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 September 30, 2012
 
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: 01-34525
 
CAMAC ENERGY INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
30-0349798
(State or Other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
1330 Post Oak Blvd.,
Suite 2250, Houston, Texas
 
77056
(Address of principal executive offices)
 
(Zip Code)
 
(713) 797-2940
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ     No   ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ     No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
¨
Accelerated filer
þ
Non-accelerated filer
¨   
Smaller reporting company
o
(Do not check if a smaller reporting company)    
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
At November 5, 2012 there were 155,905,643 shares of common stock, par value $0.001 per share, outstanding.
 
 
 
 
 
CAMAC ENERGY INC.
 
TABLE OF CONTENTS
 
      Page  
PART I. FINANCIAL INFORMATION      
         
Item 1.
Financial Statements:
    4  
           
 
Consolidated Balance Sheets at September 30, 2012 (unaudited) and December 31, 2011
    4  
           
 
Consolidated Statements of Operations for the three months ended September 30, 2012 and 2011 (unaudited)
    5  
           
 
Consolidated Statements of Operations for the nine months ended September 30, 2012 and 2011 (unaudited)
    6  
           
 
Consolidated Statements of Comprehensive Income (loss) for the three months ended September 30, 2012 and 2011 (unaudited)
    7  
           
 
Consolidated Statements of Comprehensive Income (loss) for the nine months ended September 30, 2012 and 2011 (unaudited)
    8  
           
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (unaudited)
    9  
           
 
Notes to Unaudited Consolidated Financial Statements
    10  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    17  
           
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
    21  
           
Item 4.
Controls and Procedures
    21  
           
PART II. OTHER INFORMATION        
           
Item 1. Legal Proceedings     22  
           
Item 1A.   Risk Factors     22  
           
Item 6. Exhibits     23  
           
Signatures
      24  
           
Exhibits
         
 
 
Page 2 of 24
 
 
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
 
All statements, other than statements of historical fact, included in this Form 10-Q, including without limitation the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are, or may be deemed to be, forward-looking statements. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of CAMAC Energy Inc. and its subsidiaries and joint-ventures (collectively, the “Company”), to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements contained in this Form 10-Q.

In our capacity as Company management, we may from time to time make written or oral forward-looking statements with respect to our long-term objectives or expectations which may be included in our filings with the Securities and Exchange Commission (the “SEC”), reports to stockholders and information provided in our web site.

The words or phrases “will likely,” “are expected to,” “is anticipated,” “is predicted,” “forecast,” “estimate,” “project,” “plans to continue,” “believes,” or similar expressions identify “forward-looking statements.”  Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected.  We wish to caution you not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  We are calling to your attention important factors that could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The following list of important factors may not be all-inclusive, and we specifically decline to undertake an obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.  Among the factors that could have an impact on our ability to achieve expected operating results and growth plan goals and/or affect the market price of our stock are:

 
●
Limited operating history, operating revenue or earnings history.
 
●
Ability to raise capital to fund our business plan, including participation in the Oyo Field development and other oil and gas leases we may participate in, on terms and conditions acceptable to the Company.
 
●
Ability to develop oil and gas reserves.
 
●
Dependence on key personnel, technical services and contractor support.
 
●
Fluctuation in quarterly operating results.
 
●
Possible significant influence over corporate affairs by significant stockholders.
 
●
Ability to enter into definitive agreements to formalize foreign energy ventures and secure necessary exploitation rights.
 
●
Ability to successfully integrate and operate acquired or newly formed entities and multiple foreign energy ventures and subsidiaries.
 
●
Competition from large petroleum and other energy interests.
 
●
Changes in laws and regulations that affect our operations and the energy industry in general.
 
●
Risks and uncertainties associated with exploration, development and production of oil and gas, and drilling and production risks.
 
●
Expropriation and other risks associated with foreign operations.
 
●
Risks associated with anticipated and ongoing third party pipeline construction and transportation of oil and gas.
 
●
The lack of availability of oil and gas field goods and services.
 
●
Environmental risks and changing economic conditions.
 
 
Page 3 of 24
 
 
PART I - FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
 
CAMAC ENERGY INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share amounts)
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
(unaudited)
       
ASSETS
Current assets:
           
Cash and cash equivalents
  $ 5,661     $ 13,626  
Accounts receivable
    6,043       22,099  
Other current assets
    1,439       1,641  
Current assets of discontinued operations
    2       73  
Total current assets
    13,145       37,439  
                 
Property, plant and equipment, net:
               
Oil and gas properties (successful efforts method of accounting), net
    190,587       195,979  
Property, plant and equipment, other, net
    360       243  
Total property, plant and equipment, net
    190,947       196,222  
                 
Other assets
    1,943       169  
Noncurrent assets of discontinued operations
    35       200  
                 
Total Assets
  $ 206,070     $ 234,030  
                 
LIABILITIES AND EQUITY
 
Current liabilities:
               
Accounts payable
  $ 15,142     $ 35,305  
Accrued expenses
    4,107       6,723  
Current liabilities of discontinued operations
    3       791  
Total current liabilities
    19,252       42,819  
                 
Long-term note payable - related party
    4,419       6,000  
                 
Total Liabilities
    23,671       48,819  
                 
Commitments and Contingencies
               
                 
Equity
               
Stockholders' equity - CAMAC Energy Inc.
               
Preferred stock $0.001 par value - 50,000,000 shares authorized, none issued and outstanding
    -       -  
Common stock $0.001 par value - 300,000,000 shares authorized,
               
155,905,087 and 155,385,563 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively
    156       155  
Paid-in capital
    461,583       461,157  
Accumulated deficit
    (279,071 )     (275,838 )
Accumulated other comprehensive loss
    (263 )     (265 )
Total stockholders' equity - CAMAC Energy Inc.
    182,405       185,209  
Noncontrolling interests of discontinued operations
    (6 )     2  
Total Equity
    182,399       185,211  
                 
Total Liabilities and Equity
  $ 206,070     $ 234,030  
 
 See accompanying notes to unaudited consolidated financial statements.
 
 
Page 4 of 24
 
 
CAMAC ENERGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 
   
Three Months Ended September 30,
 
   
2012
   
2011
 
   
(unaudited)
 
Continuing Operations
           
Crude oil sales, net of royalties
  $ 7,945     $ 9,648  
                 
Operating costs and expenses:
               
Lease operating expenses and production costs
    76       700  
Exploratory expenses
    1,012       384  
Depreciation, depletion and amortization
    5,384       3,220  
General and administrative expenses
    3,417       3,038  
Total operating costs and expenses
    9,889       7,342  
                 
Operating (loss) income
    (1,944 )     2,306  
                 
Other expense, net
    (36 )     (88 )
                 
(Loss) income from continuing operations before income taxes
    (1,980 )     2,218  
Income tax expense
    -       508  
Net (loss) income from continuing operations
    (1,980 )     1,710  
                 
Discontinued Operations
               
Net loss from discontinued operations, net of tax
    (142 )     (2,385 )
Gain on divestiture, net
    4,160       -  
Net income (loss) from discontinued operations
    4,018       (2,385 )
                 
Net income (loss)
  $ 2,038     $ (675 )
                 
Net (loss) income per common share - basic:
               
Continuing operations
  $ (0.01 )   $ 0.01  
Discontinued operations
  $ 0.03     $ (0.01 )
Total
  $ 0.01     $ (0.00 )
Net (loss) income per common share - diluted:
               
Continuing operations
  $ (0.01 )   $ 0.01  
Discontinued operations
  $ 0.03     $ (0.01 )
Total
  $ 0.01     $ (0.00 )
Weighted average common shares outstanding:
               
Basic
    155,964       154,687  
Diluted
    155,964       154,778  
 
 See accompanying notes to unaudited consolidated financial statements.
 
 
Page 5 of 24
 
 
CAMAC ENERGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 
   
Nine Months Ended September 30,
 
   
2012
   
2011
 
   
(unaudited)
 
Continuing Operations
           
Crude oil sales, net of royalties
  $ 13,617     $ 29,665  
                 
Operating costs and expenses:
               
Lease operating expenses and production costs
    255       27,594  
Exploratory expenses
    2,167       464  
Depreciation, depletion and amortization
    8,739       10,183  
General and administrative expenses
    8,773       9,806  
Total operating costs and expenses
    19,934       48,047  
                 
Operating loss
    (6,317 )     (18,382 )
                 
Other expense, net
    (96 )     (102 )
                 
Loss from continuing operations before income taxes
    (6,413 )     (18,484 )
Income tax expense
    -       988  
Net loss from continuing operations
    (6,413 )     (19,472 )
                 
Discontinued Operations
               
Net loss from discontinued operations, net of tax
    (988 )     (3,781 )
Gain on divestiture, net
    4,160       -  
Net income (loss) from discontinued operations
    3,172       (3,781 )
                 
Net loss
    (3,241 )     (23,253 )
Net loss attributable to noncontrolling interests - discontinued operations
    8       77  
                 
Net loss attributable to CAMAC Energy Inc.
  $ (3,233 )   $ (23,176 )
                 
Net (loss) income per common share attributable to CAMAC Energy Inc. - basic
         
Continuing operations
  $ (0.04 )   $ (0.13 )
Discontinued operations
  $ 0.02     $ (0.02 )
Total
  $ (0.02 )   $ (0.15 )
Net (loss) income per common share attributable to CAMAC Energy Inc. - diluted
         
Continuing operations
  $ (0.04 )   $ (0.13 )
Discontinued operations
  $ 0.02     $ (0.02 )
Total
  $ (0.02 )   $ (0.15 )
Weighted average common shares outstanding:
               
Basic
    155,718       154,287  
Diluted
    155,718       154,287  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Page 6 of 24
 
 
CAMAC ENERGY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
 
   
Three Months Ended September 30,
 
   
2012
   
2011
 
   
(unaudited)
 
                 
Net income (loss)
  $ 2,038     $ (675 )
Other comprehensive income (loss) - net of tax:
               
Foreign currency adjustments
    104       (18 )
Unrealized loss on investments
    (249 )     (56 )
Total other comprehensive loss
    (145 )     (74 )
                 
Comprehensive income (loss)
  $ 1,893     $ (749 )
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Page 7 of 24
 
 
CAMAC ENERGY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
 
   
Nine Months Ended September 30,
 
   
2012
   
2011
 
   
(unaudited)
 
                 
Net loss
  $ (3,241 )   $ (23,253 )
Other comprehensive income (loss) - net of tax:
               
Foreign currency adjustments
    104       (17 )
Unrealized loss on investments
    (102 )     (85 )
Total other comprehensive income (loss)
    2       (102 )
                 
Comprehensive loss
    (3,239 )     (23,355 )
Comprehensive loss attributable to noncontrolling interests
    8       75  
                 
Comprehensive loss attributable to CAMAC Energy Inc.
  $ (3,231 )   $ (23,280 )
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Page 8 of 24
 
 
CAMAC ENERGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
   
Nine Months Ended September 30,
 
   
2012
   
2011
 
Operating activities
 
(unaudited)
 
                 
Net loss
  $ (3,241 )   $ (23,253 )
                 
Adjustments to reconcile net loss to cash used in operating activities:
               
Depreciation, depletion and amortization
    8,747       10,231  
Stock-based compensation
    423       1,832  
Currency transaction loss (gain)
    10       (17 )
Dry hole costs
    (37 )     2,100  
Gain on divestiture, net
    (4,160 )     -  
Changes in operating assets and liabilities:
               
Decrease (increase) in accounts receivable
    16,056       (2,228 )
Decrease in other current assets
    221       1,668  
Decrease in inventories
    -       72  
Decrease in income taxes payable
    -       (136 )
(Decrease) increase in accounts payable
    (20,742 )     35,058  
Decrease in accrued expenses
    (2,598 )     (28,760 )
Net cash used in operating activities
    (5,321 )     (3,433 )
                 
Investing activities
               
Capital expenditures
    (3,426 )     (7,120 )
Proceeds on divestiture, net
    2,364       -  
Net sales of available for sale securities
    -       256  
Decrease in other assets
    2       131  
Net cash used in investing activities
    (1,060 )     (6,733 )
                 
Financing activities
               
Proceeds from long-term note payable - related party
    5,000       25,000  
Payments of long-term note payable - related party
    (6,581 )     (25,000 )
Proceeds from exercise of warrants and stock options
    3       177  
Net cash (used in) provided by financing activities
    (1,578 )     177  
                 
Effect of exchange rate on cash and cash equivalents
    (6 )     (4 )
                 
Net decrease in cash and cash equivalents
    (7,965 )     (9,993 )
Cash and cash equivalents at beginning of period
    13,626       28,918  
Cash and cash equivalents at end of period
  $ 5,661     $ 18,925  
                 
Supplemental disclosure of cash flow information
               
Cash paid for:
               
Interest, net
  $ 96     $ 114  
Supplemental disclosure of non-cash investing and financing activities
               
Nonsubsidiary common stock received as partial proceeds for divestiture, net
  $ 1,877     $ -  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Page 9 of 24
 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.  Company Description

CAMAC Energy Inc. (the “Company” or “CAMAC”) is engaged in the exploration, development, and production of oil and gas outside the United States, directly and through joint ventures and other ventures in which it may participate. The Company’s name was changed from Pacific Asia Petroleum, Inc. (“PAP”) to CAMAC Energy Inc. upon the acquisition of oil and gas properties located offshore Nigeria in April 2010.  The Company’s corporate headquarters is located in Houston, Texas.

2.  Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The terms “we,” “us,” “our,” “Company,” and “our Company” refer to CAMAC Energy Inc. (“CAMAC”) and its subsidiaries and affiliates.

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

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

On January 1, 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-05 amending Accounting Standards Codification (“ASC”) Topic 220 related to the presentation of comprehensive income, with the exception of the portions of ASU 2011-05 for which the effective date has been deferred by ASU 2011-12.  The Company is now presenting, in both interim and annual financial statements, items of net income (loss), other comprehensive income (loss) and total comprehensive income (loss) in two separate consecutive statements.

In July 2012, the Company signed a definitive share sale and purchase agreement to divest its interest in the Zijinshan Gas Block in China.  This transaction was completed on August 6, 2012.  The Company has classified the current and historical results of its China operations, including other inactive operations not involved in this sale, as discontinued operations, net of tax, in the accompanying consolidated statements of operations.  See Note 3 for more information regarding the sale.  Unless otherwise indicated, the information in these notes to the consolidated financial statements relates to the Company’s continuing operations.
 
 
Page 10 of 24
 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
Recently Issued Accounting Standards Not Yet Adopted

In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-11 regarding disclosure requirements for assets and liabilities that have been offset in the balance sheet.  The scope includes financial instruments and derivative instruments that are either (i) presently offset as permitted under existing accounting principles for offsetting of financial instruments and derivatives in certain cases or (ii) subject to an enforceable master netting agreement or similar agreement whether or not they have been offset.  The new disclosures related to offsetting include the gross amounts, amounts offset and net amounts as recorded.  For amounts subject to enforceable master netting agreements, disclosure is required for the amounts of financial instruments and other derivative instruments not offset, amounts related to financial collateral, and the net amounts.   The ASU is effective for annual and interim periods beginning on or after January 1, 2013 and requires retrospective application for comparative prior periods presented.  At September 30, 2012, the Company did not have any transactions of the types subject to this ASU.

3.  Discontinued Operations

In August 2012, the Company divested its wholly-owned Hong Kong subsidiary Pacific Asia Petroleum Limited (PAPL) for cash consideration of $2.5 million and 9.6 million fully paid ordinary shares, net of selling expenses, of Leyshon Resources Limited (“Leyshon”), a natural resources mining company based in Beijing, China. The Leyshon shares had a fair market value of $1.9 million.
 
PAPL held the Company’s interest in the Zijinshan production sharing contract (the “Zijinshan PSC”) relating to the Zijinshan Block in the Shanxi Province of China. Since 2008, the Company engaged in exploration activities on this Block in search of coalbed methane and other gas.  The Company made a strategic decision to monetize this asset and withdraw from activity in China in order to focus its efforts and capital resources on its core Africa activities.

The Company has reclassified all assets, liabilities and the results of operations for Asia to discontinued operations for all periods presented.

Results of operations from discontinued operations are as follows:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2012
   
2011
   
2012
   
2011
 
   
(In thousands)
 
Costs and expenses:
                       
Exploratory expenses
  $ 27     $ 2,045     $ 204     $ 2,391  
Depreciation, depletion and amortization
    1       4       8       48  
General and administrative expenses
    114       344       776       1,343  
Other income
    -       (8 )     -       (1 )
Total costs and expenses
    142       2,385       988       3,781  
                                 
Loss before income taxes
    (142 )     (2,385 )     (988 )     (3,781 )
Income tax expense
    -       -       -       -  
Net loss before noncontrolling interests
    (142 )     (2,385 )     (988 )     (3,781 )
                                 
Noncontrolling interests
    -       -       8       77  
Net loss
  $ (142 )   $ (2,385 )   $ (980 )   $ (3,704 )
 
 
Page 11 of 24
 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
Assets and liabilities of discontinued operations are as follows:
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
(In thousands)
 
Other current assets
  $ 2     $ 73  
Property, plant and equipment, net
    -       164  
Other assets
    35       36  
Total assets
  $ 37     $ 273  
                 
Accounts payable
  $ -     $ 592  
Accrued expenses
    3       199  
Total liabilities
  $ 3     $ 791  
 
4.  Acquisitions

Nigeria - OML 120/121 Transaction

In April 2010, the Company acquired from affiliates of CAMAC Energy Holdings Limited (“CEHL”) their  interests relating to the Oyo Field (the "Oyo Contract Rights") in the OML 120/121 Production Sharing Contract ("PSC") in exchange for shares of common stock of the Company.  In December 2010, the Company entered into a Purchase and Continuation Agreement (the “Purchase Agreement”) with CEHL and such affiliates', pursuant to which the Company agreed to acquire certain of the remainder of the affiliates' interest in the OML 120/121 PSC (the “Non-Oyo Contract Rights”).

In exchange for the Non-Oyo Contract Rights, the Company agreed to an option-based consideration structure and paid $5.0 million in cash to Allied Energy Plc. (“Allied”), an affiliate of CEHL, upon the closing of the OML 120/121 Transaction in February 2011. The Company has the option to elect to retain the Non-Oyo Contract Rights upon payment of additional consideration to Allied upon the achievement of certain milestones relating to exploration and production outside of the Oyo Field.

