UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB/A
Amendment
No. 1
(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, 2006;
|
|
|
or
|
||
|
o
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the transition period from ____________ to
____________.
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Commission
file Number: 1-32158
GEOGLOBAL
RESOURCES INC.
-----------------------------------------------------------------
(Exact
name of small business issuer as specified in its charter)
|
DELAWARE
|
33-0464753
|
|
(State
or other jurisdiction of incorporation of organization)
|
(I.R.S.
employer identification no.)
|
SUITE
#310, 605 - 1 STREET SW, CALGARY, ALBERTA, CANADA T2P 3S9
-----------------------------------------------------------------
(Address
of principal executive offices, zip code)
403
777-9250
------------------------------------------------
(Issuer's
Telephone Number, Including Area Code)
Check
whether the issuer (1) has filed all reports required to be filed by Section
13
or 15(d) of the Securities Exchange Act of 1934 during the proceeding 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES
[X] NO
[
]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES
[
] NO
[X]
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.
|
Class
|
Outstanding
at November 14, 2006
|
|
|
COMMON
STOCK, PAR VALUE $.001 PER SHARE
|
66,203,255
|
Transitional
Small Business Disclosure Format
|
YES
[ ]
|
NO
[X]
|
General. On
April
4, 2007, we issued a press release announcing that based on the advice of our
Audit Committee and outside consultants, with the concurrence of our Independent
Registered Public Accountant, our Board of Directors concluded that the
financial statements in our Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2006 should no longer be relied upon because of an error
in
such financial statements. We concurrently filed a Current Report on Form 8-K
in
response to Item 4.02.
Non-Reliance
on Previously Issued Financial Statements or a Related Audit Report or Completed
Interim Review.
This
Form
10-QSB/A is being filed to amend our Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2006. The amendment is filed in order to correct
an
error that had been made in connection with our compliance with FAS 123R and
the
calculation of our stock based compensation for the quarter and nine months
ended September 30, 2006 that appeared in the Quarterly Report. We are amending
Part I, Item 1. Financial Statements and Item 2. Management’s Discussion and
Analysis or Plan of Operation of our Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2006.
This
Form
10-QSB/A does not reflect events occurring after the filing of the original
Form
10-QSB or modify or update those disclosures. Information not affected by the
amendment is unchanged and reflects the disclosure made at the time of the
original filing of the Form 10-QSB with the Securities and Exchange Commission
on November 14, 2006. The following items have been amended:
Quarterly
Report on Form 10-QSB/A
September
30, 2006
|
Page
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||
|
Part
I
|
||
|
Item
1
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3-23
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|
|
Item
2
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24-41
|
|
|
Part
II
|
||
|
Item
6
|
42
|
|
PART
I. FINANCIAL
INFORMATION
ITEM
1. CONSOLIDATED
FINANCIAL STATEMENTS
|
GEOGLOBAL
RESOURCES INC.
(a
development stage enterprise)
(Unaudited)
|
|||||||
|
September
30, 2006
US
$
|
December
31, 2005
US
$
|
||||||
|
Restated
|
|||||||
|
note
5b(iv)
|
|||||||
|
Assets
|
|||||||
|
Current
|
|||||||
|
Cash
and cash equivalents
|
33,198,051
|
36,037,388
|
|||||
|
Accounts
receivable and prepaids
|
197,024
|
144,753
|
|||||
|
Cash
call receivable
|
62,212
|
49,947
|
|||||
|
33,457,287
|
36,232,088
|
||||||
|
Restricted
cash (note 10a)
|
3,482,305
|
392,485
|
|||||
|
Property
and equipment (note 3)
|
|||||||
|
Exploration
costs, not subject to depletion
|
7,759,912
|
2,216,663
|
|||||
|
Computer
and office equipment, net
|
141,617
|
89,826
|
|||||
|
7,901,529
|
2,306,489
|
||||||
|
44,841,121
|
38,931,062
|
||||||
|
Liabilities
|
|||||||
|
Current
|
|||||||
|
Accounts
payable
|
388,841
|
159,145
|
|||||
|
Accrued
liabilities
|
747,927
|
43,500
|
|||||
|
Due
to related companies (notes 7c, 7d and 7e)
|
126,284
|
244,452
|
|||||
|
1,263,052
|
447,097
|
||||||
|
Stockholders'
Equity (note
4)
|
|||||||
|
Capital
stock
|
|||||||
|
Authorized
|
|||||||
|
100,000,000
common shares with a par value of US$0.001 each
|
|||||||
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1,000,000
preferred shares with a par value of US$0.01 each
|
|||||||
|
Issued
|
|||||||
|
66,203,255
common shares (December 31, 2005 - 62,954,255)
|
51,610
|
48,361
|
|||||
|
Additional
paid-in capital
|
45,892,569
|
40,275,588
|
|||||
|
Deficit
accumulated during the development stage
|
(2,366,110
|
)
|
(1,839,984
|
)
|
|||
|
43,578,069
|
38,483,965
|
||||||
|
44,841,121
|
38,931,062
|
||||||
|
See
Commitments, Contingencies and Guarantees (note 10)
The
accompanying notes are an integral part of these Consolidated Financial
Statements
|
|||||||
|
GEOGLOBAL
RESOURCES INC.
(a
development stage enterprise)
(Unaudited)
|
||||||||||||||||
|
Three
months
ended
Sept
30-2006
US
$
|
Three
months ended
Sept
30-2005
US
$
|
Nine
months
ended
Sept
30-2006
US
$
|
Nine
months
ended
Sept
30-2005
US
$
|
Period
from
Inception,
August
21-2002
to
Sept 30-2006
US
$
|
||||||||||||
|
Restated
|
Restated
|
Restated
|
||||||||||||||
|
note
5b(iv)
|
note
5b(iv)
|
(note
5b(iv) ,11)
|
||||||||||||||
|
Expenses
(note 7c, 7d and 7e)
|
||||||||||||||||
|
General
and administrative
|
358,810
|
179,516
|
1,054,504
|
369,450
|
2,159,220
|
|||||||||||
|
Consulting
fees
|
399,155
|
53,295
|
568,172
|
154,869
|
1,241,504
|
|||||||||||
|
Professional
fees
|
61,039
|
41,382
|
161,967
|
131,623
|
663,382
|
|||||||||||
|
Depreciation
and depletion
|
12,975
|
12,650
|
33,974
|
36,037
|
195,961
|
|||||||||||
|
831,979
|
286,843
|
1,818,617
|
691,979
|
4,260,067
|
||||||||||||
|
Other
expenses (income)
|
||||||||||||||||
|
Consulting
fees recovered
|
--
|
--
|
--
|
--
|
(66,025
|
)
|
||||||||||
|
Equipment
costs recovered
|
--
|
--
|
--
|
--
|
(19,395
|
)
|
||||||||||
|
Gain
on sale of equipment
|
--
|
--
|
--
|
--
|
(42,228
|
)
|
||||||||||
|
Foreign
exchange (gain) loss
|
(2,329
|
)
|
8,198
|
(3,750
|
)
|
12,706
|
18,060
|
|||||||||
|
Interest
income
|
(461,123
|
)
|
(77,693
|
)
|
(1,288,741
|
)
|
(111,979
|
)
|
(1,784,369
|
)
|
||||||
|
(463,452
|
)
|
(69,495
|
)
|
(1,292,491
|
)
|
(99,273
|
)
|
(1,893,957
|
)
|
|||||||
|
Net
loss and comprehensive loss for
the
period
(note 8)
|
(368,527
|
)
|
(217,348
|
)
|
(526,126
|
)
|
(592,706
|
)
|
(2,366,110
|
)
|
||||||
|
Net
loss per share
-
basic and diluted (note
4f)
|
(0.01
|
)
|
(0.00
|
)
|
(0.01
|
)
|
(0.01
|
)
|
||||||||
|
The
accompanying notes are an integral part of these Consolidated Financial
Statements
|
||||||||||||||||
|
GEOGLOBAL
RESOURCES INC.
(a
development stage enterprise)
(Unaudited)
|
||||||||||||||||
|
Three
months
ended
Sept
30-2006
US
$
|
Three
months ended
Sept
30-2005
US
$
|
Nine
months
ended
Sept
30-2006
US
$
|
Nine
months ended
Sept
30-2005
US
$
|
Period
from
Inception,
August
21-2002
to
Sept 30-2006
US
$
|
||||||||||||
|
Cash
flows provided by (used in)
operating
activities
|
Restated
note
5b(iv)
|
Restated
note
5b(iv)
|
Restated
(note
5b(iv),11)
|
|||||||||||||
|
Net
loss
|
(368,527
|
)
|
(217,348
|
)
|
(526,126
|
)
|
(592,706
|
)
|
(2,366,110
|
)
|
||||||
|
Adjustment
to reconcile net loss to
net
cash used in operating activities:
|
||||||||||||||||
|
Depreciation
and depletion
|
12,975
|
12,650
|
33,974
|
36,037
|
195,961
|
|||||||||||
|
Gain
on sale of equipment
|
--
|
--
|
--
|
--
|
(42,228
|
)
|
||||||||||
|
Stock-based
compensation
(note 5b)
|
419,509
|
--
|
632,550
|
--
|
632,550
|
|||||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||||||
|
Accounts
receivable and prepaids
|
(51,234
|
)
|
(28,642
|
)
|
(52,271
|
)
|
(30,730
|
)
|
(122,024
|
)
|
||||||
|
Accounts
payable
|
13,980
|
(1,970
|
)
|
43,140
|
22,333
|
48,062
|
||||||||||
|
Accrued
liabilities
|
(17,500
|
)
|
200
|
(35,000
|
)
|
(15,500
|
)
|
8,500
|
||||||||
|
Due
to related companies
|
1,114
|
43,460
|
(118,168
|
)
|
71,742
|
84,528
|
||||||||||
|
10,317
|
(191,650
|
)
|
(21,901
|
)
|
(508,824
|
)
|
(1,560,761
|
)
|
||||||||
|
Cash
flows provided by (used in )
investing
activities
|
||||||||||||||||
|
Property
and equipment:
|
||||||||||||||||
|
Exploration
costs
|
(1,168,813
|
)
|
(146,809
|
)
|
(5,149,439
|
)
|
(1,102,057
|
)
|
(7,366,102
|
)
|
||||||
|
Computer
and office equipment
|
(24,782
|
)
|
(9,097
|
)
|
(85,765
|
)
|
(25,608
|
)
|
(378,150
|
)
|
||||||
|
Proceeds
on sale of equipment
|
--
|
--
|
--
|
--
|
82,800
|
|||||||||||
|
Cash
acquired on acquisition (note 6)
|
--
|
--
|
--
|
--
|
3,034,666
|
|||||||||||
|
Restricted
cash (note 10a)
|
(1,879,984
|
)
|
(185,689
|
)
|
(3,089,820
|
)
|
(185,689
|
)
|
(3,482,305
|
)
|
||||||
|
Changes
in investing assets and liabilities:
|
||||||||||||||||
|
Cash
call receivable
|
21,620
|
7,697
|
(12,265
|
)
|
--
|
(62,212
|
)
|
|||||||||
|
Accounts
payable
|
(958,159
|
)
|
5,021
|
197,356
|
5,021
|
291,771
|
||||||||||
|
Accrued
liabilities
|
217,000
|
(214,915
|
)
|
739,427
|
(33,442
|
)
|
739,427
|
|||||||||
|
(3,793,118
|
)
|
(543,792
|
)
|
(7,400,506
|
)
|
(1,341,775
|
)
|
(7,140,105
|
)
|
|||||||
|
Cash
flows provided by (used in)
financing
activities
|
||||||||||||||||
|
Proceeds
from issuance of common shares
|
1,949,979
|
32,183,050
|
4,667,878
|
34,450,400
|
45,976,729
|
|||||||||||
|
Share
issuance costs
|
(15,457
|
)
|
(1,496,672
|
)
|
(74,008
|
)
|
(1,496,672
|
)
|
(2,165,870
|
)
|
||||||
|
Changes
in financing liabilities:
|
||||||||||||||||
|
Note
payable (note 7a)
|
--
|
--
|
--
|
--
|
(2,000,000
|
)
|
||||||||||
|
Accounts
payable
|
--
|
53,330
|
(10,800
|
)
|
53,330
|
61,078
|
||||||||||
|
Accrued
liabilities
|
--
|
5,000
|
--
|
5,000
|
--
|
|||||||||||
|
Due
to related companies
|
--
|
--
|
--
|
--
|
26,980
|
|||||||||||
|
1,934,522
|
30,744,708
|
4,583,070
|
33,012,058
|
41,898,917
|
||||||||||||
|
Net
increase (decrease) in cash and
cash
equivalents
|
(1,848,279
|
)
|
30,009,266
|
(2,839,337
|
)
|
31,161,459
|
33,198,051
|
|||||||||
|
Cash
and cash equivalents, beginning of period
|
35,046,330
|
5,571,791
|
36,037,388
|
4,419,598
|
--
|
|||||||||||
|
Cash
and cash equivalents, end of period
|
33,198,051
|
35,581,057
|
33,198,051
|
35,581,057
|
33,198,051
|
|||||||||||
|
Cash
and cash equivalents
|
||||||||||||||||
|
Current
bank accounts
|
700,029
|
208,419
|
700,029
|
208,419
|
700,029
|
|||||||||||
|
Term
deposits
|
32,498,022
|
35,372,638
|
32,498,022
|
35,372,638
|
32,498,022
|
|||||||||||
|
33,198,051
|
35,581,057
|
33,198,051
|
35,581,057
|
33,198,051
|
||||||||||||
|
The
accompanying notes are an integral part of these Consolidated Financial
Statements
|
||||||||||||||||
Page5
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
1.
|
Nature
of Operations
|
The
Company
is engaged primarily in the pursuit of petroleum and
natural gas through exploration and development in India. Since inception,
the
efforts of GeoGlobal have been devoted to the pursuit of Production Sharing
Contracts (“PSC”) with the Gujarat State Petroleum Corporation ("GSPC") and the
Government of India ("GOI") and the development thereof. To date, the Company
has not earned revenue from these operations and is considered to be in the
development stage. The recoverability of the costs incurred to date is uncertain
and dependent upon achieving commercial production or sale, the ability of
the
Company to obtain sufficient financing to fulfill its obligations under the
PSC’s in India and upon future profitable operations and upon finalizing
agreements with GSPC.
On
August
29, 2003, all of the issued and outstanding shares of GeoGlobal Resources
(India) Inc. ("GeoGlobal India") were acquired by GeoGlobal Resources Inc.,
formerly Suite101.com, Inc. As a result of the transaction, the former
shareholder of GeoGlobal India held approximately 69.3% of the issued and
outstanding shares of GeoGlobal Resources Inc. This transaction is considered
an
acquisition of GeoGlobal Resources Inc. (the accounting subsidiary and legal
parent) by GeoGlobal India (the accounting parent and legal subsidiary) and
has
been accounted for as a purchase of the net assets of GeoGlobal Resources Inc.
by GeoGlobal India. Accordingly, this transaction represents a recapitalization
of GeoGlobal India, the legal subsidiary, effective August 29, 2003. These
consolidated financial statements are issued under the name of GeoGlobal
Resources Inc. but are a continuation of the financial statements of the
accounting acquirer, GeoGlobal India. The assets and liabilities of GeoGlobal
India are included in the consolidated financial statements at their historical
carrying amounts. As a result, the stockholders' equity of GeoGlobal Resources
Inc. is eliminated and these consolidated financial statements reflect the
results of operations of GeoGlobal Resources Inc. only from the date of the
acquisition.
GeoGlobal
Resources Inc. changed its name from Suite101.com, Inc. after receiving
shareholder approval at the Annual Shareholders Meeting held on January 8,
2004.
Collectively, GeoGlobal Resources Inc., GeoGlobal India and its other
wholly-owned direct and indirect subsidiaries, are referred to as the "Company"
or “GeoGlobal”.
|
2.
|
Significant
Accounting Policies
|
|
a)
|
Basis
of presentation
|
The
accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the accounting principles generally accepted in
the
United States for interim financial information and with the instructions to
Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 2006 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2006.
