities will be successful. Successful
acquisition of exploration opportunities can be expected to require, among other
things, accurate assessments of potential recoverable reserves, future oil and
gas prices, projected operating costs, potential environmental and other
liabilities and other factors. Such assessments are necessarily
inexact, and as estimates, their accuracy is inherently uncertain. We cannot
assure you that we will successfully consummate any further exploration
opportunities or joint venture or other arrangements leading to such
opportunities.
Estimating Reserves And
Future Net Revenues Involves Uncertainties And Oil And Gas Price Declines May
Lead To Impairment Of Oil And Gas Assets
Currently,
we do not claim any proved reserves of oil or natural gas. Any
reserve information that we may provide in the future will represent estimates
based on reports prepared by independent petroleum engineers, as well as
internally generated reports. Petroleum engineering is not an exact
science. Information relating to proved oil and gas reserves is based
upon engineering estimates derived after analysis of information we furnish or
furnished by the operator of the property. Estimates of economically
recoverable oil and gas reserves and of future net cash flows necessarily depend
upon a number of variable factors and assumptions, such as historical production
from the area compared with production from other producing areas, the assumed
effects of regulations by governmental agencies and assumptions concerning
future oil and gas prices, future operating costs, severance and excise taxes,
capital expenditures and workover and remedial costs, all of which may in fact
vary considerably from actual results. Oil and gas prices, which
fluctuate over time, may also affect proved reserve estimates. For
these reasons, estimates of the economically recoverable quantities of oil and
gas attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected therefrom prepared by different engineers or by the same engineers at
different times may vary substantially. Actual production, revenues
and expenditures with respect to reserves we may claim will likely vary from
estimates, and such variances may be material. Either inaccuracies in
estimates of proved undeveloped reserves or the inability to fund development
could result in substantially reduced reserves. In addition, the
timing of receipt of estimated future net revenues from proved undeveloped
reserves will be dependent upon the timing and implementation of drilling and
development activities estimated by us for purposes of the reserve
report.
Quantities
of proved reserves are estimated based on economic conditions in existence in
the period of assessment. Lower oil and gas prices may have the impact of
shortening the economic lives on certain fields because it becomes uneconomic to
produce all recoverable reserves on such fields, thus reducing proved property
reserve estimates. If such revisions in the estimated quantities of proved
reserves occur, it will have the effect of increasing the rates of depreciation,
depletion and amortization on the affected properties, which would decrease
earnings or result in losses through higher depreciation, depletion and
amortization expense. The revisions may also be sufficient to trigger impairment
losses on certain properties that would result in a further non-cash charge to
earnings.
Risks
Relating To The Market For Our Common Stock
Volatility Of Our Stock
Price
The
public market for our common stock has been characterized by significant price
and volume fluctuations. There can be no assurance that the market
price of our common stock will not decline below its current or historic price
ranges. The market price may bear no relationship to the prospects,
stage of development, existence of oil and gas reserves, revenues, earnings,
assets or potential of our company and may not be indicative of our future
business performance. The trading price of our common stock could be
subject to wide fluctuations. Fluctuations in the price of oil and
gas and related international political events can be expected to affect the
price of our common stock. In addition, the stock market in general
has experienced extreme price and volume fluctuations that have affected the
market price for many companies which fluctuations have been unrelated to the
operating performance of these companies. These market fluctuations,
as well as general economic, political and market conditions, may have a
material adverse effect on the market price of our company's common
stock. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against such companies. Such litigation, if
instituted, and irrespective of the outcome of such litigation, could result in
substantial costs and a diversion of management's attention and resources and
have a material adverse effect on our company's business, results of operations
and financial condition.
We have
no unresolved staff comments and are not required to respond to this
Item.
Our
corporate head office is located at Suite #310, 605 – 1 Street SW, Calgary,
Alberta, T2P 3S9 Canada. These premises are leased for a term of two
years ending April 30, 2009 at an annual rental of approximately US$103,500
(Cdn$102,000) for base rent and operating costs. As these premises
are paid for in Canadian funds, we have used the rate of conversion from the
Bank of Canada at December 31, 2007 of 1.012. These premises include
approximately 3,888 square feet which we consider adequate for our present
activities.
Our India
operations office is located at Office No. 304 & 305, Third floor, IT Tower
– 2 Infocity, Gandhinagar, India. We purchased these premises which
are part of an office condominium complex. The premises include
approximately 11,203 sq. ft which we consider adequate for our
activities. The annual operating and maintenance costs of these
premises is approximately US$14,000 (Rs. 5,37,744). As these premises
are paid for in Indian Rupees, we have used the rate of conversion from the Bank
of Canada at December 31, 2007 of 1.012.
Our
interests in oil and gas properties are described under Item 1 - Description of
Business.
There are
no legal proceedings pending against us.
No matter
was submitted during the fourth quarter of the year ended December 31, 2007 to a
vote of our securityholders through the solicitation of proxies or
otherwise.
PART
II
Item
5. Market for Registrants'
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market
Information
Our
Common Stock is quoted on the American Stock Exchange under the symbol
GGR. The following table sets forth the quarterly high and low sales
price on the American Stock Exchange for the period January 1, 2006 through May
29, 2008.
|
Year
|
Calendar
Quarter
|
High
($)
|
Low
($)
|
|
2006
|
First
Quarter
|
14.92
|
7.00
|
|
Second
Quarter
|
9.87
|
4.10
|
|
|
Third
Quarter
|
6.55
|
3.28
|
|
|
Fourth
Quarter
|
9.14
|
5.05
|
|
|
2007
|
First
Quarter
|
8.10
|
5.27
|
|
Second
Quarter
|
6.64
|
4.62
|
|
|
Third
Quarter
|
5.14
|
2.70
|
|
|
Fourth
Quarter
|
5.05
|
2.29
|
|
|
2008
|
First
Quarter
|
5.09
|
2.66
|
|
Second
Quarter (up to May 29, 2008)
|
3.45
|
2.11
|
On May
29, 2008, the closing sales price for our Common Stock, as reported on
the
American
Stock Exchange was $3.12.
Holders
As of May
29, 2008, we had approximately 129 shareholders of record.
Dividends
We did
not pay any dividends on our Common Stock during the years ended December 31,
2007 and 2006 and we do not intend to pay any dividends on our Common Stock for
the foreseeable future. Any determination as to the payment of
dividends on our Common Stock in the future will be made by our Board of
Directors and will depend on a number of factors, including future earnings,
capital requirements, financial condition and future prospects as well as such
other factors as our Board of Directors may deem relevant.
Recent
Sales of Unregistered Securities
There
were no sales of unregistered securities during the quarter ended December 31,
2007. All sales of unregistered securities prior to October 1, 2007
during the fiscal year ended December 31, 2007 were previously
reported.
Purchases
of Equity Securities by the Small Business Issuer and Affiliated
Purchasers
No
purchases of shares of our Common Stock were made by us or on our behalf or by
any "affiliated purchaser", as defined in Rule 10b-18(a)(3) under the U.S.
Securities Exchange Act of 1934, as amended, during the quarter ended December
31, 2007.
Performance
Graph
The
following graph compares the performance of our Common Stock to the Standard
& Poor’s 500 Stock Index (S&P 500) and Teton Energy Corporation (Amex:
TEC) over the preceding four-year period. Subject to our explanations
below, the following graph is presented as required by SEC rules. The
comparison (change in year-end stock price plus reinvested dividends) assumes
that $100 was invested on December 31, 2003 in each of shares of our Common
Stock, the S&P 500 Index, shares of Teton Energy Corporation and shares of
Abraxas Petroleum Corp. It includes the reinvestment of any
dividends, although we have never paid any cash dividends.
|
(1)
|
TEC
or Teton Energy Corporation is an AMEX listed company engaged in oil and
gas exploration and production in the Rocky Mountain area of the United
States. This Company falls under the same SIC code of "Drilling
of Oil and Gas Wells" as GeoGlobal. Similar to our company, it
has a market capitalization of less than $200.0 million and revenues of
less than $100.0 million. We deem it to be comparative to our
company for these purposes.
|
|
(2)
|
ABP
or Abraxas Petroleum Corp. is an AMEX listed company engaged in
development and production of natural gas and crude oil in Texas and
Wyoming. Although this company has production and reserves, it
has a market capitalization of less than $200.0 million and revenues of
less than $100.0 million. Therefore, we also deem it to be
comparative to our company for these
purposes.
|
Comparison
of Cumulative Total Return
Our oil
and gas operations commenced on August 29, 2003. Accordingly, the
above graph comparison commences with December 31, 2003, the year end of our
entry into oil and gas operations, and does not include the five year comparison
as required by the rules of the SEC. We believe that a comparison of
periods prior to our entry into oil and gas operations would not be meaningful
and such information has been omitted from the comparison graph
above. The following table sets forth the dollar amounts used in the
above comparison
|
US$
|
2003
|
2004
|
2005
|
2006
|
2007
|
|
|
GeoGlobal
|
GGR
|
$100.00
|
64.1364
|
844.3524
|
519.042
|
327.294
|
|
S&P
500 Index
|
$INX
|
$100.00
|
108.951608
|
112.221271
|
127.50517
|
132.005564
|
|
Teton
Energy Corporation
|
TEC
|
$100.00
|
30.5216
|
118.472
|
100.1992
|
98.392
|
|
Abraxas
Petroleum Corp.
|
ABP
|
$100.00
|
185.6
|
422.4
|
247.2
|
308.8
|
With
respect to periods prior to our entry into oil and gas operations, if $100 was
invested on December 31, 2002 in each of shares of our Common Stock, the S&P
500 Index and the shares of Teton Energy Corporation., the performance of our
Common Stock for the year ended December 31, 2003 would have been as
follows:
|
US$
|
2002
|
2003
|
|
|
GeoGlobal
|
GGR
|
$100.00
|
387.1791
|
|
S&P
500 Index
|
$INX
|
$100.00
|
125.647
|
|
Teton
Energy Corporation
|
TEC
|
$100.00
|
115.287
|
The
Performance Graph is not deemed to be “soliciting material” or filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, or incorporated by reference
in any documents so filed.
Set forth
below is certain financial information for each of the five years ended December
31, 2007, 2006, 2005, 2004 and 2003 taken from our audited financial statements
for those years.
|
December
31,
|
|||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
|
|
Interest
Income
|
2,165,920
|
1,751,550
|
462,174
|
31,591
|
1,863
|
|
Net
loss and comprehensive loss
|
1,543,110
|
(1)
1,548,803
|
(1)
3,162,660
|
(1)
1,171,498
|
(1)
518,377
|
|
Net
loss per share – basic and diluted
|
0.02
|
(1)
0.03
|
(1)
0.06
|
0.03
|
0.03
|
|
Current
assets
|
48,406,887
|
32,597,031
|
36,232,088
|
4,628,346
|
7,111,394
|
|
Oil
and gas interest
|
27,099,547
|
(1)
12,121,334
|
(1)
3,957,723
|
(1)
707,023
|
(1)
200,754
|
|
Total
assets
|
80,219,312
|
(1)
48,492,561
|
(1)
40,672,122
|
(1)
5,685,218
|
(1)
7,429,168
|
|
Current
liabilities
|
6,329,980
|
1,955,195
|
447,097
|
103,689
|
1,239,946
|
|
Total
liabilities
|
6,648,902
|
1,955,195
|
447,097
|
103,689
|
1,239,946
|
|
Stockholders'
equity
|
73,570,410
|
(1)
46,537,366
|
(1)
40,225,025
|
(1)
5,581,529
|
(1)
6,189,222
|
|
Cash
dividends
|
-0-
|
-0-
|
- 0
-
|
- 0
-
|
- 0
-
|
(1) The
years ended December 31, 2006, 2005, 2004 and 2003 have been restated due to an
error in the classification and calculation for stock-based compensation for
non-employee consultants.
General
The
following discussion and analysis of our financial condition and results of
operation should be read in conjunction with, and is qualified in its entirety
by, the more detailed information including our Financial Statements and the
related Notes appearing elsewhere in this Annual Report. This Annual
Report contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from the
results and business plans discussed in the forward-looking
statements. Factors that may cause or contribute to such differences
include those discussed below in "Risk Factors" as well as those discussed
elsewhere in this Annual Report.
Restatement
The years
ended December 31, 2006, 2005 and the period from inception August 21, 2002 to
December 31, 2006 have been restated due to an error in the classification and
calculation for stock-based compensation for non-employee
consultants.
Our
Business Activities
We are
engaged, through subsidiaries and joint ventures in which we are a participant,
in the exploration for and development of oil and gas reserves. We
initiated these activities in 2003. Through December 31, 2007, our
activities have been undertaken in locations where we and our joint venture
participants have been granted exploration rights pursuant to Production Sharing
Contracts ("PSCs") entered into with the Government of India
("GOI"). We have entered into ten PSCs. Each PSC relates
to a separate drilling block onshore or offshore India and each provides for
multi-year and multi-phase exploration and drilling
activities. Exploration and development activities pursuant to the
terms of these agreements are expected to continue throughout 2008.
At
December 31, 2007, we have not reported any proved reserves of oil or natural
gas.
Statements
of Operations
Oil and Gas
Operations
Our oil
and gas exploration activities commenced at August 21, 2002. We have
not since our inception earned any revenues from these operations.
Years
ended December 31, 2007 and 2006
During
the year ended December 31, 2007, we had expenses of $3,730,540 compared with
expenses of $3,295,616 during the year ended December 31, 2006. This
increase is primarily the result of the increased scale of our participation in
oil and gas exploration activities and additions to the office
infrastructure.