If any of the milestones are reached and the Company elects not to retain the Non-Oyo Contract Rights at that time, then all the Non-Oyo Contract Rights will automatically revert back to CEHL without any compensation due to the Company and with CEHL retaining all consideration paid by the Company to date.  As of September 30, 2012, none of the milestones had been reached.

Award of Kenya Exploration Blocks

In May 2012, the Company, through an indirect wholly owned subsidiary, entered into four production sharing contracts (“Kenya PSCs”) with the Government of the Republic of Kenya, covering previously awarded exploration Blocks L1B and L16, and new offshore exploration Blocks L27 and L28.  For all Blocks, the Company will be the operator, with the Government having the right to participate up to 20%, either directly or through an appointee, in any area subsequent to declaration of a commercial discovery.  The Company is responsible for all exploration expenditures.

The Kenya PSCs for Blocks L1B and L16 each provide for an initial exploration period of two years with specified minimum work obligations during that period.  Prior to the end of the initial exploration period, the Company will conduct for each Block a regional geological study and acquire, process and interpret 3D seismic data.  The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploratory well on each Block in each such additional period.
 
 
Page 12 of 24
 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Kenya PSCs for Blocks L27 and L28 each provide for an initial exploration period of three years with specified minimum work obligations during that period.  Prior to the end of the initial exploration period, the Company will conduct for each Block a regional geological study and acquire, process and interpret 3D seismic data.  The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploratory well on each Block, in each such additional period.

In addition to the minimum work obligations, each of the Kenya PSC’s require annual surface rental payments, training fund payments and contributions to local community development projects.  All of the Kenya PSCs also include customary provisions including but not limited to governing law, confidentiality, force majeure, arbitration, and abandonment and decommissioning costs.

Award of Gambia Offshore Exploration Blocks

In May 2012, the Company, through an indirect wholly owned subsidiary, signed two Petroleum Exploration, Development & Production Licenses with The Republic of The Gambia (the “Licenses”), for previously awarded exploration blocks A2 and A5 (the “Blocks”).  For both Blocks, the Company will be the operator, with the Gambia National Petroleum Company (GNPC) having the right to elect to participate up to a 15% interest, following approval of a development and production plan. The Company is responsible for all expenditures prior to such approval even if the GNPC elects to participate.
 
The Licenses for both Blocks provide for an initial exploration period of four years with specified work obligations during that period.  Prior to the end of the initial exploration period, the Company will conduct for each Block a regional geological study, acquire, process and interpret 3D seismic data, drill one exploration well to the total depth of 5,000 meters below mean sea level and evaluate drilling results, with the first two work obligations due prior to the end of the second year.  The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploration well in each additional period for each Block.
 
In addition to the minimum work obligations, the Licenses require annual rental payments and training and resource fees.  Each of the Licenses also include customary provisions including but not limited to governing law, confidentiality, force majeure, arbitration, and abandonment and decommissioning costs.

5.  Property, Plant and Equipment
 
Property, plant and equipment is comprised of the following:
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
(In thousands)
 
Oil and gas properties:                
Proved oil and gas properties
  $ 206,212     $ 206,212  
Less:  Accumulated depreciation, depletion and amortization
    23,865       15,233  
Proved oil and gas properties, net
    182,347       190,979  
Unproved oil and gas properties
    8,240       5,000  
Oil and gas properties, net
    190,587       195,979  
                 
Property, plant and equipment, other
    838       614  
Less:  Accumulated depreciation
    478       371  
Property, plant and equipment, other, net
    360       243  
Total property, plant and equipment
  $ 190,947     $ 196,222  
 
 
Page 13 of 24
 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
6.  Operating Segment Data

The Company manages its operations on a geographical basis.  Historically, the Company reported two operating segments:  Africa and Asia.  In August 2012, the Company sold its principal China operations, which comprised the remaining portion of the Asia segment.  As a result, the Company is reporting Asia operations for all presented periods in discontinued operations and, as such, the financial statement information provided in this report for continuing operations for the periods ended September 30, 2012 and 2011 are presented in one reportable segment.
 
7.  Long-Term Note Payable – Related Party

On June 6, 2011, CAMAC Petroleum Limited (“CPL”), a wholly owned subsidiary of the Company, executed a Promissory Note (the “Promissory Note”) in favor of Allied (the “Lender”). Under the terms of the Promissory Note, the Lender agreed to make loans to CPL, from time to time and pursuant to requests by CPL, in an aggregate sum of up to $25.0 million. Interest accrues on outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum.  CPL may prepay and re-borrow all or a portion of such amount from time to time.  Pursuant to the initial terms of the Promissory Note, the unpaid aggregate outstanding principal amount of all loans, were to mature on June 6, 2013.  During August 2012, the Promissory Note was amended, to extend the maturity date to October 15, 2013.

As of September 30, 2012, $4.4 million was outstanding.  The Company has irrevocably, unconditionally and absolutely guaranteed all of CPL’s obligations under the Promissory Note.

8.  Accounts Payable and Accrued Expenses

As of September 30, 2012, the Company had approximately $15.1 million of approved and unpaid workover invoices related to Oyo Field well #5, and $19.3 million as of December 31, 2011.

Accrued expenses are as follows:
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
(In thousands)
 
                 
Accrued royalties
  $ -     $ 3,160  
Accrued contingent consideration
    890       890  
Accrued professional fees
    858       474  
Accrued payroll and benefits
    585       406  
Accrued workover costs
    538       1,367  
Other
    1,236       426  
Total accrued expenses
  $ 4,107     $ 6,723  
 
 
Page 14 of 24
 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
9.  Equity

During the three and nine months ended September 30, 2012, the Company issued 186,668 and 519,524 shares respectively, of Common Stock upon the exercise of options and vesting of restricted stock awards.

10.  Earnings (Loss) Per Common Share

Basic earnings (loss) per common share (“EPS”) are computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic and diluted EPS for the three and nine months ended September 30, 2012 and 2011, were as follows:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
   
(In thousands)
 
                                 
Basic
    155,964       154,687       155,718       154,287  
                                 
Diluted
    155,964       154,778       155,718       154,287  
 
The number of stock options, warrants and restricted stock awards that were excluded from dilutive shares outstanding as these potentially dilutive securities are anti-dilutive because the Company was in a loss position for continuing operations, were as follows:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
      2012       2011       2012       2011  
   
(In thousands)
 
                                 
Stock options
    -       -       5       133  
Warrants issued in stock offerings
    -       -       -       193  
Nonvested restricted stock awards
    161       -       287       285  
 
11.  Financial Instruments and Fair Value Measurements

The September 30, 2012, unaudited consolidated balance sheet includes two available-for-sale equity investments in nonsubsidiary companies carried at a fair value of $1,932,000. The fair values were determined using “Level 1” inputs as defined in ASC Topic 820 (Fair Value Measurements and Disclosures). Level 1 inputs represent inputs observable in an active market, which in this case is an active public stock market.

At September 30, 2012, the carrying amounts of the Company’s other financial instruments, which include cash equivalents, long-term investments, trade receivables, deposits, long-term advances, accounts payable, accrued expenses and long-term debt at floating interest rates approximate their fair values, principally due to the short-term nature, maturities or nature of interest rates of many of the above listed items.
 
 
Page 15 of 24
 
 
CAMAC ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12.  Commitments and Contingencies

Contingencies

In June 2011, Abiola Lawal, former Executive Vice President and Chief Financial Officer of the Company, filed a lawsuit in Harris County, Texas District Court against the Company, alleging breach of contract and wrongful termination in connection with his termination from the Company. In September 2011, the Court issued an order staying the proceedings pending arbitration in view of the mandatory arbitration clause in the plaintiff’s employment agreement. In October 2011, the plaintiff issued a written demand for arbitration making the same allegations as the stayed lawsuit. The arbitration hearing was scheduled to commence in late October 2012.   On October 19, 2012, a settlement agreement was reached resolving the matters described above.  The settlement will have no material effect on our consolidated financial position or our net income or loss.

From time to time we may be involved in various legal proceedings and claims in the ordinary course of our business. As of September 30, 2012, and through the filing date of this report, we do not believe the ultimate resolution of such actions or potential actions of which we are currently aware will have a material effect on our consolidated financial position or our net income or loss.
 
13.  Related Party Transactions

Agreements with Related Parties

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

During the nine months ended September 30, 2012, the Company made cash severance payments totaling an aggregate of $169,167 to two former executives pursuant to the terms of separation agreements entered into with each former executive.

Transactions With Related Parties

The Company has transactions in the normal course of business with its shareholders, CEHL and their affiliates.  The following tables summarize related party transactions and balances for the respective periods.
 
 
             
     
September 30,
2012
     
December 31,
2011
                 
 
 
(In thousands)
     
                                 
CEHL, accounts payable
  $ 9,590     $ 162                  
                                 
CEHL, long-term note payable
  $ 4,419     $ 6,000                  
 
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
      2012       2011       2012       2011  
 
 
(In thousands)
   
                                 
CEHL, operating expenses
  $ 252     $ 97     $ 536     $ 1,865  
                                 
CEHL, interest on long-term note payable
  $ 36     $ 81     $ 97     $ 114  
 
 
Page 16 of 24
 
 
ITEM 2. 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Our Business

CAMAC Energy Inc. is engaged in the exploration, development, and production of oil and gas outside the United States, directly and through joint ventures and other ventures in which it may participate.    Currently the Company has interests in OML 120/121 oil and gas leases in deep water offshore Nigeria and has recently acquired exploratory acreage in Kenya and The Gambia.

The Company was originally incorporated in Delaware on December 12, 1979 as Gemini Marketing Associates Inc., subsequently changed its name to Pacific East Advisors, Inc., and on May 7, 2007 consummated a reverse merger involving predecessor company IMPCO and ADS (the “Mergers”), in connection with which the Company changed its name to Pacific Asia Petroleum, Inc. The Company’s name was changed to CAMAC Energy Inc. upon the acquisition of certain interests in oil and gas properties located offshore Nigeria in April 2010.  The Company’s corporate headquarters is located in Houston, Texas.

In August 2012, the Company divested its wholly-owned Hong Kong subsidiary Pacific Asia Petroleum Limited (PAPL) for cash consideration of $2.5 million and 9.6 million fully paid ordinary shares, net of selling expenses, of Leyshon Resources Limited (“Leyshon”), a natural resources mining company based in Beijing, China. The Leyshon shares had a fair market value of $1.9 million.

PAPL held the Company’s interest in the Zijinshan production sharing contract (the “Zijinshan PSC”) relating to the Zijinshan Block in the Shanxi Province of China. Since 2008, the Company engaged in exploration activities on this Block in search of coalbed methane and other gas.  The Company made a strategic decision to monetize this asset and withdraw from activity in China in order to focus its efforts and capital resources on its core Africa activities.

As a result of the above transaction, the Company is reporting Asia operations for all presented periods in discontinued operations and, as such, the financial statement information provided in this report for continuing operations for the periods ended September 30, 2012 and 2011 are presented in one reportable segment.

Africa Developments

Nigeria

For the three months ended September 30, 2012 and 2011, the Oyo Field had gross crude oil production from two producing wells averaging 2,641 and 3,514 barrels per day, respectively, of which the Company’s net shares including Cost Oil were 388 and 833 barrels per day, respectively.  For the nine months ended September 30, 2012 and 2011, the Oyo Field had gross crude oil production from two producing wells averaging 2,791 and 3,878 barrels per day, respectively, of which the Company’s net shares including Cost Oil were 438 and 1,025 barrels per day, respectively.  There were three liftings totaling approximately 765,000 barrels of crude oil during the nine months ended September 30, 2012 at an average price of $113.23 per barrel.  At September 30, 2012, the Company had a remaining workover liability related to the Oyo well #5 workover of approximately $15.6 million which was charged to expense in prior periods.  This amount will be eligible for recovery as future Cost Oil revenue after payment occurs, and the rate of recovery will be affected by future production levels and other field expenditures.

In June 2012, Nigerian Agip Exploration Limited (“NAE”) completed the previously announced sale of its 40% working interest in OML 120/121 to Allied Energy Plc., an affiliate of the Company.  Allied has informed the Company that it plans to drill a new well in the Oyo Field commencing in the first quarter 2013.  The new well, Oyo #7, will be designed to both increase the current production levels and test the prospective resource potential of the deeper Miocene reservoir in the field.

In October 2012, the Company announced that Allied has engaged Axxis Petroconsultants Limited (“Axxis”), as project manager for the drilling of Oyo #7 well.  Axxis is an experienced management and engineering services firm that has successfully managed both offshore and onshore drillings rigs and projects in West Africa.  Axxis will work with both the Company and Allied personnel to finalize the ongoing rig negotiations, procure long lead items and manage the drilling program from mobilization to completion.  Additionally in October 2012, the Company announced that Allied has also engaged various experienced vendors to provide certain equipment and services related to the drilling of the Oyo #7 well.
 
 
Page 17 of 24
 

Kenya

In May 2012, the Company, through an indirect wholly owned subsidiary, entered into four production sharing contracts (“Kenya PSCs”) with the Government of the Republic of Kenya, covering previously awarded exploration Blocks L1B and L16, and new offshore exploration Blocks L27 and L28.  For all Blocks, the Company will be the operator, with the Government having the right to participate up to 20%, either directly or through an appointee, in any area subsequent to declaration of a commercial discovery.  The Company is responsible for all exploration expenditures.

The Kenya PSCs for Blocks L1B and L16 each provide for an initial exploration period of two years with specified minimum work obligations during that period.  Prior to the end of the initial exploration period, the Company will conduct for each Block a regional geological study and acquire, process and interpret 3D seismic data.  The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploratory well on each Block in each such additional period.

The Kenya PSCs for Blocks L27 and L28 each provide for an initial exploration period of three years with specified minimum work obligations during that period.  Prior to the end of the initial exploration period, the Company will conduct for each Block a regional geological study and acquire, process and interpret 3D seismic data.  The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploratory well on each Block, in each such additional period.

In addition to the minimum work obligations, each of the Kenya PSC’s require annual surface rental payments, training fund payments and contributions to local community development projects.  All of the Kenya PSCs also include customary provisions including but not limited to governing law, confidentiality, force majeure, arbitration, and abandonment and decommissioning costs.

Gambia

In May 2012, the Company, through an indirect wholly owned subsidiary, signed two Petroleum Exploration, Development & Production Licenses with The Republic of The Gambia (the “Licenses”), for previously awarded exploration blocks A2 and A5 (“the Blocks”).  For both Blocks, the Company will be the operator, with the Gambia National Petroleum Company (GNPC) having the right to elect to participate up to a 15% interest, following approval of a development and production plan. The Company is responsible for all expenditures prior to such approval even if the GNPC elects to participate.

The Licenses for both Blocks provide for an initial exploration period of four years with specified work obligations during that period.  Prior to the end of the initial exploration period, the Company will conduct for each Block a regional geological study, acquire, process and interpret 3D seismic data, drill one exploration well to the total depth of 5,000 meters below mean sea level and evaluate drilling results, with the first two work obligations due prior to the end of the second year.  The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploration well in each additional period for each Block.
 
In addition to the minimum work obligations, the Licenses require annual rental payments and training and resource fees.  Each of the Licenses also include customary provisions including but not limited to governing law, confidentiality, force majeure, arbitration, and abandonment and decommissioning costs.

Results of Operations – Continuing Operations

The following discussion pertains to the Company’s results of operations, financial condition, liquidity and capital resources and should be read together with our unaudited consolidated financial statements and notes to unaudited consolidated financial statements as well as our Annual Report on Form 10-K for the year ended December 31, 2011.
 
 
Page 18 of 24
 

Three months ended September 30, 2012, compared to the three months ended September 30, 2011:

Revenues .  Our revenues for the three months ended September 30, 2012, were $7,945,000 as compared to $9,648,000 for the three months ended September 30, 2011.  During the three months ended September 30, 2012 and 2011, the average gross production from the Oyo Field was 2,641 and 3,514 barrels per day, respectively, and the Company’s share of average daily net production was 388 and 833 barrels per day, respectively.  The revenue per barrel on crude oil sold during the three months ended September 30, 2012 and 2011, was $106.83 and $116.91, respectively.

Lease operating expenses and production costs .  Lease operating expenses consist of personnel costs and contractor charges directly associated with the production of oil.  Our lease operating expenses in the three months ended September 30, 2012 were $76,000 as compared to $700,000 for the three months ended September 30, 2011. The $624,000 decrease was primarily due to workover costs of $535,000 related to well #5 in the Oyo Field in the prior period and higher other costs of $89,000.

Exploratory expenses .  Exploratory expense consists of salaries and personnel costs related to exploration activities, drilling costs for unsuccessful wells, costs for acquisition of seismic data and lease related costs (surface fees, training and community) charged to expense. Our exploratory expenses in the three months ended September 30, 2012 were $1,012,000 as compared to $384,000 for the three months ended September 30, 2011. The $628,000 increase was due to higher lease related costs related to our recent Kenya and The Gambia lease acquisitions of $419,000 in the current period and higher other costs of $209,000.

Depreciation, depletion and amortization expenses .  Depreciation, depletion and amortization expenses consist of depletion of oil reserves and depreciation of leasehold improvements, furniture and fixtures and computer equipment. Our depreciation, depletion and amortization expenses in the three months ended September 30, 2012 were $5,384,000 as compared to $3,220,000 for the three months ended September 30, 2011. The $2,164,000 increase was primarily due to the increased depletion rate in the current period.

General and administrative expenses .  General and administrative expenses consist primarily of salaries and related personnel costs of executive management, finance, accounting, legal and human resources, consulting projects and insurance. Our general and administrative expenses in the three months ended September 30, 2012, were $3,417,000 as compared to $3,038,000 for the three months ended September 30, 2011. The $379,000 increase was due to higher salaries and benefits expense of $199,000, and higher other costs of $180,000.

