- Annual Report (10-K)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: to

001-34525

(Commission File Number)

CAMAC ENERGY INC.

(Exact name of registrant as specified in its charter)


Delaware		30-0349798
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

1330 Post Oak Blvd., Suite 2575, Houston, TX 77056

(Address of Principal Executive Office) (Zip Code)

(713) 797-2940

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2011) was approximately $84,805,329 (based on $1.33 per share, the last price of the common stock as reported on the NYSE Amex on such date). For purposes of the foregoing calculation only, all directors, executive officers and 10% beneficial owners have been deemed affiliates. As of March 9, 2012, there were 155,393,675 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement or Form 10-K/A relating to the Company’s Annual Meeting of Stockholders to be held on May 30, 2012 are incorporated by reference in Part III of this report.

CAMAC Energy Inc.

FORM 10-K

TABLE OF CONTENTS


		Page
Cautionary Statement Relevant to Forward-Looking Information

PART I
Item 1.	Description of Business		4
Item 1A.	Risk Factors		15
Item 1B.	Unresolved Staff Comments		29
Item 2.	Properties		29
Item 3.	Legal Proceedings		29
Item 4.	Mine Safety Disclosures		29
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		30
Item 6.	Selected Financial Data		32
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		48
Item 8.	Financial Statements and Supplementary Data		49
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		49
Item 9A.	Controls and Procedures		49
Item 9B.	Other Information		52
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		52
Item 11.	Executive Compensation		52
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		52
Item 13.	Certain Relationships and Related Transactions, and Director Independence		52
Item 14.	Principal Accountant Fees and Services		52
PART IV
Item 15.	Exhibits, Financial Statements and Schedules		52
Signatures			58

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

All statements, other than statements of historical fact, included in this Form 10-K, including without limitation the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business,” are, or may be deemed to be, forward-looking statements. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of CAMAC Energy Inc. and its subsidiaries and joint-ventures, (i) Pacific Asia Petroleum, Limited, (ii) Inner Mongolia Production Company (HK) Limited, (iii) Pacific Asia Petroleum (HK) Limited, (iv) Inner Mongolia Sunrise Petroleum Co. Ltd., (v) Pacific Asia Petroleum Energy Limited, (vi) Beijing Dong Fang Ya Zhou Petroleum Technology Service Company Limited, and (vii) CAMAC Petroleum Limited (collectively, the “Company”), to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements contained in this Form 10-K.

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

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

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

•

Limited operating history, operating revenue or earnings history.

•

Ability to raise capital to fund our current and future operations, including participation in the Oyo Field development and other oil and gas leases we may participate in, on terms and conditions acceptable to the Company.

•

Ability to develop oil and gas reserves.

•

Dependence on key personnel, technical services and contractor support.

•

Fluctuation in quarterly operating results.

•

Possible significant influence over corporate affairs by significant stockholders.

•

Ability to enter into definitive agreements to formalize foreign energy ventures and secure necessary exploitation rights.

•

Ability to successfully integrate and operate acquired or newly formed entities and multiple foreign energy ventures and subsidiaries.

•

Competition from large petroleum and other energy interests.

•

Changes in laws and regulations that affect our operations and the energy industry in general.

•

Risks and uncertainties associated with exploration, development and production of oil and gas, and drilling and production risks.

•

Expropriation and other risks associated with foreign operations.

•

Risks associated with anticipated and ongoing third party pipeline construction and transportation of oil and gas.

•

The lack of availability of oil and gas field goods and services.

•

Environmental risks and changing economic conditions.

PART I

ITEM 1.

DESCRIPTION OF BUSINESS

General

Throughout this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “ Company,” and “our Company” refer to CAMAC Energy Inc. (“CAMAC”), formerly Pacific Asia Petroleum, Inc. (“PAP”), a Delaware corporation, and its present and former subsidiaries, including Pacific Asia Petroleum, Limited (“PAPL”), Pacific Asia Petroleum Energy Limited (“PAPE”), Inner Mongolia Production Company (HK) Limited (“IMPCO HK”), Pacific Asia Petroleum (HK) Limited (“PAP HK”), Inner Mongolia Sunrise Petroleum Co. Ltd. (“IMPCO Sunrise”), Beijing Dong Fang Ya Zhou Petroleum Technology Service Company Limited (“Dong Fang”), and CAMAC Petroleum Limited (“CPL”) and collectively, the “Company”. References to “CAMAC” as a corporate entity refer to CAMAC Energy Inc. (formerly Pacific Asia Petroleum, Inc.) prior to the mergers of Inner Mongolia Production Company LLC (“IMPCO”) and Advanced Drilling Services, LLC (“ADS”) into wholly-owned subsidiaries of CAMAC Energy Inc.

CAMAC is a publicly traded company which seeks to develop new energy ventures outside the U.S., directly and through joint ventures and other partnerships in which it may participate. Members of the Company’s senior management team have experience in the fields of international business development, geology, petroleum engineering, strategy, government relations and finance. Members of the Company’s management team previously held positions in oil and gas development and screening roles with domestic and international energy companies and will seek to utilize their experience, expertise and contacts to create value for shareholders. The Company’s focus is oil and gas exploration and production operations, which are managed geographically. Our current operations are in Nigeria and the People’s Republic of China. The second quarter 2010 was our first reporting period out of the development stage company basis. Our shares are traded on the on the NYSE Amex under the symbol “CAK”.

Available Information

We file annual, quarterly and current reports, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934 (“Exchange Act”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549-0213. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.

We also make available, free of charge on or through our Internet website (http://www.camacenergy.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Forms 3, 4 and 5 filed with respect to our equity securities under Section 16(a) of the Exchange Act are also available on our website. In addition, we have adopted a Code of Ethics and Business Conduct that applies to all of our employees, including our chief executive officer, principal financial officer and principal accounting officer. The text of the Code of Ethics and Business Conduct has been posted on the Corporate Governance section of our website. Additionally, the Code of Ethics and Business Conduct is available in print to any person who requests the information. Individuals wishing to obtain this printed material should submit a request to CAMAC Energy Inc., 1330 Post Oak Boulevard, Suite 2575, Houston TX 77056, Attention: Investor Relations.

Executive Summary of 2011

Nigeria – Oyo Field Production Sharing Contract Interest

During December 2010 and year 2011, the Company incurred a total of $59.6 million in costs relative to the workover to reduce gas production rising from the #5 well in the Oyo Field, offshore Nigeria, with the objective of increasing crude oil production from this well. By joint agreement with Allied energy Plc., a related party, the Company has committed to pay for the workover. To the extent the Company funds these costs, it is entitled to cost recovery of such costs as non-capital costs from Cost Oil, as defined in the terms of the OML 120/121 PSC, subject to future production levels. For purposes of Cost Oil recovery on each sale of production, non-capital costs are allocated for recovery prior to capital costs. We recovered a significant portion of these costs as revenue in 2011 and expect to recover the remainder as revenue in future liftings. In connection with funding for part of these costs prior to receiving cost recovery, the Company entered into a Promissory Note and Guaranty Agreement with a related party, which is discussed below under “Promissory Note and Guaranty Agreement.” The remainder is being funded using available cash and the future Oyo Field lifting proceeds.

The workover on well #5 in the Oyo Field initially reduced the amount of gas and water production; however, the oil production rate did not significantly improve and the water production has increased again to a current level of 48%. A gradual decline in oil production is anticipated if the water production continues to rise.

Well #6 in the Oyo Field currently produces at a water cut of about 76%. The Company continues to evaluate the viability of placing this well on gas lift.

Based on the production history of the Oyo Field and the recently completed study by Netherland, Sewell & Associates Inc., the Company believes that three additional development wells will be required to recover all economically recoverable reserves. The Company is continuing to explore options for marketing Oyo Field gas to third party gas processing and transportation facilities.

Nigeria – OML 120/121 Transaction

On December 10, 2010, the Company entered into a Purchase and Continuation Agreement (the “Purchase Agreement”) with CAMAC Energy Holdings Limited (“CEHL”), superseding the October 11, 2010 agreement. Pursuant to the Purchase Agreement, the Company agreed to acquire certain of the remainder of CEHL’s interest (the “OML 120/121 Transaction”) in the OML 120/121 PSC (the “Non-Oyo Contract Rights”). In April 2010 the Company had acquired from CEHL the Oyo Contract Rights in the OML 120/121 PSC. The OML 120/121 Transaction closed on February 15, 2011 under the terms of the Purchase Agreement.

In exchange for the Non-Oyo Contract Rights, the Company agreed to an option-based consideration structure and paid $5.0 million in cash to Allied Energy Plc. (“Allied”) upon the closing of the OML 120/121 Transaction on February 15, 2011. The Company has the option to elect to retain the Non-Oyo Contract Rights upon payment of additional consideration to Allied as follows:

First Milestone : Upon commencement of drilling of the first well outside of the Oyo Field under the PSC, the Company may elect to retain the Non-Oyo Contract Rights upon payment to CEHL of $5 million (either in cash, or at Allied’s option, in shares);

Second Milestone : Upon discovery of hydrocarbons outside of the Oyo Field under the PSC in sufficient quantities to warrant the commercial development thereof, the Company may elect to retain the Non-Oyo Contract Rights upon payment to CEHL of $5 million (either in cash, or at Allied’s option, in shares);

Third Milestone : Upon the approval by the Management Committee (as defined in the PSC) of a Field Development Plan with respect to the development of non-Oyo Field areas under the PSC, as approved by the Company, the Company may elect to retain the Non-Oyo Contract Rights upon payment to Allied of $20 million (either in cash, or at Allied’s option, in shares); and

Fourth Milestone : Upon commencement of commercial hydrocarbon production outside of the Oyo Field under the PSC, the Company may elect to retain the Non-Oyo Contract Rights (with no additional milestones or consideration required thereafter following payment in full of the following consideration) upon payment to Allied, at Allied’s option of (i) $25 million in shares, or (ii) $25 million in cash through payment of up to 50% of the Company’s net cash flows received from non-Oyo Field production under the PSC.

If any of the above milestones are reached and the Company elects not to retain the Non-Oyo Contract Rights at that time, then all the Non-Oyo Contract Rights will automatically revert back to CEHL without any compensation due to the Company and with CEHL retaining all consideration paid by the Company to date. As of December 31, 2011, none of the above noted milestones were reached.

The Purchase Agreement contained the following conditions to the closing of the Transaction: (i) CPL, CAMAC International (Nigeria) Limited (“CINL”), Allied, and Nigerian Agip Exploration Limited (“NAE”) must enter into a Novation Agreement in a form satisfactory to the Company and CEHL and that contains a waiver by NAE of the enforcement of Section 8.1(e) of the OML 120/121 PSC (providing for the continued waiver by NAE of its entitlement to “profit oil” in favor of Allied), and that notwithstanding anything to the contrary contained in the OML 120/121 PSC, the profit sharing allocation set forth in the OML 120/121 PSC shall be maintained after the consummation of the OML 120/121 Transaction; (ii) the Company, and CEHL must enter into a registration rights agreement with respect to any shares issued by the Company to Allied at its election as consideration upon the occurrence of any of the above-described milestone events, in a form satisfactory to the Company and CEHL; and (iii) the Oyo Field Agreement, dated April 7, 2010, by and among the Company, CEHL and Allied, must be amended in order to remove certain indemnities with respect to Non-Oyo Operating Costs (as defined therein). In addition, CEHL must deliver the certain data and certain equipment to the Company in as-is condition. The Company agreed to limited waivers of certain of these closing conditions under the Limited Waiver Agreement. See Note 19 to our consolidated financial statements for more information regarding the Limited Waiver Agreement.

Dr. Kase Lawal, the Company’s Executive Chairman and member of the Board of Directors, and Chief Executive Officer, is a director of each of CEHL, CINL, and Allied. Dr. Lawal also owns 27.7% of CAMAC International Limited, which indirectly owns 100% of CEHL. As a result, Dr. Lawal may be deemed to have an indirect material interest in the transactions contemplated by the OML 120/121 Agreement. Chairman Lawal recused himself from participating in the consideration and approval by the Company’s Board of Directors of the OML 120/121 Transaction.

Promissory Note and Guaranty Agreement

On June 6, 2011, CAMAC Petroleum Limited (“CPL”), a wholly owned subsidiary of the Company, executed a Promissory Note (the “Promissory Note”) in favor of Allied (the “Lender”). Under the terms of the Promissory Note, the Lender agreed to make loans to CPL, from time to time and pursuant to requests by CPL, in an aggregate sum of up to $25.0 million. On June 8, 2011, CPL received initial loan proceeds of $25.0 million under the Promissory Note. Interest accrues on outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum. The initial loan outstanding of $25.0 million was repaid on August 23, 2011. In late 2011, CPL re-borrowed $6 million under the Promissory Note, which was outstanding as of December 31, 2011. CPL may prepay and re-borrow all or a portion of such amount from time to time, but the unpaid aggregate outstanding principal amount of all loans will mature on June 6, 2013.

Pursuant to the Promissory Note and as a condition to the obligations of the Lender to perform under the Promissory Note, on June 6, 2011, the Company, as direct parent of CPL, executed a Guaranty Agreement (“Guaranty Agreement”) in favor of the Lender. Under the Guaranty Agreement, the Company irrevocably, unconditionally and absolutely guarantees all of CPL’s obligations under the Promissory Note.

Dr. Kase Lawal, the Company’s Executive Chairman and member of the Board of Directors, and Chief Executive Officer, is a director of each of CEHL, CINL, and the Lender. Dr. Lawal also owns 27.7% of CAMAC International Limited, which indirectly owns 100% of CEHL, and CINL and the Lender are each wholly-owned subsidiaries of CEHL. As a result, Dr. Lawal is deemed to have an indirect material interest in the transaction contemplated by the Promissory Note. Dr. Lawal fully disclosed the material facts as to his relationship to the Lender prior to Board approval.

China – Zijinshan

In 2011, the Company completed drilling of exploratory wells ZJS-3 and ZJS-4, both of which encountered gas accumulations, although not determinable as commercial quantities at this time. Further evaluation on the area is required to determine if the discovered gas can be economically developed. The costs of these wells were charged to exploratory expenses in the third quarter 2011. The drilling of exploratory well ZJS-5 is planned for 2012.

In October 2011, the Company retained a financial advisor to assist in the identification and evaluation of opportunities to monetize its Zijinshan gas asset. The proceeds of any such transaction are expected to be invested in the Company’s current or planned core Africa opportunities. However, there can be no assurance when or if a transaction will be consummated. The evaluation is ongoing as of the filing date of this form 10-K.

China – EORP

As of December 31, 2010, the Company had previously ceased all active EORP operations. Effective June 20, 2011, the Company entered into a settlement and release agreement with Mr. Li Xiang Dong, Mr. Ho Chi Kong and Dong Ying Tong Sheng Sci-Tech Company Limited to dissolve the operations of Dong Fang, the operating company for EORP. Pursuant to this settlement agreement, outstanding claims and disputes between the Company and the other parties were settled, existing contracts and agreements were terminated, and disposition of remaining EORP related assets and liabilities was agreed to. The Company agreed to transfer and assign all EORP related patent application rights to Mr. Li Xiang Dong, and the parties agreed to liquidate Dong Fang.

Termination of Agreement for Proposed Acquisition (Avana Petroleum Limited)

western Indian Ocean and East African margin with interests in the Seychelles Islands and offshore Kenya. The purchase consideration was to be payable in shares of Company common stock, based on the volume-weighted average closing price on the NYSE Amex for the 30 trading days immediately before the date of issue, in three tranches: $10 million upon completion of purchase; $2.5 million six months following completion; and $2.5 million 12 months following completion.

On December 30, 2011 the Company further announced it had signed a definitive purchase agreement under the above purchase terms with the principal shareholders of Avana, with the intent of completing the transaction during the first quarter of 2012. On February 3, 2012 the Company announced that the agreement to acquire Avana had been terminated due to certain obligations and conditions not being met by the required deadline.

Pan-African Growth Strategy

As part of our Pan-African growth strategy, on January 23, 2012 the Company announced it has entered into an agreement with the Gambian Ministry of Petroleum (on behalf of the Government of the Republic of Gambia) on the provisional award of two offshore exploration blocks located in the West African Transform Margin. The Company will be the operator with 85% interest in the blocks A2 and A5, having a total surface area of 2,666 square kilometers in water depths of between 600-1,000 meters. Gambia National Petroleum Company will be carried as a 15% interest through first oil. The agreement sets forth the negotiated fiscal terms and work program for the two blocks and is subject to signing of the final petroleum exploration licenses within 90 days of the agreement date. The license blocks are located in the highly prospective West African Transform Margin, home to several recent major discoveries in Ghana (Jubilee, Odum) and Sierra Leone (Venus, Mercury) and a core focus area for the Company’s expansion efforts.

On February 12, 2012 the Company announced it has entered into a heads of agreement with the Kenyan Ministry of Energy for the award of three exploration blocks (the “Blocks”). Onshore Block 11A covers 10,913 square kilometers in northwest Kenya near the Ugandan border; onshore Block L1B covers 12,197 square kilometers in eastern Kenya on the Somali border; and Block L16 covers 1,699 square kilometers onshore and 89 square kilometers offshore on Kenya’s southeast coast. The Company will be the operator with 90% interest in the Blocks. The Government of Kenya will be carried at 10% through the time of commercial discovery and may thereafter elect to participate up to a 10% interest. The award is subject to negotiation and signing of formal Production Sharing Contracts within 30 days of the above date, requisite approvals and payment of requisite signature bonuses upon signing.

Operations

Africa – OML 120/121 Production Sharing Contract

On December 15, 2009, NAE, a subsidiary of Italy’s ENI SpA, and CEHL announced that they had commenced production of the Oyo Field. The Oyo Field has been producing from two subsea wells in a water depth of greater than 300 meters, which are connected to the Armada Perdana Floating Production Storage and Offloading (“FPSO”) vessel. The FPSO has a treatment capacity of 40,000 barrels of liquids per day, with gas treatment and re-injection facilities, and is capable of storing up to one million barrels of crude oil. The first lifting (sale) of crude oil was in February 2010. The associated gas has been largely re-injected into the Oyo Field reservoir by a third well, to minimize flaring and to maximize oil recovery. During December 2010 and year 2011, the Company incurred $59.6 million in costs relative to the workover to reduce gas production rising from the #5 well in the Oyo Field with the objective of increasing crude oil production from this well. By joint agreement with Allied, the Company will pay for the workover. We recovered a significant portion of these costs as revenue in 2011 and expect to recover the remainder in future liftings.

LOGO

On July 22, 2005, a Production Sharing Contract (the “OML 120/121 PSC”) was signed among CEHL affiliates (including Allied) and NAE. Pursuant to the OML 120/121 PSC, NAE assumed the rights and obligations as the Operating Contractor to the petroleum operations in the Oyo field and was assigned an undivided 40% interest, with Allied retaining an undivided 60% interest. However, these percentages are not indicative of the actual allocation of proceeds from production of oil or other hydrocarbons under the Oyo Contract Rights and the recently acquired Non-Oyo Contract Rights because such allocations are affected by the amount of participation in funding of OML 120/121 PSC operating and capital costs. The parties to the OML 120 /121 PSC are represented by the above chart.

As Nigerian crude oil is readily marketable in international markets we are not dependent upon a single or a small number of customers.

The allocation between the parties of oil production is governed by the OML 120/121 PSC, available crude oil is allocated to four categories of oil: royalty oil (“Royalty Oil”), cost oil (“Cost Oil”), tax oil (“Tax Oil”) and profit oil (“Profit Oil”), in that order. Proceeds from available crude oil are first used to pay royalty (“Royalty Oil”), recover Operating Costs and Capital Cost (“Cost Oil”) and pay tax (“Tax Oil”). The rest of the proceeds are distributed as Profit Oil to Contractors and First Party as shown in the chart below. The allocation procedure is shown in the chart below. The Company receives the share allocable to Allied for the Oyo Contract Rights and will receive Allied’s share for the Non-Oyo Contract Rights. The complete Production Sharing Contract was filed as Annex E to the Company’s proxy filed with the SEC on March 19, 2010.

Profit oil is allocated to the parties according to the following schedule:

LOGO

*	Petroleum profit tax of 50% plus education tax of 2%, chargeable on the total remainder oil after deduction of amortization and investment allowance.

**	Y-Factor: NAE and Allied will share the Profit Oil to Contractor based on their contribution on Capital Costs and Non-Capital Costs.

Asia – Zijinshan Production Sharing Contract

In 2007, we entered into a production sharing contract with China United Coalbed Methane Co., Ltd., (“CUCBM”) for exclusive rights to a large contract area located in the Shanxi Province of China (the “CUCBM Contract Area”), for the exploitation of gas resources (the “Zijinshan PSC”). CUCBM is owned 50/50 by China Coal Energy Group and China National Petroleum Corporation (“CNPC” and “PetroChina”). In 2008, PetroChina withdrew from the CUCBM partnership. As a result, 50% of the assets, including Zijinshan PSC, have become the asset of PetroChina. The change of ownership of these assets was subject to Chinese Government approval. The approval was formally granted in December 2010. A modification agreement to the Zijinshan PSC has been executed to formalize the change of partnership from CUCBM to PetroChina. Such modification agreement was approved by the Ministry of Commerce and effective on August 23, 2011. The Zijinshan PSC is administrated by PetroChina Coal Bed Methane Corporation which is a wholly owned subsidiary of PetroChina (“PCCBM”). The Zijinshan PSC covers an area of approximately 175,000 acres (“Zijinshan Block”). The Zijinshan PSC has a term of 30 years and was approved in 2008 by the Ministry of Commerce of China. The Zijinshan PSC provides, among other things, that PAPL, following approval of the Zijinshan PSC by the Ministry of Commerce of China, has a minimum commitment for the first three years to drill three exploration wells and to carry out 50 km of 2-D seismic data acquisition and in the fourth and fifth years to drill four pilot development wells (in each case subject to PAPL’s right to terminate the Zijinshan PSC). That five year period constitutes the exploration period, which is subject to extension. After the exploration period,

but before commencement of the development and production period, PCCBM will have the right to acquire a 40% participating interest and work jointly and pay its participating share of costs to develop and produce gas. The Zijinshan PSC provides for cost recovery and profit sharing from production under a specified formula after commencement of production.

The Zijinshan PSC area is in close proximity to the major West-East and the Ordos-Beijing gas pipelines which link the gas reserves in China’s western provinces to the markets of Beijing and the Yangtze River Delta, including Shanghai.

During 2009, the Company completed seismic data acquisition operations on the Zijinshan Block and spent approximately $1.5 million to shoot 160 kilometers of seismic under the work program. Based on the seismic interpretation, four potential well locations were identified. A regional environmental impact assessment study has also been completed. Following completion of a site-specific environmental impact study, the Company spudded well ZJS 001 on September 30, 2009. This well intersected 4/5 coal seams in the Shanxi formation and 8/9 coal seams in the Taiyuan formation as anticipated. The well reached total depth in mid-November 2009. Core samples have undergone laboratory testing, including tests for gas content, gas saturation and coal characteristics. Based on the results of these tests, the Company agreed to a planned 2010 work program to include further technical studies related to the CUCBM Contract Area and drilling at least two additional wells there. Drilling commenced on well ZJS 002 in August 2010 and was completed on the downthrown block in November 2010. Mud logs during drilling confirmed the presence of gas at several intervals ranging in depth from 1,471 to 1,742 meters. However, no flow tests were conducted due to the deteriorated hole condition, and therefore all exploratory costs were expensed.

In 2011 the Company and its Chinese partner, PetroChina, approved a work program to explore and delineate the gas resources in the Zijinshan contract area. The last of the three wells under the first phase of the exploration period, ZJS-3, spudded mid-March 2011, and reached its target depth on May 1, 2011. As a result, the Company has fulfilled all the work obligation of the first phase of the exploration period and opted to enter into the second phase of the exploration period of the production sharing contract. During the second phase of the exploration period, from May 1, 2011 to April 30, 2013, the Company is obligated to drill four wells. The first well of the second phase of the exploration period ZJS-4, spudded the first week of June 2011 and reached its target depth on July 14, 2011. Both of the ZJS-3 and ZJS-4 wells encountered gas accumulations. Data from the wells is being analyzed, and further evaluation on the area is required to determine if the discovered gas can be economically developed. As a result, as of September 30, 2011, the Company expensed approximately $2,176,000 as exploratory expenses related to the ZJS-3 and ZJS-4 wells. Further, in September 2011, the Company and PetroChina agreed to revise the work program to delay the drilling of ZJS-5 well to 2012, in order to allow time to utilize the data obtained from ZJS-3 and ZJS-4 in conjunction with the 2D seismic reinterpretation results to refine the location for ZJS-5.

Enhanced Oil Recovery and Production (“EORP”)

In May and June 2009, the Company entered into certain agreements with Mr. Li Xiang Dong (“LXD”) and Mr. Ho Chi Kong (“HCK”), pursuant to which the parties in September 2009 formed a Chinese joint venture company, Dong Fang. Dong Fang was 75.5% owned by PAPE and 24.5% owned by LXD, and LXD agreed to assign certain pending patent rights related to chemical enhanced oil recovery thereto. PAPE was 70% owned by the Company and 30% owned by Best Source Group Holdings Limited, a company designated by HCK for his interest.

In late 2009, the Company commenced limited EORP operations in the Liaoning Province through the treatment of three pilot test wells in the Liaohe Oilfield utilizing the chemical treatment technology acquired by Dong Fang. Results of these efforts, which resulted in incremental production, have been evaluated by the Company.

Effective June 20, 2011, the Company entered into a settlement and release agreement with Mr. Li Xiang Dong, Mr. Ho Chi Kong and Dong Ying Tong Sheng Sci-Tech Company Limited to dissolve the operations of Dong Fang. Pursuant to this settlement agreement, outstanding claims and disputes between the Company and the other parties were settled, existing contracts and agreements were terminated, and disposition of remaining EORP related assets and liabilities was agreed to. The Company agreed to transfer and assign all EORP related patent application rights to Mr. Li Xiang Dong, and the parties agreed to liquidate Dong Fang.

Reserves

The information included in this Annual Report on Form 10-K about our proved reserves represents evaluations prepared by Netherland, Sewell & Associates, Inc., independent petroleum consultants (“NSAI”). NSAI has prepared evaluations on 100 percent of our proved reserves on a valuation basis, and the estimates of proved crude oil reserves attributable to our net interests in oil and gas properties as of December 31, 2011. The scope and results of NSAI’s procedures are summarized in a letter which is included as an exhibit to this Annual Report on Form 10-K. For further information on reserves, including information on future net cash flows and the standardized measure of discounted future net cash flows, see “Item 8. – Financial Statements and Supplemental Data –Supplemental Data on Oil and Gas Exploration and Producing Activities.”

Internal Controls for Reserve Estimation

The reserve estimates prepared by NSAI are reviewed and approved by our management. The process performed by NSAI to prepare reserve amounts included the estimation of reserve quantities, future producing rates, future net revenue and the present value of such future net revenue. NSAI also prepared estimates with respect to reserve categorization, using the definitions for proved reserves set forth in Regulation S-X Rule 4-10(a) and subsequent SEC staff interpretations and guidance. In the conduct of their preparation of the reserve estimates, NSAI did not independently verify the accuracy and completeness of information and data furnished by us with respect to ownership interests, oil production, well test data, historical costs of operation and development, product prices or any agreements relating to current and future operations of the properties and sales of production. However, if in the course of its work, something came to its attention which brought into question the validity or sufficiency of any such information or data, NSAI did not rely on such information or data until they had satisfactorily resolved their questions relating thereto.

Technologies Used in Reserves Estimates

Proved reserves are those quantities of oil, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The term “reasonable certainty” implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. To achieve reasonable certainty, our independent petroleum consultants employed technologies that have been demonstrated to yield results with consistency and repeatability. The technologies and economic data used in the estimation of our proved reserves include, but are not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests. The accuracy of the estimates of our reserves is a function of:

•

the quality and quantity of available data and the engineering and geological interpretation of that data;

•

estimates regarding the amount and timing of future operating costs, taxes, development costs and workovers, and our estimated participation in funding of future operating costs and capital expenditures, and ability to raise money to fund these costs, all of which may vary considerably from actual results;

•

the accuracy of various mandated economic assumptions such as the future prices of oil and natural gas; and

•

the judgment of the persons preparing the estimates.

Because these estimates depend on many assumptions, any or all of which may differ substantially from actual results, reserve estimates may be different from the quantities of oil and natural gas that are ultimately recovered.

Qualifications of Reserves Preparers and Auditors

We obtain services of contracted reservoir engineers with extensive industry experience who meets the professional qualifications of reserves estimators and reserves auditors as defined by the “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information,” approved by the Board of the Society of Petroleum Engineers in 2001 and revised in 2007.

Our Senior Vice President, Exploration and Production, Mr. Babatunde Olusegun Omidele is primarily responsible for the coordination of the third-party reserve report provided by Netherland, Sewell & Associates Inc. (“ NSAI”). Mr. Babatunde Olusegun Omidele has over 29 years of experience and is a graduate of University of Ibadan, Nigeria with a Bachelor of Science degree and from University of Houston, Texas with a Master of Science in Petroleum Engineering. He is a member of the Society of Petroleum Engineers.

The reserves estimates shown herein have been independently prepared by NSAI, a worldwide leader of petroleum property analysis for industry and financial organizations and government agencies. NSAI was founded in 1961 and performs consulting petroleum engineering services under Texas Board of Professional Engineers Registration No. F-002699. Within NSAI, the technical persons primarily responsible for preparing the estimates set forth in the NSAI reserves report incorporated herein are Mr. Connor Riseden and Mr. Patrick Higgs. Mr. Riseden has been practicing consulting petroleum engineering at NSAI since 2006. Mr. Riseden is a Registered Professional Engineer in the State of Texas (License No. 100566) and has over ten years of practical experience in petroleum engineering, with over five years of experience in the estimation and evaluation of reserves. Mr. Higgs has been practicing consulting petroleum geology at NSAI since 1996. Mr. Higgs is a Certified Petroleum Geologist and Geophysicist in the State of Texas (License No. 985) and has over 35 years of practical experience in petroleum geosciences, with over 15 years of experience in the estimation and evaluation of reserves. Both technical principals meet or exceed the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers.