Our
general and administrative expenses increased to $2,280,232 from
$1,890,926. These general and administrative expenses include costs
related to the corporate head office including administrative salaries and
services, rent and office costs, insurance, American Stock Exchange listing and
filing fees and transfer agent fees and services. Also included in
our general and administrative expenses are our compensation costs for
stock-based compensation arrangements with employees and directors which are
being expensed over their respective vesting periods. These
stock-based compensation costs decreased to $929,826 from $1,048,477 for the
same period in 2006. The majority of the increase in the general and
administrative expenses is a result of compensation costs of $240,000 related to
the September 6, 2007 extension of the expiry date of the 2005 Compensation
Options and the related 2005 Compensation Option Warrants issued in a private
sale of our securities in 2005 from September 9, 2007 to June 20, 2009 which
were not incurred in the same period in 2006. The balance of the
increase is due to the addition of an extra staff member in the Calgary office
offset by the decrease in stock-based compensation costs.
Our
consulting fees decreased to $356,912 during the year ended December 31, 2007
from $1,104,106 in the prior year. This change is mostly attributable
to the decrease in compensation costs for stock-based compensation with
non-employee consultants for the year ended December 31, 2007 being a recovery
of $258,832 versus an expense of $539,812 for the year ended December 31,
2006. These consulting fees include $70,000 (2006 - $70,000) paid
under our Technical Services Agreement with a corporation wholly owned by Mr.
Roy, who is employed as a consultant to us, and other fees and expenses we
incurred in employing various technical and corporate consultants who advised us
on a variety of matters.
Professional
fees increased to $1,037,971 during the year ended December 31, 2007 from
$251,261 during the year ended December 31, 2006. Professional fees
include those paid to our auditors for pre-approved audit, accounting and tax
services and fees paid to our legal advisors primarily for services provided
with regard to filing various periodic reports and other documents and reviewing
our various oil and gas and other agreements. Legal fees increased from
approximately $138,903 in 2006 to about $319,519 in 2007. In
addition, costs associated with initiating the modeling, testing and documenting
internal controls as required by Section 404 of the Sarbanes Oxley Act were
incurred during the year along with the work required to restate our financial
statements for the years ending December 31, 2006, 2005, 2004 and
2003. This resulted in an increase from $114,733 for the year ending
December 31, 2006, to $718,452 in the fees paid to our auditors and accountants
for additional work incurred during the year ending December 2007 as compared to
2006.
Our other
expenses and income during the year ended December 31, 2007 resulted in income
of $2,187,430 versus $1,746,813 for the same period in 2006. Included
in other expenses and income is a foreign exchange gain $21,510 compared to a
loss in 2006 of $4,737. Interest income increased, being $2,165,920
for the year ended December 31, 2007 as compared to $1,751,550 for the same
period in, 2006. This improvement is directly related to a small
increase in US prime interest rate in 2007 as compared to 2006 as well an
increase in our invested cash balances resulting from our private sale of
securities in June, 2007.
During
the year ended December 31, 2007, depreciation increased slightly to $55,425
from $49,323 during the year ended December 31, 2006.
Reflecting
the increase in our general and administrative expenses and professional fees
due to the increase in our overall oil and gas exploration activities, as offset
by the increase in interest income and a decrease in our consulting fees, our
net loss amounted to $1,543,110 for the year ended December 31, 2007 as compared
to a net loss of $1,548,803 for the same period in 2006.
We
capitalized overhead costs directly related to our exploration activities in
India. During the year ended December 31, 2007, these capitalized
overhead costs were $2,218,054 as compared to $2,791,520 during the year ended
December 31, 2006. The difference of $573,466 is mostly attributable
to a decrease in the capitalized portion of the stock-based compensation for our
non-employee consultants directly related in our oil and gas exploration
activities for the year ended December 31, 2007 to $852,004 versus $1,424,225
for the same period in 2006.
Years
ended December 31, 2006 and 2005
During
the year ended December 31, 2006, we had expenses of $3,295,616 compared with
expenses of $3,693,281 during the year ended December 31, 2005. This
decrease is primarily the result of the increased scale of our participation in
oil and gas exploration activities, with commensurate additions to the office
infrastructure and the initial year of accounting for stock-based compensation
expense, offset by a substantial decrease in consulting fees due to a decrease
in our stock-based compensation for non-employee consultants.
Our
general and administrative expenses increased to $1,890,926 from
$495,326. Of this increase, $1,048,477 reflects the adoption of FAS
123(R) pursuant to which we are required to recognize compensation costs for
stock-based arrangements with employees effective January 1,
2006. These general and administrative expenses include costs related
to the corporate head office including administrative salaries and services,
rent and office costs, insurance, American Stock Exchange listing and filing
fees and transfer agent fees and services. Our consulting fees
decreased to $1,104,106 during the year ended December 31, 2006 from $2,947,126
in the prior year. This decrease is mainly attributable to the
decrease in stock-based compensation for non-employee consultants for the year
ending December 31, 2005 of $2,681,680 to $539,812 for the year ending December
31, 2006. Further, these consulting fees include $70,000 (2005 -
$62,000) paid under our Technical Services Agreement with a corporation wholly
owned by Mr. Roy and other fees and expenses we incurred in employing various
technical and corporate consultants who advised us on a variety of
matters. Professional fees increased to $251,261 during the year
ended December 31, 2006 from $201,298 during the year ended December 31,
2005. Professional fees include those paid to our auditors for
pre-approved audit, accounting and tax services and fees paid to our legal
advisors primarily for services provided with regard to filing various periodic
reports and other documents and reviewing our various oil and gas and other
agreements. In addition, costs associated with initiating the
modeling, testing and documenting internal controls as required by Section 404
of the Sarbanes Oxley Act were incurred during the latter part of the
year. This resulted in an increase of $49,963 in the fees paid to our
auditors, accountants and legal counsel for additional work incurred during the
year ending December 2006 as compared to 2005.
During
the year ended December 31, 2006, depreciation decreased slightly to $49,323
from $49,531 during the year ended December 31, 2005.
Our other
expenses and income during the year ended December 31, 2006 resulted in income
of $1,746,813 versus $530,621 for the same period in 2005. Included
in other expenses and income is a foreign exchange loss of $4,737 compared to a
gain in 2005 of $319. During the previous year ended December 31,
2005, we recovered fees and costs of $25,900 resulting from services provided
and billed out to GSPC and a gain on the sale of computer equipment of
$42,228. No such expense recoveries or asset dispositions occurred
during the year ended December 31, 2006. Our increase in interest
income to $1,751,550 from $462,174 for the year ended December 31, 2005 is a
result of the significant increase in the size of our cash balances we held
during a full year in 2006 as compared to a partial year in 2005 as well as an
increase in the US prime rate.
Net loss
for the year ended December 31, 2006 was $1,548,803 versus a net loss of
$3,162,660 in 2005. This decrease was mainly attributable to the
reduction in our consulting fees as a result of a reduction in our compensation
costs for the stock-based compensation arrangements with non-employee
consultants coupled with the increase in interest earned during the most recent
year, net of our increased costs as a result of our increased scale of
participation in oil and gas exploration activities.
We
capitalized overhead costs directly related to our exploration activities in
India. During the year ended December 31, 2006, these capitalized
overhead costs were $2,791,520 as compared to $2,141,844 during the year ended
December 31, 2005. This increase is mostly attributable to the
capitalized stock-based compensation for employees of $658,404 which is
recognized for the first time in 2006, as a consequence of our adoption of FAS
123(R) effective January 1, 2006, with the balance of the increase being
consistent with the increased scale of our participation in oil and gas
exploration activities.
Liquidity
At
December 31, 2007, our cash and cash equivalents were $48,134,858 (December 31,
2006 - $32,362,978). The majority of these funds are being held as US
funds, of which $47,807,605 is held in term deposits earning interest based on
the US prime rate. In addition to our cash balances, we will earn
interest on our term deposits which we believe will significantly cover our
administrative costs and overhead throughout 2008.
We are
unaware at this time of any material uncertainties that may affect our liquidity
through March 31, 2009. We further believe at this time that the
outcome of the KG CIA dispute will not have a material effect on our
liquidity.
We
currently have no specific plans or arrangements to raise additional
capital. We believe that our available cash resources will be
sufficient to maintain our current level of activities through the period ending
March 31, 2009.
Years
ended December 31, 2007 and 2006
During
the year ended December 31, 2007, our overall position in cash and cash
equivalents increased by $15,771,880, as compared to a net decrease in the
comparable period of 2006 of $3,674,410. These cash movements can be
attributed to the following activities:
Our net
cash provided by operating activities during the year ended December 31, 2007
was $151,793 as compared to used in operating activities of $245,071 for the
year ended December 31, 2006. This increase is mostly attributable to
the result of an increase in our accounts payable and accrued liabilities for
the year ended December 31, 2007 as compared to 2006.
Cash used
in investing activities during the year ended December 31, 2007 was $11,193,071
as compared to $8,267,169 during the year ended December 31,
2006. Funds of $13,807,287 were used for exploration activities and
$29,396 for the acquisition of property and equipment in 2007 as compared to
$6,739,386 and $142,924 in 2006. This increase is consistent with our
increased drilling costs in the Cambay area as well as exploration costs
incurred in bidding and evaluating new exploration blocks in the Arab Republic
of Egypt. In addition, we made a substantial investment in fixed
assets, mainly for an office condominium in Gandhinagar, India plus improvements
which were completed during the third quarter at a total cost of approximately
$940,000.
Offsetting
the increased investing activity in the year ended December 31, 2007 was a
reduction in the requirement to supply bank guarantees, such that in the year
ended December 31, 2007 outlays were reduced to $964,711 versus outlays for such
instruments of $3,198,284 for the year ended December 31, 2006. These
bank guarantees have been provided and serve as guarantees for the performance
of our minimum work program ("MWP"), and are in the form of irrevocable letters
of credit which are secured by our term deposits in the same
amount. These investing outlays were also offset by a combined
increase in accounts payable, accrued liabilities and prepaids and deposits of
$3,608,323 in the year ended December 31, 2007 as compared to a combined net
increase in accounts payable, accrued liabilities, and prepaids and deposits of
$1,763,478 in
the same period of 2006.
Cash
provided by financing activities for the year ended December 31, 2007 was
$26,813,158 as compared to cash provided by financing activities of $4,837,830
during the year ended December 31, 2006. During the year ended
December 31, 2007, we completed the sale of 5,680,000 Units of our securities at
$5.00 per Unit for aggregate cash gross proceeds of $28,400,000 less share
issuance costs of $1,907,517 relating to financing
activities. Further, during the year ended December 31, 2007, cash of
$320,675 was provided from the issuance of 317,500 shares of common stock on the
exercise of options, as compared to cash of $4,922,640 from the issuance of
3,254,000 shares of common stock on the exercise of options and 2003 Purchase
Warrants less share issuance costs of $74,010.
Years
ended December 31, 2006 and 2005
Our net
cash used in operating activities during the year ended December 31, 2006 was
$245,071 as compared to $165,558 for the year ended December 31,
2005. This increase is mostly the result of an increase in our
exploration activities net of our interest earned on our cash balances for the
year ended December 31, 2006 as compared to 2005.
Cash used
by investing activities during the year ended December 31, 2006 was $8,267,169
as compared to $1,679,352 during the year ended December 31,
2005. This increase is a result of the increased scale of our
participation in oil and gas exploration activities. Funds of
$6,739,386 were used for exploration activities and $142,924 for the acquisition
of property and equipment in 2006 as compared to $1,578,124 and $36,826 in
2005. These acquisitions included computer and office equipment
totaling $114,835 plus a deposit on our office condominium in India of
$28,090. As well we incurred $6,739,386 as our share of exploration
costs related to our PSCs for our oil and gas interests in India. The
increase in restricted cash of $3,198,284 represents additional term deposits we
made in 2006 as compared to $185,689 in 2005 which are used as collateral for
letters of credit given to the GOI as minimum work commitment guarantees on a
total of six exploration blocks at December 31, 2006.
Cash
provided by financing activities for the year ended December 31, 2006 was
$4,837,830 as compared to cash provided in financing activities of $33,462,700
during the year ended December 31, 2005. This consisted of $4,922,640
from the issuance of 3,254,000 shares of common stock on the exercise of options
and purchase warrants issued from our 2003 financing less share issuance costs
of $74,010.
At
December 31, 2006, our cash and cash equivalents were $32,362,978 (December 31,
2005 - $36,037,388). The majority of these funds were held as US
funds in our bank accounts and in term deposits earning interest based on the US
prime rate.
Capital
Resources
We expect
our exploration and development activities pursuant to the PSCs we are a party
to, and the related drilling activities in the 10 exploration blocks that we
hold an interest in, will continue through 2008 in accordance with the terms of
those agreements. During the period April 1, 2008 to March 31, 2009,
based on the current budgets, we anticipate drilling thirty-six well which
entails approximately four wells in the KG Offshore Block, three wells in the KG
Onshore Block, twenty-six wells in three of our Cambay Blocks (Mehsana,
Sanand/Miroli and Ankleshwar) and three wells in our Rajasthan
Blocks. Further, we may drill approximately five wells on the Tarapur
Block pending the outcome of the extension of Phase III requested of the
GOI.
In
addition, we may seek to participate in joint ventures bidding for the award of
further PSCs for exploration blocks expected to be awarded by the GOI in the
future. As of May 30, 2008, we have no specific plans to join with
others in bidding for any specific PSCs in India and elsewhere. We
expect that our interest in any such ventures would involve a minority PI in the
venture. In addition, as opportunities arise, we may seek to acquire
minority PI's in exploration blocks where PSCs have been heretofore
awarded. The acquisition of any such interests would be subject to
the execution of a definitive agreement and obtaining the requisite government
consents and other approvals.
We may
during the year 2008 seek to participate in joint venture bidding for the
acquisition of oil and gas interests in other international countries, however,
as of May 30, 2008, we have made no specific plans regarding such activities and
have not entered into any binding agreements with respect to such
activities.
Depending
upon the scope of our activities during the years 2008 and 2009, we may require
additional capital for the funding of our activities under the PSCs we are
currently a party to as well as support for our bidding for other PSCs that may
be awarded in India or elsewhere. In addition, we may require
additional funds for the possible acquisition of further minority participating
interests in PSCs in drilling blocks heretofore awarded and that we may
hereafter propose to enter into in India and possibly elsewhere. We
believe it can be expected that our interest in further or additional PSCs would
be a participating interest. As the holder of a participating
interest in any such activities, it can be expected that we will be required to
contribute capital to any such ventures in proportion to our percentage
interest.