Nine months ended September 30, 2012, compared to the nine months ended September 30, 2011:

Revenues .  Our revenues for the nine months ended September 30, 2012 were $13,617,000 as compared to $29,665,000 for the nine months ended September 30, 2011.  The $16,048,000 decrease was due to lower volumes sold in 2012, primarily related to timing of liftings and lower production volumes.  During the nine months ended September 30, 2012 and 2011, the average gross production from the Oyo Field was 2,791 and 3,878 barrels per day, respectively, and the Company’s share of average daily net production was 438 and 1,025 barrels per day, respectively.  The revenue per barrel on crude oil sold during the nine months ended September 30, 2012 and 2011 was $113.23 and $114.33, respectively.

Lease operating expenses and production costs .  Our lease operating expenses in the nine months ended September 30, 2012 were $255,000 as compared to $27,594,000 for the nine months ended September 30, 2011. The $27,339,000 decrease was primarily due to lower workover costs of $25,747,000 related to well #5 in the Oyo Field and lower technical services cost of $1,653,000, partially offset by higher other costs of $61,000.  The technical services agreement related to the Oyo Field operations was terminated as of March 31, 2011.

Exploratory expenses .  Our exploratory expenses in the nine months ended September 30, 2012 were $2,167,000 as compared to $464,000 for the nine months ended September 30, 2011. The $1,703,000 increase was primarily due to higher salaries and benefits expense of $630,000, higher lease related costs of $689,000 related to our recent Kenya and The Gambia lease acquisitions and higher other costs of $384,000.
 
 
Page 19 of 24
 

Depreciation, depletion and amortization expenses .  Our depreciation, depletion and amortization expenses in the nine months ended September 30, 2012 were $8,739,000 as compared to $10,183,000 for the nine months ended September 30, 2011. The $1,444,000 decrease was primarily due to lower sales volumes in 2012, primarily related to timing of liftings and lower production volumes, partially offset by an increased depletion rate in the current period.
 
General and administrative expenses .  Our general and administrative expenses in the nine months ended September 30, 2012, were $8,773,000 as compared to $9,806,000 for the nine months ended September 30, 2011. The $1,033,000 decrease was due to  lower salaries and benefits expense of $1,045,000, primarily due to officer resignations in the prior period, and lower stock-based compensation of $1,408,000, partially offset by higher administrative costs of $589,000, higher consulting and legal expenses of $525,000 and higher other costs of $306,000.

Liquidity and Capital Resources

As of September 30, 2012, the Company had cash and cash equivalents of $5,661,000, accounts receivable of $6,043,000, accounts payable of $15,142,000 and accrued expenses of $4,107,000.
 
During the nine months ended September 30, 2012, net cash used in operating activities was $5,321,000 as compared to $3,433,000 for the nine months ended September 30, 2011. The net increase in cash used in operating activities of $1,888,000 was primarily due to the timing of working capital items, offset by a decrease in net loss before non-cash expenses (primarily dry hole costs, depreciation, depletion and amortization and stock-based compensation) and before gain on divestiture, net.

During the nine months ended September 30, 2012, net cash used in investing activities was $1,060,000 as compared to $6,733,000 in the nine months ended September 30, 2011. The decrease in cash used in investing activities of $5,673,000 was partially due to the $5,000,000 payment related to the OML 120/121 Transaction in the prior period, offset by the current period Gambia and Kenya lease bonus payments of $3,240,000, less net cash proceeds of $2,364,000 from the divestiture of China.

During the nine months ended September 30, 2012, net cash used in financing activities was $1,578,000 as compared to net cash provided by financing activities of $177,000 in the nine months ended September 30, 2011. The increase of net cash used in financing activities of $1,755,000, was primarily due to the excess of payments greater than proceeds from the Promissory Note during the current period.

On June 6, 2011, CAMAC Petroleum Limited (“CPL”), a wholly owned subsidiary of the Company, executed a Promissory Note (the “Promissory Note”) in favor of Allied (the “Lender”). Under the terms of the Promissory Note, the Lender agreed to make loans to CPL, from time to time and pursuant to requests by CPL, in an aggregate sum of up to $25.0 million. Interest accrues on outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum.  CPL may prepay and re-borrow all or a portion of such amount from time to time.  Pursuant to the initial terms of the Promissory Note, the unpaid aggregate outstanding principal amount of all loans, were to mature on June 6, 2013.  During August 2012, the Promissory Note was amended, to extend the maturity date to October 15, 2013.  The Company has irrevocably, unconditionally and absolutely guaranteed all of CPL’s obligations under the Promissory Note.   As of September 30, 2012, $4.4 million was outstanding.

Based upon current cash flow projections, management believes that the Company will have sufficient capital resources to meet projected cash flow requirements for the next twelve months from the date of filing this report, assuming no additional participation in Oyo Field operating and development costs through such date.

Our ability to execute our business plan will also depend on whether we are able to raise additional funds through equity, debt financing or strategic alliances. Such additional funds may not become available on acceptable terms, if at all, and any additional funding obtained may not be sufficient to meet our needs in the long-term. Through September 30, 2012, substantially all of our capital had been raised through private placements and registered direct offerings of equity instruments.  
 
 
Page 20 of 24
 
 
Off-Balance Sheet Arrangements

We have no off balance sheet arrangements, other than normal operating leases and employee contracts, that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
 
Tabular Disclosure of Contractual Obligations
 
Please see our Annual Report on Form 10-K for the year ended December 31, 2011, Part II, Item 7 for a table summarizing the Company’s significant contractual obligations as of December 31, 2011.  No material changes to such information have occurred during the nine months ended September 30, 2012, other than the obligations related to the Kenya PSCs and the Gambia Licenses during the initial exploration periods.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company may be exposed to certain market risks related to changes in foreign currency exchange, interest rates, and commodity prices. Please see our Annual Report on Form 10-K for the year ended December 31, 2011 under Part II, Item 7A.  No material changes to such information have occurred during the nine months ended September 30, 2012.

ITEM 4.
CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this quarterly report, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Exchange Act.  This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that, as of September 30, 2012, our disclosure controls and procedures are effective at a reasonable assurance level in ensuring that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Control Over Financial Reporting.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
Page 21 of 24
 
 
PART II - OTHER INFORMATION

ITEM 1. 
LEGAL PROCEEDINGS

In June 2011, Abiola Lawal, former Executive Vice President and Chief Financial Officer of the Company, filed a lawsuit in Harris County, Texas District Court against the Company, alleging breach of contract and wrongful termination in connection with his termination from the Company. In September 2011, the Court issued an order staying the proceedings pending arbitration in view of the mandatory arbitration clause in the plaintiff’s employment agreement. In October 2011, the plaintiff issued a written demand for arbitration making the same allegations as the stayed lawsuit. The arbitration hearing was scheduled to commence in late October 2012.   On October 19, 2012, a settlement agreement was reached resolving the matters described above.  The settlement will have no material effect on our consolidated financial position or our net income or loss.

From time to time we may be involved in various legal proceedings and claims in the ordinary course of our business. As of September 30, 2012 we do not believe the ultimate resolution of such actions or potential actions of which we are currently aware will have a material effect on our consolidated financial position or our net income or loss.

ITEM 1A.
RISK FACTORS
 
Please see our Annual Report on Form 10-K for the year ended December 31, 2011, Part I, Item 1A, for discussion on the risk factors affecting our business.  During the nine months ended September 30, 2012, the Company was informed by the Office of the Chief Accountant of the Securities and Exchange Commission (the “OCA”), that the Staff of the OCA would not object to the Company’s historical accounting regarding the April 2010 acquisition of certain interests relating to the Oyo Field offshore Nigeria. Please refer to our Form 8-K dated March 30, 2012, for details relating to the above stated decision.
 
 
Page 22 of 24
 

ITEM 6. 
EXHIBITS
 
The following exhibits are filed with this report:
 
Exhibit Number
 
Description
     
3.1
 
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).
3.2
 
Amended and Restated Bylaws of the Company as of April 11, 2011 (incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q filed on May 3, 2011).
10.1
 
Share Sale and Purchase Agreement, by and between Leyshon Resources Limited and CAMAC Energy Inc., dated July 22, 2012.
 
Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification of Principal Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Certification of Principal Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101. INS
 
XBRL Instance Document.
101. SCH
 
XBRL Schema Document.
101. CAL
 
XBRL Calculation Linkbase Document.
101. DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101. LAB
 
XBRL Label Linkbase Document.
101. PRE
 
XBRL Presentation Linkbase Document.
 
Page 23 of 24
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
CAMAC Energy Inc.
 
       
Date:   November 9, 2012
By:
/s/ Earl W. McNiel
 
   
Earl W. McNiel
 
   
Interim Chief Financial Officer
 
   
(Principal Financial Officer)
 
 
 
 
Page 24 of 24
EXHIBIT 10.1
 
 
  Share Sale and Purchase Agreement
   
  Dated 22 July 2012
   
  CAMAC Energy Inc. (“ Seller ”)
   
  Leyshon Resources Limited(“ Buyer ”)
 
 
 
 
 
 
 

Share Sale and Purchase Agreement

Contents
 
Details 4
General terms 5
   
1
Interpretation
5
     
1.1
Definitions
5
1.2
References to certain general terms
11
1.3
Next day
11
1.4
Next Business Day
11
1.5
Headings
11
1.6
Schedules and annexures
11
1.7
Currencies
12
     
2
Sale and purchase
12
     
2.1
Sale and purchase
12
2.2
Consideration
12
2.3
Free from Encumbrance
12
     
3
Conditions
13
     
3.1
Conditions Precedent for the benefit of both Parties
13
3.2
Conditions Precedent for the exclusive benefit of the Seller
13
3.3
Conditions Precedent for the exclusive benefit of the Buyer
14
3.4
Reasonable endeavours
14
3.5
Waiver
14
3.6
Notification
15
     
4
Pre-Completion
15
     
4.1
Undertakings prior to Completion
15
4.2
Matters requiring Buyer’s consent
15
4.3
Undertakings in relation to Warranties
15
4.4
Restriction on fund raising activities
15
     
5
Completion
15
     
5.1
Time and place of Completion
15
5.2
Seller’s obligations
16
5.3
Buyer’s obligations
16
5.4
Simultaneous actions at Completion
17
5.5
Post-Completion actions
17
     
6
Payment
18
     
6.1
Payment on Completion
18
     
7
Warranties and representations
18
     
7.1
Representations and warranties of the Seller
18
7.2
Representations and warranties of the Buyer
18
 
 
1
 
 
7.3
Accuracy
18
7.4
Matters Disclosed by Seller
18
7.5
Seller’s knowledge
19
7.6
Acknowledgement of the Buyer
19
7.7
Representation of the Buyer
19
7.8
Parties’ undertaking
19
7.9
Continuing obligations
19
     
8
Limitations of Liability
20
     
8.1
Notice of Claims
20
8.2
Third party Claims
20
8.3
Consideration of Claims
21
8.4
Defence of Claims
21
8.5
Party not liable
21
8.6
Recovery
22
8.7
Time limit on Claim
22
8.8
Minimum amount of Claim
22
8.9
Maximum Liability
23
8.1
Insured Claim or loss
23
8.11
Act or omission after Completion
23
8.12
Later recoveries
23
8.13
Obligation to mitigate
23
8.14
Tax benefit
23
     
9
Default
23
     
9.1
Failure by a Party to Complete
23
9.2
Effect of termination
24
     
10
Confidential Information
24
     
10.1
Confidential Information
24
10.2
Disclosure of Confidential Information
25
10.3
Use of Confidential Information
25
10.4
Excluded Information
25
10.5
Delivery of materials
25
10.6
Survival of termination
25
     
11
Announcements
25
     
11.1
Public announcements
25
11.2
Public announcements required by Law
25
     
12
Costs and stamp duty
25
     
12.1
Legal costs
25
12.2
Stamp duty
26
     
13
Notices and other communications
26
     
13.1
Form - all communications
26
13.2
Form - communications sent by email
26
13.3
Delivery
26
13.4
When effective
27
13.5
When taken to be received
27
13.6
Receipt outside business hours
27
 
 
2
 
 
14
Miscellaneous
27
     
14.1
Discretion in exercising rights
27
14.2
Partial exercising of rights
27
14.3
No liability for loss
27
14.4
Treatment of withholding and deductions
27
14.5
Approvals and consents
28
14.6
Conflict of interest
28
14.7
Remedies cumulative
28
14.8
Rights and obligations are unaffected
28
14.9
Amendment
28
14.1
Waiver
28
14.11
No merger
28
14.12
Further steps
28
14.13
Time of the essence
28
14.14
Entire agreement
29
14.15
Severability
29
14.16
Knowledge and belief
29
14.17
Good faith
29
14.18
Specific Performance
30
14.19
Counterparts
30
     
15
Governing Law and jurisdiction
30
     
15.1
Governing Law
30
15.2
Arbitration
30
     
16
Supervening legislation
31
 
Schedule 1 – Seller Warranties
32
Schedule 2 – Buyer Warranties
36
Schedule 3 – Seller Group Chart
42
*Accurate up to immediately prior to Completion only
42
Schedule 4 – Details of Seller Group Companies
43
Schedule 5 – Buyer Group Chart
45
Schedule 6 – Details of Buyer Group Companies
46
Annexure 1 – List of Data Room Contents
47
Annexure 2 – Form of Application for Shares
53
Signing page
54
 
 
3
 

Share Sale and Purchase Agreement

Details
 
Parties
Seller andBuyer
Seller
Name
CAMAC Energy Inc.
     
 
File Number
0883634
     
 
Incorporated in
Delaware, United States of America
     
 
Address
1330 Post Oak Boulevard,
Suite 2575, Houston, TX 77056,
United States of America
     
 
Telephone
+1-713-797-2940
     
 
Fax
+1-713-797-2992
     
 
Email
nevanoff@camacenergy.com
     
 
Attention
General Counsel
     
Buyer
Name
Leyshon Resources Limited
     
 
Company Number
ACN010482274
     
 
Incorporated in
Western Australia
     
 
Address
Suite 3, Level 3,
1292 Hay Street,
West Perth WA 6005,
Australia
     
 
Telephone
+ 61 8 9321 0077
     
 
Fax
+61 8 9322 4073
     
 
Email
mwylie@leyshonresources.com
     
 
Attention
Company Secretary
     
Recitals
A The Seller is the registered holder and beneficial owner of the Sale Share being 100% of the issued share capital of PAPL.
     
  B PAPL is party to the Production Sharing Contract with CNPC (as approved by the PRC Ministry of Commerce) regarding the operation of a coal bed methane project located on the eastern edge of Ordos Basin in Shanxi Province, the PRC (the “ Project ”).
     
  C  The Seller has agreed to sell, and the Buyer has agreed to buy the Sale Share on the terms of this agreement.
   
Governing law
Hong Kong
Date of agreement
See signing page
 
 
4
 
 
General terms
 
1
Interpretation
 
1.1  
Definitions
 
In this agreement (including the recitals), the following expressions have the following meanings unless the contrary intention appears or the context otherwise requires.
 
Accounts Date means in relation to the Buyer, the last day of its financial year, being 30 June 2011 and in relation to the Seller, the last of its financial year, being 31 December 2011.
 
Action means an action, dispute, Claim, demand, investigation, inquiry, prosecution, litigation or proceeding.
 
Affiliate means, in relation to any party, any subsidiary or holding company of that party and any subsidiary of any such holding company, in each case from time to time.
 
AIM means the Alternative Investment Market, a sub-market of the London Stock Exchange.
 
AIM Rules means the AIM rules for companies (February 2010) and the Rules of the London Stock Exchange (as applicable).
 
Authorised Officer means, in respect of a Party, a director or secretary of the Party or a person appointed by the Party who is duly authorised by its constitutional documents to act as the authorised officer of the Party for the purpose of this agreement.
 
ASX means the Australian Securities Exchange, incorporated as ASX Limited.
 
ASX Listing Rules means the listing rules of the ASX.
 
Business Day means a day other than a Saturday, a Sunday or a public holiday in Hong Kong or the United States of America.
 
Buyer Accounts means collectively:
 
(a)
in relation to the financial year of the Buyer ended on the Accounts Date:
 
(i)  
the audited consolidated balance sheet of the Buyer Group;
 
(ii)  
the audited income statement of the Buyer Group; and
 
(iii)  
the audited consolidated statement of cash flow of the Buyer Group; and
 
(2)
in relation to the period ended the Latest Accounts Date, the unaudited proformaconsolidated management accounts of the Buyer Group,
 
together with any notes, reports, statements or documents included in or annexed or attached to them, if any.
 
 
5
 
 
Buyer Group means the Buyer and each body corporate which is from time to time its subsidiary (but excluding the Seller Group at any time after the Completion) and Buyer Group Company means any one of them, details of which are given in Schedule 6.
 
Buyer Warranties means the warranties and representations given by the Buyer on the terms of Schedule 2 and Buyer Warranty has a corresponding meaning.
 
Cash Consideration meansa sum ofUS$2,500,000 (two million and five hundred thousand United States dollars).
 
CBM means coalbed methane.
 
Claim means any allegation, debt, cause of action, Liability, claim, suit or demand of any nature howsoever arising, including but not limited to any claim under any of the Warranties, whether present or future, fixed or unascertained, actual or contingent, whether at Law, in equity, under statute or otherwise.
 
CNPC means China National Petroleum Corporation, a company organised and existing under the laws of the PRC, having its headquarters domiciled in Beijing, the PRC;
 
Communications has the meaning ascribed to it in clause 13.1 .
 
Completion means completion of the sale and purchase of the Sale Share in accordance with clause 5 and “ Complete ” has a corresponding meaning.
 
Completion Date has the meaning ascribed to it in clause 5.1
 
Conditions Precedent means the conditions precedent set out in clauses 3.1, 3.2 and 3.3.
 
Confidential Information means all Information disclosed to the Receiving Party or any Related Party or Representative of the Receiving Party, under or in connection with this agreement, including:
 
(a)
the existence and terms of this agreement;
 
(b)
information which, either orally or in writing, is designated or indicated as being the proprietary or confidential information of the Disclosing Party or any of its Related Parties;
 
(c)
information derived or produced partly or wholly from the Information including any calculation, conclusion, summary or computer modelling;
 
(d)
trade secrets or information which is capable of protection at Law or equity as confidential information;
 
(e)
the business, financial or other affairs of the Parties, the Buyer Group and the Seller Group,
 
 
6
 
 
whether the Information was disclosed:
 
 
(a)
orally, in writing or in electronic or machine readable form;
 
 
(b)
before, on or after the date of this agreement;
 
 
(c)
as a result of discussions between the Parties concerning, arising out or related to this agreement; or
 
 
(d)
by the Disclosing Party or any of its Representatives, or any of its Related Parties or any of its Representatives.
 
