form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
þ
|
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the quarterly period ended June 30, 2007;
|
or
|
|
|
o
|
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the transition period from ____________ to
____________.
|
Commission
file Number: 1-32158
GEOGLOBAL
RESOURCES INC.
-----------------------------------------------------------------
(Exact
name of registrant as specified in its charter)
DELAWARE
|
|
33-0464753
|
(State
or other jurisdiction of incorporation of organization)
|
|
(I.R.S.
employer identification no.)
|
SUITE
#310, 605 – 1 STREET SW, CALGARY, ALBERTA, CANADA T2P
3S9
-----------------------------------------------------------------
(Address
of principal executive offices, zip code)
403/777-9250
------------------------------------------------
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
proceeding 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.
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).
Large
accelerated filer
|
|
Accelerated
filer
|
þ
|
Non-accelerated
filer
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class
|
|
Outstanding
at August 13, 2007
|
COMMON
STOCK, PAR VALUE $.001 PER SHARE
|
|
72,205,755
|
GEOGLOBAL
RESOURCES INC.
(a
development stage enterprise)
QUARTERLY
REPORT ON FORM 10-Q
TABLE
OF CONTENTS
|
|
|
|
Page
No.
|
|
|
|
|
|
PART
I.
|
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
Item
1.
|
|
Consolidated
Financial Statements (Unaudited)
|
|
3
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2007 and December 31, 2006
(Unaudited)
|
|
3
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the three and six months ended
June
30, 2007 and June 30, 2006 and from inception on August 21, 2002
to
June
30, 2007 (Unaudited)
|
|
4
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the three and six months ended
June
30, 2007 and June 30, 2006 and from inception on August 21, 2002
to
June
30, 2007 (Unaudited)
|
|
5
|
|
|
|
|
|
|
|
Notes
to the Consolidated Financial Statements as at June 30, 2007
(Unaudited)
|
|
6-25
|
|
|
|
|
|
Item
2.
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
26
|
|
|
|
|
|
Item
3.
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
50
|
|
|
|
|
|
Item
4.
|
|
Controls
and Procedures
|
|
51
|
|
|
|
|
|
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|
|
|
|
PART
II.
|
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
Item
1A.
|
|
Risk
Factors
|
|
51
|
|
|
|
|
|
Item
6.
|
|
Exhibits
|
|
51
|
PART
I. FINANCIAL INFORMATION
Item
1. CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
GEOGLOBAL
RESOURCES INC.
(a
development stage enterprise)
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
|
|
|
|
June
30, 2007
US
$
|
|
|
December
31, 2006
US
$
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
55,355,586
|
|
|
|
32,362,978
|
|
Accounts
receivable
|
|
|
198,806
|
|
|
|
202,821
|
|
Cash
call receivable
|
|
|
62,547
|
|
|
|
--
|
|
Prepaids
and deposits
|
|
|
111,864
|
|
|
|
31,232
|
|
|
|
|
55,728,803
|
|
|
|
32,597,031
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash (note11a)
|
|
|
3,197,616
|
|
|
|
3,590,769
|
|
Property
and equipment (note 3)
|
|
|
633,620
|
|
|
|
183,427
|
|
Oil
and gas interests, not subject to depletion (note 4)
|
|
|
12,580,737
|
|
|
|
9,722,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,140,776
|
|
|
|
46,093,965
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
643,731
|
|
|
|
1,888,103
|
|
Accrued
liabilities
|
|
|
212,959
|
|
|
|
33,487
|
|
Due
to related companies (notes 8c, 8d and 8e)
|
|
|
28,067
|
|
|
|
33,605
|
|
|
|
|
884,757
|
|
|
|
1,955,195
|
|
Stockholders'
Equity (note 5)
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
|
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
|
|
|
75,036,707
|
|
|
|
47,077,827
|
|
Deficit
accumulated during the development stage
|
|
|
(3,838,302 |
) |
|
|
(2,990,674 |
) |
|
|
|
71,256,019
|
|
|
|
44,138,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,140,776
|
|
|
|
46,093,965
|
|
See
Commitments, Contingencies and Guarantees (note 11)
The
accompanying notes are an integral part of these Consolidated Financial
Statements
|
|
GEOGLOBAL
RESOURCES INC.
(a
development stage enterprise)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
Period
from
Inception,
August
21, 2002
to
June 30, 2007
US
$ |
|
|
|
|
2007
US
$
|
|
|
2006
US
$
|
|
|
2007
US
$
|
|
|
2006
US
$
|
|
|
|
|
|
|
Restated
(note
12b)
|
|
|
|
|
|
|
|
(note
12a)
|
Expenses
(notes 6b, 8c, 8d and 8e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
393,135
|
|
|
|
423,490
|
|
|
|
780,135
|
|
|
|
695,694
|
|
3,290,851
|
Consulting
fees
|
|
|
304,726
|
|
|
|
90,100
|
|
|
|
571,266
|
|
|
|
169,017
|
|
2,435,517
|
Professional
fees
|
|
|
109,922
|
|
|
|
65,187
|
|
|
|
341,494
|
|
|
|
100,928
|
|
1,094,170
|
Depreciation
|
|
|
12,694
|
|
|
|
11,310
|
|
|
|
24,344
|
|
|
|
20,999
|
|
235,654
|
|
|
|
820,477
|
|
|
|
590,087
|
|
|
|
1,717,239
|
|
|
|
986,638
|
|
7,056,192
|
Other
expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
fees recovered
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
(66,025)
|
Equipment
costs recovered
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
(19,395)
|
Gain
on sale of equipment
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
(42,228)
|
Foreign
exchange (gain) loss
|
|
|
(8,210 |
) |
|
|
(2,752 |
) |
|
|
(12,719 |
) |
|
|
(1,421 |
) |
13,828
|
Interest
income
|
|
|
(421,199 |
) |
|
|
(427,749 |
) |
|
|
(856,892 |
) |
|
|
(827,618 |
) |
(3,104,070)
|
|
|
|
(429,409 |
) |
|
|
(430,501 |
) |
|
|
(869,611 |
) |
|
|
(829,039 |
) |
(3,217,890)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss and comprehensive loss
for
the period (note 9)
|
|
|
(391,068 |
) |
|
|
(159,586 |
) |
|
|
(847,628 |
) |
|
|
(157,599 |
) |
(3,838,302)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share
–
basic and diluted (note 5g)
|
|
|
(0.01 |
) |
|
|
0.00
|
|
|
|
(0.01 |
) |
|
|
0.00
|
|
|
The
accompanying notes are an integral part of these Consolidated Financial
Statements
|
GEOGLOBAL
RESOURCES INC.
(a
development stage enterprise)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
Period
from
Inception,
August
21, 2002
to
June 30, 2007
US
$ |
|
|
|
|
2007
US
$
|
|
|
2006
US
$
|
|
|
2007
US
$
|
|
|
2006
US
$
|
|
|
|
|
|
|
Restated
(note
12b)
|
|
|
|
|
|
|
|
(note
12a)
|
Cash
flows provided by (used in)
operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(391,068 |
) |
|
|
(159,586 |
) |
|
|
(847,628 |
) |
|
|
(157,599 |
) |
(3,838,302)
|
Adjustment
to reconcile net loss to
net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
12,694
|
|
|
|
11,310
|
|
|
|
24,344
|
|
|
|
20,999
|
|
235,654
|
Gain
on sale of equipment
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
(42,228)
|
Stock-based
compensation (note 6b)
|
|
|
317,962
|
|
|
|
127,945
|
|
|
|
670,207
|
|
|
|
213,041
|
|
1,860,383
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(39,053 |
) |
|
|
129,964
|
|
|
|
4,015
|
|
|
|
(1,037 |
) |
(123,806)
|
Prepaids
and deposits
|
|
|
31,628
|
|
|
|
--
|
|
|
|
(80,632 |
) |
|
|
|
|
(111,864)
|
Accounts
payable
|
|
|
(34,458 |
) |
|
|
(23,951 |
) |
|
|
89,576
|
|
|
|
29,160
|
|
124,227
|
Accrued
liabilities
|
|
|
(33,487 |
) |
|
|
14,700
|
|
|
|
(33,487 |
) |
|
|
(17,500 |
) |
--
|
Due
to related companies
|
|
|
19,171
|
|
|
|
(37,926 |
) |
|
|
(5,538 |
) |
|
|
(119,282 |
) |
(13,689)
|
|
|
|
(116,611 |
) |
|
|
62,457
|
|
|
|
(179,143 |
) |
|
|
(32,218 |
) |
(1,909,625)
|
Cash
flows provided by (used in)
investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas interests
|
|
|
(884,355 |
) |
|
|
(1,753,645 |
) |
|
|
(2,380,958 |
) |
|
|
(3,980,626 |
) |
(11,337,007)
|
Property
and equipment
|
|
|
(123,793 |
) |
|
|
(20,726 |
) |
|
|
(474,537 |
) |
|
|
(60,983 |
) |
(909,846)
|
Proceeds
on sale of equipment
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
82,800
|
Cash
acquired on acquisition (note 7)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
3,034,666
|
Restricted
cash (note 11a)
|
|
|
(2,920 |
) |
|
|
(1,173,462 |
) |
|
|
393,153
|
|
|
|
(1,209,836 |
) |
(3,197,616)
|
Changes
in investing assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
call receivable
|
|
|
(62,547 |
) |
|
|
(15,464 |
) |
|
|
(62,547 |
) |
|
|
(33,885 |
) |
(62,547)
|
Accounts
payable
|
|
|
170,665
|
|
|
|
861,438
|
|
|
|
(1,402,238 |
) |
|
|
1,155,515
|
|
402,206
|
Accrued
liabilities
|
|
|
(24,684 |
) |
|
|
(595,573 |
) |
|
|
212,959
|
|
|
|
522,427
|
|
212,959
|
|
|
|
(927,634 |
) |
|
|
(2,697,432 |
) |
|
|
(3,714,168 |
) |
|
|
(3,607,388 |
) |
(11,774,385)
|
Cash
flows provided by (used in)
financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common shares
and
2007 stock purchase warrants
|
|
|
28,700,475
|
|
|
|
548,100
|
|
|
|
28,720,675
|
|
|
|
2,717,900
|
|
74,952,165
|
Share
issuance costs
|
|
|
(1,903,046 |
) |
|
|
(45,000 |
) |
|
|
(1,903,046 |
) |
|
|
(58,552 |
) |
(4,068,917)
|
Changes
in financing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable (note 8a)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
(2,000,000)
|
Accounts
payable
|
|
|
68,290
|
|
|
|
--
|
|
|
|
68,290
|
|
|
|
(10,800 |
) |
129,368
|
Due
to related companies
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
26,980
|
|
|
|
26,865,719
|
|
|
|
503,100
|
|
|
|
26,885,919
|
|
|
|
2,648,548
|
|
69,039,596
|
Net
increase (decrease) in cash and
cash
equivalents
|
|
|
25,821,474
|
|
|
|
(2,131,875 |
) |
|
|
22,992,608
|
|
|
|
(991,058 |
) |
55,355,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
29,534,112
|
|
|
|
37,178,205
|
|
|
|
32,362,978
|
|
|
|
36,037,388
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
|
55,355,586
|
|
|
|
35,046,330
|
|
|
|
55,355,586
|
|
|
|
35,046,330
|
|
55,355,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
bank accounts
|
|
|
582,336
|
|
|
|
434,496
|
|
|
|
582,336
|
|
|
|
434,496
|
|
582,336
|
Term
deposits
|
|
|
54,773,250
|
|
|
|
34,611,834
|
|
|
|
54,773,250
|
|
|
|
34,611,834
|
|
54,773,250
|
|
|
|
55,355,586
|
|
|
|
35,046,330
|
|
|
|
55,355,586
|
|
|
|
35,046,330
|
|
55,355,586
|
The
accompanying notes are an integral part of these Consolidated Financial
Statements
|
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
1. Nature
of Operations
The
Company is engaged primarily in the pursuit of petroleum and natural gas through
exploration and development in India. Since inception, the efforts of
GeoGlobal have been devoted to the pursuit of Production Sharing Contracts
(“PSC”) with the Gujarat State Petroleum Corporation ("GSPC"), Oil India Limited
("OIL") among others, and the Government of India ("GOI") and the development
thereof. To date, the Company has not earned revenue from these
operations and is considered to be in the development stage. The
recoverability of the costs incurred to date is uncertain and dependent upon
achieving commercial production or sale, the ability of the Company to obtain
sufficient financing to fulfill its obligations under the PSCs in India and
upon
future profitable operations and upon finalizing agreements.
On
August
29, 2003, all of the issued and outstanding shares of GeoGlobal Resources
(India) Inc. ("GeoGlobal India") were acquired by GeoGlobal Resources Inc.,
formerly Suite101.com, Inc. As a result of the transaction, the
former shareholder of GeoGlobal India held approximately 69.3% of the issued
and
outstanding shares of GeoGlobal Resources Inc. 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. These consolidated financial
statements are issued under the name of GeoGlobal Resources Inc. but are a
continuation of the financial statements of the accounting acquirer, GeoGlobal
India. The assets and liabilities of GeoGlobal India are included in
the consolidated financial statements at their historical carrying
amounts. As a result, the stockholders' equity of GeoGlobal Resources
Inc. is eliminated and these consolidated financial statements reflect the
results of operations of GeoGlobal Resources Inc. only from the date of the
acquisition.
GeoGlobal
Resources Inc. changed its name from Suite101.com, Inc. after receiving
shareholder approval at the Annual Shareholders Meeting held on January 8,
2004. Collectively, GeoGlobal Resources Inc., GeoGlobal India and its
other wholly-owned direct and indirect subsidiaries, are referred to as the
"Company" or “GeoGlobal”.
2. Significant
Accounting Policies
a) Basis
of presentation
The
accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the accounting principles generally accepted in
the
United States for interim financial information and with Regulation S-X and
the
instructions to Form 10-Q under the U.S. Securities and Exchange Act of 1934,
as
amended. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the
six months ended June 30, 2007 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2007.