As of May
30, 2008, the scope of any possible such activities has not been definitively
established and, accordingly, we are unable to state the amount of any funds
that may be required for these purposes. As a result, no specific
plans or arrangements have been made to raise additional capital and we have not
entered into any agreements in that regard. We expect that if we seek
to raise additional capital it will be through the sale of equity
securities. As of May 30, 2008, we are unable to estimate the terms
on which any such capital may be raised, the price per share or possible number
of shares involved.
We
believe that our available cash resources will be sufficient to meet all our
expenses and cash requirements estimated to be approximately $28M for the period
ended March 31, 2009 for our present level of operations. We do not
expect to have any significant change in 2008 in our number of
employees.
The
KG Offshore Block and Our Carried Interest Agreement
At
December 31, 2007, GSPC, the Operator of the KG Offshore Block, has expended on
exploration activities approximately $57.3 million attributable to us under the
CIA as compared to $26.1 million at December 31, 2006. Of this
amount, 50% is for the account of RGM. Under the terms of the CIA,
GeoGlobal and RGM are carried by GSPC for 100% of all our share of any costs
during the exploration phase on the KG Offshore Block prior to the start date of
initial commercial production.
Under the
terms of the PSC, GSPC is committed to expend further funds for the exploration
of and drilling on the KG Offshore Block. Preliminary estimates made
in August 2002 were that these expenditures attributable to us will total
approximately $22.0 million over the 6.5 year term of the
PSC. Additional drilling costs incurred in drilling to depths in
excess of 5,000 meters versus shallower depths as originally anticipated, as
well as the testing and completion costs of these wells, has resulted in our
actual costs significantly exceeding our original budgeted
expenditures. The estimated annual budget for costs to be incurred by
GSPC for the twelve month period April 1, 2008 to March 31, 2009 attributable to
us under the CIA is approximately $59.9 million. Of this amount, 50%
is for the account of RGM. We are unable to estimate the amount of
additional expenditures GSPC will make attributable to us prior to the start
date of initial commercial production under the CIA or when, if ever, any
commercial production will commence. As provided in the CIA, we will
be required to bear the expenditures attributable to us after the start date of
initial commercial production on the KG Offshore Block.
We will
not realize cash flow from the KG Offshore Block until such time as the
expenditures attributed to us, including those expenditures made for the account
of RGM under the CIA have been recovered by GSPC from future production
revenue. Under the terms of the CIA, all of our proportionate share
of capital costs for exploration and development activities must be repaid to
GSPC without interest over the projected production life or ten years, whichever
is less.
Tabular Disclosure of
Contractual Obligations
The
following table sets forth our contractual obligations by type of agreement and
due during the twelve month periods ended March 31, 2009 and succeeding twelve
month periods. Where the amounts of payments are $-0- indicates we
have no material obligations under such types of agreements.
|
Payments
due by period ($ in millions)
|
|||||
|
Contractual
Obligation
|
Total
|
Less
than one year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
|
Long-term
debt
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Capital
lease
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Operating
lease
|
0.1
|
0.1
|
-0-
|
-0-
|
-0-
|
|
Purchase
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Other
long-term liabilities
|
0.3
|
-0-
|
-0-
|
-0-
|
0.3
|
|
Financial
commitments under PSCs
|
48.3
|
27.5
|
20.8
|
-0-
|
-0-
|
|
Total
|
48.7
|
27.6
|
20.8
|
-0-
|
0.3
|
Financial
commitments under PSCs arise under the terms of our PSCs. Under these
agreements, we are obligated to pay for our proportionate share of the
multi-year exploration expenses in fulfilling the work programs on the
exploration blocks. Because annual budgets are adopted under the
terms of the PSCs for twelve month periods commencing April 1 through March 31
of the following year, obligations under the PSCs have been presented for those
twelve month periods. Payments “Less Than One Year” include the
estimated budgeted expenses for the period of twelve months ending March 31,
2009. Payments “1-3 years” include our management’s estimated
expenses under the PSCs for the remaining 36 months of the “1-3 year” period for
the work programs required under the terms of the PSCs ending March 31,
2012. The “3-5 years” and “More than 5 years” are our management’s
estimates of exploration expenses under the PSCs for twelve month periods
thereafter. Inasmuch as exploration and drilling activities can
involve unanticipated expenses and cost overruns, there can be no assurance that
these management estimates will prove to be accurate.
Financial
commitments under the PSCs are outlined below and include only the commitments
for the current exploration Phase that we are conducting. Further, as
we have not yet received GOI consent to increasing our PI in the KG Onshore
Block from 10% to 25%, our financial commitment shown in the table above
includes only our 10% PI.
Krishna
Godavari Basin Agreements
KG Onshore
Block
Under the
PSC for the KG Onshore Block, the Phase I work commitment consists of conducting
a gravity and magnetic and geochemical survey; reprocess 564 LKM of 2-D seismic;
acquire, process and interpret 548 sq kms of 3-D seismic; and drill 12
exploratory wells between 2,000 and 5,000 meters. Our share of these
costs was originally estimated to total approximately $8.5 million for a 10% PI
(25% PI - $21.4 million) over the four years of Phase I commencing February 18,
2008. On September 14, 2006, prior to the submission of our NELP-VI
bid, we entered into an agreement with OIL to increase our PI to 25%, subject to
the availability of sufficient net worth and GOI consent. GOI consent
is currently outstanding.
The
budget estimate for the period April 1, 2008 to March 31, 2009 has been prepared
and our proportionate share of the budget at 10% is $4.2 million and at 25% is
$10.5 million. This budget entails performing the required surveys
and studies, including the acquisition or a 548 sq. km. 3-D seismic acquisition
program, reprocessing the 564 LKM of 2-D seismic, a 50 LKM 2-D seismic
acquisition program and processing of interpretation thereof for Phase I and the
drilling of 3 exploratory wells.
KG Offshore
Block
Certain
exploration costs related to the KG Offshore Block are incurred by us and on our
behalf in providing its services under the CIA and are therefore not
reimbursable under the CIA. These costs are estimated to be
approximately $1.5 million per year over the next four years.
Cambay
Basin Agreements
Mehsana
Block
The Phase
I work commitment is to acquire, process and interpret 75 sq kms of 3D seismic,
reprocess 650 LKM's of 2-D seismic and complete a geochemical survey all of
which is completed. Further, we are to drill 7 exploratory wells
between 1,000 and 2,200 meters before May 20, 2008, of which, 6 wells have
completed drilling and as at May 12, 2008, 1 well is drilling. The
budget for the period April 1, 2008 to March 31, 2009 has not been
prepared. We estimate costs to be incurred to complete the Phase I
work commitment as well as the Phase II work commitment of drilling 2 additional
exploratory wells before November 20, 2008, to be approximately $1.0
million.
Sanand/Miroli
Block
The
minimum work commitment for Phase I is to be completed by July 28, 2008 and
Phase II will expire January 28, 2009. The work completed as at May
12, 2008, which fulfills the Phase I minimum work commitments includes the
acquisition of 463 sq kms of 3-D seismic, reprocessing of 1,000 kms of 2-D
seismic and conducting a geochemical survey and analysis of 200
samples. Further GSPC is to drill 12 exploratory wells in Phase I and
3 exploratory wells in Phase II, of which 9 exploratory wells have been drilled
along with 1 appraisal well
The
budget for the remaining 3 exploratory wells to be drilled from Phase I and the
3 exploratory wells to be drilled from Phase II together with the drilling of 4
appraisal wells has been prepared for the period of April 1, 2008 to March 31,
2009, at a cost to us of approximately $3.7 million.
The
minimum work commitment for Phase I has been completed. The minimum
work commitment for Phase II which expires November 20, 2008 requires the
drilling of 2 additional exploration wells. It is likely that we will
move into Phase II at an estimated cost to us of approximately $1.0
million.
Ankleshwar
Block
The Phase
I minimum work commitment which is to be completed over the three year period
April 1, 2006 to March 31, 2009 is to acquire, process and interpret 448 sq kms
of 3D seismic, reprocess 650 LKM's of 2-D seismic and complete a geochemical
survey and analysis of 500 samples, all of which has been
completed. Further, 14 exploratory wells are to be drilled between
1,500 and 2,500 meters. These wells have been budgeted to be drilled
during the period April 1, 2008 to March 31, 2009 at a cost to us of
approximately $4.2 million.
Tarapur
Block
Phase III
under the PSC for this exploration block expired on November 22,
2007. GSPC as operator, on behalf of the consortium partners has
submitted an application for an extension beyond Phase III of the PSC for an
additional twelve months to November 22, 2008 to complete an additional work
program of drilling five wells under the GOI new extension policy at a cost to
us of approximately $2.2 million. The consortium also agreed that it
would provide a 35% bank guarantee and a 30% cash payment as agreed
pre-estimated liquidated damages for the additional minimum work
program. Our share is $773,000 and $662,000
respectively. GOI consent to this application has not yet been
approved or received.
Deccan
Syneclise Basin Agreements
DS-03
Block
The
budget estimate for the period April 1, 2008 to March 31, 2009 has been
calculated and our 100% PI share of that budget is approximately $1.3
million. This budget entails the completion of the gravity and
magnetic and geochemical surveys for Phase I along with a 50 LKM 2-D seismic
line acquisition. The Phase I minimum work commitment which is to be
completed by September 4, 2009 also includes the acquisition of a 12,000 LKM
Aero Magnetic survey which is expected to commence in the 2009 fiscal
year.
DS 04
Block
The Phase
I work commitment consists of gravity and magnetic and geochemical surveys;
acquire, process and interpret 325 LKM of 2-D seismic; and drill 10 core holes
to a depth of approximately 500 meters. Our share of these costs is
estimated to total approximately $1.45 million over the four years of Phase I
commencing June 7, 2007. The budget estimate for the period April 1,
2008 to March 31, 2009 has been calculated and our 100% PI of that budget is
approximately $500,000. This budget entails the completion of the
gravity and magnetic and geochemical surveys for Phase I as well as a 50 LKM 2-D
seismic line acquisition.
Rajasthan
Basin Agreements
RJ Block
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The Phase
I work commitment consists of conducting a gravity and magnetic and geochemical
survey; reprocess 463 LKM of 2-D seismic; acquire, process and interpret 250 LKM
of 2-D seismic and 700 sq kms of 3-D seismic; and drill a total of 12
exploratory wells between 2,000 and 2,500 meters. Our share of these
costs is estimated to total approximately $10.2 million over the four years of
Phase I commencing January 21, 2008. The budget estimate for the
period April 1, 2008 to March 31, 2009 has been prepared and our proportionate
share of that budget at 25% PI is $4.2 million. This budget entails
the completion of the gravity and magnetic and geochemical survey, reprocessing
of 463 LKM's of 2-D seismic, acquisition, process and interpret 700 sq kms of
3-D seismic for Phase I and the drilling of 2 exploratory wells.
RJ Block
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The Phase
I work commitment consists of conducting a gravity and magnetic and geochemical
survey; reprocess 463 LKM of 2-D seismic; acquire, process and interpret 310 LKM
of 2-D seismic and 611 sq kms of 3-D seismic; and drill a total of 8 exploratory
wells between 2,000 and 2,500 meters. Our share of these costs is estimated to
total approximately $8.1 million over the four years of Phase I commencing
January 21, 2008. The budget estimate for the period April 1, 2008 to
March 31, 2009 has been prepared and our proportionate share of that budget at
25% PI is $3.0 million. This budget entails the completion of the
gravity and magnetic and geochemical survey, reprocessing of 463 LKM's of 2-D
seismic, acquisition, process and interpret 611 sq kms of 3-D seismic for Phase
I and the drilling of 1 exploratory well.
Critical
Accounting Policies and Estimates
Our
Significant Accounting Policies are outlined in Note 2 to our Consolidated
Financial Statements in Item 7 of this Annual Report. In the ordinary
course of business, we have made a number of estimates and assumptions relating
to the reporting of our consolidated financial position and the consolidated
results of our operations and our cash flows in conformity with U.S. generally
accepted accounting principles. Actual results could differ
significantly from those estimates under different assumptions and
conditions. We believe that the following discussion addresses our
most critical accounting policies.
Property
and equipment
We follow
the full cost method of accounting for its petroleum and natural gas
operations. Upon the commencement of economic production quantities
of petroleum and natural gas, depletion of our exploration costs in India
included in Property and Equipment, will be provided on a country-by-country
basis using the unit-of-production method based upon estimated proven petroleum
and natural gas reserves. The costs of acquiring and evaluating our
unproven properties in India will not be depleted until it is determined whether
or not proven reserves are attributable to the properties, the major development
projects are completed, or impairment occurs. To date we are
currently in the development stage and have not yet found any commercial
reserves in India. We are continuing with our exploratory drilling
programs in India and have no basis for impairment of the costs incurred to
date.
Impairment
of Oil and Gas Properties
We review
the carrying values of our oil and gas interests whenever events or changes in
circumstances indicate that such carrying values may not be recoverable. If,
upon review, the sum of the discounted after-tax cash flows from proved reserves
plus the market value of unproved properties is less than the carrying value of
the asset group, the carrying value is written down to estimated fair value.
Individual assets are grouped for impairment purposes, generally on a
block-by-block basis. The fair value of impaired assets is determined based on
quoted market prices in active markets, if available, or upon the present values
of expected future cash flows using discount rates commensurate with the risks
involved in the asset group. This requires us to use significant
assumptions, including estimates relating to the future development costs,
pricing, production costs and associated production. Changes in any of
these assumptions can result in significant revisions to the carrying value of
the oil and gas interests.
