Erin Energy (ERINQ) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________

FORM 10-Q

_______________________

(Mark One)

þQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

Commission file number  001-34525

CAMAC ENERGY INC.

(Exact name of issuer as specified in its charter)

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

250 East Hartsdale Ave.

Hartsdale, New York 10530

(Address of principal executive offices)

(914) 472-6070

(Issuer’s telephone number)

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

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  o  No  o

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

Large accelerated filer	o	Accelerated filer	þ
Non-accelerated filer	o	Smaller reporting company	o
(Do not check if a smaller reporting company)

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

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 5, 2010, is as follows:

Class of Securities	Shares Outstanding
Common Stock, $.001 par value	143,990,273

CAMAC Energy Inc.

(Formerly Pacific Asia Petroleum, Inc.)

Form 10-Q

Table of Contents

		Page
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION			1
CERTAIN  DEFINED TERMS			2
PART I  FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of  September 30, 2010 (unaudited) and December 31, 2009		3
	Condensed Consolidated Statements of Income (unaudited) for the nine months and three months ended  September 30, 2010 and 2009		4
	Condensed Consolidated Statements of Comprehensive Income (Loss)  (unaudited) for the nine months and three months ended September 30, 2010 and 2009		5
	Condensed Consolidated Statement of  Equity (Deficiency) (unaudited) for the nine months ended  September 30, 2010		6
	Condensed Consolidated Statements of Cash Flows  (unaudited) for the nine months ended September 30, 2010 and 2009		7
	Notes to Condensed Consolidated Financial Statements (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31
Item 4.	Controls and Procedures		31
PART II  OTHER INFORMATION
Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 3.	Defaults Upon Senior Securities		35
Item 4.	(Removed and Reserved)		35
Item 5.	Other Information		35
Item 6.	Exhibits		35
SIGNATURES			36

i

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

All statements, other than statements of historical fact, included in this Form 10-Q, including without limitation the  statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are, or may be deemed to be, forward-looking statements. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of CAMAC Energy Inc. (formerly Pacific Asia Petroleum, 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 Zh ou 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-Q. In our capacity as Company management, we may from time to time make written or oral forward-looking statements with respect to our long-term objectives or expectations which may be included in our filings with the Securities and Exchange Commission (the “SEC”), reports to stockholders and information provided in our web site.

The words or phrases “will likely,” “are expected to,” “is anticipated,” “is predicted,” “forecast,” “estimate,” “project,” “plans to continue,” “believes,” or similar expressions identify “forward-looking statements.” Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected.  We 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.

· Dependence on key personnel, technical services and contractor support.

· Fluctuation in quarterly operating results.

· Possible significant influence over corporate affairs by significant stockholders.

· Our ability to enter into definitive agreements to formalize foreign energy ventures and secure necessary exploitation rights.

· Our ability to raise capital to fund our operations on terms and conditions acceptable to the Company.

· Our 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.

1

CERTAIN DEFINED TERMS

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” ” Company,” and “our Company” refer to CAMAC Energy Inc. (“CEI”), 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 "CEI" 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 EnergyInc.  However, historical financial results presented herein are those of IMPCO from inception on August 25, 2005 to May 6, 2007, and the consolidated entity CAMAC Energy Inc. from May 7, 2007 forward, which is considered to be the continuation of IMPCO as CAMAC Energy Inc. for accounting purposes.

2

PART I

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 CAMAC Energy Inc. and Subsidiaries

(Formerly Pacific Asia Petroleum, Inc. and Subsidiaries)

Condensed Consolidated Balance Sheets

	As of			As of
	September 30,			December 31,
(In thousands, except par value and share data)	2010			2009
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	10,819		$	3,602
Short-term investments		255			1,736
Accounts receivable		8,942			69
Income tax refunds receivable		149			-
Prepaid expenses		899			427
Inventories		1,221			73
Deposits and advances		116			40
Total current assets		22,401			5,947
Non-current assets
Property, plant and equipment - at cost (net of accumulated depreciation, depletion and
amortization:  September 30, 2010 - $334;  December 31, 2009 - $182		207,219			451
Investment in long-term certificate of deposit		-			25
Long-term advances		34			33
Investment in nonsubsidiary - at fair value		148			479
Deferred charges		224			501
Total Assets	$	230,026		$	7,436
Liabilities and Equity
Current liabilities
Accounts payable	$	187		$	172
Income taxes payable		118			13
Accrued contracting and development fees		1,322			920
Accrued personnel expenses		210			368
Accrued liability for contingent acquisition cost		890			-
Accrued royalties		4,834			-
Accrued and other liabilities		562			564
Total current liabilities		8,123			2,037
Equity
Stockholders' equity - CAMAC Energy Inc. and subsidiaries
Common stock
Authorized - 300,000,000 shares at $.001 par value; Issued and outstanding -
143,695,200 at September 30, 2010; 43,037,596 at December 31, 2009		144			43
Preferred stock
Authorized - 50,000,000 shares at $.001 par value;
Issued - 23,708,952 at September 30, 2010 and December 31, 2009
Outstanding - None at September 30, 2010 and December 31, 2009		-			-
Paid-in capital		438,000			26,035
Accumulated deficit		(215,360	)		(20,457	)
Other comprehensive income (loss)		(246	)		91
Total stockholders' equity - CAMAC Energy Inc. and subsidiaries		222,538			5,712
Noncontrolling interests deficit		(635	)		(313	)
Total equity		221,903			5,399
Total Liabilities and Equity	$	230,026		$	7,436

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of this statement.