These
consolidated financial statements include the accounts of (i) GeoGlobal
Resources Inc., from the date of acquisition, being August 29, 2003, (ii)
GeoGlobal Resources (India) Inc., incorporated under the Business
Corporations Act (Alberta), Canada on August 21, 2002 and continued under
the Companies Act of Barbados, West Indies on June 27, 2003, which is a
wholly-owned subsidiary of GeoGlobal Resources Inc., (iii) GeoGlobal Resources
(Canada) Inc., incorporated under the Business Corporations Act
(Alberta), Canada on September 4, 2003, which is a wholly-owned subsidiary
of GeoGlobal Resources Inc., (iv) GeoGlobal Resources (Barbados) Inc.
incorporated under the Companies Act of Barbados, West Indies on
September 24, 2003, which is the wholly-owned subsidiary of GeoGlobal Resources
(Canada) Inc., and (v) GeoGlobal Oil & Gas (India) Private Limited,
incorporated under the Companies Act, 1956, Maharashtra, India on May
5, 2006.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
2. Basis
of presentation (continued)
b) Stock-based
compensation plan
In
prior
periods, reporting on the impact of stock-based compensation, such as employee
stock options, on the Company’s net loss and net loss per share was required
only on a pro-forma basis.
In
December, 2004, the Financial Accounting Standards Board issued a revision
to
Standard 123, Accounting for Stock-Based Compensation. The Statement of
Financial Accounting Standards 123(R), Share-Based Payment ("FAS
123(R)"), requires the recognition of compensation cost for stock-based
compensation arrangements with employees, consultants and directors based on
their grant date fair value using the Black-Scholes option-pricing model.
Compensation expense is recorded over the awards' respective requisite service,
with corresponding entries to paid-in capital.
The
Company adopted FAS 123(R) using the modified-prospective-transition method
on
January 1, 2006. The impact of this adoption required the Company to recognize
a
charge for past stock-based compensation options granted of US$367,596 over
the
subsequent 3 years in accordance with their respective vesting periods (see
note
6).
3. Property
and Equipment
|
June
30, 2007
US$
|
December
31, 2006
US$
|
|
|
|
Computer
and office equipment
|
338,327
|
324,419
|
Accumulated
depreciation
|
(193,426)
|
(169,082)
|
|
144,901
|
155,337
|
|
|
|
Office
building
|
488,720
|
28,090
|
|
633,621
|
183,427
|
4. Oil
and Gas Interests
|
June
30, 2007
US$
|
December
31, 2006
US$
|
Exploration
– India
|
|
|
Exploration
costs incurred in:
|
|
|
2002
|
21,925
|
21,925
|
2003
|
156,598
|
156,598
|
2004
|
460,016
|
460,016
|
2005
|
1,578,124
|
1,578,124
|
2006
|
7,506,075
|
7,506,075
|
|
9,722,738
|
9,722,738
|
2007
|
2,857,999
|
--
|
|
12,580,737
|
9,722,738
|
a) Exploration
costs – India
The
exploration costs incurred to date are not subject to depletion and cover six
exploration blocks, known as the KG Offshore Block, the Mehsana Block, the
Sanand/Miroli Block, the Ankleshwar Block, the DS 03 Block and the Tarapur
Block. It is anticipated that all or certain of these exploration
costs may be subject to depletion commencing in the year 2007.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
|
4.
|
Oil
and Gas Interests
(continued)
|
b) Capitalized
overhead costs
Included
in the US$2,857,999 of exploration cost additions during the six months ended
June 30, 2007 (year ended December 31, 2006 – US$7,506,075) are certain overhead
costs capitalized by the Company in the amount of US$1,673,996 (year ended
December 31, 2006 – US$2,133,984) directly related to the exploration activities
in India. The capitalized overhead amount includes capitalized
stock-based compensation of US$477,041 (year ended December 31, 2006 -
US$766,689) (see note 6b) of which US$114,100 (year ended December 31, 2006
–
US$323,283) was for the account of a related party (see note
8c). Further, the capitalized overhead amount includes US$946,955
(year ended December 31, 2006 - US$1,000,705) which was paid to third
parties. The balance of US$250,000 was paid to and on behalf of a
related party (year ended December 31, 2006 – US$366,590) (see note
8c). These costs related to the exploration activities in India are
incurred solely by and on behalf of the Company in providing its services under
the Carried Interest Agreement (“CIA”) and are therefore not reimbursable under
the CIA (see note 4c).
|
c)
|
Carried
Interest Agreement
|
|
On
August 27, 2002, GeoGlobal entered into a CIA with GSPC, which grants
the
Company a 10% Carried Interest (“CI”) (net 5% - see note 4d) in the KG
Offshore Block. The CIA provides that GSPC is responsible for GeoGlobal's
entire share of any and all costs incurred during the Exploration
Phase
prior to the date of initial commercial
production.
|
|
Under
the terms of the CIA, all of GeoGlobal's and Roy Group (Mauritius)
Inc.'s
(“RGM”), a related party (see note 8b) 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. GeoGlobal is not entitled to any share of production until
GSPC has
recovered the Company's share of the costs and expenses that were
paid by
GSPC on behalf of the Company and
RGM.
|
As
at
June 30, 2007, GSPC has incurred costs of Rs 177.06 crore (approximately US$40.7
million) (December 31, 2006 – Rs 114.96 crore (approximately US$26.1 million))
attributable to GeoGlobal under the CIA of which 50% is for the account of
RGM.
|
GeoGlobal
has been advised by GSPC, that GSPC is seeking payment of the amount
by
which the exploration costs attributable to GeoGlobal under the PSC
relating to the KG Offshore Block exceeds the amount that GSPC deems
it is
obligated to pay on behalf of GeoGlobal (including the net 5%
participating interest of RGM) under the terms of the CIA. GSPC
asserts that the Company is required to pay 10% of the exploration
expenses over and above US$59.23 million. GSPC asserts that the
amount payable is US$44.68 million including interest of US$4.43
million
as of June 30, 2007. GeoGlobal disputes this assertion of
GSPC. See note 11d.
|
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
|
4.
|
Oil
and Gas Interests
(continued)
|
|
d)
|
Participating
Interest Agreement
|
On
March
27, 2003, GeoGlobal entered into a Participating Interest Agreement (“PIA”) with
RGM, whereby GeoGlobal assigned and holds in trust for RGM subject to GOI
consent, 50% of the benefits and obligations of the PSC covering the Exploration
Block KG-OSN-2001/3 ("KG Offshore Block") and the CIA leaving GeoGlobal with
a
net 5% participating interest in the KG Offshore Block and a net 5% carried
interest in the CIA. Under the terms of the PIA, until the GOI
consent is obtained, GeoGlobal retains the exclusive right to deal with the
other parties to the KG Offshore Block and the CIA and is 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 GeoGlobal in regard to RGM's interest and to be liable to GeoGlobal
for its share of all costs, interests, liabilities and obligations arising
out
of or relating to the RGM interest. RGM has agreed to indemnify
GeoGlobal 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.
GeoGlobal has a right of set-off against sums owing to
GeoGlobal by RGM. In the event that the Indian government consent is
delayed or denied, resulting in either RGM or GeoGlobal being denied an economic
benefit it 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 the Company reports its
holdings under the KG Offshore Block and CIA as a net 5% participating interest
("PI").
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
5. Capital
Stock
a) Common
shares
|
Number
of
shares
|
Capital
stock
US
$
|
Additional
paid-in
capital
US
$
|
|
|
|
|
Balance
at December 31, 2002
|
1,000
|
64
|
--
|
|
|
|
|
2003
Transactions
|
|
|
|
Capital
stock of GeoGlobal at August 29, 2003
|
14,656,687
|
14,657
|
10,914,545
|
Common
shares issued by GeoGlobal to acquire GeoGlobal India
|
34,000,000
|
34,000
|
1,072,960
|
Share
issuance costs on acquisition
|
--
|
--
|
(66,850)
|
Elimination
of GeoGlobal capital stock in recognition of reverse
takeover
(note 7)
|
(1,000)
|
(14,657)
|
(10,914,545)
|
Options
exercised for cash
|
396,668
|
397
|
101,253
|
December
2003 private placement financing (note 5d)
|
6,000,000
|
6,000
|
5,994,000
|
Share
issuance costs on private placement
|
--
|
--
|
(483,325)
|
|
55,052,355
|
40,397
|
6,618,038
|
|
|
|
|
Balance
as at December 31, 2003
|
55,053,355
|
40,461
|
6,618,038
|
|
|
|
|
2004
Transactions
|
|
|
|
Options
exercised for cash
|
115,000
|
115
|
154,785
|
Broker
Warrants exercised for cash (note 5d)
|
39,100
|
39
|
58,611
|
|
154,100
|
154
|
213,396
|
|
|
|
|
Balance
as at December 31, 2004
|
55,207,455
|
40,615
|
6,831,434
|
|
|
|
|
2005
Transactions
|
|
|
|
Options
exercised for cash
|
739,000
|
739
|
1,004,647
|
2003
Stock Purchase Warrants exercised for cash
|
2,214,500
|
2,214
|
5,534,036
|
Broker
Warrants exercised for cash (note 5d)
|
540,900
|
541
|
810,809
|
September
2005 private placement financing (note 5c)
|
4,252,400
|
4,252
|
27,636,348
|
Share
issuance costs on private placement (note 5c)
|
--
|
--
|
(1,541,686)
|
|
7,746,800
|
7,746
|
33,444,154
|
|
|
|
|
Balance
as at December 31, 2005
|
62,954,255
|
48,361
|
40,275,588
|
|
|
|
|
2006
Transactions
|
|
|
|
Options
exercised for cash (note 5f(i))
|
2,284,000
|
2,285
|
2,706,895
|
Options
exercised for notes receivable
|
184,500
|
185
|
249,525
|
2003
Stock Purchase Warrants exercised for cash (note 5e(i))
|
785,500
|
786
|
1,962,964
|
Share
issuance costs
|
--
|
--
|
(74,010)
|
Stock-based
compensation (note 6b)
|
--
|
--
|
1,956,865
|
|
3,254,000
|
3,256
|
6,802,239
|
|
|
|
|
Balance
as at December 31, 2006
|
66,208,255
|
51,617
|
47,077,827
|
|
|
|
|
2007
Transactions
|
|
|
|
Options
exercised for cash (note 5f(i))
|
317,500
|
317
|
320,358
|
June
2007 private placement financing (note 5b)
|
5,680,000
|
5,680
|
28,394,320
|
Compensation
options
|
--
|
--
|
705,456
|
Share
issuance costs on private placement (note 5b)
|
--
|
--
|
(2,608,502)
|
Stock-based
compensation (note 6b)
|
--
|
--
|
1,147,248
|
|
5,997,500
|
5,997
|
27,958,880
|
|
|
|
|
Balance
as at June 30, 2007
|
72,205,755
|
57,614
|
75,036,707
|
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
5 Capital
Stock (continued)
b) June
2007 Financing
During
June 2007, GeoGlobal completed the sale of 5,680,000 Units of its securities
at
US$5.00 per Unit for aggregate gross cash proceeds of
US$28,400,000.
Each
Unit
is comprised of one common share and one half of one warrant. One
full warrant ("2007 Stock Purchase Warrant") entitles the holder to purchase
one
additional common share for US$7.50, for a term of two years expiring June
20,
2009. The 2007 Stock Purchase Warrants are subject to accelerated
expiration in the event that the price of the Company's common shares on the
American Stock Exchange is US$12.00 or more for 20 consecutive trading days,
the
resale of the shares included in the Units and issuable on exercise of the
2007
Stock Purchase Warrants has been registered under the US Securities Act of
1933,
as amended (the “Act”), and the hold period for Canadian subscribers has
expired. In such events, the warrant term will be reduced to 30 days
from the date of issuance of a news release announcing such accelerated
expiration of the warrant term. At August 13, 2007 since not all such
events have occurred, the accelerated expiration of the warrant term was not
triggered.
The
proceeds from the issuance of the Units have been allocated between the common
shares and the 2007 Stock Purchase Warrants based on their fair value. The
fair
value of the common share was determined based on the market price of the stock
the day the financing closed. The fair value of the 2007 Stock
Purchase Warrant was based on a Black-Scholes option model and the following
weighted average assumptions as at the date of grant as follows:
Risk-free
interest rate
|
4.97%
|
Expected
life
|
2.0
years
|
Contractual
life
|
2.0
years
|
Expected
volatility
|
69%
|
Expected
dividend yield
|
Nil%
|
The
resulting allocation of the fair value to the common shares and the 2007 Stock
Purchase Warrants (included as additional paid-in capital) was $24,992,000
and
$3,408,000 respectively.
Costs
of
US$1,903,046 were incurred in issuing shares in these transactions which
included a fee of US$1,704,000 paid to the placement agents with respect to
the
sale of the 5,680,000 Units, and, in addition, compensation options ("2007
Compensation Options") were issued to the placement agents entitling them to
purchase an aggregate of 340,800 common shares at an exercise price of US$5.00
per share until June 20, 2009. The 2007 Compensation Options are also
subject to accelerated expiration on the same terms and conditions as the
warrants issued in the transaction.
The
Company assigned a fair value of $705,456 to the 2007 Compensation Options
based
on a Black-Scholes option model and the following weighted average assumptions
as at the date of grant as follows:
Risk-free
interest rate
|
4.97%
|
Expected
life
|
2.0
years
|
Contractual
life
|
2.0
years
|
Expected
volatility
|
69%
|
Expected
dividend yield
|
nil%
|
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
5 Capital
Stock (continued)
The
total
issuance costs of $2,608,502 associated with the private placement financing
were allocated to the common shares and the 2007 Stock Purchase Warrants on
the
same basis utilized for the allocation of the private placement financing
proceeds as follows:
|
Common
Shares
|
|
2007
Stock Purchase Warrants
|
|
US$
|
|
US$
|
|
|
|
|
Proceeds
from private placement financing
|
24,992,000
|
|
3,408,000
|
Issuance
costs from private placement financing
|
(2,295,482)
|
|
(313,020)
|
Balance
June 30, 2007
|
22,696,518
|
|
3,094,980
|
Also,
pursuant to the terms of the transaction, GeoGlobal entered into a Registration
Rights Agreement with the placement agents whereby the Company agreed to prepare
and file at its expense with the SEC as promptly as practicable and in any
event
prior to 5:00 pm eastern time on August 17, 2007 a registration statement under
the US Securities Act of 1933, as amended, for an offering on a continuous
shelf
basis of the shares of Common Stock included in the Units and issuable on
exercise of the Purchase Warrants included in the Units. Such registration
statement is also to include the shares of Common Stock issuable to the
placement agents on exercise of the compensation options. In the
event GeoGlobal fails to file the registration statement with the U.S.