Asset
Retirement Obligation
Legal
obligations associated with the retirement of long-lived assets result from the
acquisition, construction, development and normal use of the
asset. The Company’s asset retirement obligations relate primarily to
the retirement of oil and gas properties and related production facilities,
lines and other equipment used in the field operations. The fair
value of a liability for an asset retirement obligation is recognized in the
period in which it is incurred, if a reasonable estimate of fair value can be
made. The estimated fair value of the liability is added to the carrying amount
of the associated asset. This additional carrying amount is then
depreciated over the life of the asset. The liability increases due
to the passage of time based on the time value of money until the obligation is
settled. This requires us to use significant assumptions, including
current estimates of plugging and abandonment costs, annual inflation of these
costs, the productive lives of wells and our risk-adjusted interest
rate. Changes in any of these assumptions can result in significant
revisions to the estimated asset retirement obligations.
Stock
Based Compensation
We
adopted FAS 123(R), using the modified-prospective-transition method on January
1, 2006. Under this method, we are required to recognize compensation
cost for stock-based compensation arrangements with employees and directors
based on their grant date fair value using the Black-Scholes option-pricing
model, such cost to be expensed over the compensations’ respective vesting
periods. For awards with graded vesting, in which portions of the
award vest in different periods, we recognize compensation costs over the
vesting periods for each separate vested tranche
Prior to
January 1, 2006, we used the intrinsic value method of accounting for
share-based compensation awards in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (“APB 25”), which generally resulted in no compensation expense
for employee stock options with an exercise price greater than or equal to fair
value on the date of grant.
We record
the estimated fair value of the equity instrument expense of options granted to
non-employee consultants on the measurement date. The Company
re-measures the fair value of the unvested portion of stock-based awards to
non-employee consultants, resulting in charges or credits to operations in
periods when such re-measurement results in differences between the fair value
of the underlying common stock and the exercise price of the options that is
greater than or less than the differences, if any, between the fair value of the
underlying common stock and the exercise price of the options at their
respective previous measurement dates. Stock-based compensation for
non-employee consultants is expensed or capitalized based on the nature of the
consultant’s activities.
Inherent
in determining the fair value of options are several judgments and estimates
that must be made. These include determining the underlying valuation
methodology for share compensation awards and the related inputs utilized in
each valuation, such as our expected stock price volatility, expected term of
the options granted to employees and consultants, expected dividend yield, the
expected risk-free interest rate, the underlying stock price and the exercise
price of the option. Changes to these assumptions could result in different
valuations for individual share awards. The company uses the Black-Scholes
option pricing model to determine the fair value of options granted to
employees, non-employee directors and non-employee consultants.
Recent
Accounting Standards
Fair Value
Measurements
In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (“FAS
157”), which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. FAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years, and is
applicable beginning in the first quarter of 2008. The FASB has also issued
Staff Position FAS 157-2 (“FSP No. 157-2”), which delays the effective date
of SFAS No. 157 for nonfinancial assets and liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), until fiscal years beginning after
November 15, 2008. We are currently evaluating the impact that FAS 157 and
FSP No. 157-2 will have on our consolidated financial statements and FAS 157
will be applied prospectively.
The Fair Value Option for
Financial Assets and Financial Liabilities
In
February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115”, (“FAS 159”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. FAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years, and is applicable beginning in the first quarter of 2008. We are
currently evaluating the impact that FAS 159 will have on our consolidated
financial statements and FAS 159 will be applied prospectively.
Accounting for Derivative
Instruments and Hedging Activities
Statement
161, issued March 2008, amends FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, and requires companies with derivative
instruments to disclose information about how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under Statement 133, and how derivative instruments and related hedged items
affect a company’s financial position, financial performance, and cash flows.
The required disclosures include the fair value of derivative instruments and
their gains or losses in tabular format, information about credit-risk related
contingent features in derivative agreements, counterparty credit risk, and the
company’s strategies and objectives for using derivative instruments. The
Statement expands the current disclosure framework in Statement 133. Statement
161 is effective prospectively for periods beginning on or after November 15,
2008. We plan to provide these additional disclosures in the first quarter of
2009.
Business
Combinations
In
December 2007, the FASB issued FAS No. 141(R), Business Combinations.
FAS 141(R) replaces FAS No. 141, Business Combinations. FAS 141(R) retains
the purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies and requires the expensing of
acquisition-related costs as incurred. Generally, FAS 141(R) is effective on a
prospective basis for all business combinations completed on or after
January 1, 2009. We do not expect the adoption of FAS 141(R) to have a
material impact on our financial position or results of operations, provided
that we do not undertake a significant acquisition or business
combination.
Non-controlling Interests in
Consolidated Financial Statements
In
December 2007, the FASB Issued FAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No. 51” (“FAS No. 160”), which improves the relevance, comparability
and transparency of the financial information that a reporting entity provides
in its consolidated financial statements by establishing accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This statement is effective for fiscal years
beginning after December 15, 2008. We doenot expect the adoption of FAS
No. 160 to have a material impact on our consolidated financial position,
results of operations or cash flows.
Cautionary
Statement For Purposes Of The "Safe Harbor" Provisions Of The Private Securities
Litigation Reform Act Of 1995
With the
exception of historical matters, the matters discussed in this Report are
"forward-looking statements" as defined under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, that involve risks
and uncertainties. Forward-looking statements made herein include,
but are not limited to:
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the
statements in this Report regarding our plans and objectives relating to
our future operations,
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plans
and objectives regarding the exploration, development and production
activities conducted on the exploration blocks in India in which we have
interests,
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plans
regarding drilling activities intended to be conducted through the
ventures in which we are a participant, the success of those drilling
activities and our ability and the ability of the ventures to complete any
wells on the exploration blocks, to develop reserves of hydrocarbons in
commercially marketable quantities, to establish facilities for the
collection, distribution and marketing of hydrocarbons, to produce oil and
natural gas in commercial quantities and to realize revenues from the
sales of those hydrocarbons,
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our
ability to maintain compliance with the terms and conditions of our PSCs,
including the related work commitments, to obtain consents, waivers and
extensions from the DGH or GOI as and when required, and our ability to
fund those work commitments,
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our
plans and objectives to join with others or to directly seek to enter into
or acquire interests in additional PSCs with the GOI and
others,
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our
assumptions, plans and expectations regarding our future capital
requirements,
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our
plans and intentions regarding our plans to raise additional
capital,
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the
costs and expenses to be incurred in conducting exploration, well
drilling, development and production activities, our estimates as to the
anticipated annual costs of those activities and the adequacy of our
capital to meet our requirements for our present and anticipated levels of
activities are all forward-looking
statements.
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These
statements appear, among other places, under the captions “Item 1. Description
of Business –Our Oil and Gas Activities,” "Item 1A - Risk Factors"
and “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” If our plans fail to materialize, your
investment will be in jeopardy.
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We
cannot assure you that our assumptions or our business plans and
objectives discussed herein will prove to be accurate or be able to be
attained.
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We
cannot assure you that any commercially recoverable quantities of
hydrocarbon reserves will be discovered on the exploration blocks in which
we have an interest.
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Our
ability to realize revenues cannot be assured. Our ability to
successfully drill, test and complete producing wells cannot be
assured.
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We
cannot assure you that we will have available to us the capital required
to meet our plans and objectives at the times and in the amounts required
or we will have available to us the amounts we are required to fund under
the terms of the PSCs we are a party
to.
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We
cannot assure you that we will be successful in joining any further
ventures seeking to be granted PSCs by the GOI or that we will be
successful in acquiring interests in existing
ventures.
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We
cannot assure you that we will obtain all required consents, waivers and
extensions from the DGH or GOI as and when required to maintain compliance
with our PSCs , that we may not be adversely affected by any delays we may
experience in receiving those consents, waivers and extensions, that we
may not incur liabilities under the PSCs for our failure to maintain
compliance with and timely complete the related work programs, or that
GSPC may not be successful in its efforts to obtain payment from us on
account of
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exploration
costs it has expended on the KG Offshore Block for which it asserts we are
liable or otherwise seek to hold us in breach of that PSC or commence
arbitration proceedings against us.
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We
cannot assure you that the outcome of testing of one or more wells on the
exploration blocks under our PSCs will be satisfactory and result in
commercially-productive wells or that any further wells drilled will have
commercially-successful results.
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Our
inability to meet our goals and objectives or the consequences to us from
adverse developments in general economic or capital market conditions, events
having international consequences, or military or terrorist activities could
have a material adverse effect on us. We caution you that various
risk factors accompany those forward-looking statements and are described, among
other places, under the caption "Risk Factors" herein. They are also
described in our Quarterly Reports on Form 10-QSB and 10-Q, and our Current
Reports on Form 8-K. These risk factors could cause our operating
results, financial condition and ability to fulfill our plans to differ
materially from those expressed in any forward-looking statements made in this
Report and could adversely affect our financial condition and our ability to
pursue our business strategy and plans.
Market
risk is the potential loss arising from changes in market rates and
prices. We are exposed to the impact of market fluctuations
associated with the following:
Commodity
Price Risk
Oil and
natural gas prices are subject to wide fluctuations and market uncertainties due
to a variety of factors that are beyond our control. These factors
include the level of global demand for petroleum products, international supply
of oil and gas, the establishment of and compliance with production quotas by
oil exporting countries, weather conditions, the price and availability of
alternative fuels, and overall economic conditions, both international and
domestic. We cannot predict future oil and gas prices with any degree
of certainty. Sustained weakness in oil and gas prices may adversely
affect our ability to obtain capital to fund our activities and could in the
future require a reduction in the carrying value of our oil and gas
properties. Similarly, an improvement in oil and gas prices can have
a favorable impact on our financial condition, results of operations and capital
resources.
At
December 31, 2007, we had not entered into any market risk sensitive
instruments, as such term is defined in Item 305 of Regulation S-K, relating to
oil and natural gas.
Interest
Rate Risk
At
December 31, 2007, we had approximately $48.1 million in cash and cash
equivalents. Substantially, all these funds are held in U.S. dollars
and our cash equivalents are invested in high-quality credit instruments,
primarily of money market funds with maturities of 90 days or
less. We do not expect any material loss from cash equivalents, and
therefore we believe our interest rate exposure on invested funds is not
material. Fluctuations in interest rates can be expected to affect
the interest income we receive on the invested funds.
At
December 31, 2007, we had no long-term debt outstanding and held no market risk
sensitive instruments related to the interest rate risk.
Foreign
Currency Risk
Substantially,
all of our cash and cash equivalents are held in U.S. dollars or U.S. dollar
denominated securities. At December 31, 2007, we had no operating
revenues. Certain of our expenses are fixed or denominated by foreign
currencies including the Canadian dollar and the Indian Rupees. We
are exposed to market risks associated with fluctuations in foreign currency
exchange rates related to our transactions denominated in currencies other than
the U.S. dollar.
At
December 31, 2007, we had not entered into any market risk sensitive instruments
relating to our foreign currency exchange risk.
Trading
Risks
We have
no market risk sensitive instruments held for trading purposes.
Our
Financial Statements are included in a separate section of this
report. See page FS 1.
On
December 20, 2007, we received a letter from Ernst & Young LLP ("E&Y")
dated December 14, 2007 stating that it resigned, effective December 12, 2007,
as our auditor. In connection with its engagement to audit our
consolidated financial statements for the two fiscal years ended December 31,
2006 and subsequent interim periods preceding the date of E&Y's resignation,
we had no disagreements with E&Y on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which,
if not resolved to its satisfaction, would have caused E&Y to make reference
to the subject matter of the disagreement in connection with its reports and
there did not occur a reportable event as described in paragraph (a)(1)(v) of
Item 304 of Regulation S-K.
Disclosure
Controls and Procedures
GeoGlobal
Resources’ management, with participation of its Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2007. Disclosure controls and
procedures are defined under SEC rules as controls and other procedures that are
designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures include
controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the
Securities Exchange Act of 1934 is accumulated and communicated to the company's
management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate, to allow timely
decisions regarding required disclosure. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their control
objectives.
Based on
the identification of the material weaknesses in our internal control over
financial reporting described below and the resulting delay in timely filing of
this Report, the Chief Executive Officer and the Chief Financial Officer have
concluded that our disclosure controls and procedures were not effective as of
December 31, 2007.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. A company’s internal
control over financial reporting is a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit the preparation of financial statements in accordance with
GAAP, and that receipts and expenditures of the company are being made only in
accordance with
authorizations
of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In making
its assessment, management, including the Chief Executive Officer and Chief
Financial Officer, used the criteria set forth in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”).
A
material weakness is a control deficiency, or combination of control
deficiencies, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis. We have identified material weaknesses
as provided below:
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We
maintained an inadequate complement of personnel with appropriate
expertise or experience in generally accepted accounting
principles. Specifically, internal control did not provide
reasonable assurance that non-routine or complex transactions are
accounted for in accordance with generally accepted accounting
principles. In addition, we did not have an adequate risk
assessment process for reacting to changes in the operating environment
and the impact those changes had on financial reporting
risks. This resulted in inadequate design of processes or
controls in the following areas:
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Stock
based compensation
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This
resulted in a material adjustment of stock based compensation accounts in
our 2007 annual financial statements prior to issuance and it also
resulted in the restatement of our 2003, 2004, 2005 and 2006 annual
financial statements and our 2004, 2005, 2006 and 2007 interim financial
statements.
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Asset
retirement obligations
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This
resulted in a material adjustment of asset retirement obligations in our
2007 annual financial statements which was corrected prior to
issuance.
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Impairment
Assessment under full cost method of accounting for petroleum and natural
gas interests.
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This
did not result in an actual adjustment to our 2007 annual financial
statements prior to issuance.
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Income
taxes
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This
resulted in adjustments to the disclosure of income taxes in our 2007
annual financial statements which were corrected prior to
issuance.
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We
have limited accounting personnel with sufficient expertise in generally
accepted accounting principles to enable effective segregation of duties
with respect to recording journal entries and to allow for appropriate
monitoring of financial reporting matters and internal control over
financial reporting. Specifically, the Chief Financial Officer has
involvement in the creation, review and recording of journal entries, note
disclosures and certain account reconciliations without adequate
independent review and authorization. This control deficiency is pervasive
in nature and impacts all significant accounts. This control deficiency
also affects the financial reporting process including consolidation,
financial statement preparation and the related note
disclosures.