3

CAMAC Energy Inc. and Subsidiaries

(Formerly Pacific Asia Petroleum Inc. and Subsidiaries)

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per common	For the Nine Months						For the Three Months
share data)	Ended September 30,						Ended September 30,
	2010			2009			2010			2009
Revenues
Crude oil   (See Note 7)	$	21,037		$	-		$	8,790		$	-
Products		188			56			27			56
Services		15			-			3			-
Total revenues		21,240			56			8,820			56
Costs and operating expenses
Crude oil cost of sales  (See Note 7)		18,014			-			6,063			-
Products cost of sales		147			53			20			53
Operating expenses		1,997			1,812			809			925
Selling, general and administrative expenses		7,746			4,426			2,315			1,668
Exploratory expenses		75			1,457			26			71
Impairment of assets (See Note 8)		186,235			-			186,235			-
Depreciation, depletion and amortization		2,241			92			2,066			35
Total costs and operating expenses		216,455			7,840			197,534			2,752
Operating loss		(195,215	)		(7,784	)		(188,714	)		(2,696	)
Other income (expense)
Interest income		7			30			1			4
Interest expense		-			(1	)		-			-
Other expense		(3	)		-			(3	)		(1	)
Total other income		4			29			(2	)		3
Net loss before income taxes and
noncontrolling interests		(195,211	)		(7,755	)		(188,716	)		(2,693	)
Income tax expense		(13	)		(31	)		83			(8	)
Net loss		(195,224	)		(7,786	)		(188,633	)		(2,701	)
Less: Net loss - noncontrolling interests		321			61			76			57
Net Loss - CAMAC Energy Inc.
and Subsidiaries	$	(194,903	)	$	(7,725	)	$	(188,557	)	$	(2,644	)
Net loss per common share - CAMAC
Energy Inc. common stockholders -
basic and diluted	$	(1.79	)	$	(0.19	)	$	(1.32	)	$	(0.06	)
Weighted average number of common
shares outstanding, basic and diluted		108,993			41,474			143,313			42,220

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of this statement.

4

CAMAC Energy Inc. and Subsidiaries

(Formerly Pacific Asia Petroleum Inc. and Subsidiaries)

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)	For the Nine Months						For the Three Months
	Ended September 30,						Ended September 30,
	2010			2009			2010			2009
Net loss	$	(195,224	)	$	(7,786	)	$	(188,633	)	$	(2,701	)
Other comprehensive income (loss) -
pre-tax and net of tax:
Currency translation adjustment		(12	)		(5	)		(3	)		(1	)
Unrealized gain (loss) on investments
in securities		(329	)		81			51			81
Total other comprehensive income (loss)		(341	)		76			48			80
Comprehensive income (loss)		(195,565	)		(7,710	)		(188,585	)		(2,621	)
Less: Comprehensive (income) loss -
Noncontrolling interest share:
Net loss plus pre-tax and net of
tax other comprehensive (income) loss		325			61			76			57
Comprehensive income (loss) -
CAMAC Energy Inc. and
Subsidiaries	$	(195,240	)	$	(7,649	)	$	(188,509	)	$	(2,564	)

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of this statement.

5

CAMAC Energy Inc. and Subsidiaries

(Formerly Pacific Asia Petroleum, Inc. and Subsidiaries)

Condensed Consolidated Statement of Equity (Deficiency)

 Nine Months Ended September 30, 2010

(Unaudited)

(In thousands except par value)	CAMAC Energy Inc. Stockholders
	No. of
	Common
	Shares										Other						Total
	$.001 par		Common		Paid-in			Accumulated			Comprehensive			Noncontrolling			Equity
	value		Stock		Capital			Deficit			Income (Loss)			Interests			(Deficiency)
Balance - December 31, 2009		43,038	$	43	$	26,035		$	(20,457	)	$	91		$	(313	)	$	5,399
Issued on exercise of warrants and options		1,220		1		606			-			-			-			607
Vesting of restricted stock		510		1		(1	)		-			-			-			-
Issued for cash, net of issuance costs		9,147		9		35,119			-			-			-			35,128
Compensation cost of stock options and restricted stock		-		-		3,051			-			-			-			3,051
Issued for services		313		1		1,096			-			-			-			1,097
Adjustments to noncontrolling interests in subsidiary equity		-		-		-			-			-			3			3
Issued for assets in Nigeria		89,467		89		372,094			-			-			-			372,183
Currency translation		-		-		-			-			(8	)		(4	)		(12	)
Unrealized gain (loss) on investments in securities		-		-		-			-			(329	)		-			(329	)
Net loss		-		-		-			(194,903	)		-			(321	)		(195,224	)
Balance - September 30, 2010		143,695	$	144	$	438,000		$	(215,360	)	$	(246	)	$	(635	)	$	221,903

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of this statement.