Summary of Crude Oil Reserves

The following estimates of the net proved oil reserves of our oil and gas properties located in Nigeria are based on evaluations prepared by NSAI. Reserves were estimated in accordance with guidelines established by the SEC and the Financial Accounting Standards Board (“FASB”), which require that reserve estimates be prepared under existing economic and operating conditions with no provisions for price and cost changes except by contractual arrangements. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, reserve estimates are expected to change as additional performance data becomes available. The Company presently has no reserves in China.

Crude Oil Reserves


	December 31, 2011				December 31, 2010
	Crude Oil		PV-10		Crude Oil		PV-10
	(MBbls)		(Thousands) (1)		(MBbls)		(Thousands) (1)
Proved
Developed		92				387
Undeveloped		2,571				4,901

Total Proved		2,663	$	61,687		5,288	$	95,696

(1)

PV-10 reflects the present value of our estimated future net revenues to be generated from the production of proved reserves, determined in accordance with the rules and regulations of the SEC (using the average of the first-day-of-the-month commodity prices during the 12-month period ended on December 31, 2011) without giving effect to non-property related expenses such as DD&A expense and discounted at 10 percent per year. The average first-day-of-the-month commodity prices during the 12-month periods ending on December 31, 2011 and 2010, were $112.26 and $79.21 per barrel of crude oil, respectively, including differentials.

Development of Proved Undeveloped Reserves

None of our proved undeveloped reserves currently have remained undeveloped for more than five years from the date of initial recognition as proved undeveloped.

Oil and Gas Production, Prices and Production Costs – Significant Fields

The Oyo Field in Nigeria contains our entire total proved reserves as of December 31, 2011. Our share of average daily net production (excluding royalty) was 923 barrels per day in 2011, and 396 barrels per day in 2010. The weighted average sales price was $112.91 per barrel in 2011 and $85.16 per barrel in 2010. Production cost per barrel was $8.61 per barrel in 2011 and $34.54 per barrel in 2010, excluding the workover expense.

Drilling Activity

During 2011 and 2010, the Company committed to 100% funding of the workover performed in the Oyo Field, Nigeria, which commenced in 2010 and was completed in 2011. In 2011 and 2010 there were no new development or exploratory wells completed in the Company’s Nigeria interests in OML 120/121, including the Oyo Field. In China, the Company drilled two (gross and net) exploratory wells in 2011 and one (gross and net) exploratory well in 2010 which were determined to be dry (noncommercial) wells.

Present Activities

Timing of future drilling of development wells in Nigeria is uncertain at this time. In China, drilling of an exploratory well is planned in 2012 in the Zijinshan Block.

Delivery Commitments

As of December 31, 2011, the Company had no delivery commitments.

Productive Wells

At December 31, 2011, the Company had an interest in two gross productive wells in Nigeria. The number of net productive wells (net economic interest) in Nigeria at a particular date under our Production Sharing Contract is affected by our percentage of Cost Oil and Profit Oil realized in each lifting. This percentage has varied significantly between 2011 and 2010 and is expected to continue to vary for the foreseeable future as the Company has the right, but is not required, to fund up to 30% of the expenditures on the OML 120/121 Production Sharing Contract. Therefore, a calculation of net productive wells interest for a particular year-end is not meaningful.

Acreage

Interests in developed and undeveloped acreage follow:


	December 31, 2011
	Developed Acres				Undeveloped Acres				Total Acres
	Gross		Net		Gross		Net		Gross		Net
China		—		—		175,000		175,000		175,000		175,000
Nigeria		8,600		5,200		434,900		260,900		443,500		266,100

Total		8,600		5,200		609,900		435,900		618,500		441,100

The Company has no acreage on which leases are scheduled to expire within the three years after December 31, 2011.

Regulation

General

Our operations and our ability to finance and fund our growth strategy are affected by political developments and laws and regulations in the areas in which we operate. In particular, oil and natural gas production operations and economics are affected by:

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change in governments;

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civil unrest;

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price and currency controls;

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limitations on oil and natural gas production;

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tax, environmental, safety and other laws relating to the petroleum industry;

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changes in laws relating to the petroleum industry;

•

changes in administrative regulations and the interpretation and application of such rules and regulations; and

•

changes in contract interpretation and policies of contract adherence.

In any country in which we may do business, the oil and natural gas industry legislation and agency regulation are periodically changed, sometimes retroactively, for a variety of political, economic, environmental and other reasons. Numerous governmental departments and agencies issue rules and regulations binding on the oil and natural gas industry, some of which carry substantial penalties for the failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business and our potential for economic loss.

Competition

The Company competes with numerous large international oil companies and smaller oil companies that target opportunities in markets similar to the Company’s, including the natural gas and petroleum markets. Many of these companies have far greater economic, political and material resources at their disposal than the Company. The Company’s management team has prior experience in the fields of petroleum engineering, geology, field development and production, operations, international business development, and finance and experience in management and executive positions with international energy companies. Nevertheless, the markets in which we operate and plan to operate are highly competitive and the Company may not be able to compete successfully against its current and future competitors. See Part I, Item 1A. Risk Factors – Risks Related to the Company’s Industry – for risk factors associated with competition in the oil and gas industry.

Environmental and Government Regulation

Various federal, state, local and international laws and regulations relating to the discharge of materials into the environment, the disposal of oil and natural gas wastes, or otherwise relating to the protection of the environment may affect our operations and costs. We are committed to the protection of the environment and believe we are in substantial compliance with the applicable laws and regulations. However, regulatory requirements may, and often do, change and become more stringent, and there can be no assurance that future regulations will not have a material adverse effect on our financial position, results of operations and cash flows.

Employees

At December 31, 2011, the Company had 22 full-time employees and one part-time employee in the United States, 12 full-time employees and one part-time employee in China and 16 full-time employees in Nigeria.

During 2012, the Company expects to hire additional personnel in certain operational and other areas as required for its expansion efforts, and to maintain focus on its then-existing and new projects. The number and skill sets of individual employees will be primarily dependent on the relative rates of growth of the Company’s different projects, and the extent to which operations and development are executed internally or contracted to outside parties. In order for us to attract and retain quality personnel, we will have to offer competitive salaries to future employees. Subject to the availability of sufficient working capital and assuming initiation of additional projects, the Company currently plans to further increase full-time staffing to a level adequate to execute the Company’s growth plans. As we continue to expand, we will incur additional cost for personnel.

Intellectual Property

The Company as of December 31, 2011 owned no significant rights to intellectual property.

ITEM 1A.

RISK FACTORS

The Company’s operations and its securities are subject to a number of risks. The Company has described below all the material risks that are known to the Company that could materially impact the Company’s financial results of operations or financial condition. If any of the following risks actually occur, the business, financial condition or operating results of the Company and the trading price or value of its securities could be materially adversely affected.

Risks Related to the Company’s Business

The Company’s limited operating history makes it difficult to predict future results and raises substantial doubt as to its ability to successfully develop profitable business operations.

The Company’s limited operating history makes it difficult to evaluate its current business and prospects or to accurately predict its future revenue or results of operations, and raises substantial doubt as to its ability to successfully develop profitable business operations beyond the Oyo Field interest we acquired in April 2010 (the Oyo Contract Rights) and the Non-Oyo Contract Rights acquired in February 2011. We had no previous operating history in the Africa area. The Company’s revenue and income potential are unproven. As a result of its early stage of operations, and to keep up with the frequent changes in the energy industry, it is necessary for the Company to analyze and revise its business strategy on an ongoing basis. Companies in early stages of operations are generally more vulnerable to risks, uncertainties, expenses and difficulties than more established companies.

The Company was until recently a development stage company and may continue to incur losses for a significant period of time.

The Company was until recently a development stage company with minimal revenues. In April 2010, we acquired the Oyo Contract Rights from CEHL Group and, as a result of this acquisition, we ceased reporting as a development stage company and now we are an operating company generating significant revenues. We expect to continue to incur significant expenses relating to our identification of new ventures and investment costs relating to these ventures. Additionally, fixed commitments, including salaries and fees for employees and consultants, rent and other contractual commitments may be substantial and are likely to increase as additional ventures are entered into and personnel are retained prior to the generation of significant revenue. Energy ventures, such as oil well drilling projects, generally require a significant period of time before they produce resources and in turn generate profits. The Oyo and Non-Oyo Contract Rights may or may not result in net earnings in excess of our losses on other ventures under development or in the start-up phase. We may not achieve or sustain profitability on a quarterly or annual basis, or at all.

The Company’s ability to diversify risks by participating in multiple projects and joint ventures depends upon its ability to raise capital and the availability of suitable prospects, and any failure to raise needed capital and secure suitable projects would negatively affect the Company’s ability to operate.

The Company’s business strategy includes spreading the risk of oil and natural gas exploration, development and drilling, and ownership of interests in oil and natural gas properties, by participating in multiple projects and joint ventures. If the Company is unable to secure sufficient attractive projects as a result of its inability to raise sufficient capital or otherwise, the average quality of the projects and joint venture opportunities may decline and the risk of the Company’s overall operations could increase.

The loss of key employees could adversely affect the Company’s ability to operate.

The Company believes that its success depends on the continued service of its key employees, as well as the Company’s ability to hire additional key employees, when and as needed. Each of the Company’s Senior Vice Presidents has the right to terminate his employment at any time without penalty under his employment agreement. The unexpected loss of the services of any of these key employees, or the Company’s failure to find suitable replacements within a reasonable period of time thereafter, could have a material adverse effect on the Company’s ability to execute its business plan and therefore, on its financial condition and results of operations.

The Company may not be able to raise the additional capital necessary to execute its business strategy, which could result in the curtailment or cessation of the Company’s operations.

The Company will need to raise substantial additional funds to fully fund its existing operations, consummate all of its current asset transfer and acquisition opportunities currently contemplated and for the development, production, trading and expansion of its business. The Company has available a Promissory Note (term credit facility) of $25 million from an affiliated company. This facility provides for an annual interest rate based on 30 day Libor plus two percentage points with all amounts due and payable by June 6, 2013. The Company has no other current arrangements with respect to additional sources of financing, if needed. If additional sources of financing are needed it may not be available on commercially reasonable terms on a timely basis, or at all. The inability to obtain additional financing, when needed, would have a negative effect on the Company, including possibly requiring it to curtail or cease operations. If any future financing involves the sale of the Company’s equity securities, the shares of Common Stock held by its stockholders could be substantially diluted. If the Company borrows money or issues debt securities, it will be subject to the risks associated with indebtedness, including the risk that interest rates may fluctuate and the possibility that it may not be able to pay principal and interest on the indebtedness when due.

Insufficient funds will prevent the Company from implementing its business plan and will require it to delay, scale back, or eliminate certain of its programs or to license to third parties rights to commercialize rights in fields that it would otherwise seek to develop itself.

Failure by the Company to generate sufficient cash flow from operations could eventually result in the cessation of the Company’s operations and require the Company to seek outside financing or discontinue operations.

The Company’s business activities require substantial capital from outside sources as well as from internally-generated sources. The Company’s ability to finance a portion of its working capital and capital expenditure requirements with cash flow from operations will be subject to a number of variables, such as:

•

the level of production from existing wells;

•

prices of oil and natural gas;

•

the success and timing of development of proved undeveloped reserves;

•

cost overruns;

•

remedial work to improve a well’s producing capability;

•

direct costs and general and administrative expenses of operations;

•

reserves, including a reserve for the estimated costs of eventually plugging and abandoning the wells;

•

indemnification obligations of the Company for losses or liabilities incurred in connection with the Company’s activities; and

•

general economic, financial, competitive, legislative, regulatory and other factors beyond the Company’s control.

The Company might not generate or sustain cash flow at sufficient levels to finance its business activities. When and if the Company generates significant revenues, if such revenues were to decrease due to lower oil and natural gas prices, decreased production or other factors, and if the Company were unable to obtain capital through reasonable financing arrangements, such as a credit line, or otherwise, its ability to execute its business plan would be limited and it could be required to discontinue operations.

The Company’s failure to capitalize on existing definitive production agreements and/or enter into additional agreements could result in an inability by the Company to generate sufficient revenues and continue operations.

The Company has active interests in definitive production contracts for (i) the Oyo and Non-Oyo Contract Rights and (ii) Zijinshan PSC. The Company has not entered into definitive agreements with respect to any other ventures. The Company’s ability to consummate one or more additional ventures is subject to, among other things, (i) the amount of capital the Company raises in the future; (ii) the availability of land for exploration and development in the geographical regions in which the Company’s business is focused; (iii) the nature and number of competitive offers for the same projects on which the Company is bidding; and (iv) approval by government and industry officials. The Company may not be successful in executing definitive agreements in connection with any other ventures, or otherwise be able to secure any additional ventures it pursues in the future. Failure of the Company to capitalize on its existing contracts and/or to secure one or more additional business opportunities would have a material adverse effect on the Company’s business and results of operations, and could result in the cessation of the Company’s business operations.

Our estimated proved reserves are based on many assumptions that may turn out to be inaccurate. Any significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves . A significant percentage of our total estimated proved reserves at December 31, 2011 were proved undeveloped reserves which ultimately may be less than currently estimated.

The process of estimating oil and natural gas reserves is complex. It requires interpretations of available technical data and many assumptions, including assumptions relating to current and future economic conditions and commodity prices. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities. In the case of production sharing contracts, the quantities allocable to a part-interest owner’s share are affected by the assumptions of that owner’s future participation in funding of operating and capital costs. Actual future production, prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves will vary from estimates. Any significant variance could materially affect the estimated quantities and present value of reserves disclosed. In addition, estimates of proved reserves reflect production history, results of exploration and development, prevailing prices and other factors, many of which are beyond our control. Due to the limited production history of our undeveloped acreage, the estimates of future production associated with such properties may be subject to greater variance to actual production than would be the case with properties having a longer production history.

The Company’s oil and gas operations will involve many operating risks that can cause substantial losses.

The Company expects to produce, transport and market potentially toxic materials, and purchase, handle and dispose of other potentially toxic materials in the course of its business. The Company’s operations will produce byproducts, which may be considered pollutants. Any of these activities could result in liability, either as a result of an accidental, unlawful discharge or as a result of new findings on the effects the Company’s operations on human health or the environment. Additionally, the Company’s oil and gas operations may also involve one or more of the following risks:

•

fires;

•

explosions;

•

blow-outs;

•

uncontrollable flows of oil, gas, formation water, or drilling fluids;

•

natural disasters;

•

pipe or cement failures;

•

casing collapses;

•

embedded oilfield drilling and service tools;

•

abnormally pressured formations;

•

damages caused by vandalism and terrorist acts; and

•

environmental hazards such as oil spills, natural gas leaks, pipeline ruptures and discharges of toxic gases.

In the event that any of the foregoing events occur, the Company could incur substantial losses as a result of (i) injury or loss of life; (ii) severe damage or destruction of property, natural resources or equipment; (iii) pollution and other environmental damage; (iv) investigatory and clean-up responsibilities; (v) regulatory investigation and penalties; (vi) suspension of its operations; or (vii) repairs to resume operations. If the Company experiences any of these problems, its ability to conduct operations could be adversely affected. Additionally, offshore operations are subject to a variety of operating risks, such as capsizing, collisions and damage or loss from typhoons or other adverse weather conditions. These conditions can cause substantial damage to facilities and interrupt production.

The Company may not be able to manage our anticipated growth.

Subject to our receipt of additional capital, we plan to significantly expand operations to accommodate additional development projects and other opportunities. This expansion may strain our management, operations, systems and financial resources. We may need to hire additional personnel in certain operational and other areas during 2012 and future years.

We will depend on the Operating Contractor under the OML 120/121 PSC, which may result in operating costs, methods and timing of operations and expenditures beyond our control, and potential delays or the discontinuation of operations and production.

The Operating Contractor under the OML 120/121 PSC currently manages all of the physical development and operations under the OML 120/121 PSC, including, but not limited to, the timing of drilling, production and related operations, the timing and amount of operational costs, the technology and service providers employed. We would be materially adversely affected if the Operating Contractor does not properly and efficiently manage operational and production matters, or becomes unable or unwilling to continue in that capacity under the OML 120/121 PSC.

The Company will be dependent upon others for the storage and transportation of oil and gas, which could result in significant operational costs to the Company and depletion of capital.

The Company does not own storage or transportation facilities and, therefore, will depend upon third parties to store and transport all of its oil and gas resources when and if produced. The Company will likely be subject to price changes and termination provisions in any contracts it may enter into with these third-party service providers. The Company may not be able to identify such third-parties for any particular project. Even if such sources are initially identified, the Company may not be able to identify alternative storage and transportation providers in the event of contract price increases or termination. In the event the Company is unable to find acceptable third-party service providers, it would be required to contract for its own storage facilities and employees to transport the Company’s resources. The Company may not have sufficient capital available to assume these obligations, and its inability to do so could result in the cessation of its business.

An interruption in the supply of materials, resources and services the Company plans to obtain from third party sources could limit the Company’s operations and cause unprofitability.

Once it has identified, financed, and acquired projects, the Company will need to obtain other materials, resources and services, including, but not limited to, specialized chemicals and specialty muds and drilling fluids, pipe, drill-string, geological and geophysical mapping and interruption services. There may be only a limited number of manufacturers and suppliers of these materials, resources and services. These manufacturers and suppliers may experience difficulty in supplying such materials, resources and services to the Company sufficient to meet its needs or may terminate or fail to renew contracts for supplying these materials, resources or services on terms the Company finds acceptable including, without limitation, acceptable pricing terms. Any significant interruption in the supply of any of these materials, resources or services, or significant increases in the amounts the Company is required to pay for these materials, resources or services, could result in a lack of profitability, or the cessation of operations, if unable to replace any material sources in a reasonable period of time.

The Company does not presently carry liability insurance and business interruption insurance policies in Nigeria and China and will be at risk of incurring personal injury claims for its employees and subcontractors, and incurring business interruption loss due to theft, accidents or natural disasters.

The Company does not presently carry any policies of insurance in Nigeria and China to cover the risks discussed above. In the event that the Company were to incur substantial liabilities or business interruption losses with respect to one or more incidents, this could adversely affect its operations and it may not have the necessary capital to pay its portion of such costs and maintain business operations.

The Company is exposed to concentration of credit risk, which may result in losses in the future.

The Company is exposed to concentration of credit risk with respect to cash, cash equivalents, short-term investments, long-term investments, and long-term advances. At December 31, 2011, 54% ($7.4 million) of the Company’s total cash and cash equivalents was on deposit at Guaranty Trust Bank in Nigeria.

Our business partner, CEHL Group, is a related party, and our executive chairman and CEO is a principal owner and one of the directors of CEHL, which may result in real or perceived conflicts of interest.

Our majority shareholder, CAMAC Energy Holdings Limited, is one of the entities constituting our business partner, CEHL Group. Dr. Kase Lawal, the Company’s Executive Chairman and member of the Board of Directors, and Chief Executive Officer, is a director of each of CEHL, CINL, and Allied, also entities constituting CEHL Group. Dr. Lawal also owns 27.7% of CAMAC International Limited, which indirectly owns 100% of CEHL, and CINL and Allied are each wholly-owned subsidiaries of CEHL. As a result, Dr. Lawal may be deemed to have an indirect material interest in any transactions with CEHL including the agreements entered into with CEHL in April 2010, the OML 120/121 Transaction and the Promissory Note with Allied of June 6, 2011. As a result, Dr. Lawal may be deemed to have an indirect material interest in the above agreements. These relationships may result in conflicts of interest. We may not be able to prove that these agreements are equivalent to arm’s length transactions. Should our transactions not provide the value equivalent of arm’s length transactions, our results of operations may suffer and we may be subject to costly shareholder litigation.

If we lose our status as an indigenous Nigerian oil and gas operator, we would no longer be eligible for preferential treatment in the acquisition of oil and gas assets and oil and gas licensing rounds in Nigeria.

We are considered an indigenous Nigerian oil and gas operator by virtue of our majority stockholder, CAMAC Energy Holdings Limited, which is an indigenous Nigerian oil and gas company. This status makes us eligible for preferential treatment under the Nigerian Content Development Act with respect to the acquisition of oil and gas assets and in oil and gas licensing rounds in Nigeria. If CAMAC Energy Holdings Limited were to lose its status as an indigenous Nigerian oil and gas company due to its affiliation with our U.S. based company or otherwise, or if CAMAC Energy Holdings Limited’s majority interest in us were to be diluted or reduced due to additional issuances of equity by the Company, CAMAC Energy Holdings Limited’s sale or transfer of its interest in the Company or otherwise, we may lose our status as an indigenous Nigerian oil and gas operator. As a result, we would lose one of our key advantages in the Nigerian oil and gas market and our results of operations could materially suffer.

Applicable Nigerian income tax rates could adversely affect the value of the OML 120/121 asset, including the Oyo Field.

Income derived from the Oyo Contract Rights and Non-Oyo Contract Rights, and CPL, as acquiring subsidiary in these transactions, are subject to the jurisdiction of the Nigerian taxing authorities. The Nigerian government applies different tax rates upon income derived from Nigerian oil operations ranging from 50% to 85%, based on a number of factors. The final determination of the tax liabilities with respect to the OML 120/121 PSC involves the interpretation of local tax laws and related authorities. In addition, changes in the operating environment, including changes in tax law and currency/repatriation controls, could impact the determination of tax liabilities with respect to the OML 120/121 PSC for a tax year. While we believe the tax rate applicable to the OML 120/121 PSC is 52%, the actual applicable rate could be higher, which could result in a material decrease in the profits allocable to the Company under the OML 120/121 PSC.

The passage into law of the Nigerian Petroleum Industry Bill could create additional fiscal and regulatory burdens on the parties to the OML 120/121 PSC, which could have a material adverse effect on the profitability of the production.

A Petroleum Industry Bill (“PIB”) is currently undergoing legislative process at the Nigerian National Assembly. The draft PIB seeks to introduce significant changes to legislation governing the oil and gas sector in Nigeria, including new fiscal regulatory and tax obligations and expanded fiscal and regulatory oversight that may impose additional operational and regulatory burdens on the operating contractor under the OML 120/121 PSC and impact the economic benefits anticipated by the parties to the OML 120/121 PSC. Any such fiscal and regulatory changes could have a negative impact on the profits allocable to the Company under the OML 120/121 PSC.

OML 120/121 is subject to the instability of the Nigerian Government and instability in the country of Nigeria.

The government of Nigeria originally granted the rights to OML 120/121 PSC to CEHL. The government and country of Nigeria have historically experienced instability, which is out of management’s control. The Company’s ability to exploit its interests in this area pursuant to the OML 120/121 PSC may be adversely impacted by unanticipated governmental action. In addition, the OML 120/121 PSC’s financial viability may also be negatively affected by changing economic, political and governmental conditions in Nigeria. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political instability, terrorist or other attacks, war or international hostilities.

OML 120/121 is located in an area where there are high security risks, which could result in harm to the Oyo Field operations and our interest in the Oyo Field and the remainder of OML 120/121.

The Oyo Field is located approximately 75 miles off the Southern Nigerian coast in deep-water. There are some risks inherent to oil production in Nigeria. Since December 2005, Nigeria has experienced increased pipeline vandalism, kidnappings and militant takeovers of oil facilities in the Niger Delta. The Movement for the Emancipation of the Niger Delta (MEND) is the main group attacking oil infrastructure for political objectives, claiming to seek a redistribution of oil wealth and greater local control of the sector. Additionally, kidnappings of oil workers for ransom are common. Security concerns have led some oil services firms to pull out of the country and oil workers unions to threaten strikes over security issues. The instability in the Niger Delta has caused shut-in production and several companies to declare force majeure on oil shipments.

Despite undertaking various security measures and being situated 75 miles offshore the Nigerian coast, the Floating Production Storage and Offloading (“FPSO”) vessel currently being used for storing petroleum production in the Oyo Field may become subject to terrorist acts and other acts of hostility like piracy. Such actions could adversely impact our overall business, financial condition and operations. Our facilities are subject to these substantial security risks and our financial condition and results of operations may materially suffer as a result.

Maritime disasters and other operational risks may adversely impact our reputation, financial condition and results of operations.

The operation of the FPSO vessel has an inherent risk of maritime disaster, environmental mishaps, cargo and property losses or damage and business interruptions caused by, among others:

•

mechanical failure;

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damages requiring dry-dock repairs;

•

human error;

•

labor strikes;

•

adverse weather conditions;

•

vessel off hire periods;

•

regulatory delays; and

•

political action, civil conflicts, terrorism and piracy in countries where vessel operations are conducted, vessels are registered or from which spare parts and provisions are sourced and purchased.

Any of these circumstances could adversely affect the operation of the FPSO vessel, and result in loss of revenues or increased costs and adversely affect our profitability. Terrorist acts and regional hostilities around the world in recent years have led to increase in insurance premium rates and the implementation of special “war risk” premiums for certain areas. Such increases in insurance rates may adversely affect our profitability with respect to the Oyo Field asset.

A substantial or extended decline in oil and natural gas prices may adversely affect our business, financial condition or results of operations.

The prices received for Oyo Field production under the OML 120/121 PSC will heavily influence our revenue, profitability, access to capital and future rate of growth. Oil is a commodity and, therefore, its price is subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the market for oil has been volatile. This market will likely continue to be volatile in the future. The prices received for production under the OML 120/121 PSC and the levels of its production depend on numerous factors beyond our and NAE’s control. These factors include the following:

•

changes in global supply and demand for oil;

•

the actions of the Organization of Petroleum Exporting Countries;

•

the price and quantity of imports of foreign oil;

•

political and economic conditions, including embargoes, in oil producing countries or affecting other oil-producing activity;

•

the level of global oil exploration and production activity;

•

the level of global oil inventories;

•

weather conditions;

•

technological advances affecting energy consumption;

•

domestic and foreign governmental regulations;

•

proximity and capacity of oil pipelines and other transportation facilities; and

•

the price and availability of alternative fuels.

Lower oil prices may not only decrease our revenues on a per unit basis but also may reduce the amount of oil that NAE can produce economically under the OML 120/121 PSC with respect to the Oyo Field. A substantial or extended decline in oil prices may materially and adversely affect our future business, financial condition, results of operations, liquidity or ability to finance planned capital expenditures.

Fluctuations in exchange rates could result in foreign currency exchange losses.

Because some of our expenses arising under the OML 120/121 PSC and the Zijinshan PSC may be denominated in foreign currencies, including the Nigerian naira, the Chinese yuan (RMB), European Union euro and British pound sterling, and our cash is denominated principally in U.S. dollars, fluctuations in the exchange rates between the U.S. dollar and foreign currencies will affect our balance sheet and earnings per share in U.S. dollars. In addition, we report our financial results in U.S. dollars, and appreciation or depreciation in the value of such foreign currencies relative to the U.S. dollar affects our financial results reported in U.S. dollars terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rates will also affect the relative value of earnings from and the value of any U.S. dollar-denominated investments we make in the future.

Very limited hedging transactions are available in the Federal Republic of Nigeria to reduce our exposure to exchange rate fluctuations with respect to the Nigerian naira, although there are many hedging transactions available with respect to the European Union euro and the British pound sterling. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our subsidiaries’ exposure at all. In addition, our currency exchange losses with respect to the Nigerian naira may be magnified by Nigerian exchange control regulations that restrict our ability to convert Nigerian naira into foreign currency.

Currently, there are few means and/or financial tools available in the open market for the Company to hedge its exchange risk against any possible revaluation or devaluation of RMB. Because the Company does not currently intend to engage in hedging activities to protect against foreign currency risks, future movements in the exchange rate of the RMB could have an adverse effect on its results of operations and financial condition.

The Company may be required to restate its financial statements for the year ended December 31, 2011, and prior periods based on a determination by the SEC’s Office of the Chief Accountant.

As filed on Form 8-K on February 3, 2012, the Company has been informed by its independent registered public accounting firm, RBSM LLP (“RBSM”), that the Public Company Accounting Oversight Board (“PCAOB”), in the course of conducting its scheduled triennial inspection of RBSM, reviewed the audit that RBSM performed relating to the Company’s financial statements as of and for the year ended December 31, 2010. RBSM has also informed the Company that in connection with this inspection, the PCAOB issued a comment to RBSM regarding the Company’s accounting treatment for its acquisition of certain rights in the OML 120/121 PSC (see Note 4) from the CEHL Group in April 2010 (the “Acquisition”). The Company accounted for and reported the Acquisition as an asset acquisition with the Company’s predecessor, PAP, which was the legal acquirer, also being identified as the accounting acquirer for financial reporting purposes. The PCAOB’s comment called into question whether the Acquisition should have instead been accounted for as a reverse acquisition whereby PAP was the accounting acquiree. The Company has been informed that the process for final resolution by the PCAOB would take an indeterminate amount of time.

In order to expedite final determination of this matter, shortly after filing the Form 8-K on February 3, 2012, the Company requested concurrence on its accounting treatment from the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) as soon as practicable by submitting the relevant facts and circumstances for review. While discussions with the SEC are continuing, as of March 15, 2012, a final determination on this matter has not been made.

Upon receipt of the guidance from the SEC concerning the accounting and related financial reporting, the Company will, if necessary, revise its relevant financial statements and amend its annual report on Form 10-K for the year ended December 31, 2010, and any subsequent reports filed with the SEC. The ultimate outcome and impact from the final determination on this matter if any on the Company’s reported financial statements as of and for the year ended December 31, 2011 or prior periods cannot be determined at this time. Although there can be no assurance that the outcome of the final determination will not have a material effect on such financial statements, the Company believes there would be no effect on historically reported or future reported revenues or cash flows.

Risks Related to the Company’s Industry

The Company may not be successful in finding, acquiring, or developing sufficient petroleum reserves, and if it fails to do so, the Company will likely cease operations.