The
consolidated balance sheet at December 31, 2005 has been derived from the
audited consolidated financial statements at that date but does not include
all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
Page6
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
2.
|
Basis
of presentation
(continued)
|
For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for
the
year ended December 31, 2005.
These
consolidated financial statements include the accounts of (i) GeoGlobal
Resources Inc., from the date of acquisition, being August 29, 2003, (ii)
GeoGlobal Resources (India) Inc., incorporated under the Business
Corporations Act (Alberta),
Canada on August 21, 2002 which was continued under the Companies
Act of Barbados,
West
Indies on June 27, 2003, which is a wholly-owned subsidiary of GeoGlobal
Resources Inc., (iii) GeoGlobal Resources (Canada) Inc., incorporated under
the
Business
Corporations Act (Alberta),
Canada on September 4, 2003, which is a wholly-owned subsidiary of GeoGlobal
Resources Inc., and (iv) GeoGlobal Resources (Barbados) Inc. incorporated under
the Companies
Act of Barbados,
West
Indies on September 24, 2003, which is the wholly-owned subsidiary of GeoGlobal
Resources (Canada) Inc.
|
b)
|
Stock-based
compensation
|
In
prior
periods, reporting on the impact of stock-based compensation, such as employee
stock options, on the Company’s net loss and net loss per share was required
only on a pro-forma basis.
In
December, 2004, the Financial Accounting Standards Board issued a revision
to
Standard 123, Accounting
for Stock-Based Compensation. The
Statement of Financial Accounting Standards 123(R), Share-Based
Payment,
requires the recognition of compensation cost for stock-based compensation
arrangements with employees, consultants and directors based on their grant
date
fair value using the Modified Black-Scholes option-pricing model. Compensation
expense is recorded over the awards' respective requisite service, with
corresponding entries to paid-in capital.
The
Company adopted 123(R) using the modified-prospective-transition method on
January 1, 2006. The impact of this adoption required the Company to recognize
a
charge for past stock-based compensation options granted of US$367,596 over
the
next 3 years in accordance with their respective vesting periods.
|
3.
|
Property
and Equipment
|
|
Balance
Sheet as at
US
$
|
|||||||
|
September
30, 2006
|
December
31, 2005
|
||||||
|
Exploration
and development - India
|
|||||||
|
Exploration
costs incurred in:
|
|||||||
|
2002
|
21,925
|
21,925
|
|||||
|
2003
|
156,598
|
156,598
|
|||||
|
2004
|
460,016
|
460,016
|
|||||
|
2005
|
1,578,124
|
1,578,124
|
|||||
|
2,216,663
|
2,216,663
|
||||||
|
2006
|
5,543,249
|
--
|
|||||
|
7,759,912
|
2,216,663
|
||||||
|
Computer
and office equipment
|
|||||||
|
Computer
and office equipment
|
295,350
|
209,585
|
|||||
|
Accumulated
depreciation
|
(153,733
|
)
|
(119,759
|
)
|
|||
|
141,617
|
89,826
|
||||||
|
7,901,529
|
2,306,489
|
||||||
Page7
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
3.
|
Property
and Equipment (continued)
|
|
a)
|
Exploration
costs - India
|
The
exploration costs incurred to date are not subject to depletion and cover six
exploration blocks, known as the KG Block, the Mehsana Block, the Sanand/Miroli
Block, the Ankleshwar Block, the DS Block and the Tarapur Block. It is
anticipated that all or certain of these exploration costs may be subject to
depletion no earlier than the 2007 fiscal year.
|
b)
|
Capitalized
overhead costs
|
Included
in the US$5,543,249
of
exploration cost additions during the nine months ended September 30, 2006
(year
ended December 31, 2005 - US$1,578,124) are certain overhead costs capitalized
by the Company in the amount of US$1,387,211
(year
ended December 31, 2005 - US$469,268) directly related to the exploration
activities in India. The
capitalized overhead amount
includes
capitalized stock-based compensation of US$393,810
(year
ended December 31, 2005 - US$nil) (see
note
5b) of which US$129,313 (year ended December 31, 2005 - US$nil) was for the
account of a related party (see note 7c).
Of the
remaining US$993,401, US$665,119 (year ended December 31, 2005 - US$145,773)
represented expenses paid to third parties, $nil (year ended December 31, 2005
-
US$51,800) were expenses recovered from third parties and US$328,282 was paid
to
and on behalf of a related party (year ended December 31, 2005 - US$375,295)
(see note 7c). These costs are incurred solely by and on behalf of the Company
in providing its services under the Carried Interest Agreement (“CIA”) and are
therefore not reimbursable under the CIA (see note 3c).
c) Carried
Interest Agreement
On
August
27, 2002, GeoGlobal entered into a CIA with GSPC, which grants the Company
a 10%
carried interest (net 5% - see note 3d) in the KG Block. The CIA provides that
GSPC is responsible for GeoGlobal's entire share of any and all costs incurred
during the Exploration Phase prior to the date of initial commercial
production.
Under
the
terms of the CIA, all of GeoGlobal's and Roy Group (Mauritius) Inc.'s (“RGM”), a
related party (note 7b), proportionate share of capital costs for exploration
and development activities will be recovered by GSPC without interest over
the
projected production life or ten years, whichever is less, from oil and natural
gas produced on the KG Block. GeoGlobal is not entitled to any share of
production until GSPC has recovered the Company's share of the costs and
expenses that were paid by GSPC on behalf of the Company and RGM.
As
at
September 30, 2006, GSPC has incurred costs of Rs 99.7 crore (approximately
US$22.2 million) (December 31, 2005 - Rs 63.31 crore (approximately US$14.1
million)) attributable to GeoGlobal under the CIA of which 50% is for the
account of RGM.
Page8
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
3. Property
and Equipment (continued)
d) Participating
Interest Agreement
On
March
27, 2003, GeoGlobal entered into a Participating Interest Agreement (“PIA”) with
RGM, whereby GeoGlobal assigned and holds in trust for RGM subject to GOI
consent, 50% of the benefits and obligations of the PSC covering the Exploration
Block KG-OSN-2001/3 ("PSC-KG") and the CIA leaving GeoGlobal with a net 5%
participating interest in the PSC-KG and a net 5% carried interest in the CIA.
Under the terms of the PIA, until the GOI consent is obtained, GeoGlobal retains
the exclusive right to deal with the other parties to the PSC-KG and the CIA
and
is entitled to make all decisions regarding the interest assigned to RGM. RGM
has agreed to be bound by and be responsible for the actions taken by,
obligations undertaken and costs incurred by GeoGlobal in regard to RGM's
interest, and to be liable to GeoGlobal for its share of all costs, interests,
liabilities and obligations arising out of or relating to the RGM interest.
RGM
has agreed to indemnify GeoGlobal against any and all costs, expenses, losses,
damages or liabilities incurred by reason of RGM's failure to pay the same.
Subject
to obtaining the government consent to the assignment, RGM is entitled to all
income, receipts, credits, reimbursements, monies receivable, rebates and other
benefits in respect of its 5% interest which relate to the PSC-KG. GeoGlobal
has a right of set-off against sums owing to GeoGlobal by RGM. In the event
that
the Indian government consent is delayed or denied, resulting in either RGM
or
GeoGlobal being denied an economic benefit it would have realized under the
PIA,
the parties agreed to amend the PIA or take other reasonable steps to assure
that an equitable result is achieved consistent with the parties' intentions
contained in the PIA. As a consequence of this transaction the Company reports
its holdings under the PSC-KG and CIA as a net 5% PI.
|
e)
|
Deed
of Assignment and
Assumption
|
On
April
7, 2005, the Company entered into a Deed of Assignment and Assumption with
GSPC
whereby, subject to the terms of the agreement, the Company agreed to acquire
and assume and GSPC agreed to assign a 20% participating interest in the onshore
Tarapur Exploration Block (CB-ON/2). The assignment of the 20% interest was
subject to obtaining the consent of the GOI to the assignment, which consent
was
received effective August 24, 2006. As a condition to receiving the GOI consent
and subsequent to September 30, 2006, the Company provided to the GOI an
irrevocable letter of credit in the amount of US$1,200,000 secured by a term
deposit of the Company in the same amount (see note 10). This amount represents
the Company’s performance guarantee for its 20% participating interest share
(Rs. 5.3 crore) of the estimated exploration costs budgeted for the period
April
1, 2006 through March 31, 2007.
Under
the
terms of the Company's agreement with GSPC, the Company is to fund its 20%
participating interest share of all past exploration costs incurred on the
Tarapur exploration block. As at September 30, 2006, the amount of US$3,081,178
has been included in Exploration costs - India for our participating interest
share of costs incurred in the previous drilling of six exploration wells and
a
recently completed 500 sq. km. 3D seismic acquisition. Of this amount,
US$2,779,438 has been paid to GSPC, US$234,458 is in accounts payable to GSPC
and an additional US$67,282 has been recorded in accrued liabilities to
GSPC.
Page9
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
4.
|
Capital
Stock
|
|
a)
|
Common
shares
|
|
Number
of
shares
|
Capital
stock
US
$
|
Additional
paid-in
capital
US
$
|
|
|
Balance
at December 31, 2002
|
1,000
|
64
|
--
|
|
2003
Transactions
|
|||
|
Capital
stock of GeoGlobal at August 29, 2003
|
14,656,687
|
14,657
|
10,914,545
|
|
Common
shares issued by GeoGlobal to acquire
GeoGlobal
India
|
34,000,000
|
34,000
|
1,072,960
|
|
Share
issuance costs on acquisition
|
--
|
--
|
(66,850)
|
|
Elimination
of GeoGlobal capital stock in recognition of
reverse
takeover (note 6)
|
(1,000)
|
(14,657)
|
(10,914,545)
|
|
Options
exercised for cash
|
396,668
|
397
|
101,253
|
|
December
2003 private placement financing (note 4c)
|
6,000,000
|
6,000
|
5,994,000
|
|
Share
issuance costs on private placement
|
--
|
--
|
(483,325)
|
|
55,052,355
|
40,397
|
6,618,038
|
|
|
Balance
as at December 31, 2003
|
55,053,355
|
40,461
|
6,618,038
|
|
2004
Transactions
|
|||
|
Options
exercised for cash
|
115,000
|
115
|
154,785
|
|
Broker
Warrants exercised for cash
|
39,100
|
39
|
58,611
|
|
154,100
|
154
|
213,396
|
|
|
Balance
as at December 31, 2004
|
55,207,455
|
40,615
|
6,831,434
|
|
2005
Transactions
|
|||
|
Options
exercised for cash (note 4e)
|
739,000
|
739
|
1,004,647
|
|
2003
Purchase Warrants exercised for cash (note 4d(i))
|
2,214,500
|
2,214
|
5,534,036
|
|
Broker
Warrants exercised for cash (note 4c)
|
540,900
|
541
|
810,809
|
|
September
2005 private placement financing (note 4b)
|
4,252,400
|
4,252
|
27,636,348
|
|
Share
issuance costs on private placement (note 4b)
|
--
|
--
|
(1,541,686)
|
|
7,746,800
|
7,746
|
33,444,154
|
|
|
Balance
as at December 31, 2005
|
62,954,255
|
48,361
|
40,275,588
|
|
2006
Transactions
|
|||
|
Options
exercised for cash (note 4e(i))
|
2,279,000
|
2,278
|
2,701,850
|
|
Options
exercised for notes receivable (note 5d)
|
184,500
|
185
|
249,525
|
|
2003
Purchase Warrants exercised for cash (note 4d(i))
|
785,500
|
786
|
1,962,964
|
|
Share
issuance costs
|
--
|
--
|
(74,008)
|
|
Stock-based
compensation (note 5b(i))
|
--
|
--
|
1,026,360
|
|
Less
- unpaid capital subscriptions (note 5d)
|
--
|
--
|
(249,710)
|
|
3,249,000
|
3,249
|
5,616,981
|
|
|
Balance
as at September 30, 2006
|
66,203,255
|
51,610
|
45,892,569
|
Page10
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
4.
|
Capital
Stock (continued)
|
|
b)
|
September
2005 Financing
|
During
September 2005, GeoGlobal completed the sale of 3,252,400 Units of its
securities at US$6.50 per Unit, together with a concurrent sale of an additional
1,000,000 Units on the same terms, for aggregate gross cash proceeds of
US$27,640,600.
Each
Unit
is comprised of one common share and one half of one warrant. One full warrant
("2005 Purchase Warrant") entitles the holder to purchase one additional common
share for US$9.00, for a term of two years expiring September 2007. The 2005
Purchase Warrants are subject to accelerated expiration in the event that the
price of the Company's common shares on the American Stock Exchange is US$12.00
or more for 20 consecutive trading days, the resale of the shares included
in
the Units and issuable on exercise of the 2005 Purchase Warrants has been
registered under the US Securities Act of 1933, as amended (the “Act”), and the
hold period for Canadian subscribers has expired. In such events, the warrant
term will be reduced to 30 days from the date of issuance of a news release
announcing such accelerated expiration of the warrant term.
Costs
of
US$1,541,686 were incurred in issuing shares in these transactions which
included a
fee of
US$1,268,436 paid to Jones Gable & Company Limited with respect to the sale
of the 3,252,400 Units, and, in addition, Compensation Options were issued
to
Jones Gable & Company Limited entitling it to purchase an additional 195,144
Units at an exercise price of US$6.50 per Unit through their expiration in
September
2007. Compensation Options are also subject to accelerated expiration on the
same terms and conditions as the warrants issued in the transaction.
|
c)
|
December
2003 Financing
|
On
December 23, 2003, GeoGlobal completed a brokered private placement of 5,800,000
units at US$1.00 each, together with a concurrent private placement of an
additional 200,000 units on the same terms, for aggregate gross cash total
proceeds of US$6,000,000.
Each
unit
was comprised of one common share and one half of one warrant. One full warrant
("2003 Purchase Warrant"), entitled the holder to purchase one additional common
share for US$2.50, for a term of two years from date of closing.
Also
issued as additional consideration in the December 2003 transaction were 580,000
Broker Warrants. The 580,000 Broker Warrants described entitled the holder
to
purchase 580,000 common shares at an
exercise price of US$1.50 per share which were fully exercised prior to their
expiration on December 23, 2005.
Page11
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
4.
|
Capital
Stock (continued)
|
|
d)
|
Warrants
|
|
i)
|
2003
Purchase Warrants
|
During
the first quarter 2006, the remaining 2003 Purchase Warrants were exercised
which resulted in the issuance of 785,500 common shares for gross proceeds
of
US$1,963,750. As at September 30, 2006, no 2003 Purchase Warrants remain to
be
exercised.
|
ii)
|
2005
Purchase Warrants
|
As
at
September 30, 2006, all of the 2005 Purchase Warrants exercisable at US$9.00
per
share, remained outstanding. If exercised, they would result in the issuance of
2,126,200 common shares for gross proceeds of US$19,135,800.
|
iii)
|
Compensation
Option Warrants
|
As
at
September 30, 2006, as a result of the outstanding Compensation Options not
yet
being exercised, none of the 97,572 Compensation Option Warrants have been
issued. If the Compensation Options are exercised, the Compensation Option
Warrants would be issued and their exercise would result in the issuance of
97,572 common shares for gross proceeds of US$878,148.
e) Options
|
i)
|
Stock
Options
|
During
the three and nine months ended September 30, 2006, 1,853,500 and 2,463,500
options respectively (December 31, 2005 - 739,000) were exercised at various
prices between US$1.01 and US$1.50 for gross cash proceeds of US$1,949,980
and
US$2,704,128 respectively (December 31, 2005 - US$1,005,385) and notes
receivable for US$249,710.
|
ii)
|
Compensation
Options
|
As
at
September 30, 2006, none of the 195,144 Compensation Options were exercised.
When fully exercised, the Compensation Options would result in the issuance
of
97,572 compensation option warrants, and the issuance of 195,144 common shares
for gross proceeds of US$1,268,436.
|
f)
|
Weighted-average
number of shares
|
For
purposes of the determination of net loss per share, the basic and diluted
weighted-average number of shares outstanding for the three and nine months
ended September 30, 2006 was 60,797,730 and 59,278,132 respectively (three
and
nine months ended September 30, 2005 - 53,920,318 and 51,503,725 respectively).