Securities and Exchange Commission prior to 5:00 pm eastern time on August
17,
2007, each purchaser of the Units, including the placement agents on exercise
of
their compensation options, will receive for nominal consideration,
an additional 0.10 of one Unit on the same terms, except that the placement
agents will receive the right to purchase an additional 0.10 of one share
only.
c) September
2005 Financing
During
September 2005, GeoGlobal completed the sale of 3,252,400 Units of its
securities at US$6.50 per Unit, together with a concurrent sale of an additional
1,000,000 Units on the same terms, for aggregate gross cash proceeds of
US$27,640,600.
Each
Unit
is comprised of one common share and one half of one warrant. One
full warrant ("2005 Stock Purchase Warrant") entitles the holder to purchase
one
additional common share for US$9.00, for a term of two years expiring September
2007. The 2005 Stock Purchase Warrants are subject to accelerated
expiration in the event that the price of the Company's common shares on the
American Stock Exchange is US$12.00 or more for 20 consecutive trading days,
the
resale of the shares included in the Units and issuable on exercise of the
2005
Stock Purchase Warrants has been registered under the US Securities Act of
1933,
as amended (the “Act”), and the hold period for Canadian subscribers has
expired. In such events, the warrant term will be reduced to 30 days
from the date of issuance of a news release announcing such accelerated
expiration of the warrant term. At August 13, 2007 since not all such
events have occurred, the accelerated expiration of the warrant term was not
triggered.
Costs
of
US$1,541,686 were incurred in issuing shares in these transactions which
included a fee of US$1,268,436 paid to Jones Gable & Company Limited with
respect to the sale of the 3,252,400 Units, and, in addition, compensation
options ("2005 Compensation Options") were issued to Jones Gable & Company
Limited entitling it to purchase an additional 195,144 Units at an exercise
price of US$6.50 per Unit through their expiration in September
2007. The 2005 Compensation Options are also subject to accelerated
expiration on the same terms and conditions as the warrants issued in the
transaction.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
5. Capital
Stock (continued)
d) December
2003 Financing
On
December 23, 2003, GeoGlobal completed a brokered private placement of 5,800,000
units at US$1.00 each, together with a concurrent private placement of an
additional 200,000 units on the same terms, for aggregate gross cash total
proceeds of US$6,000,000.
Each
unit
is comprised of one common share and one half of one warrant. One
full warrant ("2003 Stock Purchase Warrant"), entitles the holder to purchase
one additional common share for US$2.50, for a term of two years from date
of
closing. The 2003 Stock Purchase Warrants are subject to accelerated
expiration 30 days after issuance of a news release to that effect in the event
that the common shares trade at US$4.00 or more for 20 consecutive trading
days
and if the resale of the shares has been registered under the 1933 Act and
the
hold period for Canadian subscribers has expired. Also issued as
additional consideration for this transaction were 580,000 Broker
Warrants.
The
580,000 Broker Warrants described above entitled the holder to purchase 580,000
common shares at an exercise price of US$1.50 per share which were fully
exercised before they expired on December 23, 2005 for gross proceeds of
US$870,000.
e) Warrants
and Compensation Options
i) 2003
Stock Purchase Warrants
During
the three months ended March 31, 2006, all remaining Purchase Warrants issued
in
December 2003 were exercised which resulted in the issuance of 785,500 common
shares for gross proceeds of US$1,963,750. As at June 30, 2007, none
of such Purchase Warrants remain to be exercised.
ii) 2005
Stock Purchase Warrants
During
the six months ended June 30, 2007, none of the 2005 Stock Purchase Warrants
were exercised, therefore all of the 2005 Stock Purchase Warrants remained
outstanding, which if exercised, would result in the issuance of 2,126,200
common shares for gross proceeds of US$19,135,800.
iii) Compensation
Option Warrants
|
During
the six months ended June 30, 2007, none of the 97,572 2005 Compensation
Option Warrants have been issued as a result of the 2005 Compensation
Options not being exercised. If the 2005 Compensation Options
are exercised and the 2005 Compensation Option Warrants issued, such
Warrants if exercised, would result in the issuance of 97,572 common
shares for gross proceeds of
US$878,148.
|
iv)
|
2007
Stock Purchase Warrants
|
As
at
June 30, 2007, none of the 2,840,000 2007 Stock Purchase Warrants were exercised
. If fully exercised, the 2007 Stock Purchase Warrants would result
in the issuance of 2,840,000 common shares for gross proceeds of
US$21,300,000.
f) Options
i) Stock
Options
During
the three and six months ended June 30, 2007, 20,000 and 297,500 options
respectively (December 31, 2006 – 2,468,500) were exercised under GeoGlobal’s
1998 Stock Incentive Plan at a price of US$1.01 for gross proceeds of US$20,200
and US$300,475 respectively (December 31, 2006 - US$2,709,180).
ii) 2007
Compensation Options
As
at
June 30, 2007, none of the 340,800 2007 Compensation Options were
exercised. If fully exercised, the 2007 Compensation Options would
result in the issuance of 340,800 common shares for gross proceeds of
US$1,704,000.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
5. Capital
Stock (continued)
g)
|
Weighted-average
number of shares
|
For
purposes of the determination of net loss per share, the basic and diluted
weighted-average number of shares outstanding for the three and six months
ended
June 30, 2007 was 61,835,426 and 62,526,778 respectively (three and six months
ended June 30, 2006 – 59,147,997 and 58,841,639 respectively ). The
numbers for the three and six months ended June 30, 2007 and the three and
six
months ended June 30, 2006 exclude the 5,000,000 shares currently held in escrow
(see note 7).
6. Stock
Options
a) The
Company’s 1998 Stock Incentive Plan
Under
the
terms of the 1998 Stock Incentive Plan (the "Plan"), as amended, 12,000,000
common shares have been reserved for issuance on exercise of options granted
under the Plan. As at June 30, 2007, the Company had 3,305,697
(December 31, 2006 – 3,650,697) common shares remaining for the grant of options
under the Plan. The Board of Directors of the Company may amend or
modify the Plan at any time, subject to any required stockholder
approval. The Plan will terminate on the earliest of: (i) 10 years
after the Plan Effective Date, being December 2008; (ii) the date on which
all
shares available for issuance under the Plan have been issued as fully-vested
shares; or, (iii) the termination of all outstanding options in connection
with
certain changes in control or ownership of the Company.
b) Stock-based
compensation
The
Company adopted FAS 123(R), using the modified-prospective-transition method
on
January 1, 2006. Under this method, the Company is required to recognize
compensation cost for stock-based compensation arrangements with employees,
consultants 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.
|
Three
months ended June 30,
|
Six
months ended June 30,
|
Period
from
Inception,
Aug
21, 2002
to
June 30, 2007
US
$
|
|
2007
US
$
|
2006
US
$
|
2007
US
$
|
2006
US
$
|
|
|
Restated
(note
12b)
|
|
Restated
(note
12b)
|
|
Stock
based compensation
|
|
|
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
General
and administrative
|
148,807
|
127,945
|
331,897
|
213,041
|
895,448
|
Consulting
fees
|
169,155
|
--
|
338,310
|
--
|
964,935
|
|
317,962
|
127,945
|
670,207
|
213,041
|
1,860,383
|
Consolidated
Balance Sheets
|
|
|
|
|
|
Oil
and gas interests
|
|
|
|
|
|
Exploration
costs - India
|
265,249
|
33,712
|
477,041
|
67,424
|
1,243,730
|
|
583,211
|
161,657
|
1,147,248
|
280,465
|
3,104,113
|
|
i)
|
At
January 1, 2006, the impact of the adoption of FAS123(R) required
the
Company to recognize a charge for past stock-based compensation options
granted of US$367,596 over the next 3 years in accordance with their
respective vesting periods. In the period from inception August
21, 2002 to June 30, 2007 US$329,174 and for the three and six months
ended June 30, 2007, US$14,073 and US$28,146, respectively and for
the
three and six months ended June 30, 2006, US$118,808 and US$237,616,
respectively of this charge was recognized in the Consolidated Statements
of Operations as general and administrative expense resulting in
an
increase in the net loss and comprehensive loss for the period in
the same
amount and no impact on the net loss per share – basic and diluted for the
period.
|
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
6. Stock
Options (continued)
|
ii)
|
At
June 30, 2007, the total compensation cost related to non-vested
awards
not yet recognized was US$1,278,638 (December 31, 2006 – US$1,577,286)
which will be recognized over the remaining vesting period of the
options. The total fair value of all options vested during the
three and six months ended June 30, 2007 was US$416,200 and US$416,200,
respectively (year ended December 31, 2006 -
US$1,046,490).
|
c) Stock
option table
During
the six months ended June 30, 2007, the options as set out below were granted
for services provided to the Company:
|
|
Fair
Value
|
|
|
|
|
Cancelled
(c)
|
|
|
|
Option
|
at
Original
|
|
|
|
Granted
|
Expired
(x)
|
|
Balance
|
Grant
|
exercise
|
Grant
|
Expiry
|
Vesting
|
Balance
|
during
|
Exercised
(e)
|
Balance
|
Exercisable
|
date
|
price
|
Date
|
date
|
date
|
Dec
31/06
|
the
period
|
during
the period
|
Jun
30/07
|
Jun
30/07
|
mm/dd/yy
|
US
$
|
US$
|
mm/dd/yy
|
mm/dd/yy
|
#
|
#
|
iv)
#
|
iii)
#
|
#
|
|
|
|
|
|
|
|
|
|
|
12/09/03
|
1.18
|
0.24
|
08/31/06
|
Vested
|
--
|
--
|
--
|
--
|
--
|
12/30/03
|
1.50
|
0.32
|
08/31/06
|
Vested
|
--
|
--
|
--
|
--
|
--
|
01/17/05
|
1.01
|
0.38
|
i)
06/30/07
|
Vested
|
352,500
|
--
|
317,500
(e)
35,000
(x)
|
--
|
--
|
01/18/05
|
1.10
|
0.62
|
08/31/08
|
Vested
|
600,000
|
--
|
--
|
600,000
|
600,000
|
01/25/05
|
1.17
|
0.43
|
08/31/06
|
Vested
|
--
|
--
|
--
|
--
|
--
|
06/14/05
|
3.49
|
1.55
|
06/14/15
|
Vested
|
150,000
|
--
|
--
|
150,000
|
150,000
|
08/24/05
|
6.50
|
2.38
|
08/24/08
|
Vested
|
110,000
|
--
|
--
|
110,000
|
110,000
|
10/03/05
|
6.81
|
3.07
|
10/03/15
|
Vested
|
16,666
|
--
|
-
|
16,666
|
16,666
|
10/03/05
|
6.81
|
3.83
|
10/03/15
|
10/03/07
|
16,667
|
--
|
--
|
16,667
|
--
|
10/03/05
|
6.81
|
4.38
|
10/03/15
|
10/03/08
|
16,667
|
--
|
--
|
16,667
|
--
|
06/14/06
|
5.09
|
2.06
|
06/14/16
|
Vested
|
200,000
|
--
|
--
|
200,000
|
20,000
|
07/25/06
|
3.95
|
1.14
|
12/31/09
|
Vested
|
100,000
|
--
|
--
|
100,000
|
100,000
|
07/25/06
|
3.95
|
1.39
|
12/31/09
|
07/25/07
|
660,000
|
--
|
--
|
660,000
|
--
|
07/25/06
|
3.95
|
1.60
|
12/31/09
|
12/31/07
|
50,000
|
--
|
--
|
50,000
|
--
|
07/25/06
|
3.95
|
1.78
|
12/31/09
|
07/25/08
|
145,000
|
--
|
--
|
145,000
|
--
|
07/25/06
|
3.95
|
2.01
|
12/31/09
|
07/25/09
|
70,000
|
--
|
--
|
70,000
|
--
|
07/25/06
|
3.95
|
1.14
|
07/25/16
|
Vested
|
500,000
|
--
|
--
|
500,000
|
500,000
|
07/25/06
|
3.95
|
1.14
|
07/25/16
|
07/25/07
|
500,000
|
--
|
--
|
500,000
|
--
|
11/24/06
|
7.52
|
2.47
|
11/24/09
|
Vested
|
10,000
|
--
|
--
|
10,000
|
10,000
|
11/24/06
|
7.52
|
2.92
|
11/24/09
|
12/31/07
|
10,000
|
--
|
--
|
10,000
|
--
|
11/24/06
|
7.52
|
3.70
|
11/24/09
|
12/31/08
|
10,000
|
--
|
--
|
10,000
|
--
|
03/30/07
|
6.11
|
2.02
|
ii)
03/30/10
|
12/31/07
|
--
|
50,000
|
--
|
50,000
|
--
|
03/30/07
|
6.11
|
2.69
|
ii)
03/30/10
|
12/31/08
|
--
|
50,000
|
--
|
50,000
|
--
|
03/30/07
|
6.11
|
2.82
|
ii)
03/30/10
|
03/30/09
|
--
|
50,000
|
--
|
50,000
|
--
|
05/16/07
|
5.09
|
1.51
|
ii)
05/16/10
|
12/31/07
|
--
|
10,000
|
--
|
10,000
|
--
|
05/16/07
|
5.09
|
2.09
|
ii)
05/16/10
|
12/31/08
|
--
|
10,000
|
--
|
10,000
|
--
|
05/16/07
|
5.09
|
2.09
|
ii)
05/16/10
|
05/31/09
|
--
|
10,000
|
--
|
10,000
|
--
|
06/20/07
|
5.06
|
2.08
|
ii)
06/20/17
|
06/20/08
|
--
|
200,000
|
--
|
200,000
|
--
|
|
|
|
|
|
3,517,500
|
380,000
|
352,500
|
3,545,000
|
1,506,666
|
|
i)
|
On
August 30, 2006, the Board of Directors of the Company passed a resolution
with respect to the remaining stock options issued on January 17,
2005 to
(a) extend the expiry date of all then outstanding options from August
31,
2006 to the earlier of June 30, 2007 or 60 days following the date
of a
“Commercial Discovery” as defined under the terms of the PSC on Block
KG-OSN-2001/3 and (b) to extend the vesting date of certain of these
options to the earlier of the date of a “Commercial Discovery” as defined
under the terms of the PSC on Block KG-OSN-2001/3 or May 31, 2007,
as long
as drilling operations are continuing on the KG Offshore
Block. This resolution resulted in an added incremental
stock-based compensation cost of $11,440 with respect to the seven
employees. At June 30, 2007, none of these options remain to be
exercised.