The Company will be operating primarily in the petroleum extractive business; therefore, if it is not successful in finding crude oil and natural gas sources with good prospects for future production, and exploiting such sources, its business will not be profitable and it may be forced to terminate its operations. Exploring and exploiting oil and gas or other sources of energy entails significant risks, which risks can only be partially mitigated by technology and experienced personnel. The Company or any ventures it acquires or participates in may not be successful in finding petroleum or other energy sources; or, if it is successful in doing so, the Company may not be successful in developing such resources and producing quantities that will be sufficient to permit the Company to conduct profitable operations. The Company’s future success will depend in large part on the success of its drilling programs and creating and maintaining an inventory of projects. Creating and maintaining an inventory of projects depends on many factors, including, among other things, obtaining rights to explore, develop and produce hydrocarbons in promising areas, drilling success, and ability to bring long lead-time, capital intensive projects to completion on budget and schedule, and efficient and profitable operation of mature properties. The Company’s inability to successfully identify and exploit crude oil and natural gas sources would have a material adverse effect on its business and results of operations and would, in all likelihood, result in the cessation of its business operations.

In addition to the numerous operating risks described in more detail in this report, exploring and exploitation of energy sources involve the risk that no commercially productive oil or gas reservoirs will be discovered or, if discovered, that the cost or timing of drilling, completing and producing wells will not result in profitable operations. The Company’s drilling operations may be curtailed, delayed or abandoned as a result of a variety of factors, including:

•

adverse weather conditions;

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unexpected drilling conditions;

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pressure or irregularities in formations;

•

equipment failures or accidents;

•

inability to comply with governmental requirements;

•

shortages or delays in the availability of drilling rigs and the delivery of equipment; and

•

shortages or unavailability of qualified labor to complete the drilling programs according to the business plan schedule.

The energy market in which the Company operates is highly competitive and the Company may not be able to compete successfully against its current and future competitors, which could seriously harm the Company’s business.

Competition in the oil and gas industry is intense, particularly with respect to access to drilling rigs and other services, the acquisition of properties and the hiring and retention of technical personnel. The Company expects competition in the market to remain intense because of the increasing global demand for energy, and that competition will increase significantly as new companies enter the market and current competitors continue to seek new sources of energy and leverage existing sources. Many of the Company’s competitors, including large oil companies, have an established presence in Asia and the Pacific Rim countries and have longer operating histories, significantly greater financial, technical, marketing, development, extraction and other resources and greater name recognition than the Company does. As a result, they may be able to respond more quickly to new or emerging technologies, changes in regulations affecting the industry, newly discovered resources and exploration opportunities, as well as to large swings in oil and natural gas prices. In addition, increased competition could result in lower energy prices, and reduced margins and loss of market share, any of which could harm the Company’s business. Furthermore, increased competition may harm the Company’s ability to secure ventures on terms favorable to it and may lead to higher costs and reduced profitability, which may seriously harm its business.

The Company’s business depends on the level of activity in the oil and gas industry, which is significantly affected by volatile energy prices, which volatility could adversely affect its ability to operate profitably.

The Company’s business depends on the level of activity in the oil and gas exploration, development and production in markets worldwide. Oil and gas prices, market expectations of potential changes in these prices and a variety of political and economic and weather-related factors significantly affect this level of activity. Oil and gas prices are extremely volatile and are affected by numerous factors, including:

•

the domestic and foreign supply of oil and natural gas;

•

the ability of the Organization of Petroleum Exporting Countries, commonly called “OPEC,” to set and maintain production levels and pricing;

•

the price and availability of alternative fuels;

•

weather conditions;

•

the level of consumer demand;

•

global economic conditions;

•

political conditions in oil and gas producing regions; and

•

government regulations.

Within the 12 months ending December 31, 2011, light crude oil futures have ranged from approximately $75 per barrel to over $100 per barrel, and may continue to fluctuate significantly in the future. With respect to ventures in China, the prices the Company will receive for oil and gas, in connection with any of its production ventures, will likely be regulated and set by the government. As a result, these prices may be well below the market price established in world markets. Therefore, the Company may be subject to arbitrary changes in prices that may adversely affect its ability to operate profitably.

If the Company does not hedge its exposure to reductions in oil and gas prices, it may be subject to the risk of significant reductions in prices; alternatively, use by the Company of oil and gas price hedging contracts could limit future revenues from price increases.

To date, the Company has not entered into any hedging transactions but may do so in the future. In the event that the Company chooses not to hedge its exposure to reductions in oil and gas prices by purchasing futures and by using other hedging strategies, it could be subject to significant reduction in prices which could have a material negative impact on its profitability. Alternatively, the Company may elect to use hedging transactions with respect to a portion of its oil and gas production to achieve more predictable cash flow and to reduce its exposure to price fluctuations. The use of hedging transactions could limit future revenues from price increases and could also expose the Company to adverse changes in basis risk, the relationship between the price of the specific oil or gas being hedged and the price of the commodity underlying the futures contracts or other instruments used in the hedging transaction. Hedging transactions also involve the risk that the counterparty does not satisfy its obligations.

The Company may be required to take non-cash asset write-downs if oil and natural gas prices decline or if downward revisions in net proved reserves occur, which could have a negative impact on the Company’s earnings.

Under applicable accounting rules, the Company may be required to write down the carrying value of oil and natural gas properties if oil and natural gas prices decline or if there are substantial downward adjustments to its estimated proved reserves, increases in its estimates of development costs or deterioration in its exploration results. Accounting standards require the Company to review its long-lived assets for possible impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable over time. In such cases, if the asset’s estimated undiscounted future cash flows are less than its carrying amount, impairment exists. Any impairment write-down, which would equal the excess of the carrying amount of the assets being written down over their fair value, would have a negative impact on the Company’s earnings, which could be material.

Risks Related to International Operations

The Company’s international operations will subject it to certain risks inherent in conducting business operations in Nigeria, China and other foreign countries, including political instability and foreign government regulation, which could significantly impact the Company’s ability to operate in such countries and impact the Company’s results of operations.

The Company conducts substantially all of its business in Nigeria and China. The Company’s present and future international operations in foreign countries are, and will be, subject to risks generally associated with conducting businesses in foreign countries, such as:

•

foreign laws and regulations that may be materially different from those of the United States;

•

changes in applicable laws and regulations;

•

challenges to, or failure of, title;

•

labor and political unrest;

•

foreign currency fluctuations;

•

changes in foreign economic and political conditions;

•

export and import restrictions;

•

tariffs, customs, duties and other trade barriers;

•

difficulties in staffing and managing foreign operations;

•

longer time periods and difficulties in collecting accounts receivable and enforcing agreements;

•

possible loss of properties due to nationalization or expropriation; and

•

limitations on repatriation of income or capital.

Specifically, foreign governments may enact and enforce laws and regulations requiring increased ownership by businesses and/or state agencies in energy producing businesses and the facilities used by these businesses, which could adversely affect the Company’s ownership interests in then existing ventures. The Company’s ownership structure may not be adequate to accomplish the Company’s business objectives in Nigeria, China or in any other foreign jurisdiction where the Company may operate. Foreign governments also may impose additional taxes and/or royalties on the Company’s business, which would adversely affect the Company’s profitability and value of our foreign assets, including the interests in OML 120/121 PSC and the Zijinshan PSC. In certain locations, governments have imposed restrictions, controls and taxes, and in others, political conditions have existed that may threaten the safety of employees and the Company’s continued presence in those countries. Internal unrest, acts of violence or strained relations between a foreign government and the Company or other governments may adversely affect its operations. These developments may, at times, significantly affect the Company’s results of operations, and must be carefully considered by its management when evaluating the level of current and future activity in such countries.

The future success of the Company’s operations may also be adversely affected by risks associated with international activities, including economic and labor conditions, political instability, risk of war, expropriation, repatriation, termination, renegotiation or modification of existing contracts, tax laws (including host-country import-export, excise and income taxes and United States taxes on foreign subsidiaries) and changes in the value of the U.S. dollar versus the local currencies in which future oil and gas producing activities may be denominated in certain cases. Changes in exchange rates may also adversely affect the Company’s future results of operations and financial condition. Realization of any of these factors could materially and adversely affect our financial position, results of operations and cash flows.

Compliance and enforcement of environmental laws and regulations, including those related to climate change, may cause the Company to incur significant expenditures and require resources, which it may not have.

Extensive national, regional and local environmental laws and regulations in Nigeria and China are expected to have a significant impact on the Company’s operations. These laws and regulations set various standards regulating certain aspects of health and environmental quality, which provide for user fees, penalties and other liabilities for the violation of these standards. As new environmental laws and regulations are enacted and existing laws are repealed, interpretation, application and enforcement of the laws may become inconsistent. Compliance with applicable local laws in the future could require significant expenditures, which may adversely affect the Company’s operations. The enactment of any such laws, rules or regulations in the future may have a negative impact on the Company’s projected growth, which could in turn decrease its projected revenues or increase its cost of doing business.

A foreign government could change its policies toward private enterprise or even nationalize or expropriate private enterprises, which could result in the total loss of the Company’s investment in that country.

The Company’s business is subject to significant political and economic uncertainties and may be adversely affected by political, economic and social developments in Nigeria and China or in any other foreign jurisdiction in which it operates. Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activity, foreign investment and greater economic decentralization. The Chinese government may not continue to pursue these policies or may significantly alter them to the Company’s detriment from time to time with little, if any, prior notice.

Changes in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to stockholders, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on the Company’s business. Nationalization or expropriation could even result in the loss of all or substantially all of the Company’s assets and in the total loss of your investment in the Company.

The continued existence of official corruption and bribery in Nigeria, and the inability or unwillingness of Nigerian authorities to combat such corruption, may negatively impact our ability to fairly and effectively compete in the Nigerian oil and gas market.

Official corruption and bribery remain a serious concern in Nigeria. The 2011 Transparency International report ranks Nigeria 143 out of 183 countries in terms of corruption perceptions. In an attempt to combat corruption in the oil and gas sector, the National Assembly passed the Nigeria Extractive Industries Transparency Initiative Act 2007. This action permitted Nigeria to become a candidate country under the Extractive Industries Transparency Initiative (“EITI”), the first step in bringing transparency to all material oil, gas and mining payments to the Government of Nigeria. In addition, Nigeria has amended its banking laws to permit the government to bring corrupt bank officials to justice. Several notable cases have been brought, but, to date, few significant cases have been successful and bank regulatory oversight remains a concern. Thus, increased diligence may be required in working with or through Nigerian banks or with Nigerian governmental authorities, and interactions with government officials may need to be monitored. To the extent that such efforts to increase transparency are unsuccessful, and any competitors utilize the existence of corruptive practices in order to secure an unfair advantage, our financial condition and results of operations may suffer.

If relations between the United States and Nigeria or China were to deteriorate, investors might be unwilling to hold or buy the Company’s stock and its stock price may decrease.

At various times during recent years, the United States has had significant disagreements over political, economic and security issues with Nigeria and China. Additional controversies may arise in the future between the United States and these two countries. Any political or trade controversies between the United States and these two countries, whether or not directly related to the Company’s business, could adversely affect the market price of the Company’s Common Stock.

If the United States imposes trade sanctions on China due to its current currency policies, the Company’s operations could be materially and adversely affected.

Trade groups in the U.S. have blamed the unrealistically low value of the Chinese currency for causing job losses in American factories, giving exporters an unfair advantage and making its imports expensive. U.S. Congress from time to time has been considering the enactment of legislation with the view of imposing new tariffs on Chinese imports.

If the U.S. Congress deems that China is still gaining a trade advantage from its exchange currency policy and an additional tariff is imposed, it is possible that China-based companies will no longer maintain significant price advantages over U.S. and other foreign companies on their goods and services, and the rapid growth of China’s economy would slow as a result. If the U.S. or other countries enact laws to penalize China for its currency policies, the Company’s business could be materially and adversely affected.

A lack of adequate remedies and impartiality under the Chinese legal system may adversely impact the Company’s ability to do business and to enforce the agreements to which it is a party.

The Company anticipates that it will be entering into numerous agreements governed by Chinese law. The Company’s business would be materially and adversely affected if these agreements were not enforced. In the event of a dispute, enforcement of these agreements in these countries could be extremely difficult.

Unlike the United States, China has a civil law system based on written statutes in which judicial decisions have little precedential value. The government’s experience in implementing, interpreting and enforcing certain recently enacted laws and regulations is limited, and the Company’s ability to enforce commercial claims or to resolve commercial disputes is uncertain. Furthermore, enforcement of the laws and regulations may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. These uncertainties could limit the protections that are available to the Company.

The Company’s stockholders may not be able to enforce United States civil liabilities claims.

Many of the Company’s assets are, and are expected to continue to be, located outside the U.S. and held through one or more wholly-owned and majority-owned subsidiaries incorporated under the laws of foreign jurisdictions, including Nigeria, Hong Kong and China. Similarly, a substantial part of the Company’s operations are, and are expected to continue to be, conducted

in Nigeria and China. In addition, some of the Company’s directors and officers, including directors and officers of its subsidiaries, may be residents of countries other than the U.S. All or a substantial portion of the assets of these persons may be located outside the U.S. As a result, it may be difficult for shareholders to effect service of process within the U.S. upon these persons. In addition, there is uncertainty as to whether the courts of Nigeria or China would recognize or enforce judgments of U.S. courts obtained against the Company or such persons predicated upon the civil liability provisions of the securities laws of the U.S. or any state thereof, or be competent to hear original actions brought in these countries against the Company or such persons predicated upon the securities laws of the U.S. or any state thereof.

Risks Related to the Company’s Stock

CAMAC Energy Holdings Limited is our controlling stockholder, and it may take actions that conflict with the interests of the other stockholders.

Following our acquisition of the Oyo Contract Rights, CAMAC Energy Holdings Limited beneficially owned approximately 62.74% of our outstanding shares of Common Stock and continues to own a majority interest at present. CAMAC Energy Holdings Limited controls the power to elect our directors, to appoint members of management and to approve all actions requiring the approval of the holders of our Common Stock, including adopting amendments to our Certificate of Incorporation and approving mergers, acquisitions or sales of all or substantially all of our assets, subject to certain restrictive covenants. The interests of CAMAC Energy Holdings Limited as our controlling stockholder could conflict with your interests as a holder of Company Common Stock. For example, CAMAC Energy Holdings Limited as our controlling stockholder may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could enhance its equity investment, even though such transactions might involve risks to you, as minority holders of the Company.

The market price of the Company’s stock may be adversely affected by a number of factors related to the Company’s performance, the performance of other energy-related companies and the stock market in general.

The market prices of securities of energy companies are extremely volatile and sometimes reach unsustainable levels that bear no relationship to the past or present operating performance of such companies.

Factors that may contribute to the volatility of the trading price of the Company’s Common Stock include, among others:

•

the Company’s quarterly results of operations;

•

the variance between the Company’s actual quarterly results of operations and predictions by stock analysts;

•

financial predictions and recommendations by stock analysts concerning energy companies and companies competing in the Company’s market in general, and concerning the Company in particular;

•

public announcements of regulatory changes or new ventures relating to the Company’s business, new products or services by the Company or its competitors, or acquisitions, joint ventures or strategic alliances by the Company or its competitors;

•

public reports concerning the Company’s services or those of its competitors;

•

the operating and stock price performance of other companies that investors or stock analysts may deem comparable to the Company;

•

large purchases or sales of the Company’s Common Stock;

•

investor perception of the Company’s business prospects or the oil and gas industry in general; and

•

general economic and financial conditions.

In addition to the foregoing factors, the trading prices for equity securities in the stock market in general, and of energy-related companies in particular, have been subject to wide fluctuations that may be unrelated to the operating performance of the particular company affected by such fluctuations. Consequently, broad market fluctuations may have an adverse effect on the trading price of the Common Stock, regardless of the Company’s results of operations.

The limited market for the Company’s Common Stock may adversely affect trading prices or the ability of a shareholder to sell the Company’s shares in the public market at or near ask prices or at all if a shareholder needs to liquidate its shares.

The market price for shares of the Company’s Common Stock has been, and is expected to continue to be, very volatile. Numerous factors beyond the Company’s control may have a significant effect on the market price for shares of the Company’s Common Stock, including the fact that the Company is a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume. Even if we came to the attention of such persons, they tend to be risk-averse and may be reluctant to follow an unproven, early stage company such as the Company or purchase or recommend the purchase of its shares until such time as the Company becomes more seasoned and viable. There may be periods of several days or more when trading activity in the Company’s shares is minimal as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. Due to these conditions, investors may not be able to sell their shares at or near ask prices or at all if investors need money or otherwise desire to liquidate their shares.

The Company’s issuance of Preferred Stock could adversely affect the value of the Company’s Common Stock.

The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of up to 50 million shares of Preferred Stock, which shares constitute what is commonly referred to as “blank check” Preferred Stock. This Preferred Stock may be issued by the Board of Directors from time to time on any number of occasions, without stockholder approval, as one or more separate series of shares comprised of any number of the authorized but unissued shares of Preferred Stock, designated by resolution of the Board of Directors, stating the name and number of shares of each series and setting forth separately for such series the relative rights, privileges and preferences thereof, including, if any, the: (i) rate of dividends payable thereon; (ii) price, terms and conditions of redemption; (iii) voluntary and involuntary liquidation preferences; (iv) provisions of a sinking fund for redemption or repurchase; (v) terms of conversion to Common Stock, including conversion price; and (vi) voting rights. The designation of such shares could be dilutive of the interest of the holders of our Common Stock. The ability to issue such Preferred Stock could also give the Company’s Board of Directors the ability to hinder or discourage any attempt to gain control of the Company by a merger, tender offer at a control premium price, proxy contest or otherwise.

The Common Stock may be deemed “penny stock” and therefore subject to special requirements that could make the trading of the Company’s Common Stock more difficult than for stock of a company that is not “penny stock”.

The Company’s Common Stock may be deemed to be a “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are stocks (i) with a price of less than five dollars per share; (ii) that are not traded on a “recognized” national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of issuers with net tangible assets of less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than $6,000,000 for the last three years.

Section 15(g) of the Exchange Act, and Rule 15g-2 promulgated thereunder, require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in the Common Stock to resell their shares to third parties or to otherwise dispose of them.

The Company’s executive officers, directors and major stockholders, including CAMAC Energy Holdings Limited, hold a controlling interest in the Company’s Common Stock and may be able to prevent other stockholders from influencing significant corporate decisions.

The executive officers, directors and holders of 5% or more of the outstanding Common Stock, if they were to act together, would be able to control all matters requiring approval by stockholders, including the election of Directors and the approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying, deterring or preventing a change in control and may make some transactions more difficult or impossible to complete without the support of these stockholders.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None

ITEM 2.

PROPERTIES

Part I, Item 1. Description of Business is incorporated herein by reference. In addition to the material in Item 1. the following additional items are included for Properties.

Office Facility Leases

The Company has two primary leased office facilities: Houston, Texas (the “Houston Facility”) and Beijing, China (the “Beijing Facility”). The Company also utilizes office space in Lagos, Nigeria under short-term arrangements with an affiliated company.

The Houston Facility covers 3,700 square feet of office space and is under a lease which commenced on October 11, 2010 and ends on October 31, 2013. Rental expense is currently $10,000 per month, including allocated share of operating expenses.

The Beijing Facility covers approximately 5,300 square feet of office space. The Beijing Facility is occupied under a tenancy agreement that commenced on September 1, 2009 and ends on August 31, 2012. The Company’s rental expense recorded for the Beijing Facility is $11,000 per month, plus allocated share of utility charges.

The Company does not foresee significant difficulty in renewing or replacing either lease under current market conditions, or in adding additional space when required.

ITEM 3.

LEGAL PROCEEDINGS

On June 28, 2011, Mr. Abiola Lawal, former Executive Vice President and Chief Financial Officer of the Company, filed a lawsuit in Harris County, Texas District Court against the Company, alleging breach of contract and unlawful termination in connection with Mr. Lawal’s June 6, 2011 termination from the Company. On September 16, 2011, the Court issued an order staying the proceedings pending arbitration in view of the mandatory arbitration clause in the plaintiff’s employment agreement. On October 31, 2011, the plaintiff issued a written demand for arbitration making the same allegations as the stayed lawsuit. An arbitrator has been chosen and the hearing is scheduled for September 2012. The Company believes the claims are without merit and intends to vigorously defend itself against such claims. See Note 19 – Related Party Transactions, for additional details regarding Mr. Lawal’s separation from employment.

From time to time we may be involved in various legal proceedings and claims in the ordinary course of our business. As of December 31, 2011 we do not believe the ultimate resolution of such actions or potential actions of which we are currently aware will have a material effect on our consolidated financial position or our net income or loss.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information for Common Stock

Our Common Stock is currently listed on the NYSE Amex under the symbol “CAK”. It commenced listing on the NYSE Amex on November 5, 2009 under the symbol “PAP”. Prior to being listed on the NYSE Amex, the Common Stock was quoted on the OTC Bulletin Board under the symbol “PFAP.OB” between May 8, 2008 and November 4, 2009.

The following table sets forth the range of the high and low sales prices per share of our Common Stock for the periods indicated:


Period	High		Low
2011
First quarter	$	2.00	$	1.37
Second quarter	$	2.02	$	1.19
Third quarter	$	1.36	$	0.60
Fourth quarter	$	1.23	$	0.50

2010
First quarter	$	5.15	$	3.50
Second quarter	$	6.07	$	3.25
Third quarter	$	4.06	$	2.11
Fourth quarter	$	3.97	$	1.89

Common Stock Warrants and Options

As of March 9, 2012, the Company had warrants outstanding to purchase (i) an aggregate of 732,745 shares of Common Stock at a price per share of $1.25; (ii) an aggregate of 134,708 shares of Common Stock at a price per share of $1.375; (iii) an aggregate of 130,000 shares of Common Stock at a price per share of $1.50; (iv) an aggregate of 4,659,551 shares of Common Stock at a price per share of $2.62; (v) an aggregate of 279,573 shares of Common Stock at a price per share of $2.75; (vi) an aggregate of 3,658,770 shares of Common Stock at a price per share of $4.50; (vii) an aggregate of 150,000 shares of Common Stock at a price per share of $5.00; and (viii) an aggregate of 124,408 shares of Common Stock at a price per share of $5.28.

As of March 9, 2012, an aggregate of 4,043,692 shares of Common Stock were issuable upon exercise of outstanding stock options.

Holders

As of March 9, 2012, there were approximately 68 registered holders of record of our Common Stock, and there are an estimated 7,000 beneficial owners of our common stock, including shares held in street name.

Dividend Policy

The Company has not, to date, paid any cash dividends on its Common Stock. The Company has no current plans to pay dividends on its Common Stock and intends to retain earnings, if any, for working capital purposes and capital expenditures. Any future determination as to the payment of dividends on the Common Stock will depend upon the results of operations, capital requirements, the financial condition of the Company and other relevant factors. Our Board of Directors has complete discretion on whether to pay dividends. Even if our Board of Directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board of Directors may deem relevant.

Securities Authorized for Issuance under Equity Compensation Plans

The following table includes the information as of December 31, 2011 for our equity compensation plans:


Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)		Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (b)			Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)
Equity compensation plans approved by security holders (1) (2)		7,048,126	$	1.38	(3)		3,372,909
			$	2.24	(4)

(1)	Includes the 2007 Stock Plan and 2009 Equity Incentive Plan.

(2)	Includes remaining warrants exercisable for 1,551,434 shares of Common Stock, originally issued in 2007 and 2010 to placement agents, for which issuance was approved by stockholders of the Company.

(3)	The weighted average exercise price of stock options.

(4)	The weighted average exercise price of stock warrants.

Recent Sales of Unregistered Securities

None.

Stock Repurchases

The Company did not repurchase any shares of its Common Stock during the quarter ended December 31, 2011.

Performance Graph

The line graph below compares the value at December 31, 2007, 2008, 2009, 2010 and 2011 of a $100 investment in our common stock with $100 investments in the S&P 500 index and the S&P Small Cap 600 Energy Index assuming the initial investment was made on October 15, 2007. The selected indices are accessible to our stockholders in newspapers, the Internet and other readily available resources. Pursuant to Item 201(e) of Regulation S-K (§220.201), the period covered by the comparison commences on October 15, 2007, which is the date our common stock became registered under section 12 of the Exchange Act.


	INDEXED RETURNS Years Ending
Company / Index	10/15/07		12/31/07		12/31/08		12/31/09		12/31/10		12/31/11
Camac Energy Inc.	$	100	$	78	$	5	$	33	$	14	$	7
S&P 500 Index		100		95		58		72		81		81
S&P Small Cap 600 - Energy		100		99		53		86		124		127

LOGO

This Performance Graph shall not be deemed to be incorporated by reference into our SEC filing and should not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

ITEM 6.

SELECTED FINANCIAL DATA

		$0,000,000			$0,000,000			$0,000,000			$0,000,000			$0,000,000
	Years Ended December 31,
	2011			2010			2009			2008			2007
				(In thousands, except per share data)
Statement of Income Data
Total revenues	$	38,910		$	20,651		$	67		$	—		$	—
Net loss attributable to CAMAC Energy Inc.	$	(24,913	)	$	(230,468	)	$	(11,489	)	$	(5,447	)	$	(2,384	)
Net loss per common share attributable to CAMAC Energy Inc.
Basic	$	(0.16	)	$	(1.95	)	$	(0.28	)	$	(0.14	)	$	(0.08	)
Diluted	$	(0.16	)	$	(1.95	)	$	(0.28	)	$	(0.14	)	$	(0.08	)
Cash Flow Data
Cash (Used in) provided by operating activities	$	(14,654	)	$	8,572		$	(6,872	)	$	(3,208	)	$	(2,061	)

		$0,000,000			$0,000,000		$0,000,000		$0,000,000		$0,000,000
	As of December 31,
	2011			2010		2009		2008		2007
	(In thousands)
Balance Sheet Data
Working capital	$	(5,380	)	$	1,650	$	3,910	$	11,224	$	13,317
Property plant and equipment, net	$	196,386		$	204,979	$	451	$	569	$	285
Total assets	$	234,030		$	247,843	$	7,436	$	14,119	$	17,457
Long-term notes payable	$	6,000		$	—	$	—	$	—	$	—

For more information on results of operations and financial condition, see Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Business

CAMAC Energy Inc. is a publicly traded company which engages in the exploration, development, and production of oil and gas outside the U.S., directly and through joint ventures and other ventures in which it may participate. The Company’s corporate headquarters is located in Houston, Texas and currently the Company has interests in OML 120/121 oil and gas leases in deep water offshore Nigeria along with the rights to significant gas acreage under contract in China. The Company is a strategic partner with major energy companies in oil and gas fields in Nigeria and China. The Company’s current operations commenced in 2005 through IMPCO, formed as a limited liability company under New York State law on August 25, 2005. Members of the Company’s senior management team have experience in the fields of international oil and gas operations, business development, geology, petroleum engineering, energy services, strategy, government relations, and finance and will seek to utilize their experience, expertise and contacts to create value for shareholders. Oil and gas exploration and production operations are managed geographically.

The Company was originally incorporated in Delaware on December 12, 1979 as Gemini Marketing Associates Inc., subsequently changed its name to Pacific East Advisors, Inc., and on May 7, 2007 consummated a reverse merger involving predecessor company IMPCO and ADS (the “Mergers”), in connection with which the Company changed its name to Pacific Asia Petroleum, Inc. The Company’s name was changed to CAMAC Energy Inc. effective April 7, 2010.

Oyo Field Production Sharing Contract Interest

On November 18, 2009, the Company entered into the Purchase and Sale Agreement with CAMAC Energy Holdings Limited (CEHL) and certain of its affiliates (collectively, “CEHL Group”) pursuant to which the Company agreed to acquire CEHL Group’s interest in a Production Sharing Contract (the “OML 120/121 PSC”) with respect to the oilfield asset known as the Oyo Field (the “Oyo Contract Rights”) and agreed to the related transactions contemplated thereby, including the election of certain directors of the Company. The OML 120/121 PSC governing the Oyo Field is by and among Allied Energy Plc. (“Allied”), an affiliate of CEHL, CAMAC International (Nigeria) Limited (“CINL”), an affiliate of CEHL, and Nigerian Agip Exploration Limited (“NAE”).

As consideration for the Oyo Contract Rights, on April 7, 2010 the Company paid CAMAC Energy Holdings Limited $32 million in cash consideration (the “Cash Consideration”) and issued to CAMAC Energy Holdings Limited 89,467,120 shares of Company Common Stock, par value $0.001, representing approximately 62.74% of the Company’s issued and outstanding Common Stock at closing (the “Consideration Shares”). In addition, if certain issued and outstanding warrants and options exercisable for an aggregate of 7,991,948 shares of Company Common Stock were exercised following the closing, the Company was obligated to issue up to an additional 13,457,188 Consideration Shares to CAMAC Energy Holdings Limited to maintain CAMAC Energy Holdings Limited’s approximately 62.74% interest in the Company. As of December 31, 2011, due to warrant and option expirations and cancellations, the maximum potential additional Consideration Shares issuable had been reduced to 6,811,446, of which 188,591 related to exercised warrants. As additional Cash Consideration, the Company agreed to pay CAMAC Energy Holdings Limited $6.84 million on the earlier of sufficient receipt of oil proceeds from the Oyo Field or six months from the closing date. This amount was paid in July 2010.

In February and March 2010, the Company raised $37.5 million in two registered direct offerings (described below), $32 million of which proceeds were used by the Company to satisfy the cash purchase price requirement under the Purchase and Sale Agreement, as amended.

During December 2010 and year 2011, the Company incurred $59.6 million in total costs relative to the workover to reduce gas production rising from the #5 well in the Oyo Field, offshore Nigeria, with the objective of increasing crude oil production from this well. By joint agreement with Allied, the Company has committed to pay for the workover. To the extent the Company funds these costs, it is entitled to cost recovery of such costs as non-capital costs from Cost Oil, as defined in the terms of the OML 120/121 PSC, subject to future production levels. For purposes of Cost Oil recovery on each sale of production, non-capital costs are allocated for recovery prior to capital costs. We recovered a significant portion of these costs as revenue in 2011 and expect to recover the remainder as revenue in future liftings. In connection with funding for part of these costs prior to receiving cost recovery, the Company entered into a Promissory Note and Guaranty Agreement with a related party, which is discussed below under “Promissory Note and Guaranty Agreement.” The remainder is being funded using available cash and the future Oyo Field lifting proceeds.