The numbers for the three and nine months ended September 30, 2006 and the
three
and nine months ended September 30, 2005 excludes the 5,000,000 shares currently
held in escrow (note 6).
|
5.
|
Stock
Options
|
|
a)
|
The
Company’s 1998 Stock Incentive
Plan
|
At
the
annual stockholders meeting held on June 14, 2006, the stockholders approved
amendments to the 1998 Stock Incentive Plan (the “Plan”) to increase the shares
of Common Stock reserved for issuance under the Plan from 8,000,000 shares
to
12,000,000 shares.
Under
the
terms of the 1998 Stock Incentive Plan (the "Plan"), as amended, 12,000,000
common shares have been reserved for issuance on exercise of options granted
under the Plan. As at September 30, 2006, the Company had 3,680,697 (December
31, 2005 - 1,875,697) common shares remaining for issuance under the Plan,
as
amended. The Board of Directors of the Company may amend or modify the Plan
at
any time, subject to any required stockholder approval. The Plan will terminate
on the earliest of: (i) 10 years after the Plan Effective Date, being December
4, 2008; (ii) the date on which all shares available for issuance under the
Plan
have been issued as fully-vested shares; or, (iii) the termination of all
outstanding options in connection with certain changes in control or ownership
of the Company.
.
Page12
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
5.
|
Stock
Options (continued)
|
|
b)
|
Stock-based
compensation
|
The
Company adopted Statement of Financial Accounting Standards 123(R), Accounting
for Stock-Based Compensation,
using
the modified-prospective-transition method on January 1, 2006. Under this
method, the Company is required to recognize compensation cost for stock-based
compensation arrangements with employees, consultants and directors based on
their grant date fair value using the Black-Scholes option-pricing model, such
cost to be expensed over the compensations’ respective vesting
periods.
|
Three
months
ended
Sept
30/06
|
Three
months ended
Sept
30/05
|
Nine
months ended
Sept
30/06
|
Nine
months ended
Sept
30/05
|
||||||||||
|
US
$
|
US
$
|
US
$
|
US
$
|
||||||||||
|
Restated
|
Restated
|
Restated
|
Restated
|
||||||||||
|
note
5b(iv)
|
note5b(iii)
|
note
5b(iv)
|
note
5b(iii)
|
||||||||||
|
Stock
based compensation
|
|||||||||||||
|
Consolidated
Statements of Operations
|
|||||||||||||
|
General
and administrative
|
167,419
|
--
|
380,460
|
--
|
|||||||||
|
Consulting
fees
|
252,090
|
--
|
252,090
|
--
|
|||||||||
|
419,509
|
--
|
632,550
|
--
|
||||||||||
|
Consolidated
Balance Sheets
|
|||||||||||||
|
Property
and equipment
|
|||||||||||||
|
Exploration
costs - India
|
326,385
|
--
|
393,810
|
--
|
|||||||||
|
745,894
|
--
|
1,026,360
|
--
|
||||||||||
|
Pro-forma
basis
|
|||||||||||||
|
Net
loss
|
|||||||||||||
|
As
reported
|
(217,348
|
)
|
(592,706
|
)
|
|||||||||
|
Pro-forma
|
(358,665
|
)
|
(1,063,911
|
)
|
|||||||||
|
Net
loss per share - basic and diluted
|
|||||||||||||
|
As
reported
|
(0.00
|
)
|
(0.01
|
)
|
|||||||||
|
Pro-forma
|
(0.01
|
)
|
(0.02
|
)
|
|||||||||
|
i)
|
At
January 1, 2006, the impact of the
adoption of
FAS 123(R) required
the Company to recognize a charge for past stock-based compensation
options granted of US$367,596 over the next 3 years in accordance
with
their respective vesting periods. In the three and nine month periods
ended September 30, 2006, US$49,340 and US$286,955 of this charge
respectively was
recognized
in
the Consolidated Statements of Operations as general and administrative
expense resulting in an increase in the net loss and comprehensive
loss
for the period in the same amount and a $0.0 impact on the net loss
per
share - basic and diluted for the period.
|
ii) At
September 30, 2006, the total compensation cost related to non-vested awards
not
yet recognized was US$2,416,980 (December 31, 2005 - US$367,596) which will
be
recognized over the remaining vesting period of the options.
|
iii)
|
In
prior years, the Company was required only to disclose the impact
on net
loss and net loss per share on a pro-forma basis. The prior periods
have
been restated due to an error in the classification and calculation
for
modification of stock-based compensation. The impact of this restatement
in the three and nine month period ending September 30, 2005 was
a
reduction of the net loss pro-forma from US$486,929 and US$2,554,511
to
US$358,665 and US$1,063,911, respectively and a reduction of the
net loss
per share - basic and diluted pro-forma for the nine month period
ending
September 30, 2005 from US$0.05 to US$0.02. There was no impact in
the net
loss per share - basic and diluted for the three months ended September
30, 2005 as it remained unchanged at US$0.01. In addition, during
the
three and nine months ended September 30, 2005, US$128,269 and US$356,739
of stock based compensation was reclassified from operating expenses
to
capital expenditures.
|
Page13
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
5. Stock
Options (continued)
b) Stock-based
compensation (continued)
iv) The
three
and nine months ended September 30, 2006 and the period from inception to
September 30, 2006 have been restated due to an error in the classification
and
calculation for modification of stock-based compensation. The impact of this
restatement for these periods ended September 30, 2006 was a reduction of
stock-based compensation charged to the consolidated statements of operations
in
the amount of US$654,075. This resulted in a decrease in the net loss and
comprehensive loss for the three and nine months and the period from inception
to September 30, 2006 in the amount of $654,075 as well as a decrease in the
net
loss per share - basic and diluted for the three and nine months ended September
30, 2006 in the amount of US$0.01.
|
The
impact of this reclassification and calculation was a reduction of
the
stock-based compensation charge to the consolidated balance sheets
under
property and equipment exploration costs - India in the amount of
US$374,850 for the three and nine months ended September 30, 2006.
This
resulted in a decrease in the exploration costs, not subject to depletion
at September 30, 2006 from US$8,134,762 restated to
US$7,759,912.
|
c) Black-Scholes
Assumptions
During
the three and nine months ended September 30, 2006, 2,025,000 and 2,225,000
options, respectively were granted to the Company's directors, employees and
consultants under the terms of the 1998 Stock Incentive Plan. The fair value
of
each option granted was estimated on the date of grant using the Black-Scholes
option-pricing model. Weighted average assumptions used in the valuation are
disclosed in the following table:
|
Three
months
ended
Sept
30/06
|
Three
Months
ended
Sept
30/05
|
Nine
months
ended
Sept
30/06
|
Nine
months
ended
Sept
30/05
|
|
|
US
$
|
US
$
|
US
$
|
US
$
|
|
|
Fair
value of stock options granted (per option)
|
$1.08
|
$2.38
|
$1.19
|
$0.45
|
|
Risk-free
interest rate
|
4.17%
|
2.75%
|
4.17%
|
2.75%
|
|
Volatility
|
70%
|
95%
|
70%
|
95%
|
|
Expected
life
|
1.3
years
|
1.0
years
|
1.3
years
|
0.8
years
|
|
Dividend
yield
|
0%
|
0%
|
0%
|
0%
|
| i) |
The
risk-free rate is based on the U.S. Treasury yield curve in effect
at the
time of grant.
|
| ii) |
Expected
volatilities are based on implied volatilities of traded options
on the
Company's stock, historical volatility of the Company's stock, and
other
factors.
|
| iii) |
The
expected life of options granted represents the period of time that
the
options are expected to be outstanding and is derived from historical
exercise behavior and current
trends.
|
Page14
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
5. Stock
Options (continued)
|
d)
|
Stock
option table
|
At
September 30, 2006, these options are outstanding and have been granted for
services provided to the Company:
|
Fair
|
Cancelled
(c)
|
||||||||
|
Value
at
|
Expired
(x)
|
||||||||
|
Option
|
Original
|
Granted
|
Exercised
(e)
|
Balance
|
|||||
|
Grant
|
Exercise
|
Grant
|
Expiry
|
Vesting
|
Balance
|
during
|
during
the
|
Balance
|
exercisable
|
|
date
|
price
|
date
|
date
|
date
|
Dec
31/05
|
the
period
|
period
|
Sept
30/06
|
Sept
30/06
|
|
(mm/dd/yy)
|
US
$
|
US
$
|
(mm/dd/yy)
|
(mm/dd/yy)
|
#
|
#
|
#
|
#
|
#
|
|
12/09/03
|
1.18
|
0.241
|
08/31/06
|
Vested
|
1,751,500
|
--
|
1,721,500
(e)
|
--
|
--
|
|
30,000
(x)
|
--
|
--
|
|||||||
|
12/30/03
|
1.50
|
0.317
|
08/31/06
|
Vested
|
345,000
|
--
|
345,000
(e)
|
--
|
--
|
|
01/17/05
|
1.01
|
0.380
|
(i)06/30/07
|
Vested
|
729,500
|
--
|
372,000
(e)
|
357,500
|
357,500
|
|
01/18/05
|
1.10
|
0.622
|
08/31/08
|
Vested
|
600,000
|
--
|
--
|
600,000
|
600,000
|
|
01/25/05
|
1.17
|
0.434
|
08/31/06
|
Vested
|
25,000
|
--
|
25,000
(e)
|
--
|
--
|
|
06/14/05
|
3.49
|
1.553
|
06/14/15
|
Vested
|
150,000
|
--
|
--
|
150,000
|
150,000
|
|
08/24/05
|
6.50
|
2.380
|
08/24/08
|
Vested
|
110,000
|
--
|
--
|
110,000
|
110,000
|
|
10/03/05
|
6.81
|
3.070
|
10/03/15
|
10/03/06
|
16,666
|
--
|
-
|
16,666
|
--
|
|
10/03/05
|
6.81
|
3.833
|
10/03/15
|
10/03/07
|
16,667
|
--
|
--
|
16,667
|
--
|
|
10/03/05
|
6.81
|
4.383
|
10/03/15
|
10/03/08
|
16,667
|
--
|
--
|
16,667
|
--
|
|
06/14/06
|
5.09
|
2.057
|
06/14/16
|
06/14/07
|
--
|
200,000
|
--
|
200,000
|
--
|
|
07/25/06
|
3.95
|
1.141
|
12/31/09
|
07/25/06
|
--
|
50,000
|
--
|
50,000
|
50,000
|
|
07/25/06
|
3.95
|
1.141
|
12/31/09
|
12/31/06
|
--
|
50,000
|
--
|
50,000
|
--
|
|
07/25/06
|
3.95
|
1.393
|
12/31/09
|
07/25/07
|
--
|
660,000
|
--
|
660,000
|
--
|
|
07/25/06
|
3.95
|
1.601
|
12/31/09
|
12/31/07
|
--
|
50,000
|
--
|
50,000
|
--
|
|
07/25/06
|
3.95
|
1.779
|
12/31/09
|
07/25/08
|
--
|
145,000
|
--
|
145,000
|
--
|
|
07/25/06
|
3.95
|
2.006
|
12/31/09
|
07/25/09
|
--
|
70,000
|
--
|
70,000
|
--
|
|
07/25/06
|
3.95
|
1.141
|
07/25/16
|
12/31/06
|
--
|
500,000
|
--
|
500,000
|
--
|
|
07/25/06
|
3.95
|
1.141
|
07/25/16
|
07/25/07
|
--
|
500,000
|
--
|
500,000
|
--
|
|
3,761,000
|
2,225,000
|
2,493,500
|
3,492,500
|
1,267,500
|
| i) |
On
August 30, 2006, the Board of Directors of the Company passed a resolution
with respect to the remaining stock options issued
on January 17, 2005 to (a) extend the expiry date of all then outstanding
options from August 31, 2006 to the
earlier of June 30, 2007 or 60 days following the date of a “Commercial
Discovery” as defined under the terms of the PSC on Block KG-OSN-2001/3
and (b) to extend the vesting date of certain of these options to
the
earlier of the date of a “Commercial Discovery” as defined under the terms
of the PSC on Block KG-OSN-2001/3 or May 31, 2007, as long as drilling
operations are continuing on the KG Block. This resolution resulted
in an
added incremental stock-based compensation cost of $11,440 with respect
to
the 10 employees.
|
| ii) |
During
the period ended September 30, 2006, the Company granted options
to
purchase 2,225,000 shares exercisable at various prices and expiry
dates,
which vest in their entirety on the vesting
date.
|
| iii) |
As
at September 30, 2006, there were 3,492,500 options outstanding at
various
prices which, if exercised, would result in total proceeds of
US$11,616,825.
|
| iv) |
Of
the 2,493,500 options exercised or expired during the nine month
period
ending September 30, 2006; 195,000, 415,000 and 1,853,000 were exercised
during the three months ending March 31, June 30 and September 30,
respectively for gross cash proceeds of US$206,050, US$548,100 and
US$1,949,980 respectively, and the remaining 30,000 expired during
the
three months ended September 30, 2006.
|
| v) |
At
the annual stockholder meeting held on June 14, 2006, the stockholders
of
the Company approved amendments to the Plan to increase the shares
of
Common Stock reserved for issuance under the Plan from 8,000,000
shares to
12,000,000.
|
Page15
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
5. Stock
Options (continued)
|
d)
|
Notes
receivable
|
Pursuant
to the terms of the Company's 1998 Stock Incentive Plan, during the third
quarter of 2006, certain employees and consultants to the Company exercised
184,500 options to purchase shares of common stock of the Company and delivered
to the Company their promissory notes in the aggregate principal amount of
US$249,710 in payment of the exercise price. The promissory notes are due
December 31, 2006, bear interest at 8.25% per annum, and have been reflected
in
these financial statements as a reduction from additional paid-in capital (see
note 4a).
6. Acquisition
On
August
29, 2003, pursuant to an agreement dated April 4, 2003 and amended August 29,
2003, the Company completed a transaction with Mr. Roy and GeoGlobal Resources
(India) Inc. ("GeoGlobal India"), a corporation then wholly-owned by Mr. Roy,
whereby the Company acquired from Mr. Roy all of the outstanding capital stock
of GeoGlobal India. In exchange for the outstanding capital stock of GeoGlobal
India, the Company issued 34.0 million shares of its Common Stock. Of the 34.0
million shares, 14.5 million shares were delivered to Mr. Roy at the closing
of
the transaction on August 29, 2003 and an aggregate of 19.5 million shares
were
held in escrow by an escrow agent. The terms of the escrow provide for the
release of the shares upon the occurrence of certain developments relating
to
the outcome of oil and natural gas exploration and development activities
conducted on the KG Block. On August 27, 2004, 14.5 million shares were released
to Mr. Roy from escrow upon the commencement of a drilling program on the KG
Block. The final 5.0 million shares remaining in escrow will be released only
if
a commercial discovery is declared on the KG Block. In addition to the shares
of
Common Stock, the Company delivered to Mr. Roy a US$2.0 million promissory
note,
of which US$500,000 was paid on the closing of the transaction on August 29,
2003, US$500,000 was paid on October 15, 2003, US$500,000 was paid on January
15, 2004 and US$500,000 was paid on June 30, 2004. The note did not accrue
interest. The note was secured by the outstanding stock of GeoGlobal India
which
has subsequently been released. As a consequence of the transaction, Mr. Roy
held as of the closing of the transaction an aggregate of 34.0 million shares
of
our outstanding Common Stock, or approximately 69.3% of the shares outstanding,
assuming all shares held in escrow are released to him. The terms of the
transaction provide that Mr. Roy has the right to vote all 34.0 million shares
following the closing, including the shares during the period they are held
in
escrow. Shares not released from the escrow will be surrendered back to
GeoGlobal.