Consideration shall have the meaning ascribed to it in clause2.2.
 
Consideration Shares means 10,000,000 new Shares to be issued by the Buyer at Completion as part payment of the Consideration.
 
Control of a corporation means possession, directly or indirectly, of the power to:
 
(a)
direct or cause the direction of the management or policies of the corporation; or
 
(b)
control the membership of the board of directors and/or the administrators,
 
whether or not the power has statutory, legal or equitable force or is based on statutory, legal or equitable rights, and whether or not it arises by means of trusts, agreements, arrangements, understandings, practices, the ownership of any interest in shares or stock of that corporation or otherwise, and “ Controlled ” and “ Controlling ” shall be construed accordingly.
 
CUCBM means China United Coalbed Methane Corp. Ltd., a company organised and existing under the laws of the PRC, having its headquarters domiciled in Beijing, the PRC;
 
Details mean the section of this agreement headed  “Details”.
 
Disclosing Party means the Party disclosing Confidential Information.
 
Encumbrance means any mortgage, charge, pledge, lien (otherwise than arising by statute or operation of law), hypothecation, adverse claims or other encumbrances, priority or security interest, title retention, lease, equities, sale-and-leaseback arrangement over or in any property, assets or rights of whatsoever nature or interest or any agreement for any of same.
 
Excluded Information means Confidential Information which:
 
(a)
is in or becomes part of the public domain other than through breach of this agreement or an obligation of confidence owed to the Disclosing Party or any Related Party of the Disclosing Party;
 
(b)
the Receiving Party can prove by contemporaneous written documentation was already known to it or lawfully in possession of it at the time of disclosure by the Disclosing Party or its Related Parties or Representatives (unless such knowledge arose from disclosure of information in breach of an obligation of confidentiality); or
 
(c)
the Receiving Party acquires from a source other than the Disclosing Party or any Related Party or Representative of the Disclosing Party where such source is entitled to disclose it.
 
 
7
 
 
Government Agency means any government, governmental, semi-governmental, administrative, fiscal or judicial body department, commission, authority, tribunal, agency or entity and includes, but not limited to, any other person authorised by Law to give consents or impose requirements.
 
Hong Kong means the Hong Kong Special Administrative Region of the PRC.
 
Information means all information regardless of its Material Form relating to or developed in connection with:
 
(a)
the business or other affairs of the Disclosing Party or any Related Party of the Disclosing Party; or
 
(b)
any systems, technology, ideas, concepts, know-how, feasibility studies, mineral experts technical reports, specialist reports, competent persons reports, techniques, designs, specifications, blueprints, tracings, diagrams, models, functions, capabilities and designs, intellectual property or any other information which is marked “confidential” or is otherwise indicated to be subject to an obligation of confidence owned or used by or licensed to the Disclosing Party or a Related Party of the Disclosing Party.
 
Latest Accounts Date means30 June 2012 .
 
Law means any law or regulation of Hong Kong, the Cayman Islands, the United States of America and/or any law or regulation of the place of incorporation or listing (as applicable) of the Parties.
 
Liability means any liability or obligation (whether actual, contingent or prospective), including for any Loss irrespective of when the acts, events or things giving rise to the liability occurred but excluding liability for any consequential or indirect losses.
 
Listing Rules mean the ASX Listing Rules and the AIM Rules.
 
Longstop Date means the date falling on the fourteenth day from the date this agreement has been duly executed by such persons (duly authorised by the Buyer and the Seller to execute this agreement)on behalf of the Buyer and the Seller respectively (or such later date as may be agreed in writing between the Parties).
 
Loss means all damage, loss, cost and expense (including legal costs on an indemnity basis and other expenses of whatsoever nature or description) but excluding any liability for consequential or indirect losses.
 
Material Adverse Effect means, with reference to the Seller Group or (as the case may  be) the Buyer Group, any effect which has, or could reasonably be expected to have, a material and adverse effect on the financial or trading position, or property, results of operations, business prospects or assets and profitability of the Seller Group or (as the case may be) the Buyer Group, taken as a whole.
 
Material Form includes any form (whether visible or not) of storage from which reproductions can be made.
 
PAPL means Pacific Asia Petroleum, Limited, a private company limited by shares incorporated in Hong Kong on 18 September 2007 with companies registration number: 1168079.
 
 
8
 
 
PAPL SX means Pacific Asia Petroleum, Limited, an organisation established by PAPL in the Shanxi Province of the PRC and registered with the State Administration for Industry and Commerce of the PRC and which is subject to the Production Sharing Contract regulated by the Regulations on the Exploitation of On-Share Petroleum Resources by Cooperation with Foreign Investors.
 
Parties means the named parties to this agreement and their respective successors, permitted assigns, heirs and personal representatives, and “ Party ” means any of each the Seller or the Buyer, unless the context requires otherwise. 
 
Person means a natural person, partnership, corporation, joint stock company, trust, unincorporated association, joint venture or other entity or Government Agency, and pronouns have a similarly extended meaning.
 
PRC means the People’s Republic of China.
 
Project Business means (a) the business as carried out by PAPL SXas the operator in respect of the CBM operations (including exploration operations, development operations, production operations and other activities related to these operations) within the surface area demarcated with geographic co-ordinates for the cooperative exploitation of CBM resources under the Production Sharing Contract; and (b) any other ancillary activities to such operations or other businesses as presently conducted by the Seller Group or the Representative Office on the date of this agreement.
 
ProductionSharing Contract means the production sharing contract entered between PAPLwith CUCBM in October 2007 for the exploitation of CBM resources within the Ordos Basin in the Shanxi Province of the PRC. The rights of CUCBM under the contract has been assigned to CNPC pursuant to a first modification agreement to the contract dated 23 June 2011 following the transfer of the relevant exploration license from CUCBM to Petrochina Company Limited, a subsidiary of CNPC, and receipt of approval fromMinistry of Commerce of the PRC dated 1 April 2008.
 
Receiving Party means the recipient of Confidential Information.
 
Recovered Sum means the amount recovered by the Claiming Party under clause 8.6.
 
Related Party means:
 
(a)
with respect to a person other than a company, any other person that, directly or indirectly through one or more intermediaries, Controls, or is Controlled by, or is under common Control with, such person, including without limitation any investment funds managed by such person or such other person that, directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such person, excluding the company and its affiliates;
 
(b)
with respect to a company, any other person that, directly or indirectly through one or more intermediaries, is Controlled by the company;
 
(c)
with respect to any natural person:
 
 
9
 
 
(a)          
any other person that directly or indirectly through one or more intermediaries is Controlled by such natural person;
 
(b)          
any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of that natural person or his spouse, including adoptive relationships; or
 
(c)          
the trustees, acting in their capacity as such trustees, of any trust of which that natural person is a beneficiary or, in the case of a discretionary trust, is a discretionary object,
 
and "Related Parties" has a corresponding meaning..
 
Representative of a Party includes an employee, agent, officer, director, auditor, adviser, partner, associate, consultant, joint venturer or sub-contractor of that Party or of a Related Party of that Party.
 
Representative Office means the representative office of PAPL registered in Beijing, PRC.
 
 
Sale Share means the one ordinary share of HK$1 representing 100% of the issued share capital in PAPL, registered and held by the Seller and agreed to be sold under this agreement.
 
 
Securities Laws means the laws and regulations of any regulatory authority or Government Agency having jurisdiction over the Buyer’s listing on the ASX or the AIM.
 
Seller Accounts means collectively:
 
(b)
in relation to the financial year of the Seller ended on the Accounts Date:
 
(i)  
the audited balance sheet of each Seller Group Company and the Representative Office;
 
(ii)  
the audited income statement of each Seller Group Company and the Representative Office;
 
(3)
in relation to the period ended the Latest Accounts Date, the unaudited proformamanagement accounts of each Seller Group Company,
 
 
together with any notes, reports, statements or documents included in or annexed or attached to them, if any.
 
Seller’s Disclosure Letter means the letter from the Seller addressed to the Buyerand dated and delivered before the date of this agreement in the form agreed between the Seller and the Buyer, and includes all of its schedules and annexures.
 
Seller Group means PAPL and each body corporate which is from time to time a subsidiary of PAPL (including as at the date hereof Pacific Asia Petroleum (HK) Ltd. and PAPL SX) and Seller Group Company means any of them, details of which are given in Schedule 4.
 
Seller Warranties means the warranties and representations given by the Seller on the terms of Schedule 1 and Seller Warranty has a corresponding meaning.
 
Shares means the ordinary fully paid shares in the capital of the Buyer.
 
 
10
 
 
Subsidiaries meansPacific Asia Petroleum Energy Ltd. and Inner Mongolia Petroleum Sunrise Company.
 
Third Party means any person other than a Party to this Agreement.
 
Warranties means the Buyer Warranties and/or (as the context may require) the Seller Warranties and Warranty has a corresponding meaning.
 
1.2  
References to certain general terms
 
Unless the contrary intention appears, a reference in this agreement to:
 
(1)  
( clauses, annexure and schedules ) a clause, annexure or schedule is a reference to a clause in or annexure or schedule to this agreement;
 
(2)  
( variations or replacements ) a document (including this agreement) includes any variation or replacement of it;
 
(3)  
( executors, administrators, successors ) a particular person includes a reference to the person’s executors, administrators, successors, substitutes (including persons taking by novation) and assigns;
 
(4)  
( calculation of time ) a period of time dating from a given day or the day of an act or event, it is to be calculated exclusive of that day;
 
(5)  
( meaning not limited ) the words “ include ”, “ including ” or “ such as ” are references made on an non-exhaustive and without limitation basis for illustration or emphasis only and when used in introducing an example, shall not operate to limit the meaning of the words to which the example relates to that example or examples of a similar kind;
 
(6)  
( time of day ) unless otherwise specified in this agreement, time is a reference to Hong Kong time; and
 
(7)  
( reference to any thing ) any thing (including any amount) is a reference to the whole and each part of it.
 
1.3  
Next day
 
If an act under this agreement to be done by a Party on or by a given day is done after 5.30pm on that day, it is taken to be done on the next day.
 
1.4  
Next Business Day
 
If an event must occur or any rights or obligations under this agreement shall fall on a stipulated day, which is not a Business Day, then such event shall instead occur or such rights or obligations shall instead fall on the next succeeding Business Day after the stipulated day.
 
1.5  
Headings
 
Headings (including those in brackets at the beginning of paragraphs) are for convenience only and do not affect the interpretation of this agreement.
 
1.6  
Schedules and annexures
 
The schedules and annexures of this agreement form part of, and shall have effect as if set out in, this agreement and any reference to this agreement includes the Schedules.
 
 
11
 
 
1.7  
Currencies
 
The signs “HK$” denotes Hong Kong dollars, “US$” denotes United States dollars and “AUD” denotes Australian dollars, the lawful currencies of Hong Kong, the United States of America and the Commonwealth of Australia respectively.
 
2  
Sale and purchase
 
2.1  
Sale and purchase
 
(1)  
Subject to the terms and conditions of this agreement (including without limitation, satisfaction of the Conditions Precedent in accordance with clause 3), the Seller shall, as legal and beneficial owner, sell to the Buyer and the Buyer shall purchase from the Seller, the full legal and beneficial interest in the Sale Share.
 
(2)  
The sale and purchase of the Sale Share described in clause 2.1(1) will take effect from 1 July 2012.
 
(3)  
For the avoidance of doubt, the sale and purchase of the Sale Share described in clause 2.1(1) will have the effect that:
 
(a)  
the title to, property in and obligations of the Sale Share passes to the Buyer from the Seller effective 1 July 2012;
 
(b)  
all staff employed by the Seller Group for the Project Business will continue to be employed, on the same terms and conditions as they were employed immediately prior thereto, by the Buyer; and
 
(c)  
any capital, in whatever form, injected into the Seller Group by the Seller after 1 July 2012 shall be paid back by the Seller to the Buyer at Completion.
 
2.2  
Consideration
 
The total consideration payable by the Buyer to the Seller for the Sale Share shall be:
 
(1)  
the payment of the Cash Consideration in cash at Completion; and
 
(2)  
the issue of the Consideration Sharesto, or as directed by, the Seller at Completion.
 
2.3  
Free from Encumbrance
 
(1)  
The Sale Share shall be sold and transferred free from all Encumbrances and with all rights, including any accrued but unpaid dividend rights, now and hereafter attached or accruing to them on and from the Completion Date.
 
(2)  
The Consideration Shares shall be issued free from Encumbrances and with all rights, including any accrued but unpaid dividend rights, attached or accruing to them on and from the Completion Date.
 
(3)   
The Consideration Shares shall rank paripassu in all respects with other Shares on issue on the date of allotment and issue including the right to all dividends, distributions and other payments made or to be made the record date for which shall fall on or after the date of such allotment and issue.
 
 
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3  
Conditions
 
3.1  
Conditions Precedent for the benefit of both Parties
 
The Completion of the sale and purchase of the Sale Share shall be conditional upon:
 
(1)  
as at the date of fulfilment or waiver of the last in time to be fulfilled of the Conditions Precedent (other than this condition), there being no restriction (including but not limited to pre-emption rights, rights of first refusal, injunctions or other prohibition or lawful orders) in connection with the transfer of the Sale Share as contemplated by this agreement;
 
(2)  
as at the date of fulfilment or waiver of the last in time to be fulfilled of the Conditions Precedent (other than this condition), there being no action or proceeding pending or threatened by any person or Government Agency to enjoin or prohibit the transfer of the Sale Share as contemplated hereby.
 
3.2  
Conditions Precedent for the exclusive benefit of the Seller
 
The Completion of the sale and purchase of the Sale Share by the Seller shall be conditional upon:
 
(1)  
the receipt by the Seller from the Buyer of all necessary consents, approvals and authorisations (including any third party consents, corporate authorisations and governmental and regulatory approvals)required by the Buyer for the consummation of, and implementation of transactions contemplated by, this agreement and all such consents, approvals and authorisations being effective and not revoked or withdrawn;
 
(2)  
theASX granting approval (either unconditionally or subject to conditions to which the Seller shall not unreasonably object) for the listing of, and permission to deal in the Consideration Shares;
 
(3)  
the issued Shares remaining listed and traded on the ASX at all times prior to and on Completion and the Buyer’s listing status on the ASX not being revoked or withdrawn (or being notified or indicated by the ASX or any relevant Government Agency or other agencies of any such revocation or withdrawal);
 
(4)  
as at the date of fulfilment or waiver of the last in time to be fulfilled of the Conditions Precedent (other than this condition), there being no material unremedied breach by the Buyer of any of its undertakings and covenants contained in this agreement;
 
(5)  
as at the date of fulfilment or waiver of the last in time to be fulfilled of the Conditions Precedent (other than this condition), the Buyer Warranties remaining true and correct in all material respects (other than in respect of those representations and warranties which are already subject to a materiality qualification); and
 
 
13
 
 
(6)  
noMaterial Adverse Effect in the business or financial condition of the Buyer or the financial markets in general or having any Material Adverse Effect on any material assets of the Buyer.
 
The above Conditions Precedent are inserted for the exclusive benefit of the Seller.
 
3.3  
Conditions Precedent for the exclusive benefit of the Buyer
 
The Completion of the sale and purchase of the Sale Share by the Buyer shall be conditional upon:
 
(1)  
the receipt by the Buyer from the Seller of all necessary consents, approvals and authorisations (including any third party consents, corporate authorisations and governmental and regulatory approvals) required by the Seller for the consummation of, and implementation of transactions contemplated by, this agreement (including, without limitation, the sale and purchase of the Sale Share) and all such consents, approvals and authorisations being effective and not revoked or withdrawn;
 
(2)  
as at the date of fulfilment or waiver of the last in time to be fulfilled of the Conditions Precedent (other than this condition), there being no material unremedied breach by the Seller of any of its undertakings and covenants contained in this agreement;
 
(3)  
as at the date of fulfilment or waiver of the last in time to be fulfilled of the Conditions Precedent (other than this condition), the Seller Warranties remaining true and correct in all material respects (other than in respect of those representations and warranties which are already subject to a materiality qualification); and
 
(4)  
no Material Adverse Effect in the business or financial condition of the Seller Group or the financial markets in general or having any Material Adverse Effect on any material assets of the Seller Group.
 
The above Conditions Precedent is inserted for the exclusive benefit of the Buyer.
 
3.4  
Reasonable endeavours
 
Each Party undertakes to the other Party to use all reasonable endeavours to ensure that the Conditions Precedent set out in clause 3.2 (in the case of the Buyer) and clause 3.3(in the case of the Seller) are fulfilled as soon as reasonably practicable and in any event by 5 p.m. on the Longstop Date (or such later date as may be agreed in writing between the Parties).
 
3.5  
Waiver
 
Each Party shall be entitled in its absolute discretion, by written notice to the other Party, to waive any or all the Conditions Precedent inserted for its exclusive benefit either in whole or in part (save for the condition set out in clause 3.1(2) which are not waiveable at the option of either Party). For the avoidance of doubt, save for those condition(s) which are not waiveable, the Seller may waive any Condition Precedent set out in clause 3.2, the Buyer may waive any Condition Precedent set out in clause 3.3 and both Parties (acting jointly) may waive any Condition Precedent set out in clause 3.1. Any waiveable Condition Precedent set out in clause 3.1 would require a written waiver from both Parties to be effective. Any waiver so effected shall be made without prejudice to any other rights which the Party waiving such Conditions Precedent may have under this agreement (including any of its rights of termination).
 
 
14
 
 
3.6  
Notification
 
Each Party shall notify the other Party promptly after the Conditions Precedent relating to it have been fulfilled. If the Conditions Precedent have not been fulfilled or waived on or before 5 p.m.on the Longstop Date (or such later date as the Parties may agree), this agreement, other than clauses 1, 10 to 15 (inclusive), shall automatically terminate and no Party shall have any Claim of any nature whatsoever against any other Party under this agreement (save in respect of accrued rights arising from any prior breach of this agreement) insofar as the non-fulfilment of the Conditions Precedent have not occurred due to the wilful default or negligence of a Party hereto.
 