|
|
ii)
|
During
the six months ended June 30, 2007, the Company granted options to
purchase 380,000 shares exercisable at various prices between $5.06
and
$6.11 and expire on dates between March 30, 2010 and June 20, 2017,
which
vest in their entirety on vesting dates between December 31, 2007
and May
31, 2009.
|
|
iii)
|
As
at June 30, 2007, there were 3,545,000 options outstanding at various
prices which, if exercised, would result in gross proceeds of
US$13,562,550.
|
|
iv)
|
During
the three and six months ended June 30, 2007, there were 297,500
and
317,500 options exercised respectively, at $1.01 per share for gross
proceeds of US$300,475 and US$320,675 respectively. On June 30,
2007, 35,000 options expired.
|
6. Stock
Options (continued)
d) Black-Scholes
Assumptions
During
the six months ended June 30, 2007 and 2006 options of 380,000 and 200,000,
respectively were granted to the Company's directors, employees and consultants
under the terms of the 1998 Stock Incentive Plan. The fair value of each option
granted was estimated on the date of grant using the Black-Scholes
option-pricing model. Weighted average assumptions used in the
valuation are disclosed in the following table:
|
Three
months ended June 30,
|
Six
months ended June 30,
|
|
2007
US
$
|
2006
US
$
|
2007
US
$
|
2006
US
$
|
Fair
value of stock options granted (per option)
|
$2.05
|
$2.06
|
$2.23
|
$2.06
|
Risk-free
interest rate
|
4.94%
|
3.97%
|
4.56%
|
3.97%
|
Volatility
|
70%
|
92%
|
71%
|
92%
|
Expected
life
|
2.0
years
|
2.0
years
|
2.0
years
|
2.0
years
|
Dividend
yield
|
0%
|
0%
|
0%
|
0%
|
i)
|
The
risk-free rate is based on the U.S. Treasury yield curve in effect
at the
time of grant.
|
ii)
|
Expected
volatilities are based on historical volatility of the Company's
stock and
other factors.
|
iii)
|
The
expected life of options granted represents the period of time that
the
options are expected to be outstanding and is derived from historical
exercise behavior and current
trends.
|
7. Acquisition
On
August
29, 2003, pursuant to an agreement dated April 4, 2003 and amended August 29,
2003, the Company completed a transaction with Mr. Roy and GeoGlobal Resources
(India) Inc. ("GeoGlobal India"), a corporation then wholly-owned by Mr. Roy,
whereby the Company acquired from Mr. Roy all of the outstanding capital stock
of GeoGlobal India. In exchange for the outstanding capital stock of
GeoGlobal India, the Company issued 34.0 million shares of our Common
Stock. Of the 34.0 million shares, 14.5 million shares were delivered
to Mr. Roy at the closing of the transaction on August 29, 2003 and an aggregate
of 19.5 million shares were held in escrow by an escrow agent. The
terms of the escrow provide for the release of the shares upon the occurrence
of
certain developments relating to the outcome of oil and natural gas exploration
and development activities conducted on the KG Offshore Block. On
August 27, 2004, 14.5 million shares were released to Mr. Roy from escrow upon
the commencement of a drilling program on the KG Offshore Block. The
final 5.0 million shares remaining in escrow will be released only if a
commercial discovery is declared on the KG Offshore Block. In
addition to the shares of Common Stock, the Company delivered to Mr. Roy a
US$2.0 million promissory note, of which US$500,000 was paid on the closing
of
the transaction on August 29, 2003, US$500,000 was paid on October 15, 2003,
US$500,000 was paid on January 15, 2004 and US$500,000 was paid on June 30,
2004. The note did not accrue interest. The note was
secured by the outstanding stock of GeoGlobal India which has subsequently
been
released. As a consequence of the transaction, Mr. Roy held as of the
closing of the transaction an aggregate of 34.0 million shares of our
outstanding Common Stock, or approximately 69.3% of the shares outstanding,
assuming all shares held in escrow are released to him. The terms of
the transaction provide that Mr. Roy is to have the right to vote all 34.0
million shares following the closing, including the shares during the period
they are held in escrow. Shares not released from the escrow
will be surrendered back to GeoGlobal.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
7. Acquisition
(continued)
As
discussed in note 1, the acquisition of GeoGlobal India by GeoGlobal was
accounted for as a reverse takeover transaction. As a result, the
cost of the transaction was determined based upon the net assets of GeoGlobal
deemed to have been acquired. These consolidated financial statements
include the results of operations of GeoGlobal from the date of
acquisition. The net identifiable assets acquired of GeoGlobal were
as follows:
|
US
$
|
|
|
Net
assets acquired
|
|
Cash
|
3,034,666
|
Other
current assets
|
75,000
|
Current
liabilities
|
(2,706)
|
|
|
Net
book value of identifiable assets acquired
|
3,106,960
|
|
|
Consideration
paid
|
|
Promissory
note issued
|
2,000,000
|
34,000,000
common shares issued par value $0.001
|
34,000
|
Additional
paid-in capital
|
1,072,960
|
|
3,106,960
|
8. Related
Party Transactions
Related
party transactions are measured at the exchange amount which is the amount
of
consideration established and agreed by the related parties.
a) Note
payable
On
August
29, 2003, as part of the Acquisition (see note 7), a US$2,000,000 promissory
note was issued to the sole shareholder of GeoGlobal India. On each
of August 29, 2003, October 15, 2003, January 15, 2004 and June 30, 2004,
US$500,000 of the note was repaid. The promissory note was
non-interest bearing and the capital stock of GeoGlobal India collateralized
the
repayment of the note. The collateral has been released.
b) Roy
Group (Mauritius) Inc.
Roy
Group
(Mauritius) Inc. is related to the Company by common management and is
controlled by a director of the Company who is also a principal shareholder
of
the Company. On March 27, 2003, the Company entered into a
Participating Interest Agreement (see note 4d) with the related
party.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
8. Related
Party Transactions (continued)
c) Roy
Group (Barbados) Inc. (“Roy Group”)
Roy
Group
is related to the Company by common management and is controlled by an officer
and director of the Company who is also a principal shareholder of the
Company. On August 29, 2003, the Company entered into a Technical
Services Agreement ("TSA") with Roy Group to provide services to the Company
as
assigned by the Company and to bring new oil and gas opportunities to the
Company. On January 31, 2006, the terms of the agreement were amended
to extend the term of the agreement from August 31, 2006 to December 31,
2007. Roy Group receives consideration of US$350,000 per year, as
outlined and recorded below:
|
Three
months ended June 30,
|
Six
months ended June 30,
|
Period
from
Inception,
Aug
21, 2002
to
June 30, 2007
US
$
|
|
2007
US
$
|
2006
US
$
|
2007
US
$
|
2006
US
$
|
Consolidated
Statements of Operations
|
|
|
|
|
|
Consulting
fees
|
17,500
|
17,500
|
35,000
|
35,000
|
233,667
|
Consolidated
Balance Sheets
|
|
|
|
|
|
Oil
and gas interests
|
|
|
|
|
|
Exploration
costs – India (note 4b)
|
70,000
|
70,000
|
140,000
|
140,000
|
934,666
|
|
87,500
|
87,500
|
175,000
|
175,000
|
1,168,333
|
During
the three and six months ended June 30, 2007, the Company recognized
compensation cost for stock-based compensation arrangements with the principal
of Roy Group as outlined and recorded below:
Consolidated
Statement of Operations
|
|
|
|
|
|
Consulting
fees
|
14,262
|
--
|
28,525
|
--
|
109,346
|
Consolidated
Balance Sheets
|
|
|
|
|
|
Oil
& gas interests
|
|
|
|
|
|
Exploration
costs – India (note 4b)
|
57,050
|
--
|
114,100
|
--
|
437,383
|
|
71,312
|
--
|
142,625
|
--
|
546,729
|
Roy
Group
was also reimbursed during the three and six months ended June 30, 2007 on
a
cost recovery basis, for medical insurance and expenses; travel, hotel, meals
and entertainment expenses; computer costs; and amounts billed by third parties
incurred during the periods as outlined and recorded below:
Consolidated
Statements of Operations
|
|
|
|
|
|
General
and administrative
|
--
|
41,072
|
--
|
75,172
|
153,539
|
Consolidated
Balance Sheets
|
|
|
|
|
|
Accounts
receivable
|
--
|
227
|
--
|
227
|
21,597
|
Oil
and gas interests
|
|
|
|
|
|
Exploration
costs – India (note 4b)
|
--
|
20,355
|
75,000
|
56,093
|
459,387
|
Property
and equipment
|
--
|
1,330
|
--
|
1,330
|
37,595
|
|
--
|
62,984
|
75,000
|
132,822
|
672,118
|
At
June
30, 2007 the Company owed Roy Group (Barbados) Inc. US$23,625 (December 31,
2006
- US$29,976) for services provided and expenses incurred on behalf of the
Company and pursuant to the TSA. These amounts bear no interest and
have no set terms of repayment.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
8. Related
Party Transactions
(continued)
d) D.I.
Investments Ltd. (“DI”)
DI
is
related to the Company by common management and is controlled by an officer
and
director of the Company. DI charged consulting fees up to December
31, 2006 for management, financial and accounting services rendered, as outlined
and recorded below:
|
Three
months ended June 30,
|
Six
months ended June 30,
|
Period
from
Inception,
Aug
21, 2002
to
June 30, 2007
US
$
|
|
2007
US
$
|
2006
US
$
|
2007
US
$
|
2006
US
$
|
Consolidated
Statements of Operations
|
|
|
|
|
|
Consulting
fees
|
--
|
46,250
|
--
|
92,500
|
516,715
|
During
the three and six months ended June 30, 2007, the Company recognized
compensation cost for stock-based compensation arrangements with the principal
of the related party as outlined and recorded below:
Consolidated
Statement of Operations
|
|
|
|
|
|
Consulting
fees
|
--
|
--
|
--
|
--
|
404,104
|
DI
was
also reimbursed on a cost recovery basis, for office costs, including rent,
parking, office supplies and telephone as well as travel, hotel, meals and
entertainment expenses incurred during the periods as outlined and recorded
below:
Consolidated
Statements of Operations
|
|
|
|
|
|
General
and administrative
|
|
|
|
|
|
Office
costs
|
98
|
6,323
|
1,223
|
19,504
|
180,293
|
Travel,
hotel, meals and
entertainment
|
--
|
915
|
--
|
1,007
|
48,686
|
Consolidated
Balance Sheets
|
|
|
|
|
|
Accounts
receivable
|
6
|
3,309
|
73
|
7,439
|
27,462
|
Property
and equipment
|
--
|
--
|
--
|
--
|
4,107
|
|
104
|
10,547
|
1,296
|
27,950
|
260,548
|
At
June
30, 2007, the Company owed DI US$nil (December 31, 2006 –US$nil) as a result of
services provided and expenses incurred on behalf of the
Company. These amounts bear no interest and have no set terms of
repayment.
Subsequent
to December 31, 2006, the services of the officer and director are provided
to
GeoGlobal pursuant to an oral arrangement for an annual consulting fee of
US$185,000.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
8. Related
Party Transactions
(continued)
e) Amicus
Services Inc. (“Amicus”)
Amicus
is
related to the Company by virtue of being controlled by the brother of an
officer and director of the Company. Amicus charged consulting fees
for IT and computer related services rendered, as outlined below:
|
Three
months ended June 30,
|
Six
months ended June 30,
|
Period
from
Inception,
Aug
21, 2002
to
June 30, 2007
US
$
|
|
2007
US
$
|
2006
US
$
|
2007
US
$
|
2006
US
$
|
Consolidated
Statements of Operations
|
|
|
|
|
|
Consulting
fees
|
12,742
|
20,001
|
262,292
|
38,882
|
163,408
|
Amicus
was also reimbursed on a cost recovery basis, for office costs, including
parking, office supplies and telephone as well as travel and hotel expenses
incurred during the periods as outlined and recorded below:
Consolidated
Statements of Operations
|
|
|
|
|
|
General
and administrative
|
(3,392)
|
789
|
2,841
|
789
|
7,309
|
Consolidated
Balance Sheets
|
|
|
|
|
|
Accounts
receivable
|
912
|
1,451
|
1,654
|
2,143
|
11,928
|
Property
and equipment
|
--
|
--
|
|
--
|
1,599
|
|
(2,480)
|
2,240
|
4,495
|
2,932
|
20,836
|
At
June
30, 2007, the Company owed Amicus Services Inc. US$4,442 (December 31, 2006
–
US$3,629) as a result of services provided and expenses incurred on behalf
of
the Company. These amounts bear no interest and have no set terms of
repayment.
9. Income
Taxes
a) Income
tax expense
The
provision for income taxes in the consolidated financial statements differs
from
the result which would have been obtained by applying the combined Federal,
State and Provincial tax rates to the loss before income taxes. This
difference results from the following items:
|
Three
months ended June 30,
|
Six
months ended June 30,
|
Period
from
Inception,
Aug
21, 2002
to
June 30, 2007
US
$
|
|
2007
US
$
|
2006
US
$
|
2007
US
$
|
2006
US
$
|
|
|
Restated
(note
12b)
|
|
Restated
(note
12b)
|
|
|
|
|
|
|
|
Net
earnings (loss) before income taxes
|
(391,068)
|
(159,586)
|
(847,628)
|
(157,599)
|
(3,838,302)
|
Expected
US tax rate
|
35.00%
|
35.00%
|
35.00%
|
35.00%
|
|
|
|
|
|
|
|
Expected
income tax (recovery)
|
(136,874)
|
(55,855)
|
(296,670)
|
(55,160)
|
(1,447,752)
|
Excess
of expected tax rate over tax
rate
of foreign affiliates
|
124,600
|
52,240
|
275,814
|
47,793
|
848,830
|
|
(12,274)
|
(3,615)
|
(20,856)
|
(7,367)
|
(598,922)
|
|
|
|
|
|
|
Valuation
allowance
|
12,193
|
3,256
|
20,428
|
6,451
|
588,804
|
Other
|
81
|
359
|
428
|
916
|
10,118
|
Income
tax recovery
|
--
|
--
|
--
|
--
|
--
|
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
9. Income
Taxes (continued)
b) Deferred
income taxes
The
Company has not recognized the deferred income tax asset because the benefit
is
not more likely than not to be realized. The components of the net
deferred income tax asset consist of the following temporary
differences:
|
June
30, 2007
US
$
|
December
31, 2006
US
$
|
Difference
between tax base and reported amounts of
depreciable
assets
|
7,393
|
25,873
|
Non-capital
loss carry forwards
|
2,505,081
|
2,525,363
|
|
2,512,474
|
2,551,236
|
Valuation
allowance
|
(2,512,474)
|
(2,551,236)
|
Deferred
income tax asset
|
--
|
--
|
c) Loss
carry forwards
At
June
30, 2007, the Company has US$7,972,770 of available loss carry forwards to
reduce taxable income for income tax purposes in the various jurisdictions
as
outlined below which have not been reflected in these consolidated financial
statements.