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Management
has determined that these control deficiencies result in a reasonable
possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis and therefore
constitute material weaknesses.
As a
result of the existence of the material weaknesses discussed above as of
December 31, 2007, management has concluded that we did not maintain effective
internal control over financial reporting as of December 31, 2007, based on the
criteria established in Internal Control — Integrated Framework issued by
COSO.
KPMG LLP,
an independent registered public accounting firm that audited the financial
statements included in the annual report containing the disclosure required by
this Item, has performed an audit of internal control over financial reporting.
Their report is included in this Annual Report on Form 10-K under Item 8,
herein.
Plan
for Remediation of Material Weaknesses
In
relation to the material weaknesses identified above, our management and the
board of directors will work to remediate the risk of a material misstatement in
financial reporting. We will implement the following plan to address
the risk of a material misstatement in the financial statements:
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Employ
additional personnel with technical and financial reporting expertise in
the application of generally accepted accounting
principles.
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Engage
qualified third-party accountants and consultants to assist us in the
preparation and review of our financial
information.
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Consult
with qualified third-party accountants and consultants on the appropriate
application of GAAP for complex and non-routine
transactions.
|
Material
Changes to Internal Control over Financial Reporting
Management
has taken remedial actions with respect to the identified material
weaknesses.
In April
2008, we created a new Controller position and hired a Chartered Accountant with
accounting and financial reporting experience.
We
anticipate that these changes will strengthen our disclosure controls and
procedures, as well as our internal controls over financial
reporting. However, because the remedial actions we have implemented
are very recent and we need to allow adequate time after implementation to
evaluate and test the effectiveness of the controls, no assurance can be given
as to the timing of achievement of remediation.
There
were no other changes in our internal control over financial reporting during
the fourth quarter of the period covered by this Annual Report on Form 10-K that
has materially affected, or is reasonably likely to materially affect our
internal control over financial reporting.
The
services of Mr. Allan Kent, our Executive Vice President and Chief Financial
Officer, are provided to us pursuant to an oral arrangement with a corporation
wholly-owned by him. The oral agreement was amended on December 12,
2007 to provide for an annual fee payable of $212,750 effective January 1,
2008.
PART
III
|
Directors, Executive
Officers and Corporate
Governance
|
Our
Directors and Executive Officers and their ages and employment histories are as
follows:
|
Name
|
Age
|
Employment
History
|
|
Jean
Paul Roy
|
51
|
Mr.
Roy was elected a Director, President and Chief Executive Officer on
August 29, 2003. Prior thereto, for more than five years, Mr.
Roy had been consulting in the oil and gas industry through his private
company, GeoGlobal Technologies Inc. which he owned 100%. Mr.
Roy has in excess of 26 years of geological and geophysical experience in
basins worldwide as he has worked on projects throughout India, North and
South America, Europe, the Middle East, the former Soviet Union and South
East Asia. His specialties include modern seismic data
acquisition and processing techniques, and integrated geological and
geophysical data interpretation. Since 1981 he has held
geophysical positions with Niko Resources Ltd., Gujarat State Petroleum
Corporation, Reliance Industries, Cubacan Exploration Inc., PetroCanada,
GEDCO, Eurocan USA and British Petroleum. Mr. Roy graduated
from St. Mary’s University of Halifax, Nova Scotia in 1982 with a B.Sc. in
Geology and has been certified as a Professional
Geophysicist.
|
|
Allan
J. Kent
|
54
|
Mr.
Kent was elected a Director, Executive Vice President and Chief Financial
Officer of our company on August 29, 2003. Mr. Kent has in
excess of 26 years experience in the area of oil and gas exploration
finance and has, since 1987, held a number of senior management positions
and directorships with Cubacan Exploration Inc., Endeavour Resources Inc.
and MacDonald Oil Exploration Ltd., all publicly listed
companies. Prior thereto, beginning in 1980, he was a
consultant in various capacities to a number of companies in the oil and
gas industry. He received his Bachelor of Mathematics degree in
1977 from the University of Waterloo, Ontario.
|
|
Brent
J. Peters
|
35
|
Mr.
Peters was elected a Director of our company on February 25,
2002. Mr. Peters has been Vice President of Finance and
Treasurer of Northfield Capital Corporation, a publicly traded investment
company acquiring shares in public and private corporations since
1997. Mr. Peters is the CFO and a Director of Gold Eagle Mines
Ltd. as well as a Director of Aranka Gold Inc. Mr. Peters has a
Bachelor of Business Administration degree, specializing in
accounting.
|
|
Peter
R. Smith
|
60
|
Mr.
Smith was elected a Director of our company on January 8,
2004. Mr. Smith currently sits on the Board of Directors of
Brampton Brick Limited and the Board of Toronto Waterfront Revitalization
Corporation. Mr. Smith was elected Chairman of the Board of the
Greater Toronto Transportation Authority (GO Transit) in March 2004, and a
director of Tarion Warranty Corporation (a Canadian new home warranty
company) in April 2004. Since 1989, Mr. Smith has been
President and co-owner of Andrin Limited, a large developer/builder of
housing in Canada. Mr. Smith has held the position of Chairman
of the Board of Directors, Canada Mortgage and Housing Corporation (CMHC),
from September 1995 to September 2003. On February
14, 2001, the Governor General of Canada announced the appointment of Mr.
Smith as a Member of the Order of Canada, effective November 15,
2000. Mr. Smith holds a Masters Degree in Political Science
(Public Policy) from the State University of New York, and an Honours B.A.
History and Political Science, Dean’s Honour List, McMaster University,
Ontario.
|
|
Michael
J. Hudson
|
61
|
Mr.
Hudson was elected a Director of our company on May 17,
2004. Mr. Hudson is a retired partner with the accounting firm
Grant Thornton LLP. Mr. Hudson was with Grant Thornton for 20
years and with his experience in the oil and gas industry he was
responsible for Assurance services and providing advice to private,
not-for-profit and public company clients listed on Canadian and US
exchanges. Mr. Hudson spent two years in London, England
assisting the Institute of Chartered Accountants in England and Wales with
the start up of a consulting service to members on best practices for the
management of their firms including ethics and governance
issues. Upon returning to Canada he went on secondment for 18
months with the Auditor General of Canada to learn and apply the
disciplines of "value for money" auditing. He was co-director
of the comprehensive (value for money) audit of Statistics Canada
reporting in the 1983 Auditor General’s Report.
|
|
Dr.
Avinash Chandra
|
65
|
Dr.
Chandra was elected a Director of our company on October 1,
2005. Dr. Chandra has over 45 years of experience in the
international as well as the Indian oil and gas sector. He was
the first Directorate General of Hydrocarbons, at the level of Special
Secretary to the Government of India for a period of 10 years until his
retirement in 2003. Dr. Chandra received his Ph.D. in petroleum
geology from the Imperial College, University of London, United
Kingdom. His post graduate work includes a Post Graduate
Diploma of Imperial College in Petroleum Geology and Petroleum Reservoir
Engineering as well as a M.Sc. (Applied Geology) and B.Sc. (Hons) from the
Lucknow University in India.
|
Mr. Roy,
Mr. Kent, Mr. Peters, Mr. Smith, Mr. Hudson and Dr. Chandra have been elected to
serve as Directors of our company until our annual meeting of stockholders in
2008 and the election and qualification of their successors.
Our Board
of Directors has determined that Messrs. Peters, Smith, Hudson and Dr. Chandra
are "independent directors" under the listing standards of the American Stock
Exchange. Our Board of Directors had nine meetings during the year
ended December 31, 2007,
of which five meetings were held by conference telephone call in which
all directors participating were able to hear one another. Each of
our Directors participated in all the meetings of the Board except for Dr.
Chandra who was unable to attend two meetings.
Director
and Officer Securities Reports
The
Federal securities laws require our Directors and executive officers, and
persons who own more than ten percent (10%) of a registered class of our equity
securities to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of any of our equity
securities. Copies of such reports are required to be furnished to
us. To our knowledge, based solely on a review of the copies of such
reports and other information furnished to us, all persons subject to these
reporting requirements filed the required reports on a timely basis with respect
to the year ended December 31, 2007.
Audit
Committee and Audit Committee Financial Expert
Our Board
of Directors has appointed an Audit Committee consisting of Messrs. Hudson, who
is the Chairman, Mr. Peters and Dr. Chandra, each of whom has been determined to
be an "independent director" under the listing standards of the American Stock
Exchange. Under our Audit Committee Charter, adopted as amended on
March 6, 2005, our Audit Committee’s responsibilities include, among other
responsibilities,
|
·
|
the
appointment, compensation and oversight of the work performed by our
independent auditor,
|
|
·
|
the
adoption and assurance of compliance with a pre-approval policy with
respect to services provided by the independent
auditor,
|
|
·
|
at
least annually, obtain and review a report by our independent auditor as
to relationships between the independent auditor and our company so as to
assure the independence of the independent
auditor,
|
|
·
|
review
the annual audited and quarterly financial statements with our management
and the independent auditor, and
|
|
·
|
discuss
with the independent auditor their required disclosure relating to the
conduct of the audit.
|
Our Board
of Directors has determined that Mr. Michael J. Hudson has the attributes of an
Audit Committee Financial Expert.
Our Audit
Committee had six meetings during the year ended December 31, 2007, of which
four meetings were by conference telephone call in which all participants were
able to hear one another.
On May
15, 2008, our Audit Committee discussed our audited consolidated financial
statements with management and discussed with KPMG, our independent registered
public accounting firm, the matters required to be discussed by Statement of
Auditing Standards No. 61 and received the written disclosures and the letter
from KPMG as required by Independence Standards Board Standard No. 1 which
confirmed KPMG's independence as auditor. Based on that review and
those discussions, our Audit Committee recommended that our audited consolidated
financial statements be included in our Annual Report on Form 10-K for the year
ended December 31, 2007 for filing with the Securities and Exchange
Commission.
Our Audit
Committee Charter is available in the “Governance” section of our website at
www.geoglobal.com.
Compensation
Committee
Our
Compensation Committee consists of Mr. Hudson whom is the Chairman and Mr.
Peters, each of whom has been determined to be an "independent
director". Our Compensation Committee, which has adopted a charter,
among other things, exercises general responsibility regarding overall employee
and executive compensation. Our Compensation Committee sets the
annual salary, bonus and other benefits of the President and the Chief Executive
Officer and approves compensation for all our other executive officers,
consultants and employees after considering the recommendations of our President
and Chief Executive Officer. Our Compensation Committee has retained Lane Caputo
Compensation, Inc., Calgary, Alberta, a compensation consultant, to review and
recommend fair and justifiable compensation for our executive positions and
directors as well as to make recommendations for future compensation
practices. Although Committee meetings are held in executive session,
without management’s presence, the Committee (and from time to time individual
members of the Committee) may meet with senior officers of our company to
discuss objectives, explain the rationale for certain objectives or milestones,
and to assure that it has management’s input in assessing the consequences of
decisions made in the Committee meetings, for instance, the impact that its
decisions may have on our financial statements. The Committee’s
interactions with management seek to achieve a balance between receiving
management’s opinion but still ensuring that management is not, in effect,
establishing the terms and parameters for its own compensation. In
certain instances, where management has proposed objectives that are more
aggressive than those proposed by the Committee, the Committee may elect to
utilize management’s milestones rather than its own
The
Compensation Committee held one meeting during the year ended December 31, 2007,
which was held in person.
Nominating
Committee
Our
Nominating Committee consists of Mr. Smith, who is the Chairman, Mr. Peters and
Mr. Hudson, each of whom has been determined to be an "independent director"
under the listing standards of the American Stock Exchange. Our
Nominating Committee, among other things, exercises general responsibility
regarding the identification of individuals qualified to become Board members
and recommend that the Board select the director nominees for the next annual
meeting of stockholders. Our Board of Directors has adopted a charter
for the nominating committee. The Nominating Committee did not hold
any meetings in person during the year ended December 31, 2007, but did however
adopt a unanimous written consent.
Our
Nominating Committee will seek out nominees for new directors as vacancies
become available using the following criteria: A majority of the
directors must be independent, as determined by the Board under applicable
rules; nominees shall possess expertise in general business matters and in such
other areas as are relevant to Committees on which they are expected to serve
(such as financial expertise, for Directors expected to serve as Audit Committee
members); and nominees shall be individuals with the background, character,
skills and expertise such that they will meaningfully contribute to our success
and our operations.
Our
Nominating Committee Charter is available in the “Governance” section of our
website at www.geoglobal.com.
Code
of Ethics
We have
adopted a Code of Ethics that applies to our principal executive officer and
principal financial and accounting officer. A copy of our Code of
Ethics was filed as an exhibit to our Annual Report on Form 10-KSB for the year
ended December 31, 2003.
Our Code
of Ethics Charter is available in the "Governance" section of our website at
www.geoglobal.com.
The
following table sets forth the compensation of our principal executive officer
and all of our other executive officers for the two fiscal years ended December
31, 2007 who received total compensation exceeding $100,000 for the year ended
December 31, 2007 and who served in such capacities at December 31,
2007.
SUMMARY
COMPENSATION TABLE
Annual
Compensation
|
Name
and Principal Position
(a)
|
Year
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock
Awards
($)
(e)
|
Option
Awards
($)
(1)
(f)
|
Non-Equity
Incentive Plan Compen-
sation
($)
(g)
|
Nonqualified
Deferred Compen-
sation
Earnings
($)
(h)
|
All
Other Compen-sation
($)
(i)
|
Total
($)
(j)
|
|
Jean
Paul Roy, (3)
President & CEO
|
2007
2006
|
350,000
350,000
|
-0-
-0-
|
-0-
-0-
|
166,396
404,104
|
Nil
Nil
|
Nil
Nil
|
48,000
(5)
44,280
(6)
|
547,236
798,384
|
|
Allan
J. Kent, (4)
Exec
VP & CFO
|
2007
2006
|
185,000
185,000
|
-0-
-0-
|
-0-
-0-
|
166,396
404,104
|
Nil
Nil
|
Nil
Nil
|
30,330
(7)
-0-
|
391,726
589,104
|
|
Miles
Leggett (8)
Geoscience
Specialist
|
2007
2006
|
158,400
117,425
|
10,000
-0-
|
-0-
-0-
|
183,781
137,644
|
Nil
Nil
|
Nil
Nil
|
-0-
-0-
|
352,181
255,069
|
|
B.