4  
Pre-Completion
 
4.1  
Undertakings prior to Completion
 
Each Party shall ensure that, between the date hereof to and inclusive of Completion Date (or up to termination of this agreement in accordance with the terms hereof), it shall:
 
(1)  
carry on its business in the ordinary and usual course; and
 
(2)  
take all reasonable steps to preserve its assets and, in particular, to maintain in force all insurances normally kept in force.
 
4.2  
Matters requiring Seller’s consent
 
The Buyer shall procure and ensure that, without the prior consent of the Seller, it shall not, between the date hereof and the Completion Date (or termination of this agreement in accordance with its terms hereof) make any change to its accounting policies or policies or amend its memorandum and articles of association.
 
4.3  
Undertakings in relation to Warranties
 
Each Party shall not do, allow or procure any act or omission prior to the Completion Date which would constitute a breach of any of the Warranties or which would make any of them untrue, inaccurate or misleading.
 
4.4  
Restriction on fund raising activities
 
Subject to applicable Laws and regulations, the Buyer shall not, without the prior written consent of the Seller, engage in any fund raising activity at any time on or before Completion which will involve any issue or allotment of new Shares in the capital of the Buyer or securities convertible into or exchangeable for Shares at a lower consideration per Share (or at a conversion exercise price in respect of securities convertible into or exchangeable for Shares) than the per share consideration of the Consideration Shares. For clarify, the restriction contained in this clause 4.4 shall lapse if this agreement is terminated pursuant to clause 3.6.
 
5  
Completion
 
5.1  
Time and place of Completion
 
Completion shall take place remotely via the exchange of documents and signaturesimmediately on the date on which all Conditions Precedent have been fulfilled, performed or waived (or such other date as may be agreed in writing between the Parties) (the “ Completion Date ”).
 
 
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5.2  
Seller’s obligations
 
On Completion, the Seller must deliver to the Buyer
 
(1)  
duly executed instruments of transfer or stock transfer forms in favour of the Buyer (or as it may direct) in respect of the Sale Share and the share certificates for the Sale Share;
 
(2)  
duly executed powers of attorney or other authorities under which any document related to this agreement has been executed;
 
(3)  
a copy of the board resolutions of the Seller (certified by a duly appointed officer as true and correct), approving with the required quorum, inter alia , the execution and performance of this agreement and any related documents, the transfer of the Sale Share under this agreement, the registration of such transfers (subject to proper stamping) and the entry of the name of the Buyer in the register of members of PAPL as the sole member);
 
(4)  
an application in substantially the form of Annexure 2 duly signed by the Seller for the allotment and issue of the Consideration Shares;
 
(5)  
letter from Wong Chung Chee Heidi,Courtright Jeffrey Scott and Lawal Kase Lukman, being directors of PAPL, resigning as such directors effective from the Completion Date;
 
(6)  
all the records of the Project Business and the records of each Seller Group Company held by the Seller Group, including all tax and accounting records; provided that so long as any such records are located at the premises of the Project Business or a Seller Group Company at Completion, then such records shall be deemed to have been delivered at Completion; and
 
(7)  
acertified copy of the board resolutions of PAPLand each other member of the Seller Group to (to the extent required):
 
(a)  
approve, subject to stamping, the transfer of the Sale Share and the registration of the Buyer as the owner thereof in the register of members of PAPL;
 
(b)  
accept the resignation of the directors referred to in clause 5.2(1)(5) above; and
 
(c)  
appoint such person(s) as the Buyer may nominate as its director(s), to take effect from the Completion Date.
 
5.3  
Buyer’s obligations
 
On Completion the Buyer must:
 
(1)  
pay the Seller the Cash Consideration in accordance with clause 6.1;
 
(2)  
pay the Seller an amount being the sum of all capital injected by the Seller into the Seller Group after 1 July 2012which the Seller shall notify the Buyer prior to Completion;
 
 
16
 
 
(3)  
deliver to the Seller a copy of the resolutions (certified by a duly appointed officer as true and correct) of the board of directors of the Buyer (or, if required by the law of its jurisdiction or regulations of relevant stock exchanges or its articles of association, by-laws or equivalent constitutional documents, of its shareholders) approving with the required quorum, inter alia, the execution and performance of this agreement and any related documents, the issue and allotment of the Consideration Shares and the entry of the Seller in the register of members of the Buyer;
 
(4)  
procure the Buyer’s share registrar to do all things reasonably necessary to ensure the issue of the Consideration Shares to, or as directed by, the Seller in accordance with the terms and conditions of this agreement; and
 
(5)  
deliver to the Seller all certificates and other documents of title to the Consideration Shares (such certificates and documents of title being issued in favour of and in the name of the Seller (or its nominee(s) as specified by the Seller in writing);
 
(6)  
take all actions and do all things necessary to the Seller of the ConsiderationShares forming part of the Consideration; and
 
(7)  
deliver to the Seller duly executed powers of attorney or other authorities under which any document related to this agreement have been executed.
 
5.4  
Simultaneous actions at Completion
 
In respect of Completion:
 
(1)  
the obligations of the Parties under this agreement are interdependent; and
 
(2)  
unless otherwise stated, all actions required to be performed by a Party at Completion are taken to have occurred simultaneously on the Completion Date.
 
All documents and items delivered at Completion pursuant to this clause 5 shall be held by the recipient to the order of the person delivering the same until such time as Completion shall be deemed to have taken place.
 
5.5  
Post-Completion actions
 
Following Completion:
 
(1)  
the Seller agrees and acknowledges that it shall, and shall procure relevant Seller Representative(s)to, use all reasonable endeavours to assist the Buyer in connection with the following registrations following Completion:
 
(a)  
registration of such nominated person of the Buyer with the Beijing Administration of Industry and Commerce of the PRC, as the chief representative of the Representative Office; and
 
(b)  
registration of such nominated person of the Buyer with the Shanxi Administration for Industry and Commerce of the PRC, as the responsible officer of PAPL SX.
 
 
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(2)  
the Buyer shall ensure all the Consideration Shares shall be promptly registered in the name of the Seller (or its nominee(s) as specified by the Seller in writing) and that the Seller (or its nominee(s) as specified by the Seller in writing) shall promptly become the registered holder of all related rights pertaining to those Shares.
 
(3)  
The Buyer will provide all reasonable assistance requested by the Seller in relation to the winding up, dissolution and/or deregistration (as applicable) of the Subsidiaries. For the avoidance of doubt, any and all out-of-pocket expenses or other amounts expended by the Buyer in connection with winding up, dissolution and/or deregistration (as applicable) of the Subsidiaries (other than reasonable costs of engagement of Buyer Representatives and staff) shall be reimbursed by the Seller upon receipt of Buyer’s invoice therefor.
 
6  
Payment
 
6.1  
Payment on Completion
 
The Cash Consideration shall be paid in such manner as may be agreed between the Parties, or if not so agreed, by telegraphic transfer to such account(s) as the Seller may specify in writing no less than two (2) Business Days prior to the prescribed date of payment in accordance with clause 2.2. The receipt of such sums by the Seller shall be an effective discharge of the Buyer’s obligation to pay or procure the payment of such cash payments under this agreement.
 
7  
Warranties and representations
 
7.1  
Representations and warranties of the Seller
 
The Seller hereby represents and warrants and undertakes to the Buyerin the terms set out in Schedule 1.
 
7.2  
Representations and warranties of the Buyer
 
The Buyerhereby represents and warrants and undertakes to the Seller in the terms set out in Schedule 2.
 
7.3  
Accuracy
 
Each of the Parties represents and warrants to the other Parties that each Warranty given by it is correct and not misleadingin any material respect on the date of this agreement and will be correct and not misleading on the Completion Date (by reference to the facts or circumstances then subsisting) as if made on and as at each of those dates.
 
7.4  
Matters Disclosed by Seller
 
Each Seller Warranty given by the Seller is to be qualified by any Information (“ Seller Disclosure Materials ”):
 
(1)  
disclosed to the Buyerin the Seller’s Disclosure Letter;
 
(2)  
disclosed to the Buyer or its professional advisors and agents(whether such Information is expressed in the Chinese or English languages);
 
(3)  
contained in the electronic data room created by the Seller and to which the Buyer was granted access and for identification purposes, a list of the data room contents is attached here to as Annexure 1;
 
 
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(4)  
not contained in that electronic data room but provided by the Seller to the Buyerin writing or in Material Form on or prior to the date of this agreement;
 
(5)  
otherwisedisclosed in writing to the Buyer during the course of its due diligence prior to the date of this agreement;
 
which is or may be inconsistent with that Seller Warranty and, to the extent that any Seller Warranty is incorrect or misleading having regard to any such information, the Buyer shall not be entitled to bring any Claim against, or recover any amount from, the Seller in respect of any breach of Seller Warranty to the extent that the breach arises by reason of or in relation to any such information.  Each Seller Warranty shall be further qualified by anything done by the Seller in accordance with the terms of this agreement.
 
7.5  
Seller’s knowledge
 
Seller Warranties qualified by the expression so far as the Seller is aware (or any similar expression) are deemed to be given to the best of the knowledge, information and belief of the Seller after it has made all reasonable enquiries.
 
7.6  
Acknowledgement of the Buyer
 
The Buyer acknowledges and agrees that:
 
(1)  
it has received and understood the contents of the Seller’s Disclosure  Materials;
 
(2)  
it has had the opportunity to conduct legal, financial and environmental due diligence on the Seller Group and its business and has satisfied itself in relation to matters arising from such due diligence; and
 
(3)  
it has independently and without the benefit of any inducement, representations or warranty (other than the Seller Warranties) from the Seller or its agents, determined to enter into this agreement.
 
7.7  
Representation of the Buyer
 
The Buyer represents that, on the basis of the due diligence performed by it on the Seller Group and its business and other information of which they are aware at the date of this agreement, as at the date of this agreement itdoes not have knowledge of any matter which would constitute a material breach of any Seller Warranty other than any potential breaches of a Seller Warranty disclosed in the Seller Disclosure Materials.
 
7.8  
Parties’ undertaking
 
Each of the Parties undertakes as soon as practicable to notify the other Party in writing of any matter or thing of which it becomes aware which is or may be a breach of or inconsistent with any of the Warranties or other representations made by any Party or their Representatives.
 
7.9  
Continuing obligations
 
The obligations under this clause 7 are continuing obligations and are to remain in full force and effect until all of the monies or obligations for which the Seller and/or the Buyer (as the case may be) are or may become liable under this agreement have been paid, satisfied or performed.
 
The Warranties shall not be extinguished or affected by Completion.
 
 
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8  
Limitations of Liability
 
8.1  
Notice of Claims
 
If a Party becomes aware of any matter or circumstance that may give rise to a Claim under or in relation to or arising out of this agreement, including a breach of a Warranty:
 
(1)  
that Party must as soon as reasonably practicable give notice of the Claim to the other Party; and
 
(2)  
the notice must contain:
 
(a)  
the facts, matters or circumstances that may give rise to the Claim;
 
(b)  
if it is alleged that the facts, matters or circumstances referred to in sub-clause 8.1(2)(a) constitute a breach of this agreement, including a breach of a Warranty, the basis for that allegation; and
 
(c)  
an estimate of the amount of the Loss, if any and quantifiable, arising out of or resulting from the Claim or the facts, matters or circumstances that may give rise to the Claim.
 
8.2  
Third party Claims
 
If the matter or circumstance that may give rise to a Claim against a Party under or in relation to or arising out of this agreement, including a breach of a Warranty, is a result of or in connection with a Claim by, or liability to, a third party (“ Third Party Claim ”) then:
 
(1)  
the Party bringing the Claim (“ Claimant ”) must as soon as reasonably practicable give notice of the Third Party Claim to the other Party (the “ Non-Claimant Party ”);
 
(2)  
the notice must contain:
 
(a)  
the facts, matters or circumstances that may give rise to the Third Party Claim;
 
(b)  
if the Third Party Claim alleges that the facts, matters or circumstances referred to in sub-clause (a) constitute a breach of this agreement including a breach of a Warranty,the basis for that allegation; and
 
(c)  
an estimate of the amount of the Loss, if any and quantifiable, arising out of or resulting from the Third Party Claim or the facts, matters or circumstances that may give rise to the same;
 
(3)  
at the expense and direction of the Non-Claimant Party, the Claimant must either:
 
(a)  
take such Action (including legal proceedings or making claims under any insurance policies) as the Non-Claimant Party may require to avoid, dispute, resist, defend, appeal, compromise or mitigate the Claim; or
 
 
20
 
 
(b)  
offer the Non-Claimant Party the option to assume defence of the Claim;
 
(4)  
the Claimant must not settle, make any admission of liability or compromise any Third Party Claim, or any matter which gives or may give rise to a Third Party Claim, without the prior consent of the Non-Claimant Party which consent may not be unreasonably withheld or delayed.
 
8.3  
Consideration of Claims
 
The Party who has received a notice under clause 8.1 or clause 8.2 in respect of a Claim from the other Party must within 30 Business Days of receipt of such indicate by writing whether it admits or denies the Claim (in whole or in part) (or, in the case of Third Party Claims, whether it exercises the option in clause 8.2(3)(b)).
 
8.4  
Defence of Claims
 
If a Party exercises the option in clause 8.2(3)(b), then:
 
(1)  
the Claimant agrees to co-operate and do all things reasonably requested by the Non-Claimant Party in respect of the Claim at the expense of the Non-Claimant Party;
 
(2)  
the Non-Claimant Party agrees, at its own expense, to defend the Claim subject to the Non-Claimant Party providing indemnities reasonably satisfactory to the Claimant for costs, expenses and other liabilities arising from the conduct of such defence;
 
(3)  
the Non-Claimant Party may settle or compromise the Claim with the consent of the Claimant, such consent not to be unreasonably withheld; and
 
(4)  
the Non-Claimant Party agrees to consult with the Claimant in relation to the conduct of the Claim and not take or persist in any course that might reasonably be regarded as harmful to the goodwill, reputation, affairs or operation of the Non-Claimant Party and/or the Claimant.
 
8.5  
Party not liable
 
A Party (“ Claiming Party ”) is not liable to the other Party (“ Non-Claiming Party ”) for any Claimunder or in relation to or arising out of this agreement including a breach of a Warranty:
 
(1)  
if the Claiming Party has failed to comply with clause 8.1 or clause 8.2 as the case may be;
 
(2)  
if the Claim is as a result of or in consequence of any voluntary act, omission, transaction or arrangement of or on behalf of the Claiming Party after Completion;
 
(3)  
if the Claim is as a result of or in respect of any legislation not in force at the date of this agreement (including legislation which takes effect retrospectively);
 
 
21
 
 
(4)  
to the extent that the Claim arises or is increased as a result only of an increase in the rates, method of calculation or scope of taxation after Completion;
 
(5)  
to the extent that the Claim arises or is increased as a result of any change in accounting standards after Completion;
 
(6)  
if the Claim arises or is increased as a result of action taken or not taken by the Non-Claiming Party after consultation with and the prior written approval of the Claiming Party made with specific reference to this agreement; or
 
(7)  
if the Claim is based on a matter fairly and clearly disclosed in the Seller Disclosure Materials.
 
8.6  
Recovery
 
Where the Claiming Party is or is likely to be entitled to recover from some other person any sum in respect of any matter or event which could give rise to a Claim (“ Recovered Sum ”), and if so required by the Non-Claiming Party, the Claiming Party will, at the Non-Claiming Party’s expense:
 
(1)  
take all reasonable steps to recover that sum before making the Claim;
 
(2)  
keep the Non-Claiming Party at all times fully and promptly informed of the conduct of such recovery; and
 
(3)  
reduce the amount of the Claim by the amount of the Recovered Sum less the amount of costs and expenses incurred in connection with the recovery.
 
If the recovery is delayed until after the Claim has been paid by Non-Claiming Party to the Claiming Party, the Recovered Sum will be paid to the Non-Claiming Party.
 
8.7  
Time limit on Claim
 
(a)  
A Party may not make any Warranty Claim under this agreement or any other Claim under this agreement unless reasonable details of the Claim have been notified to the other Party in accordance with clause 8.1 or clause 8.2within 6 months from the Completion Date.
 
(b)  
A Claim (whether a Warranty Claim or any other Claim under this agreement) will not be enforceable against a Party and is to be taken for all purposes to have been withdrawn unless any legal proceedings in connection with the Claim are commenced within 3 months after written notice of the Claim is served on such Party in accordance with clause 8.1 or clause 8.2.
 
(c)  
None of the limitations contained in this clause 8.7shall apply to Claims arising by reason of fraud or deliberate concealment.
 
8.8  
Minimum amount of Claim
 
A Party may not make any Claim under this agreement including for a breach of Warrantyif the amount of the Claim is less than US$250,000.
 
 
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8.9  
Maximum Liability
 
A Party’s total liability for loss or damage of any kind however caused, in contract, tort, (including negligence), under any statute or otherwise from or relating in any way to this agreement or its subject matter is limited in aggregate for any and all Claims (including, for the avoidance of doubt, any and all Warranty Claims)to one-half of the Consideration.
 
8.10  
Insured Claim or loss
 
The Non-Claiming Party will not be liable for any Claim under or in relation to or arising out of this agreement including a breach of a Warranty unless the Non-Claiming Party has been given a reasonable opportunity to make a Claim under any insurance policy held by the Non-Claiming Party which may cover that Claim and that Claim has been denied in whole or in part by the relevant insurer.  If the Claiming Party has still incurred some damage or Loss, that remaining amount will be the amount of the Claimant Party’s Loss for the purposes of this agreement.
 
8.11  
Act or omission after Completion
 
The Non-Claiming Party’s liability to the Claiming Party for loss or damage of any kind in contract, tort (including negligence), under any statute or in relation to or arising out of this agreement including a breach of a Warranty will be reduced to the extent that the Claim arises or is increased as a direct result of or is caused directly by any gross negligent or wilful act or omission after Completion by the Claiming Party.
 
8.12  
Later recoveries
 
If, after the Non-Claiming Party has made a payment to the Claiming Party pursuant to a Claim under or in relation to or arising out of this agreement, including a breach of a Warranty, the Claiming Party receives a payment or benefit from a Person other than the Non-Claiming Party in relation to the fact, matter or circumstance to which the Claim related, then the Claiming Party must repay to the Non-Claiming Party the amount received from the Non-Claiming Party or, if less, the amount of the payment or benefit which was received by the Claiming Party  (as the case may be).
 