6

CAMAC Energy Inc. and Subsidiaries

(Formerly Pacific Asia Petroleum Inc. and Subsidiaries)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)	Nine Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2010			2009
Cash flows from operating activities
Net loss - CAMAC Energy Inc. and Subsidiaries	$	(194,903	)	$	(7,725	)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities
Currency transaction (gain) loss		(11	)		2
Stock-related compensation		3,404			2,075
Noncontrolling interest in net loss		(321	)		(61	)
Impairment of assets		186,235			-
Depreciation, depletion and amortization		2,241			92
Changes in current assets and current
liabilities:
(Increase) decrease in receivables		5,007			(55	)
(Increase)  in advances		(8	)		(4	)
(Increase)  in deposits		(196	)		(75	)
(Increase)  in prepaid expenses		(267	)		(125	)
(Increase) decrease in inventory		5,514			(22	)
Increase in accounts payable		15			312
Increase in income tax and accrued liabilities		2,798			382
Net cash provided by (used in) operating activities		9,508			(5,204	)
Cash flows from investing activities
Net sales of available for sale securities		1,506			(468	)
Purchase of long-term certificate of deposit		-			(25	)
Refunds on prospective property acquisitions		-			1,150
(Increase) in deferred charges		(20	)		(6	)
Additions to property, plant and equipment		(39,515	)		(186	)
Net cash provided by (used in) investing activities		(38,029	)		465
Cash flows from financing activities
Warrants and options exercised for cash		608			-
Issuance of common stock net of issuance costs		35,128			-
Net cash provided by financing activities		35,736			-
Effect of exchange rate changes on cash		2			(7	)
Net increase (decrease) in cash and cash equivalents		7,217			(4,746	)
Cash and cash equivalents at beginning of period		3,602			10,516
Cash and cash equivalents at end of period	$	10,819		$	5,770
Supplemental disclosures of cash flow information
Interest paid	$	-		$	1
Income taxes paid	$	20		$	31
Supplemental schedule of non-cash investing and financing activities
Common stock issued for services and fees	$	1,096		$	1,018
Common stock issued for stock of nonsubsidiary	$	-		$	553
Issuance costs paid as warrants issued	$	457		$	-
Common stock issued for net assets acquired in acquisition	$	372,183		$	-
Increase in fixed assets accrued in liabilities	$	32		$	-

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of this statement.

7

CAMAC Energy Inc. and Subsidiaries

(Formerly Pacific Asia Petroleum, Inc. and Subsidiaries)

Notes to Condensed Consolidated Financial Statements

September 30, 2010

(Unaudited)

NOTE 1.  INTERIM FINANCIAL STATEMENTS; DISCONTINUANCE OF DEVELOPMENT STAGE COMPANY REPORTING BASIS

With the exception of the condensed consolidated balance sheet as of December 31, 2009, which has been derived from audited financial statements, the accompanying condensed consolidated financial statements of CAMAC Energy Inc. and Subsidiaries (formerly Pacific Asia Petroleum, Inc. and Subsidiaries) (the “Company”) are unaudited.  Management believes this interim data includes all adjustments necessary for a fair presentation of the results for the interim periods reported.  All adjustments were of a recurring nature, except the impairment discussed in Note 8.

For the period from inception of the Company through March 31, 2010, the Company’s financial statements were prepared on the basis for a development stage company.  In the three months ended June 30, 2010 the Company commenced the recognition of significant revenues from operating assets and therefore is no longer reporting as a development stage company. Therefore, presentation of prior year data has been revised to conform to the current year reporting basis as an operating company.  In addition, certain amounts for cumulative effects from inception of the Company and other disclosures required for a development stage company in the financial statements are no longer included.  The Company has also commenced reporting current and prior year amounts on the face of the financial statements in thous ands, except where otherwise indicated.

Certain notes and other information have been condensed or omitted from the interim financial statements present in this Quarterly Report on Form 10-Q.  Therefore, these financial statements should be read in conjunction with the Company’s 2009 Annual Report on Forms 10-K and 10-K/A, in which the financial statements were prepared on a development stage company basis.  The results for the three months and nine months periods ended September 30, 2010 are not necessarily indicative of future results.

NOTE 2.  BUSINESS AND YEAR 2007 MERGER AND RECAPITALIZATION

Refer to Notes 1 and 2 to the consolidated financial statements in our Year 2009 Forms 10-K and 10-K/A for a description of the Company’s business, and the merger and recapitalization of the Company that occurred in 2007.

NOTE 3.  BASIS OF PRESENTATION AND USE OF ESTIMATES

The Company’s interim financial statements are prepared on a consolidated basis under U.S. Generally Accepted Accounting Principles.  Management uses estimates and assumptions in preparing these financial statements.   Those estimates and assumptions affect the reported amounts of assets and liabilities, disclosures of contingencies, and reported revenues and expenses.  Actual results could vary from those estimates.

NOTE 4. SIGNIFICANT ACCOUNTING POLICIES

Refer to Note 4 to the consolidated financial statements in year 2009 Form 10-K, as amended, for a description of the Company’s significant accounting policies. Amendments to those existing accounting policies since December 31, 2009 are indicated below.

Accounts Receivable – Trade accounts receivable are accounted for at cost less allowance for doubtful accounts.  Amounts of trade receivables deemed uncollectible are charged off generally one year after the original due date.

Inventories – Crude oil inventories are recorded at cost using the first-in, first-out (FIFO) method of accounting.