As
discussed in note 1, the acquisition of GeoGlobal India by GeoGlobal was
accounted for as a reverse takeover transaction. As a result, the cost of the
transaction was determined based upon the net assets of GeoGlobal deemed to
have
been acquired. These consolidated financial statements include the results
of
operations of GeoGlobal from the date of acquisition. The net identifiable
assets acquired of GeoGlobal were as follows:
|
US
$
|
|
|
Net
assets acquired
|
|
|
Cash
|
3,034,666
|
|
Other
current assets
|
75,000
|
|
Current
liabilities
|
(2,706)
|
|
Net
book value of identifiable assets acquired
|
3,106,960
|
|
Consideration
paid
|
|
|
Promissory
note issued
|
2,000,000
|
|
34,000,000
common shares issued par value $0.001
|
34,000
|
|
Additional
paid-in capital
|
1,072,960
|
|
3,106,960
|
Page16
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
7.
|
Related
Party Transactions
|
Related
party transactions are measured at the exchange amount which is the amount
of
consideration established and agreed by the related parties.
|
a)
|
Note
payable
|
On
August
29, 2003, as part of the Acquisition (note 6), a US$2,000,000 promissory note
was issued to the sole shareholder of GeoGlobal India. On each of August 29,
2003, October 15, 2003, January 15, 2004 and June 30, 2004, US$500,000 of the
note was repaid. The promissory note was non-interest bearing and the capital
stock of GeoGlobal India collateralized the repayment of the note. The
collateral has been released.
|
b)
|
Roy
Group (Mauritius) Inc.
|
Roy
Group
(Mauritius) Inc. is related to the Company by common management and is
controlled by a director of the Company who is also a principal shareholder
of
the Company. On March 27, 2003, the Company entered into a Participating
Interest Agreement (note 3d) with the related party.
|
c)
|
Roy
Group (Barbados) Inc. (“Roy
Group”)
|
Roy
Group
is related to the Company by common management and is controlled by a director
of the Company who is also a principal shareholder of the Company. On August
29,
2003, the Company entered into a Technical Services Agreement ("TSA") with
Roy
Group to provide services to the Company as assigned by the Company and to
bring
new oil and gas opportunities to the Company. On January 31, 2006, the terms
of
the agreement were amended to extend the term of the agreement from August
31,
2006 to December 31, 2007. Roy Group receives consideration of US$350,000 per
year as outlined and recorded below:
|
Three
months
ended
Sept
30-2006
|
Three
months ended
Sept
30-2005
|
Nine
months ended
Sept
30-2006
|
Nine
months ended
Sept
30-2005
|
Period
from
Inception,
Aug
21, 2002
to
Sept 30, 2006
|
||||||||||||
|
US
$
|
US
$
|
US
$
|
US
$
|
US
$
|
||||||||||||
|
Consolidated
Statements of
Operations
|
||||||||||||||||
|
Consulting
fees
|
17,500
|
12,500
|
52,500
|
37,500
|
181,167
|
|||||||||||
|
Consolidated
Balance Sheets
|
||||||||||||||||
|
Property
and equipment
|
||||||||||||||||
|
Exploration
costs - India
|
70,000
|
50,000
|
210,000
|
150,000
|
724,666
|
|||||||||||
|
87,500
|
62,500
|
262,500
|
187,500
|
905,833
|
||||||||||||
During
the period, the Company recognized compensation cost for stock-based
compensation arrangements with the principal of Roy Group as outlined and
recorded below:
|
Consolidated
Statement of
Operations
|
||||||||||||||||
|
Consulting
fees
|
32,329
|
--
|
32,329
|
--
|
32,329
|
|||||||||||
|
Consolidated
Balance Sheets
|
||||||||||||||||
|
Property
and equipment
|
||||||||||||||||
|
Exploration
costs - India
|
129,313
|
--
|
129,313
|
--
|
129,313
|
|||||||||||
|
161,642
|
--
|
161,642
|
--
|
161,642
|
||||||||||||
Page17
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
7.
|
Related
Party Transactions
(continued
|
Roy
Group
was also reimbursed for medical insurance and expenses; travel, hotel, meals
and
entertainment expenses; computer costs; and amounts billed by third parties
incurred during the periods as outlined and recorded below:
|
Three
months
ended
Sept
30-2006
|
Three
months ended
Sept
30-2005
|
Nine
months ended
Sept
30-2006
|
Nine
months ended
Sept
30-2005
|
Period
from
Inception,
Aug
21, 2002
to
Sept 30, 2006
|
||||||||||||
|
US
$
|
US
$
|
US
$
|
US
$
|
US
$
|
||||||||||||
|
Consolidated
Statements of
Operations
|
||||||||||||||||
|
General
and administrative
|
43,751
|
48,721
|
118,923
|
49,210
|
226,478
|
|||||||||||
|
Consolidated
Balance Sheets
|
||||||||||||||||
|
Accounts
receivable
|
227
|
617
|
454
|
632
|
21,824
|
|||||||||||
|
Property
and equipment
|
||||||||||||||||
|
Exploration
costs - India
|
62,217
|
1,610
|
118,310
|
1,610
|
413,010
|
|||||||||||
|
Computer
and office equipment
|
69
|
48,266
|
1,399
|
60,809
|
40,255
|
|||||||||||
|
106,264
|
99,214
|
239,086
|
112,261
|
701,567
|
||||||||||||
At
September 30, 2006, the Company owed Roy Group (Barbados) Inc. US$99,602
(December 31, 2005 - US$169,181) for services provided and expenses incurred
on
behalf of the Company and pursuant to the TSA. These amounts bear no interest
and have no set terms of repayment.
|
d)
|
D.I.
Investments Ltd. (“DI”)
|
DI
is
related to the Company by common management and is controlled by an officer
and
director of the Company. DI charged consulting fees for services rendered as
outlined and recorded below:
|
Three
months
ended
Sept
30-2006
|
Three
months ended
Sept
30-2005
|
Nine
months ended
Sept
30-2006
|
Nine
months ended
Sept
30-2005
|
Period
from
Inception,
Aug
21, 2002
to
Sept 30, 2006
|
||||||||||||
|
US
$
|
US
$
|
US
$
|
US
$
|
US
$
|
||||||||||||
|
Consolidated
Statements of
Operations
|
||||||||||||||||
|
Consulting
fees
|
46,250
|
30,000
|
138,750
|
90,000
|
470,465
|
|||||||||||
During
the period, the Company recognized compensation cost for stock-based
compensation arrangements with the principal of the related party as outlined
and recorded below:
|
Consolidated
Statement of Operations
|
||||||||||||||||
|
Consulting
fees
|
161,642
|
--
|
161,642
|
--
|
161,642
|
|||||||||||
Page18
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
7.
|
Related
Party Transactions
(continued)
|
DI
was
also reimbursed for office costs, including rent, parking, office supplies
and
telephone as well as travel, hotel, meals and entertainment expenses incurred
during the periods as outlined and recorded below:
|
Three
months
ended
Sept
30-2006
|
Three
months ended
Sept
30-2005
|
Nine
months ended
Sept
30-2006
|
Nine
months ended
Sept
30-2005
|
Period
from
Inception,
Aug
21, 2002
to
Sept 30, 2006
|
||||||||||||
|
US
$
|
US
$
|
US
$
|
US
$
|
US
$
|
||||||||||||
|
Consolidated
Statements of
Operations
|
||||||||||||||||
|
General
and administrative
|
||||||||||||||||
|
Office
costs
|
469
|
20,756
|
19,973
|
39,766
|
179,108
|
|||||||||||
|
Travel,
hotel, meals and
entertainment
|
181
|
442
|
1,188
|
3,973
|
48,698
|
|||||||||||
|
Consolidated
Balance Sheets
|
||||||||||||||||
|
Accounts
receivable
|
3,012
|
3,509
|
10,451
|
9,026
|
24,616
|
|||||||||||
|
Property
and equipment
|
||||||||||||||||
|
Computer
and office equipment
|
4,107
|
--
|
4,107
|
--
|
4,107
|
|||||||||||
|
7,769
|
24,707
|
35,719
|
52,765
|
256,529
|
||||||||||||
At
September 30, 2006, the Company owed D.I. US$17,920 (December 31, 2005
-US$70,309) as a result of services provided and expenses incurred on behalf
of
the Company. These amounts bear no interest and have no set terms of
repayment.
| e) |
Amicus
Services Inc. (“Amicus”)
|
Amicus
is
related to the Company by virtue of being controlled by the brother of a
director of the Company. Amicus charged consulting fees for services rendered
as
outlined below:
|
Three
months
ended
Sept
30-2006
|
Three
months ended
Sept
30-2005
|
Nine
months ended
Sept
30-2006
|
Nine
months ended
Sept
30-2005
|
Period
from
Inception,
Aug
21, 2002
to
Sept 30, 2006
|
||||||||||||
|
US
$
|
US
$
|
US
$
|
US
$
|
US
$
|
||||||||||||
|
Consolidated
Statements of
Operations
|
||||||||||||||||
|
Consulting
fees
|
12,890
|
10,795
|
42,774
|
24,830
|
126,877
|
|||||||||||
Amicus
was also reimbursed for office costs, including parking, office supplies and
telephone as well as travel and hotel expenses incurred during the periods
as
outlined and recorded below:
|
Consolidated
Statements of
Operations
|
||||||||||||||||
|
General
and administrative
|
--
|
--
|
789
|
--
|
3,603
|
|||||||||||
|
Consolidated
Balance Sheets
|
||||||||||||||||
|
Accounts
receivable
|
503
|
1,176
|
2,646
|
1,738
|
9,195
|
|||||||||||
|
Property
and equipment
|
||||||||||||||||
|
Computer
and office equipment
|
--
|
--
|
--
|
--
|
1,599
|
|||||||||||
|
503
|
1,176
|
3,435
|
1,738
|
14,397
|
||||||||||||
At
September 30, 2006, the Company owed Amicus Services Inc. US$8,762 December
31,
2005 - US$4,962) as a result of services provided and expenses incurred on
behalf of the Company. These amounts bear no interest and have no set terms
of
repayment.
Page19
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
8.
|
Income
Taxes
|
|
a)
|
Income
tax expense
|
The
provision for income taxes in the consolidated financial statements differs
from
the result which would have been obtained by applying the combined Federal,
State and Provincial tax rates to the loss before income taxes. This difference
results from the following items:
|
Three
months
ended
Sept
30-2006
|
Three
months ended
Sept
30-2005
|
Nine
months ended
Sept
30-2006
|
Nine
months ended
Sept
30-2005
|
Period
from
Inception,
Aug
21, 2002
to
Sept 30, 2006
|
|
|
US
$
|
US
$
|
US
$
|
US
$
|
US
$
|
|
|
Net
loss before income taxes
|
(1,022,602)
|
(217,348)
|
(1,180,201)
|
(592,706)
|
(3,020,185)
|
|
Expected
US tax rate
|
40.66%
|
40.66%
|
40.66%
|
40.66%
|
40.66%
|
|
Expected
income tax recovery
|
(415,789)
|
(88,375)
|
(479,869)
|
(240,995)
|
(1,228,209)
|
|
Excess
of expected tax rate over
tax
rate of foreign affiliates
|
419,647
|
23,480
|
468,099
|
48,006
|
269,142
|
|
3,858
|
(64,895)
|
(11,770)
|
(192,989)
|
(959,067)
|
|
|
Valuation
allowance
|
(4,101)
|
64,847
|
10,611
|
191,746
|
949,660
|
|
Other
|
243
|
48
|
1,159
|
1,243
|
9,407
|
|
Income
tax recovery
|
--
|
--
|
--
|
--
|
--
|
|
b)
|
Deferred
income taxes
|
The
Company has not recognized the deferred income tax asset because the benefit
is
not more likely than not to be realized. The components of the net deferred
income tax asset consist of the following temporary differences:
|
September
30, 2006
US
$
|
December
31, 2005
US
$
|
||||||
|
Difference
between tax base and reported amounts of
depreciable
assets
|
25,871
|
25,871
|
|||||
|
Non-capital
loss carry forwards
|
2,944,570
|
7,556,646
|
|||||
|
2,970,441
|
7,582,517
|
||||||
|
Valuation
allowance
|
(2,970,441
|
)
|
(7,582,517
|
)
|
|||
|
Deferred
income tax asset
|
--
|
--
|
|||||
c) Loss
carry forwards
At
September 30, 2006, the Company has US$7,748,071 of available loss carry
forwards to reduce taxable income for income tax purposes in the various
jurisdictions as outlined below which have not been reflected in these
consolidated financial statements.
|
Tax
Jurisdiction
|
Amount
US
$
|
Expiry
Dates
Commence
|
|||||
|
United
States
|
7,166,134
|
2006
|
|||||
|
Canada
|
43,637
|
2010
|
|||||
|
Barbados
|
538,300
|
2012
|
|||||
Page20
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
9.
|
Segmented
Information
|
The
Company’s petroleum and natural gas exploration and development activities are
conducted in India. Management of the Company considers the operations of the
Company as one operating segment. The following information relates to the
Company’s geographic areas of operation.
|
September
30, 2006
|
December
31, 2005
|
||||||
|
Property
and equipment
US
$
|
Property
and equipment
US
$
|
||||||
|
Canada
|
118,264
|
89,826
|
|||||
|
India
|
8,158,115
|
2,216,663
|
|||||
|
8,276,379
|
2,306,489
|
||||||
|
10.
|
Commitments,
Contingencies and
Guarantees
|
|
a)
|
Restricted
cash
|
i) As
at
September 30, 2006, the Company has provided to the GOI three irrevocable
letters of credit totaling US$2,216,445 (Mehsana US$711,445, Sanand/Miroli
US$905,000 and Ankleshwar US$600,000) (December 31, 2005 - US$392,485) secured
by term deposits of the Company in the same amount. These letters of credit
serve as guarantees for the performance of the minimum work commitments for
the
budget period April 1, 2006 to March 31, 2007 of Phase I of these Cambay Blocks.
The PSC's contain provisions whereby the joint venture participants must provide
the GOI a bank guarantee in the amount of 35% of the participant's share of
the
minimum work program for a particular phase, to be undertaken during the budget
period ending March 31, 2007.
ii) Subsequent
to September 30, 2006, the Company provided to the GOI an irrevocable letter
of
credit in the amount of US$1,200,000 for the Tarapur Block secured by a term
deposit of the Company in the same amount. This letter of credit serves as
a
guarantee for the performance of the exploration work commitment for the Tarapur
Block for the budget period ending March 31, 2007.
This
letter of credit has been recognized in the financial statements as the GOI
approval of the assignment was received effective August 24, 2006 as outlined
in
Note 3e.
|
iii)
|
The
Company has provided to its bankers as security for credit cards
issued to
employees for business purposes two term deposits, one in the amount
of
US$30,000 and the other in the amount of US$35,860
(Cdn$40,000).
|
|
b)
|
Production
Sharing Contracts
|
The
Company is required to expend funds on the exploration activities to fulfill
the
terms of the minimum work commitment based on our participating interest for
Phase I pursuant to the PSC’s in respect of each of our exploration blocks as
follows:
i) Mehsana
-
Acquire, process and interpret 75 square kilometers of 3D seismic and drill
7
exploratory wells between 1,000 and 2,200 meters.
|
ii)
|
Sanand/Miroli
- Acquire, process and interpret 200 square kilometers of 3D seismic
and
drill 12 exploratory wells between 1,500 and 3,000
meters.
|
|
iii)
|
Ankleshwar
- Acquire, process and interpret 448 square kilometers of 3D seismic
and
drill 14 exploratory wells between 1,500 and 2,500
meters.
|
|
iv)
|
DS
Block - Gravity and geochemical surveys and a 12,000 line kilometer
aero
magnetic survey.
|
In
the
event the Company fails to fulfill any of these minimum work programs, the
Company must pay to the GOI its proportionate share based on its participating
interest under the PSC of the amount that would be required to complete the
minimum work program.
Under
the
terms of all the PSC's, the Company is also required to keep in force a
financial and performance guarantee.