Mohapatra (8)
Country
Manager, India
|
2007
2006
|
137,391
63,459
|
-0-
52,126
|
-0-
-0-
|
293,228
86,076
|
Nil
Nil
|
Nil
Nil
|
-0-
-0-
|
430,619
201,661
|
|
(1)
|
Represents
the dollar amount recognized for financial statement reporting purposes
with respect to the fiscal year in accordance with FAS
123R. See Note 8b to Notes to Financial Statements for the year
ended December 31, 2007.
|
|
(2)
|
Messrs.
Roy and Kent are also Directors of our company; however they receive no
additional compensation for serving in those
capacities.
|
|
(3)
|
The
salary and bonus amounts are paid to RGB, a Barbados company wholly owned
by Mr. Roy, pursuant to the terms of a TSA described
below.
|
|
(4)
|
The
salary and bonus amounts are paid to D.I. Investments Ltd., a company
controlled by Mr. Kent, pursuant to an oral arrangement described
below.
|
|
(5)
|
Costs
paid for by us included in this amount are $21,720 for airfare for the
family of Mr. Roy to travel to India from their home once during the
calendar year and $26,280 for medical coverage for Mr. Roy and his
family.
|
|
(6)
|
Costs
paid for by us included in this amount are $18,780 for airfare for the
family of Mr. Roy to travel to India from their home two times during the
calendar year and $25,500 for medical coverage for Mr. Roy and his
family.
|
|
(7)
|
Costs
paid for by us included in this amount are $30,330 for medical coverage
for Mr. Kent and his family.
|
|
(8)
|
The
salary and bonus amounts are paid to these persons as an employee and not
as an executive officer.
|
Narrative
Disclosure to Summary Compensation Table
On August
29, 2003, we entered into a TSA with RGB, a company organized under the laws of
Barbados and wholly owned by Mr. Roy. Under the agreement, RGB agreed
to perform such geologic and geophysical duties as are assigned to it by
us. The term of the agreement, as amended, extends through December
31, 2008 and continues for successive periods of one year thereafter unless
otherwise agreed by the parties or either party has given notice that the
agreement will terminate at the end of the term. On January 31, 2006,
the terms of the agreement were amended to amend the fee payable from $250,000
to $350,000 effective January 1, 2006. RGB also is reimbursed for
authorized travel and other out-of-pocket expenses. The agreement
prohibits RGB from disclosing any of our confidential information and from
competing directly or indirectly with us for a period ending December 31, 2008
with respect to any acquisition, exploration, or development of any crude oil,
natural gas or related hydrocarbon interests within the area of the country of
India. The agreement may be terminated by either party on 30 days’
prior written notice, provided, however, the confidentiality and non-competition
provisions will survive the termination.
D.I.
Investments Ltd. ("DI"), a company controlled by Mr. Kent, was paid up to
December 31, 2007 by us for consulting services. The services of Mr.
Kent are provided to us pursuant to the oral arrangement with DI. The
oral agreement was amended to provide for an annual fee payable of $185,000
effective January 1, 2006 and the oral agreement was further amended to provide
for an annual fee payable of $212,750 effective January 1,
2008.
We do not
have any employment agreements with any of our named executive
officers
Outstanding
Equity Awards at December 31,
2007
The
following table provides information with respect to our named executive
officers above regarding outstanding equity awards held at December 31,
2007.
|
Option
Awards
|
Stock
Awards
|
|||||||
|
Name
(a)
|
Number
of securities underlying unexercised Options
(#)
Exercisable/
Unexercisable
(b-c)
|
Equity
Incentive Plan Awards:
Number
of Securities Underlying Unexercised Unearned Options
(#)
(d)
|
Option
Exercise Price
($)
(e)
|
Option
Expiration Date
mm/dd/yy
(f)
|
Number
of shares or units of Stock held that have not vested
(#)
(g)
|
Market
value of shares or units of Stock held that have not vested (1)
($)
(h)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or
Other Rights That Have Not Vested
(#)
(i)
|
Equity
Incentive Plan Awards: Market or payout value of Unearned Shares, Units or
Other Rights That Have Not Vested
($)
(j)
|
|
Jean
Paul Roy
|
300,000
|
-0-
|
1.10
|
08/31/08
|
-0-
|
-0-
|
-0-
|
-0-
|
|
500,000
|
-0-
|
3.95
|
07/25/16
|
-0-
|
-0-
|
-0-
|
-0-
|
|
|
Allan
J. Kent
|
300,000
|
-0-
|
1.10
|
08/31/08
|
-0-
|
-0-
|
-0-
|
-0-
|
|
500,000
|
-0-
|
3.95
|
07/25/16
|
-0-
|
-0-
|
-0-
|
-0-
|
|
|
Miles
Leggett
|
150,000
|
-0-
|
3.95
|
12/31/09
|
-0-
|
-0-
|
-0-
|
-0-
|
|
150,000
|
-0-
|
5.03
|
12/31/10
|
150,000
|
-0-
|
-0-
|
-0-
|
|
|
B.
Mohapatra
|
90,000
|
-0-
|
6.50
|
08/24/08
|
-0-
|
-0-
|
-0-
|
-0-
|
|
210,000
|
-0-
|
3.95
|
12/31/09
|
140,000
|
106,400
|
-0-
|
-0-
|
|
|
150,000
|
-0-
|
5.03
|
12/31/10
|
150,000
|
-0-
|
-0-
|
-0-
|
|
(1) based
on the closing sales price on December 31, 2007 of $4.71
Director
Compensation
The
following table provides information with respect to compensation of our
Directors during the year ended December 31, 2007. The compensation
paid to our named executive officers who are also Directors is reflected in the
Summary Compensation Table above.
|
Name
(a)
|
Fees
earned or paid in cash
($)
(b)
|
Stock
Awards
($)
(1)
(c)
|
Option
Awards
($)
(1)
(d)
|
Non-Equity
Incentive Plan Compensation
($)
(e)
|
Non-Qualified
Deferred Compensation Earnings
(f)
|
All
Other Compensation
($)
(g)
|
Total
($)
(h)
|
|
Peter
Smith
|
5,000
|
-0-
|
103,800
|
-0-
|
-0-
|
-0-
|
108,800
|
|
Brent
Peters
|
5,000
|
-0-
|
103,800
|
-0-
|
-0-
|
-0-
|
108,800
|
|
Michael
Hudson
|
31,000
|
-0-
|
103,800
|
-0-
|
-0-
|
-0-
|
134,800
|
|
Dr.
Avinash Chandra
|
29,500
|
-0-
|
103,800
|
-0-
|
-0-
|
-0-
|
133,300
|
|
|
(1)
|
Represents
the dollar amount recognized for financial statement reporting purposes
with respect to the fiscal year in accordance with FAS
123R. See Note 8b to Notes to Financial Statements for the year
ended December 31, 2007.
|
Our
non-employee Board members receive cash compensation for attendance in person or
by phone for each board meeting and each of the committee meetings that they are
a member of. A fee of $1,000 is paid for personally attending each
meeting and $500 is paid for attendance by phone. Our non-employee
Board members may also be paid a fee for their services for a special project
they may conduct or participate in. Two of our non-employee Board
members received $25,000 each for their services for special projects conducted
during 2007. Our Directors are also reimbursed for their
out-of-pocket expenses in attending meetings. Pursuant to the terms
of our 1998 Stock Incentive Plan, each non-employee Director automatically
receives an option grant for 50,000 shares on the date such person joins the
Board. In addition, on the date of each annual stockholder meeting,
provided such person has served as a non-employee Director for at least six
months, each non-employee Board member who is to continue to serve as a
non-employee Board member will automatically be granted an option to purchase
50,000 shares. Each such option has a term of ten years, subject to
earlier termination following such person's cessation of Board service, and is
subject to certain vesting provisions. For the purposes of the
automatic grant provisions of the Plan, all of our Directors, other than Messrs.
Roy and Kent are considered non-employee Board members.
Compensation
Committee Interlocks and Insider Participation
None of
the members of our Compensation Committee were officers or employees of our
company during the year ended December 31, 2007 or were former officers of our
company or had any other relationship with our company requiring
disclosure.
Compensation
Discussion and Analysis
Policies and
Objectives
Our
Compensation Committee believes that our compensation policies and objectives
should align with and reflect the stage of development of our operations, our
operating objectives and the extent of realization of our
objectives. Our Compensation Committee believes that our policies and
objectives must take into consideration our specific business objectives and
manner of achieving those objectives and our ability to implement those
objectives under the terms of the production sharing contracts to which we are a
party. Accordingly, our compensation policies and objectives should
be based on both our successes in entering into and pursuing joint venture
arrangements, as well as the progress and success of the exploration and
drilling activities of those ventures, whether undertaken directly by us or
through the operators of the exploration blocks.
Our
Compensation Committee also believes that the compensation of our executive
officers should be based on the principles that the levels of compensation must
enable our company to motivate and retain the talent we need to lead and make
our company grow. Our Compensation Committee further believes that
the compensation levels must be competitive with similar other companies, be
fair and reasonable and, where appropriate, reward successful
performance. Our Compensation Committee relies upon its judgment in
making compensation decisions.
Because
it believes such a structure is most appropriate to our company’s stage of
development, the Compensation Committee has followed the practices established
in 2005 of providing a compensation package to our executive officers consisting
of monetary compensation and stock options. Our Compensation
Committee believes that the impact of applicable Canadian, United States and
other foreign tax laws should be considered with respect to the compensation
paid and the form of the compensation. Our Compensation Committee
does not establish any specific performance or target goals.
Our
Compensation Committee has retained Lane Caputo Compensation, Inc., Calgary,
Alberta, a compensation consultant, to review and recommend fair and justifiable
compensation for our executive positions and directors as well as to make
recommendations for future compensation practices. Lane Caputo
Compensation, Inc. reviewed our compensation arrangements relative to a selected
peer group of Canadian public companies trading on Canadian and/or International
securities exchanges that are focused on international oil and gas exploration
and production, with a focus on exploration. The fifteen companies in
this peer group and the exchange on which their securities are traded are as
follows:
|
· Africa
Oil Corp. (TSX-V)
|
· Pacific
Stratus Energy Ltd. (TSX)
|
|
· Candax
Petroleum Inc. (TSX)
|
· Pan
Orient Energy Ltd. (TSX-V)
|
|
· Canoro
Resources Ltd. (TSX-V)
|
· Serica
Energy PLC. (TSX-V)
|
|
· CGX
Energy Inc. (TSX-V)
|
· Sterling
Resources Ltd. (TSX-V)
|
|
· Cirrus
Energy Corp. (TSX-V)
|
· Stratic
Energy Corp. (TSX-V/AIM
|
|
· Falcon
Oil & Gas Ltd. (TSX-V)
|
· Verenex
Energy Inc. (TSX)
|
|
· Ithaca
Energy Inc. (TSX-V/AIM)
|
· Winstar
Resources Ltd. (TSX)
|
|
· Mart
Resources, Inc. (TSX-V)
|
Exchanges: TSX-V
-- Toronto Stock Exchange (Venture);
TSX -- Toronto Stock
Exchange; and
AIM -- London AIM Market
Exchange
Our
Compensation Committee believes that, at this stage of our company’s
development, it is appropriate for our monetary compensation to stay within the
median values of our peer group.
Although
Compensation Committee meetings are held in executive session, without
management’s presence, the Compensation Committee (and from time to time
individual members of the Committee) may meet with senior officers of our
company to discuss objectives, explain the rationale for certain objectives and
to assure that it has management’s input in assessing the consequences of
decisions made in the Compensation Committee meetings, including, for instance,
the impact that its decisions may have on our financial statements. The
Compensation Committee’s interactions with management seek to achieve a balance
between receiving management’s opinion but still ensuring that management is
not, in effect, establishing the terms and parameters for its own
compensation.
Direct Monetary
Compensation
Our
Compensation Committee held one meeting during the year ended December 31,
2007. At the meeting, the Compensation Committee considered, among
other things, in arriving at compensation for the fiscal year 2007, the
executive officers’ level of compensation during the prior fiscal years, the
compensation levels paid by the peer group of companies, the recommendations and
findings of Lane Caputo Compensation, Inc., the growth and complexity of the
executives’ tasks during the year, and our company’s overall business plans for
further growth in the following fiscal years.
The
direct monetary compensation of our executive officers is based on the scope of
their duties and responsibilities and the executives’ individual performance in
fulfilling those duties and responsibilities, in addition to the other factors
described above. Because of the inherent nature of our activities,
the uncertain nature of the outcome of our activities, and the extended period
of time over which the success of our activities will be determined, the
Compensation Committee believes that, because the company’s ability to achieve
its objectives is greatly dependent upon the activities of the operators of the
drilling blocks in which we have an interest, the company’s success in its
exploration and drilling activities during a particular year should not be the
sole measure by which the direct monetary compensation of our executive officers
is determined. The Compensation Committee also recognizes that our
company’s opportunity to enter into additional production-sharing contracts or
acquire interests in ventures that are parties to such contracts is limited by
availability of contracts and our company’s capital. However, the
Committee recognizes that future successes may lead it to award cash or other
bonuses determined at that time and in the light of future events.
Based on
the Compensation Committee’s policies and objectives, the Committee believes
that the direct monetary compensation of our executive officers for fiscal 2007
was at or below the median level of the peer group selected by Lane Caputo
Compensation, Inc.