Currency Translation – The functional currency of the Company’s Nigeria interests is the U.S. dollar.

8

 NOTE 5.   ADOPTION OF UPDATES TO THE FASB ACCOUNTING STANDARDS CODIFICATION

In July 2009, The Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (“Codification”) or (“ASC”) which became the source of authoritative accounting principles effective with financial statements of interim and annual periods ending after September 15, 2009.  Sources of accounting principles referred to in this report refer to Topics, Subtopics and Sections of the Codification.

ASC 825-10

Commencing with the interim period ending June 30, 2009, the Company adopted new requirements for quarterly disclosures related to fair values of financial instruments whether or not currently reflected on the balance sheet at fair value.  Previously, qualitative and quantitative information about fair value estimates for financial instruments not measured on the balance sheet at fair value were disclosed only annually.   Quarterly disclosures were required under an update to ASC Topic 825 (Financial Instruments) effective for interim periods ending after June 15, 2009.   The adoption of this update did not have a material impact on the Company’s results of operations or financial condition.

ASC 810-10

Effective January 1, 2009, the Company adopted an update to ASC Topic 810 (Consolidation) that changes the accounting and reporting for noncontrolling interests (formerly known as minority interests) in subsidiaries and for the deconsolidation of a subsidiary.  The presentation of noncontrolling interests in the balance sheet and income statement has been revised to report noncontrolling interests as a separate component of total consolidated equity and total consolidated net income, rather than as reduction adjustments.  In addition, if a subsidiary is deconsolidated, the parent company will now recognize a gain or loss to net income based upon the fair value of the noncontrolling equity at that date.

The update is applied prospectively except for the provisions involving financial statement line detail presentation.  All of the Company’s financial statements contain changes as a result of the update. Under the update, the amount formerly titled “Net Loss” in the income statement is now referred to as “Net Loss – CAMAC Energy Inc. and Subsidiaries,” to designate the portion of total net loss attributable to the controlling stockholder interest of the parent company.

ASC 855-10

Effective with the six months ended June 30, 2009, the Company adopted an update to ASC Topic 855 (Subsequent Events).   Subsequent events are events or transactions about which information becomes available after the balance sheet date but before the financial statements are issued or are available to be issued.  In the case of a company defined as an “SEC filer” (as per an amendment issued in February 2010), the applicable cutoff date is the date the financial statements are issued, whereas previously the cutoff date could be the date the financial statements were available for issuance.

The update requires that certain subsequent events (“recognized subsequent events”) be recorded in the financial statements of the latest preceding period currently being issued.  These items provide evidence about conditions that existed at the date of that balance sheet, including estimates inherent in preparing the financial statements for that period.   Other subsequent events (“nonrecognized subsequent events”) are not recorded in the financial statements for the latest preceding period currently being issued. Those items relate to conditions that arose after the balance sheet date.   Disclosure is required for nonrecognized subsequent events if necessary to prevent those financial statements from being misleading.

ASU No. 2009-17 (amendment of ASC Topic 810 – Consolidations)

Effective January 1, 2010, the Company applied ASU No. 2009-17, which requires consolidation of certain special purpose entities that were previously exempted from consolidation. The revised criteria define a controlling financial interest for requiring consolidation as:  the power to direct the activities that most significantly affect the entity’s performance, and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity.  The initial adoption had no effect on the Company’s financial statements.

ASU 2010-03 and ASU 2010-14

In January and April 2010, respectively, the FASB issued ASU 2010-03, Extractive Activities-Oil and Gas (Topic 932) and 2010-14, Accounting for Extractive Activities-Oil & Gas. The objective of these updates is to align the oil and gas accounting and reserve estimation and disclosure requirements of Extractive Activities-Oil & Gas (Topic 932) with the requirements of the Securities and Exchange Commission’s (SEC) Release 33-8895, Modernization of Oil and Gas Reporting, which became effective for registration statements filed beginning January 1, 2010 and for annual reports for years ending on or after December 31, 2009. SEC Release 33-8895 was issued to provide investors with more meaningful information on which to base their evaluations of oil and gas companies, taking into account the significant technological advances that have occurred since the original SEC rules were issued some three decades ago. The Company is applying the requirements of Release 33-8895, though it has not yet reported information regarding reserves in its annual reports as the Company had no proved reserves prior to year 2010.

9

NOTE 6. ACQUISITION OF OYO FIELD PRODUCTION SHARING CONTRACT INTEREST

On April 7, 2010, the Company consummated the acquisition of all of the interests held by CAMAC Energy Holdings Limited (“CEHL”) and certain of its affiliates (collectively,“CAMAC”) 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 “Contract Rights”).  The Production Sharing Contract governing the Oyo Field is by and among Allied Energy Plc (“Allied”)(formerly, Allied Energy Resources Nigeria Limited, and 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 Contract Rights, the Company paid CEHL $32 million in cash consideration (the “Cash Consideration”) and issued to CEHL 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 are exercised following the closing, then the Company is obligated to issue up to an additional 13,457,188 Consideration Shares to CEHL to maintain CEHL’s approximately 62.74% interest in the Company. As of September 30, 2010, 112,000 of such warrants had been exercised, resulting in an obligation for the Company to issue an additional 188,591 Consideration Shares. The Company is unable to estimate the number of such remaining warrants and options which may ultimately be exercised. As additional Cash Consideration, the Company agreed to pay CEHL $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 connection with the closing on April 7, 2010, the Company, CAMAC and certain of their respective affiliates entered into a number of ancillary documents to consummate the transaction.