Page21
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
10. Commitments,
Contingencies and Guarantees (continued)
c) KG
Block
The
first
phase of the exploration period relating to the PSC for the KG Block has
expired, as extended on August 29, 2005 through March 11, 2006, without the
required minimum of at least fourteen wells being drilled during the first
phase. On February 24, 2006, the management committee for the KG Block
recommended a further extension of the first phase of twelve months to March
11,
2007. Any such extension that is granted is to be deducted from the next
succeeding exploration phase. As at November 6, 2006, five wells have been
drilled on the exploration block leaving nine to be drilled, and approval of
this extension from the Government of India is still outstanding. Unless this
further extension is granted, the Company may be liable for consequences of
non-fulfillment of the minimum work commitment in a given time frame under
the
PSC. The PSC has provisions for termination of the PSC on account of various
reasons specified therein including material breach of the contract. Termination
rights can be exercised after giving ninety days written notice. This failure
to
timely complete the minimum work commitment, though there is no
precedence, may
be
deemed by the GOI to be a failure to comply with the provisions of the contract
in a material particular. The Company has been advised by GSPC, the operator,
that it is unaware of any precedent for such an occurrence.
In
the
event the PSC is terminated by the Government of India, or in the event the
work
program is not fulfilled by the end of the relevant exploration phase, each
party to the PSC is to pay to the Government of India its participating interest
share of an amount which is equal to the amount that would be required to
complete the minimum work program for that phase. We are of the view that GSPC,
under the terms of our CIA, would be liable for our participating interest
share
of the amount required to complete the minimum work program for the phase.
However, the termination of the production sharing contract by the GOI would
result in the loss of the Company’s interest in the KG Block other than areas
determined to encompass "commercial discoveries". No areas on the KG Block
have
been determined to encompass "commercial discoveries" as
that
term is defined under the Production Sharing Contract as
of
November 6, 2006. Certain exploration costs related to the KG Block are incurred
solely by and on behalf of the Company in providing its services under the
CIA
and are therefore not reimbursable under the CIA. As such, these costs have
been
capitalized in the Company's accounts under Property and equipment, Exploration
costs - India and at September 30, 2006 amount to US$2,739,753. (see note
3(b).
|
d)
|
Tarapur
Block
|
As
the
holder of a participating interest in the Tarapur Block, the Company is required
to fund its 20% share of all exploration and development costs incurred on
the
exploration block. To September 30, 2006, US$3,081,178 has been incurred under
the terms of the Company's agreement with GSPC. Of this amount, US$2,779,438
has
been paid to GSPC, US$234,458 is in accounts payable to GSPC and an additional
US$67,282 has been accrued for costs incurred to September 30, 2006. The Company
has budgeted to expend an aggregate of approximately US$4.6 million for
exploration and development activities under the terms of the agreement entered
into covering the Tarapur block over the period April 1, 2006 to March 31,
2007,
of which, approximately US1.0 million has been incurred and recorded to
September 30, 2006. Under the terms of the agreement, the Company is required
to
keep in force a financial and performance guarantee securing its performance
under the Tarapur PSC.
Page22
GeoGlobal
Resources Inc.
(a
development stage enterprise)
Notes
to the Consolidated Financial Statements
(Unaudited)
September
30, 2006
|
11.
|
Comparative
figures
|
As
the
Company is in its development stage, comparative figures represent the
accumulated amounts of the continuing entity for the period from inception,
being August 21, 2002 to September 30, 2006.
|
12.
|
Recent
Accounting Standards
|
In
July
2006, the Financial Accounting Standards Board issued FASB Interpretation
Bulletin #48 (FIN 48) relating to income tax positions subject to FAS 109,
Accounting for Income Taxes. FIN 48 utilizes a two-step approach for evaluating
tax positions. Recognition occurs when an enterprise concludes that a tax
position, based solely on its technical merits, is more-likely-than-not to
be
sustained upon examination. Measurement is only addressed if the recognition
requirement has been satisfied (i.e., the position is more-likely-than-not
to be
sustained). Measurement of the tax benefit is based on the largest amount of
benefit, determined on a cumulative probability basis that is
more-likely-than-not to be realized upon ultimate settlement. Derecognition
of a
tax position that was previously recognized would occur when a company
subsequently determines that a tax position no longer meets the
more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits
the use of a valuation allowance as a substitute for derecognition of tax
positions.
FIN
48
will be effective for fiscal years beginning after December 15, 2006. The
Company expects that FIN 48 will not have a significant impact on its
consolidated statements.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
|
The
following discussion and analysis of our financial condition or plan of
operation should be read in conjunction with, and is qualified in its entirety
by, the more detailed information including our Unaudited Interim Consolidated
Financial Statements and the related Notes appearing elsewhere in this Quarterly
Report. This Quarterly Report contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from the
results and business plans discussed in the forward-looking statements. Factors
that may cause or contribute to such differences include those discussed in
"Risk Factors," as well as those discussed elsewhere in this Quarterly Report.
For further information, refer to the consolidated financial statements and
footnotes and management's discussion and analysis thereto included in the
Company's annual report on Form 10KSB for the year ended December 31,
2005.
Our
Business Activities
We
are
engaged, through subsidiaries and joint ventures in which we are a participant,
in the exploration for and development of oil and gas reserves. We initiated
these activities in 2003. Through September 30, 2006, our activities have been
undertaken in locations where we and our joint venture participants have been
granted exploration rights pursuant to Production Sharing Contract's ("PSC's")
entered into with the Government of India ("GOI").
At
September 30, 2006, we have entered into agreements with respect to six
exploration blocks as follows:
| · |
The
first of our agreements, entered into in February 2003, grants exploration
rights in an area offshore eastern India. We refer to this as the
“KG
Block” and we have a net 5% carried interest under this agreement.
|
| · |
We
have entered into two agreements which grant exploration rights in
areas
onshore in the Cambay Basin in the State of Gujarat in western India.
These agreements were entered into with the Government of India in
February 2004 and we have a 10% participating interest under each
of these
agreements. We refer to these as the “Mehsana Block” and the
“Sanand/Miroli Block.”
|
| · |
In
April 2005, we entered into an agreement with Gujarat State Petroleum
Corporation Limited (“GSPC”), providing for our purchase and the sale by
GSPC, subject to Government of India consent, of a 20% participating
interest in the agreement granting exploration rights onshore in
the
Cambay Basin in the State of Gujarat. We refer to this as the “Tarapur
Block”.
|
| · |
On
September 23, 2005, we signed agreements with respect to two additional
locations. One area in which we hold a 10% participating interest
is
located onshore in the Cambay Basin located in the State of Gujarat
south-east of our three existing Cambay blocks. The second area is
onshore
in the Deccan Syneclise Basin located in the northern portion of
the State
of Maharashtra in west-central India for which we operate and hold
a 100%
participating interest. We refer to these as the “Ankleshwar Block” and
the “DS Block”.
|
All
of
our exploration activities should be considered highly speculative.
A
COMPARISON OF OUR OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2006 TO SEPTEMBER 30, 2005
Statements
of Operations
Three
months ended September 30, 2006 and 2005
During
the three months ended September 30, 2006, we had expenses of $831,979
compared
with expenses of $286,843 during the three months ended September 30, 2005.
This
increase is primarily the result of the adoption
of a new accounting standard FAS 123(R) Accounting
for Stock-Based Compensation
on
January 1, 2006, as is further explained below. The
balance of the increase is consistent with the increased scale of our
participation in oil and gas exploration activities in 2006 over
2005.
Our
general and administrative expenses increased to $358,810
from
$179,516. Of
this
increase, $167,419 is attributable to the adoption of FAS 123(R) where the
Company is required to recognize compensation costs for stock-based agreements
with employees and directors effective January 1, 2006. These
general and administrative expenses include costs related to the corporate
head
office including administrative salaries and services, rent and office costs,
insurance, directors’ fees, American Stock Exchange listing and filing fees and
transfer agent fees and services. The increase is a result of an increase of
approximately $46,000 in our Directors and Officers liability insurance; an
increase of approximately $22,000 in our bank charges for securing irrevocable
letters of credit as bank guarantees for our minimum work commitments on our
exploration blocks; and an overall increase in our general office costs
associated with the increase in our oil and gas activities, offset by a decrease
in travel and hotel expenses in the third quarter of 2006 versus the same
quarter in 2005 in which we experienced a higher amount of such costs directly
related to our September 2005 financing,
Our
consulting fees increased to $399,155
during
the three months ended September 30, 2006 from $53,295 for the same period
in
2005. $252,090
of this increase is attributable to the adoption of FAS 123(R) for consultants
effective January 1, 2006. These
consulting fees reflect $17,500 (2005 - $12,500) paid under our Technical
Services Agreement with a corporation wholly-owned by Mr. Jean Roy, President
of
the Company and other fees and expenses we incurred in employing various
technical and corporate consultants who advised us on a variety of matters.
The
remaining increase is consistent with the increased scale of our participation
in oil and gas activities.
Professional
fees increased slightly to $61,039 during the three months ended September
30,
2006 from $41,382 during the three months ended September 30, 2005. Professional
fees include those paid to our auditors for pre-approved audit, accounting
and
tax services and fees paid to our legal advisors primarily for services provided
with regard to filing various periodic reports and other documents and reviewing
our various oil and gas and other agreements.
Our
other
expenses and income during the three months ended September 30, 2006 resulted
in
income of $463,452 versus $69,495 for the same period in 2005. This increase
is
mostly attributed to an increase in interest income to $461,123 from $77,693
for
the three months ended September 30, 2005, which is directly related to the
significant increase in the size of the cash balances we held during the period
as compared to 2005 as well as an increase in the US prime rate. Included in
other expenses and income is a foreign exchange gain of $2,329 compared to
a
loss in 2005 of $8,198.
During
the
three months ended September 30, 2006 as compared to the three months ended
September 30, 2005, we increased our
net
loss to $368,527
compared
to a net loss of $217,348 for
the
same period in
2005.
This
result was mainly attributable to the increase in our interest income offset
by
our increased costs of our overall oil and gas activities and the costs of
the
adoption of FAS 123(R) requiring the Company to recognize compensation costs
for
the stock-based compensation arrangements with employees, directors and
consultants effective January 1, 2006.
We
capitalized overhead costs directly related to our exploration activities in
India. The majority of these costs include outlays for geological, geophysical
and supervisory services and related overhead costs incurred in India with
respect to the Carried Interest Agreement ("CIA") on the KG Block and our
interests in various Production Sharing Contracts. During the three months
ended
September 30, 2006, these capitalized overhead costs were $983,751 as compared
to $126,556 during the three months ended September 30, 2005. This increase
is
consistent with the increased scale of our participation in oil and gas
exploration activities.
Nine
months ended September 30, 2006 and 2005
During
the nine months ended September 30, 2006, we had expenses of $1,818,617
compared
with expenses of $691,979 during the nine months ended September 30, 2005.
This
increase is primarily the result of the adoption of a new accounting standard
FAS 123(R) Accounting
for Stock-Based Compensation
on
January 1, 2006, as is further explained below. The balance of the increase
is
consistent with the increased scale of our participation in oil and gas
exploration activities in 2006 over 2005.
Our
general and administrative expenses increased to $1,054,504
from
$369,450. Of
this
increase, $380,460 is attributable to the adoption of FAS 123(R) where the
Company is required to recognize compensation costs for stock-based agreements
with employees and directors effective January 1, 2006. These
general and administrative expenses include costs related to the corporate
head
office including administrative salaries and services, rent and office costs,
insurance and directors’ fees as well our shareholder relations costs which
include the American Stock Exchange listing and filing fees and transfer agent
fees and services. The increase is a result of an increase of approximately
$20,000 in our State of Delaware franchise tax due to our increased
capitalization; increase of approximately $10,000 in salaries; increase of
approximately $70,000 in our bank charges for securing irrevocable letters
of
credit as bank guarantees for our minimum work commitments on our exploration
blocks; an increase of approximately $14,000 related to the relocation of our
executive offices, and $20,000 due to increased rents in Calgary for our
corporate head offices; $45,000 in our shareholder relations costs, attributable
to our increased activities; $46,000 increase in our Directors and Officers
liability insurance and the balance as an overall increase in our general office
costs associated with the increase of our oil and gas activities.
Our
consulting fees increased to $568,172
during
the nine months ended September 30, 2006 from $154,869 in the prior nine month
period. $252,090
of this increase is attributable to the adoption of FAS 123(R) for consultants
effective January 1, 2006. These
consulting fees reflect $52,500 (2005 - $37,500) paid under our Technical
Services Agreement with a corporation wholly-owned by Mr. Roy and other fees
and
expenses we incurred in employing various technical and corporate consultants
who advised us on a variety of matters. The remaining increase is consistent
with the increased scale of our participation in oil and gas
activities.
Professional
fees increased to $161,967 during the nine months ended September 30, 2006
from
$131,623 during the nine months ended September 30, 2005. Professional fees
include those paid to our auditors for pre-approved audit, accounting and tax
services and fees paid to our legal advisors primarily for services provided
with regard to filing various periodic reports and other documents and reviewing
our various oil and gas and other agreements. The increase is mostly
attributable to an increase in our fees paid to our lawyers for additional
work
incurred on our new NELP V joint operating agreements during the first and
second quarters of 2006 as compared to 2005.
Our
other
expenses and income during the nine months ended September 30, 2006 resulted
in
income of $1,292,491 versus $99,273 for the same period in 2005. This increase
is mostly attributed to an increase in interest income to $1,288,741 from
$111,979 for the nine months ended September 30, 2005 which is directly related
to the significant increase in the size of the cash balances we held during
the
period as compared to 2005 as well as an increase in the US prime rate. Included
in other expenses and income is a foreign exchange gain of $3,750 compared
to a
loss in 2005 of $12,706.
During
the
nine months ended September 30, 2006 as compared to the nine months ended
September 30, 2005, we reduced our net loss to $526,126
as
compared to a net loss of $592,706 in for
the
same period in 2005.
This
result is mainly attributable to the increase in our interest income offset
by
our increased costs due to the increase in our overall oil and gas activities
and net of costs resulting from the adoption on January 1, 2006 of Financial
Accounting Standard 123 (R), Accounting
for Stock-Based Compensation
which
requires the recognition of the compensation cost for stock-based compensation
arrangements with employees, consultants and directors, to be expensed over
the
stock-based compensations' respective vesting periods.
We
capitalized overhead costs directly related to our exploration activities in
India. During the nine months ended September 30, 2006, these capitalized
overhead costs were $1,762,061 as compared to $283,276 during the nine months
ended September 30, 2005. This increase is mostly attributed to the purchase
in
the first quarter of 2006 of a geophysical software package used in analyzing
our oil and gas exploration blocks at a cost of $340,500 as well as $768,660
being the capitalized portion of the stock-based compensation incurred in the
third quarter of 2006. The remaining balance of the increase of $369,625 is
consistent with the increased scale of our participation in oil and gas
exploration activities.
Liquidity
and Capital Resources
At
September 30, 2006, our cash and cash equivalents were $33,198,051. Of these
funds, $33,001,515 are currently held as US funds in our bank accounts and
in
term deposits earning interest based on the US prime rate.
Three
months ended September 30, 2006 and 2005
The
decrease in our cash and cash equivalents of $1,848,279 during the three months
ended September 30, 2006 as compared to an increase in our cash and cash
equivalents of $30,009,266 during the three months ended September 30, 2005
is
primarily the result of funds used in investing activities and provided by
operations and financing activities as follows:
Our
cash
provided by operating activities during the three months ended September 30,
2006 was $10,317 as compared to cash used in operating activities of $191,650
for the three months ended September 30, 2005. This increase is mostly as a
result of an increase in our interest earned
on
our
increased cash balances net of our increased costs due to our increased oil
and
gas exploration activities.
Cash
used
in investing activities during the three months ended September 30, 2006 was
$3,793,118 as compared to $543,792 during the three months ended September
30,
2005. This increase is a result of additional expenditures on our oil and gas
activities which is consistent with the increased scale of our
participation.