8.13  
Obligation to mitigate
 
Nothing in this clause 8 in any way restricts or limits the general obligation at Law of the Claiming Party to mitigate any Loss or damage which it may incur in consequence of any breach by the Non-Claiming Party of the terms of this agreement, including a breach of a Warranty.
 
8.14  
Tax benefit
 
In calculating the Liability of the Non-Claiming Party for a Claim arising under, in relation to or arising out of this agreement, including a breach of any Warranty, any tax benefit or reduction received by the Claiming Party as a result of the loss or damage arising from that breach must be taken into account.
 
9  
Default
 
9.1  
Failure by a Party to Complete
 
If a Party does not Complete and/or fails or is unable to comply with any of its obligations specified in clause 5 (other than as a result of default by the other Party), the non-defaulting Party may:
 
 
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(1)  
without prejudice to any other rights or remedies under this agreement or under the Law, give the defaulting Party notice requiring it to Complete within 7 days (or such longer period as the Parties may agree in writing) of receipt of the notice in which case, the provisions of clause 5 shall apply to any Completion as so deferred by the operation of this clause 9.1; or
 
(2)  
provided there has been no material failure to comply with the obligations, proceed to Completion so far as practicable; or
 
(3)  
choose either to proceed for specific performance or terminate this agreement.  In either case, the non-defaulting Party may seek damages for the default.
 
9.2  
Effect of termination
 
If this agreement is terminated under clause 9.1(3) then, in addition to any other rights, powers or remedies provided by Law:
 
(1)  
subject to clause 9.2(2) below, each Party is released from its obligations under this agreement other than in relation to clauses 1, and 10 to 15 (inclusive);
 
(2)  
each Party retains the rights it has against any other Party in connection with any breach or Claim that has arisen before termination or as a consequence of termination;
 
(3)  
the Buyer must return to the Seller all documents and other materials in any medium in its possession, power or control which contain any Confidential Information relating to the Seller,the Seller Group, the Project or the Project Business.
 
10  
Confidential Information
 
10.1  
Confidential Information
 
No Confidential Information may be disclosed or used by the Receiving Party to any person except:
 
(1)  
to Representatives of the Receiving Party or its Related Parties requiring the information for the purposes of this agreement;
 
(2)  
with the prior written approval of the Disclosing Party;
 
(3)  
if the Receiving Party is required to do so by Law, a stock or securities exchange or any Government Agency having jurisdiction over the Receiving Party;
 
(4)  
if the Receiving Party is required to do so in connection with legal, judicial, arbitration or other similar proceedings relating to or arising out of this agreement; or
 
(5)  
if the disclosure is required to enable the Receiving Party to enforce its rights under this agreement or to vest the full benefit of this agreement to the Receiving Party, only to the extent and to such persons as may be necessary therefor.
 
 
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10.2  
Disclosure of Confidential Information
 
 
If the Receiving Party discloses information under clauses 10.1(1), 10.1(2) or 10.1(5), the Receiving Party must use its reasonable endeavours to ensure that recipients of the Confidential Information do not disclose the Confidential Information.
 
10.3  
Use of Confidential Information
 
Subject to clause 10.1 , prior to Completion, no Party may use any Confidential Information except for the purpose of performing its obligations under this agreement.
 
10.4  
Excluded Information
 
Clauses 10.1, 10.2 and 10.3 do not apply to Excluded Information.
 
10.5  
Delivery of materials
 
Prior to Completion, the Receiving Party must, on the request of the Disclosing Party, immediately deliver to the Disclosing Party or otherwise destroy all documents or other materials containing or referring to Confidential Information of the Disclosing Party, which are:
 
(1)  
in the Receiving Party’s possession, power or control; or
 
(2)  
in the possession, power or control of persons who have received Confidential Information under clauses 10.1(1) or 10.1(2).
 
10.6  
Survival of termination
 
This clause 10 will survive termination of this agreement.
 
11  
Announcements
 
11.1  
Public announcements
 
Subject to clause 11.2  no Party may, before or after Completion, make or send a public announcement, communication or circular concerning the transactions referred to in this agreement unless it has first obtained the written consent of the other Party which consent is not to be unreasonably withheld or delayed.
 
11.2  
Public announcements required by Law
 
Clauses 10.1 and 11.1 do not apply to a public announcement, communication or circular required by Law or a regulation of a stock or securities exchange, provided, however the Disclosing Party shall provide the other Party reasonable opportunity to review such announcement prior to its release.
 
12  
Costs and stamp duty
 
12.1  
Legal costs
 
(1)  
The Seller and the Buyer agree to, and shall be responsible to, pay their own legal and other costs and expenses incurred in connection with the negotiation, preparation, execution and completion of this agreement and other related documentation, except otherwise stated in this agreement.
 
(2)  
The costs and expenses incurred in connection with preparation, execution and lodgement of the instrument of transfer and the registration of the Sale Share under the Buyer’s name shall be exclusively borne by the Buyer.
 
 
25
 
 
12.2  
Stamp duty
 
All stamp duty (including fines and penalties) chargeable, payable or assessed in relation to this agreement and the transfer of the Sale Share to the Buyer, if applicable shall be borne by the Parties in equal shares.
 
13  
Notices and other communications
 
13.1  
Form - all communications
 
Unless expressly stated otherwise in this agreement, all notices, certificates, consents, approvals, waivers and other communications in connection with this agreement (“ Communications ”) must be:
 
(1)  
in writing;
 
(2)  
in English or accompanied by a certified translation into English;
 
(3)  
signed by the sender (if an individual) or an Authorised Officer of the sender; and
 
(4)  
marked for the attention of the person identified in the Details or, if the recipient has notified otherwise, then marked for attention in the way last notified.
 
13.2  
Form - communications sent by email
 
Communications sent by email need not be marked for attention in the way stated in clause 13.1 . However, the email must state the first and last name of the sender.
 
Communications sent by email are taken to be signed by the named sender.
 
13.3  
Delivery
 
Communications must be either:
 
(1)  
left at the address set out or referred to in the Details;
 
(2)  
sent by prepaid registered post (airmail if appropriate) to the address set out or referred to in the Details;
 
(3)  
sent by fax to the fax number set out or referred to in the Details;
 
(4)  
sent by email to the address set out or referred to in the Details; or
 
(5)  
given in any other way permitted by Law.
 
 
However,  if the intended recipient has notified a changed address, fax number or email address then the Communication must be to that address, fax number or email address.
 
 
26
 
 
13.4  
When effective
 
Communications take effect from the time they are received or taken to be received under clause 13.5  (whichever happens first) unless a later time is specified or agreed by the Parties.
 
13.5  
When taken to be received
 
Communications are taken to be received:
 
(1)  
if delivered personally, on delivery;
 
(2)  
if sent by post, three days after posting (or seven days after posting if sent from one country to another);
 
(3)  
if sent by fax, at the time shown in the transmission report produced by the relevant fax as the time that the whole fax was sent successfully to the fax number of the recipient; or
 
(4)  
if sent by email, when the sender receives a message confirming delivery.
 
13.6  
Receipt outside business hours
 
Despite clauses 13.4  and 13.5 , if Communications are received or taken to be received under clause 13.5  after 5.30pm in the place of receipt or on a non-Business Day, they are taken to be received at 9.00am on the next Business Day and take effect from that time unless a later time is specified or agreed by the Parties.
 
14  
Miscellaneous
 
14.1  
Discretion in exercising rights
 
A Party may exercise a right or remedy or give or refuse its consent in any way it considers appropriate (including by imposing conditions), unless this agreement expressly states otherwise.
 
14.2  
Partial exercising of rights
 
If a Party does not exercise a right or remedy fully or at a given time, the Party may still exercise it later. No delay or failure by a Party to exercise or enforce (in whole or in part) any right provided by this agreement or by Law shall operate as a release or waiver, or in any way limit that Party’s ability to further exercise or enforce that, or any other right.
 
14.3  
No liability for loss
 
A Party is not liable for Loss caused to the other Party by the exercise or attempted exercise of, failure to exercise by the first-mentioned Party, or delay in exercising a right or remedy available to it under this agreement.
 
14.4  
Treatment of withholding and deductions
 
If any Party is required by any applicable law to make any deduction by way of withholdings, set-offs or counterclaims from any amount payable to the other Party under this agreement, then the amount so payable by the paying Party shall be increased to the extent necessary to ensure that, after the making of that payment, the receiving Party receives and retains (free from any liability in respect of that deduction) a net amount equal to the amount which it would have received and so retained had no such withholding, set-offs or counterclaims been made.
 
 
27
 
 
14.5  
Approvals and consents
 
By giving its approval or consent a Party does not make or give any warranty or representation as to any circumstance relating to the subject matter of the consent or approval.
 
14.6  
Conflict of interest
 
The Parties’ rights and remedies under this agreement may be exercised even if it involves a conflict of duty or a Party has a personal interest in their exercise.
 
14.7  
Remedies cumulative
 
The rights and remedies provided in this agreement are in addition to other rights and remedies given by Law independently of this agreement.
 
14.8  
Rights and obligations are unaffected
 
Rights given to the Parties under this agreement and the Parties’ liabilities under it are not affected by anything which might otherwise affect them by Law.
 
14.9  
Amendment
 
No variation or waiver of, or any consent to any departure by a Party from, a provision of this agreement is of any force or effect unless it is confirmed in writing signed by the Parties and then that variation, waiver or consent is effective only to the extent for which it is made or given.
 
14.10  
Waiver
 
The failure, delay, relaxation or indulgence on the part of any Party in exercising any power or right conferred upon that party by this agreement does not operate as a waiver of that power or right, nor does any single exercise of any power or right preclude any other or further exercise of it or the exercise of any other power or right under this agreement.
 
14.11  
No merger
 
The Warranties and undertakings in this agreement do not merge and are not extinguished on Completion and will survive after Completion.
 
14.12  
Further steps
 
Each Party agrees, at its own expense, to do anything the other Party asks (such as obtaining consents, signing and producing documents and getting documents completed and signed) as may be necessary or desirable to give full benefit and effect to the provisions of this agreement and the transactions contemplated by it.
 
Where any obligation pursuant to this agreement is expressed to be undertaken or assumed by any Party, such obligation shall be construed as requiring the Party concerned to exercise all rights and powers of control over the affairs of any other Person which that Party is able to exercise (whether directly or indirectly) in order to secure performance of such obligation.
 
14.13  
Time of the essence
 
Time is of the essence in this agreement in respect of any date, times or period determined under this agreement and as regards any date, time and period which may be substituted for them in accordance with this agreement or by agreement in writing between the Parties.
 
 
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14.14  
Entire agreement
 
(1)  
So far as is permitted by Law, this agreement constitutes the entire agreement of the Parties about its subject matter and supersedes all previous written or oral agreements, understandings and negotiations on that subject matter, including the term sheet dated 12 July 2012 signed by the Seller and the Buyer.
 
(2)  
Each of the Parties acknowledges and agrees that it has not entered into this agreement in reliance on any statement or representation of any person (whether a party to this agreement or not) other than as expressly incorporated in this agreement and the documents referred to or incorporated in this agreement.
 
(3)  
Without limiting the generality of the foregoing, each of the Parties irrevocably and unconditionally waives any right or remedy it may have to claim damages and/or to rescind this agreement by reason of any misrepresentation (other than a fraudulent misrepresentation) having been made to it by any person (whether party to this agreement or not) and upon which it has relied in entering into this agreement.
 
(4)  
Each of the Parties acknowledges and agrees that the only cause of action available to it under the terms of this agreement and the documents referred to or incorporated in this agreement shall be for breach of contract.
 
(5)  
Nothing contained in this agreement or in any other document referred to or incorporated in it shall be read or construed as excluding any liability or remedy as a result of fraud.
 
14.15  
Severability
 
If the whole of any part of a provision of this agreement is void, unenforceable or illegal in a jurisdiction, then such provision shall, as to such jurisdiction, (so far as it is invalid, illegal or unenforceable) be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating any of the remaining provisions of this agreement, and any such invalidity, illegality or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.  This clause has no effect if the severance alters the basic nature of this agreement or is contrary to public policy.
 
14.16  
Knowledge and belief
 
Subject to clause 7.5, any statement made by a Party on the basis of its knowledge, information, belief or awareness, is made on the basis that the Party has, in order to establish that the statement is accurate and not misleading in any material respect, made all reasonable enquiries of its officers, managers and employees who could reasonably be expected to have information relevant to matters to which the statement relates.
 
14.17  
Good faith
 
All transactions entered into between the Parties under this agreement shall be conducted in good faith and on the basis set out or referred to in this agreement or, if not provided for in this agreement, as may be agreed by the Parties and, in the absence of such agreement, on an arm's length basis. Each Party shall at all times act in good faith towards the other Party and shall use all reasonable endeavours to ensure that this agreement is observed. Each Party shall do all things necessary to achieve compliance with this clause 14.17 .
 
 
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14.18  
Specific Performance
 
Without prejudice to any other rights or remedies which a Party may have under this agreement, the Parties acknowledge and agree that damages may not be an adequate remedy for any breach of this agreement and the remedies of injunction, specific performance and other non-monetary remedies (in addition to damages) as permitted by Law are appropriate for any threatened or actual breach of any provision of this agreement and no proof of damages shall be necessary for the enforcement of rights under this agreement.
 
14.19  
Counterparts
 
This agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which when executed and delivered shall be an original, but all of the counterparts shall together constitute one and the same instrument. A Party may execute this agreement on a facsimile or PDF copy counterpart and deliver its signature by facsimile or email (as the case may be). A facsimile or PDF copy counterpart sent by facsimile machine or email (as the case may be) (a) must be treated as an original counterpart, (b) is sufficient evidence of the execution of the original and delivery of the counterpart, and (c) may be produced in evidence for all purposes in place of the original.
 
15  
Governing Law and jurisdiction
 
15.1  
Governing Law
 
This agreement shall be governed and construed in accordance with the laws of Hong Kong.
 
15.2  
Arbitration
 
 
 (a)
Any Action arising out of or in connection with this agreement, including the breach, termination or invalidity of this agreement, shall be referred to and finally resolved by arbitration in Hong Kong under the Hong Kong International Arbitration Centre Administered Arbitration Rules in force when the Notice of Arbitration is submitted in accordance with these Rules. The number of arbitrators shall be one.
 
 
30
 
 
 
(b)
The seat of arbitration shall be Hong Kong. The language to be used in the arbitral proceedings shall be English. The decision of the arbitrators shall be final and binding. The Parties hereby exclude any right of appeal to any court which might otherwise have jurisdiction in the matter. The foregoing shall not preclude any Party from seeking interim relief or orders for interim preservation in any court of competent jurisdiction, at any time before and after the arbitration tribunal has been appointed, up until the arbitration tribunal has made its final award.  Any such application to court shall not demonstrate an intention to act inconsistently in any way with the agreement to settle disputes by arbitration set out in this clause 15.2.
 
 
(c)
The Parties agree that any arbitration award rendered in accordance with the provisions of this clause 15 may be enforced by any court having jurisdiction over the Parties or over the Parties’ assets wherever the same may be located.
 
 
(d)
Each Party hereby warrants and agrees that it will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or legal process and hereby waives any right it may have to make any such claim.  The parties hereby exclude any right of appeal to any court which might otherwise have jurisdiction in the matter.
 
16  
Supervening legislation
 
Any present or future legislation which operates to vary the obligations of a Party in connection with this agreement with the result that another Party’s rights, powers or remedies are adversely affected (including, by way of delay or postponement) is excluded except to the extent that its exclusion is prohibited or rendered ineffective by Law.
 
DULY EXECUTED as an agreement by the Parties or their Authorised Officer on the day and year written on the signing page.

 
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Schedule 1 – Seller Warranties
 
The Seller represents and warrants to the Buyer that each of the following statements is correct and not misleading in any material respect on the date of this agreement and will be correct and not misleading as at the Completion Date as if made on that date:

1
The Seller Group
 
1.1  
Seller Group
 
The shareholding structure of the Seller Group set out in Schedule 3 is accurate in all material aspects.
 
The details of the Seller Group Companies set out in Schedule 4 is accurate in all material aspects.
 
1.2  
Incorporation
 
Each Seller Group Company is validly incorporated and duly registered under the laws of its jurisdiction of incorporation.
 
1.3  
Power
 
Each of the Seller Group Companies has all power and authority to own its properties and assets and to carry on its activities as they are now being conducted and as presently proposed to be conducted. To the best of the Seller’s knowledge, no person has made a Claim to be entitled to an Encumbrance affecting any material assets owned by a Seller Group Company.
 
1.4  
Solvency
 
None of the Seller Group Companies is insolvent or, so far as the Seller is aware, unable to pay its debts as they fall due.
 
There are no proceedings in relation to any compromise or arrangement with creditors or any winding up, bankruptcy or insolvency proceedings concerning any Seller Group Companies and no events have occurred which would justify such proceedings.
 
No order has been made or petition presented or resolution passed for the bankruptcy, winding up, liquidation or dissolution of any Seller Group Company and no distress, injunction, demand, execution or other process has been levied on the Seller Group or the Seller Group’s assets.
 
There is no any receivership of the whole or any part of the undertaking or assets of any Seller Group Companies.
 
1.5  
PRC registrations
 
PAPL SX is registered to conduct business of “CBM exploration in Zijinshan area, Lin prefecture, Shanxi province” in the Shanxi Province of the PRC and has registered the Representative Office in Beijing.
 
 
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2  
Shares and the Interests
 
2.1  
Proportion of capital
 
The Sale Share comprises   100% of the issued and outstanding capital of PAPL and is fully paid.
 
2.2  
Title
 
(a)  
The Seller is the sole exclusive and rightful owner of the Sale Share. The Sale Share was allotted and issued in accordance with the constitutional documents of PAPL.
 
(b)  
The Seller is the exclusive and rightful owner and is therefore entitled to sell and transfer or procure the sale and transfer, against payment in full thereof, of the full legal and beneficial ownership of the Sale Share to the Buyer, with all rights attaching thereto, according to the Law and on the terms set out in this agreement.
 
2.3  
No Encumbrances
 
There are no Encumbrances over the Sale Share.
 