Tax
Jurisdiction
|
Amount
US
$
|
Expiry
Dates
Commence
|
United
States
|
7,072,862
|
2023
|
Canada
|
22,755
|
2010
|
Barbados
|
877,153
|
2012
|
|
7,972,770
|
|
10. Segmented
Information
The
Company’s petroleum and natural gas exploration activities are conducted in
India. Management of the Company considers the operations of the
Company as one operating segment. The following information relates
to the Company’s geographic areas of operation.
|
June
30, 2007
US$
|
December
31, 2006
US$
|
Oil
and gas interests
|
|
|
India
|
12,580,737
|
9,722,738
|
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
11. Commitments,
Contingencies and Guarantees
a) Restricted
cash
|
i)
|
The
PSCs 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 minimum work program for a particular phase, to be undertaken
annually during the budget period April 1 to March 31. These
bank guarantees have been provided to the GOI and serve as guarantees
for
the performance of such minimum work program and are in the form
of
irrevocable letters of credit which are secured by term deposits
of the
Company in the same amount.
|
|
The
term deposits securing these bank guarantees are as
follows:
|
|
June
30, 2007
|
December
31, 2006
|
|
US
$
|
US
$
|
Exploration
Block
|
|
|
Mehsana
|
155,000
|
711,445
|
Sanand/Miroli
|
910,000
|
905,000
|
Ankleshwar
|
950,000
|
600,000
|
Tarapur
|
940,000
|
1,200,000
|
DS
03
|
175,000
|
110,000
|
|
3,130,000
|
3,526,445
|
|
ii)
|
The
Company has provided to its bankers as security for credit cards
issued to
employees for business purposes two term deposits, one in the amount
of
US$30,000 and the other in the amount of US$37,616
(Cdn$40,000).
|
|
b)
|
Production
Sharing Contracts
|
|
The
Company is required to expend funds on the exploration activities
to
fulfill the terms of the minimum work commitment based on our
participating interest for Phase I pursuant to the PSCs in respect
of each
of our exploration blocks as
follows:
|
|
i)
|
Mehsana
- Acquire, process and interpret 75 square kilometers of 3D seismic
and
drill 7 exploratory wells between 1,000 and 2,200
meters.
|
|
ii)
|
Sanand/Miroli
- Acquire, process and interpret 200 square kilometers of 3D seismic
and
drill 12 exploratory wells between 1,500 and 3,000
meters.
|
|
iii)
|
Ankleshwar
- Acquire, process and interpret 448 square kilometers of 3D seismic
and
drill 14 exploratory wells between 1,500 and 2,500
meters.
|
iv)
|
DS
03 Block - Gravity and geochemical surveys and a 12,000 line kilometer
aero magnetic survey.
|
v)
|
DS
04 Block - 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.
|
vi)
|
Tarapur
Block - The third and final
phase of exploratory activities on the Tarapur Block had a term of
2 years
expiring November 22, 2007 with a work commitment to drill one well
to a
depth of 3,000 meters or to the Deccan trap. This requirement
has been completed and all areas not encompassing a commercial discovery
after November 22, 2007 will be relinquished back to the
GOI. 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% participating interest as provided
under the PSC. The exercise of this right would result in the
reduction of our PI to 14%.
|
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
11. Commitments,
Contingencies and Guarantees (continued)
v) NELP-VI
Blocks
On
March
2, 2007, the Company along with its joint venture partners executed PSCs with
the GOI covering four new exploration blocks awarded under the sixth round
of
the New Exploration Licensing Policy (NELP-VI).
The
Company is also required to fund its participating interest for Phase I
exploration and development costs incurred in fulfilling the minimum work
commitments under these PSCs as outlined below. The Company's share
of these costs is estimated to total approximately US$28.3 million for all
four
blocks over the four years of Phase I. The Production Exploration
Licences ("PELs") have not yet been issued on three of these four new blocks,
therefore, the Phase I work commitment has not commenced.
|
1)
|
KG
Onshore Block - Reprocess 564 LKM of 2-D seismic; conduct a gravity
and
magnetic and geochemical survey; acquire, process and interpret 548
sq kms
of 3-D seismic; and drill 12 exploratory wells between 2,000 and
5,000
meters.
|
|
2)
|
RJ
Block 20 - 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 and 700 sq kms of 3-D seismic; and drill a total of 12
exploratory wells between 2,000 and 2,500
meters.
|
|
3)
|
RJ
Block 21 - 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.
|
Under
the
terms of all the PSCs, the Company is also required to keep in force a financial
and performance guarantee, whereby the Company unconditionally and irrevocably
guarantees to the GOI to fulfill or cause to be fulfilled all of its obligations
under the PSCs.
Our
PSCs
relating to the 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. 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. GSPC is the operator on the KG Offshore Block.
On
July
4, 2007, the Directorate General of Hydrocarbons (“DGH”), a body under the
Ministry of Petroleum & Natural Gas, advised GSPC that, because of the
worldwide supply and availability shortage of offshore drilling rigs, on June
20, 2007 the Government of India had issued new policy guidelines for the merger
of exploration phases of PSCs granted under NELP III and NELP IV and for the
substitution of additional meterage drilled in deeper wells against the total
meterage commitment as part of the minimum work program in the
PSCs.
On
July
12, 2007, GSPC, on behalf of the contracting parties for the KG Offshore Block,
notified DGH that it was exercising the option granted under the new policies
to
request a merger of Phases I and II of the KG Offshore Block work program called
the New Phase I with the effect of establishing a new work program phase
expiring March 11, 2008 and to merge the minimum work program (“MWP”) of Phase
II and Phase III into a new phase to be called New Phase II. In
addition, GSPC exercised the option 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 contractors
who exercise this option would be required to relinquish 50% of the contract
area at the end of the New Phase I. Approval of the merger of the
Phase I and II into a New Phase I and the merger of the minimum work program
of
existing Phase II and Phase III as New Phase II from the GOI is currently
outstanding.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
11. Commitments,
Contingencies and Guarantees (continued)
On
July
13, 2007, the Operating Committee under the KG Offshore Block PSC had approved
GSPC’s recommendation of exercising the option under the policy
guidelines The MWP for the New Phase I would be to drill 33,102
meters. GSPC informed DGH, that as at July 16, 2007 a total of 31,225
meters have been drilled, requiring the drilling of an additional 1,877 meters
before March 11, 2008 in order to complete the MWP for the New Phase
I. At the end of the New Phase I on March 11, 2008, the contracting
parties will be 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 minimum work program.
As
at
August 13, 2007, seven exploratory wells have been drilled on the exploration
block for a total of 31,225 total vertical meters drilled, leaving 1,877 meters
to be drilled to complete the New Phase I commitment and 12,250 meters to be
drilled to complete the Phase II commitment. An eighth exploratory
well, the KG#28 was drilled to 5,258 meters on the exploration block, however
the KG#28 well has been classified as an appraisal well as defined under the
PSC
by the management committee.
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
precedent, 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 August 13, 2007, 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 minimum work program for that
phase. 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
Certain
exploration costs related to the KG Offshore Block are incurred solely by and
on
behalf of the Company in providing its services under the CIA and are therefore
not reimbursable under the CIA. As such, these costs have been
capitalized in the Company's accounts under Oil and gas interests and at June
30, 2007, amount to US$4,785,672 (December 31, 2006 -
US$3,111,676).
d) Carried
Interest Agreement Dispute
the
Company has been advised by GSPC, that GSPC is seeking payment of the amount
by
which the exploration costs attributable to the Company under the PSC relating
to the KG Offshore Block exceeds the amount that GSPC deems it is obligated
to
pay on behalf of the Company (including the net 5% participating interest of
RGM) under the terms of the CIA. GSPC asserts that the Company is
required to pay 10% of the exploration expenses over and above US$59.23
million. GSPC asserts that this amount payable is US$44.68 million
including interest of US$ 4.43 million as of June 30, 2007.
GeoGlobal
Resources
Inc.
(a
development stage
enterprise)
Notes
to the Consolidated Financial
Statements
(Unaudited)
June
30,
2007
11. Commitments,
Contingencies and Guarantees (continued)
The
Company has 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 it believes the payment GSPC is seeking is in breach
of the CIA. The Company further reminded GSPC, that the Company under
the terms of the CIA, shall be carried by GSPC for 100% of all of its share
of
any costs during the exploration phase prior to the start of commercial
production. The Company obtained the opinion of external Indian legal
counsel which supports management's position with respect to the
dispute.
The
Company intends to vigorously protect its contractual rights in accordance
with
the dispute resolution process under the CIA, the PSC and the JOA as may be
appropriate.
Should
GSPC be successful in asserting some or all of its claim, the resulting
expenditures would be recorded in the Company's Balance Sheet as an increase
to
oil and gas interests.
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$80,000 for base
rent and operating costs. These premises include approximately 3,088
square feet which we consider adequate for our present activities.
12. Comparative
figures
a)
|
As
the Company is in its development stage, these figures represent
the
accumulated amounts of the continuing entity for the period from
inception
August 21, 2002 to June 30, 2007.
|
b)
|
Certain
comparative figures have been restated and reclassified to conform
to the
presentation adopted in the current period. The restatement is
due to an error in the classification of stock-based compensation
in the
first quarter of 2006. The impact of this restatement was a
decrease in the net loss and comprehensive loss for the three month
period
ending March 31, 2006 of US$ 33,713 and a corresponding increase
in the
net loss and comprehensive loss for the three month period ending
June 30,
2006. This restatement resulted in increasing the net loss and
comprehensive loss for the three month period ending June 30, 2006
from
US$125,873 to US$159,586.
|
13. Recent
Accounting Standards
a) 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 Company is currently
evaluating the impact that FAS 157 will have on its consolidated financial
statements.
b) 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. The Company
is
currently evaluating the impact that FAS 159 will have on its consolidated
financial statements.
Item
2.MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
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 June 30, 2007, our
activities have been undertaken in locations where we and our joint venture
participants have been granted exploration rights pursuant to Production Sharing
Contract's ("PSCs") entered into with the Government of India
("GOI").
At
August
13, 2007, we have not reported any proved reserves of oil or natural
gas. We have entered into ten PSCs as set out below. 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 2007.
The
PSCs
we have entered into with respect to ten exploration blocks are as
follows:
·
|
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.
|
·
|
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.”
|
·
|
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”.
|
·
|
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,
for 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 interest and are the operator. We refer to this
DS-ONN-2003/1 exploration block as the “DS 03
Block”.
|
·
|
In
March 2007, we signed agreements with respect to four additional
locations
awarded under NELP-VI. 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”. 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 the 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”. 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 for 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".
|
All
of
our exploration activities should be considered highly speculative.
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with, and is qualified in its entirety
by, the more detailed information including our Consolidated Financial
Statements and the related Notes appearing elsewhere in this Quarterly Report.
This Quarterly 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 in
"Risk Factors," as well as those discussed elsewhere in this Quarterly
Report. For further information, refer to the consolidated financial
statements and footnotes and management's discussion and analysis thereto
included in the Company's annual report on Form 10-KSB and as amended by Form
10-KSB/A for the year ended December 31, 2006.
A
COMPARISON OF OUR OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE
30,
2007 TO JUNE 30, 2006
Statements
of Operations
Three
months ended June 30, 2007 and 2006
During
the three months ended June 30, 2007, we had expenses of $820,477 compared
with
expenses of $590,087 during the three months ended June 30,
2006. This increase is primarily the result of our continuing
increase in the scale of our participation in oil and gas exploration activities
as further outlined in the following.
Our
general and administrative expenses increased to $393,135 for the three months
ended June 30, 2007 from $423,490 for the three months ended June 30,
2006. These general and administrative expenses include costs related
to the corporate head office including administrative salaries and services,
rent and office costs, insurance and directors' fees as well our shareholder
relations costs which include the 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 period. These stock-based compensation
costs increased to $148,807 for the three months ended June 30, 2007 versus
$127,945 for the same period in 2006. The balance of the increase is
a result of an increase in our personnel which is consistent with our increase
in the scale of our participation in oil and gas exploration
activities.
Our
consulting fees increased to $304,726 during the three months ended June 30,
2007 from $90,100 for the three month period ended June 30, 2006. Of
this increase, $169,155 is attributable to compensation costs for stock-based
compensation with consultants for the three months ended June 30, 2007 versus
$nil in the same period of 2006. These consulting fees reflect
$17,500 (2006 - $17,500) 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. The remaining increase is a result of the costs
of a consultant to model and document our internal controls as required by
Section 404 of the Sarbanes Oxley Act which were not incurred in the
same period in 2006.
Professional
fees increased to $109,922 during the three months ended June 30, 2007 from
$65,187 during the three months ended June 30, 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. The increase is mostly
attributable to an increase in our fees paid to our auditors for additional
work
incurred in providing our audit services during the three month period ending
June 30, 2007 as compared to 2006.
Our
other
expenses and income during the three months ended June 30, 2007 resulted in
income of $429,409 versus $430,501 for the same period in
2006. Interest income remained consistent being $421,199 for the
three months ended June 30, 2007 as compared to $427,749 for the three months
ended June 30, 2006. This consistency is directly related to the
increase in US prime interest rate as compared to 2006 offset by a decrease
in
our cash balances used in our oil and gas exploration
activities. Included in other expenses and income is a foreign
exchange gain of $12,719 as compared to a gain for the same period in 2006
of
$1,421.
Reflecting
the increase in expenses for our consulting and professional fees due to the
increase in our overall oil and gas exploration activities, our net loss
increased to $391,068 for the three months ended June 30, 2007 as compared
to a
net loss of $59,586 for the same period in 2006.