Cash
provided by financing activities for the three months ended September 30, 2006
was $1,934,552 as compared to $30,744,708 during the three months ended
September 30, 2005. During the three months ended September 30, 2006, cash
of
$1,949,978 was provided from the issuance of 1,669,000 shares of common stock
on
the exercise of options. During the same period in 2005, there were no common
shares issued on the exercise of options. However, during the three months
ended
September 30, 2005, an additional $4,542,450 was provided from the issuance
of
1,899,400 shares of common stock on the exercise of 2003 purchase warrants
and
broker warrants as well as a further $27,640,600 from the completion of the
sale
of 4,252,400 Units of our securities at $6.50 per Unit in our September 2005
financing.
Nine
months ended September 30, 2006 and 2005
The
decrease in our cash and cash equivalents for the nine months ended September
30, 2006 of $2,839,337 to $33,198,051 at September 30, 2006, as compared to
an
increase in cash for the same period ending September 30, 2005 of $31,161,459
was primarily the result of funds used in operating and investing activities
and
provided by financing activities as follows:
Our
cash
used in operating activities during the nine months ended September 30, 2006
was
$21,901 as compared to $508,824 for the nine months ended September 30, 2005.
This decrease is mostly as a result of a reduction of our net loss before
stock-based compensation due to an increase in interest income derived from
our
increased cash balances net of our increased costs related to our increased
oil
and gas exploration activities.
Cash
used
by investing activities during the nine months ended September 30, 2006 was
$7,400,506 as compared to $1,341,775 during the nine months ended September
30,
2005. This increase is a direct result of additional expenditures on our oil
and
gas activities which is consistent with the increased scale of our
participation.
Cash
provided by financing activities for the nine months ended September 30, 2006
was $4,583,070 as compared to $33,012,058 during the nine months ended September
30, 2005. During the nine months ended September 30, 2006, cash of $2,704,128
was provided from the issuance of 2,279,000 shares of common stock on the
exercise of options and $1,963,750 on the exercise all 785,500 of the remaining
2003 purchase warrants. During the same period in 2005, cash of $462,200 was
provided from the issuance of 335,000 shares of common stock on the exercise
of
options and $6,347,600 on the exercise of the 2003 purchase warrants and broker
warrants. A further $27,640,600 was provided from the completion of the sale
of
4,252,400 Units of our securities at $6.50 per Unit in our September 2005
financing.
The
KG Block and Our Carried Interest Agreement
At
September 30, 2006, GSPC, the Operator of the KG Block, has expended on
exploration activities approximately $22.2 million attributable to us under
the
CIA as compared to $14.1 million at December 31, 2005. Of this amount, 50%
is
for the account of RGM. Under the terms of the CIA, GeoGlobal and RGM are
carried by GSPC for 100% of all our share of any costs during the exploration
phase on the KG Block prior to the start date of initial commercial
production.
Certain
exploration costs related to the KG Block are incurred solely by and on behalf
of the Company in providing its services under the CIA and are therefore not
reimbursable under the CIA. As such, these costs, which amount to approximately
$2.7 million at September 30, 2006, have been capitalized in the Company's
accounts as part of property and equipment, exploration costs - India. Under
the
terms of the PSC, GSPC is committed to expend further funds for the exploration
of and drilling on the KG Block. Preliminary estimates in the year 2003 were
that these expenditures attributable to us will total approximately $22.0
million over the 6.5 year term of the PSC. Additional drilling costs incurred
in
drilling to depths in excess of 5,000 meters versus shallower depths as
originally anticipated, as well as the testing and completion costs of these
wells, has resulted in actual costs attributable to us exceeding our original
preliminary estimates. As of November 6, 2006, the annual budget for the period
April 1, 2006 to March 31, 2007 has been prepared and submitted to the
Management Committee for approval. It is budgeted that GSPC will expend
approximately $26.2 million attributed to us (including the amount attributable
to RGM) under the CIA over the period April 1, 2006 to March 31, 2007. We are
unable to estimate the amount of additional expenditures GSPC will make
attributable to us prior to the start date of initial commercial production
under the CIA or when, if ever, any commercial production will commence. As
provided in the CIA, we will be required to bear the expenditures attributable
to us after the start date of initial commercial production on the KG
Block.
We
will
not realize cash flow from the KG venture until such time as the expenditures
attributed to us, including those expenditures made for the account of RGM
under
the CIA, have been recovered by GSPC from future production revenue. Under
the
terms of the CIA, all of our proportionate share of capital costs for
exploration and development activities as referred to above, must be repaid
to
GSPC without interest over the projected production life or ten years, whichever
is less.
The
NELP IV Cambay Block Agreements
Mehsana
Block & Sanand/Miroli Block
At
September 30, 2006, we have incurred costs of approximately $1.4 million with
respect to these two contracts. The annual budget estimates that our
expenditures for exploration activities for the period April 1, 2006 to March
31, 2007 will be approximately $5.0 million based upon our 10% PI in these
PSC's. During the six months ended September 30, 2006 we have incurred costs
of
approximately $706,000 with respect to these two exploration blocks.
At
September 30, 2006, we have provided to the GOI two irrevocable letters of
credit totaling $1,616,445 (Mehsana $711,445 and Sanand/Miroli $905,000) secured
by term deposits of the Company in the same amount. These letters of credit
serve as guarantees for the performance of the minimum work commitments for
the
budget period ending March 31, 2007 of Phase I of both of these Cambay
Blocks.
Tarapur
Block Agreement
As
the
holder of a participating interest in the Tarapur Block, we are required to
fund
our 20% share of all exploration and development costs incurred on the
exploration block. To September 30, 2006, estimated expenses incurred amount
to
approximately $3.1 million under the terms of our agreement with GSPC. We have
budgeted to expend an additional aggregate of approximately $4.6 million for
exploration activities under the terms of the agreement for the period April
1,
2006 to March 31, 2007 of which approximately $1.0 million was incurred during
the six month period ending September 30, 2006. Further, under the terms of
the
agreement, we will be required to keep in force a Financial and Performance
Guarantee in an amount sufficient to secure our performance under the Tarapur
PSC.
Subsequent
to September 30, 2006, we have provided to the GOI an irrevocable letter of
credit totaling $1,200,000 secured by term deposits of the Company in the same
amount. This letter of credit serves as guarantee for the performance of the
minimum work commitments for the budget period ending March 31, 2007 on the
Tarapur Block.
The
NELP V Block Agreements
DS
Block
and Ankleshwar Block
On
September 28, 2005, we entered into two PSC’s with the GOI covering two new
onshore exploration blocks in India. The first block is the DS Block
(DS-ONN-2003/1), which covers an area of approximately 3,155 square kilometers
("sq. kms.") onshore in the Deccan Syneclise Basin located in the northern
portion of the State of Maharashtra in west-central India and in which we hold
a
100% participating interest ("PI") and are the operator. The second block is
the
Ankleshwar Block (CB-ONN-2003/2), which covers an area of approximately 448
sq.
km. onshore in the State of Gujarat south-east of our three existing Cambay
blocks. We are part of a consortium and hold a 10% PI in the Ankleshwar Block.
GSPC is the operator of the Ankleshwar Block and holds a 50% PI, with the
remainder held by GAIL (India) Ltd. as to a 20% PI and Jubilant as to a 20%
PI.
Under
the
terms of the new PSC’s for these exploration blocks, we have committed to expend
funds on the exploration and drilling of these new exploration blocks. No budget
has yet been approved by the Management Committees on the DS Block for the
twelve months ending March 31, 2007, however preliminary estimates of our
expenditures are approximately $9.6 million on the DS Block for exploration
activities over a period of seven years. For the period ending September 30,
2006, we incurred costs of approximately $777,000 with respect to the Ankleshwar
Block and have provided to the GOI an irrevocable letter of credit totaling
$600,000 secured by a term deposit we provided in the same amount as
collateral.
We
estimate our expenditures for exploration activities during the period April
1,
2006 to March 31, 2007 will be approximately $2.0 million based upon our PI
in
these two PSC’s, of which, $777,000 has been incurred.
2006
Activities
We
expect
our exploration and development activities pursuant to the PSC's we are parties
to will continue throughout 2006 in accordance with the terms of those
agreements.
On
October 30, 2006 we announced that GSPC, the operator of the KG Block, has
completed drilling the KG#15 well on the KG Block to a total depth (“TD”) of
5,745 meters (5,669 meters total vertical depth (“TVD”)).
A
complete suite of modern logs have been run and the well has been cased with
a 7
inch liner to TD. A testing program is being designed based upon independent
log
analyses, as well as core samples, MDT's (“Modular Formation Dynamics Tester”)
and hydrocarbon shows while drilling. The testing program is expected to
commence mid-November, 2006.
Drilling
of the KG#15 well commenced on July 17, 2006 from the KG#8 well platform. The
well was drilled directionally to a location 750 meters SSE of the KG#8 platform
to delineate the extent of the reservoir section tested in KG#8 and to seek
to
prove additional reserves.
The
Atwood Beacon, an offshore jack-up drilling rig recently contracted by GSPC
for
the KG Block, is expected to arrive on location in December 2006 and commence
drilling a new well before the end of the year.
GSPC,
as
operator, recently completed a 500 sq. km. 3D seismic acquisition program on
the
Tarapur Block. Currently, GSPC is drilling our seventh well in the Tarapur
Block, the Tarapur #5 well, to a depth of approximately 1,600 meters from a
location chosen based upon this recently acquired seismic data.
GSPC
has
advised us that it has contracted three onshore drilling rigs to commence
drilling our Cambay Block Phase I commitments along with further development
drilling on the Tarapur Block. We anticipate that GSPC will commence the first
of six wells in the Sanand/Miroli Block in the fourth quarter of 2006.
GSPC
has
recently completed the acquisition of the final portion of a 448 sq. km. 3D
seismic acquisition program on the Ankleshwar Block. We will then complete
processing and interpreting the seismic data with the intention to commence
drilling on this block in the second quarter of 2007.
Jubilant,
as operator of the Mehsana Block, has advised us that it has contracted an
onshore drilling rig and we anticipate that they will commence the drilling
of
the first of seven wells before the end of 2006 with the intention to
continually drill thereafter all seven wells committed in the first phase.
Jubilant and the management committee under the PSC for the Mehsana Block have
made the request from the GOI for the automatic 6 month extension of Phase
I to
May 20, 2007 pursuant to the PSC, which 6 months will be deducted from Phase
II
of the work commitment timeline.
We
may
seek to participate in joint ventures bidding for the award of further PSC's
for
exploration blocks expected to be awarded by the GOI in the future. As of
November 14, 2006, we have not been awarded any such interests. In addition,
as
opportunities arise, we may seek to acquire minority PI's in exploration blocks
where PSC's have been heretofore awarded by the GOI. The acquisition of any
such
interests would be subject to the execution of a definitive agreement and
obtaining the requisite government consents and other approvals. Depending
upon
the scope of our activities during the years 2006 and 2007, we may require
additional capital for the possible acquisition of further minority PI's in
PSC's in drilling blocks heretofore awarded by the GOI. We may also require
additional capital in order to participate in ventures bidding for the grant
of
PSC's for future exploration blocks to be awarded by the GOI. We believe it
can
be expected that our interest in such ventures would be a PI. As of November
14,
2006, the scope of any possible such activities has not been definitively
established and, accordingly, we are unable to disclose the amount of any funds
that may be required for these purposes. As the holder of a PI in any such
possible activities, it can be expected that we will be required to contribute
capital to any such ventures.
We
are
during the years 2006 and 2007, pursuing opportunities to participate in joint
venture bidding for the acquisition of oil and gas interests in other
international countries. As of November 14, 2006, we have not been awarded
any
such interests.
We
may
during the years 2006 and 2007 also seek to raise additional capital to support
an expanded level of activities as well as our ongoing operations. No specific
plans or arrangements have been made to raise additional capital and we have
not
entered into any agreements in that regard. We expect that if we seek to raise
additional capital it will be through the sale of equity securities. As of
November 14, 2006, we are unable to estimate the terms on which any such capital
may be raised, the price per share or possible number of shares
involved.
Based
on
current budget projections prepared by the operator under the six PSC’s to which
we are a party, we expect that we will incur an aggregate of approximately
$13.6
million of capital expenditures for the period April 1, 2006 to March 31, 2007.
This includes exploration costs to be incurred on our Cambay and DS Blocks
as
well as an estimated $2.0 million to be incurred solely by us in providing
services under our CIA relating to the KG Block and certain other overhead
costs
directly related to our exploration activities in India. There can be no
assurance that these budgets will not be revised by the operators from time
to
time during the period and the amounts of such revisions may be material. The
foregoing capital expenditure budgets do not include our cash operating expenses
that we will expend throughout the period.
We
believe that our available cash resources will be sufficient to meet all our
expenses and cash requirements during the budget period ending March 31, 2007
and throughout the balance of 2007 at our present level of operations. We do
not
expect to have any significant change in 2006 in our number of
employees.
Recent
Accounting Standards
FAS
123
(R)
In
December, 2004, the Financial Accounting Standards Board issued a revision
to
Standard 123, Accounting
for Stock-Based Compensation. The
Statement of Financial Accounting Standards 123(R), Share-Based
Payment,
requires the recognition of compensation cost for stock-based compensation
arrangements with employees, consultants and directors based on their grant
date
fair values using the Modified Black-Scholes option-pricing model. Compensation
expense is recorded over the awards' respective requisite service, with
corresponding entries to paid-in capital.
The
Company adopted 123(R) using the modified-prospective-transition method on
January 1, 2006. Accordingly, the remaining fair value, amounting to $367,596,
of past stock-based compensation options was to be recognized over the ensuing
3
years.
FIN
48
Disclosure
In
July
2006, the Financial Accounting Standards Board issued FASB Interpretation
Bulletin #48 (FIN 48) relating to income tax positions subject to FAS 109,
Accounting for Income Taxes. FIN 48 utilizes a two-step approach for evaluating
tax positions. Recognition occurs when an enterprise concludes that a tax
position, based solely on its technical merits, is more-likely-than-not to
be
sustained upon examination. Measurement is only addressed if the recognition
requirement has been satisfied (i.e., the position is more-likely-than-not
to be
sustained). Measurement of the tax benefit is based on the largest amount of
benefit, determined on a cumulative probability basis that is
more-likely-than-not to be realized upon ultimate settlement. Derecognition
of a
tax position that was previously recognized would occur when a company
subsequently determines that a tax position no longer meets the
more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits
the use of a valuation allowance as a substitute for derecognition of tax
positions.
FIN
48
will be effective for fiscal years beginning after December 15, 2006. The
Company expects that FIN 48 will not have a significant impact on its
consolidated statements.
CAUTIONARY
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
With
the
exception of historical matters, the matters discussed in this Report are
“forward-looking statements” as defined under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, that involve
risks
and uncertainties. Forward-looking statements made herein include, but are
not
limited to:
| · |
the
statements in this Report regarding our plans and objectives relating
to
our future operations,
|
| · |
plans
and objectives regarding the exploration, development and production
activities conducted on the exploration blocks in India in which
we have
interests,
|
| · |
plans
regarding drilling activities intended to be conducted through the
ventures in which we are a participant, the success of those drilling
activities and our ability and the ability of the ventures to complete
any
wells on the exploration blocks, to develop reserves of hydrocarbons
in
commercially marketable quantities, to establish facilities for the
collection, distribution and marketing of hydrocarbons, to produce
oil and
natural gas in commercial quantities and to realize revenues from
the
sales of those hydrocarbons,
|
| · |
our
plans and objectives to join with others or to directly seek to enter
into
or acquire interests in additional PSC's with the GOI and others,
|
| · |
our
assumptions, plans and expectations regarding our future capital
requirements,
|
| · |
our
plans and intentions regarding our plans to raise additional capital,
|
| · |
the
costs and expenses to be incurred in conducting exploration, well
drilling, development and production activities and the adequacy
of our
capital to meet our requirements for our present and anticipated
levels of
activities are all forward-looking statements.
|
These
statements appear, among other places, under the captions "Management's
Discussion and Analysis or Plan of Operations" and "Risk Factors". If our plans
fail to materialize, your investment will be in jeopardy.
| · |
We
cannot assure you that our assumptions or our business plans and
objectives discussed herein will prove to be accurate or be able
to be
attained.
|
| · |
We
cannot assure you that any commercially recoverable quantities of
hydrocarbon reserves will be discovered on the exploration blocks
in which
we have an interest.
|
| · |
Our
ability to realize revenues cannot be assured. Our ability to successfully
drill, test and complete producing wells cannot be assured.
|
| · |
We
cannot assure you that we will have available to us the capital required
to meet our plans and objectives at the times and in the amounts
required
or we will have available to us the amounts we are required to fund
under
the terms of the PSC's we are a party to.
|
| · |
We
cannot assure you that we will be successful in joining any further
ventures seeking to be granted PSC's by the GOI or that we will be
successful in acquiring interests in existing ventures.
|
| · |
We
cannot assure you that the outcome of testing of one or more wells
on the
KG Block will be satisfactory and result in a commercially-productive
well
or that any further wells drilled on the KG Block will have
commercially-successful results.
|
Our
inability to meet our goals and objectives or the consequences to us from
adverse developments in general economic or capital market conditions, events
having international consequences, or military or terrorist activities could
have a material adverse effect on us. We caution you that various risk factors
accompany those forward-looking statements and are described, among other
places, under the caption "Risk Factors" herein. They are also described in
our
Annual Report on Form 10-KSB for the year ended December 31, 2005, our Quarterly
Reports on Form 10-QSB, and our Current Reports on Form 8-K. These risk factors
could cause our operating results, financial condition and ability to fulfill
our plans to differ materially from those expressed in any forward-looking
statements made in this Report and could adversely affect our financial
condition and our ability to pursue our business strategy and
plans.