Well #6 in the Oyo Field currently produces at a water cut of about 76%. The Company continues to evaluate the viability of placing this well on gas lift.

OML 120/121 Transaction

On December 10, 2010, the Company entered into a Purchase and Continuation Agreement (the “Purchase Agreement”) with CEHL Group, superseding earlier related agreements. Pursuant to the Purchase Agreement, the Company agreed to acquire certain of the remainder of CEHL Group’s interest (the “OML 120/121 Transaction”) in the OML 120/121 PSC (the “Non-Oyo Contract Rights”). In April 2010 the Company had acquired from CEHL Group the Oyo Contract Rights in the OML 120/121 PSC. The OML 120/121 Transaction closed on February 15, 2011 under the terms of the Purchase Agreement.

In exchange for the Non-Oyo Contract Rights, the Company agreed to an option-based consideration structure and paid $5.0 million in cash to Allied upon the closing of the OML 120/121 Transaction on February 15, 2011. The Company has the option to elect to retain the Non-Oyo Contract Rights upon payment of additional consideration to Allied as follows:

If any of the above milestones are reached and the Company elects not to retain the Non-Oyo Contract Rights at that time, then all the Non-Oyo Contract Rights will automatically revert back to CEHL without any compensation due to the Company and with CAMAC retaining all consideration paid by the Company to date. As of December 31, 2011, none of the above noted milestones were reached.

The Purchase Agreement contained the following conditions to the closing of the Transaction: (i) CPL, CAMAC International (Nigeria) Limited (“CINL”), Allied, and Nigerian Agip Exploration Limited (“NAE”) must enter into a Novation Agreement in a form satisfactory to the Company and CAMAC Energy Holdings Limited and that contains a waiver by NAE of the enforcement of Section 8.1(e) of the PSC (providing for the continued waiver by NAE of its entitlement to “profit oil” in favor of Allied), and that notwithstanding anything to the contrary contained in the PSC, the profit sharing allocation set forth in the PSC shall be maintained after the consummation of the Transaction; (ii) the Company, and CEHL must enter into a registration rights agreement with respect to any shares issued by the Company to Allied at its election as consideration upon the occurrence of any of the above-described milestone events, in a form satisfactory to the Company and CEHL; and (iii) the Oyo Field Agreement, dated April 7, 2010, by and among the Company, CEHL and Allied, must be amended in order to remove certain indemnities with respect to Non-Oyo Operating Costs (as defined therein). In addition, CEHL must deliver the Data and certain equipment to the Company in as-is condition. The Company agreed to limited waivers of certain of these closing conditions under the Limited Waiver Agreement.

Dr. Kase Lawal, the Company’s Executive Chairman and member of the Board of Directors, and Chief Executive Officer, is a director of each of CEHL, CINL and Allied. Dr. Lawal also owns 27.7% of CAMAC International Limited, which

indirectly owns 100% of CEHL. As a result, Dr. Lawal may be deemed to have an indirect material interest in the transaction contemplated by the OML 120/121 Agreement. Chairman Lawal recused himself from participating in the consideration and approval by the Company’s Board of Directors of the OML 120/121 Transaction.

Promissory Note and Guaranty Agreement

On June 6, 2011, CAMAC Petroleum Limited (“CPL”), a wholly owned subsidiary of the Company, executed a Promissory Note (the “Promissory Note”) in favor of Allied (the “Lender”). Under the terms of the Promissory Note, the Lender agreed to make loans to CPL, from time to time and pursuant to requests by CPL, in an aggregate sum of up to $25.0 million. On June 8, 2011, CPL received initial loan proceeds of $25.0 million under the Promissory Note. Interest accrues on outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum. The entire loan initial outstanding of $25.0 million was repaid on August 23, 2011. CPL may prepay and re-borrow all or a portion of such amount from time to time, but the unpaid aggregate outstanding principal amount of all loans will mature on June 6, 2013. At December 31, 2011 there was an unpaid loan balance of $6 million outstanding on additional loans on this Promissory Note.

Asia – Zijinshan Production Sharing Contract

Enhanced Oil Recovery and Production (“EORP”)

In May and June 2009, the Company entered into certain agreements with Mr. Li Xiangdong (“LXD”) and Mr. Ho Chi Kong (“HCK”), pursuant to which the parties in September 2009 formed a Chinese joint venture company, Dong Fang. Dong Fang was 75.5% owned by PAPE and 24.5% owned by LXD, and LXD agreed to assign certain pending patent rights related to chemical enhanced oil recovery thereto. PAPE was 70% owned by the Company and 30% owned by Best Source Group Holdings Limited, a company designated by HCK for his interest.

Termination of Agreement for Proposed Acquisition (Avana Petroleum Limited)

On November 7, 2011 the Company initially announced it had signed a heads of agreement (“HOA”) to acquire 100% of the issued share capital of Avana Petroleum Limited, a private Isle of Man company (“Avana”) for a purchase price of $15 million payable in shares of Company common stock. Avana is an independent oil and gas exploration group whose core area of interest centers on the western Indian Ocean and East African margin with interests in the Seychelles Islands and offshore Kenya. The purchase consideration was to be payable in shares of Company common stock, based on the volume-weighted average closing price on the NYSE Amex for the 30 trading days immediately before the date of issue, in three tranches: $10 million upon completion of purchase; $2.5 million six months following completion; and $2.5 million 12 months following completion.

Pan-African Growth Strategy

Registered Direct Offerings of Securities

In year 2010, the Company completed three registered direct offerings for combined sales of Company Common Stock and warrants, under which the following securities were issued:

February 16, 2010:

•

5,000,000 shares of Common Stock at $4.00 per share – aggregate proceeds of $20 million

•

Warrants to purchase 2,000,000 shares of Common Stock at $4.50 per share, expiring August 2013

•

Warrants to purchase 2,000,000 shares of Common Stock at $4.00 per share, expired November 2010

•

Placement agent warrants to purchase 150,000 shares of Common Stock at $5.00 per share, expiring February 2015

March 5, 2010:

•

4,146,922 shares of Common Stock at $4.22 per share – aggregate proceeds of $17.5 million

•

Warrants to purchase 1,658,769 shares of Common Stock at $4.50 per share, expiring September 2013

•

Warrants to purchase 1,658,769 shares of Common Stock at $4.12 per share, expired December 2010

•

Placement agent warrants to purchase 124,408 shares of Common Stock at $5.275 per share, expiring February 2015

December 28, 2010:

•

9,319,102 shares of Common Stock at $2.20 per share – aggregate proceeds of $20.5 million

•

Warrants to purchase 4,659,551 shares of Common Stock at $2.20 per share, increased to $2.62 per share 31 days after the closing, expiring December 2015

•

Placement agent warrants to purchase 279,573 shares of Common Stock at $2.75 per share, expiring February 2015

Net proceeds from the February and March 2010 offerings were used by the Company for working capital purposes, and to fund the Company’s acquisition from CEHL Group of the Oyo Contract Rights in April 2010. Net proceeds from the December 2010 offering were used to fund a portion of the cost of the workover on well #5 in the Oyo Field and for working capital purposes.

Plan of Operation

The following describes in general terms the Company’s plan of operation and development strategy for the twelve-month period ending December 31, 2012 (the “Next Year”). During the Next Year, the Company plans to focus its efforts toward realizing and maximizing value in OML 120/121 as a whole (including the Oyo Field) in coordination with the operating contractor, and to continue exploration operations under its 100% owned and operated Zijinshan PSC subject to possible monetization of that asset. The Zijinshan operations will include the drilling of one additional exploratory well and continuing geological modeling and mapping.

In addition to these opportunities, the Company is continuing to seek to identify other opportunities in the energy sectors in Africa that will enhance its production and cash flow, particularly with respect to oil and gas exploration, development, production, refining and distribution. As part of our Pan-African growth strategy, we announced in January 2012, that we have entered into an agreement with the Gambian Ministry of Petroleum (on behalf of the Government of the Republic of The Gambia) on the provisional award of two offshore explorations blocks located in the West African Transform Margin. The Company will be the operator with 85% interest in the blocks A2 and A5, having a total surface area of 2,666 square kilometers in water depths of between 600-1,000 meters. Gambia National Petroleum Company will be carried as a 15% interest through first oil. The license blocks are located in the highly prospective West African Transform Margin, home to several recent major discoveries in Ghana (Jubilee, Odum) and Sierra Leone (Venus, Mercury) and a core focus area for the Company’s expansion efforts.

We are limited in our ability to grow by the availability of capital for our businesses and each project. The Company’s ability to successfully consummate any of its projects, including the projects described above, is contingent upon the making of any required deposits, obtaining the necessary governmental approvals and executing binding agreements to obtain the rights we seek within limited timeframes.

Additionally, the Company plans to continue significant efforts on developing corporate infrastructure, accounting controls, policies and procedures, and establishing foreign and domestic human and operational resources necessary to integrate, support and maximize its contract rights acquired from CEHL.

The Company has a Promissory Note (term credit facility) of $25 million from an affiliated company. At December 31, 2011 there was a principal balance of $6 million borrowed under this facility. The credit facility provides for an annual interest rate based on 30 day Libor plus two percentage points with all amounts due and payable no later than June 6, 2013. Because the costs of this workover are being recovered as Cost Oil revenues under the OML 120/121 PSC, any loan balances on this facility will be repaid within the terms of the borrowings. The portion of the workover funded from the Company’s own cash is also recoverable as Cost Oil revenues, subject to future production levels, and after future recovery will be available for future operations.

The Company has assembled a management team with experience in the fields of international business development, geology, petroleum engineering, strategy, government relations and finance. Members of the Company’s management team previously held positions in oil and gas development and screening roles with domestic and international energy companies and will seek to utilize their experience, expertise and contacts to create value for shareholders.

Among the general strategies we use are:

•

Identifying and capitalizing on opportunities that play to the expertise of our management team;

•

Leveraging our productive asset base and capabilities to develop additional value;

•

Actively managing our assets and ongoing operations while attempting to limit capital exposure;

•

Enlisting external resources and talent as necessary to operate/manage our properties during peak operations;

•

Implementing an exit strategy with respect to each project with a view to maximizing asset values and returns; and

•

Leveraging our rights of first refusal on CEHL projects to preview and negotiate additional value-added projects from its project pipeline.

With respect to specific geographical areas our strategies include:

•

Continue development of Oyo Field to extract value while maximizing economic return;

•

Execute the successful exploration and development of additional prospects in OML 120/121;

•

Utilize our existing presence through our Nigerian subsidiary to acquire additional Nigeria oil and gas assets; and

•

Continue the exploration and appraisal program for gas in the Zijinshan Block in order to maximize asset values for monetization.

Results of Operations

In 2010, the Company commenced recording significant revenues from operations and ceased reporting as a development stage company and commenced reporting as an operating company. We may experience fluctuations in operating results due to a variety of factors, including changes in daily crude oil production volumetric rates, changes in crude oil sales prices per barrel, our ability to obtain additional financing in a timely manner and on terms satisfactory to us, our ability to successfully develop our business model, the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations and infrastructure and the implementation of marketing programs, key agreements, and strategic alliances, and general economic conditions specific to our industry. The Company’s focus continues to be the development of new energy ventures, directly and through joint ventures and other partnerships in which it may participate that will provide value to its stockholders.

As a result of limited capital resources since our inception, the Company has relied on the issuance of equity securities as a means of compensating employees and non-employees for services. The Company enters into equity compensation agreements with non-employees if it is in the best interest of the Company and in accordance with applicable federal and state securities laws. In order to conserve its limited operating capital resources, the Company anticipates continuing to compensate employees and non-employees partially with equity compensation for services during the next year. This policy may have a material effect on the Company’s results of operations during the next year.

Africa Operations

As of December 31, 2011, our Africa operations, which commenced in April 2010, were comprised of an economic interest in the OML 120/121 PSC in offshore Nigeria, of which the Oyo Field portion had active crude oil production. The Oyo Field commenced crude oil production in December 2009, and the Company acquired its economic interest on April 7, 2010 from CEHL Group. Under the structure of the OML 120/121 PSC (capitalized terms as defined in the agreement), crude oil produced is allocated among Royalty Oil (for royalties payable to the Nigerian government), Cost Oil (for recovery of capital and operating costs), Tax Oil (for income taxes payable to the Nigerian government), and Profit Oil which is allocated 100% to the operating interest owners. Through December 31, 2011 virtually all expenditures for capital and operating costs of this field since the commencement of the OML 120/121 PSC had been funded entirely by NAE. There are also certain pre-OML 120/121 PSC costs incurred which may ultimately qualify for inclusion in the cost base for recovery as Cost Oil upon approval by the applicable Nigerian authorities. A portion of these costs would be allocable to the Company’s interest. To date, two oil producing wells (wells #5 and #6) have been drilled and are in production. The present development plan provides for at least two additional oil producing wells which if successful would result in increased production rates for the field and additional revenues and cash flows.

The Company reports its share of net production barrels in the period physically produced and reports sales revenue for the related barrels only when a lifting (sale) occurs. Production for the entire field is stored in a FPSO vessel until sufficient tanker-size quantity is available for lifting. The exact timing of liftings is affected by the rate of daily production. For production not yet sold, our net share is estimated from total field production for the respective period multiplied by our applicable percentage of total proceeds we received in the latest lifting settlement prior to the date of production. The Company’s share of net production (which excludes royalties and the share of the other partner) from two oil producing wells averaged 923 barrels per day for year 2011 and 396 barrels per day for the period April 7 to December 31, 2010 (268 days, the period from acquisition date). During both 2011 and 2010, the gross production rate decreased as compared to initial rates, due to increased gas intrusion in well #5 and increased water production principally in well #6. The total gross production from the Oyo Field was 1,356,000 barrels for year 2011 and 1,952,000 barrels for the period April 7 to December 31, 2010, including royalty barrels. The Company’s share of net production, which excludes royalty barrels and the share of the other partner, was 337,000 barrels for year 2011 and 106,000 barrels for the period April 7 to December 31, 2010. Average revenue per barrel on crude oil sold in the years ended December 31, 2011 and 2010 was $112.91 and $85.16, respectively.

The net operating loss for Africa operations below for year 2011 should not be viewed as predictive of results for future periods. The well # 5 workover resulted in a $29.0 million charge to expenses in 2011, while revenues in 2011 included $30.3 million of the 2010 and 2011 workover cost as Cost Oil revenues. The remaining unrecovered workover expenses are expected to be fully recovered as Cost Oil in future liftings, subject to production levels. There is a time lag between the accrual date of cost recoverable expense and its payment which then qualifies that amount for recovery as Cost Oil. The Company recognizes crude oil revenue at time of sale to the customer, which can result in Cost Oil revenue recognition in a later period than the associated recoverable expense. At present, sales do not occur every month because of cargo size requirements. For future periods, net operating income or loss for Africa also will be affected by changes in the overall level of production in the Oyo Field, fluctuations in the market prices realized, changes in our percentage share of crude oil sales, and levels of our operating expenses, including operating expenses chargeable to the OML 120/121 PSC that result in recovery as Cost Oil. The Company is currently dependent on this field as our only present source of revenues.

In December 2011, we announced that NAE has signed a definitive agreement to divest its 40% working interest in the OML’s to Allied. According to NAE, the transaction is subject to customary conditions for closing and is expected to conclude during the first quarter of 2012.

We evaluate our long-lived assets for indicators of potential impairment based on changes in circumstances. Possible indicators of impairment include current period losses combined with a history of losses, significant downward oil and gas reserve revisions, or when changes in other circumstances indicate the carrying amount of an asset may not be recoverable. We make critical assumptions and estimates in completing impairment assessments of long-lived assets. Our cash flow projections into the future include assumptions on variables such as future sales, sales prices, operating costs, economic conditions, market competition and inflation.

During the interim period ended September 30, 2010 and in connection with the preparation of its Quarterly Report on Form 10-Q for the period ended September 30, 2010, the Company commissioned an independent petroleum engineers report for an estimate of its current crude oil net underground reserves and related future net revenues (net cash flows) on its interest in the Oyo Field in Nigeria. This was the first assessment post-acquisition that reflected the Company’s current expected participation level in future operating and capital expenditures under the production sharing contract of this field. The amounts of such participation can have a significant effect on the allocation of net reserves by interest owner. The final reserve report was received by the Company on November 5, 2010 (the “Third Quarter Reserve Report”).

Upon review of the Third Quarter Reserve Report, the Company determined there was an indication of possible impairment with respect to the Oyo Field. This was due to the impact of a revised unit-of-production depletion rate on the Oyo Field oil and gas leasehold asset. This rate would result in future operating losses on this asset if based on the existing carrying amount at September 30, 2010.

The Company then determined that the September 30, 2010 aggregate undiscounted future net cash flows on the Company’s interest in the Oyo Field (recoverable amounts) were less than the net carrying amount of that asset in property, plant and equipment. Accordingly, on November 4, 2010, the Company determined that the leasehold asset was impaired. The estimate of cash flows included the use of the above Third Quarter Reserve Report combined with management’s assumptions of cash inflows and outflows directly resulting from the use of those assets in operations, including gross margin on sales and other costs to produce crude oil.

As of September 30, 2010, a non-cash impairment charge of $186.2 million was recorded in the Africa operating segment to adjust the Oyo Field carrying amount to estimated fair value based upon the present value of estimated future net cash flows.

Asia Operations

As of December 31, 2011, our active operations in China were focused on gas reserves exploration and development.

In the Zijinshan Block located in Shanxi province, the Company performed seismic work in 2009 and drilled its first exploratory well in late 2009. In 2010 the Company completed one additional exploratory well which resulted in finding of the presence of gas at several intervals. However, no flow tests were conducted due to the deteriorated hole condition, and therefore all exploratory costs were expensed. Under the production sharing contract covering this area, the Company is obligated to drill an additional five wells in future periods, estimated to cost approximately $1 million each, for a total of seven wells in the exploratory phase before commencement of formal development. In 2011 two exploratory wells were completed, with another scheduled for 2012. No revenues are expected from this area in 2012, and the Company has not yet declared any net proved reserves for this area.

In the fourth quarter of 2010, the Company decided it would explore all alternatives including the potential sale of the EORP business due to the lack of progress in establishing a significant business and the likelihood that further progress would be difficult to achieve under the existing local operating environment. In 2010 all active operations ceased, including consideration of the Chifeng agreement area in Inner Mongolia for a possible EORP project. In February 2011, the Board of Directors of Dong Fang approved dissolution of Dong Fang, the operating company. Effective June 20, 2011 a settlement agreement with the noncontrolling interest parties provided for settling of all claims and disputes, termination of existing contracts and agreements, transfers of related patent application rights to Mr. Li Xiang Dong, disposition of remaining assets and liabilities, and agreement to liquidate Dong Fang.

Consolidated Statements of Operations

Comparison of 2011 and 2010

Our revenues in 2011 were $38,910,000 as compared to $20,651,000 for 2010. The $18,259,000 increase was primarily related to Cost Oil recovery of $30,288,000 (due to cost recovery of workover costs incurred on well #5 in the Oyo Field) and higher revenue per barrel, partially offset by lower Profit Oil sales volume in the current period. During 2011 and 2010, the average gross production from the Oyo Field (for 2010 from acquisition date) was 3,714 and 7,283 barrels per day, respectively, and the Company’s share of average daily net production was 923 and 396 barrels per day, respectively. The revenue per barrel on crude oil sold during 2011 and 2010 was $112.91 and $85.16, respectively.

Lease operating expenses consists of salaries, personnel and other costs directly associated with the production of oil and technical service agreement costs. Our lease operating expenses in 2011 were $30,882,000, as compared to $33,957,000 for 2010. The $3,075,000 decrease was due to lower workover costs of $1,682,000 related to well #5 in the Oyo Field and lower technical services cost of $1,644,000, partially offset by higher other costs of $251,000.

Cost of sales consists of costs related to the sale of acquired oil inventory and costs associated with our other operating revenue in China. Our cost of sales in 2011 was none as compared to $12,070,000 for 2010. The $12,070,000 decrease was due to the non-recurring sale of acquired inventory of $11,715,000 and costs of $355,000 associated with other operating revenue in China in the prior period.

Exploratory expense consists of salaries and personnel costs related to exploration activities, drilling costs for unsuccessful wells, and costs for acquisition of seismic data. Our exploratory expenses in 2011 were $3,435,000 as compared to $1,059,000 for 2010. The $2,376,000 increase was due to an increase in drilling costs of $1,471,000, primarily related to ZJS-3 and ZJS-4 wells as previously discussed, higher exploration staff expenses of $865,000 and higher other costs of $40,000.

Depreciation, depletion and amortization expenses consist of depletion of oil reserves and depreciation of leasehold improvements, furniture and fixtures and computer equipment. Our depreciation, depletion and amortization expenses in 2011 were $13,530,000 as compared to $4,218,000 for 2010. The $9,312,000 increase was primarily due to recording depletion related to our share of Cost Oil during the current period, partially offset by lower depletion on Profit Oil due to fewer Profit Oil barrels in 2011.

Our impairment of assets for 2010 was $186,235,000 related to write down of oil and gas properties in the Oyo Field.

General and administrative expenses consists primarily of salaries and related personnel costs of executive management, finance, accounting, legal and human resources, accounting and legal services, consulting projects and insurance. Our general and administrative expenses in 2011 were $14,978,000 as compared to $13,494,000 for 2010. The $1,484,000 increase was primarily due to higher executive severance benefits of $1,366,000, higher consulting and legal expenses of $924,000, higher rent expense of $306,000 and other expenses of $519,000, partially offset by lower stock-based compensation expense of $1,631,000, primarily due to forfeiture of options and restricted stock upon officer departures in the prior period.

Income tax expense consists of petroleum profits tax in Nigeria. Our income tax expense in 2011 was $988,000 as compared to an income tax expense of $422,000 during 2010. The $566,000 increase was primarily due to a net charge of $508,000 to income tax expense representing adjustments between the original book basis income tax provision and the Company’s allocated share for the 2010 Nigeria Petroleum Profits Tax return in September 2011. Additionally, in 2011 the Company did not record any Nigeria Petroleum Profits Tax pertaining to 2011 operations due to reduced production levels in the current period.

Comparison of 2010 and 2009

Our revenues in 2010 were $20,651,000 as compared to $67,000 for 2009. The $20,584,000 increase was primarily related to crude oil revenues since the April 2010 acquisition of the Oyo Field. During 2010, the average gross production from the Oyo Field was 7,283 barrels per day, and the Company’s share of the average daily net production was 396 barrels per day. The revenue per barrel on crude oil sold during 2010 was $85.16.

Our lease operating expenses in 2010 were $33,957,000. There were no lease operating expenses in 2009. The $33,957,000 increase was primarily due to workover costs related to well #5 in the Oyo Field of $30,660,000 in 2010.

Our cost of sales in 2010 was $12,070,000 as compared to $438,000 for 2009. The $11,632,000 increase was primarily due to the non-recurring sale of acquired inventory of $11,715,000 in 2010.

Our exploratory expenses in 2010 were $1,059,000 as compared to $1,876,000 for 2009. The $817,000 decrease was due to a decrease in seismic costs of $1,367,000, partially offset by an increase in drilling costs of $466,000 and an increase in other costs of $84,000.

Our depreciation, depletion and amortization expenses in 2010 were $4,218,000 as compared to $132,000 for 2009. The $4,086,000 increase was primarily due to recording depletion related to Profit Oil in 2010.

Our impairment of assets for 2010 was $186,235,000 related to write down of oil and gas properties in the Oyo Field.

Our general and administrative expenses in 2010 were $13,494,000 as compared to $9,028,000 for 2009. The $4,466,000 increase was primarily due to higher salaries, benefits and bonus expenses of $1,643,000, higher share-based compensation expense of $1,683,000, higher insurance expense of $333,000, higher executive recruiting expense of $254,000, higher travel, meals and entertainment expense of $236,000 and higher other expenses of $317,000. The increase in stock-based compensation expense included $638,000 for the effects of accelerating the vesting dates of certain awards and reversal of expense on forfeited awards previously granted to former executive officers who retired in 2010.

Our income tax expense in 2010 was $422,000 as compared to an income tax expense of $1,000 during 2009. The $421,000 increase was primarily due to income tax expense in 2010 representing the Company’s allocated share for estimated 2010 Nigeria Petroleum Profits on Oyo Field operations.

Segment Analysis

The following table compares revenues and net loss attributable to CAMAC Energy Inc. for each of our business segments for the years ended December 31, 2011, 2010 and 2009, respectively. Net loss attributable to CAMAC Energy Inc. consists of our revenues less costs and operating expenses, other income (expense), income tax expense and noncontrolling interests.

		$0,000,000		$0,000,000		$0,000,000
	Years Ended December 31,
	2011		2010		2009
	(In thousands)
Revenues
Africa	$	38,910	$	20,448	$	—
Asia		—		203		67

Total revenues	$	38,910	$	20,651	$	67

		$0,000,000			$0,000,000			$0,000,000
	Years Ended December 31,
	2011			2010			2009
	(In thousands)
Net loss attributable to CAMAC Energy Inc.
Africa, including impairment	$	(7,870	)	$	(215,921	)	$	—
Asia		(4,239	)		(3,068	)		(4,560	)
Corporate		(12,804	)		(11,479	)		(6,929	)

Net loss attributable to CAMAC Energy Inc.	$	(24,913	)	$	(230,468	)	$	(11,489	)

Revenues for Africa in year 2011 were higher than in year 2010 due to Cost Oil recovery of $30,288,000 on workover expenses on well #5 incurred in 2010 and 2011 and higher revenue per barrel. This was partially offset by lower Profit Oil related revenues in year 2011 due to lower total volumes sold.

Net loss for Africa before impairment in year 2011 decreased versus year 2010 by $21,816,000 primarily due to Cost Oil revenues of $30,288,000 in 2011 not present in 2010, partially offset by higher depletion expense in 2011 of $9,309,000 primarily related to Cost Oil. In addition, workover expense for well #5 decreased in year 2011 versus year 2010 by $2,199,000.

Revenues and net loss for Africa before impairment in the year ended December 31, 2010 reflected workover expense and initial crude oil sales revenues since the acquisition in April 2010 of the Oyo field interest. Africa results for year 2010 include a non-cash impairment loss of $186,235,000.

Revenues in Asia (related to sales of EORP chemicals) were zero in year 2011 and immaterial in years 2010 and 2009. EORP active operations ceased at December 31, 2010.

Net losses in Asia increased in year 2011 versus year 2010 by $1,001,000, principally due to increased drilling expenses of $1,471,000, primarily related to wells ZJS-3 and ZJS-4 being recorded as dry holes.

Net losses in Asia decreased in year 2010 versus year 2009 by $1,490,000 principally due to decreased exploratory expenses of $882,000 and decreased consulting expenses of $632,000. There was a temporary decline in exploratory activity in the Zijinshan Block in the first six months of 2010 during further review and planning for the drilling of additional wells which commenced in the third quarter of 2010. The decrease in consulting expenses was principally due to nonrecurring EORP milestone payments of $500,000 in 2009 and decreased Zijinshan charges.

Net losses for Corporate and other items increased in year 2011 versus year 2010 by $1,383,000 principally due to increased salaries, benefits and bonus expense of $1,695,000 including headquarters exploration staff, (of which $1,377,000 of the total increase was due to executive severance benefits); higher consulting and legal fees of $567,000; partially offset by decreased employee stock-based compensation expense of $1,631,000 primarily due to net credits in 2011 versus net charges in 2010 for acceleration of vesting and forfeitures related to terminated and retired executives leaving company service.

Net losses for Corporate and other items increased in year 2010 versus year 2009 by $4,550,000 principally due to increased salaries, benefits and bonus expense of $1,237,000 (including termination and accrued vacation payments of $345,000 to

executives retiring in 2010); increased insurance expense of $329,000; increased executive recruiting fees of $254,000; increased travel, meals and entertainment of $234,000; and increased employee stock based employee compensation expense of $1,683,000 due to charges related to early retirement of executives and higher value of awards subject to amortization.

Long-Lived Assets

The Company’s long-lived assets (other than financial instruments) by geographic area were as follows.


	As of December 31,
	2011		2010
	(In thousands)
Property, plant and equipment, net
United States	$	243	$	358
Outside United States		196,143		204,621

Total	$	196,386	$	204,979

Liquidity and Capital Resources

As of December 31, 2011, the Company had cash and cash equivalents of $13,626,000, accounts receivable of $22,099,000 and current liabilities of $42,819,000.

The following table provides summarized statements of net cash flows for the years ended December 31, 2011, 2010 and 2009:


	Years Ended December 31,
	2011			2010			2009
	(In thousands)
Net cash (used in) provided by operating activities	$	(14,654	)	$	8,572		$	(6,872	)
Net cash used in investing activities		(6,860	)		(38,460	)		(48	)
Net cash provided by financing activities		6,177			55,204			14
Effect of exchange rate changes on cash		45			—			(8	)
Net (decrease) increase in cash and cash equivalents		(15,292	)		25,316			(6,914	)
Cash and Cash Equivalents - Beginning of Period		28,918			3,602			10,516
Cash and Cash Equivalents - End of Period	$	13,626		$	28,918		$	3,602

Net cash used in operating activities was $14,654,000 in 2011, as compared to cash provided by operating activities of $8,572,000 in 2010. The net decrease of $23,226,000 was principally due to cash payments related to the workover of well #5 in the Oyo Field in the current period and an increase in accounts receivable in the current period, partially offset by a decrease in net loss before non-cash expenses (primarily impairment, dry hole costs, depreciation, depletion, amortization and share-based compensation).

Net cash provided by operating activities was $8,572,000 in 2010 compared to cash used in operating activities of $6,872,000 in 2009. The increase in 2010 versus 2009 was due to revenues and collections of acquired receivables related to the Oyo Field in Nigeria, partially offset by increases in corporate expenses.