Equity
Compensation
Our
Compensation Committee believes that a material element of executive
compensation should be the award of equity grants. This element of
compensation has taken the form of grants of options under our Stock Incentive
Plan but other forms of equity grants may be considered. The
Compensation Committee believes the award of equity grants has the effect of
aligning executive officers compensation to the future growth and success of our
company.
Equity
grants are the only form of long-term compensation utilized to compensate our
executive officers at this time. The Compensation Committee does not
consider any relationship between Direct Monetary Compensation and Equity
Compensation in making equity grants. These grants are not based on
any strict formula but rather are determined in the light of practices at the
peer group selected, our company’s past practices, and our overall corporate
performance during the period relative to our progress made in achieving our
overall business plan objectives and achieving stockholder value.
The
Compensation Committee did not award any equity grants to our executive officers
in 2007. The Compensation Committee reached this conclusion based on
the market performance of the company’s common stock during the
year.
Other
Benefits - Change of Control
We have
no arrangements with our executive officers or Directors regarding any monetary
payments to them in the event of a change in control of our
company.
In the
event that our company is acquired by merger or sale of substantially all of its
assets or securities possessing more than 50% of the total combined voting power
of our outstanding securities, outstanding options granted under our 1998 Stock
Incentive Plan containing vesting provisions, including those held by executive
officers and Directors, are subject to immediate vesting. Each
outstanding option which is not to be assumed by the successor corporation or
otherwise continued in effect will automatically accelerate in full and become
immediately fully vested, subject to certain exceptions. The Plan contains
discretionary provisions regarding the grant of options with vesting provisions.
Options may also immediately vest in connection with a change in the majority of
the Board of Directors of our company by reason of one or more contested
elections for Board membership.
Perquisites
Our
executive officers also receive perquisites in the form of medical insurance
coverage for the executives and their families. In addition, in 2007
the company paid air fare expenses for Mr. Roy’s family in connection with
travel to India from their home.
Mr. Roy,
through Roy Group Barbados, Inc. (“RGB”), a corporation wholly owned by Mr. Roy,
is reimbursed for out-of-pocket expenses on a cost recovery basis for expenses
such as travel, hotel, meals and entertainment expenses, computer costs and
amounts billed to third parties.
Mr. Kent
is reimbursed for out-of-pocket expenses on a cost recovery basis for expenses
such as office costs, which include rent, parking, office supplies and telephone
as well as travel, hotel, meals and entertainment expenses incurred by him in
the performance of services to our company.
Structure of Compensation
Arrangements
We have
entered into the following arrangements regarding our executive
officers.
We have
an agreement with RGB whereby, under the agreement, RGB agreed to perform such
geologic and geophysical duties as are assigned to it by our
company. Mr. Roy performs services for us in his capacity as an
employee to RGB and we pay compensation to RGB. In addition, we pay
for medical insurance for Mr. Roy and his family. Expenses incurred
by Mr. Roy in connection with the Company are reimbursed to RGB for his travel
expenses, hotel, meals and entertainment expenses, computer costs and amounts
billed to third parties
Since
January 1, 2008, Mr. Kent has been employed directly by our company pursuant to
an oral agreement. Prior to then, Mr. Kent’s services were provided
through D.I. Investments Ltd., a company controlled by Mr. Kent. In
addition, we pay for medical insurance for Mr. Kent and his
family. Expenses incurred by Mr. Kent in connection with the Company
are reimbursed to him for office costs, his travel expenses, hotel, meals and
entertainment expenses.
Director
Compensation
Our
non-employee Board members receive cash compensation for attendance in person or
by phone for each board meeting and each of the committee meetings that they are
a member of. A fee of $1,000 is paid for personally attending each
meeting and $500 is paid for attendance by phone. Our non-employee
Board members may also be paid a fee for their services for a special project
they may conduct or participate in. Our Directors are also reimbursed
for their out-of-pocket expenses in attending meetings. Pursuant to
the terms of our 1998 Stock Incentive Plan, each non-employee Director
automatically receives an option grant for 50,000 shares on the date such person
joins the Board. In addition, on the date of each annual stockholder
meeting, provided such person has served as a non-employee Director for at least
six months, each non-employee Board member who is to continue to serve as a
non-employee Board member will automatically be granted an option to purchase
50,000 shares. Each such option has a term of ten years, subject to
earlier termination following such person's cessation of Board service, and is
subject to certain vesting provisions. For the purposes of the
automatic grant provisions of the Plan, all of our Directors, other than Messrs.
Roy and Kent, are considered non-employee Board members.
Compensation
Committee Report
The
Compensation Committee of our Board of Directors has reviewed and discussed with
management the Compensation Discussion and Analysis required by Item 402(b) of
Regulation S-K. Based on such review and discussions, the
Compensation Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in the Annual Report on Form
10-K and the Proxy Statement for the 2008 Annual Meeting of Stockholders for
filing with the Securities and Exchange Commission.
Submitted by the Compensation
Committee:
Michael
J. Hudson (Chairman)
Brent
J. Peters
The
above Compensation Committee Report is not deemed to be “soliciting
material” or “filed” with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, or incorporated by reference in any documents so filed.
Set forth
below is information concerning the Common Stock ownership of all persons known
by us to own beneficially 5% or more of our Common Stock, and the Common Stock
ownership of each of our Directors and all Directors and officers as a group, as
of May 30, 2008. As of May 30, 2008, we had 72,205,756 shares of
Common Stock outstanding.
|
Name
and Address of Beneficial Owner
|
Number of Shares Beneficially
Owned (1)
|
Percentage
of Outstanding Common Stock
|
|
Jean
Paul Roy (2)
c/o
GeoGlobal Resources Inc.
Suite
310, 605 – 1 Street SW
Calgary,
Alberta T2P 3S9
|
32,846,000
(3)
|
45.5%
|
|
Allan
J. Kent
c/o
GeoGlobal Resources Inc.
Suite
310, 605 – 1 Street SW
Calgary,
Alberta T2P 3S9
|
1,175,000
(4)
|
1.6%
|
|
Brent
J. Peters
c/o
Northfield Capital Corporation
Suite
301, 141 Adelaide Street West
Toronto,
ON M5H 3L5
|
221,567
(5)
|
Less
than 0.5%
|
|
Peter
R. Smith
c/o
Andrin Limited
Suite
202, 197 County Court Boulevard
Brampton,
Ontario L6W 4P6
|
150,000
(6)
|
Less
than 0.5%
|
|
Michael
J. Hudson
439
Mayfair Avenue
Ottawa,
ON K1Y 0K7
|
150,000
(7)
|
Less
than 0.5%
|
|
Dr.
Avinash Chandra
B-102, Sector
26
Noida,
Uttar Pradesh
India 201301
|
184,434
(8)
|
Less
than 0.5%
|
|
All
officers and directors as a group (6 persons)
|
34,727,001
|
48.1%
|
|
(1)
|
For
purposes of the above table, a person is considered to "beneficially own"
any shares with respect to which he or she exercises sole or shared voting
or investment power or of which he or she has the right to acquire the
beneficial ownership within 60 days following May 30,
2008.
|
|
(2)
|
Of
the shares held beneficially by Mr. Roy, an aggregate of 5 million shares
are held in escrow pursuant to the terms of the agreement whereby we
purchased the outstanding capital stock of GeoGlobal Resources (India)
Inc. from Mr. Roy. Under the terms of the escrow agreement, Mr.
Roy has the voting rights with respect to these
shares.
|
|
(3)
|
Includes
32,046,000 shares of Common Stock and 800,000 options to purchase Common
Stock exercisable within 60 days of May 30,
2008
|
|
(4)
|
Includes
375,000 shares of Common Stock and 800,000 options to purchase Common
Stock exercisable within 60 days of May 30,
2008.
|
|
(5)
|
Includes
71,567 shares of Common Stock and options to purchase 150,000 shares of
Common Stock exercisable within 60 days of May 30,
2008.
|
|
(6)
|
Includes
options to purchase 150,000 shares of Common Stock exercisable within 60
days of May 30, 2008.
|
|
(7)
|
Includes
options to purchase 150,000 shares of Common Stock exercisable within 60
days of May 30, 2008.
|
|
(8)
|
Includes
51,100 shares of Common Stock and options to purchase 133,334 shares of
Common Stock exercisable within 60 days of May 30,
2008.
|
Securities
Authorized for Issuance Under Equity Compensation Plans
We have
one equity compensation plan for our employees, directors and consultants
pursuant to which options, rights or shares may be granted or
issued. It is referred to as our 1998 Stock Incentive Plan ("the
Plan"). See Note 7a to the Notes to Consolidated Financial Statements
to the attached financial statements for further information on the material
terms of this plan.
The
following table provides information as of December 31, 2007 with respect to our
compensation plans (including individual compensation arrangements), under which
securities are authorized for issuance aggregated as to (i) compensation plans
previously approved by stockholders, and (ii) compensation plans not previously
approved by stockholders:
Equity Compensation Plan
Information
|
(a)
|
(b)
|
(c)
|
|
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
Equity
compensation plans approved by security holders
|
4,470,000
|
$4.04
|
2,380,697
|
|
Equity
compensation plans not approved by security holders
|
0
|
0
|
0
|
|
Total
|
4,470,000
|
$4.04
|
2,380,697
|
On March
27, 2003, we entered into a PIA with RGM, a corporation wholly owned by Jean
Paul Roy, our President, Chief Executive Officer, a Director and principal
stockholder, whereby we assigned and hold in trust for RGM subject to the GOI
consent, 50% of the benefits and obligations of the Production Sharing Contract
("PSC") covering the KG Offshore Block ("PSC-KG") and the CIA leaving us with a
net 5% PI in the PSC-KG and a net 5% CI in the CIA. Under the terms
of the PIA, until the GOI consent is obtained, we retain the exclusive right to
deal with the other parties to the PSC-KG and the CIA and are entitled to make
all decisions regarding the interest assigned to RGM. RGM has agreed
to be bound by and be responsible for the actions taken by, obligations
undertaken and costs incurred by us in regard to RGM's interest, and to be
liable to us for its share of all costs, interests, liabilities and obligations
arising out of or relating to the RGM interest. RGM has agreed to
indemnify us against any and all costs, expenses, losses, damages or liabilities
incurred by reason of RGM's failure to pay the same.
Subject
to obtaining the government consent to the assignment, RGM is entitled to all
income, receipts, credits, reimbursements, monies receivable, rebates and other
benefits in respect of its 5% interest which relate to the PSC-KG.
We have a
right of set-off against sums owing to us by RGM. In the event that
the Indian government consent is delayed or denied, resulting in either RGM or
our company being denied an economic benefit either would have realized under
the PIA, the parties agreed to amend the PIA or take other reasonable steps to
assure that an equitable result is achieved consistent with the parties'
intentions contained in the PIA. In the event the consent is denied,
neither party is entitled to assert any claim against the other except as is
specifically set forth in the agreement. We have not yet obtained the
consent of the GOI. As a consequence of this transaction, we report
our holdings under the PSC-KG and CIA as a net 5% PI.
RGM
further agreed in the PIA that it would not dispose of any interest in the
agreement, its 5% interest, or the shares of RGM without first giving notice to
us of the transaction, its terms, including price, and the identity of the
intended assignee and any other material information, and we will have the first
right to purchase the interest proposed to be sold on the terms contained in the
notice to us.
On August
29, 2003, we entered into a TSA with Roy Group Barbados ("RGB"), a corporation
wholly owned by Mr. Roy, whereby under the agreement, RGB agreed to perform such
geologic and geophysical duties as are assigned to it by our
company. The term of the agreement, as amended, extends through
December 31, 2008 and continues for successive periods of one year thereafter
unless otherwise agreed by the parties or either party has given notice that the
agreement will terminate at the end of the term. On January 31, 2006,
the terms of the agreement were amended to amend the fee payable from $250,000
to $350,000 effective January 1, 2006. RGB also is reimbursed for
authorized travel and other out-of-pocket expenses. The agreement
prohibits RGB from disclosing any of our confidential information and from
competing directly or indirectly with us for a period ending December 31, 2008
with respect to any acquisition, exploration, or development of any crude oil,
natural gas or related hydrocarbon interests within the area of the country of
India. The agreement may be terminated by either party on 30 days’
prior written notice, provided, however, the confidentiality and non-competition
provisions will survive the termination. RGB received $350,000 from
us during 2007 ($350,000 in 2006; $250,000 plus a bonus of $60,000 in 2005;
$250,000 in 2004; and $83,333 in 2003), under the terms of this agreement,
including its amendments.
RGB was
reimbursed for medical insurance and expenses, travel, hotel, meals and
entertainment expenses, computer costs, and amounts billed to third parties
incurred by Mr. Roy during 2007 totaling $75,000. At December 31,
2007, we owed RGB $33,192 for services provided pursuant to the TSA and expenses
incurred on behalf of our Company which amount bears no interest and has no set
terms of repayment.
During
the year ended December 31, 2007, Mr. Allan J. Kent, our Executive Vice
President, Chief Financial Officer and a Director, was paid $185,000 ($185,000
in 2006; $120,000 plus a bonus of $30,000 in 2005; $120,000 in 2004; and $61,715
in 2003) by us for consulting services of Mr. Kent which are provided to us
pursuant to an oral arrangement with DI Investments Ltd. ("DI"), a corporation
wholly-owned by him, amended effective January 1, 2006. The oral
agreement has been amended to provide for an annual fee payable of $212,750
effective January 1, 2008.
DI was
reimbursed $82,918 for medical insurance, office costs, including rent, parking,
office supplies and telephone as well as travel, hotel, meals and entertainment
expenses incurred throughout 2007. At December 31, 2007, we owed DI
$26,007 as a result of services provided and expensed incurred on behalf of our
company.
Messrs.
Roy and Kent devote substantially all their time to our
affairs. Neither of such persons is our direct employee and we do not
have any employment agreements directly with either of such
persons.