As a result of this transaction, a change in control of the Company occurred and CAMAC is now a related party.   As a result of its controlling interest in the Company, CAMAC 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, CAMAC 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 CAMAC.

On April 7, 2010, the Company and CAMAC 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 CAMAC 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 CAMAC.  As required, the Company filed a related Form S-3 with the SEC on May 21, 2010, which became effective on June 4, 2010.

The original purchase cost for the acquisition of CAMAC’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.

(In thousands)
Accounts receivable	$	13,880
Inventories		11,619
Property cost of PSC interest		393,648
Current liabilities		(7,771	)
Total purchase cost	$	411,376

                                                                                                                                                            &# 160;                                               

See Note 8. Impairment of Assets regarding the recording of an impairment loss on the property cost portion of this acquisition as of September 30, 2010.

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NOTE 7. REVENUES AND COST OF SALES

Following is an analysis of the components for revenues and cost of sales related to crude oil for the nine months and three months ended September 30, 2010.

	Nine Months Ended  September 30, 2010				Three Months Ended  September 30, 2010
(In thousands)	Revenues		Cost of Sales		Revenues		Cost of Sales
-From liquidation of acquired inventory (Oyo Field interest)	$	11,827	$	11,715	$	-	$	-
-From post-acquisition production (Oyo Field interest)		9,210		6,299		8,790		6,063
Crude oil (includes royalty oil)	$	21,037	$	18,014	$	8,790	$	6,063

                                                                                                                  ;                                                                                               

As shown in Note 6, one of the assets acquired as part of the Oyo Field interest was inventory.  This was for crude oil which had been produced but not yet sold as of the acquisition date. As evident in the tables of revenues and cost of sales above, a significant portion of the crude oil revenues in the nine months ended September 30, 2010 arose from the sale of this acquired inventory.  At the date of acquisition this inventory had been recorded at fair value as required under applicable accounting principles. Accordingly, the related portion of cost of sales for nine months ended September 30, 2010 reflects the liquidation of this inventory based on that recorded cost.   For the remainder of crude oil sold in the nine month and three month periods ended September 30, 2010, cost rather than fair v alue is the basis for cost of sales.

NOTE 8. IMPAIRMENT OF ASSETS

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 “Reserve Report”).

Upon review of the 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 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. This fair value was determined usi ng “Level 3” inputs as defined in ASC Topic 820 (Fair Value Measurements and Disclosures).

At September 30, 2010, a non-cash impairment charge of $186,235,000 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.

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NOTE 9. OPERATING SEGMENT DATA

The Company manages its operations on a geographical basis.  Commencing with the three months ended June 30, 2010, the Company’s two operating segments are Africa and Asia.  Previously the Company did not report by segments as there was only one operating segment.

	Nine Months Ended September 30,				Three Months Ended September 30,
Segment Revenues	2010		2009		2010		2009
(In thousands)
Africa	$	21,037	$	-	$	8,790	$	-
Asia		203		56		30		56
Total revenue - external customers	$	21,240	$	56	$	8,820	$	56

                                                                                                            

The Company has no intersegment 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.

	Nine Months Ended September 30,						Three Months Ended September 30,
Segment Net Income (Loss)	2010			2009			2010			2009
(In thousands)
Africa – before impairment	$	839		$	-		$	636		$	-
Africa – impairment		( 186,235	)		-			(186,235	)		-
Asia		(1,885	)		(3,358	)		(644	)		(1,013	)
Total segment net income (loss)		(187,281	)		(3,358	)		(186,243	)		(1,013	)
Corporate and other		(7,622	)		(4,367	)		(2,314	)		(1,631	)
Net income (loss) – CAMAC Energy Inc. and Subsidiaries	$	(194,903	)	$	(7,725	)	$	(188,557	)	$	(2,644	)

Segment assets below exclude intercompany receivables, intercompany investments, cash and cash equivalents, cash investments and marketable securities.

	September 30,  2010		December 31, 2009
Segment Assets
(In thousands)
Africa	$	216,416	$	-
Asia		1,002		582
Total segment assets		217,418		582
Corporate and other		12,608		6,854
Total assets	$	230,026	$	7,436

NOTE 10.  INVENTORIES

                                                                                                                                                            &# 160;                                                                                       

The components of the Company’s inventories were as follows at the respective dates.

	September 30,  2010		December 31, 2009
(In thousands)
Crude oil	$	1,151	$	-
Unfinished chemicals		47		51
Finished chemicals		23		22
Total inventories	$	1,221	$	73

 Cost of crude oil inventory reflects the Company’s capitalized technical services expenses as an operating cost for administration of our interest in the Oyo Field.