Net cash used in investing activities was $6,860,000 during 2011 versus $38,460,000 in 2010. Cash used in 2011 was principally due to capital expenditures of $7,159,000. Cash used in 2010 was principally due to $38,840,000 for the cash portion of the purchase price of the Oyo Contract Rights. We met our cash requirements for investing activities in 2010 through net proceeds of $54,542,000 from registered direct offerings of equity securities and proceeds from operating cash flows from sales of crude oil production and collection of acquired receivables in Nigeria.

Net cash used in investing activities was $38,460,000 during 2010 versus $48,000 in 2009. Cash used in 2010 was principally due to $38,840,000 for the cash portion of the purchase price of the Oyo Contract Rights. We met our cash requirements for investing activities in 2010 through net proceeds of $54,542,000 from registered direct offerings of equity securities and proceeds from operating cash flows from sales of crude oil production and collection of acquired receivables in Nigeria.

Net cash provided by financing activities was $6,177,000 in 2011 and $55,204,000 in 2010. The decrease in 2011 was principally due to three registered direct offerings of equity securities in 2010 totaling $54,542,000, net of offering costs, offset by net long-term note proceeds of $6,000,000 in 2011. At December 31, 2011, the Company had the ability to borrow $19,000,000 under the $25,000,000 Promissory Note.

Net cash provided by financing activities was $55,204,000 in 2010 and $14,000 in 2009. The increase in 2010 was principally due to three registered direct offerings of equity securities in 2010 totaling $54,542,000, net of offering costs.

Our future working capital requirements and long-term capital requirements will depend upon numerous factors, including progress of our exploration and development programs on existing assets, acquisitions of new exploration and development opportunities, market developments, and the status of our competitors.

During December 2010 and year 2011, the Company incurred $59.6 million in expenses on the workover to reduce gas production arising from well #5 in the Oyo Field, with the objective of improving the crude oil production rate per day. By agreements involving Allied, the Company will pay for the workover. As of December 31, 2011, $39.0 million of this amount had been paid.

In 2011 the Company utilized a Promissory Note (term credit facility) of $25 million from an affiliated company to meet a substantial portion of its cash obligations for workover expenses on Oyo Field well #5. The credit facility provides for an annual interest rate based on 30 day Libor plus two percentage points with all amounts due and payable June 6, 2013. At December 31, 2011 there was an outstanding balance of $6 million excluding accrued interest. Because the costs of this work are being recovered as Cost Oil revenues under the OML 120/121 PSC starting in 2011, any loan balances on this facility will be repaid within the terms of the borrowings. The portion of the workover funded from the Company’s own cash is also recoverable as Cost Oil revenues, subject to future production levels, and after future recovery will be available for future operations.

Based upon current cash flow projections, management believes that the Company will have sufficient capital resources to meet projected cash flow requirements through 2012 assuming no additional participation in Oyo Field operating and development costs through such date.

Our ability to execute our business plan will also depend on whether we are able to raise additional funds through equity, debt financing or strategic alliances. Such additional funds may not become available on acceptable terms, if at all, and any additional funding obtained may not be sufficient to meet our needs in the long-term. Through December 31, 2011 significantly all of our financing had been raised through private placements and registered direct offerings of equity instruments. The Company at December 31, 2011 had an outstanding loan balance of $6 million on the above term credit facility with Allied Energy Plc., a related party, expiring on June 6, 2013. At December 31, 2011 the Company had no other short-term or long-term debt.

Contractual Obligations

The following table summarizes the Company’s significant estimated future contractual obligations at December 31, 2011.


	Payments Due By Period
	Total		Less than 1 year		1 -3 years		3 -5 years		More than 5 years
	Total		Less than 1 year		1 -3 years		3 -5 years		More than 5 years
	(In thousands)
Workover for well # 5 in Oyo Field	$	20,649	$	20,649	$	—	$	—	$	—
Debt obligations		6,000		—		6,000		—		—
Operating lease obligations		420		310		110		—		—

Total	$	27,069	$	20,959	$	6,110	$	—	$	—

Critical Accounting Policies and Estimates

The discussion and analysis of our plan and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of CAMAC Energy Inc. and its wholly owned and majority owned direct and indirect subsidiaries in the respective periods. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates based on assumptions. Estimates affect the reported amounts of assets and liabilities, disclosure of contingent liabilities, and the reported amounts of revenues and expenses during the reporting periods. Accordingly, our accounting estimates require the exercise of judgment. While management believes that the estimates and assumptions used in preparation of consolidated financial statements are appropriate, actual results could differ from those estimates. Estimates that may have a significant effect include oil and natural gas reserve quantities, and depletion and amortization relating to oil and natural gas properties, and income taxes. The accounting estimates used in the preparation of the consolidated financial statements may change as new events occur, more experience is acquired, additional information is obtained and our operating environment changes.

Property, Plant and Equipment

The Company follows the “successful efforts” method of accounting of its costs of acquisition, exploration and development of oil and gas properties. Under this method, oil and gas lease acquisition costs and intangible drilling costs associated with exploration efforts that result in the discovery of proved reserves and costs associated with development drilling, whether or not successful, are capitalized when incurred. Drilling costs of exploratory wells are capitalized pending determination that proved reserves have been found. If the determination is dependent upon the results of planned additional wells and require additional capital expenditures to develop the reserves, the drilling costs will be capitalized as long as sufficient reserves have been found to justify completion of the exploratory well as a producing well, and additional wells are underway or firmly planned to complete the evaluation of the well. Exploratory wells not meeting the criteria for continued capitalization are expensed when such a determination is made. Other exploration costs are expensed as incurred.

Depreciation, depletion and amortization for productive oil and gas properties are recorded on a unit-of-production basis. For other depreciable property, depreciation is recorded on a straight line basis over the estimated useful life of the assets which ranges between three to five years or the lease term. Repairs and maintenance costs are charged to expense as incurred.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets in property, plant and equipment for impairment in accordance with ASC Topic 360, ( Property, Plant and Equipment) . Review for impairment of long-lived assets occurs whenever changes in circumstances indicate that the carrying amount of assets may not be fully recoverable. An impairment loss is recognized for assets to be held and used when the estimated undiscounted future cash flows expected to result from the asset including ultimate disposition are less than its carrying amount. In the case of oil and gas properties, the Company estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. Cash flows are determined on the basis of reasonable and documented assumptions that represent the best estimate of the future economic conditions during the remaining useful life of the asset. Prices used to quantify the expected future cash flows are estimated based on forward prices prevailing in the marketplace and management’s long-term planning assumptions. Impairment is measured by the excess of carrying amount over the fair value of the assets.

Asset Retirement Obligations

The Company accounts for asset retirement obligations in accordance with ASC Topic 410 ( Asset Retirement and Environmental Obligations), which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. ASC 410 requires the Company to record a liability for the present value using a credit-adjusted risk free interest rate of the estimated site restoration costs with a corresponding increase to the carrying amount of the related long-lived assets. As a result of the lack of capital deployed on a historical basis, to date the Company has not recorded any future asset retirement obligations.

Revenues

Revenues are recognized when the earnings process is complete, an exchange transaction has taken place and exclude royalties. An exchange transaction may be a physical sale, the providing of services, or an exchange of rights and privileges. The recognition criteria are satisfied when there exists a signed contract with defined pricing, delivery and acceptance (as defined in the contract) of the product or service have occurred, there is no significant uncertainty of collectability, and the amount is not subject to refund. Oil revenue is recognized using the sales method for our share of Cost Oil, Profit Oil and Tax Oil for each crude oil lifting in Nigeria.

Income Taxes

The Company provides for income taxes using the asset and liability method of accounting for income taxes in accordance with ASC Topic 740 ( Income Taxes ). Under the asset and liability method, deferred tax assets and liabilities are recognized for temporary differences between the tax bases of assets and liabilities and their carrying values for financial reporting purposes and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be fully realized.

The Company evaluates any tax deduction and tax refund positions in a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained. If that test is met, the second step is to determine the amount of benefit to recognize in the consolidated financial statements.

Foreign Currency Translation

The functional currency of the U.S. parent company and Nigeria subsidiary is the U.S. dollar. The functional currency of China incorporated subsidiaries is the local currency (RMB). For Hong Kong incorporated subsidiaries, the functional currency is the U.S. dollar or RMB, depending on the primary activity of the subsidiary. Balance sheet translation effects are recorded directly to other comprehensive income (loss) for local functional currency companies.

In July 2005, the Chinese government began to permit the RMB to float against the U.S. dollar. All of our costs to operate our Chinese office and operations are paid in RMB. Our exploration costs in China may be incurred under contracts denominated in RMB or U.S. dollars. The Company may be subject to foreign currency exchange limitations in China.

Stock-Based Compensation

The Company recognizes all stock-based payments to employees, including grants of employee stock options, in the consolidated financial statements based on their grant-date fair values in accordance with ASC Topic 718-10 ( Stock Compensation) . The Company values its stock options awarded using the Black-Scholes option pricing model, and the restricted stock is valued at the grant date closing market price. Compensation expense for stock options and restricted stock is recorded over the vesting period on a straight line basis. Stock-based compensation paid to non-employees in vested stock is valued at the fair value at the applicable measurement date and charged to expense as services are rendered.

Net Earnings (Loss) Per Common Share

exercise of the Company’s stock options, unvested restricted stock, and warrants (calculated using the treasury stock method). Potential dilutive common shares that have an anti-dilutive effect (e.g., those that increase earnings per share or decrease net loss per share) are excluded from diluted earnings (loss) per share.

Allocation of Purchase Price in Acquisitions

As part of our business strategy, we actively pursue the acquisition of oil and gas properties. The purchase price in an acquisition is allocated to the assets acquired and liabilities assumed based on their relative fair values as of the acquisition date, which may occur many months after the announcement date. Therefore, while the consideration to be paid may be fixed, the fair value of the assets acquired and liabilities assumed is subject to change during the period between the announcement date and the acquisition date. Our most significant estimates in our allocation typically relate to the value assigned to future recoverable oil and gas reserves and unproved properties. As the allocation of the purchase price is subject to significant estimates and subjective judgments, the accuracy of this assessment is inherently uncertain.

Recently Issued Accounting Standards Not Yet Adopted

In December 2011, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-11 regarding disclosure requirements for assets and liabilities that have been offset in the balance sheet. The scope includes financial instruments and derivative instruments that are either (i) presently offset as permitted under existing accounting principles for offsetting of financial instruments and derivatives in certain cases or (ii) subject to an enforceable master netting agreement or similar agreement whether or not they have been offset. The new disclosures related to offsetting include the gross amounts, amounts offset and net amounts as recorded. For amounts subject to enforceable master netting agreements, disclosure is required for the amounts of financial instruments and other derivative instruments not offset, amounts related to financial collateral, and the net amounts. The ASU is effective for annual and interim periods beginning on or after January 1, 2013 and requires retrospective application for comparative prior periods presented. At December 31, 2011 the Company did not have any transactions of the types subject to this ASU.

In May 2011, the FASB issued ASU 2011-04, which generally aligns the principles for fair value measurements (“ASC 820”) and the related disclosures under U.S. GAAP and International Financial Reporting Standards (“IFRS”). The amendments to ASC 820 generally relate to changes to a principle or requirement for measuring fair value, clarifications of the FASB’s intent regarding the application of existing requirements and additional disclosure requirements. This ASU is effective in interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. The adoption of ASU 2011-04 is not expected to have a material effect on the Company’s consolidated financial statements.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements other than the operating leases disclosed above.

Inflation

It is the opinion of the Company that inflation has not had a material effect on its operations.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company may be exposed to certain market risks related to changes in foreign currency exchange, interest rates, and commodity prices.

Foreign Currency Exchange Risk

In addition to the U.S. dollar, the Company conducts its China business in RMB and pays some of its Nigeria expenses in Naira. Therefore we are subject to foreign currency exchange risk on cash flows related to expenses and investing transactions.

To date the Company has not engaged in hedging activities to hedge our foreign currency exposure in China or Nigeria. In the future, the Company may enter into hedging instruments to manage its foreign currency exchange risk or continue to be subject to exchange rate risk.

Interest Rate Risk

See Note 16 to the consolidated financial statements in Part IV, Item 15.—Exhibits, Financial Statements and Schedules for information regarding our financial instruments. At December 31, 2011, the Company had no investments in fixed rate financial instruments subject to interest rate risk affecting fair value.

Commodity Price Risk

As an independent oil producer, our revenue, other income and profitability, reserve values, access to capital and future rate of growth are substantially dependent upon the prevailing prices of crude oil. Prevailing prices for such commodities are subject to wide fluctuations in response to relatively minor changes in supply and demand and a variety of additional factors beyond our control. Historically, prices received for oil production have been volatile and unpredictable, and such volatility is expected to continue.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The Company’s Financial Statements and the accompanying Notes that are filed as part of this Annual Report are listed under Part IV, Item 15. Exhibits, Financial Statements and Schedules, and are set forth immediately following the signature pages of this Form 10-K.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer (“CEO”) and Principal Financial and Accounting Officer (“PFO”), as appropriate, to allow timely decisions regarding required disclosure.

Management of the Company, with the participation of its CEO and PFO, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Form 10-K, the Company’s CEO and PFO have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective.

Management’s Report On Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and is effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”) and includes those policies and procedures that:

•

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets,

•

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company, and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time. Our system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011, based on the criteria described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this assessment, management, including the Company’s CEO and PFO, concluded that our internal control over financial reporting was effective as of December 31, 2011.

RBSM LLP, the independent registered public accounting firm that has audited the financial statements included in this Report, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2011, which is given below.

Changes in Internal Control Over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

RBSM LLP

CERTIFIED PUBLIC ACCOUNTANTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

CAMAC Energy Inc.

Houston, TX

We have audited CAMAC Energy, Inc. and its subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (United States). A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, CAMAC Energy Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CAMAC Energy Inc. and its subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2011, and our report dated March 15, 2012, expressed an unqualified opinion.

/s/ RBSM LLP

New York, New York

March 15, 2012

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE

The information required by this item is incorporated herein by reference to the 2012 Proxy Statement or Form 10-K/A which will be filed with the SEC not later than 120 days subsequent to December 31, 2011.

ITEM 11.

EXECUTIVE COMPENSATION

Information called for by Item 11 of Form 10-K will be set forth in the 2012 Proxy Statement or Form 10-K/A, which is incorporated herein by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information called for by Item 12 of Form 10-K will be set forth in the 2012 Proxy Statement or Form 10-K/A , which is incorporated herein by reference.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information called for by Item 13 of Form 10-K will be set forth in the 2012 Proxy Statement or Form 10-K/A ,which is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information called for by Item 14 of Form 10-K will be set forth in the 2012 Proxy Statement or Form 10-K/A, which is incorporated herein by reference.

PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

(a) Documents filed as part of this Annual Report:

The following is an index of the financial statements, schedules and exhibits included in this Form 10-K or incorporated herein by reference.


(1)	Consolidated Financial Statements
	Report of Independent Registered Public Accounting Firm	59
	Consolidated Balance Sheet at December 31, 2011 and 2010	60
	Consolidated Statement of Operations for the years ended December 31, 2011, 2010 and 2009	61
	Consolidated Statement of Comprehensive Income (Loss) for the years ended December 31, 2011, 2010 and 2009	62
	Consolidated Statement of Equity for the years ended December 31, 2011, 2010 and 2009	63
	Consolidated Statement of Cash Flows for the years ended December 31, 2011, 2010 and 2009	64
	Notes to Consolidated Financial Statements	65
(2)	Consolidated Financial Statement Schedules
	Supplemental Data on Oil and Gas Exploration and Producing Activities (Unaudited)
	Schedules not included have been omitted because they are not applicable or the required information is shown in the consolidated financial statement or notes.
(3)	Exhibits

The following exhibits are filed with the report:


Exhibit Number		Description

2.1		Amended and Restated Agreement and Plan of Merger and Reorganization, dated February 12, 2007, as amended on April 20, 2007, by and among the Company, IMPCO and IMPCO Merger Sub (incorporated by reference to Exhibit 10.16 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

2.2		Agreement and Plan of Merger, dated July 1, 2008, by and among Pacific Asia Petroleum, Inc., Navitas Corporation and Navitas LLC (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (No. 000-52770) filed on July 8, 2008).

2.3		Amended and Restated Agreement and Plan of Merger and Reorganization, dated February 12, 2007, as amended on April 20, 2007, by and among the Company, ADS and ADS Merger Sub (incorporated by reference to Exhibit 10.15 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

3.1		Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

3.2		Bylaws of the Company (incorporated by reference to Exhibit 3.2 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation, filed April 7, 2010 (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on April 13, 2010).

3.4		Amended and Restated Bylaws of the Company as of April 11, 2011 (incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q filed on May 3, 2011).

4.1		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

4.2		Form of Common Stock Warrant (incorporated by reference to Exhibit 4.2 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

4.3		Company 2007 Stock Plan (incorporated by reference to Exhibit 10.1 of our Form 10-SB (No. 000-52770) filed on August 15, 2007). *

4.4		Company 2009 Equity Incentive Plan (incorporated by reference to Registration Statement on Form S-8 (No. 333-175294) filed on July 1, 2011).*

4.5		Form of Series A Warrant (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed on February 12, 2010).

4.6		Form of Series B Warrant (incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K filed on February 12, 2010).

4.7		Form of Series C and Series D Warrant (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed on March 3, 2010).

4.8		Registration Rights Agreement, by and between the Company and CAMAC Energy Holdings Limited, dated April 7, 2010 (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed on April 13, 2010).

4.9		Form of Warrant (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed on December 23, 2010).

4.10		Registration Rights Agreement, dated as of February 15, 2011, by and among CAMAC Energy Inc., CAMAC Energy Holdings Limited, Allied Energy Plc, and CAMAC International (Nigeria) Limited (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed on February 16, 2011).

10.1		Form of Securities Purchase Agreement, dated February 10, 2010 (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed on February 12, 2010).

10.2		Company 2007 Stock Plan form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 of our Form 10-SB (No. 000-52770) filed on August 15, 2007). *

10.3		Company 2007 Stock Plan form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 of our Form 10-SB (No. 000-52770) filed on August 15, 2007). *

10.4		Company Form of Indemnification Agreement (incorporated by reference to Exhibit 10.4 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

10.5		Company 2009 Equity Incentive Plan form of Stock Option Agreement (incorporated by reference to Exhibit 10.5 of our Annual Report on Form 10-K (No. 001-34525) filed on March 2, 2010).*



10.6		Company 2009 Equity Incentive Plan form of Restricted Shares Grant Agreement (incorporated by reference to Exhibit 10.6 of our Annual Report on Form 10-K (No. 001-34525) filed on March 2, 2010). *

10.7		Subscription Agreement, dated March 2, 2009, by and between the Company and Richard Grigg (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (No. 000-52770) filed March 4, 2009).

10.8		Consulting Agreement dated February 28, 2007, by and between Christopher B. Sherwood and IMPCO (incorporated by reference to Exhibit 10.9 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

10.9		Consulting Agreement dated February 28, 2007, by and between Dr. Y.M. Shum and IMPCO (incorporated by reference to Exhibit 10.10 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

10.10		Executive Employment Agreement dated September 29, 2006, by and between Frank C. Ingriselli and the Company (incorporated by reference to Exhibit 10.11 of our Form 10-SB (No. 000-52770) filed on August 15, 2007). *

10.11		Executive Employment Agreement dated September 29, 2006, by and between Stephen F. Groth and the Company (incorporated by reference to Exhibit 10.12 of our Form 10-SB (No. 000-52770) filed on August 15, 2007). *

10.12		Amended and Restated Employment Agreement, dated January 27, 2009, entered into by and between the Company and Richard Grigg (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (No. 000-52770) filed on February 3, 2009). *

10.13		Contract of Engagement, dated January 27, 2009, entered into by and between the Company and KKSH Holdings Ltd. (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K (No. 000-52770) filed on February 3, 2009). *

10.14		Employment Agreement, dated April 22, 2009, entered into by and between the Company and Jamie Tseng (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (No. 000-52770) filed on April 28, 2009). *

10.15		Lease, dated December 1, 2006, by and between Station Plaza Associates, and IMPCO (incorporated by reference to Exhibit 10.13 of our Form 10-SB (No. 000-52770) filed on August 15, 2007).

10.16		First Amendment to Lease, effective September 10, 2008, entered into by and between the Company and Station Plaza Associates (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (No. 000-52770) filed on September 18, 2008).

10.17		Tenancy Agreement, dated June 12, 2009, by and between Bluewater Property Management Co., Ltd. and the Company (incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q (No. 000-52770) filed on August 6, 2009).**

10.18		Contract for Cooperation and Joint Development, dated August 23, 2006, by and between Chifeng Zhongtong Oil and Natural Gas Co., Ltd. and Inner Mongolia Production Company (HK) Ltd. (incorporated by reference to Exhibit 10.18 of our Form 10-SB (No. 000-52770) filed on August 15, 2007). ***

10.19		Agreement on Joint Cooperation dated May 31, 2007, by and between Sino Geophysical Co., Ltd. and the Company (incorporated by reference to Exhibit 10.20 of our Form 10-SB (No. 000-52770) filed on August 15, 2007). ***

10.20		Production Sharing Contract for Exploitation of Coalbed Methane Resources in Zijinshan Area, Shanxi Province, The People’s Republic of China, dated October 26, 2007, by and between Pacific Asia Petroleum, Ltd. and China United Coalbed Methane Corp. Ltd. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (No. 000-52770) filed on October 31, 2007). ***

10.21		The Articles of Association of the Chinese-foreign Equity Joint Venture Inner Mongolia Sunrise Petroleum Co Ltd. (incorporated by reference to Exhibit 10.21 of our Form 10-SB/A (No. 000-52770) filed on October 12, 2007). **



10.22		The Contract of the Chinese-Foreign Equity Joint Venture Inner Mongolia Sunrise Petroleum Co. Ltd., by and between Beijing Jin Run Hang Da Technology Company Ltd. and Inner Mongolia Production Company (HK) Ltd., dated October 25, 2006 (incorporated by reference to Exhibit 10.22 of our Form 10-SB/A (No. 000-52770) filed on October 12, 2007). **

10.23		Amendment to the Contract of the Chinese-Foreign Equity Joint Venture Inner Mongolia Sunrise Petroleum Co. Ltd., and Promissory Note, by and between Beijing Jin Run Hang Da Technology Company Ltd. and Inner Mongolia Production Company (HK) Ltd., dated December 31, 2009 (incorporated by reference to Exhibit 10.23 of our Annual Report on Form 10-K (No. 001-34525) filed on March 2, 2010).

10.24		Purchase and Sale Agreement, dated November 18, 2009, by and among the Company, CAMAC Energy Holdings Limited, CAMAC International (Nigeria) Limited, and Allied Energy Plc. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (No. 001-34525) filed on November 23, 2009).

10.25		Form of Securities Purchase Agreement, dated March 2, 2010 (incorporated by reference to Exhibit 10.1 of our Current Report on Form 10-K filed March 3, 2010).

10.26		Agreement Novating Production Sharing Contract, by and among Allied Energy Plc, CAMAC International (Nigeria) Limited, Nigerian AGIP Exploration Limited, and CAMAC Petroleum Limited, dated April 7, 2010 (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated April 13, 2010).

10.27		The Oyo Field Agreement, by and among Allied Energy Plc, CAMAC Energy Holdings Limited and CAMAC Petroleum Limited, dated April 7, 2010 (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed on April 13, 2010).

10.28		The Right of First Refusal Agreement, by and among the Company, CAMAC Energy Holdings Limited, CAMAC International (Nigeria) Limited, and Allied Energy Plc, dated April 7, 2010 (incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed on April 13, 2010).

10.29		Employment Agreement, dated September 21, 2010, by and between Byron A. Dunn and the Company (incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010).*

10.30		Employment Offer Letter, dated September 1, 2010, by and between Abiola L. Lawal and the Company (incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010).*

10.31		Heads of Agreement, dated October 11,2010, by and among CAMAC Energy Inc., CAMAC Energy Holdings Limited, Allied Energy Resources Nigeria Limited, and CAMAC International (Nigeria) Limited (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on October 12, 2010).

10.32		Purchase and Continuation Agreement, dated December 10, 2010, by and among CAMAC Energy Inc., CAMAC Petroleum Limited, CAMAC Energy Holdings Limited, Allied Energy Plc, and CAMAC International (Nigeria) Limited (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on December 13, 2010).

10.33		Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of our Current Report filed on December 23, 2010).

10.34		Limited Waiver Agreement Related to Purchase and Continuation Agreement, dated as of February 15, 2011, by and among CAMAC Energy Inc., CAMAC Petroleum Inc., CAMAC Energy Holdings Limited, Allied Energy Plc, and CAMAC International (Nigeria) Limited (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on February 16, 2011).

10.35		Second Agreement Novating Production Sharing Contract, dated as of February 15, 2011, by and among Allied Energy Plc, CAMAC International (Nigeria) Limited, Nigerian AGIP Exploration Limited, and CAMAC Petroleum Limited (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed on February 16, 2011).



10.36		Amended and Restated Oyo Field Agreement Hereby Renamed OML 120/121 Management Agreement, dated as of February 15, 2011, by and among CAMAC Petroleum Limited, CAMAC Energy Holdings Limited, and Allied Energy Plc (incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K filed on February 16, 2011).

10.37		Amended and Restated Employment Agreement effective March 8, 2011, by and between Abiola L. Lawal and the Company (incorporated by reference to Exhibit 10.37 of our Annual Report on Form 10-K filed on March 11, 2011).*

10.38		Separation Agreement and General Release of Claims effective April 11, 2011 by and between Mr. Byron Dunn and the Company (incorporated by reference to Exhibit 10.5 of our Quarterly Report on Form 10-Q filed on May 3, 2011).*

10.39		Promissory Note Agreement dated June 6, 2011 by and among CAMAC Petroleum Limited and Allied Energy Plc. (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed on June 9, 2011).

10.40		Guaranty Agreement dated June 6, 2011 by and among CAMAC Energy Inc. and Allied Energy Plc. (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed on June 9, 2011).

10.41		Executive Employment Agreement dated June 6, 2011 by and between Edward G. Caminos and the Company (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on June 6, 2011).*

10.42		Executive Employment Agreement dated June 6, 2011 by and between Alan W. Halsey and the Company (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed on June 6, 2011).*

10.43		Executive Employment Agreement dated September 1, 2011 by and between Nicholas J. Evanoff and the Company (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on September 7, 2011).*

10.44		Executive Employment Agreement dated September 1, 2011 by and between Babatunde Omidele and the Company (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed on September 7, 2011).*

10.45		Separation Agreement and General Release of Claims effective February 14, 2012 by and between Mr. Alan W. Halsey and the Company*

10.46		Separation Agreement and General Release of Claims effective February 23, 2012 by and between Mr. Edward G. Caminos and the Company*

10.47		Executive Consulting Agreement effective March 1, 2012 by and between Earl W. McNiel and the Company*

21.1		Subsidiaries of the Company

23.1		Consent of RBSM LLP, Independent Registered Public Accounting Firm, filed herewith.

23.2		Consent of Netherland, Sewell & Associates, Inc.

31.1		Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial and Accounting Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		Report of Netherland, Sewell & Associates, Inc.

101.INS		XBRL Instance Document.

101.SCH		XBRL Schema Document.

101.CAL		XBRL Calculation Linkbase Document.

101.LAB		XBRL Label Linkbase Document.

101. PRE		XBRL Presentation Linkbase Document.

*	Indicates a management contract or compensatory plan or arrangement.

**	English translation of executed Chinese original document included. Document provides that in the event of any inconsistencies between the Chinese and English versions of these documents, the Chinese versions shall govern.

***	Document provides that inconsistencies between the Chinese and English versions to be resolved in accordance with Chinese law.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 15, 2012


CAMAC Energy Inc.

By:		/ S / D R . K ASE L UKMAN L AWAL
		Dr. Kase Lukman Lawal
		Chief Executive Officer (Principal Executive Officer)

By:		/ S / J EFFREY S. C OURTRIGHT
		Jeffrey S. Courtright
		Vice President, Controller and Treasurer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/ S / D R . K ASE L UKMAN L AWAL	Director and Chief Executive Officer	March 15, 2012
Dr. Kase Lukman Lawal	(Principal Executive Officer)

/ S / J EFFREY S. C OURTRIGHT	Vice President, Controller and Treasurer	March 15, 2012
Jeffrey S. Courtright	(Principal Financial and Accounting Officer)

/ S / W ILLIAM J. C AMPBELL	Director	March 15, 2012
William J. Campbell

/ S / J K ENT F RIEDMAN	Director	March 15, 2012
J. Kent Friedman

/ S / J OHN H OFMEISTER	Director	March 15, 2012
John Hofmeister

/ S / I RA W AYNE M C C ONNELL	Director	March 15, 2012
Ira Wayne McConnell

/ S / H AZEL O’L EARY	Director	March 15, 2012
Hazel O’Leary

RBSM LLP

CERTIFIED PUBLIC ACCOUNTANTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

CAMAC Energy Inc.