Risk
Factors
An
investment in shares of our common stock involves a high degree of risk. You
should consider the following factors, in addition to the other information
contained in this Report, in evaluating our business and current and proposed
activities before you purchase any shares of our common stock. You should also
see the "Cautionary Statement for Purposes of the Safe Harbor Provisions of
the
Private Securities Litigation Reform Act of 1995" regarding risks and
uncertainties relating to us and to forward-looking statements in this
Report.
Risks
Relating to Our Oil and Gas Activities
Because
We Are In the Early Stage Of Developing Our Activities, There Are Considerable
Risks That We Will Be Unsuccessful
We
are in
the early stage of developing our operations. Our only activities in the oil
and
natural gas exploration and production industry have primarily involved entering
into five Production Sharing Contracts with the GOI. In addition, we have
entered into an agreement to acquire a participating interest in a sixth
Production Sharing Contract ("PSC"). We have realized no revenues from our
oil
and natural gas exploration and development activities and do not claim any
proved reserves of oil or natural gas. As of November 14, 2006, a venture in
which we have a net 5% interest, has drilled and abandoned two wells, has
drilled, tested and cased two wells and has drilled, cased and is currently
testing a fifth well.
As
of
November 14, 2006, we do not claim any proved reserves of hydrocarbons as a
result of those drilling, testing and evaluation activities. Our current plans
are to conduct the exploration and development activities on the areas offshore
and onshore India in accordance with the terms of the PSC's we are a party
to.
There can be no assurance that the exploratory drilling to be conducted on
the
exploration blocks in which we hold or have agreed to acquire an interest will
result in any discovery of hydrocarbons or that any hydrocarbons that are
discovered will be in commercially recoverable quantities. In addition, the
realization of any revenues from commercially recoverable hydrocarbons is
dependent upon the ability to deliver, store and market any hydrocarbons that
are discovered. The presence of hydrocarbon reserves on contiguous properties
is
no assurance or necessary indication that hydrocarbons will be found in
commercially marketable quantities on the exploration blocks in which we hold
an
interest. Our exploration opportunities are highly speculative and should any
of
these opportunities not result in the discovery of commercial quantities of
oil
and gas reserves, our investment in the venture could be lost.
Our
business plans also include seeking to enter into additional joint ventures
or
other arrangements to acquire interests in additional government created and
granted hydrocarbon exploration opportunities, primarily located onshore or
in
the offshore waters of India. Opportunities to acquire interests in exploration
opportunities will be dependent upon our ability to identify, negotiate and
enter into joint venture or other similar arrangements with respect to specific
exploration opportunities and upon our ability to raise sufficient capital
to
fund our participation in those joint ventures or other exploration activities.
Our success will be dependent upon the success of the exploration activities
of
the ventures in which we acquire an interest.
Our
Interest In The Production Sharing Contracts Involve Highly Speculative
Exploration Opportunities That Involve Material Risks That We Will Be
Unsuccessful
Our
interests in the exploration blocks should be considered to be highly
speculative exploration opportunities that involve material risks. None of
the
exploration blocks in which we have an interest have any proven reserves and
are
not producing any quantities of oil or natural gas. Exploratory drilling
activities are subject to many risks, including the risk that no commercially
productive reservoirs will be encountered. There can be no assurance that wells
drilled on any of the exploration blocks in which we have an interest or by
any
venture in which we may acquire an interest in the future will be productive
or
that we will receive any return or recover all or any portion of our investment.
Drilling for oil and gas may involve unsuccessful or unprofitable efforts,
not
only from dry wells, but from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other
costs. The cost of drilling, completing and operating wells is often uncertain.
Drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which are beyond the operator’s control, including
economic conditions, mechanical problems, extreme downhole pressures and
temperatures, title problems, weather conditions, compliance with governmental
requirements and shortages or delays of equipment and services. Drilling
activities on the exploration blocks in which we hold an interest may not be
successful and, if unsuccessful, such failure may have a material adverse effect
on our future results of operations and financial condition.
Page33
Possible
Inability of Contracting Parties to Fulfill Phase One of the Minimum Work
Program for the KG Block
Our
PSC
relating to the KG Block provides that by the end of the first phase of the
exploration period the contracting parties shall have drilled at least fourteen
wells. The first phase of the exploration period expired on September 11, 2005.
Through November 14, 2006, five wells have been drilled on the exploration
block, leaving nine wells to be drilled. On August 5, 2005, a written notice
requesting the six month extension was submitted and on August 29, 2005, the
management committee consented to the extension of six months to March 11,
2006
and deducted the six month extension from the Phase II exploration period.
On
February 24, 2006, the management committee for the KG Block recommended a
further extension to the first phase of twelve months to March 11, 2007 which
will also be deducted from the second phase of the exploration program. As
at
November 14, 2006, approval of this extension from the GOI is still outstanding.
The
PSC
provides that, if at the end of an exploration phase a work program for that
phase is not completed, the time for completion of the exploration program
for
that phase is to be extended for a period necessary to enable completion but
not
exceeding six months, provided the parties (i) submit a request by written
notice to the GOI at least thirty days prior to the expiration of the relevant
phase, (ii) can show technical or other good reasons for the non-completion
of
the work program, and (iii) the management committee gives its consent to the
extension. Any such extension that is granted is to be deducted from the next
succeeding exploration phase.
In
the
event the twelve month extension is granted and the nine additional wells are
not drilled by March 11, 2007, or the further extension is not granted, the
Company may be liable for consequences of non-fulfillment of the minimum work
commitment in a given time frame under the PSC. The PSC has provisions for
termination on account of various reasons specified therein, including material
breach of the contract. Termination rights can be exercised after giving ninety
days written notice, unless such failure of compliance or contravention is
remedied within the ninety-day period or such extended period as may be granted
by the GOI. The failure to timely complete the minimum work commitment may
be
deemed by the GOI to be a failure to comply with the provisions of the PSC
in a
material particular. We have been advised by GSPC that it is unaware of any
such
precedence. In the event the PSC is terminated by the GOI, or in the event
the
work program is not fulfilled by the end of the relevant exploration phase,
each
party to the PSC is to pay to the GOI its participating interest share of an
amount which is equal to the amount that would be required to complete the
minimum work program for that phase. We are of the view that GSPC, under the
terms of our CIA, would be liable for our participating interest share of the
amount required to complete the minimum work program for the phase. However,
the
termination of the PSC by the GOI would result in the loss of our interest
in
the KG Block other than areas determined to encompass "commercial discoveries".
The PSC sets forth procedures whereby the operator can obtain the review of
the
management committee under the PSC as to whether a discovery on the exploration
block should be declared a commercial discovery under the PSC. Those procedures
have not been completed at present with respect to the discovery on the KG
Block
and, accordingly, as of November 14, 2006, no areas on the KG Block have been
determined formally to encompass "commercial discoveries" as
that
term is defined under the PSC.
Because
Our Activities Have Only Recently Commenced And We Have No Operating History
And
Reserves Of Oil And Gas, We Anticipate Future Losses; There Is No Assurance
Of
Our Profitability
Our
oil
and natural gas operations have been only recently established and we have
no
operating history, oil and gas reserves or assets upon which an evaluation
of
our business, our current business plans and our prospects can be based. Our
prospects must be considered in light of the risks, expenses and problems
frequently encountered by all companies in their early stages of development
and, in particular, those engaged in exploratory oil and gas activities. Such
risks include, without limitation:
| · |
We
will experience failures to discover oil and gas in commercial
quantities;
|
| · |
There
are uncertainties as to the costs to be incurred in our exploratory
drilling activities, cost overruns are possible and we may encounter
mechanical difficulties and failures in completing
wells;
|
| · |
There
are uncertain costs inherent in drilling into unknown formations,
such as
over-pressured zones, high temperatures and tools lost in the hole;
and
|
| · |
We
may make changes in our drilling plans and locations as a result
of prior
exploratory drilling.
|
During
the exploration phase prior to the start date of initial commercial production,
we have a carried interest in the exploration activities on the KG Block. Our
interests in our other five exploration blocks are participating interests
which
require us to pay our proportionate share of exploration, drilling and
development expenses on these blocks substantially as those expenses are
incurred. Unexpected or additional costs can affect the commercial viability
of
producing oil and gas from a well and will affect the time when and amounts
that
we can expect to receive from any production from a well. Because our carried
costs of exploration and drilling on the KG Block are to be repaid in full
to
the operator, GSPC, before we are entitled to any share of production,
additional exploration and development expenses will reduce and delay any share
of production and revenues we will receive.
There
can
be no assurance that the ventures in which we are a participant will be
successful in addressing these risks, and any failure to do so could have a
material adverse effect on our prospects for the future. Our operations were
recently established, and as such, we have no substantial operating history
to
serve as the basis to predict our ability to further the development of our
business plan. Likewise, the outcome of our exploratory drilling activities,
as
well as our quarterly and annual operating results cannot be predicted.
Consequently, we believe that period to period comparisons of our exploration,
development, drilling and operating results will not necessarily be meaningful
and should not be relied upon as an indication of our stage of development
or
future prospects. Through November 14, 2006, we abandoned two wells drilled
on
the KG Block and it is likely that in some future quarter our stage of
development or operating or drilling results may fall below our expectations
or
the expectations of securities analysts and investors and that some of our
drilling results will be unsuccessful and the wells abandoned. In such event,
the trading price of our common stock may be materially and adversely affected.
We
Expect to Have Substantial Requirements For Additional Capital That May Be
Unavailable To Us Which Could Limit Our Ability To Participate In Our Existing
and Additional Ventures Or Pursue Other Opportunities. Our Available Capital
is
Limited
In
order
to participate under the terms of our PSC's as well as in further joint venture
arrangements leading to the possible grant of exploratory drilling
opportunities, we will be required to contribute or have available to us
material amounts of capital. Under the terms of our CIA relating to the KG
Block, after the start date of initial commercial production on the KG Block,
and under the terms of the five PSC's we are parties to, as well as the
agreement relating to the acquisition of the 20% participating interest in
the
Tarapur Block, we are required to bear our proportionate share of costs during
the exploration phases of those agreements. There can be no assurance that
our
currently available capital will be sufficient for these purposes or that any
additional capital that is required will be available to us in the amounts
and
at the times required. Such capital also may be required to secure bonds in
connection with the grant of exploration rights, to conduct or participate
in
exploration activities or be engaged in drilling and completion activities.
We
intend to seek the additional capital to meet our requirements from equity
and
debt offerings of our securities. Our ability to access additional capital
will
depend in part on the success of the ventures in which we are a participant
in
locating reserves of oil and gas and developing producing wells on the
exploration blocks, the results of our management in locating, negotiating
and
entering into joint venture or other arrangements on terms considered
acceptable, as well as the status of the capital markets at the time such
capital is sought.
There
can
be no assurance that capital will be available to us from any source or that,
if
available, it will be at prices or on terms acceptable to us. Should we be
unable to access the capital markets or should sufficient capital not be
available, our activities could be delayed or reduced and, accordingly, any
future exploration opportunities, revenues and operating activities may be
adversely affected and could also result in our breach of the terms of a PSC
which could result in the loss of our rights under the
contract.
As
of
September 30, 2006, we had cash and cash equivalents of approximately $33.1
million. We currently expect that our available cash will be sufficient to
fund
us through the budget periods ending March 31, 2007 and through the balance
of
2007 at our present level of operations on the five exploration blocks in which
we are currently a participant and our participation in the Tarapur Block in
which we agreed to acquire a 20% participating interest. Although exploration
activity budgets are subject to ongoing review and revision, our present
estimate of our commitments of capital pursuant to the terms of our PSC's
relating to these exploration blocks, totals approximately $13.6 million during
the period April 1, 2006 to March 31, 2007. Any further PSC's we may seek to
enter into or any expanded scope of our operations or other transactions that
we
may enter into may require us to fund our participation or capital expenditures
with amounts of capital not currently available to us. We may be unsuccessful
in
raising the capital necessary to meet these capital requirements. There can
be
no assurance that we will be able to raise the capital.
Pursuant
to our agreement executed on April 7, 2005 to acquire a 20% participating
interest from GSPC in the Tarapur Block, we have paid to GSPC the sum of
$2,779,438, have set up $234,458 in accounts payable and have accrued an
additional $67,282 for estimated costs incurred to September 30, 2006. In
addition, it is expected that under the terms of our agreement with GSPC the
total capital we will be required to contribute to exploration activities on
Tarapur during the period ending March 31, 2007, based on our 20% participating
interest, will be approximately an additional $4.6 million.
Our
agreement with GSPC on the Tarapur Block was subject to obtaining the consent
of
the GOI to the assignment, which consent was received effective August 24,
2006.
The consent was conditioned upon our providing a performance guarantee to the
GOI which has been provided.
India’s
Regulatory Regime May Increase Our Risks And Expenses In Doing
Business
All
phases of the oil and gas exploration, development and production activities
in
which we are participating are regulated in varying degrees by the Indian
government, either directly or through one or more governmental entities. The
areas of government regulation include matters relating to restrictions on
production, price controls, export controls, income taxes, expropriation of
property, environmental protection and rig safety. In addition, the award of
a
PSC is subject to GOI consent and matters relating to the implementation and
conduct of operations under the PSC are subject, under certain circumstances,
to
GOI consent. As a consequence, all future drilling and production programs
and
operations we undertake or are undertaken by the ventures in which we
participate in India must be approved by the Indian government. Shifts in
political conditions in India could adversely affect our business in India
and
the ability to obtain requisite government approvals in a timely fashion or
at
all. We, and our joint venture participants, must maintain satisfactory working
relationships with the Indian government. This regulatory environment may
increase the risks associated with our intended exploration and productivity
activities and increase our costs of doing business.
Our
Control By Directors And Executive Officers May Result In Those Persons Having
Interests Divergent From Our Other Stockholders
As
of
November 14, 2006, our Directors and executive officers and their respective
affiliates, in the aggregate, beneficially hold 33,051,167 shares or
approximately 50.0% of our outstanding Common Stock. As a result, these
stockholders possess significant influence over us, giving them the ability,
among other things, to elect a majority of our Board of Directors and approve
significant corporate transactions. These persons will retain significant
control over our present and future activities and our other stockholders and
investors may be unable to meaningfully influence the course of our actions.
These persons may have interests regarding the future activities and
transactions in which we engage which may diverge from the interests of our
other stockholders. Such share ownership and control may also have the effect
of
delaying or preventing a change in control of us, impeding a merger,
consolidation, takeover or other business combination involving us, or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us which could have a material adverse effect
on
the market price of our Common Stock. Although management has no intention
of
engaging in such activities, there is also a risk that the existing management
will be viewed as pursuing an agenda which is beneficial to themselves at the
expense of other stockholders.