We
capitalized overhead costs directly related to our exploration activities in
India. During the three months ended June 30, 2007, these capitalized
overhead costs were $768,577 as compared to $210,807 during the three months
ended June 30, 2006. This increase is mostly attributed to $265,249
being the capitalized portion of the stock-based compensation for our
consultants and Indian personnel directly related in our oil and gas exploration
activities for the three months ended June 30, 2007 versus $33,712 for the
same
period in 2006. The remaining balance of the increase is consistent
with the increased scale of our participation in oil and gas exploration
activities.
Six
months ended June 30, 2007 and 2006
During
the six months ended June 30, 2007, we had expenses of $1,717,329 compared
with
expenses of $986,638 during the six months ended June 30, 2006. This
increase is primarily the result of our continuing increase in the scale of
our
participation in oil and gas exploration activities as further outlined in
the
following.
Our
general and administrative expenses increased to $780,135 from
$695,694. These general and administrative expenses include costs
related to the corporate head office including administrative salaries and
services, rent and office costs, insurance and directors' fees as well our
shareholder relations costs which include the American Stock Exchange listing
and filing fees and transfer agent fees and services. The increase is
primarily the result of an increase of $118,856 in our compensation cost for
stock-based compensation arrangements with employees and directors which are
being expensed over their respective vesting period. These
stock-based compensation costs increased to $670,207 for the six months ended
June 30, 2007 as compared to $213,041 for the same period in 2006.
Our
consulting fees increased to $571,266 during the six months ended June 30,
2007
from $169,017 for the same six month period ended June 30, 2006. Of
this increase, $338,310 is attributable to compensation costs for stock-based
compensation arrangements with consultants for the six month period ending
June
30, 2007 versus $nil for the same period of 2006. These consulting
fees reflect $35,000 (2006 - $35,000) 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. The remaining increase is a result of the
costs of a consultant to model and document our internal controls as required
by
Section 404 of the Sarbanes Oxley Act which were not incurred in the
same period in 2006.
Professional
fees increased to $341,494 during the six months ended June 30, 2007 from
$100,928 during the six months ended June 30, 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. The increase is mostly
attributable to an increase in our fees paid to our auditors for additional
work
incurred in providing our audit services during the six month period ending
June
30, 2007 as compared to the same period in 2006.
Our
other
expenses and income during the six months ended June 30, 2007 resulted in a
loss
of $869,611 versus $829,039 for the same period in 2006. Interest
income remained consistent being $856,892 for the six months ended June 30,
2007
as compared to $827,618 for the six months ended June 30, 2006. This
consistency is directly related to the increase in US prime interest rate as
compared to 2006 offset by a decrease in our cash balances used in our oil
and
gas exploration activities. Included in other expenses and income is
a foreign exchange gain of $12,719 as compared to a gain for the same period
in
2006 of $1,421.
Reflecting
the increase in expenses for our consulting and professional fees due to the
increase in our overall oil and gas exploration activities, our net loss
increased to $847,628 as compared to a net loss of $157,599 for the same period
in 2006.
We
capitalized overhead costs directly related to our exploration activities in
India. During the six months ended June 30, 2007, these capitalized
overhead costs were $1,673,996 as compared to $2,133,984 during the six months
ended June 30, 2006. This increase is mostly attributed to $477,041
being the capitalized portion of the stock-based compensation for the six months
ended June 30, 2007 versus $766,689 for the same period in 2006. The
remaining balance of the increase is consistent with the increased scale of
our
participation in oil and gas exploration activities.
Liquidity
and Capital Resources
At
June
30, 2007, our cash and cash equivalents were $55,355,586. Of these
funds, $54,773,250 are currently held in term deposits earning interest based
on
the US prime rate.
Three
months ended June 30, 2007 and 2006
The
increase in our cash and cash equivalents of $25,821,474 from $29,534,112 at
December 31, 2006 is primarily the result of funds provided by financing
activities offset by those used in operating and investing activities as
follows:
Our
net
cash used in operating activities during the three months ended June 30, 2007
was $116,611 as compared to provided by operating activities of $62,457 for
the
three months ended June 30, 2006. This increase is mostly as a result
of an increase in expenses which include our consulting and professional fees
which is consistent with our increased costs related to our increased oil and
gas exploration activities.
Cash
used
by investing activities during the three months ended June 30, 2007 was $927,634
as compared to $2,697,432 during the three months ended June 30,
2006. Of this decrease, $1,170,542 is directly related to the
issuance of bank guarantees in the second quarter of 2006 to the GOI for 35%
of
our share of the minimum work program for a particular phase, that are to be
undertaken during the twelve months, April 1, 2006 to March 31,
2007. These bank guarantees have been provided to the GOI and serve
as guarantees for the performance of such minimum work program and are in the
form of irrevocable letters of credit which are secured by term deposits of
the
Company in the same amount. Further these bank guarantees remained
basically equivalent in the current quarter as to that of the prior
year. The remainder of the decrease again reflects additional
expenditures in the second quarter of 2006 versus 2007 with the acquisition
of
the Tarapur block in 2006.
Cash
provided by financing activities for the three months ended June 30, 2007 was
$26,865,719 as compared to $503,100 during the three months ended June 30,
2006. During the three months ended June 30, 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
$1,903,046. Further, during the three months ended June 30, 2007,
cash of $300,475 was provided from the issuance of 297,500 shares of common
stock on the exercise of options. Comparatively, during the three
months ended June 30, 2006, cash of $548,100 was provided from the issuance
of
415,000 shares of common stock on the exercise of options, net of share issuance
costs of $45,000. The balance of the increase is a result of an
increase in the accounts payable from financing activities of $68,290 for the
second quarter of 2007 compared to $nil for the same period in the prior
year..
Six
months ended June 30, 2007 and 2005
The
increase in our cash and cash equivalents of $22,992,608 from $32,362,978 at
December 31, 2006 is primarily the result of funds provided by financing
activities net of funds used in operating and investing activities as
follows:
Our
net
cash used in operating activities during the six months ended June 30, 2007
was
$179,143 as compared to $32,218 for the six months ended June 30,
2006. This increase is mostly as a result of an increase in expenses
which include our general and administrative expenses, as well as our consulting
and professional fees which is consistent with our increased costs related
to
our increased oil and gas exploration activities.
Cash
used
by investing activities during the six months ended June 30, 2007 was $3,714,168
as compared to $3,607,388 during the six months ended June 30,
2006. This increase is a result of additional expenditures in
reducing our accounts payable.
Offsetting
the increased investing activity in the first six months ended June 30, 2007
was
a reduction in the amount of our bank guarantees of $393,153 versus an increase
in such instruments of $1,209,836 in the first six months of
2006. These bank guarantees have been provided to the GOI and serve
as guarantees for the performance of minimum work programs and are in the form
of irrevocable letters of credit which are secured by term deposits of the
Company in the same amount. Further these bank guarantees remained
basically equivalent at June 30, 2007 as they were at June 30,
2006. The remainder of the offset reflects additional expenditures in
the second quarter of 2006 versus 2007 with the acquisition of the Tarapur
block
in 2006.
Cash
provided by financing activities for the six months ended June 30, 2007 was
$26,885,919 as compared to $2,648,548 during the six months ended June 30,
2006. During the six months ended June 30, 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
$1,903,046. Further, during the six months ended June 30, 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 $2,717,900 which was provided
from the issuance of 1,395,500 shares of common stock on the exercise of options
and the remaining 2003 Stock Purchase Warrants during the six months ended
June
30, 2006. The balance of the increase is a result of an increase in
the accounts payable from financing activities of $68,290 for the second quarter
of 2007 compared to $nil for the same period in the prior year.
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 behalf of
us
(including the net 5% participating interest of RGM) under the terms of the
CIA. GSPC asserts that the Company is required to pay 10% of the
exploration expenses over and above US$59.23 million. GSPC asserts
that the amount payable by us is US$44.68 million including interest of US$4.43
million as of June 30, 2007. GeoGlobal disputes this assertion
of GSPC. See Risk Factors – Risks Relating to Our Oil and Gas
Activities - GSPC Is Seeking a Payment From Us In the Amount Of Approximately
$44.68 Million On Account of GSPC’s Exploration Costs On the KG Offshore Block
and Note 11d to Notes to Consolidated Financial Statements.
Our
Krishna Godavari Basin Agreements and Exploration
Activities
The
KG Offshore Block and Our Carried Interest Agreement
At
June
30, 2007, GSPC, the operator of the KG Offshore Block, has expended on
exploration activities approximately $40.7 million attributable to us under
the
PSC and the Carried Interest Agreement (“CIA”) as compared to $26.1 million at
December 31, 2006. Of this amount, 50% is for the account of Roy
Group (Mauritius) Inc. (“RGM”) under the terms of our Participating Interest
Agreement with RGM, which leaves us with a net 5% interest. 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. The management committee
under the exploration contract relating to the KG Offshore Block has estimated
that the total gross budget for the KG Offshore Block for the period April
1,
2007 to March 31, 2008 is $503.6 million. The estimated annual budget
for costs to be incurred by GSPC for the twelve month period April 1, 2007
to
March 31, 2008 attributable to the 10% carried interest attributable to us
and
RGM under the CIA is approximately $50.4 million. 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 venture 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.
Matters
Relating to Our KG Offshore Block PSC
Our
PSCs
relating to the 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. 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. GSPC is the operator on the KG Offshore Block.
On
July
4, 2007, the Directorate General of Hydrocarbons (“DGH”), a body under the
Ministry of Petroleum & Natural Gas, advised GSPC that, because of the
worldwide supply and availability shortage of offshore drilling rigs, on June
20, 2007 the Government of India had issued new policy guidelines for the merger
of exploration phases of PSCs granted under NELP III and NELP IV and for the
substitution of additional meterage drilled in deeper wells against the total
meterage commitment as part of the minimum work program in the
PSCs.
On
July
12, 2007, GSPC, on behalf of the contracting parties for the KG Offshore Block,
notified the DGH that it was exercising the option granted under the new
policies to request a merger of Phases I and II of the KG Offshore Block work
program called the New Phase I with the effect of establishing a new work
program phase expiring March 11, 2008 and to merge the minimum work program
(“MWP”) of Phase II and Phase III into a new phase to be called New Phase
II. In addition, GSPC exercised the option 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 contractors who exercise this option would be required to
relinquish 50% of the contract area at the end of the New Phase
I. Approval of the merger of the Phase I and II into a New Phase I
and the merger of the minimum work program of existing Phase II and Phase III
as
New Phase II from the GOI is currently outstanding.
On
July
13, 2007, the Operating Committee under the KG Offshore Block PSC had approved
GSPC’s recommendation of exercising the option under the policy
guidelines The minimum work program for the New Phase I would be to
drill 33,102 meters. GSPC informed DGH, that as at July 16, 2007 a
total of 31,225 meters have been drilled, requiring the drilling of an
additional 1,877 meters before March 11, 2008 in order to complete the minimum
work program for the New Phase I. At the end of the New Phase I on
March 11, 2008, the contracting parties will be 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 minimum work
program.
As
at
August 13, 2007, seven exploratory wells have been drilled on the exploration
block for a total of 31,225 total vertical meters drilled, leaving 1,877 meters
to be drilled to complete the New Phase I commitment and 12,250 meters to be
drilled to complete the Phase II commitment. An eighth exploratory
well, the KG#28 was drilled to 5,258 meters on the exploration block, however
the KG#28 well has been classified as an appraisal well as defined under the
PSC
by the management committee.
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, 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 August 13, 2007, 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 minimum work program for that
phase. 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.
The
KG Offshore Block Drilling Activities
GSPC
currently has contracted with Saipem SPA, part of ENI, Italy, for the Saipem
Perro Negro 3 jack-up drilling rig to drill 10 exploratory wells, with an option
of extending the contract for 2 additional exploratory wells. As of
August 13, 2007, the Saipem Perro Negro 3 drilling rig has drilled five
exploratory wells and is currently drilling one appraisal well, the
KG#28. Two of the five exploratory wells, the KG#1 drilled in 2004
and the KG#11 drilled in 2005 have both been abandoned. While testing
deemed satisfactory by GSPC has been completed, the remaining three exploratory
wells, the KG#8 drilled in 2005, and the KG#17 and KG#15 drilled in 2006, all
drilled from the KG#8 well platform, have been suspended awaiting the results
of
future wells drilled from this platform.
On
February 6, 2007, the Saipem Perro Negro 3 rig commenced drilling the KG#28
well
from the KG#8 platform. The KG#28 well is the sixth well drilled by
the Saipem Perro Negro 3 jack-up drilling rig. The KG#28 well, a
further exploratory well, has been classified by the Management Committee as
an
“appraisal well” for the purposes of the PSC. On May 11, 2007, when
the well was close to total depth, a gas kick was encountered which was
subsequently controlled. The hole was plugged back with cement to
just below the 9 5/8 inch casing shoe in order to sidetrack and re-drill the
entire 8½ inch section from 4,052 meters measured depth. The well was drilled
directionally deviating approximately 1,640 meters east of the KG#8 wellhead
location to a total measured depth of 5,258 meters (4,879 total vertical
depth). As at August 13, 2007, the well is currently being cased to
total depth with a 7 inch liner to be followed by a cased hole logging program
after which the perspective intervals will be tested.
GSPC
has
also entered into a 25 month contract with Atwood Oceanics Inc., a Houston
based
International Offshore Drilling Contractor, for the Atwood Beacon jack-up
drilling rig to drill additional exploration wells on the KG Offshore
Block.
On
January 3, 2007, the Atwood Beacon rig commenced drilling its first well, the
KG#16 exploratory well. The KG#16 well is situated in shallow water
of approximately 109 meters and is approximately 5 kilometers East of the
location where the Saipem Perro Negro 3 jack-up drilling rig is
located. On May 14, 2007 it was announced that GSPC had completed the
drilling of the KG#16 well to a total depth (“TD”) of 5,372 meters measured
depth. A complete suite of modern logs were run and the well was
cased with a 7 inch liner to TD. A testing program was designed based
upon independent log analyses, as well as core samples, MDT’s (“Modular
Formation Dynamics Tester”) and hydrocarbon shows while drilling.
The
testing program was completed on August 1, 2007. DST-1 (drill stem
test number 1) and DST-1A involved 45 meters and 33.5 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
surface. DST-2 was chosen from encouraging independent log analyses
over the interval depth of 4,642 to 4,754 meters measured depth, 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 measured depth at a stabilized flow rate of 2.21 MMSCFD (million standard
cubic feet per day) of gas and 15 BBLS/D (barrels per day) of condensate at
a
well head flowing pressure 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 well head flowing pressure
of
1,880 psi through a 16/64 choke. The testing of the KG#16 well has
been completed and it is now planned to be temporarily suspended and evaluated
for future pilot testing of stimulation technologies.