Houston, TX

We have audited the accompanying consolidated balance sheets of CAMAC Energy Inc. and its subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based upon our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CAMAC Energy Inc. and its subsidiaries as of December 31, 2011 and 2010 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ RBSM LLP

New York, New York

March 15, 2012

CAMAC ENERGY INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share amounts)


	December 31,			December 31,
	2011			2010
ASSETS
Current Assets
Cash and cash equivalents	$	13,626		$	28,918
Short-term investments		—			256
Accounts receivable		22,099			10,411
Inventories		—			72
Other current assets		1,714			2,847

Total current assets		37,439			42,504

Property, plant and equipment, net
Oil and gas properties (successful efforts method of accounting)		196,129			204,523
Property, plant and equipment, other		257			456

Total property, plant and equipment, net		196,386			204,979
Other assets		205			360


Total Assets	$	234,030		$	247,843


LIABILITIES AND EQUITY
Liabilities
Accounts payable	$	35,897		$	63
Accrued expenses		6,922			40,791

Total current liabilities		42,819			40,854

Long-term note payable - related party		6,000			—


Total liabilities		48,819			40,854

Commitments and Contingencies

Equity
Stockholders’ equity - CAMAC Energy Inc.
Preferred stock, Authorized - 50,000,000 shares at $0.001 par value issued and outstanding - none as of December 31, 2011 and 2010		—			—
Common stock, Authorized - 300,000,000 shares at $0.001 par value issued and outstanding -155,385,563 shares as of December 31, 2011 and 153,611,792 shares as of December 31, 2010, respectively		155			154
Paid-in capital		461,157			458,523
Accumulated deficit		(275,838	)		(250,925	)
Accumulated other comprehensive loss		(265	)		(120	)

Total stockholders’equity - CAMAC Energy Inc.		185,209			207,632
Noncontrolling interests		2			(643	)

Total equity		185,211			206,989


Total Liabilities and Equity	$	234,030		$	247,843

The accompanying notes are an integral part of these consolidated financial statements

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


	Years Ended December 31,
	2011			2010			2009
Revenues
Crude oil, net of royalties	$	38,910		$	20,448		$	—
Other operating revenue		—			203			67

Total revenues		38,910			20,651			67

Costs and operating expenses
Lease operating expenses and production costs		30,882			33,957			—
Cost of sales		—			12,070			438
Exploratory expenses		3,435			1,059			1,876
Depreciation, depletion and amortization		13,530			4,218			132
Impairment of assets		—			186,235			219
General and administrative expenses		14,978			13,494			9,028

Total costs and operating expenses		62,825			251,033			11,693

Operating loss		(23,915	)		(230,382	)		(11,626	)

Other income (expense)
Interest income		20			10			37
Interest expense		(120	)		—			(1	)
Other expense		—			(4	)		—

Total other (expense) income		(100	)		6			36
Loss before income taxes		(24,015	)		(230,376	)		(11,590	)
Provision for income tax expense		(988	)		(422	)		(1	)

Net loss		(25,003	)		(230,798	)		(11,591	)
Less: Net loss attributable to noncontrolling interests		90			330			102

Net Loss attributable to CAMAC Energy Inc.	$	(24,913	)	$	(230,468	)	$	(11,489	)


Net loss per common share attributable to CAMAC Energy Inc.
Basic	$	(0.16	)	$	(1.95	)	$	(0.28	)
Diluted	$	(0.16	)	$	(1.95	)	$	(0.28	)

Weighted average common shares outstanding
Basic		154,556			117,926			41,647
Diluted		154,556			117,926			41,647

The accompanying notes are an integral part of these consolidated financial statements

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)


	Years Ended December 31,
	2011			2010			2009

Net loss	$	(25,003	)	$	(230,798	)	$	(11,591	)
Other comprehensive income (loss) - net of tax:
Foreign currency adjustments		(29	)		(7	)		(64	)
Unrealized loss on investments		(114	)		(206	)		(75	)

Total other comprehensive loss		(143	)		(213	)		(139	)

Comprehensive income (loss)		(25,146	)		(231,011	)		(11,730	)
Less:
Comprehensive loss attributable to noncontrolling interests		88			332			102

Comprehensive loss attributable to CAMAC Energy Inc.	$	(25,058	)	$	(230,679	)	$	(11,628	)

The accompanying notes are an integral part of these consolidated financial statements

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)


	No. of Shares		2011 Amount			No. of Shares		2010 Amount			No. of Shares		2009 Amount
Preferred stock
As of January 1 and December 31		—	$	—			—	$	—			—	$	—

Common stock
As of January 1		153,612		154			43,038		43			40,062		40
Cash offerings net of transaction costs		—		—			18,466		18			—		—
Stock issued for assets and acquisitions		—		—			89,467		89			—		—
Stock issued for equity investments		—		—			—		—			970		1
Exercise of warrants and options		323		—			1,514		2			239		—
Vesting of restricted stock		611		—			814		1			738		1
Stock issued for services		840		1			313		1			1,029		1

As of December 31		155,386		155			153,612		154			43,038		43

Paid-in capital
As of January 1				458,523					26,035					21,742
Cash offerings net of transaction costs				—					54,524					—
Stock issued for assets and acquisitions				—					372,094					—
Stock issued for equity investments				—					—					552
Exercise of warrants and options				177					660					14
Vesting of restricted stock				—					(1	)				(1	)
Stock issued for services				706					1,096					1,052
Stock-based employee compensation				2,484					4,115					2,432
Adjustments to noncontrolling interest equity				(733	)				—					244

As of December 31				461,157					458,523					26,035

Accumulated deficit
As of January 1				(250,925	)				(20,457	)				(8,968	)
Net loss - current year				(24,913	)				(230,468	)				(11,489	)

As of December 31				(275,838	)				(250,925	)				(20,457	)

Other comprehensive income (loss)
Currency translation adjustment
As of January 1				161					166					230
Change during year				(31	)				(5	)				(64	)

As of December 31				130					161					166
Unrealized gain (loss) on investments
As of January 1				(281	)				(75	)				—
Change during year				(114	)				(206	)				(75	)

As of December 31				(395	)				(281	)				(75	)

Total as of December 31				(265	)				(120	)				91

Total Stockholders’ Equity - CAMAC Energy Inc. as of December 31				185,209					207,632					5,712

Noncontrolling interests
As of January 1				(643	)				(313	)				386
Change during year				645					(330	)				(699	)

As of December 31				2					(643	)				(313	)

Total Equity as of December 31			$	185,211				$	206,989				$	5,399

The accompanying notes are an integral part of these consolidated financial statements

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Years Ended December 31,
	2011			2010			2009
Cash flows from operating activities
Net loss	$	(25,003	)	$	(230,798	)	$	(11,591	)
Adjustments to reconcile net loss to cash (used in) provided by operating activities
Currency transaction gain		(31	)		(8	)		(56	)
Stock-based compensation		2,484			4,560			3,457
Dry hole costs		2,176			705			239
Impairment of assets		—			186,235			219
Depreciation, depletion and amortization		13,530			4,218			132
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(11,688	)		3,508			(69	)
(Increase) decrease in other current assets		1,841			(1,202	)		28
(Increase) decrease in inventories		72			5,530			(73	)
Increase (decrease) in accounts payable		35,834			(109	)		147
Increase (decrease) in accrued expenses		(33,869	)		35,933			695

Net cash (used in) provided by operating activities		(14,654	)		8,572			(6,872	)


Cash flows from investing activities
Net sales (purchases) of available for sale securities		256			1,504			(475	)
Decrease (increase) in other assets		43			(56	)		899
Capital expenditures		(7,159	)		(39,908	)		(472	)

Net cash used in investing activities		(6,860	)		(38,460	)		(48	)


Cash flows from financing activities
Proceeds from long-term note payable - related party		31,000			—			—
Repayment of long-term note payable - related party		(25,000	)		—			—
Proceeds from exercise of warrants and stock options		177			662			14
Issuance of common stock, net of issuance costs		—			54,542			—

Net cash provided by financing activities		6,177			55,204			14


Effect of exchange rate changes on cash and cash equivalents		45			—			(8	)

Net (decrease) increase in cash and cash equivalents		(15,292	)		25,316			(6,914	)
Cash and cash equivalents at beginning of period		28,918			3,602			10,516

Cash and cash equivalents at end of period	$	13,626		$	28,918		$	3,602


Cash paid for:
Interest	$	120		$	—		$	1
Supplemental disclosure of non-cash investing and financing activities
Common and preferred stock issued for services and fees	$	707		$	1,097		$	1,053
Common stock issued for stock of nonsubsidiary	$	—		$	—		$	553
Issuance costs paid for warrants issued	$	—		$	749		$	—
Common stock issued for net assets acquired in acquistion	$	—		$	372,183		$	—
Decrease to long-term advances to noncontrolling interest shareholder	$	—		$	—		$	354
Disposition of partial interest in a subsidiary	$	—		$	—		$	244
Decrease in noncontrolling interest investment in subsidiary	$	—		$	—		$	(597	)

The accompanying notes are an integral part of these consolidated financial statements

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. — COMPANY DESCRIPTION

CAMAC Energy Inc. (the “Company” or “CAMAC”) is a publicly traded Company which engages in the exploration, development, and production of oil and gas outside the U.S., directly and through joint ventures and other ventures in which it may participate. The Company’s name was changed from Pacific Asia Petroleum, Inc. (“PAP”) to CAMAC Energy Inc. upon the acquisition of oil and gas properties located in offshore Nigeria on April 7, 2010.

The Company operates in the upstream segment of the oil and gas industry in exploration and producing activities. The Company’s corporate headquarters is located in Houston, Texas and currently the Company has interests in OML 120/121 oil and gas leases in deep water offshore Nigeria along with the rights to gas acreage under contract in China.

NOTE 2. — BASIS OF PRESENTATION AND LIQUIDITY

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned direct and indirect subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations for the indicated periods. All such adjustments are of a normal recurring nature.

For the period from inception of the Company through March 31, 2010, the Company’s consolidated financial statements were prepared as a development stage company. In the three months ended June 30, 2010, the Company commenced the recognition of significant revenues from operating assets located in Nigeria and at that time ceased reporting as a development stage company. Prior year data was revised to the operating company reporting basis, and accordingly, comparison with previous reported amounts may not be meaningful. For year 2011, certain additional changes in presentation have been made in the consolidated financial statements, and prior periods included have been prepared with these reclasses for comparability. These include a change in accounting principle for the presentation of revenues to exclude royalty taxes, with an offsetting decrease in costs and expenses, which was adopted effective December 31, 2011.

In preparing the accompanying consolidated financial statements, we have evaluated information about subsequent events that became available to us through the date the consolidated financial statements were issued. This information relates to events, transactions or changes in circumstances that would require us to adjust the amounts reported in the consolidated financial statements or to disclose information about those events, transactions or changes in circumstances .

Liquidity

The Company incurred a net loss attributable to CAMAC Energy Inc. of $24,913,000 for the year ended December 31, 2011 and at that date had an accumulated deficit of $275,838,000. During December 2010, and year 2011, the Company incurred $59.6 million in well workover expenses to reduce gas production from well #5 in the Oyo Field in order to improve the daily crude oil production rate from this well. (See Note 4 – Acquisitions). Of this amount, $30.7 million was charged to expense in 2010 and $28.9 million in 2011. By agreements involving Allied Energy Plc, an affiliated company, the Company will pay for the workover.

In 2011 the Company utilized a Promissory Note (see Note 8—Long Term Note Payable-Related Party) from an affiliated company in order to meet a substantial portion of the Company’s cash obligations with respect to the workover on well #5 in the Oyo Field. The costs of this work are being recovered as Cost Oil in revenues under the OML 120/121 Production Sharing Contract starting in 2011, which enabled Company to repay the initial loans under the term facility. The portion of the workover funded from the Company’s own cash will also be recovered as Cost Oil in revenues and thus will be available for future operations after such recovery occurs.

Based upon current cash flow projections, management believes that the Company will have sufficient capital resources to meet projected cash flow requirements through 2012.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 3. — SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts and activities of the Company, subsidiaries in which the Company has a controlling financial interest, and entities for which the Company is the primary beneficiary. All material intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

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

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits and short-term investments with initial maturities of three months or less.

Short-Term Investments

The Company applies the provisions of ASC Topic 320, ( Investments in Debt and Equity Securities) . The Company classifies debt and equity securities into one of three categories: held-to-maturity, available-for-sale or trading. These security classifications may be modified after acquisition only under certain specified conditions. Securities may be classified as held-to-maturity only if the Company has the positive intent and ability to hold them to maturity. Trading securities are defined as those bought and held principally for the purpose of selling them in the near term. All other securities must be classified as available-for-sale. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are accounted for at cost less allowance for doubtful accounts. We establish provisions for losses on accounts receivable if it is determined that collection of all or a part of an outstanding balance is not probable. Collectability is reviewed regularly and an allowance is established or adjusted, as necessary, using the specific identification method. As of December 31, 2011 and 2010, no allowance for doubtful accounts was necessary.

Deferred Technical Services Agreement (TSA) Charges

Deferred TSA charges represent the Company’s capitalized technical services expenses for administration of our interest in the Oyo Field through the termination of the related agreement on March 31, 2011. These amounts are charged to lease operating expenses as crude oil is sold. At December 31, 2010, $393,000 was included in other current assets in the accompanying consolidated balance sheets.

Property, Plant and Equipment

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)

Impairment of Long-Lived Assets

Asset Retirement Obligations

The Company accounts for asset retirement obligations in accordance with ASC Topic 410 ( Asset Retirement and Environmental Obligations), which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. ASC 410 requires the Company to record a liability for the present value using a credit-adjusted risk free interest rate of the estimated site restoration costs with a corresponding increase to the carrying amount of the related long-lived assets. As a result of the lack of capital deployed on a historical basis, to date, the Company has not recorded any future asset retirement obligations.

Revenues

Revenues are recognized when the earnings process is complete and an exchange transaction has taken place. An exchange transaction may be a physical sale, the providing of services, or an exchange of rights and privileges. The recognition criteria are satisfied when there exists a signed contract with defined pricing, delivery and acceptance (as defined in the contract) of the product or service have occurred, there is no significant uncertainty of collectability, and the amount is not subject to refund. Crude oil revenues in Nigeria are net of sales of royalty barrels. Oil revenue is recognized using the sales method for our share of Cost Oil, Profit Oil and Tax Oil for each crude oil lifting in Nigeria.

Income Taxes

Foreign Currency Translation

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stock-Based Compensation

Net Earnings (Loss) Per Common Share

The Company computes earnings or loss per share under ASC Topic 260 ( Earnings per Share) . Net earnings or loss per common share is computed by dividing net earnings or loss by the weighted average number of shares of common stock and applicable dilutive common stock equivalents outstanding during the year. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company’s stock options, unvested restricted stock, and warrants (calculated using the treasury stock method). Potential dilutive common shares that have an anti-dilutive effect (e.g., those that increase earnings per share or decrease net loss per share) are excluded from diluted earnings (loss) per share.

New Accounting Pronouncements Not Yet Adopted

NOTE 4. — ACQUISITIONS

Acquisition of Oyo Field Production Sharing Contract Interest

On April 7, 2010, the Company consummated the acquisition of interests held by CAMAC Energy Holdings Limited (CEHL) and certain of its affiliates (collectively “CEHL Group”) in a Production Sharing Contract (the “OML 120/121 PSC”) with respect to an oilfield asset known as the Oyo Field located offshore Nigeria (the “Oyo Contract Rights”). The OML 120/121 PSC governing the Oyo Field is by and among Allied Energy Plc. (“Allied”), an affiliate of CEHL, CAMAC International (Nigeria) Limited (“CINL”), an affiliate of CEHL, and Nigerian Agip Exploration Limited (“NAE”). The Oyo Field was under development until oil production commenced in December 2009.

As consideration for the Oyo Contract Rights, the Company paid CAMAC Energy Holdings Limited $32 million in cash consideration (the “Cash Consideration”) and issued to CAMAC Energy Holdings Limited 89,467,120 shares of Company Common Stock, par value $0.001, representing approximately 62.74% of the Company’s issued and outstanding Common Stock at closing (the

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

“Consideration Shares”). In addition, if certain issued and outstanding warrants and options exercisable for an aggregate of 7,991,948 shares of Company Common Stock were exercised following the closing, the Company was obligated to issue up to an additional 13,457,188 Consideration Shares to CAMAC Energy Holdings Limited to maintain CAMAC Energy Holdings Limited’s approximately 62.74% interest in the Company. As additional Cash Consideration, the Company agreed to pay CAMAC Energy Holdings Limited $6.84 million on the earlier of sufficient receipt of oil proceeds from the Oyo Field or six months from the closing date. This amount was paid in July 2010. At December 31, 2011, due to warrant and option expirations and cancelations, the maximum additional Consideration Shares obligation had been reduced to 6,811,446 shares of which 188,591 related to exercised warrants. The Company is unable to estimate the number of the remaining warrants which may ultimately be exercised. In connection with the closing on April 7, 2010, the Company, CEHL and certain of their respective affiliates entered into a number of ancillary documents to consummate the transaction.

As a result of this transaction, CEHL is now a related party. As a result of its controlling interest in the Company, CEHL has the ability to approve any matter submitted to the Company’s stockholders where a simple majority vote is required to obtain stockholder approval, whether such action is sought through a special or annual meeting or through written consent. Additionally, CEHL currently owns and controls enough shares to elect the Company’s directors at annual meetings.

Upon closing of the transaction, the Company changed its name to CAMAC Energy Inc., but continues as a publicly-traded entity, separate from CEHL.

The original purchase cost for the acquisition of CEHL Group’s interests in the OML 120/121 PSC with respect to the Oyo Field was allocated as shown in the table below. The measurement date was the closing date, April 7, 2010. The fair value of the consideration paid was not fixed and determinable prior to closing. The transaction has been accounted for as an acquisition of an asset and does not represent the acquisition of a business. The allocation of the acquisition as of the closing date April 7, 2010 was as follows:


(In thousands)
Accounts receivable	$	13,880
Inventories		11,619
Property cost of PSC interest		393,648
Current liabilities		(7,771	)

Purchase price	$	411,376

As disclosed above, one of the assets acquired as part of the Oyo Field interest was crude oil inventory which was recorded at fair value at the acquisition date. The sale of this acquired inventory and the related cost of sales are included in the three months ended June 30, 2010 revenues and cost of sales in the amounts of $11,827,000 and $11,715,000, respectively.

See Note 6 – Impairment of Assets, regarding the recording of an impairment loss on the property cost portion of this acquisition as of September 30, 2010.

OML 120/121 Transaction

On December 13, 2010, the Company entered into a Purchase and Continuation Agreement (the “Purchase Agreement”) with CEHL Group, superseding earlier related agreements. Pursuant to the Purchase Agreement, the Company agreed to acquire certain of the remainder of CEHL Group’s interest (the “OML 120/121 Transaction”) in the OML 120/121 PSC (the “Non-Oyo Contract Rights”). In April 2010 the Company had acquired from CEHL Group the Oyo Contract Rights in the OML 120/121 PSC. The OML120/121 Transaction closed on February 15, 2011 under the terms of the Purchase Agreement.

In exchange for the Non-Oyo Contract Rights, the Company agreed to an option-based consideration structure and paid $5.0 million in cash to Allied Energy Plc upon the closing of the OML 120/121 Transaction on February 15, 2011. The Company has the option to elect to retain the Non-Oyo Contract Rights upon payment of additional consideration to Allied as follows:

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

If any of the above milestones are reached and the Company elects not to retain the Non-Oyo Contract Rights at that time, then all the Non-Oyo Contract Rights will automatically revert back to CEHL without any compensation due to the Company and with CAMAC retaining all consideration paid by the Company to date. As of December 31, 2011, none of the above noted milestones were reached.

The Purchase Agreement contained the following conditions to the closing of the Transaction: (i) CAMAC Petroleum Limited (subsidiary of the Company), CAMAC International (Nigeria) Limited (“CINL”), Allied, and Nigerian Agip Exploration Limited (“NAE”) must enter into a Novation Agreement in a form satisfactory to the Company and CAMAC Energy Holdings Limited and that contains a waiver by NAE of the enforcement of Section 8.1(e) of the PSC (providing for the continued waiver by NAE of its entitlement to “profit oil” in favor of Allied), and that notwithstanding anything to the contrary contained in the PSC, the profit sharing allocation set forth in the PSC shall be maintained after the consummation of the Transaction; (ii) the Company, and CEHL must enter into a registration rights agreement with respect to any shares issued by the Company to Allied at its election as consideration upon the occurrence of any of the above-described milestone events, in a form satisfactory to the Company and CEHL; and (iii) the Oyo Field Agreement, dated April 7, 2010, by and among the Company, CEHL and Allied, must be amended in order to remove certain indemnities with respect to Non-Oyo Operating Costs (as defined therein). In addition, CEHL must deliver the Data and certain equipment to the Company in as-is condition. The Company agreed to limited waivers of certain of these closing conditions under the Limited Waiver Agreement.

NOTE 5. — REGISTERED DIRECT OFFERINGS OF SECURITIES

In year 2010, the Company completed three registered direct offerings for combined sales of Company Common Stock and warrants, under which the following securities were issued:

February 16, 2010:

•

5,000,000 shares of Common Stock at $4.00 per share – aggregate proceeds of $20 million

•

Warrants to purchase 2,000,000 shares of Common Stock at $4.50 per share, expiring August 2013

•

Warrants to purchase 2,000,000 shares of Common Stock at $4.00 per share, which expired November 2010

•

Placement agent warrants to purchase 150,000 shares of Common Stock at $5.00 per share, expiring February 2015

March 5, 2010:

•

4,146,922 shares of Common Stock at $4.22 per share – aggregate proceeds of $17.5 million

•

Warrants to purchase 1,658,770 shares of Common Stock at $4.50 per share, expiring September 2013

•

Warrants to purchase 1,658,770 shares of Common Stock at $4.12 per share, which expired December 2010

•

Placement agent warrants to purchase 124,408 shares of Common Stock at $5.275 per share, expiring February 2015

December 28, 2010:

•

9,319,102 shares of Common Stock at $2.20 per share – aggregate proceeds of $20.5 million

•

Warrants to purchase 4,659,551 shares of Common Stock at $2.20 per share, increasing to $2.62 per share 31 days after the closing, expiring December 2015

•

Placement agent warrants to purchase 279,573 shares of Common Stock at $2.75 per share, expiring February 2015

The exercise prices for all of the above warrants are subject to customary adjustments as included in each respective warrant agreement.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Net proceeds from the February and March offerings have been used by the Company for working capital purposes, and to fund the Company’s acquisition from CEHL Group of the Oyo Contract Rights in April 2010. Net proceeds from the December offering were used to fund a portion of the cost of the workover work on well #5 in the Oyo Field and for working capital purposes.

NOTE 6. — IMPAIRMENT OF ASSETS

Impairment of Oyo Field Leasehold Cost

Impairment of Chifeng Oil Well Costs

In 2009, the Company conducted an impairment review of its Chifeng contract capitalized oil well cost for recoverability as an asset to be held and used. This review was prompted based on the continuing lack of production license that would enable recovery of these costs through production revenues and that three years have passed with no progress in this regard. Without a production license, the opportunities to drill additional production wells under the contract and future production from this initial well are significantly at risk. The Company had alternate strategies it intended to pursue toward possibly obtaining a production license through modification of the existing agreement and/or inclusion of this area in a production license for a neighboring area should the Company be able to obtain a production license for that other area. However, as of December 31, 2009, activity toward accomplishing this result by specific negotiations and agreements had not commenced, and the likelihood of possible success and when it might occur could not be reasonably estimated. Therefore, the Company concluded that an estimate of future cash flows from this asset no longer could be made. Absent the likely ability to obtain a production license, the fair value of the asset is zero under Level 3 unobservable inputs for estimation of fair value under ASC Topic 820. Those conditions required the recording of an impairment charge to expense and retirement of capitalized costs of $219,000.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 7. — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment were comprised of the following:


	December 31, 2011		December 31, 2010
	(In thousands)
Oil and gas Properties:
Proved oil and gas properties	$	206,212	$	206,212
Less: Accumulated depreciation, depletion and amortization		15,233		1,917

Proved oil and gas properties, net		190,979		204,295
Unproved oil and gas properties		5,150		228

Oil and gas Properties, net		196,129		204,523


Property, plant and equipment, other		779		845
Less: Accumulated depreciation		522		389

Property, plant and equipment, other, net		257		456

Total property, plant and equipment	$	196,386	$	204,979

NOTE 8. — LONG TERM NOTE PAYABLE — RELATED PARTY

On June 6, 2011, CAMAC Petroleum Limited (“CPL”), a wholly owned subsidiary of the Company, executed a Promissory Note (the “Promissory Note”) in favor of Allied (the “Lender”). Under the terms of the Promissory Note, the Lender agreed to make loans to CPL, from time to time and pursuant to requests by CPL, in an aggregate sum of up to $25.0 million. Interest accrues on outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum. On June 8, 2011, CPL received initial loan proceeds of $25.0 million under the Promissory Note. The initial loan outstanding of $25.0 million was repaid on August 23, 2011. CPL may prepay and re-borrow all or a portion of such amount from time to time, but the unpaid aggregate outstanding principal amount of all loans will mature on June 6, 2013. In late 2011, CPL re-borrowed $6 million which was outstanding as of December 31, 2011. The carrying amount of long-term debt approximates fair value because the interest rate is variable and reflective of current market rates. At December 31, 2011, the Company had the ability to borrow $19,000,000 under the $25,000,000 Promissory Note.

NOTE 9. — OPERATING SEGMENT DATA

The Company manages its operations on a geographical basis. The Company’s two operating segments are Africa and Asia. Our segments derive revenues from the sale of oil and gas products. The Company has no intersegment revenues and is not dependent on a single significant customer for a substantial portion of its revenues.

Segment performance is measured on an after-tax operating basis. Corporate income and expense items for interest income and expense, corporate administrative costs, stock-related compensation and noncontrolling interests are not allocated to segments. Assets assigned to the two reportable segments exclude intercompany receivables and payables, intercompany investments, cash and cash equivalents, short-term investments and marketable securities.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


	Years Ended December 31,
	2011			2010			2009
	(In thousands)
Revenues
Africa	$	38,910		$	20,448		$	—
Asia		—			203			67

Total revenues	$	38,910		$	20,651		$	67


Net Loss attributable to CAMAC Energy Inc.
Africa	$	(7,870	)	$	(215,921	)	$	—
Asia		(4,239	)		(3,068	)		(4,560	)
Corporate		(12,804	)		(11,479	)		(6,929	)

Net Loss attributable to CAMAC Energy Inc.	$	(24,913	)	$	(230,468	)	$	(11,489	)


Impairment
Africa	$	—		$	186,235		$	—
Asia		—			—			219

Total impairment	$	—		$	186,235		$	219


Depreciation, Depletion and Amortization
Africa	$	13,315		$	4,007		$	—
Asia		53			100			70
Corporate		162			111			62

Total depreciation, depletion and amortization	$	13,530		$	4,218		$	132


Income Tax Expense
Africa	$	988		$	423		$	—
Asia		—			(1	)		—
Corporate		—			—			1

Total income tax expense	$	988		$	422		$	1


Capital Expenditures
Africa	$	5,000		$	394,537		$	—
Asia		2,113			795			386
Corporate		46			351			86

Total capital expenditures	$	7,159		$	395,683		$	472


Assets
Africa	$	218,702		$	216,721		$	—
Asia		272			408			582
Corporate - U.S.		15,056			30,714			6,854

Total assets	$	234,030		$	247,843		$	7,436

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 10. — INCOME TAXES

The provision for income taxes was as follows:


	Years Ended December 31,
	2011		2010		2009
	(In thousands)
Current
Outside U.S.	$	988	$	422	$	—
State		—		—		1

Total provision for income taxes	$	988	$	422	$	1

The Company’s subsidiaries outside the United States did not have any undistributed net earnings at December 31, 2011, due to accumulated net losses.

Following is a reconciliation of the expected statutory U.S. Federal income tax provision to the actual income tax expense for the respective periods:


	Years Ended December 31,
	2011			2010			2009
	(In thousands)
Net loss attributable to CAMAC Energy Inc.before income tax expense	$	(23,925	)	$	(230,046	)	$	(11,488	)
Expected income tax provision at statutory rate of 35%	$	(8,374	)	$	(80,516	)	$	(4,021	)
Increase (decrease) due to:
Foreign-incorporated subsidiaries		4,744			11,624			1,585
Impairment permanent difference		—			65,182			—
Net losses not realizable currently for U.S. tax purposes		4,618			4,132			2,436
State income tax		—			—			1

Total income tax expense	$	988		$	422		$	1

The Company records zero net deferred income tax assets and liabilities on the balance sheet on the basis that its overall net deferred income tax asset position is offset by a valuation allowance due to its net losses since inception for both book basis and tax basis and other considerations.

Deferred income tax assets by category are as follows:


	Years Ended December 31,
	2011			2010			2009
				(In thousands)
Tax basis operating loss carryovers	$	16,898		$	11,730		$	5,172
Well workover		10,737			15,943			—
Other		106			554			386

		27,741			28,227			5,558
Valuation allowance		(27,741	)		(28,227	)		(5,558	)

Net deferred income tax assets	$	—		$	—		$	—

The Company’s total tax basis loss carryovers at December 31, 2011 were $50,121,000. Of this amount, $9,111,000 has no expiration date. The remainder expires from 2012 to 2031. Due to the significant change in ownership in 2010, the Company’s future use of its U.S. operating losses may be limited.

Tax years ended December 31, 2007 through 2011 remain open to examination under the applicable statute of limitations in the U.S. and state tax jurisdiction in which the Company files income tax returns.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the year 2011 in the accompanying consolidated statements of operations, total net losses attributable to CAMAC Energy Inc. stockholders and the Africa segment include a net charge of $508,000 to income tax expense representing adjustments between the original book basis income tax provision and the Company’s allocated share of the year 2010 Nigeria Petroleum Profits Tax return filed for the OML 120/121 PSC in September 2011. The adjustments recorded were based upon changes deemed more likely than not to be sustained. The Company also has unrecognized tax benefits of $2,435,000 related to the 2010 Nigeria Petroleum Profits Tax return for which the future realization is uncertain at present; accordingly, the tax benefit has been fully offset by a valuation allowance. Further, as part of the above adjustments, the Company has recorded approximately $624,000 in other current assets for excess 2010 Nigeria Petroleum Profits Tax paid into the escrow account of the OML 120/121 PSC.

In 2011, the Company did not record any tax expense from Nigeria Petroleum Profits Tax pertaining to 2011 operations, due to reduced production levels and the use of certain tax credits.

NOTE 11. — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities are as follows:


	As of December 31,
	2011		2010
	(In thousands)
Accrued contracting and development fees	$	1,963	$	32,329
Accrued royalties		3,160		5,933
Accrued contingent consideration		890		890
Accrued payroll and benefits		494		606
Other		415		1,033

	$	6,922	$	40,791

NOTE 12. — STOCK BASED COMPENSATION

Stock Options

Under the Company’s 2009 Equity Incentive Plan, the Company may issue stock, options or units to result in issuance of a maximum aggregate of 12,000,000 shares of Common Stock. Options awarded expire 10 years from date of grant or shorter term as fixed by the Board of Directors. In 2011, the Company granted a total of 5,186,642 stock options with vesting periods from 6 months to 36 months.