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NOTE 11.  RELATED PARTY TRANSACTIONS

Transaction with Richard Grigg

In March 2009, the Company issued 970,000 shares of Company Common Stock, to Richard Grigg, the Company’s Senior Vice President and Managing Director,  in exchange for 3,825,000 Ordinary fully paid shares of Sino Gas & Energy Holdings Limited (SG&E) owned by Mr. Grigg. This represented approximately 3.26% of the outstanding shares of SG&E as of March 9, 2009. The acquired shares were originally accounted for by the Company as a non-current investment carried at cost.  Commencing with the interim period ending September 30, 2009 the carrying amount was recorded at fair value, due to SG&E trading publicly on the Australian Stock Exchange beginning September 15, 2009. Mr. Grigg is a former executive of SG&E who joined the Company in October 2007.  The SG&E shares were acquired in or der to eliminate possible conflicts of interest involving Mr. Grigg regarding possible future transactions that may occur between the Company and SG&E, as both companies’ business plans involve developing operations in China.

Relationships with Li Xiangdong

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 Xiangdong (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 have been 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. Dong Fang does not presently have a licen se to manufacture finished chemicals. Under the most current arrangement with Tongsheng for finished product sales, Tongsheng purchases raw chemicals from Dong Fang, manufactures specialty blends of chemicals using technology developed by LXD, and sells the finished product to the Company’s customers. Tongsheng remits to the Company revenues it collects in advance of delivering finished product to customers and bills the Company for the related costs.

Employment Agreement with Jamie Tseng

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.

Employment Agreement with Stephen F. Groth

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 Janu ary 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 Com pany 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.

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Employment Agreement and Consulting Agreement with Frank C. Ingriselli

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 agreem ent, 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 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 Agreem ent 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 $169,166.66 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.

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 with Byron A. Dunn

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 sha res 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 s hall 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.

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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 diffe rent.   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 Agreement with 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 receives an annual base salary of $315,000 and received a one-time cash promotion bonus of $50,000.  In addition, Mr. Lawal is 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 terminates Mr. Lawal’s employment without Cause or Mr. Lawal resigns for Good Reason (each as defined in the Lawal Employment Agreement), the Company is obligated to continue paying to Mr. Lawal his base salary and benefits for a period for 12 months following such termination.

Oyo Field Transaction with CAMAC Energy Holdings Limited and Affiliates

See Note 6 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. Refer to Form 8-K, filed with the SEC on April 13, 2010, and Item 13 of Form 10-K/A for the year ended December 31, 2009, filed with the SEC on April 30, 2010, for information regarding transactions involving the Company and CAMAC Energy Holdings Limited and its affiliates regarding the April 2010 asset purchase. These related party agreements include the Technical Services Agreement, the Right of First Refusal Agreement, the Oyo Field Agreement, and the Registration Rights Agreement.

15

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

On October 11, 2010, the Company entered into a binding Heads of Agreement (the “OML 120/121 Agreement”) with CAMAC, superseding a prior Memorandum of Understanding dated August 6, 2010.  Pursuant to the OML 120/121 Agreement, the Company agreed to acquire CAMAC’s full remaining interest (the “OML 120/121 Transaction”) in the OML 120/121 PSC (the “Non-Oyo Contract Rights”).  The Company previously acquired all of CAMAC’s interest with respect to Oyo Field (the “Oyo Contract Rights”) under the OML 120/121 PSC in the transaction involving the Company’s acquisition of the interests in the Oyo Field that closed in April 2010, and upon consummation of the acquisition of the Non-Oyo Contract Rights as contemplated under the OML 120/121 Agreement, the Company w ill have acquired CAMAC’s full interest in the OML 120/121 PSC.

In exchange for the Non-Oyo Contract Rights, the Company will pay $5 million in cash to Allied  within 15 days of the closing of the transaction, and has the option to retain these contract rights upon payment of additional consideration to Allied upon the occurrence of certain milestones as follows:  (i) upon commencement of drilling of the first well outside of the Oyo Field under the OML 120/121 PSC, the Company may elect to retain the Non-Oyo Contract Rights upon payment to Allied of $5 million, either in cash, or at Allied’s option, in shares of Company Common Stock; (ii) upon discovery of hydrocarbons outside of the Oyo Field under the OML 120/121 PSC in sufficient quantities to warrant the commercial development thereof, the Company may elect to retain the Non-Oyo Contract Rights upon payment to Allied of $5 million in cash or shares; (iii) upon the approval by the Management Committee of a Field Development Plan with respect to the development of non-Oyo Field areas under the OML 120/121 PSC, the Company may elect to retain the Non-Oyo Contract Rights upon payment to Allied of $20 million in cash or shares; and (iv) upon commencement of commercial hydrocarbon production outside of the Oyo Field under the OML 120/121 PSC, the Company may elect to retain the Non-Oyo Contract Rights 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 OML 120/121 PSC.  There are no further payments due to Allied after satisfaction of this milestone.

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 CAMAC without any compensation due to the Company and with Allied retaining all consideration paid by the Company to date.

The OML 120/121 Agreement contains the following conditions to the closing of the OML 120/121 Transaction:  (i) the Company, CINL, Allied, and 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 (preventing Allied from transferring its interest under the OML 120/121 PSC to a third party) 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 Allied must enter into a registration rights agreement with respect to the Shares in a form satisfactory to the Company and Allied; and (iii) the Oyo Field Agreement, dated April 7, 2010, by and among the Company, CEHL and Allied, must be revised in order to remove certain indemnities with respect to Non-Oyo Operating Costs (as defined therein), provided, however, that the indemnities set forth in Sections 3.1(b) and (d) thereunder shall remain in full force and effect.  In addition, CAMAC must deliver certain data and equipment to the Company in as-is condition.