During
the year ended December 31, 2007, Amicus Services Inc. a company controlled by
Mr. Vincent Roy, a brother of Mr. Jean Roy, received from us $55,347 as
consulting fees for services rendered. Amicus Services Inc. was also
reimbursed $5,278 for office costs, including parking, office supplies and
telephone as well as travel and hotel expenses incurred throughout
2007. At December 31, 2007, we owed Amicus Services Inc. $6,953 as a
result of services provided and expensed incurred on behalf of our
Company.
The
following sets forth fees we incurred for professional services provided by
KPMG, LLP and Ernst & Young LLP for accounting services rendered during the
years ended December 31, 2007 and December 31, 2006, respectively.
|
Audit
Fees
|
Audit
Related Fees
|
Tax
Fees
|
All
Other Fees
|
|
|
2007
|
428,205
|
--
|
--
|
164,709
|
|
2006
|
88,281
|
26,452
|
--
|
37,425
|
Our Board
of Directors believes that the provision of the services during the years ended
December 31, 2007 and December 31, 2006 is compatible with maintaining the
independence of KPMG LLP and Ernst & Young LLP, respectively. Our
Audit Committee approves before the engagement the rendering of all audit and
non-audit services provided to our company by our independent
auditor. Engagements to render services are not entered into pursuant
to any pre-approval policies and procedures adopted by the Audit
Committee. The services provided by KPMG LLP and Ernst & Young
LLP included under the caption Audit Fees include services
rendered for the audit of our annual financial statements and the review of our
quarterly financial reports filed with the Securities and Exchange
Commission. Audit
Related Fees include services rendered in connection with a follow-up the
review of other filings with the Securities and Exchange
Commission. Tax
Fees include services rendered relating primarily to tax compliance,
consulting, customs and duties. All Other Fees include
administration fees to cover various expenses and SOX related work performed to
date.
Part
IV
|
Exhibit
|
Description
|
|
3.1
|
Certificate
of Incorporation of the Registrant, as amended
(1)
|
|
3.2
|
Bylaws
of the Registrant, as amended (4)
|
|
3.3
|
Certificate
of Amendment filed with the State of Delaware on November 25, 1998 (2)
|
|
3.4
|
Certificate
of Amendment filed with the State of Delaware on December 4, 1998 (2)
|
|
3.5
|
Certificate
of Amendment filed with the State of Delaware on March 18, 2003 (5)
|
|
3.6
|
Certificate
of Amendment filed with the State of Delaware on January 8, 2004 (5)
|
|
4.1
|
Specimen
stock certificate of the Registrant (5)
|
|
10.1
|
Restated
1993 Stock Incentive Plan (1)
|
|
10.2
|
1994
Directors Stock Option Plan (1)
|
|
10.3
|
1994
Stock Option Plan (1)
|
|
10.4
|
1993
Stock Incentive Plan (1)
|
|
10.5
|
1998
Stock Incentive Plan (2)
|
|
10.6
|
Stock
Purchase Agreement dated April 4, 2003 by and among Suite101.com, Inc.,
Jean Paul Roy and GeoGlobal Resources (India) Inc. (3)
|
|
10.7
|
Amendment
dated August 29, 2003 to Stock Purchase Agreement dated April 4, 2003
(4)
|
|
10.8
|
Technical
Services Agreement dated August 29, 2003 between Suite101.com, Inc. and
Roy Group (Barbados) Inc. (4)
|
|
10.8.1
|
Amendment
to Technical Services Agreement dated January 31, 2006 between GeoGlobal
Resources Inc. and Roy Group (Barbados) Inc. (8)
|
|
10.9
|
Participating
Interest Agreement dated March 27, 2003 between GeoGlobal Resources
(India) Inc. and Roy Group (Mauritius) Inc. (4)
|
|
10.10
|
Escrow
Agreement dated August 29, 2003 among Registrant, Jean Paul Roy and
Computershare Trust Company of Canada (4)
|
|
10.11
|
Promissory
Note dated August 29, 2003 payable to Jean Paul Roy (4)
|
|
10.12
|
Production
Sharing Contract dated February 4, 2003 among The Government of India,
Gujarat State Petroleum Corporation Limited, Jubilant Enpro Limited and
GeoGlobal Resources (India) Inc. (6)
|
|
10.13
|
Production
Sharing Contract dated February 6, 2004 among The Government of India,
Gujarat State Petroleum Corporation Limited, Jubilant Enpro Private
Limited and GeoGlobal Resources (Barbados) Inc. (6)
|
|
10.14
|
Production
Sharing Contract dated February 6, 2004 among The Government of India,
Gujarat State Petroleum Corporation Limited, Jubilant Enpro Private
Limited, Prize Petroleum Company Limited and GeoGlobal Resources
(Barbados) Inc. (6)
|
|
10.15
|
Carried
Interest Agreement dated August 27, 2002 between Gujarat State Petroleum
Corporation Limited and GeoGlobal Resources (India) Inc. (5)
|
|
10.19
|
Production
Sharing Contract dated September 23, 2005 between the Government of
India and GeoGlobal Resources (Barbados) Inc.
(7)
|
|
10.20
|
Production
Sharing Contract dated September 23, 2005 between the Government of
India, Gujarat State Petroleum Corporation Limited, GAIL (India) Ltd.,
Jubilant Capital Pvt. Ltd. and GeoGlobal Resources (Barbados) Inc.
(7)
|
|
10.21
|
Production
Sharing Contract dated March 2, 2007 between the Government of India, Oil
India Limited and GeoGlobal Resources (Barbados) Inc.
(9)
|
|
10.22
|
Production
Sharing Contract dated March 2, 2007 between the Government of India, Oil
India Limited and GeoGlobal Resources (Barbados) Inc.
(9)
|
|
10.23
|
Production
Sharing Contract dated March 2, 2007 between the Government of India, Oil
India Limited, Hindustan Petroleum Corpn. Ltd. and GeoGlobal Resources
(Barbados) Inc.
(9)
|
|
10.24
|
Production
Sharing Contract dated March 2, 2007 between the Government of India and
GeoGlobal Resources (Barbados) Inc.
(9)
|
|
10.25
|
Form
of Warrant Certificate issued to subscribers relating to the offer and
sale of Units from June 2007 financing (10)
|
|
10.26
|
Compensation
Option dated June 20, 2007 between the Company and Primary Capital Inc.
for the issuance of 170,400 compensation options (10)
|
|
10.27
|
Compensation
Option dated June 20, 2007 between the Company and Jones, Gable &
Company Limited for the issuance of 170,400 compensation options (10)
|
|
10.28
|
JOA
dated August 7, 2003 between Gujarat State Petroleum Corporation Limited,
Jubilant Enpro Limited and GeoGlobal Resources (India) Inc.
(11)
|
|
10.29
|
Assignment
Agreement for Exploration Blocks in Arab Republic of Egypt dated January
8, 2008 (12)
|
|
10.30
|
Option
Agreement for Participation in Exploration Blocks in Arab Republic of
Egypt dated January 8, 2008 (12)
|
|
14
|
Code
of Ethics. (5)
|
|
21
|
Subsidiaries
of the Registrant:
|
|
|
Name
|
State
or Jurisdiction of Incorporation
|
|
|
GeoGlobal
Resources (India) Inc.
|
Barbados
|
|
|
GeoGlobal
Resources (Canada) Inc.
|
Alberta
|
|
|
GeoGlobal
Resources (Barbados) Inc.
|
Barbados
|
|
|
GGR
Oil & Gas (India) Private Limited
|
India
|
|
|
23
|
Consent
of experts and counsel:
|
|
|
(1)
|
Filed
as an Exhibit to Neuro Navigational Corporation Form 10-KSB No. 0-25136
dated September 30, 1994.
|
|
(2)
|
Filed
as an Exhibit to our Current Report on Form 8-K dated December 10,
1998.
|
|
(3)
|
Filed
as exhibit 10.1 to our Quarterly Report on Form 10-QSB for the quarter
ended March 31, 2003.
|
|
(4)
|
Filed
as an exhibit to our Current Report on Form 8-K for August 29,
2003.
|
|
(5)
|
Filed
as an Exhibit to our Form 10-KSB dated April 1,
2004.
|
|
(6)
|
Filed
as an Exhibit to our Form 10-KSB/A dated April 28,
2004.
|
|
(7)
|
Filed
as an Exhibit to our Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2005.
|
|
(8)
|
Filed
as an Exhibit to our Current Report on Form 8-K dated January 31,
2006.
|
|
(9)
|
Filed
as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ending
March 31, 2007.
|
|
|
(10)
Filed as an Exhibit to our Current Report on Form 8-K dated June 27,
2007.
|
|
|
(11)
Filed as an Exhibit to our Current Report on Form 8-K dated August 14,
2007.
|
|
|
(12)
Filed as an Exhibit to our Current Report on Form 8-K dated January 8,
2008.
|
|
|
(13) Filed
herewith.
|
GEOGLOBAL
RESOURCES INC.
(a
development stage enterprise)
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND DECEMBER 31, 2006
(in
United States dollars)
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
-
KPMG Audit Report
|
FS
73
|
||
|
- KPMG Audit of Internal
Control over Financial Reporting
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FS
74
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-
Ernst & Young Audit Report
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FS
76
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Financial
Statements
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77
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78
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79
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80
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81-115
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The Board
of Directors and Shareholders
GeoGlobal
Resources Inc.:
We have
audited the accompanying consolidated balance sheet of GeoGlobal Resources Inc.
and subsidiaries as of December 31, 2007, and the related consolidated statement
of operations, stockholders’ equity and cash flows for the year ended December
31, 2007. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company and subsidiaries
as of December 31, 2007, and the results of their operations and their cash
flows for the year ended December 31, 2007, in conformity with U.S. generally
accepted accounting principles.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated June 5, 2008 expressed an
adverse opinion on the effectiveness of the Company’s internal control over
financial reporting.
"KPMG
LLP" (signed)
Calgary,
Canada
June 5,
2008
The Board
of Directors and Shareholders
GeoGlobal
Resources Inc.:
We have
audited GeoGlobal Resources Inc.’s internal control over financial reporting as
of December 31, 2007, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control Over
Financial Reporting in Item 9A. Our responsibility is to express an opinion on
the Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. The following
material weaknesses have been identified and included in management's
assessment:
|
·
|
Inadequate
complement of personnel with appropriate expertise or experience in
generally accepted accounting
principles
|
|
·
|
Limited
accounting personnel with sufficient expertise in generally accepted
accounting principles to enable effective segregation of duties with
respect to recording journal entries and to allow for appropriate
monitoring of financial reporting matters and internal control over
financial reporting
|
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the financial statements of the Company. These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2007 consolidated financial
statements, and this report does not affect our report dated June 5, 2008, which
expressed an unqualified opinion on those consolidated financial
statements.
In our
opinion, because of the effect of the aforementioned material weakness on the
achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of December
31, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
"KPMG
LLP" (signed)
Calgary,
Canada
June 5,
2008
The
Board of Directors and Stockholders Of
GeoGlobal
Resources Inc.
We have
audited the accompanying restated consolidated balance sheets of GeoGlobal
Resources Inc., a development stage enterprise, as of December 31, 2006 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 2006 and 2005, and for the cumulative
period from inception on August 21, 2002 to December 31, 2006. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the restated consolidated financial position of GeoGlobal
Resources Inc. as at December 31, 2006 and 2005 and the consolidated results of
its operations and its cash flows for the years ended December 31, 2006 and
2005, and for the cumulative period from inception on August 21, 2002 to
December 31, 2006 in conformity with United States generally accepted accounting
principles.
As
explained in note 8(c), the consolidated balance sheets as at December 31, 2006
and 2005 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 2006 and 2005 and for the
cumulative period from inception on August 21, 2002 to December 31, 2006 have
been restated.
"Ernst & Young LLP"
(signed)
CALGARY,
ALBERTA CHARTERED
ACCOUNTANTS
March 23,
2007 except for Note 8(c),
which is
as of June 5, 2008
|
GEOGLOBAL
RESOURCES INC.
(a
development stage enterprise)
|
||||||||
|
December
31, 2007
US
$
|
December
31, 2006
US
$
|
|||||||
|
Assets
|
Restated
note
8(c)
|
|||||||
|
Current
|
||||||||
|
Cash
and cash equivalents
|
48,134,858 | 32,362,978 | ||||||
|
Accounts
receivable
|
171,977 | 202,821 | ||||||
|
Prepaids
and deposits
|
100,052 | 31,232 | ||||||
| 48,406,887 | 32,597,031 | |||||||
|
Restricted
deposits (note13)
|
4,555,480 | 3,590,769 | ||||||
|
Property
and equipment (note 4)
|
157,398 | 183,427 | ||||||
|
Oil
and gas interests, not subject to depletion (note 5)
|
27,099,547 | 12,121,334 | ||||||
| 80,219,312 | 48,492,561 | |||||||
|
Liabilities
|
||||||||
|
Current
|
||||||||
|
Accounts
payable
|
3,908,506 | 1,888,103 | ||||||
|
Accrued
liabilities
|
2,355,322 | 33,487 | ||||||
|
Due
to related companies (notes 10c, 10d and 10e)
|
66,152 | 33,605 | ||||||
| 6,329,980 | 1,955,195 | |||||||
|
Asset
retirement obligation (note 6)
|
318,922 | -- | ||||||
| 6,648,902 | 1,955,195 | |||||||
|
Stockholders'
Equity
|
||||||||
|
Capital
stock (note 7)
|
||||||||
|
Authorized
|
||||||||
|
100,000,000
common shares with a par value of US$0.001 each
|
||||||||
|
1,000,000
preferred shares with a par value of US$0.01 each
|
||||||||
|
Issued
|
||||||||
|
72,205,755
common shares (December 31, 2006 – 66,208,255)
|
57,614 | 51,617 | ||||||
|
Additional
paid-in capital
|
82,791,057 | 52,900,900 | ||||||
|
Deficit
accumulated during the development stage
|
(9,278,261 | ) | (6,415,151 | ) | ||||
| 73,570,410 | 46,537,366 | |||||||
| 80,219,312 | ||||||||