A summary of stock option activity for the year ended December 31, 2011, is presented below.


	Shares Underlying Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)
*Stock Options*
Outstanding at January 1, 2011		2,785,171		$	3.34		5.1
Granted		5,186,642		$	1.29		4.4
Exercised		(294,339	)	$	0.64
Forfeited		(2,180,782	)	$	3.75

Outstanding as of December 31, 2011		5,496,692		$	1.38		4.6


Expected to vest		5,496,692		$	1.38		4.6
Exercisable at December 31, 2011		1,614,317		$	2.01		4.9

The total intrinsic values of options at December 31, 2011 were $358,000 for options outstanding and $15,000 for options that were exercisable at that date. The total intrinsic values realized by recipients on options exercised were $242,000 in 2011, $3,882,000 in 2010, and $118,000 in 2009.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company recorded compensation expense relative to stock options in 2011, 2010, and 2009 of $1,288,000, $1,666,000, and $584,000 respectively.

The fair values of stock options used in recording compensation expense are computed using the Black-Scholes option pricing model. The table below shows the weighted-average amounts for the assumptions used in the model for options awarded in each year under equity incentive plans.


	2011			2010			2009

Expected price volatility		103.7	%		113.7	%		77.5	%
Risk free interest rate (U.S. treasury bonds)		0.8	%		0.8	%		1.4	%
Expected annual dividend yield		—			—			—
Expected option term (years)		3.1			3.6			3.2
Grant date fair value per share	$	0.84		$	2.36		$	2.05

Restricted Stock Awards (“RSA”)

In addition to stock options, our 2009 Plan allows for the grant of restricted stock awards, or RSA. We determine the fair value of RSAs based on the market price of our common stock on the date of grant. Compensation cost for RSAs is recognized on a straight-line basis over the vesting or service period and is net of forfeitures.

A summary of restricted stock activity for the year ended December 31, 2011, is presented below.


	Shares			Weighted-Average Grant Date Fair Value
*Restricted Stock*
Nonvested at January 1, 2011		557,700		$	3.02
Granted		1,212,208		$	1.20
Vested		(610,741	)	$	2.71
Forfeited		(70,540	)	$	2.96

Nonvested as of December 31, 2011		1,088,627		$	1.13

The Company recorded compensation expense relative to RSA’s in 2011, 2010 and 2009 of $1,196,000, $2,449,000 and $1,848,000, respectively.

The total grant date fair value of RSA shares that vested during 2011 was approximately $1,653,000. As of December 31, 2011, there was approximately $727,000 of total unrecognized compensation cost related to nonvested RSAs, with $610,000, and $117,000 to be recognized during the years ended December 31, 2012 and 2013, respectively.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 13. — EARNINGS OR LOSS PER COMMON SHARE

Basic earnings or loss per common share (“EPS”) is computed by dividing net income or loss available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic and diluted EPS for years ended December 31, 2011, 2010, and 2009 respectively, were as follows:


	Years ended December 31,
	2011		2010		2009
	(In thousands)
Basic		154,556		117,926		41,647
Diluted		154,556		117,926		41,647

The number of stock options, warrants issued in stock offerings and nonvested restricted stock excluded from dilutive shares outstanding in the above periods, as these potentially dilutive securities are anti-dilutive because the Company was in a loss position, were as follows:


	Years ended December 31,
	2011		2010		2009
	(In thousands)
Stock options		98		1,015		1,411
Warrants issued in stock offerings		6		826		747
Nonvested restricted stock awards		65		394		695

NOTE 14. — DEFINED CONTRIBUTION PLAN

In 2007 the Company adopted a defined contribution 401(k) Plan (“Plan”) for its U.S. employees. The Plan provides for Company matching of 200% on up to the first 3% of salary contributed by employees. The Plan includes the option for employee contributions to be made from either pre-tax or after-tax basis income as elected by the employee. Company contributions are immediately vested to the employee. Under the Plan, the Company’s cash contributions, including third party administration fees, were $121,000, $95,000 and $75,322 in 2011, 2010 and 2009, respectively.

NOTE 15. — PATENT APPLICATION RIGHTS

On November 27, 2009, the State Intellectual Property Office of the PRC in China recognized Dong Fang as the official owner of the six LXD Patent Application Rights (the “Rights”), covering enhanced oil recovery technologies developed by LXD (the “EORP Technologies”). LXD contributed the Rights in satisfaction of his 24.5% share of Dong Fang’s registered capital of RMB 30,000,000. The fair value of the Rights was verified by a certified Chinese valuation firm. Dong Fang used the Rights through December 31, 2010 to utilize the EORP Technologies in both service and sale scenarios.

Under interpretation SAB No. 48 issued by the Staff of the U.S. Securities and Exchange Commission, the Company in this case was not permitted to record a capitalized asset value on the Rights for U.S. reporting.

In June 2011, the Company under a settlement agreement agreed to transfer and assign all EORP related patent application rights to Mr. Li Xiang Dong, and the parties agreed to liquidate Dong Fang. See Note 19 – Related Party Transactions.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 16. — FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

Fair Value of Financial Instruments

The estimated fair value of financial instruments is the amount at which the instrument could be exchanged currently between willing parties. The carrying amounts of the Company’s financial instruments for cash equivalents, short-term and long-term investments, accounts receivable, deposits, advances, accounts payable, and accrued expenses and debt, approximate fair value at December 31, 2011 and 2010. The carrying amount for the investment in nonsubsidiary is fair value from a market price. The recorded amounts for fair value of the Company’s securities, is presented below.


	As of December 31,
	2011		2010
	(In thousands)
Available for sale:
Short-term investments	$	—	$	256
Investment in nonsubsidiary	$	158	$	272

Held to maturity:
Long-term advances	$	34	$	34
Long-term debt	$	6,000	$	—

Concentration of Credit Risk

The Company is exposed to concentration of credit risk with respect to cash, cash equivalents, short-term investments, and noncurrent investments and advances. At December 31, 2011, 54% ($7.4 million) of the Company’s total cash and cash equivalents was on deposit in two bank accounts at Guaranty Trust Bank in Nigeria.

NOTE 17. — FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements and Disclosures , defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three level hierarchy for measurement fair value.

Fair value measurements are classified and disclosed in one of the following categories:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Unadjusted quoted prices for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3: Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity for the asset or liability.

Investments in nonsubsidiaries and Long-term advances are accounted for in other assets on the consolidated balance sheet. The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the immediate or short-term maturity. The carrying amount of long-term debt approximates fair value because the interest rate is variable and reflective of current market rates.

Assets measured at fair value on a recurring basis – as of December 31:


	2011		Level 1		2010		Level 1
			(In thousands)
Short-term investments	$	—	$	—	$	256	$	256
Investment in nonsubsidiary		158		158		272		272

Total	$	158	$	158	$	528	$	528

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Assets measured at fair value on a nonrecurring basis – as of December 31:

		00000000		00000000		00000000
	2011		Level 3		Loss Recorded
	(In thousands)
Property, plant and equipment, net	$	190,979	$	190,979	$	—
Long-term advances	$	36	$	36	$	—

		00000000		00000000		00000000
	2010		Level 3		Loss Recorded
	(In thousands)
Property, plant and equipment, net	$	204,979	$	204,979	$	(186,235	)
Long-term advances	$	34	$	34	$	—

NOTE 18. — COMMITMENTS AND CONTINGENCIES

Lease Commitments

We rent office space under non-cancelable operating leases. Rent expense for the years ended December 31, 2011, 2010 and 2009 was $544,000, $238,000 and $233,000, respectively. At December 31, 2011, future rental commitments for operating leases were a total of $420,000 as follows: 2012 – $310,000 and 2013 – $110,000.

Workover Commitment

As of December 31, 2011, the Company had an unpaid workover commitment for rig rental and other costs related to Oyo Field well #5 of approximately $20.6 million.

Contingencies

On June 28, 2011, Mr. Abiola Lawal, former Executive Vice President and Chief Financial Officer of the Company, filed a lawsuit in Harris County, Texas District Court against the Company, alleging breach of contract and unlawful termination in connection with Mr. Lawal’s June 6, 2011 termination from the Company. On September 16, 2011, the Court issued an order staying the proceedings pending arbitration in view of the mandatory arbitration clause in the plaintiff’s employment agreement. On October 31, 2011, the plaintiff issued a written demand for arbitration making the same allegations as the stayed lawsuit. An arbitrator has been chosen and the hearing is scheduled for September 2012. The Company believes the claims are without merit and intends to vigorously defend itself against such claims. See Note 19. – Related Party Transactions , for additional details regarding Mr. Lawal’s separation from employment.

NOTE 19. — RELATED PARTY TRANSACTIONS

Agreements with Related Parties

Employment Agreement and Consulting Agreement with Frank C. Ingriselli (Retired 2010)

The Company and Frank C. Ingriselli, its former President, Chief Executive Officer and member of the Board of Directors, were parties to an employment agreement (the “Ingriselli Agreement”) through the date of Mr. Ingriselli’s voluntary retirement effective August 1, 2010. The Ingriselli Agreement contained, among other things, severance payment provisions that required the Company to continue Mr. Ingriselli’s salary for 36 months and his benefits for 36 months if employment was terminated without “cause,” as such term is defined in the Ingriselli Agreement, and to make a lump sum payment equal to 48 months’ salary and continue benefits for 48 months if terminated within 12 months of a “change in control,” as such term is defined in the Ingriselli Agreement. Pursuant to this agreement, Mr. Ingriselli’s annual base salary was $350,000, and he was entitled to an annual bonus of between 20% and 40% of his base salary, as determined by the Company’s Board of Directors, based on his performance, the Company’s achievement of

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

financial performance and other objectives established by the Board of Directors each year, provided, however, that annual bonus may be less as approved by the Board of Directors based on his performance and the performance of the Company. Under the agreement, Mr. Ingriselli was eligible for long-term incentive compensation, such as additional options to purchase shares of the Company’s capital stock, on such terms as established by the Board of Directors. Mr. Ingriselli voluntarily retired from his employment and all positions with the Company effective August 1, 2010, and in connection with Mr. Ingriselli’s retirement, the Company and Mr. Ingriselli entered into a separately negotiated Separation and Mutual Release Agreement pursuant to which Mr. Ingriselli provided a general release of all claims against the Company in exchange for the Company’s release of all claims against Mr. Ingriselli, the release by the Company of repurchase rights with respect to an aggregate of 60,000 shares of unvested restricted Company Common Stock held by Mr. Ingriselli, the acceleration of vesting with respect to options to purchase an aggregate of 154,666 shares of the Company’s Common Stock held by Mr. Ingriselli, and a lump sum payment of $169,167 to Mr. Ingriselli.

The Company and Mr. Ingriselli were parties to a consulting agreement, dated August 1, 2010, pursuant to which Mr. Ingriselli served as an independent consultant to the Company to assist in the transition of his management roles and responsibilities to a successor to be selected by the Company. As compensation, Mr. Ingriselli received a fee of $40,000 per month. Mr. Ingriselli’s consulting engagement ended September 30, 2010.

Employment Agreement with Stephen F. Groth (Retired 2010)

The Company and Stephen F. Groth, its former Chief Financial Officer, were parties to an employment agreement (the “Groth Agreement”) through the date of Mr. Groth’s voluntary retirement on May 17, 2010. The Groth Agreement contained, among other things, severance payment provisions that required the Company to continue Mr. Groth’s salary for 36 months and his benefits for 24 months if employment was terminated without “cause,” as such term is defined in the Groth Agreement, and to make a lump sum payment equal to 48 months’ salary and continue benefits for 36 months if terminated within 12 months of a “change in control,” as such term is defined in the Groth Agreement. Pursuant to this agreement, Mr. Groth’s annual base salary was $150,000 (changed to $165,000 effective January 1, 2008), and he was entitled to an annual bonus of between 20% and 30% of his base salary, as determined by the Company’s Board of Directors based on his performance, the Company’s achievement of financial performance and other objectives established by the Board of Directors each year, provided, however, that annual bonus may be less as approved by the Board of Directors based on his performance and the performance of the Company. Under the agreement, Mr. Groth was eligible for long-term incentive compensation, such as additional options to purchase shares of the Company’s capital stock, on such terms as established by the Board of Directors. Mr. Groth voluntarily retired from his employment with the Company effective May 17, 2010, and in connection with Mr. Groth’s retirement, the Company and Mr. Groth entered into a separately negotiated Separation and Mutual Release Agreement pursuant to which Mr. Groth provided a general release of all claims against the Company in exchange for the Company’s release of all claims against Mr. Groth, the release by the Company of repurchase rights with respect to an aggregate of 64,261 shares of unvested restricted Company Common Stock held by Mr. Groth, the acceleration of vesting with respect to options to purchase an aggregate of 92,332 shares of the Company’s Common Stock held by Mr. Groth, and a lump sum payment of $40,000 to Mr. Groth.

Employment Agreement with Richard Grigg (Retired 2011)

On August 1, 2008, the Company entered into an Employment Agreement with Richard Grigg, the Company’s Senior Vice President and Managing Director (the “Grigg Agreement”). The Grigg Agreement, which superseded the prior employment agreement the Company entered into with Mr. Grigg in March 2008, had a three year term, and provided for a base salary of 1,650,000 RMB (approximately $241,000) per year and an annual performance-based bonus award targeted at between 30% and 40% of his then-current annual base salary awardable in the discretion of the Company’s Board of Directors. Mr. Grigg was also entitled to reimbursement of certain accommodation expenses in Beijing, China, medical insurance, annual leave expenses, and certain other transportation fees and expenses. In addition, in the event the Company terminated Mr. Grigg’s employment without Cause (as defined in the Grigg Agreement), the Company would have been required to pay to Mr. Grigg a lump sum amount equal to 50% of Mr. Grigg’s then-current annual base salary. However, on January 27, 2009, the Company revised the terms of its employment relationship with Richard Grigg by entering into an Amended and Restated Employment Agreement with Mr. Grigg (the “Amended Employment Agreement”) and a Contract of Engagement (“Contract of Engagement”) with KKSH Holdings Ltd., a company registered in the British Virgin Islands (“KKSH”). Mr. Grigg is a minority shareholder and member of the board of directors of KKSH. The Amended Employment Agreement superseded the Grigg Agreement and now governs the employment of Mr. Grigg in the capacity of Managing Director of the Company for a period of three years. The Amended Employment Agreement provided for a base salary of 990,000 RMB (approximately $144,000) per year and the reimbursement of certain accommodation expenses in Beijing, China, annual leave expenses, and certain other transportation and expenses of Mr. Grigg. In addition, in the event the Company terminated Mr. Grigg’s employment without Cause (as defined in the Amended Employment Agreement), the Company would pay to Mr. Grigg a lump sum amount equal to 50% of Mr. Grigg’s then-current annual base salary. The Contract of Engagement governed the engagement of KKSH for a period of three years to provide the services of Mr. Grigg through KKSH as Senior Vice President of the Company strictly with respect to the development and management of business opportunities for the Company outside of the People’s Republic of China.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The basic fee for the services provided under the Contract of Engagement was 919,000 RMB (approximately $134,000) per year, to be prorated and paid monthly and subject to annual review and increase upon mutual agreement by the Company and KKSH. Pursuant to the Contract of Engagement, the Company also provided Mr. Grigg with medical benefits and life insurance coverage, and an annual performance-based bonus award targeted at between 54% and 72% of the basic fee, awardable in the discretion of the Company’s Board of Directors. In addition, in the event the Company terminated the Contract of Engagement without Cause (as defined in the Contract of Engagement), the Company would pay to KKSH a lump sum amount equal to 215% of the then-current annual basic fee. On February 7, 2011 the Company and Mr. Grigg entered into a voluntary retirement agreement for Mr. Grigg’s retirement effective on that date. In addition, Mr. Grigg and KKSH entered into General Release of All Claims Agreements with the Company in return for a payment of $50,000, acceleration of vesting with respect to options to purchase an aggregate of 31,792 shares of Company Common Stock held by Mr. Grigg and KKSH, and release by the Company of repurchase rights with respect to an aggregate of 86,925 shares of unvested restricted Company Common Stock held by Mr. Grigg. On February 8, 2011 KKSH and the Company entered into a Consulting Agreement for temporary services of Mr. Grigg through March 31, 2011 to provide transition services for a total fee of approximately $54,000.

Employment Agreement with Jamie Tseng (Retired 2010)

The Company was a party to an Employment Agreement with Jamie Tseng, the Company’s former Executive Vice President (the “Tseng Employment Agreement”), dated April 22, 2009 and effective January 1, 2009. The Tseng Employment Agreement governed the employment of Mr. Tseng in the capacity of Executive Vice President of the Company until Mr. Tseng’s retirement effective January 15, 2010, and provided for a base salary of $140,000 per year, and provided that, in the event the Company terminated Mr. Tseng’s employment without Cause (as defined in the Tseng Employment Agreement), the Company would have been required to pay to Mr. Tseng a lump sum amount equal to 50% of Mr. Tseng’s then-current annual base salary. Mr. Tseng retired from his employment with the Company effective January 15, 2010, and in connection with Mr. Tseng’s retirement, the Company and Mr. Tseng entered into a Separation and Release Agreement pursuant to which Mr. Tseng provided a general release of all claims against the Company in exchange for the release by the Company of repurchase rights with respect to an aggregate of 61,572 shares of unvested restricted Company Common Stock held by Mr. Tseng, the acceleration of vesting with respect to options to purchase 40,800 shares of the Company’s Common Stock held by Mr. Tseng, the award of 20,000 shares of restricted Company Common Stock to Mr. Tseng, a lump sum payment of $50,000 to Mr. Tseng, and the continued payment by the Company of the Beijing office lease through February 2010 that was used by Mr. Tseng.

Consulting Agreement with William E. Dozier

The Company and William E. Dozier, its Interim Chief Executive Officer and member of the Board of Directors, were parties to a consulting agreement, dated August 1, 2010, pursuant to which Mr. Dozier served as an independent consultant to the Company. The consulting agreement was terminable by either the Company or Mr. Dozier upon thirty days’ notice. As compensation, Mr. Dozier received a fee of $30,000 per month, and was granted 100,000 shares of the Company’s Common Stock pursuant to the Company’s 2009 Equity Compensation Plan, all of which shares vested upon the effective date of the Company’s appointment of a new Chief Executive Officer. Upon the appointment of Mr. Byron A. Dunn on October 1, 2010 as Chief Executive Officer, Mr. Dozier stepped down as the Interim Chief Executive Officer and consultant.

Employment Agreement and Separation and Release Agreement with Byron A. Dunn (Resigned 2011)

Effective October 1, 2010, the Company appointed Mr. Byron A. Dunn as the Company’s new President, Chief Executive Officer, and member of the Board of Directors. The Company and Mr. Dunn are parties to an employment agreement (“Dunn Employment Agreement”) pursuant to which Mr. Dunn shall receive an annual base salary of $375,000, a one-time cash sign-on bonus of $150,000, and payment of certain club membership and transportation expenses, and Mr. Dunn shall also be eligible to receive a discretionary cash performance bonus each year targeted at 100% of his then-current annual base salary. Also, effective on his start date of October 1, 2010, the Company issued to Mr. Dunn 250,000 shares of Company restricted Common Stock subject to a one year vesting period, and an option to purchase 1.5 million shares of the Company’s Common Stock vesting 1/3 on December 1 of each of 2011, 2012 and 2013. In addition, in the event the Company terminates Mr. Dunn’s employment without Cause (as defined in the Dunn Employment Agreement) or Mr. Dunn resigns for Good Reason (as defined in the Employment Agreement, (i) the Company must pay to Mr. Dunn an amount equal to 24 months of his base salary plus target bonus as in effect immediately before Mr. Dunn’s termination or resignation (30 months in connection with a Change in Control, as defined in the Dunn Employment Agreement), (ii) the Company must pay to Mr. Dunn an amount equal to 24 months of the maximum contribution the Company may make for Mr. Dunn under the Company’s 401(k) plan (30 months in connection with a Change in Control, as defined in the Employment Agreement), (iii) any outstanding stock options and restricted stock shall become fully vested, and options shall remain exercisable for 12 months, (iv) the Company shall reimburse Mr. Dunn for up to $20,000 of outplacement services, and (v) the Company shall continue to provide Mr. Dunn and his dependents with the same level of insurance benefits received immediately prior to termination or resignation for up to 2 years, or until Mr. Dunn obtains similar replacement benefits through a new employer. Effective April 11, 2011, Mr. Dunn resigned from all his positions with the Company and the Dunn Employment Agreement was terminated.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

On April 11, 2011, in connection with Mr. Dunn’s resignation, the Company agreed to provide Mr. Dunn with the following severance and other benefits pursuant to a Separation Agreement and General Release of Claims entered into by and between Mr. Dunn and the Company: (i) the Company agreed to pay Mr. Dunn $400,000 in cash upon the expiration of seven days following the effective date (which amount was paid on April 19, 2011), and $200,000 in cash ninety days following the effective date of the severance agreement; (ii) monthly reimbursement of Mr. Dunn’s and his eligible dependents’ benefits under the Company’s group health and dental plan for up to eighteen months following the effective date of the severance agreement; and (iii) upon the expiration of seven days following the effective date of the severance agreement, 250,000 shares of restricted stock issued to Mr. Dunn under the Company’s 2009 Equity Incentive Plan shall become fully vested (which became fully vested on April 19, 2011). In addition, the Company and Mr. Dunn agreed to certain other customary terms and conditions, including a release of potential claims, preservation of proprietary and confidential information, and indemnities.

The Separation Agreement and General Release of Claims extinguished all rights, if any, which Mr. Dunn had, contractual or otherwise, relating to his employment with Company, including any rights to severance benefits under the Dunn Employment Agreement.

Secondment Agreement for Abiola L. Lawal

Abiola L. Lawal, the Company’s Executive Vice President and Chief Financial Officer effective August 1, 2010, was under contract in that capacity from May 17, 2010 to September 1, 2010 pursuant to a secondment agreement from CAMAC International Corporation (“CIC”), Mr. Lawal’s employer (the “Secondment”). During that time Mr. Lawal remained an employee of CIC, which contracted his services to the Company pursuant to the Secondment on a month-to-month basis to serve the Company on a full-time basis, reporting directly to the Company’s Chief Executive Officer. During the term of the Secondment, the Company paid directly to CIC on a monthly basis the pro rata portion of Mr. Lawal’s then-currently existing $315,000 salary, CIC’s cost of providing employee benefits to Mr. Lawal, the pro rata portion of any cash bonus paid to Mr. Lawal and approved by the Company’s Board of Directors or Compensation Committee, CIC’s share of any employment-related taxes and fees with respect to Mr. Lawal’s employment, and any expenses incurred by CIC at the request of the Company, or otherwise required of CIC in connection with the Secondment.

The Company’s Chairman and Director, Dr. Kase Lawal, is also a minority shareholder and director of CIC, as well as an indirect shareholder and control person of CEHL. In addition to being a shareholder of CIC, Dr. Kase Lawal is the Chairman and CEO of that company, and is also a director of CAMAC International Ltd. (“CIL”) and CEHL. Mr. Abiola Lawal and Dr. Kase Lawal have no familial relationship. CIC represents the interests of CEHL and other entities affiliated with CIL (collectively, “CAMAC Entities”), providing technical, administrative, and other assistance to the CAMAC Entities in the United States and overseas. Although some of the shareholders of CIC, including Dr. Kase Lawal, also own shares of the CAMAC Entities, the majority ownership of CIC and CIL are different. During the term of Mr. Abiola Lawal’s service to the Company pursuant to the Secondment, which ended September 1, 2010, he no longer served as an executive officer of CIC or any party related to CIC or any of the CAMAC Entities.

Employment Agreements with and Separation of Abiola L. Lawal

On September 1, 2010, the Company and Mr. Abiola Lawal, the Company’s Executive Vice President and Chief Financial Officer, entered into an Employment Offer Letter (the “Lawal Employment Agreement”) pursuant to which Mr. Lawal became a full-time employee of the Company. Prior to becoming a full-time employee of the Company, Mr. Lawal served as Executive Vice President and Chief Financial Officer of the Company on a full-time basis pursuant to the Secondment from CIC which ended effective September 1, 2010 upon the commencement of Mr. Lawal’s employment with the Company.

Pursuant to the Lawal Employment Agreement, Mr. Lawal received an annual base salary of $315,000 and received a one-time cash promotion bonus of $50,000. In addition, Mr. Lawal was eligible for a discretionary cash performance bonus each year targeted at between 25% to 50% of his then-current annual base salary, as well as additional equity grants, in the discretion of the Company’s Board of Directors. In addition, in the event the Company terminated Mr. Lawal’s employment without Cause or Mr. Lawal resigned for Good Reason (each as defined in the Lawal Employment Agreement), the Company was obligated to continue paying to Mr. Lawal his base salary and benefits for a period for 12 months following such termination.

Effective March 8, 2011 the Company and Mr. Lawal entered into an Amended and Restated Employment Agreement (the “Amended Lawal Employment Agreement”) pursuant to which Mr. Lawal receives an annual base salary of $315,000. In addition, Mr. Lawal was eligible for a discretionary cash performance bonus each year targeted at between 0% and 100% of his then-current annual base

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

salary, as well as additional equity grants, in the discretion of the Company’s Board of Directors. In addition, in the event the Company terminated Mr. Lawal’s employment without Cause (as defined in the Amended Lawal Employment Agreement) or Mr. Lawal resigns for Good Reason (as defined in the Amended Lawal Employment Agreement, (i) the Company must pay to Mr. Lawal an amount equal to 24 months of his base salary plus target bonus as in effect immediately before Mr. Lawal’s termination or resignation (30 months in connection with a Change in Control, as defined in the Lawal Amended Employment Agreement), (ii) the Company must pay to Mr. Lawal an amount equal to 24 months of the maximum contribution the Company may make for Mr. Lawal under the Company’s 401(k) plan (30 months in connection with a Change in Control, as defined in the Amended Lawal Employment Agreement), (iii) any outstanding stock options and restricted stock shall become fully vested, and options shall remain exercisable for 12 months, (iv) the Company shall reimburse Mr. Lawal for up to $20,000 of outplacement services, and (v) the Company shall continue to provide Mr. Lawal and his dependents with the same level of insurance benefits received immediately prior to termination or resignation for up to 2 years, or until Mr. Lawal obtains similar replacement benefits through a new employer.

Effective June 6, 2011, Abiola L. Lawal (no relation to Dr. Kase Lawal) was terminated from employment with the Company as Executive Vice President and Chief Financial Officer, due to Mr. Lawal’s unwillingness to accept a reassignment to the senior executive position of Senior Vice President, Strategy and New Ventures, which was offered by the Company to Mr. Lawal. On July 6, 2011, the Company paid to Mr. Lawal all severance amounts due under the Amended and Restated Employment Agreement that was entered into on March 8, 2011, including (i) $630,000 representing twenty-four (24) months of Mr. Lawal’s base salary, (ii) $315,000 representing Mr. Lawal’s target bonus for 2011, (iii) $29,400 representing required 401(k) contributions, and (iv) acceleration of vesting of all outstanding stock options and restricted stock held by Mr. Lawal. The Company also confirmed that it would provide up to $20,000 in outplacement services and continued insurance coverage for Mr. Lawal as required by that contract. Also refer to Note 18, Commitments and Contingencies.

Employment Agreement and Separation and Release Agreement with Alan W. Halsey

Effective June 6, 2011 the Company and Mr. Halsey entered into an Employment Offer Letter (the “Halsey Employment Agreement”) pursuant to which Mr. Halsey became a full-time employee of the Company as Senior Vice President, Exploration and Production. Pursuant to the Halsey Employment Agreement, Mr. Halsey received an annual base salary of $290,000. Additionally, Mr. Halsey received (i) a one-time stock option award of 1 million shares of the Company’s common stock vesting in 1/3 annual installments on the anniversary date of hire, subject in each case to Mr. Halsey’s continued service on such anniversary date, commencing with the first 333,333 shares vesting on the first year anniversary of hire and the final 333,334 shares vesting on the third anniversary of date of hire, (ii) a one-time award of 175,000 shares of restricted shares of the Company’s common stock pursuant to a Restricted Stock Award Agreement., and (iii) a one-time relocation allowance of $12,500. The restricted stock award was to vest 50% on the one year anniversary of the date of hire, and the remainder was to vest on the two year anniversary of the date of hire, subject in both cases to continued service of Mr. Halsey on such anniversary date. Both the option award and restricted stock award were made under the Company’s 2009 Equity Incentive Plan. Mr. Halsey was also eligible for a discretionary cash performance bonus each year targeted at between 0% and 100% of his then-current base salary, as well as additional equity grants, in the discretion of the Company’s Board of Directors. In addition, if the Company terminated Mr. Halsey’s employment without Cause (as defined in the Halsey Employment Agreement), (i) the Company must pay to Mr. Halsey an amount equal to the base salary plus target annual bonus as determined by the Board of Directors for the year of termination, (ii) any outstanding restricted stock and stock options shall have their vesting period immediately accelerated by 12 months, with all vested Company stock options (including accelerated options) remaining exercisable for a period of 12 months following the date of separation, in exchange for a full release of all claims against the Company and its related parties, and (iii) the Company shall reimburse Mr. Halsey for up to 12 months for the excess, if any, of his cost of COBRA Continuation Coverage under the Company’s group medical plan above the amount Mr. Halsey would have paid for such coverage had Mr. Halsey remained an employee of the Company.

On February 14, 2012 in connection with Mr. Halsey’s resignation effective February 29, 2012, the Company agreed to provide Mr. Halsey with the following severance and other benefits pursuant to a Separation Agreement and General Release of Claims entered into by and between Mr. Halsey and the Company: (i) the Company agreed to pay Mr. Halsey a severance amount total of $72,500 in cash, in three equal installments on March 30, 2012, April 30, 2012 and May 31, 2012 subject to the execution and non-revocation by Mr. Halsey of the Supplementary Release; and (ii) the Company agreed to pay Mr. Halsey a bonus for year 2011 of $84,583. In addition, the Company and Mr. Halsey agreed to certain other customary terms and conditions, including a release of potential claims, preservation of proprietary and confidential information, and indemnities.

