7.  CAPITALIZATION OF EXPLORATORY WELL COSTS

At June 30, 2015, we have $8.9 million of exploratory well costs capitalized pending the determination of proved reserves.  All costs relate to the N’Gongui No. 2 discovery well that was drilled in the third and fourth quarters of 2012 in the Mutamba Iroru block onshore Gabon. The primary barrier to the determination of proved reserves is our obtaining permission to develop the discovery. 

We are in the process of finalizing a revised production sharing contract (“PSC”) with the government of Gabon to allow for development of the discovery. The term sheet, which specifies financial and other obligations to be included in the PSC, was agreed to and signed in the third quarter of 2014; however, the joint venture partner has withheld its approval of the new PSC pending resolution of certain legal aspects of the new agreement with the Government of Gabon.  In March 2015, the joint venture partner indicated that the legal aspects have not yet been resolved to their satisfaction and are considering other options.  Further meetings of the joint venture partner and the Government of Gabon occurred in the second and third quarters of 2015 to continue the work on the issues, and we expect a new PSC will be signed in 2015.  Following PSC approval, our next step is to submit an application for a development area.  After issuance of a development area, the submittal of the plan of development to the Government of Gabon can be made.  

We can provide no assurance as to the joint venture partner approving the PSC.   We can provide no assurances as to either the approval of the PSC by the Government of Gabon, or the subsequent approval of a development area by the Government of Gabon.