The OML 120/121Agreement also contains other customary terms, including, but not limited to, customary representations and warranties, conditions to closing, indemnification and limitation of liability provisions.  

16

The OML 120/121 Agreement is intended by the parties to create a binding agreement between the parties with respect to the acquisition of the Non-Oyo Contract Rights by the Company, and the parties agree to endeavor to prepare and enter into a purchase and sale agreement to reflect the terms of the OML 120/121Agreement in further detail and shall endeavor to sign such Agreement as soon as possible, with the OML 120/121 Transaction expected to close on or before November 30, 2010.

Dr. Kase Lawal, the Company’s Non-Executive Chairman and member of the Board of Directors, 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, 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 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.

NOTE 12.  REGISTERED DIRECT OFFERINGS OF SECURITIES

On February 16, 2010, the Company consummated the offer and sale (the “February 2010 Offering”) of 5,000,000 shares (the "Shares") of its common stock, par value $0.001 per share ("Common Stock"), for an aggregate purchase price of $20 million, or $4.00 per share (the "Purchase Price"), pursuant to a Securities Purchase Agreement, dated February 10, 2010, among the Company and certain purchasers signatory thereto (the “Purchasers”).  In addition, the Company issued to the Purchasers:  (1) warrants to purchase up to an additional  2,000,000 shares of Common Stock of the Company, in the aggregate, at an exercise price of  $4.50 per share (subject to customary adjustments), exercisable commencing 6 months following the closing for a period of 36 months after such commencement da te (the “Series A Warrants”); and (2) warrants to purchase up to an  additional 2,000,000 shares of Common Stock of the Company, in the aggregate, at an exercise price $4.00 per share (subject to customary adjustments), exercisable immediately at the closing until November 1, 2010 (the “Series B Warrants”, together with the Series A Warrants, the “Warrants”).  If all the Warrants are exercised, the Company would receive additional gross proceeds of $17 million. The Shares and the Warrant Shares were sold pursuant to a shelf registration statement on Form S-3 declared effective by the SEC on February 3, 2010 (File No. 333-163869), as amended by the prospectus supplement filed with the SEC on February 12, 2010 and delivered to the Purchasers.

Rodman & Renshaw, LLC (“Rodman”) served as the Company’s exclusive placement agent in connection with the February 2010 Offering.  As consideration for its services as placement agent, Rodman received a cash fee equal to 6.0% of the gross proceeds of the February 2010 Offering ($1,200,000), as well as a five year warrant to purchase shares of Common Stock of the Company equal to 3.0% of the aggregate number of shares sold in the February 2010 Offering (150,000 shares of Common Stock).  Rodman’s warrant is not exercisable until the six month anniversary of the closing and the exercise price is 125% of the per share purchase price of the shares issued in the offering ($5.00 per share).  In addition, subject to compliance with Financial Industry Regulatory Authority ("FINRA") Rule 511 0(f) (2) (D), the Company reimbursed Rodman’s out-of-pocket accountable expenses actually incurred in the amount of $25,000.

On March 5, 2010, the Company consummated the offer and sale (the “March 2010 Offering”) of 4,146,922 shares (the “March 2010 Offering Shares”) of its Common Stock, par value $0.001 per share, for an aggregate purchase price of $17.5 million, or $4.22 per share (the "March 2010 Offering Purchase Price"), pursuant to a Securities Purchase Agreement, dated March 2, 2010, among the Company and certain purchasers signatory thereto (the “March 2010 Offering Purchasers”).  In addition, the Company issued to the March 2010 Offering Purchasers:  (1) warrants to purchase up to an additional 1,658,769 shares of Common Stock of the Company, in the aggregate, at an exercise price of  $4.50 per share (subject to customary adjustments), immediately exercisable following the closing for a period of 42 months (the “Series C Warrants”); and (2) warrants to purchase up to an  additional 1,658,769 shares of Common Stock of the Company, in the aggregate, at an exercise price $4.12 per share (subject to customary adjustments), exercisable immediately at the closing until December 5, 2010 (the “Series D Warrants”, together with the Series C Warrants, the “March 2010 Offering Warrants”).  If all the March 2010 Offering Warrants are exercised, the Company would receive additional gross proceeds of approximately $14.3 million. The March 2010 Offering Shares and the March 2010 Offering Warrant Shares were sold pursuant to a shelf registration statement on Form S-3 declared effective by the SEC on February 3, 2010 (File No. 333-163869), as amended by the prospectus supplement filed with the SEC on March 3, 2010 and delivered to the March 2010 Offering Purchasers.

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Rodman served as the Company’s exclusive placement agent in connection with the March 2010 Offering.  As consideration for its services as placement agent, Rodman received a cash fee equal to 6.0% of the gross proceeds of the March 2010 Offering ($1,050,000), as well as a five year warrant to purchase shares of Common Stock of the Company equal to 3.0% of the aggregate number of shares sold in the March 2010 Offering (124,408 shares of Common Stock).  Rodman’s warrant is not exercisable until the six month anniversary of the closing and the exercise price is 125% of the per share purchase price of the shares issued in the March 2010 Offering ($5.275 per share).  In addition, subject to compliance with FINRA Rule 5110(f) (2) (D), the Company reimbursed Rodman’s out-of-pocket accountable expen ses actually incurred in the amount of $25,000.