The Separation Agreement and General Release of Claims extinguished all rights, if any, which Mr. Halsey had, contractual or otherwise, relating to his employment with Company, including any rights to severance benefits under the Halsey Employment Agreement.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Employment Agreement and Separation and Release Agreement with Edward G. Caminos

Effective July 1, 2011 the Company and Mr. Caminos entered into an Employment Offer Letter (the “Caminos Employment Agreement”) pursuant to which Mr. Caminos became a full-time employee of the Company as Senior Vice President and Chief Financial Officer. Pursuant to the Caminos Employment Agreement, Mr. Caminos received an annual base salary of $290,000. Additionally, Mr. Caminos received (i) a one-time stock option award of 1 million shares of the Company’s common stock vesting in 1/3 annual installments on the anniversary date of hire, subject in each case to Mr. Caminos’ continued service on such anniversary date, commencing with the first 333,333 shares vesting on the first year anniversary of hire and the final 333,334 shares vesting on the third anniversary of date of hire, and (ii) a one-time award of 200,000 shares of restricted shares of the Company’s common stock pursuant to a Restricted Stock Award Agreement. The restricted stock award would vest 50% on the one year anniversary of the date of hire, and the remainder would vest on the two year anniversary of the date of hire, subject in both cases to continued service of Mr. Caminos on such anniversary date. Both the option award and restricted stock award were made under the Company’s 2009 Equity Incentive Plan. Mr. Caminos was also eligible for a discretionary cash performance bonus each year targeted at between 0% and 100% of his then-current base salary, as well as additional equity grants, in the discretion of the Company’s Board of Directors. In addition, if the Company terminated Mr. Caminos’ employment without Cause (as defined in the Caminos Employment Agreement), (i) the Company must pay to Mr. Caminos an amount equal to the base salary plus target annual bonus as determined by the Board of Directors for the year of termination, (ii) any outstanding restricted stock and stock options shall have their vesting period immediately accelerated by 12 months, with all vested Company stock options (including accelerated options) remaining exercisable for a period of 12 months following the date of separation, in exchange for a full release of all claims against the Company and its related parties, and (iii) the Company shall reimburse Mr. Caminos for up to 12 months for the excess, if any, of his cost of COBRA Continuation Coverage under the Company’s group medical plan above the amount Mr. Caminos would have paid for such coverage had Mr. Caminos remained an employee of the Company.

On February 23, 2012 in connection with Mr. Caminos’ resignation effective March 1, 2012, the Company agreed to provide Mr. Caminos with the following severance and other benefits pursuant to a Separation Agreement and General Release of Claims entered into by and between Mr. Caminos and the Company: (i) the Company agreed to pay Mr. Caminos a severance amount total of $96,667 in cash, in four equal installments on March 30, 2012, April 30, 2012, May 31, 2012 and June 30, 2012 subject to the execution and non-revocation by Mr. Caminos of the Supplementary Release; (ii) the Company agreed to pay Mr. Caminos a bonus for the year 2011 of $72,500; and (iii) monthly reimbursement of Mr. Caminos’ and his eligible dependents’ benefits under the Company’s group health and dental plan for up to four months following his resignation date. In addition, the Company and Mr. Caminos agreed to certain other customary terms and conditions, including a release of potential claims, preservation of proprietary and confidential information, and indemnities.

The Separation Agreement and General Release of Claims extinguished all rights, if any, which Mr. Caminos had, contractual or otherwise, relating to his employment with Company, including any rights to severance benefits under the Caminos Employment Agreement.

Employment Agreement with Nicholas J. Evanoff

Effective September 7, 2011 the Company and Mr. Evanoff entered into an Employment Offer Letter (the “Evanoff Employment Agreement”) pursuant to which Mr. Evanoff became a full-time employee of the Company as Senior Vice President, General Counsel and Secretary. Pursuant to the Evanoff Employment Agreement, Mr. Evanoff receives an annual base salary of $280,000. Additionally Mr. Evanoff received (i) a one-time stock option award of 800,000 shares of the Company’s common stock vesting in 1/3 annual installments on the anniversary date of hire, subject in each case to Mr. Evanoff’s continued service on such anniversary date, commencing with the first 267,667 shares vesting on the first year anniversary of hire and the final 266,666 shares vesting on the third anniversary of date of hire, (ii) a one-time award of 175,000 shares of restricted shares of the Company’s common stock pursuant to a Restricted Stock Award Agreement. The restricted stock award will vest 50% on the one year anniversary of the date of hire, and the remainder will vest on the two year anniversary of the date of hire, subject in both cases to continued service of Mr. Evanoff on such anniversary date. Both the option award and restricted stock award were made under the Company’s 2009 Equity Incentive Plan. Mr. Evanoff is also eligible for a discretionary cash performance bonus each year targeted at between 0% and 100% of his then-current base salary, as well as additional equity grants, in the discretion of the Company’s Board of Directors. In addition, if the Company terminates Mr. Evanoff’s employment without Cause (as defined in the Evanoff Employment Agreement), (i) the Company must pay to Mr. Evanoff an amount equal to the base salary plus target annual bonus as determined by the Board of Directors for the year of termination, (ii) any outstanding restricted stock and stock options shall have their vesting period immediately accelerated by 12 months, with all vested Company stock options (including accelerated options) remaining exercisable for a period of 12 months following the date of separation, in exchange for a full release of all claims against the Company and its related parties, and (iii) the Company shall reimburse Mr. Evanoff for up to 12 months for the excess, if any, of his cost of COBRA Continuation Coverage under the Company’s group medical plan above the amount Mr. Evanoff would have paid for such coverage had Mr. Evanoff remained an employee of the Company.

Employment Agreement with Babatunde Omidele

Effective September 1, 2011 the Company and Mr. Omidele entered into an Employment Offer Letter (the “Omidele Employment Agreement”) pursuant to which Mr. Omidele became a full-time employee of the Company as Senior Vice President, Business Development & New Ventures. Pursuant to the Omidele Employment Agreement, Mr. Omidele receives an annual base salary of $280,000. Additionally Mr. Omidele received (i) a one-time stock option award of 800,000 shares of the Company’s common stock vesting in 1/3 annual installments on the anniversary date of hire, subject in each case to Mr. Omidele’s continued service on such anniversary date, commencing with the first 267,667 shares vesting on the first year anniversary of hire and the final 266,666 shares vesting on the third anniversary of date of hire, (ii) a one-time award of 175,000 shares of restricted shares of the Company’s common stock pursuant to a Restricted Stock Award Agreement. The restricted stock award will vest 50% on the one year anniversary of the date of hire, and the remainder will vest on the two year anniversary of the date of hire, subject in both cases to continued service of Mr. Omidele on such anniversary date. Both the option award and restricted stock award were made under the Company’s 2009 Equity Incentive Plan. Mr. Omidele is also eligible for a discretionary cash performance bonus each year targeted at between 0% and 100% of his then-current base salary, as well as additional equity grants, in the discretion of the Company’s Board of Directors. In addition, if the Company terminates Mr. Omidele’s employment without Cause (as defined in the Omidele Employment Agreement), (i) the Company must pay to Mr. Omidele an amount equal to the base salary plus target annual bonus as determined by the Board of Directors for the year of termination, (ii) any outstanding restricted stock and stock options shall have their vesting period immediately accelerated by 12 months, with all vested Company stock options (including accelerated options) remaining exercisable for a period of 12 months following the date of separation, in exchange for a full release of all claims against the Company and its related parties, and (iii) the Company shall reimburse Mr. Omidele for up to 12 months for the excess, if any, of his cost of COBRA Continuation Coverage under the Company’s group medical plan above the amount Mr. Omidele would have paid for such coverage had Mr. Omidele remained an employee of the Company.

Merger-Related Transactions

Immediately prior to the Mergers of May 7, 2007, ADS issued to its placement agents 1,860,001 warrants to purchase Class B membership units of ADS. Included were (i) warrants to purchase 3,825 Class B membership units of ADS issued to Michael

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

McTeigue, an executive officer of ADS, (ii) warrants to purchase 83,354 Class B membership units of ADS issued to Chadbourn Securities, Inc., a NASD licensed broker-dealer for which Laird Q. Cagan served as a registered representative and Managing Director, and (iii) warrants to purchase 696,094 Class B membership units of ADS issued to Laird Q. Cagan, a former member of the Company’s Board of Directors and the then-beneficial owner of 7.7% of the Company’s Common Stock. These warrants were exchanged in the Mergers for warrants exercisable for 1,860,001 shares of Common Stock of the Company. The Company has accounted for this as an offering cost applicable to paid-in capital and therefore will not record any compensation expense on these warrants. At December 31, 2011, 997,453 warrants remained unexercised, at a weighted average exercise price of $1.30 per share of Common Stock, and expire May 7, 2012.

Relationships with Li Xiang Dong

During the third quarter of 2009, the Company conducted its enhanced oil recovery and production business prior to incorporation of its Chinese joint venture company, Beijing Dong Fang Ya Zhou Petroleum Technology Service Company Limited (Dong Fang), through an arrangement with Tongsheng, a subsidiary of the family owned business of Mr. Li Xiang Dong (LXD). Upon the incorporation of Dong Fang in China on September 24, 2009, LXD became a 24.5% interest owner in Dong Fang. The patent application rights and related technology for the specialty chemicals and processes in this business were contributed to Dong Fang by LXD. The original arrangement with Tongsheng was necessary because, pending the incorporation of Dong Fang, the Company was not licensed in China to purchase, blend or sell chemicals. Subsequently, Dong Fang did not have a license to manufacture finished chemicals. Under the subsequent arrangement with Tongsheng for finished product sales, Tongsheng purchased raw chemicals from Dong Fang, manufactured specialty blends of chemicals using technology developed by LXD, and sold the finished product to the Company’s customers. Tongsheng remitted to the Company revenues it collected in advance of delivering finished product to customers and billed the Company for the related costs.

Oyo Field Transaction with CAMAC Energy Holdings Limited and Affiliates (CEHL)

See Note 4 regarding the Oyo Field transaction in April, 2010, which resulted in a change in control of the Company and began a related party relationship with the new majority owner and additional parties. Dr. Kase Lawal, a member of the Company’s Board of Directors, is the Chairman and Chief Executive Officer of CEHL. Dr. Lawal also owns 27.7% of CAMAC International Limited, which indirectly owns 100% of CAMAC Energy Holdings Limited. As a result, Dr. Lawal may be deemed to have an indirect material interest in agreements related to the Oyo Field involving CEHL.

Technical Services Agreement with CEHL

On April 7, 2010, CEHL entered into a technical services agreement with the Company to provide the Company with certain technical services with respect to the Oyo Field. In consideration for these services, the Company would pay CEHL (i) an initial monthly service fee of $400,000 per month for the initial three months, plus out-of-pocket expenses, commencing immediately following the closing, with the monthly service fee to be negotiated after the initial three months, and (ii) $1.6 million for service-related expenses incurred by CEHL prior to the closing, due and payable from proceeds received by the Company under the PSC following the closing. The technical services agreement had an initial term of five years, but was terminable upon 30 days’ prior written notice by the Company. The technical services agreement was terminated on March 31, 2011.

Right of First Refusal Agreements with CEHL

On April 7, 2010, the Company and CEHL entered into a Right of First Refusal Agreement, pursuant to which, for a period of five years following that date, CEHL has granted to the Company a right of first refusal with respect to any and all licenses, leases and other contract rights for the exploration or production of oil or natural gas currently held by or hereafter acquired by or arising and inuring to CEHL that CEHL offers for sale, transfer, license or other disposition, other than such sales that occur in the ordinary course of business, subject to certain terms and conditions as set forth therein.

Oyo Field Supplemental Agreement with CEHL

On April 7, 2010, CEHL, Allied Energy PLC, a wholly-owned subsidiary of CEHL (“Allied”), and CAMAC Petroleum Limited, the Company’s wholly-owned Nigerian subsidiary (“CPL”), entered into the Oyo Field Agreement (the “Supplemental Agreement”) to provide certain management rights as it relates to the Contract Rights. In addition, the parties agreed that if any non-Oyo Field operating costs incurred prior to the date of the Supplemental Agreement exceed $80,000,000, then Allied shall indemnify CPL for any decrease in CPL’s allocation of “profit oil” and “cost oil” from the Oyo Field from what would have otherwise been allocated to CPL in the absence of such prior non-Oyo Field operating costs in excess of $80,000,000. The Supplemental Agreement also provides that CEHL will indemnify CPL for any negative effect on CPL’s share of “profit oil” in certain circumstances. The Supplemental Agreement expires when the Oyo Field has been abandoned and all applicable filing and reporting requirements relating to CPL’s interest in the Oyo Field have been satisfied or are no longer applicable.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

On February 15, 2011, Allied, CEHL and CPL entered into the Amended and Restated Oyo Field Agreement Hereby Renamed OML 120/121 Management Agreement (the “Management Agreement”). Under the Management Agreement, the arrangements entered into pursuant to the Supplemental Agreement were extended to cover the entirety of OML 120/121 and that the indemnities described above with respect to non-Oyo Field operating costs provided for under the Oyo Field Agreement were removed.

Registration Rights Agreements with CEHL

On April 7, 2010, the Company and CEHL entered into a Registration Rights Agreement, pursuant to which the Company was required to prepare and file with the SEC a registration statement on Form S-3 covering the resale of the Consideration Shares, in addition to providing unlimited “piggyback” registration rights to CEHL with respect to the Consideration Shares, in each case, subject to certain limitations and conditions. If any Consideration Shares were not covered by a registration statement within 18 months following the closing date, the Company would be required to pay liquidated damages to CEHL. As required, the Company filed a related Form S-3 with the SEC on May 21, 2010, which became effective on June 4, 2010.

On February 15, 2011, the Company and CEHL entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company agreed to prepare and file with the SEC one or more registration statements covering the resale of any and all shares of the common stock of the Company issued to Allied under an option-based consideration structure pursuant to the Purchase Agreement defined below (related to the acquisition of the non-Oyo portion of OML 120/121), in addition to providing certain “piggyback” and other registration rights to CEHL with respect to the shares issued, in each case, subject to certain limitations and conditions. Each registration statement must be filed within 15 days of the Company’s receipt of Allied’s election to receive shares under the Purchase Agreement (subject to such notice being received within 15 days of the occurrence of a milestone under the (Purchase Agreement). If any shares are not covered by a registration statement within 90 days following the required filing date of the registration statement, then the Company is required to pay liquidated damages to CEHL.

OML 120/121 Agreement with CAMAC Energy Holdings Limited and Affiliates

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

If any of the above milestones are reached and the Company elects not to retain the Non-Oyo Contract Rights at that time, then all the Non-Oyo Contract Rights will automatically revert back to CEHL without any compensation due to the Company and with CAMAC retaining all consideration paid by the Company to date. As of December 31, 2011 none of the above noted milestones were reached.

Dr. Kase Lawal, the Company’s Executive Chairman and member of the Board of Directors, and Chief Executive Officer, is a director of each of CEHL, CINL, and the Lender. Dr. Lawal also owns 27.7% of CAMAC International Limited, which indirectly owns 100% of CEHL. As a result, Dr. Lawal may be deemed to have an indirect material interest in the transaction contemplated by the OML 120/121 Agreement. Chairman Lawal recused himself from participating in the consideration and approval by the Company’s Board of Directors of the OML 120/121 Transaction.

Limited Waiver Agreement

On February 15, 2011, the Company, CPL, CAMAC Energy Holdings Limited, CAMAC International (Nigeria) Limited (“CINL”), and Allied entered into a Limited Waiver Agreement Relating to Purchase and Continuation Agreement (the “Limited Waiver Agreement”). Under the Limited Waiver Agreement, the Company and CPL agreed to waivers of certain conditions to closing under the Purchase and Continuation Agreement, dated December 10, 2010, among the Company, CPL, and CEHL (the “Purchase Agreement”), permitting CEHL to cure a certain lien (the “Lien”) and deliver certain data (the “Data”) within ten days of the closing of the Purchase Agreement. The Company also indefinitely waived the requirement that CEHL deliver certain equipment and related materials. The parties agreed that if CEHL fails to discharge the Lien and deliver the Data within ten business days of the closing of the Purchase Agreement, the Company may rescind and terminate the Purchase Agreement, subject to the approval of NAE, and in any event elect to receive a refund with interest of the initial $5 million cash payment made in connection with closing or seek indemnification and other claims without regard to certain limitations on indemnification in the Purchase Agreement.

Second Novation Agreement

On February 15, 2011, the Non-Oyo Contract Rights were assigned and assumed pursuant to a Second Agreement Novating Production Sharing Contract (the “Second Novation Agreement”) by and among Allied, CINL, Nigerian NAE, and CPL. The Second Novation Agreement provides for the novation of the Non-Oyo Contract Rights from CEHL to CPL, a wholly-owned subsidiary of the Company, and consent to the novation by NAE, the operator under the OML 120/121 PSC. The Second Novation Agreement further provides for the continued waiver by NAE of its entitlement to “profit oil” in favor of Allied pursuant to Section 8.1(e) of the OML 120/121 PSC, and that notwithstanding anything to the contrary contained in the OML 120/121 PSC, the profit sharing allocation set forth in the OML 120/121 PSC shall be maintained after the consummation of the Transaction.

Promissory Note and Guaranty Agreement

On June 6, 2011, CAMAC Petroleum Limited (“CPL”), a wholly owned subsidiary of the Company, executed a Promissory Note (the “Promissory Note”) in favor of Allied (the “Lender”). Under the terms of the Promissory Note, the Lender agreed to make loans to CPL, from time to time and pursuant to requests by CPL, in an aggregate sum of up to $25.0 million. On June 8, 2011, CPL received initial loan proceeds of $25.0 million under the Promissory Note. Interest accrues on outstanding principal under the Promissory Note at a rate of 30 day LIBOR plus 2% per annum. The entire loan outstanding of $25.0 million was repaid on August 23, 2011. CPL may prepay and re-borrow all or a portion of such amount from time to time, but the unpaid aggregate outstanding principal amount of all loans will mature on June 6, 2013. In late 2011, CPL re-borrowed $6 million which was outstanding as of December 31, 2011.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Transactions with Related Parties

The Company has transactions in the normal course of business with its shareholders, CEHL and their affiliates. The following tables summarize related party transactions and balances for the respected periods.


	As of December 31,
	2011		2010
	(In thousands)
EORP related parties, accounts receivable	$	—	$	39
CEHL, accounts payable	$	162	$	2,244
CEHL, L/T note payable	$	6,000	$	—
US executive bonuses, accounts payable	$	290	$	400

	Years Ended December 31,
	2011		2010		2009
	(In thousands)
CEHL, purchases charged to expense	$	3,243	$	3,471	$	—
CEHL, interest on L/T note payable	$	120	$	—	$	—

NOTE 20. — SUBSEQUENT EVENTS

Termination of Agreement for Proposed Acquisition (Avana Petroleum Limited)

Award of Gambia Offshore Exploration Blocks

On January 23, 2012 the Company announced it has entered into an agreement with the Gambian Ministry of Petroleum (on behalf of the Government of the Republic of Gambia) on the provisional award of two offshore exploration blocks located in the West African Transform Margin. The Company will be the operator with 85% interest in the blocks A2 and A5, having a total surface area of 2,666 square kilometers in water depths of between 600-1,000 meters. Gambia National Petroleum Company will be carried as a 15% interest through first oil. The agreement sets forth the negotiated fiscal terms and work program for the two blocks and is subject to signing of the final petroleum exploration licenses within 90 days of the agreement date.

CAMAC ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Award of Kenya Exploration Blocks

NOTE 21. — SELECTED UNAUDITED QUARTERLY FINANCIAL DATA


	Three Months Ended
	March 31, 2011			June 30, 2011		September 30, 2011			December 31, 2011
				(In thousands, except per share data)
Total revenues	$	—		$	20,017	$	9,648		$	9,245
Operating (loss) income (3)		(28,256	)		6,181		(89	)		(1,751	)
Net (loss) income attributable to CAMAC Energy Inc.		(28,198	)		5,697		(675	)		(1,737	)
Net loss per share
Basic		(0.18	)		0.04		(0.00	)		(0.01	)
Diluted		(0.18	)		0.04		(0.00	)		(0.01	)


	Three Months Ended
	March 31, 2010			June 30, 2010			September 30, 2010			December 31, 2010
				(In thousands, except per share data)
Total revenues (1)	$	77		$	12,149		$	3,986		$	4,439
Impairment of assets (2)		—			—			186,235			—
Operating loss (3)		(3,326	)		(3,254	)		(188,759	)		(35,043	)
Net loss attributable to CAMAC Energy Inc.		(3,174	)		(3,172	)		(188,557	)		(35,565	)
Net loss per share
Basic		(0.07	)		(0.02	)		(1.32	)		(0.25	)
Diluted		(0.07	)		(0.02	)		(1.32	)		(0.25	)

(1)	The Company started recognizing crude oil revenues in the second quarter of 2010 as a result of the purchase of the Oyo Contract Rights.

(2)	The Company recognized a non-cash write down of the net book value of our oil and gas properties in the third quarter of fiscal 2010 as discussed in Note 6.

(3)	During December 2010 and year 2011, the Company incurred a total of $59.6 million in costs relative to the workover to reduce gas production rising from the #5 well in the Oyo Field

CAMAC ENERGY INC.

SUPPLEMENTAL DATA ON OIL AND GAS EXPLORATION AND PRODUCING ACTIVITIES (UNAUDITED)

Estimated Net Proved Crude Oil Reserves

The following estimates of the net proved crude oil reserves in Nigeria are based on evaluations prepared by third-party reservoir engineers. Reserve volumes and values were determined under the method prescribed by the SEC, which requires the application of the 12-month average price calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month prior period to the end of the reporting period and current costs held constant throughout the projected reserve life. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing properties. Accordingly, reserve estimates are expected to change as additional performance data becomes available.

Table I - Proved Reserves - Crude Oil


	Consolidated Subsidiaries
(Thousands of barrels)	Africa			Total
December 31, 2009		—			—
Change for year due to:
Revisions		(30	)		(30	)
Improved recovery		—			—
Purchases		5,424			5,424
Extensions and discoveries		—			—
Sales of minerals in place		—			—
Production		(106	)		(106	)

Total change for year 2010		5,288			5,288

December 31, 2010		5,288			5,288
Change for year due to:
Revisions		(2,288	)		(2,288	)
Improved recovery		—			—
Purchases		—			—
Extensions and discoveries		—			—
Sales of minerals in place		—			—
Production		(337	)		(337	)

Total change for year 2011		(2,625	)		(2,625	)

December 31, 2011		2,663			2,663


Developed reserves
December 31, 2009		—			—
December 31, 2010		387			387
December 31, 2011		92			92

Undeveloped reserves
December 31, 2009		—			—
December 31, 2010		4,901			4,901
December 31, 2011		2,571			2,571

Capitalized Costs

The Company follows the successful efforts method of accounting for capitalization of costs of oil and gas producing activities. Amounts below include only activities classified as exploration and producing.

CAMAC ENERGY INC.

SUPPLEMENTAL DATA ON OIL AND GAS EXPLORATION AND PRODUCING ACTIVITIES (UNAUDITED)

Table II - Capitalized Costs - Oil and Gas Activity


	Consolidated Subsidiaries
(In thousands)	Africa		Asia		Total
As of December 31, 2011
Proved properties	$	206,212	$	—	$	206,212
Unproved properties		5,000		150		5,150
Support equipment and facilities		—		165		165

Total gross		211,212		315		211,527
Accumulated depreciation, depletion and amortization		15,233		150		15,383

Net capitalized costs	$	195,979	$	165	$	196,144



	Consolidated Subsidiaries
(In thousands)	Africa		Asia		Total
As of December 31, 2010
Proved properties	$	206,212	$	—	$	206,212
Unproved properties		—		228		228
Support equipment and facilities		—		236		236

Total gross		206,212		464		206,676
Accumulated depreciation, depletion and amortization		1,917		168		2,085

Net capitalized costs	$	204,295	$	296	$	204,591

Costs Incurred

Costs incurred include capitalized and expensed amounts for the year excluding support equipment and facilities.

Table III - Costs Incurred - Oil and Gas Activity


	Consolidated Subsidiaries
(In thousands)	Africa		Asia		General Eastern Hemisphere		Total
Year ended December 31, 2011
Proved property acquisition	$	—	$	—	$	—	$	—
Unproved property acquisition		5,000		—		—		5,000
Exploration		206		2,710		684		3,600
Development		—		—		—		—

Total costs incurred	$	5,206	$	2,710	$	684	$	8,600



	Consolidated Subsidiaries
(In thousands)	Africa		Asia		General Eastern Hemisphere		Total
Year ended December 31, 2010
Proved property acquisition	$	394,537	$	—	$	—	$	394,537
Unproved property acquisition		—		—		—		—
Exploration		—		901		—		901
Development		—		—		—		—

Total costs incurred	$	394,537	$	901	$	—	$	395,438

Results of Operations

Results of operations includes activity allocable to oil and gas exploration and producing operations.

Table IV - Results of Operations for Exploration and Producing Operations


	Consolidated Subsidiaries
(In thousands)	Africa			Asia			General Eastern Hemisphere			Total
Year ended December 31, 2011
Revenues	$	38,910		$	—		$	—		$	38,910
Production costs		(3,293	)		—			—			(3,293	)
Exploratory expenses		(206	)		(2,545	)		(684	)		(3,435	)
Depreciation, depletion and amortization		(13,316	)		(59	)		—			(13,375	)
Other expenses		(28,977	)		(1,382	)		—			(30,359	)

Results of operations before income taxes		(6,882	)		(3,986	)		(684	)		(11,552	)
Income tax expense		(988	)		—			—			(988	)

Results of operations	$	(7,870	)	$	(3,986	)	$	(684	)	$	(12,540	)



	Consolidated Subsidiaries
(In thousands)	Africa			Asia			General Eastern Hemisphere		Total
Year ended December 31, 2010
Revenues	$	20,448		$	—		$	—	$	20,448
Production and other costs		(15,005	)		—			—		(15,005	)
Exploration expenses		—			(1,059	)		—		(1,059	)
Impairment of assets		(186,235	)		—			—		(186,235	)
Depreciation, depletion and amortization		(4,007	)		(85	)		—		(4,092	)
Other operating expenses		(30,699	)		(1,239	)		—		(31,938	)

Results of operations before income taxes		(215,498	)		(2,383	)		—		(217,881	)
Income tax expense		(423	)		1			—		(422	)

Results of operations	$	(215,921	)	$	(2,382	)	$	—	$	(218,303	)

Standardized Measure of Discounted Future Net Cash Flows

Future net cash flows below are computed using first day of the month average commodity prices, year-end costs and statutory tax rates (adjusted for tax credits and other items) that relate to our existing proved crude oil reserves. Amounts below for production sold and production costs exclude royalties.

CAMAC ENERGY INC.

SUPPLEMENTAL DATA ON OIL AND GAS EXPLORATION AND PRODUCING ACTIVITIES (UNAUDITED)

Table V - Standardized Measure of Discounted Future Net Cash Flows - Proved Reserves

		(226,759)			(226,759)
	Consolidated Subsidiaries
(In thousands)	Africa			Total
As of December 31, 2011
Future cash inflows from production sold	$	298,936		$	298,936
Future production costs		(140,104	)		(140,104	)
Future development costs		(62,308	)		(62,308	)
Future income taxes		(16,212	)		(16,212	)

Future net cash flows before discount		80,312			80,312
Discount at 10% annual rate		(18,625	)		(18,625	)

Standardized measure of discounted future net cash flows	$	61,687		$	61,687


	Consolidated Subsidiaries
(In thousands)	Africa			Total
As of December 31, 2010
Future cash inflows from production sold	$	418,850		$	418,850
Future production costs		(226,759	)		(226,759	)
Future development costs		(45,000	)		(45,000	)
Future income taxes		(20,050	)		(20,050	)

Future net cash flows before discount		127,041			127,041
Discount at 10% annual rate		(31,345	)		(31,345	)

Standardized measure of discounted future net cash flows	$	95,696		$	95,696

Change in Standardized Measure of Discounted Future Net Cash Flows

The sources of change are explained below, discounted at a 10% annual rate.

Table VI - Changes in Standardized Measure of Discounted Future Net Cash Flows

		(226,759)			(226,759)
	Consolidated Subsidiaries
(In thousands)	Africa			Total
Standardized measure, December 31, 2009	$	—		$	—
Sales/production net of production costs		(5,891	)		(5,891	)
Development costs incurred		—			—
Purchases of reserves		98,961			98,961
Sales of reserves		—			—
Net change in sale prices and production costs on future production		5,970			5,970
Changes in estimated future development costs		(2,730	)		(2,730	)
Extensions, discoveries and improved recovery		—			—
Revisions of previous quantity estimates		(1,682	)		(1,682	)
Accretion of discount		4,773			4,773
Net change in income tax		(3,705	)		(3,705	)

Net change for year 2010		95,696			95,696

Standardized measure, December 31, 2010		95,696			95,696
Sales/production net of production costs		(35,617	)		(35,617	)
Development costs incurred		—			—
Purchases of reserves		—			—
Sales of reserves		—			—
Net change in sale prices and production costs on future production		60,735			60,735
Changes in estimated future development costs		(9,989	)		(9,989	)
Extensions, discoveries and improved recovery		—			—
Revisions of previous quantity estimates		(63,841	)		(63,841	)
Accretion of discount		10,417			10,417
Net change in income tax		4,286			4,286

Net change for year 2011		(34,009	)		(34,009	)

Standardized measure, December 31, 2011	$	61,687		$	61,687

CAMAC ENERGY INC.

SUPPLEMENTAL DATA ON OIL AND GAS EXPLORATION AND PRODUCING ACTIVITIES (UNAUDITED)

Table VII - Unit Prices


	Consolidated Subsidiaries
	Africa
Sales revenue per barrel of crude oil
2011	$	112.91
2010	$	85.16

Production costs per barrel of net crude oil production
2011	$	8.61
2010	$	34.54