Our
Reliance On A Limited Number Of Key Management Personnel Imposes Risks On Us
That We Will Have Insufficient Management Personnel Available If The Services
Of
Any Of Them Are Unavailable
We
are
dependent upon the services of our President and Chief Executive Officer, Jean
Paul Roy, and Executive Vice President and Chief Financial Officer, Allan J.
Kent. The loss of either of their services could have a material adverse effect
upon us. We currently do not have employment agreements with either of such
persons or key man life insurance. The services of both Mr. Roy and Mr. Kent
are
provided pursuant to the terms of agreements with corporations wholly-owned
by
each of them. At present, Mr. Kent’s services are provided through an oral
agreement with the corporation he owns. Accordingly, these agreements do not
contain any provisions whereby Mr. Roy and Mr. Kent have direct contractual
obligations to us to provide services or refrain from other
activities.
At
present, our future is substantially dependent upon the geological and
geophysical capabilities of Mr. Roy to locate oil and gas exploration
opportunities for us and the ventures in which we are a participant. His
inability to do the foregoing could materially adversely affect our future
activities. We entered into a three-year Technical Services Agreement with
Roy
Group (Barbados) Inc. dated August 29, 2003, a company owed 100% by Mr. Roy,
to
perform such geological and geophysical duties and exercise such powers related
thereto as we may from time to time assign to it. The expiration term of this
contract has subsequently been extended to December 31, 2007. We have no
agreement directly with Mr. Roy regarding his services to us.
Our
Success Is Largely Dependent On The Success Of The Operators Of The Ventures
In
Which We Participate And Their Failure Or Inability To Properly Or Successfully
Operate The Oil And Gas Exploration, Development And Production Activities
On An
Exploration Block, Could Materially Adversely Affect Us
At
present, our only oil and gas interests are our rights under the terms of the
five PSC's with the GOI that we have entered into and the Deed of Assignment
and
Assumption agreement with GSPC in the Tarapur Block. We are not and will not
be
the operator of any of the exploration, drilling and production activities
conducted on our exploration blocks, with the exception of the DS block in
which
we are the operator. Accordingly, the realization of successes in the
exploration of the blocks is substantially dependent upon the success of the
operators in exploring for and developing reserves of oil and gas and their
ability to market those reserves at prices that will yield a return to
us.
Under
the
terms of our CIA for the KG Block, we have a carried interest in the exploration
activities conducted by the parties on the KG Block prior to the start date
of
initial commercial production. However, under the terms of that agreement,
all
of our proportionate share of capital costs for exploration and development
activities must be repaid without interest over the projected production life
or
ten years, whichever is less. Our proportionate share of these costs and
expenses expected to be incurred over the 6.5 year term of the PSC for which
our
interest is carried was originally estimated to be approximately $22.0 million.
Additional drilling costs including the drilling to depths in excess of 5,000
meters, where higher downhole temperatures and pressures are encountered, versus
shallower depths as originally anticipated, as well as the testing and
completion costs of these wells, has resulted in additional costs exceeding
original budgeted expenditures. As a consequence of these additional drilling
costs incurred, as of November 14, 2006, the annual budget for the period April
1, 2006 to March 31, 2007 submitted to the Management Committee under the PSC
for the KG Block estimates that GSPC will expend approximately $26.2 million
attributed to us (including the amount attributable to RGM) under the CIA over
the period April 1, 2006 to March 31, 2007. Further additional expenditures
may
be required for cost overruns and completions of commercially successful wells.
We are unable to estimate the amount of additional expenditures GSPC will make
as operator attributable to us prior to the start date of initial commercial
production under the CIA or when, if ever, any commercial production will
commence. Of these expenditures, 50% are for the account of Roy Group
(Mauritius) Inc. under the terms of the Participating Interest Agreement between
us and Roy Group (Mauritius) Inc. We are not entitled to any share of production
from the KG Block until such time as the expenditures attributed to us,
including those expenditures made for the account of Roy Group (Mauritius)
Inc.,
under the CIA, have been recovered by GSPC from future production revenue.
Therefore, we are unable to estimate when we may commence to receive
distributions from any production of hydrocarbon reserves found on the KG Block.
As provided in the CIA, in addition to repaying our proportionate share of
capital costs incurred for which we were carried, we will be required to bear
our proportionate share of the expenditures attributable to us after the start
date of initial commercial production on the KG Block.
Page37
Certain
Terms Of The Production Sharing Contracts May Create Additional Expenses And
Risks That Could Adversely Affect Our Revenues And
Profitability
The
PSC's
contain certain terms that may affect the revenues of the joint venture
participants to the agreements and create additional risks for us. These terms
include, possibly among others, the following:
| · |
The
venture participants are required to complete certain minimum work
programs during the three phases of the terms of the PSC's. In the
event
the venture participants fail to fulfill any of these minimum work
programs, the parties to the venture must pay to the GOI their
proportionate share of the amount that would be required to complete
the
minimum work program. Accordingly, we could be called upon to pay
our
proportionate share of the estimated costs of any incomplete work
programs;
|
| · |
Until
such time as the GOI attains self sufficiency in the production of
crude
oil and condensate and is able to meet its national demand, the parties
to
the venture are required to sell in the Indian domestic market their
entitlement under the PSC's to crude oil and condensate produced
from the
exploration blocks. In addition, the Indian domestic market has the
first
call on natural gas produced from the exploration blocks and the
discovery
and production of natural gas must be made in the context of the
government’s policy of utilization of natural gas and take into account
the objectives of the government to develop its resources in the
most
efficient manner and promote conservation measures. Accordingly,
this
provision could interfere with our ability to realize the maximum
price
for our share of production of
hydrocarbons;
|
| · |
The
parties to each agreement that are not Indian companies, which includes
us, are required to negotiate technical assistance agreements with
the GOI
or its nominee whereby such foreign company can render technical
assistance and make available commercially available technical information
of a proprietary nature for use in India by the government or its
nominee,
subject, among other things, to confidentiality restrictions. Although
not
intended, this could increase each venture’s and our cost of operations;
and
|
| · |
The
parties to each venture are required to give preference, including
the use
of tender procedures, to the purchase and use of goods manufactured,
produced or supplied in India provided that such goods are available
on
equal or better terms than imported goods, and to employ Indian
subcontractors having the required skills insofar as their services
are
available on comparable standards and at competitive prices and terms.
Although not intended, this could increase the venture’s and our cost of
operations.
|
These
provisions of the PSC's, possibly among others, may increase our costs of
participating in the ventures and thereby affect our profitability.
Oil
And Gas Prices Fluctuate Widely And Low Oil And Gas Prices Could Adversely
Affect Our Financial Results
There
is
no assurance that there will be any market for oil or gas produced from the
exploration blocks in which we hold an interest and our ability to deliver
the
production from any wells may be constrained by the absence of or limitations
on
collector systems and pipelines. Future price fluctuations could have a major
impact on the future revenues from any oil and gas produced on these exploration
blocks and thereby our revenue, and materially affect the return from and the
financial viability of any reserves that are claimed. Historically, oil and
gas
prices and markets have been volatile, and they are likely to continue to be
volatile in the future. A significant decrease in oil and gas prices could
have
a material adverse effect on our cash flow and profitability and would adversely
affect our financial condition and the results of our operations. In addition,
because world oil prices are quoted in and trade on the basis of U.S. dollars,
fluctuations in currency exchange rates that affect world oil prices could
also
affect our revenues. Prices for oil and gas fluctuate in response to relatively
minor changes in the supply of and demand for oil and gas, market uncertainty
and a variety of additional factors that are beyond our control, including:
| · |
political
conditions and civil unrest in oil producing regions, including the
Middle
East and elsewhere;
|
| · |
the
domestic and foreign supply of oil and gas;
|
| · |
quotas
imposed by the Organization of Petroleum Exporting Countries upon
its
members;
|
| · |
the
level of consumer demand;
|
| · |
weather
conditions;
|
| · |
domestic
and foreign government regulations;
|
| · |
the
price and availability of alternative fuels;
|
| · |
overall
economic conditions; and
|
| · |
international
political conditions.
|
In
addition, various factors may adversely affect the ability to market oil and
gas
production from the exploration block, including:
| · |
the
capacity and availability of oil and gas gathering systems and pipelines;
|
| · |
the
ability to produce oil and gas in commercial quantities and to enhance
and
maintain production from existing wells and wells proposed to be
drilled;
|
| · |
the
proximity of future hydrocarbon discoveries to oil and gas transmission
facilities and processing equipment (as well as the capacity of such
facilities);
|
| · |
the
effect of governmental regulation of production and transportation
(including regulations relating to prices, taxes, royalties, land
tenure,
allowable production, importing and exporting of oil and condensate
and
matters associated with the protection of the
environment);
|
| · |
the
imposition of trade sanctions or embargoes by other
countries;
|
| · |
the
availability and frequency of delivery vessels;
|
| · |
changes
in supply due to drilling by others;
|
| · |
the
availability of drilling rigs and qualified personnel; and
|
| · |
changes
in demand.
|
Our
Ability To Locate And Participate In Additional Exploration Opportunities And
To
Manage Growth May Be Limited By Reason Of Our Limited History Of Operations
And
The Limited Size Of Our Staff
While
our
President and Executive Vice President have had extensive experience in the
oil
and gas exploration business, we have been engaged in limited activities in
the
oil and gas business over approximately the past three years and have a limited
history of activities upon which you may base your evaluation of our
performance. As a result of our brief operating history and limited activities
in oil and gas exploration activities, our success to date in entering into
ventures to acquire interests in exploration blocks may not be indicative that
we will be successful in entering into any further ventures. There can be no
assurance that we will be successful in growing our oil and gas exploration
and
development activities.
Any
future significant growth in our oil and gas exploration and development
activities will place demands on our executive officers, and any increased
scope
of our operations will present challenges to us due to our current limited
management resources. Our future performance will depend upon our management
and
their ability to locate and negotiate opportunities to participate in joint
venture and other arrangements whereby we can participate in exploration
opportunities. There can be no assurance that we will be successful in these
efforts. Our inability to locate additional opportunities, to hire additional
management and other personnel or to enhance our management systems could have
a
material adverse effect on our results of operations.
Our
Future Performance Depends Upon Our Ability And The Ability Of The Ventures
In
Which We Participate To Find Or Acquire Oil And Gas Reserves That Are
Economically Recoverable
Our
success in developing our oil and gas exploration and development activities
will be dependent upon establishing, through our participation with others
in
joint ventures and other similar activities, reserves of oil and gas and
maintaining and possibly expanding the levels of those reserves. We and the
joint ventures in which we may participate may not be able to locate and
thereafter replace reserves from exploration and development activities at
acceptable costs. Lower prices of oil and gas may further limit the kinds of
reserves that can be developed at an acceptable cost. The business of exploring
for, developing or acquiring reserves is capital intensive. We may not be able
to make the necessary capital investment to enter into joint ventures or similar
arrangements to maintain or expand our oil and gas reserves if capital is
unavailable to us and the ventures in which we participate. In addition,
exploration and development activities involve numerous risks that may result
in
dry holes, the failure to produce oil and gas in commercial quantities, the
inability to fully produce discovered reserves and the inability to enhance
production from existing wells.
We
expect
that we will continually seek to identify and evaluate joint venture and other
exploration opportunities for our participation as a joint venture participant
or through some other arrangement. Our ability to enter into additional
exploration activities will be dependent to a large extent on our ability to
negotiate arrangements with others and with various governments and governmental
entities whereby we can be granted a participation in such ventures. There
can
be no assurance that we will be able to locate and negotiate such arrangements,
have sufficient capital to meet the costs involved in entering into such
arrangements or that, once entered into, that such exploration activities will
be successful. Successful acquisition of exploration opportunities can be
expected to require, among other things, accurate assessments of potential
recoverable reserves, future oil and gas prices, projected operating costs,
potential environmental and other liabilities and other factors. Such
assessments are necessarily inexact, and as estimates, their accuracy is
inherently uncertain. We cannot assure you that we will successfully consummate
any further exploration opportunities or joint venture or other arrangements
leading to such opportunities.
Estimating
Reserves And Future Net Revenues Involves Uncertainties And Oil And Gas Price
Declines May Lead To Impairment Of Oil And Gas Assets
Currently,
we do not claim any proved reserves of oil or natural gas. Any reserve
information that we may provide in the future will represent estimates based
on
reports prepared by independent petroleum engineers, as well as internally
generated reports. Petroleum engineering is not an exact science. Information
relating to proved oil and gas reserves is based upon engineering estimates
derived after analysis of information we furnish or furnished by the operator
of
the property. Estimates of economically recoverable oil and gas reserves and
of
future net cash flows necessarily depend upon a number of variable factors
and
assumptions, such as historical production from the area compared with
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions concerning future oil and gas prices,
future operating costs, severance and excise taxes, capital expenditures and
workover and remedial costs, all of which may in fact vary considerably from
actual results. Oil and gas prices, which fluctuate over time, may also affect
proved reserve estimates. For these reasons, estimates of the economically
recoverable quantities of oil and gas attributable to any particular group
of
properties, classifications of such reserves based on risk of recovery and
estimates of the future net cash flows expected therefrom prepared by different
engineers or by the same engineers at different times may vary substantially.
Actual production, revenues and expenditures with respect to reserves we may
claim will likely vary from estimates, and such variances may be material.
Either inaccuracies in estimates of proved undeveloped reserves or the inability
to fund development could result in substantially reduced reserves. In addition,
the timing of receipt of estimated future net revenues from proved undeveloped
reserves will be dependent upon the timing and implementation of drilling and
development activities estimated by us for purposes of the reserve report.
Page40
Quantities
of proved reserves are estimated based on economic conditions in existence
in
the period of assessment. Lower oil and gas prices may have the impact of
shortening the economic lives on certain fields because it becomes uneconomic
to
produce all recoverable reserves on such fields, thus reducing proved property
reserve estimates. If such revisions in the estimated quantities of proved
reserves occur, it will have the effect of increasing the rates of depreciation,
depletion and amortization on the affected properties, which would decrease
earnings or result in losses through higher depreciation, depletion and
amortization expense. The revisions may also be sufficient to trigger impairment
losses on certain properties that would result in a further non-cash charge
to
earnings.
Risks
Relating To The Market For Our Common Stock
Volatility
Of Our Stock Price
The
public market for our common stock has been characterized by significant price
and volume fluctuations. There can be no assurance that the market price of
our
common stock will not decline below its current or historic price ranges. The
market price may bear no relationship to the prospects, stage of development,
existence of oil and gas reserves, revenues, earnings, assets or potential
of
our company and may not be indicative of our future business performance. The
trading price of our common stock could be subject to wide fluctuations.
Fluctuations in the price of oil and gas and related international political
events can be expected to affect the price of our common stock. In addition,
the
stock market in general has experienced extreme price and volume fluctuations
that have affected the market price for many companies which fluctuations have
been unrelated to the operating performance of these companies. These market
fluctuations, as well as general economic, political and market conditions,
may
have a material adverse effect on the market price of our company's common
stock. In the past, following periods of volatility in the market price of
a
company's securities, securities class action litigation has often been
instituted against such companies. Such litigation, if instituted, and
irrespective of the outcome of such litigation, could result in substantial
costs and a diversion of management's attention and resources and have a
material adverse effect on our company's business, results of operations and
financial condition.
PART
II
OTHER
INFORMATION
|
ITEM
6.
|
*
filed
or furnished herewith
SIGNATURES
In
accordance with the requirements of the Exchange
Act,
the
Registrant caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
GEOGLOBAL
RESOURCES INC.
|
||
|
(Registrant)
|
||
|
May
15, 2007
|
/s/
Jean Paul Roy
|
|
|
Jean
Paul Roy
President
and Chief Executive Officer
(Principal
Executive Officer and Director)
|
||
|
May
15, 2007
|
/s/
Allan J. Kent
|
|
|
Allan
J. Kent
Executive
Vice President and Chief Financial Officer
(Principal
Financial and Accounting)
|