ASC Topic 932—Extractive Industries provides that the cost of an exploratory well shall be capitalized as part of the entity’s uncompleted wells pending the determination of whether the well has found proved reserves. Further, an exploration well that discovers oil and gas reserves, but for which reserves cannot be classified as proved when drilling is completed, shall be capitalized if the well has found a sufficient quantity of reserves to justify its completion as a producing well and the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is not met, the exploration well that is not brought on to production would be assumed to be impaired and its costs would be charged to expense.

In the third and fourth quarters of 2012, the Company drilled an exploratory well (N’Gongui No. 2) in the Mutamba Iroru block onshore Gabon. The Company is currently 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 by the Company, its joint venture partner, and the Gabon government on July 31, 2014. 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 to the Company 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 quarter of 2015 to work on the issues.  

Upon PSC approval, the next step is an application by the Company 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 by the Company.  The Company remains committed to this block and further meetings of the parties are expected to occur in the first half of 2015.

The Company can provide no assurance as to the joint venture partner approving the PSC.   The Company 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. The Company has capitalized $8.9 million for the discovery well in accordance with the criteria contained in ASC Topic 932.