2.4  
No restriction
 
Subject to fulfilment of the Conditions Precedent, there is no restriction on the transfer of the Sale Share to the Buyer. The Seller has the right, power and authority to sell and transfer the Sale Share with all rights now and hereafter attaching thereto, including the right to all dividends hereafter paid (in the case of Sale Share), declared or made in respect thereof, without the approval or consent of any other party.
 
2.5  
Consents
 
Subject to fulfilment of the Conditions Precedent, the Seller has obtained all consents necessary and conducted all necessary filings or registration or any other requirement of any Government Agency to enable it to transfer the Sale Share to the Buyer.
 
3
Power and authority
 
3.1  
Authority
 
The Seller has obtained all corporate authorisations and other governmental, statutory, regulatory or other consents, license or authorisations required to empower it to enter into and perform its obligations under this agreement where failure to obtain them would adversely affect to a material extent its ability to enter into or perform its obligations under this agreement.
 
3.2  
Binding obligations
 
This agreement when executed by each of the Parties to it shall constitute legal, valid and binding obligations of the Seller, enforceable against it in accordance with its terms.
 
3.3  
No impediment
 
The execution by the Seller of, and performance by the Seller of its obligations under this agreement does not breach in any aspect any provision of any applicable Law or any Encumbrance or document which is binding on the Seller and does not result in any material breach of any obligations (including any statutory, contracted or fiduciary obligations) or material default under any agreement or undertaking to which the Seller is a party or is bound.
 
 
33
 
 
4  
Accounts
 
4.1  
Seller Accounts
 
The Seller Accounts:
 
(a)  
were prepared in accordance with applicable Laws, generally accepted accounting principles, standards and generally accepted accounting practice generally accepted in the United States of America (U.S. GAAP) and commonly adopted by companies carrying on businesses similar in all material respects to that carried on by the Seller Group in preparing management accounts (“ Standards ”) and on a basis consistent with that adopted in preparing the audited accounts for the one financial year immediately preceding the financial year to which the Accounts relate;
 
(b)  
fairly present each of the financial position and the performance of the Seller Group for the financial period ended on the Accounts Date and the Latest Accounts Date;
 
(c)  
fairly present in all material respects the state and affairs of the Seller Group Companies to which they relate and its or their material assets and material liabilities on the relevant accounts date;
 
(d)  
are not affected by any unusual, exceptional, extraordinary or non-recurring items which are not disclosed therein, to the extent disclosure is required by the relevant Standards.
 
4.2  
Position since the Latest Accounts Date
 
Since the Latest Accounts Date, each of the Seller Group Companies has been operated in the ordinary course in all material respects and (save for transactions contemplated under this agreement), no Seller Group Company has:
 
(a)  
disposed of any of its materials assets except in the ordinary and normal course of business at the fair market values of the assets concerned;
 
(b)  
declared made or paid any dividend or made any other distribution out of profits, reserves or capital except as provided in the Seller Accounts; or
 
(c)  
issued or agreed to issue any share or loan capital.
 
 
34
 
 
5
Assets
 
All material assets included in Seller Accounts or acquired by the Seller Group or which have otherwise arisen since the Latest Accounts Date, other than any assets disposed of or realised in the ordinary and usual course of business:
 
(a)  
are legally and beneficially owned by the Seller Group free from any Encumbrances; and
 
(b)  
are in the possession or under the control of the Seller Group.
 
6  
Litigation
 
6.1  
Current Litigation and investigations
 
None of the Seller Group Companies is a party to or the subject of any Action or arbitration proceedings which, if adversely determined, may have a Material Adverse Effect on the Seller Group and there are no unfulfilled or unsatisfied judgments or court orders against the Seller Group.
 
6.2  
Pending, threatened or anticipated Actions
 
So far as the Seller is aware, there is no Action threatened or anticipated against any of the Seller Group Companies which, if decided against them, may have a Material Adverse Effect on the Seller Group and/or its assets. None of the Seller Group Companies have received any written notice of any law suits which are pending or threatened against it.
 
7
Tax and Duty
 
7.1  
Taxes paid
 
To the best of the Seller’s knowledge, all Taxes, levies, assessments, contributions, fees, rates, duties, and other governmental or municipal charges or impositions (other than those which may be still paid without penalty or interest) for which the Seller Group Companies are liable, including any penalty or interest, have been paid insofar as such is ought to be paid prior to or on the date of this agreement.  
 
The Seller is not aware of any pending or threatened tax or duty audit relating to any Seller Group Companies.
 
7.2  
No tax disputes
 
None of the Seller Group Companies is in dispute with any tax authority and no such dispute is pending or threatened. No act or transaction has been effected in consequence of which any Seller Group Company is or may be held liable for any tax primarily chargeable against some other person.
 
 
35
 
 
Schedule 2 – Buyer Warranties
 
The Buyer represents and warrants to the Seller that each of the following statements is correct and not misleading in any material respect on the date of this agreement and will be correct and not misleading as at the Completion Date as if made on each of those dates:
 
1  
The Group
 
1.1  
Buyer Group
 
The shareholding structure of the Buyer Group set out in Schedule 5 is accurate in all material aspects.
 
The details of the Seller Group Companies set out in Schedule 6 is accurate in all material aspects.
 
1.2  
Incorporation
 
Each Buyer Group Company is validly incorporated in all applicable jurisdictions.
 
1.3  
Power
 
Each of the Buyer Group Companies are duly organised, validly existing and in good standing under, and by virtue of, the Laws and has all power and authority to own its properties and assets and to carry on its activities as they are now being conducted and as presently proposed to be conducted.
 
1.4  
Compliance with constituent documents
 
The affairs of each of the Buyer Group Companies are being conducted in accordance with its articles of association and all other constitutional documents, if any.
 
1.5  
Good standing
 
To the best of the Buyer’s knowledge, all corporate or other documents required to be filed or registered in respect of the Buyer Group with the relevant authorities have been duly filed.
 
The Buyer Group has not received any written notice that it is subject to any material investigation or enquiry by any Government Agency or under any statutory provision, which if adversely determined, may have a   Material Adverse Effect on the Buyer Group.
 
To the best of the Buyer’s knowledge, each of the Buyer Group Companies has not itself or vicariously committed any breach of any statutory provision, order, by-law or regulation binding upon it or of any provision of its Constitution or any deed, agreement or license to which it is a party or of any covenant, mortgage, charge of debenture given by it which will have a   Material Adverse Effect on the Buyer Group.
 
1.6  
Solvency
 
No order has been made or petition presented or resolution passed for the bankruptcy, winding up, liquidation or dissolution of any Buyer Group Company and no distress, injunction, demand, execution or other process has been levied on the Buyer Group’s assets.
 
There is no any receivership of the whole or any part of the undertaking or assets of any Buyer Group Companies.
 
 
36
 
2  
Shares and the Interests
 
2.1  
Proportion of capital
 
(a)  
The Buyer has an issued share
of 243,025,883 ordinary Shares as at t
he date of this agreement.
 
(b)  
The Consideration Shares comprise   approximately 4% of the issued and outstanding capital of the Buyer as at the date of this agreement.
 
(c)  
As at the date of this agreement, no Persons, firm or corporation has any agreement or option, or right or privilege (whether pre-emptive or contractual) capable of becoming an agreement or option, for the purchase from the Buyer Group of any unissued Shares of the Buyer Group.
 
2.2  
Title
 
Each Buyer Group Company has complied in all material respects with all legal requirements relating to the issue of its shares including (but without prejudice to the generality of the foregoing) duly registering such shares and duly registering the relevant share issuance decision and share issuance report on the results of the share issuance and so far as the Buyer is aware there exist no lawful grounds for contesting the issue of the respective shares.
 
2.3  
Issue of the Consideration Shares
 
The Consideration Shares will be allotted and issued in accordance with the constitutional documents of the Buyer and all relevant Laws.
 
The issuance of the Consideration Shares will not result in a violation or breach of, require any consent to be obtained under or give rise to any termination rights under any provision of:
 
(a)  
its or any of its subsidiary’s constitution, articles, by-laws or other governing documents,
 
(b)  
any material agreement or material understanding with any Person holding an ownership interest in any subsidiary of the Buyer Group;
 
(c)  
any applicable Law, regulation, order, judgment or decree, or any policy of any Government Agency; or
 
(d)  
any material contract or material license, franchise or permit to which the Buyer Group is bound or is subject
 
 
When issued in the manner contemplated in this agreement, the Consideration Shares, on the basis that such may be distributed to shareholders of the Seller, will be duly and validly authorized and credited as fully paid ordinary shares, ranking pari passu with the Buyer’s existing ordinary Shares (including, in respect of all dividends declared or paid subsequent to Completion and in all other respects carry the same rights), and will be free of all liens, charges and Encumbrances, and will be freely tradeable on the ASX.
 
 
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2.4  
No Encumbrances
 
There will be no Encumbrances over the Consideration Shares when such shares are issued, allotted and registered in the name of the Seller.
 
2.5  
No restriction
 
Subject to fulfilment of the Conditions Precedent, there is no restriction on the issue and allotment of the Consideration Shares to the Seller.
 
2.6  
Consents
 
Subject to fulfilment of the Conditions Precedent, the Buyer has obtained all consents necessary and conducted all necessary filings or registration or any other requirement of any Government Agency to enable it to issue and allot the Consideration Shares to the Seller.
 
2.7  
No breach
 
The issue and allotment of the Consideration Shares does not breach any obligation or agreement binding on the Buyer.
 
2.8  
No commitment for further allotment
 
As at the date of this agreement, there is no agreement or commitment outstanding which calls for the allotment or issue of, or accords to any person the right to call for the allotment or issue of, any shares or securities in or debentures of or capital in the Buyer Group, other than those arising under the Consideration Shares contemplated under this agreement.
 
3  
Power and authority
 
3.1  
Authority
 
The board of directors of the Buyer have duly adopted all resolutions necessary to authorise the execution and performance of their respective obligations under this agreement.
 
3.2  
Power
 
Subject to fulfilment of the Conditions Precedent, the Buyer has the full power, without any further consent of any other person, to enter into and perform their respective obligations under this agreement.
 
3.3  
Binding obligations
 
This agreement when executed by each of the Parties to it shall constitute legal, valid and binding obligations of the Buyer enforceable against each of them in accordance with its terms.
 
 
3.4  
No impediment
 
The execution by the Buyer of, and performance by the Buyer of its obligations under this agreement does not breach in any aspect any provision of any applicable Law or any Encumbrance or document which is binding on the Buyer (including any shareholders agreement, mortgage, contract or other undertaking or instrument) and does not result in any material breach of any obligations (including any statutory, contracted or fiduciary obligations) or material default under any agreement or undertaking to which the Buyer is a party or is bound.
 
 
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4  
Compliance with legal requirements
 
4.1  
No breach of constitutional documents or the Law
 
None of the Buyer Group Companies have done, caused to be done, or is aware of anything which would or could constitute, a material breach of its constitutional documents and/or any applicable Laws and regulations and which may have a Material Adverse Effect on the Buyer Group.
 
The Buyer has filed and/or published, as the case may be, all reports, schedules, forms, statements and other documents required to be filed or published by it under the Listing Rules and the Securities Laws.  No such filing or publication included any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The Buyer has complied in all material respects with the Listing Rules and the Securities Laws.
 
5  
Accounts
 
6.1 
Buyer Accounts
 
The Buyer Accounts:
 
(a)  
were prepared in accordance with applicable Laws, generally accepted accounting principles, standards and generally accepted accounting practice and commonly adopted by companies carrying on businesses similar in all material respects to that carried on by the Buyer Group in preparing management accounts (“ Buyer Standards ”) and on a basis consistent with that adopted in the preparing the audited accounts for the one financial year immediately preceding the financial year to which the accounts relate;
 
(b)  
give a true and fair view of each of the financial position and the performance of the Buyer Group for the financial period ended on the Accounts Date and the Latest Accounts Date;
 
(c)  
disclose all the fixed and current assets, liabilities and capital commitments (actual, contingent or otherwise) of the Buyer Group on the Account Date and the Latest Accounts Date;
 
(d)  
make, in accordance with the Law and generally accepted accounting principles, appropriate provision and/or reserve adequate to cover all known liabilities (whether quantified, contingent or otherwise) of the Buyer Group, including but not limited to Tax, all known or anticipated bad and doubtful debts, redundant, obsolete, excessive or slow moving stock of the Buyer Group; and
 
(e)  
are not affected by any unusual, exceptional, extraordinary or non-recurring items which are not disclosed therein, to the extent disclosure is required by the Buyer Standards.
 
 
39
 
 
6.2  
Position since the Accounts Date
 
Since the Latest Accounts Date no event has occurred as regards any Buyer Group Company which would entitle any Third Party to terminate any material contract or any material benefit enjoyed by it.
 
Since the Latest Accounts Date, none of the Buyer Group Companies have (save for transactions contemplated under this agreement):
 
(1)  
disposed of any of its material assets except in the ordinary and normal course of business at the fair market values of the assets concerned;
 
(2)  
entered into any transaction or knowingly incurred any liabilities (actual or contingent) or made any payment not provided for in the Buyer Accounts except, in each case, in the ordinary course of trading;
 
(3)  
defaulted in any material contractual obligations which may have a Material Adverse Effect on the Buyer Group;
 
(4)  
declared made or paid any dividend or made any other distribution out of profits, reserves or capital except as provided in the Buyer Accounts; and
 
(5)  
issued or agreed to issue any share or loan capital.
 
 
Since the Latest Accounts Date, there has not been no Material Adverse Effect to the financial position, business or property, results of operations, prospects of any Buyer Group Company or Buyer Group taken as a whole.
 
6  
Assets
 
All material assets included in the Buyer Accounts or acquired by the Buyer Group or which have otherwise arisen since the Latest Accounts Date, other than any assets disposed of or realised in the ordinary and usual course of business:
 
 
(a)
are legally and beneficially owned by the Buyer Group free from any Encumbrances; and
 
(b) 
are in the possession or under the control of the Buyer Group.
 
7  
Litigation
 
9.1  
Current Litigation and investigations
 
None of the Buyer Group Companies are a party to or the subject of any Action or arbitration proceedings which, if adversely determined, may have a Material Adverse Effect on the Buyer Group and there are no unfulfilled or unsatisfied judgments or court orders against the Buyer Group.
 
9.2 
Pending, threatened or anticipated Actions
 
So far as the Buyer is aware, there is no Action threatened or anticipated against any of the Buyer Group Companies which, if decided against them, may have a Material Adverse Effect on the Buyer Group and/or their assets. None of the Buyer Group Companies have received any written notice of any law suits which are pending or threatened against it.
 
 
40
 
8  
Tax and Duty
 
10.1  
Taxes paid
 
To the best of the Buyer’s knowledge, all Taxes, levies, assessments, contributions, fees, rates, duties, and other governmental or municipal charges or impositions (other than those which may be still paid without penalty or interest) for which the Buyer Group Companies are liable, including any penalty or interest, have been paid insofar as such is ought to be paid prior to or on the date of this agreement.   The Buyer is not aware of any pending or threatened tax or duty audit relating to any Buyer Group Companies.
 
10.2  
No tax disputes
 
None of the Buyer Group Companies is in dispute with any tax authority and no such dispute is pending or threatened. No act or transaction has been effected in consequence of which any Buyer Group Company is or may be held liable for any Tax primarily chargeable against some other person or person.
 
 
41
 
 
Schedule 3 – Seller Group Chart
*Accurate up to immediately prior to Completion only
 

 
42
 
 
Schedule 4 – Details of Seller Group Companies
 
*Accurate up to immediately prior to Completion only

Name
Pacific Asia Petroleum, Limited
Pacific Asia Petroleum (HK) Ltd.
     