On
May
14, 2007, it was further announced that GSPC has recently contracted a fourth
drilling rig named “Deep Driller 1”. The Deep Driller 1 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.
On
May 8,
2007, GSPC commenced drilling the KG#30 exploratory well with the Deep Driller
1. The KG#30 well is situated approximately 15.5 kilometers Northeast
of the KG#11 well, and is being drilled vertically in shallow waters of
approximately 45 meters. On August 13, 2007 it was announced that
GSPC had completed the drilling and casing of the KG#30 well to a total vertical
depth of 3,951 meters and a complete suite of modern logs have been
run. An open hole DST (drill stem test) was unsuccessful due to
mechanical failure. As at August 13, 2007, a testing program based
upon independent log analysis has commenced. The KG#30 will be the
first exploratory well to test the deepest part of the northern graben in the
KG
Offshore Block.
GSPC
has
further entered into a contract with Essar Oilfield Services Limited (“EOSL”), a
subsidiary of Essar Shipping & Logistics Ltd. of Cyprus, for a
semi-submersible drilling rig named “Essar Wildcat”. The Essar
Wildcat is a self propelled 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 arrived at the KG Offshore Block and is currently undergoing
upgrading and maintenance. GSPC intends to commence drilling
additional wells in the deeper water in the KG Offshore Block by the third
quarter of 2007. The initial term of the EOSL contract is for two
years from the date of spud of the first well, with the option of two
extensions, each for one year.
The
KG Onshore Block Agreement
OIL,
as
operator for this KG Onshore Block has applied for the Production Exploration
Licence ("PEL") from the State of Andhra Pradesh, which when issued will allow
OIL to commence the Phase I work program commitments.
Under
the
PSC for the KG Onshore Block, the Phase I work commitment consists of
reprocessing 564 linear kilometers of 2D seismic, conducting a gravity and
magnetic and geochemical survey, as well as a seismic acquisition program
consisting of 548 sq km of 3D seismic. This Phase I commitment
further consists of the drilling of 12 exploration wells to various depths
between 2,000 and 5,000 meters. We will be required to fund our 10%
proportionate share of the costs incurred in these 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% participating interest in the block and
approximately $21.4 million with respect to a 25% participating interest in
the
block.
Cambay
Basin Agreements and Drilling Activities
At
June
30, 2007, we are parties to four PSCs relating to exploration blocks in the
Cambay Basin. These include the Mehsana Block, the Sanand/Miroli
Block, the Ankleshwar Block and the Tarapur Block.
Mehsana
Block
This
PSC
provides that the exploration activities of the first exploration phase, which
commenced May 21, 2004, are to be conducted over a period of 2.5
years. During the first exploration phase on this exploration block,
the parties are to acquire 75 square kilometres of 3D seismic data, reprocess
650 linear kilometres of 2D seismic data and conduct a geochemical survey,
all
of which has been completed. In addition, the parties are to drill
seven exploratory wells between 1,000 to 2,200 meters. As at August
13, 2007, two of the seven exploration wells have been drilled on this block,
the first being CB-2 well drilled to a total vertical depth of 2,500 meters
and
the second, the CB-3 well was drilled to a total vertical depth of 2,350
meters. Both of these wells did not proceed into a testing program
and were subsequently abandoned. On July 31, 2007, Jubilant, as
operator, commenced drilling the third exploratory well on the Mehsana Block,
the CB-3A well with the WAFA STAR RIG 1 to an estimated total depth of 2,480
meters. As of August 13, 2007 this well is currently drilling at an
approximate measured depth of 650 meters.
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. Further, on April 6,
2007 the members of the operating committee under the Mehsana Block operating
agreement resolved to submit an application to the GOI for extension for an
additional six months to November 20, 2007 to complete the minimum work program
under Phase I. In seeking that extension, the joint venture partners
agreed to provide a 100% bank guarantee and a 10% cash payment to be agreed
upon
based on pre-estimated liquidated damages for the unfinished minimum work
program as reasonably determined by DGH, which has not yet been
determined. As well, the contractor would be required to relinquish
25% of the block pursuant to the provisions of the PSC. The period of
extension will be set off against the term of the Second Phase which would
reduce Phase II to one year expiring November 20, 2008. Final consent
to this extension is awaiting GOI approval.
At
June
30, 2007, we have incurred costs of approximately $1.4 million with respect
to
exploration activities on the Mehsana Block. We estimate that our
expenditures for exploration activities during the period April 1, 2007 to
March
31, 2008 fiscal year which will include the drilling of the remaining five
wells
from the Phase I work commitment, will be approximately $1.8
million
Sanand/Miroli
Block
This
PSC
provides that the exploration activities, which commenced July 29, 2004, are
to
be conducted over a period of 2.5 years. During the first exploration
phase on the Sanand/Miroli Block, the parties are to acquire 200 square
kilometres of 3-D seismic data, reprocess 1,000 linear kilometres of 2-D seismic
data, and conduct a geochemical survey. GSPC as operator has
completed these exploration activities which included the acquisition,
processing and interpretation of a 463 sq km onshore 3-D seismic
program. In addition, we are to drill twelve exploratory wells
between 1,500 to 3,300 meters, of which four have been drilled and one is
currently drilling as of August 13, 2007.
Drilling
operations using the DALMA MR#4 Rig commenced on this block on November 15,
2006
with the drilling of the first of the twelve exploration wells. The
M1 well was drilled to a total vertical depth (TVD) of 2,300 meters and was
temporarily suspended. The well has subsequently been re-entered and
drilled to a TVD of 2,463 meters. The well has been logged, cased and
testing has been completed. All four zones that were tested were oil
bearing intervals. The uppermost interval was hydraulically fractured
and flowed oil at 106 barrels of oil per day (BBL/D). The remaining
three oil bearing intervals in M1 are planned to be stimulated using hydraulic
fracture stimulation with a workover rig. The GOI has been made aware
of this hydrocarbon discovery as per Article 10.1 of the PSC. The
same rig spud a second well, the M4 well, on February 24, 2007 which was drilled
to a total vertical depth of 2,226 meters. This well was logged,
cased and is currently awaiting a workover rig for testing.
A
third
well, the M2 well, commenced drilling using the DRIPL 1500 HP rig on March
26,
2007 which was drilled to a TVD of 3,308 meters. The well was
subsequently tested and abandoned without any success.
The
DAKMA MR#4 Rig commenced drilling the SE#4 well on July 12, 2007. The
SE#4 well was drilled to a total vertical depth of 2,340 meters. As
at August 13, 2007, the well has been logged and cased and is awaiting a
workover rig for testing.
The
JOHN
1500 RIG commenced drilling the SE#2 well on July 29, 2007. As at
August 13, 2007, the SE#2 well is currently drilling at an approximate measured
depth of 1,250 meters. .
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. The period of extension will be set off
against the term of the Second Phase which would reduce Phase II to 1.5 years
expiring January 28, 2009. Further on July 23, 2007, GSPC as
operator, on behalf of the consortium partners has requested from the GOI a
one
year extension under Annexure-1 SI. No. 3 of the extension policy “where the
minimum work program has not been completed but a hydrocarbon discovery is
made
within the exploration phase and does not want to relinquish the area at the
end
of the phase.” Under this clause, an additional extension of 12
months may be given subject to the consortium partners providing a 50% Bank
Guarantee of the unfinished minimum work program (MWP) and the additional work
program. An additional work program which includes AVO processing and
Inversion work on the 3D seismic, resulting in a comprehensive geological
model. Final consent to this extension is awaiting GOI
approval.
As
at
June 30, 2007 we have incurred costs of approximately $1.1 million with respect
to exploration activities on the Sanand/Miroli Block. We estimate
that our expenditures for exploration activities during the period April 1,
2007
to March 31, 2008, which will include the drilling of the remaining nine wells
from the Phase I work commitment, will be approximately $2.6 million based
on
our 10% participating interest.
Ankleshwar
Block
Under
the
terms of our PSC for the Ankleshwar Block, the first phase of our work
commitment covers a period of three years and commenced April 1,
2006. The Phase I work commitment was to acquire, process and
interpret 448 sq kms of 3-D seismic and reprocess 650 LKM’s of 2-D seismic which
has been completed. In addition, we are to drill 14 exploratory wells
between 1,500 to 2,500 meters. As at June 30, 2007 we have incurred
costs of approximately $700,000 on the Ankleshwar Block for our 10%
participating interest. We estimate our expenditures for exploration
activities during the period April 1, 2007 to March 31, 2008, which includes
the
drilling of 8 of the 14 exploratory wells, will be approximately $2.7 million
based on our 10% participating interest. We anticipate drilling
operations will commence in Q4 of 2007.
Tarapur
Block
Through
August 13, 2007, GSPC has drilled or is drilling fourteen wells on this block,
of which; five wells, the Tarapur 1, 5, 7, G, and P have been suspended awaiting
a possible future development program; three wells, the Tarapur 4, TS-4, TS-5
are currently testing or waiting to be tested; three wells, the Tarapur 4,
TS-1
and TS-3 are currently drilling; and three wells have been
abandoned.
GSPC
commenced drilling the Tarapur 6 appraisal well on April 28, 2007 to delineate
the extent of the Tarapur G discovery before the submission of a further
two-well appraisal program to the GOI under the terms of the PSC. The
Tarapur 6 well was drilled to a total vertical depth (TVD) of 1,795
meters. After a hydraulic fracture stimulation, the Tarapur 6 flowed
oil at a rate of 600 barrels of oil per day. On May 25, 2007 GSPC
commenced drilling the Tarapur 4 well with the DALMA MR#1 Rig. The
Tarapur 4 was drilled to a total vertical depth of 1,901 meters and was logged
and cased and is currently awaiting a workover rig for testing.
On
April
26, 2007, GSPC commenced drilling the TS-4 exploratory well. The TS-4
was drilled to a total vertical depth of 2,844 meters. The TS-4 has
been logged and cased and as at August 13, 2007, testing of the well with a
workover rig has commenced. A further well, the TS-5 commenced
drilling on May 22, 2007. The TS-5 was drilled to a total vertical
depth of 3,007 meters. The TS-5 has been logged and as at August 13,
2007 is being cased to total depth, after which a testing program will
commence. Further, on June 14, 2007 GSPC commenced the drilling of
the TS-8 and as at August 13, 2007 is drilling at an approximate depth of 2,960
meters. Two additional wells are currently drilling as at August 13,
2007 in this area. The TS-1 and TS-3 are drilling at an approximate
depth of 700 meters and 2,100 meters respectively.
GSPC
and
the Company intend to continue to aggressively drill additional wells in the
Tarapur Block in order to assess the potential of the discovery to
date.
To
June
30, 2007, we have incurred costs of approximately $4.1 million under the terms
of our agreement with GSPC for our 20% PI share of exploration
costs. The third and final phase of exploratory activities on the
Tarapur Block had a term of 2 years expiring November 22, 2007 with a work
commitment to drill one well to a depth of 3,000 meters or to the Deccan
trap. This requirement has been completed and all areas not
encompassing a commercial discovery after November 22, 2007 will be relinquished
back to the GOI. 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% participating interest as provided under the
PSC. The exercise of this right would result in the reduction of our
PI to 14%.
Estimated
total capital expenditures we will be required to contribute to drilling an
estimated seven additional appraisal wells on this block, over the period April
1, to November 22, 2007 based on our 20% PI will be approximately $2.7
million.
Financial
Commitments
At
June
30, 2007, in connection with these four Cambay Basin PSCs, we have provided
to
the GOI four irrevocable letters of credit totaling $2,955,000 (Mehsana
$155,000, Sanand/Miroli $910,000, 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 Phase I of these four
Cambay Basin Agreements.
The
Deccan Syneclise Basin Agreements and Drilling
Activities
DS
03 Block
Under
the
terms of the PSC for the DS 03 Block, the work commitment under Phase I which
commenced September 4, 2006, is to complete a gravity magnetic and geochemical
survey and acquire an aero magnetic survey of 12,000 LKM’s. We will
be required to fund our 100% participating interest of the costs incurred in
these activities originally estimated to be approximately $625,000 over the
three years of the first phase. As at June 30, 2007, we have incurred
costs of approximately $146,000 on this block.
We
estimate our expenditures for exploration activities during the period April
1,
2007 to March 31, 2008 will be approximately $500,000 based upon our 100% PI
in
this PSC.
Financial
Commitment
As
at
June 30, 2007 we have provided to the GOI, an irrevocable letter of credit
totaling $175,000 secured by our term deposit in the same
amount. This letter of credit serves as a guarantee for the
performance of the minimum work commitment for the budget period April 1, 2007
to March 31, 2008 of these Phase I activities for the DS 03 Block.
DS
04 Block
On
June
7, 2007 the State of Maharashtra issued the petroleum exploration licence for
the DS 04 Block. Under the terms of the PSC for the DS 04 Block, the
Phase I work commitment has commenced and runs for a period of 4 years until
June 6, 2011. 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 further committed to
drill 10 core holes to a depth of approximately 500 meters. We will
be required to fund our 100% proportionate share of the costs incurred in these
activities estimated to be approximately $1.45 million over the four years
of
the first phase of the work commitment.
We
are
currently in the process of submitting a budget to the GOI for approval for
the
period June 7, 2007 to March 31, 2008. We estimate our expenditures
for exploration activities during this period ending March 31, 2008 will be
approximately $500,000 based upon our 100% PI in this PSC. Further we
will be required upon approval of the budget, to provide to the GOI a letter
of
credit totalling approximately $175,000 which will be secured by a term deposit
in the same amount. This letter of credit serves as a guarantee for
the performance of the minimum work commitment for the budget period June 7,
2007 to March 31, 2008.
The
Rajasthan Basin Agreements and Drilling Activities
OIL,
as
operator for both RJ Block 20 and RJ Block 21 exploration blocks is in the
process of applying for the PEL's for both blocks from the State of Rajasthan,
which when issued will allow the parties to commence the Phase I work program
commitments.