Company number
1168079
1235483
     
Place of incorporation
Hong Kong
Hong Kong
     
Date of incorporation
18 September 2007
8 May 2008
     
Registered office
601 Prince’s Building, Chater Road, Central, Hong Kong
601 Prince’s Building, Chater Road, Central, Hong Kong
     
Authorized share capital
HK$10,000 divided into 10,000 shares of HK$1 each
HK$10,000 divided into 10,000 shares of HK$1 each
     
Issued share capital
HK$1 represented by 1 share
HK$1 represented by 1 share
     
Directors
Wong Chung Chee, Heidi
Courtright Jeffrey Scott
Lawal Kase Lukman
Wong Chung Chee Heidi
Courtright Jeffrey Scott
Lawal Kase Lukman
     
Corporate secretary
Wilgrist Nominees Limited
 
Wilgrist Nominees Limited
 
Shareholder
CAMAC Energy, Inc.
Pacific Asia Petroleum, Limited
 
Status
 
Active
 
Dormant
 
 
 
Share Sale and Purchase Agreement

 
43
 

Details of PRC registrations of Pacific Asia Petroleum, Limited

Registration type
Resident Representative office of Foreign (Region) Enterprise in China
Business Licence
(Exploration and Development of Mineral Resources)
 
Registration organ
 
Beijing Administration of Industry and Commerce of the PRC
 
Shanxi Administration for Industry and Commerce of the PRC
     
Certificate number
110000400192597
1400000500000183
     
Name of office / enterprise
Pacific Asia Petroleum Limited Beijing Representative Office
Pacific Asia Petroleum Limited (referred in this agreement as PAPL SX)
     
Date of registration
10 October 2011
10 March 2011
     
Chief representative/
responsible person
Heidi Wong
Heidi Wong
     
Scope of business
Non-profiting business activities in relation to affiliated foreign (region) company
CBM exploration in the Zijinshan are, Lin prefecture, Shanxi province
     
Address
Room 508A, 4 th Floor, Nexus Centre,
19A Dong San Huan Bei Lu,
Chaoyang District, Beijing, PRC
Room 807-A, 3 rd Building, 9 Sci-tech Street,
Taiyuan City, Shanxi Province, PRC
     
Effective period
16 April 2008 to 17 September 2012
18 July 2008 and 18 July 2015
 
 
Share Sale and Purchase Agreement
 
 
44
 
 
Schedule 5 – Buyer Group Chart
 
 
 
Share Sale and Purchase Agreement
 
 
45
 
 
Schedule 6 – Details of Buyer Group Companies
 
*Accurate up to immediately prior to Completion only

Company
Country of Incorporation
No of shares
Issue price
Total capital
Held by
Ikh Zuchi Resources Ltd
Mongolia
100,000
US$1
US$100,000
Leyshon Resources
China Metals Pty Ltd
Australia
1
A$1
A$1
Leyshon Resources
South Gobi Coal Company Ltd
Cayman Islands
1
US$1
US$1
Leyshon Resources
Xinjiang Exploration & Development Ltd
British Virgin Islands
1
US$1
US$1
China Metals Pty Ltd
Chang Xing Ltd
British Virgin Islands
2
US$1
US$2
Leyshon Resources
Trident Investment Ltd
Hong Kong
1
HK$1
HK$1
Chang Xing Ltd
Beijing North Asia Mining Management And Consulting Co.,Ltd
People's Republic of China
N/A
N/A
US$1,200,000
Trident Investment Ltd

Share Sale and Purchase Agreement

 
46
 
 
Annexure 1 – List of Data Room Contents
 
S/N
File Name
Location
1-001
Ordos Basin_EN.pdf
Zijinshan Data Room/1st round data
1-002
Zijinshan Introduction 2011 11 2 Chinese.pdf
Zijinshan Data Room/1st round data
1-003
Zijinshan Introduction 2011 11 2 English.pdf
Zijinshan Data Room/1st round data
1-004
Zijinshan PSC Assets.pdf
Zijinshan Data Room/1st round data
1-005
Zijinshan Block Map.pdf
Zijinshan Data Room/1st round data
1-006
Zijinshan Topograph.pdf
Zijinshan Data Room/1st round data
2-001
Gas log data of ZJS1.pdf (xls)
Zijinshan Data Room/2nd round data/20120208/Gas_Log
2-002
Gas log data of ZJS2 Original Borehole.pdf (xls)
Zijinshan Data Room/2nd round data/20120208/Gas_Log
2-003
Gas log data of ZJS2 Sidetrack Borehole.pdf (xls)
Zijinshan Data Room/2nd round data/20120208/Gas_Log
2-004
Gas log data of ZJS3.pdf (xls)
Zijinshan Data Room/2nd round data/20120208/Gas_Log
2-005
Gas log data of ZJS4.pdf (xls)
Zijinshan Data Room/2nd round data/20120208/Gas_Log
2-006
p_impedance_ZJS08-01.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-007
p_impedance_ZJS08-02.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-008
p_impedance_ZJS08-03.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-009
p_impedance_ZJS08-04.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-010
p_impedance_ZJS08-05.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-011
p_impedance_ZJS08-06.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-012
p_impedance_ZJS08-07.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-013
p_impedance_ZJS08-08.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-014
s_impedance_ZJS08-01.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-015
s_impedance_ZJS08-02.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-016
s_impedance_ZJS08-03.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-017
s_impedance_ZJS08-04.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-018
s_impedance_ZJS08-05.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-019
s_impedance_ZJS08-06.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-020
s_impedance_ZJS08-07.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-021
s_impedance_ZJS08-08.sgy
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
2-022
Seismic Inversion.pdf
Zijinshan Data Room/2nd round data/20120208/Seismic_Inversion
 
 
47
 
 
2-023
ZJS.01.GSTKMIG-FINAL.segy
Zijinshan Data Room/2nd round data/20120208/Seismic_Migrated
2-024
ZJS.02.GSTKMIG-FINAL.segy
Zijinshan Data Room/2nd round data/20120208/Seismic_Migrated
2-025
ZJS.03.GSTKMIG-FINAL.segy
Zijinshan Data Room/2nd round data/20120208/Seismic_Migrated
2-026
ZJS.04.GSTKMIG-FINAL.segy
Zijinshan Data Room/2nd round data/20120208/Seismic_Migrated
2-027
ZJS.05.GSTKMIG-FINAL.segy
Zijinshan Data Room/2nd round data/20120208/Seismic_Migrated
2-028
ZJS.06.GSTKMIG-FINAL.segy
Zijinshan Data Room/2nd round data/20120208/Seismic_Migrated
2-029
ZJS.07.GSTKMIG-FINAL.segy
Zijinshan Data Room/2nd round data/20120208/Seismic_Migrated
2-030
ZJS.08.GSTKMIG-FINAL.segy
Zijinshan Data Room/2nd round data/20120208/Seismic_Migrated
2-031
Seismic Section.pdf
Zijinshan Data Room/2nd round data/20120208/Seismic_Migrated
2-032
ZJS1 E-logging.txt
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-033
ZJS1 Well Composite Well-Logging Graph (CH)
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-034
ZJS1 Well Composite Well-Logging Graph (EN)
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-035
ZJS2 Composite Log Chart (EN).jpg
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-036
ZJS2 E-Logging (Primal).txt
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-037
ZJS2 E-logging.txt
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-038
ZJS2 Well Composite Well-Logging Graph.jpg
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-039
ZJS3 E-Logging.txt
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-040
ZJS3 Well Composite Well-Logging Graph.jpg
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-041
ZJS4 E-Logging.txt
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-042
ZJS4 Well Composite Well-logging Graph.jpg
Zijinshan Data Room/2nd round data/20120208/Wireline_Log
2-043
Drilling Turnkey Services Contract for ZJS3 Well.pdf
Zijinshan Data Room/2nd round data/Contracts and Permits
2-044
2012-05-28 ZJS Block Exploration License Renewed to 2014 (EnC).pdf
Zijinshan Data Room/2nd round data/Contracts and Permits
2-045
ZJS1 Gas Content Report (CH).pdf
Zijinshan Data Room/2nd round data/Core and Gas Content Analysis
2-046
ZJS1 Gas Content Report (EN).pdf
Zijinshan Data Room/2nd round data/Core and Gas Content Analysis
2-047
ZJS1 Well Test Report (CH).pdf
Zijinshan Data Room/2nd round data/Core and Gas Content Analysis
2-048
ZJS1 Well Test Report (EN).pdf
Zijinshan Data Room/2nd round data/Core and Gas Content Analysis
2-049
ZJS2 Gas Content Report (CH).pdf
Zijinshan Data Room/2nd round data/Core and Gas Content Analysis
2-050
ZJS2 Gas Content Report (EN).pdf
Zijinshan Data Room/2nd round data/Core and Gas Content Analysis
 
 
48
 
 
2-051
ZJS2 ZJS3 ZJS4 Core Analysis Summary.pdf
Zijinshan Data Room/2nd round data/Core and Gas Content Analysis
2-052
ZJS3 Digital Core Analysis Report.pdf
Zijinshan Data Room/2nd round data/Core and Gas Content Analysis
2-053
ZJS4 Digital Core Analysis Report.pdf
Zijinshan Data Room/2nd round data/Core and Gas Content Analysis
2-054
Contract for Drilling Turnkey Services of ZJS1 Well.pdf
Zijinshan Data Room/2nd round data/Drilling Contract
2-055
Contract for Drilling Turnkey Services of ZJS2 Well.pdf
Zijinshan Data Room/2nd round data/Drilling Contract
2-056
Contract for Drilling Turnkey Services of ZJS3 Well.pdf
Zijinshan Data Room/2nd round data/Drilling Contract
2-057
Contract for Drilling Turnkey Services of ZJS4 Well.pdf
Zijinshan Data Room/2nd round data/Drilling Contract
2-058
Termination of Contract for ZJS2 & ZJS3.pdf
Zijinshan Data Room/2nd round data/Drilling Contract
2-059
Well ZJS1 Project Summary (Engineering).pdf
Zijinshan Data Room/2nd round data/Drilling Reports
2-060
Well ZJS2 Project Summary (Engineering).pdf
Zijinshan Data Room/2nd round data/Drilling Reports
2-061
Well ZJS3 Project Summary (Engineering).pdf
Zijinshan Data Room/2nd round data/Drilling Reports
2-062
Well ZJS4 Project Summary (Engineering).pdf
Zijinshan Data Room/2nd round data/Drilling Reports
2-063
1st JMC Minutes.pdf
Zijinshan Data Room/2nd round data/JMC Minutes
2-064
2nd JMC Minutes.pdf
Zijinshan Data Room/2nd round data/JMC Minutes
2-065
3rd JMC Minutes.pdf
Zijinshan Data Room/2nd round data/JMC Minutes
2-066
4th JMC Minutes.pdf
Zijinshan Data Room/2nd round data/JMC Minutes
2-067
5th JMC Minutes.pdf
Zijinshan Data Room/2nd round data/JMC Minutes
2-068
6th JMC Minutes.pdf
Zijinshan Data Room/2nd round data/JMC Minutes
2-069
Joint Account Statement 2009 07.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-070
Joint Account Statement 2009 08.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-071
Joint Account Statement 2009 09.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-072
Joint Account Statement 2009 10.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-073
Joint Account Statement 2009 11.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-074
Joint Account Statement 2009 12.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-075
Joint Account Statement 2010 01.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-076
Joint Account Statement 2010 02.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-077
Joint Account Statement 2010 03.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-078
Joint Account Statement 2010 04.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-079
Joint Account Statement 2010 05.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
 
 
49
 
 
2-080
Joint Account Statement 2010 06.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-081
Joint Account Statement 2010 07.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-082
Joint Account Statement 2010 08.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-083
Joint Account Statement 2010 09.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-084
Joint Account Statement 2010 10.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-085
Joint Account Statement 2010 11.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-086
Joint Account Statement 2010 12.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-087
Joint Account Statement 2011 01.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-088
Joint Account Statement 2011 02.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-089
Joint Account Statement 2011 03.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-090
Joint Account Statement 2011 04.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-091
Joint Account Statement 2011 05.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-092
Joint Account Statement 2011 06.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-093
Joint Account Statement 2011 07.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-094
Joint Account Statement 2011 08.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-095
Joint Account Statement 2011 09.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-096
Joint Account Statement 2011 10.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-097
Joint Account Statement 2011 11.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-098
Joint Account Statement 2011 12.pdf
Zijinshan Data Room/2nd round data/Joint Account Statements
2-099
Joint Account Statement 2011 12.zip
Zijinshan Data Room/2nd round data/Joint Account Statements
2-100
Seismic Inversion.pdf
Zijinshan Data Room/2nd round data/Maps
2-101
Seismic Lines & Well Locations.pdf
Zijinshan Data Room/2nd round data/Maps
2-102
Seismic Section.pdf
Zijinshan Data Room/2nd round data/Maps
2-103
Structrual Map of Coal Seam 8&9 Top.JPG
Zijinshan Data Room/2nd round data/Maps
2-104
Structrual Map.pdf
Zijinshan Data Room/2nd round data/Maps
2-105
Thickness Map of Coal Seam 4&5, Shanxi Formation.JPG
Zijinshan Data Room/2nd round data/Maps
2-106
Thickness Map of Coal Seam 8&9, Shanxi Formation.JPG
Zijinshan Data Room/2nd round data/Maps
2-107
Zijinshan Block.pdf
Zijinshan Data Room/2nd round data/Maps
 
 
50
 
 
2-108
PAPL China Operation Org Chart.pdf
Zijinshan Data Room/2nd round data/Organization Structure
2-109
PAPL Share Holding Structure.pdf
Zijinshan Data Room/2nd round data/Organization Structure
2-110
PAPL ZJS Operating Team Org Chart.pdf
Zijinshan Data Room/2nd round data/Organization Structure
2-111
2011 05 06 Notarial Document - Appoint Heidi as Chief Representative of BRO.pdf
Zijinshan Data Room/2nd round data/Organization Structure/Beijing Representative Office
2-112
Business Registration Certificate - BRO.pdf
Zijinshan Data Room/2nd round data/Organization Structure/Beijing Representative Office
2-113
Business License - PAPL SX.pdf
Zijinshan Data Room/2nd round data/Organization Structure/PAPL SX
2-114
Organization Code Certificate - PAPL SX.pdf
Zijinshan Data Room/2nd round data/Organization Structure/PAPL SX
2-115
Tax Registration Certificate - PAPL SX.pdf
Zijinshan Data Room/2nd round data/Organization Structure/PAPL SX
2-116
ZJS PSC Contract Term Summary & Gas Allocation.pdf
Zijinshan Data Room/2nd round data/Production Sharing Contract
2-117
ZJS PSC 1st Modification Agreement.pdf
Zijinshan Data Room/2nd round data/Production Sharing Contract
2-118
ZJS PSC (Eng).pdf
Zijinshan Data Room/2nd round data/Production Sharing Contract
2-119
ZJS PSC (Chinese).pdf
Zijinshan Data Room/2nd round data/Production Sharing Contract
2-120
MOC Approval for PSC.pdf
Zijinshan Data Room/2nd round data/Production Sharing Contract
2-121
MOC Approval for PSC 1st Modification Agreement.pdf
Zijinshan Data Room/2nd round data/Production Sharing Contract
2-122
Ordos Basin_EN.pdf
Zijinshan Data Room/2nd round data/Regional Geology
2-123
Sedimentary Facies Study Report Presentation_CN.pdf
Zijinshan Data Room/2nd round data/Regional Geology
2-124
Sedimentary Facies Study Report Presentation_EN.pdf
Zijinshan Data Room/2nd round data/Regional Geology
2-125
Zijinshan Introduction for GD 2012 05.pptx
Zijinshan Data Room/2nd round data/Regional Geology
2-126
2D Seismic Data Interpretation on Zijinshan PSC Block 0824.pdf
Zijinshan Data Room/2nd round data/Seismic
2-127
Final Report of Zijinshan Block 2008 2D Seismic Acquisition.pdf
Zijinshan Data Room/2nd round data/Seismic
2-128
Seismic Processing Report of Zijinshan 052011.pdf
Zijinshan Data Room/2nd round data/Seismic
2-129
Zijinshan Interpretation 2009.pdf
Zijinshan Data Room/2nd round data/Seismic
 
 
51
 
 
2-130
Drilling Program of ZJS4 in Zijinshan PSC.pdf
Zijinshan Data Room/2nd round data/Well Proposals
2-131
Geological Design of ZJS4 in Zijinshan PSC-attached maps.pdf
Zijinshan Data Room/2nd round data/Well Proposals
2-132
Geological Design of ZJS4 in Zijinshan PSC.pdf
Zijinshan Data Room/2nd round data/Well Proposals
2-133
Geological Program of ZJS3 in Zijinshan PSC.pdf
Zijinshan Data Room/2nd round data/Well Proposals
2-134
ZJS1 Drilling Program.pdf
Zijinshan Data Room/2nd round data/Well Proposals
2-135
ZJS2 Drilling Program.pdf
Zijinshan Data Room/2nd round data/Well Proposals
2-136
ZJS3 Drilling Program.pdf
Zijinshan Data Room/2nd round data/Well Proposals
2-137
ZJS3 Geological Program-attached figures.pdf
Zijinshan Data Room/2nd round data/Well Proposals
2-138
2nd round data.zip
Zijinshan Data Room
 
Share Sale and Purchase Agreement
 
 
52
 

Annexure 2 – Form of Application for Shares
 
Date:

To:          Leyshon Resources Limited
Suite 3, Level 3, 1292 Hay Street
West Perth WA, 6005, Australia
 
Dear Sirs
 
Application for Allotment of Shares
 
We refer to the agreement dated 22 July 2012 (“ SP Agreement ”) and entered into by our respective selves and Leyshon Resources Limited concerning the sale and purchase of the entire issued share capital in Pacific Asia Petroleum, Limited.
 
Expressions defined in the SP Agreement have the same meanings where used in this letter.
 
Pursuant to and in accordance with the terms of clause 5 of the SP Agreement, the Buyer and the Seller have completed the sale and purchase of the Sale Share on the date hereof.
 
 
Pursuant to the terms of the SP Agreement, we, the Seller, hereby apply for an aggregate of 10 million new shares in the capital of the Buyer (being the Consideration Shares), credited as fully paid. We hereby request the Buyer to register our name and address on the branch register of members of the Buyer in Hong Kong in accordance with the constituent documents of the Buyer and agree to hold the Consideration Shares subject to the constituent documents of the Buyer.
 
Our address to be entered in the branch register of members of the Buyer is 1330 Post Oak Boulevard, Suite 2575, Houston, TX 77056, United States of America.

Yours faithfully
For and on behalf of
CAMAC Energy Inc.

Name:
Title:
 
 
53
 
 
Share Sale and Purchase Agreement
 
Signing page
DATED:   22 July 2012

IN WITNESS of these matters this agreement has been executed on the date and year above written.

The Seller
 
Executed by CAMAC Energy,
Inc in accordance with its
constituent documents
)
)
)
)
 
     
/s/ Nicolas J. Evanoff    
Signature of Authorized Person    
     
Nicolas J. Evanoff    
Name of in full    
     
Senior Vice President    
Title    
 
The Buyer

Executed by Leyshon Resources
Limited ACN 010 482 274 in
accordance with
section 127 of the
Corporations Act :
 
 
)
)
)
)
 
 
 
 
/s/ Paul Campbell Atheoley   /s/ Murray Robert Wylie
Signature of Director
 
Signature of Secretary
     
Paul Campbell Atheoley   Murray Robert Wylie
Name of Director in full
 
Name of Secretary
 
 
54
EXHIBIT 31.1
 
CERTIFICATION PURSUANT TO
15 U.S.C. § 7241
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Dr. Kase Lukman Lawal, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of CAMAC Energy Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements and other financial information included in this report, fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: November 9, 2012
 
/s/ Dr. Kase Lukman Lawal
 
   
Dr. Kase Lukman Lawal
 
   
Chief Executive Officer
 
    (Principal Executive Officer)  
EXHIBIT 31.2
 
CERTIFICATION PURSUANT TO
15 U.S.C. § 7241
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Earl W. McNiel, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of CAMAC Energy Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements and other financial information included in this report, fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: November 9, 2012
 
/s/ Earl W. McNiel
 
   
Earl W. McNiel
 
   
Interim Chief Financial Officer
 
   
(Principal Financial Officer)
 
EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of CAMAC Energy Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dr. Kase Lukman Lawal, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
 
1.
The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
 
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
Date: November 9,  2012
 
/s/ Dr. Kase Lukman Lawal
 
   
Dr. Kase Lukman Lawal
 
   
Chief Executive Officer
 
   
(Principal Executive Officer)
 
EXHIBIT 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of CAMAC Energy Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Earl W. McNiel, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
 
1.
The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
 
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
Date: November 9, 2012
 
/s/ Earl W. McNiel
 
   
Earl W. McNiel         
 
   
Interim Chief Financial Officer
 
   
(Principal Financial Officer)