The
combined Phase I work commitments under the PSCs for these blocks consist of
reprocessing a total 926 LKM of 2-D seismic, conducting a gravity and magnetic
and geochemical survey, as well as a seismic acquisition program consisting
of
560 LKM of 2-D seismic and 1,311 sq km of 3-D seismic. The combined
Phase I commitments further consist of drilling a total of 20 exploration wells
over both blocks to various depths between 2,000 and 2,500 meters. We
will be required to fund our 25% proportionate share of the costs incurred
in
these activities estimated to be approximately $18.3 million over the four
years
of the first phase of the work commitments.
2007
Activities
We
expect
our exploration and development activities pursuant to the PSCs we are parties
to will continue throughout 2007 in accordance with the terms of those
agreements. 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 August 13, 2007, we have no
specific plans to join with others in bidding for any specific PSCs in
India. 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 by the GOI. 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 2007 seek to participate in joint venture bidding for the
acquisition of oil and gas interests in other international
countries. As of August 13, 2007, we have not been awarded any such
interests
We
expect
drilling activities in the KG Offshore Block and Cambay Blocks will continue
throughout 2007. We anticipate Jubilant, as operator of the Mehsana
Block to continue the drilling of the remaining five wells of the seven wells
committed under Phase I. Similarly, we expect GSPC as operator of the
Sanand/Miroli Block to continually drill the remaining nine wells of the twelve
wells in the Phase I commitment. In addition, we expect GSPC as
operator of the Ankleshwar Block to commence the drilling of the first of eight
wells budgeted for the 12 months ended March 31, 2008. These eight
wells are part of a fourteen well commitment under Phase I of the PSC covering
the Ankleshwar Block.
In
addition, we anticipate GSPC as operator of the Tarapur Block to drill a
possible three additional exploration wells and two appraisal wells before
November 22, 2007, being the expiry date of our PSC covering the Tarapur
Block.
Depending
upon the scope of our activities during the years 2007 and 2008, 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
August 13, 2007, 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 of that date,
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 August 13, 2007, 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, 2007 for
our
present level of operations. We do not expect to have any significant
change in 2007 in our number of employees.
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:
·
|
the
statements in this Report regarding our plans and objectives relating
to
our future operations,
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·
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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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·
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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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·
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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 and the adequacy
of our
capital to meet our requirements for our present and anticipated
levels of
activities are all forward-looking
statements.
|
These
statements appear, among other places, under the caption "Risk
Factors". If our plans fail to materialize, your investment will be
in jeopardy.
·
|
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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·
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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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·
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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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·
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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 and that we may not be adversely affected by any delays
we
may experience in receiving those consents, waivers and extensions
or that
we may not incur liabilities under the PSCs for our failure to maintain
compliance with and timely complete the related work
programs.
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·
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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 a
commercially-productive wells or that any further wells drilled will
have
commercially-successful results.
|
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 Annual Reports on Form 10-KSB, 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.
Risk
Factors
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 Prospectus, 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 Prospectus.
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. As of August
13, 2007, a venture in which we have a net 5% carried interest has drilled
and
abandoned two wells and has drilled, tested and cased six wells. Two
ventures that we have a 10% participating interest has drilled six wells and
two
are currently being drilled. One venture that we have a 20% PI has
drilled or is drilling fourteen wells.
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 and as of August 13, 2007, 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.
Our
Interest In The Production Sharing Contracts Involve Highly Speculative
Exploration Opportunities That Involve Material Risks That We Will Be
Unsuccessful
Our
interests in the exploration blocks should be considered to be highly
speculative exploration opportunities that involve material
risks. None of the exploration blocks in which we have an interest
have any proven reserves and are not producing any quantities of oil or natural
gas. Exploratory drilling activities are subject to many risks,
including the risk that no commercially productive reservoirs will be
encountered. There can be no assurance that wells drilled on any of
the exploration blocks in which we have an interest or by any venture in which
we may acquire an interest in the future will be productive or that we will
receive any return or recover all or any portion of our
investment. Drilling for oil and gas may involve unsuccessful or
unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce sufficient net revenues to return a profit after
drilling, operating and other costs. The cost of drilling, completing
and operating wells is often uncertain. Drilling operations may be curtailed,
delayed or cancelled as a result of numerous factors, many of which are beyond
the operator’s control, including economic conditions, mechanical problems,
extreme downhole pressures and temperatures, title problems, weather conditions,
compliance with governmental requirements and shortages or delays of equipment
and services. Drilling activities on the exploration blocks in which
we hold an interest may not be successful and, if unsuccessful, such failure
may
have a material adverse effect on our future results of operations and financial
condition.
GSPC
Is Seeking a Payment From Us In the Amount Of Approximately $44.68 Million
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.
GeoGlobal
has been advised by GSPC, that GSPC is seeking payment of the amount by which
the exploration costs attributable to GeoGlobal under the PSC relating to the
KG
Offshore Block exceeds the amount that GSPC deems it is obligated to pay on
behalf of GeoGlobal (including the net 5% participating interest of RGM) under
the terms of the CIA. GSPC asserts that the Company is required to
pay 10% of the exploration expenses over and above US$59.23
million. GSPC asserts that the amount payable is US$44.68
million including interest of US$4.43 million as of June 30,
2007. GeoGlobal disputes this assertion of GSPC.
We
have
advised GSPC that, under the terms of the Carried Interest Agreement ("CIA")
dated August 27, 2002 between us and GSPC, the terms of which are also
incorporated into the PSC and the Joint Operating Agreement 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) 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.
The
Company intends to vigorously protect its 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.
Possible
Inability of Contracting Parties to Fulfill Phase One of the Minimum Work
Programs for Certain of Our PSCs
Our
PSCs
relating to the India Blocks provide that by the end of the first phase of
the
exploration phases the contracting parties shall have drilled a certain number
of wells. 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 blocks and Jubilant Oil & Gas ("Jubilant") is the operator on
the Mehsana block.
On
July
4, 2007, the Directorate General of Hydrocarbons (“DGH”), a body under the
Ministry of Petroleum & Natural Gas, advised GSPC that, because of the
worldwide supply and availability shortage of offshore drilling rigs, on June
20, 2007 the Government of India had issued new policy guidelines for the merger
of exploration phases of PSCs granted under NELP III and NELP IV and for the
substitution of additional meterage drilled in deeper wells against the total
meterage commitment as part of the minimum work program in the
PSCs.
On
July
12, 2007, GSPC, on behalf of the contracting parties for the KG Offshore Block,
notified the DGH that it was exercising the option granted under the new
policies to request a merger of Phases I and II of the KG Offshore Block work
program with the effect of establishing a new work program phase expiring March
11, 2008. In addition, GSPC exercised the option to substitute a
total meterage drilled commitment in the new work program phase that would
be
irrespective of the number of wells drilled.
As
of
August 13, 2007, GSPC is awaiting the outcome of a meeting with the DGH where
the requests of GSPC on behalf of the contracting parties are to be
discussed. Unless our exercise of these options is accepted by the
DGH, we may be liable for the consequences of non-fulfillment of the minimum
work commitment in a given time frame under the PSC. This failure to
timely complete the minimum work commitment, though we have been advised by
GSPC
there is no precedence, may be deemed by the GOI to be a failure
to comply with the provisions of the contract in a material
particular.
We
believe that, subject to the DGH accepting GSPC’s exercise of the option to
merge Phase I and Phase II of the work commitments under the KG Offshore Block
PSC and the option to substitute total meterage drilled irrespective of the
number of wells drilled, the contracting parties will be successful in
fulfilling the work commitment under the new work program phase before March
11,
2008. However, at March 11, 2008, the contracting parties will be
required to relinquish 50% of the KG Offshore Block contract area at the
expiration of the new work program phase.
With
respect to the Mehansa Block, 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. Further, on April 6, 2007 the members of the operating
committee under the Mehsana Block operating agreement resolved to submit an
application to the GOI for extension for an additional six months to November
20, 2007 to complete the minimum work program under Phase I. In
seeking that extension, the joint venture partners agreed to provide a 100%
bank
guarantee and a 10% cash payment to be agreed upon based on pre-estimated
liquidated damages for the unfinished minimum work program as reasonably
determined by DGH, which has not yet been determined. As well, the
contractor would be required to relinquish 25% of the block pursuant to the
provisions of the PSC. The period of extension will be set off
against the term of the Second Phase which would reduce Phase II to one year
expiring November 20, 2008. Final consent to this extension is
awaiting GOI approval.
With
respect to the Sanand/Miroli Block. 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. The period of extension will be set off against the term of the
Second Phase which would reduce Phase II to 1.5 years expiring January 28,
2009. Further on July 23, 2007, GSPC as operator, on behalf of the
consortium partners has requested from the GOI a one year extension under
Annexure-1 SI. No. 3 of the extension policy “where the minimum work program has
not been completed but a hydrocarbon discovery is made within the exploration
phase and does not want to relinquish the area at the end of the
phase.” Under this clause, an additional extension of 12 months may
be given subject to the consortium partners providing a 50% Bank Guarantee
of
the unfinished minimum work program (MWP) and the additional work
program. An additional work program which includes AVO processing and
Inversion work on the 3D seismic, resulting in a comprehensive geological
model. Final consent to this extension is awaiting GOI
approval.
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 and, accordingly,
as of August 13, 2007, no areas on the KG Offshore Block have been determined
formally to encompass "commercial discoveries" as that term is defined
under the PSC. Likewise, no areas of the Mehansa Block or the
Sanand/Miroli Block have been determined to encompass commercial
discoveries.
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.
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, oil and gas reserves or 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 substantially
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
June 30, 2007, we had cash and cash equivalents of approximately $55.3
million. We currently expect that our available cash will be
sufficient to fund us through the budget periods ending March 31, 2008 and
through the balance of 2008 at our present level of operations on the ten
exploration blocks in which we are currently a participant including our newly
acquired NELP-VI exploration blocks. 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 six
exploration blocks, excluding our newly acquired NELP-VI exploration blocks,
totals approximately $12.7 million during the period April 1, 2007 to March
31,
2008. We anticipate total expenditures on the four newly acquired
NELP-VI blocks for the first exploration phase which covers four years to be
approximately $28 million. Any further PSC's 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 our 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
August 13, 2007, our Directors and executive officers and their respective
affiliates, in the aggregate, beneficially hold 32,523,667 shares or
approximately 45.0% 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
him. 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 three-year
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 expiration term of this
contract has subsequently been extended to December 31, 2007.
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 successes in the
exploration of the 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 carried interest 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. As a consequence of these additional drilling costs
incurred, the annual budget for the period April 1, 2007 to March 31, 2008
submitted to the Management Committee under the PSC for the KG Offshore Block
estimates that GSPC will expend approximately $50.4 million attributed to us
(including the amount attributable to RGM) under the CIA over the period April
1, 2007 to March 31, 2008. Further additional expenditures may be
required for cost overruns and completions of commercially successful
wells. 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 Roy Group (Mauritius) Inc. under the terms of the
Participating Interest Agreement between us and Roy Group (Mauritius)
Inc. 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.
The
Requirements Of Section 404 Of The Sarbanes-Oxley Act Of 2002 Require That
We
Undertake An Evaluation Of Our Internal Controls That May Identify Internal
Control Weaknesses
The
Sarbanes-Oxley Act of 2002 imposes new duties on us and our executives,
directors, attorneys and independent registered public accounting
firm. In order to comply with the Sarbanes-Oxley Act, we are
evaluating our internal controls systems to allow management to report on,
and
our independent auditors to attest to, our internal controls. We have
initiated the establishment of the procedures for performing the system and
process evaluation and testing required in an effort to comply with the
management certification and auditor attestation requirements of Section 404
of
the Sarbanes-Oxley Act. We anticipate being able to fully implement
the requirements relating to reporting on internal controls and all other
aspects of Section 404 in a timely fashion. If we are not able to
implement the reporting requirements of Section 404 in a timely manner or with
adequate compliance, our management and/or our auditors may not be able to
render the required certification and/or attestation concerning the
effectiveness of the internal controls over financial reporting, we may be
subject to investigation and/or sanctions by regulatory authorities, such as
the
Securities and Exchange Commission or American Stock Exchange, and our
reputation may be harmed. Any such action could adversely affect our
financial results and the market price of our common stock.
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;
|
·
|
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
|
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.
Item
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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
June
30, 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
June
30, 2007, we had approximately $55.3 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
June
30, 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 June 30, 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
June
30, 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.
Item
4.CONTROLS AND PROCEDURES
Under
the
supervision and with the participation of our management, including Jean Paul
Roy, our President and Chief Executive Officer, and Allan J. Kent, our Executive
Vice President and Chief Financial Officer, we have evaluated the effectiveness
of the design and operation of our disclosure controls and procedures as of
the
end of the period covered by this quarterly report, and, based on their
evaluation, Mr. Roy and Mr. Kent have concluded that these controls and
procedures are effective. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
Disclosure
controls and procedures are our controls and other procedures that are designed
to ensure that information required to be disclosed by us in the reports that
we
file or submit under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including Mr. Roy and Mr. Kent, as appropriate to allow timely decisions
regarding required disclosure.
PART
II
OTHER
INFORMATION
Item
1A.RISK FACTORS
The
description of the Risk Factors associated with an investment in our Common
Stock set forth under the heading Risk Factors in Item 2 and Management’s
Discussion and Analysis of Financial Condition and Results of Operations in
Part
I of this Quarterly Report on Form 10-Q are incorporated into this Part II
Item
1A by reference and supersede the discussion of risk factors under the heading
in Part II, Item 6 Management’s Discussion and Analysis or Plan of Operations in
our Annual Report on Form 10-KSB as amended by a Form 10-KSB/A for the year
ended December 31, 2006.
Item
6. EXHIBITS
31.1*
|
Certification
of President and Chief Executive Officer Pursuant to Rule
13a-14(a)
|
31.2*
|
Certification
of Chief Financial Officer Pursuant to Rule
13a-14(a)
|
32.1
|
Certification
of President and Chief Executive Officer Pursuant to Section 1350
(furnished, not filed)
|
32.2
|
Certification
of Chief Financial Officer Pursuant to Section 1350 (furnished, not
filed)
|
*
filed
herewith
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned thereunto
duly
authorized.
GEOGLOBAL
RESOURCES
INC.
-----------------
(Registrant)
August
14,
2007
/s/ Jean Paul Roy
------------------------
Jean
Paul Roy
President
and Chief Executive
Officer
(Principal
Executive Officer
and Director)
August
14,
2007 /s/
Allan J. Kent
----------------
Allan
J. Kent
Executive
Vice President and Chief
Financial Officer
(Principal
Financial and
Accounting)