Net proceeds from the above two offerings have been used by the Company for working capital andto fund  the Company’s acquisition from CAMAC of the Contract Rights with respect to  the Oyo Field, which began production in December 2009.  See Note 6.

NOTE 13.  FINANCIAL INSTRUMENTS FAIR VALUES AND FAIR VALUE ADJUSTMENTS

The September 30, 2010, balance sheet includes an available-for-sale equity investment in a nonsubsidiary company carried at a fair value of $148,000.The fair value was determined using “Level 1” inputs as defined in ASC Topic 820 (Fair Value Measurements and Disclosures).  Level 1 inputs represent inputs observable in an active market, which in this case is a public active stock market.

At September 30, 2010, the carrying amounts of the Company’s other financial instruments, which include cash equivalents, short- and long-term investments, trade receivables, deposits, long-term advances, accounts payable and accrued expenses approximate their fair values, due to the short-term nature and maturities of many of the above listed items.

 NOTE 14.  RIGHTS OFFERINGS OF SINO GAS & ENERGY HOLDINGS LIMITED

As disclosed in Note 11.  Related Party Transactions, the Company in 2009 acquired a noncontrolling interest in Sino Gas & Energy Holdings Limited (SGE), which is accounted for as an investment carried at fair value based on the public market price.  In April and May 2010, SGE offered to sell additional common equity through a rights offering that was terminated in May 2010 due to a decline in volume weighted average market price of SGE’s shares to below the price per share in the offering.  In June 2010, SGE completed a new rights offering at a lower price per share than the original offering. The Company did not exercise its purchase rights under the offering.  As a result, our equity percentage ownership in SGE has been diluted.  As of September 30, 2010, we reported the unrea lized loss on SGE shares as a temporary impairment based on conditions existing at that date.  The Company will monitor future developments in SGE as they may affect the accounting for this investment.

NOTE 15.  LITIGATION AND CONTINGENCIES

At September 30, 2010, the Company was not aware of any litigation, actual or potential, which could have a material effect on its financial position.

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Business

In the interim period ended June 30, 2010, the Company ceased reporting as a development stage company and now reports as an operating company with significant revenues. 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.

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. Several members of the Company’s management team have held management and executive positions with U.S. and international energy companies and have managed energy projects in Africa, China, and elsewhere in Asia and in other parts of the world.

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.  Under applicable accounting standards, IMPCO was defined as the acquiring company in the Mergers. The reportable results of operations for the Company through the date of the Mergers of May 7, 2007 are comprised only of the historical results of the former IMPCO. For purposes of financial reporting, the inception of the Company is reflected as August 25, 2005, the inception date of IMPCO.  The Company’s name was changed to CAMAC Energy Inc. effective April 7, 2010.

On April 7, 2010, the Company closed its previously announced acquisition of all of the interests held by CAMAC Energy Holdings Limited (“CEHL”) and certain of its affiliates (collectively, “CAMAC”) in a Production Sharing Contract with respect to an oilfield asset known as the Oyo Field.  This major milestone results in the recognition of significant revenue and cash flow from operations for the first time in the history of the Company.  The Production Sharing Contract governing the Oyo Field is by and among Allied Energy Plc (“Allied”) (formerly, Allied Energy Resources Nigeria Limited, and an affiliate of CEHL), CAMAC International (Nigeria) Limited (“CINL”) (an affiliate of CEHL), and Nigerian Agip Exploration Limited (“NAE”). The allocation of the total p urchase cost is set forth in Note 6 of the Company's Condensed Consolidated Financial Statements (unaudited) as of September 30, 2010 included in this Report.  

OYO FIELD PRODUCTION SHARING CONTRACT INTEREST

On November 18, 2009, the Company entered into the Purchase and Sale Agreement with CAMAC Energy Holdings Limited and certain of its affiliates (“CAMAC”) pursuant to which the Company agreed to acquire all of CAMAC’s interest in a Production Sharing Contract (the “OML 120/121 PSC”) with respect to the oilfield asset known as the Oyo Field (the “Contract Rights”) and agreed to the related transactions contemplated thereby, including the election of certain directors of the Company.

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As consideration for the Contract Rights, on April 7, 2010 the Company paid CAMAC Energy Holdings Limited (“CEHL“) $32 million in cash consideration (the “Cash Consideration”) and issued to CEHL  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 are exercised following the closing, then the Company is obligated to issue up to an additional 13,457,188 Consideration Shares to CEHL to maintain CEHL’s approximately 62.74% interest in the Company.  As additional Cash Consideration, the Compa ny agreed to pay CEHL $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.

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.

OML 120/121 TRANSACTION

On October 11, 2010, the Company entered into a binding Heads of Agreement (the “OML 120/121Agreement”) with CAMAC, superseding a prior Memorandum of Understanding dated August 6, 2010.  Pursuant to the OML 120/121 Agreement, the Company agreed to acquire CAMAC’s full remaining interest (the “OML 120/121 Transaction”) in the OML 120/121 PSC (the “Non-Oyo Contract Rights”).  The Company previously acquired all of CAMAC’s interest with respect to Oyo Field (the “Oyo Contract Rights”) under the OML 120/121 PSC in the transaction involving the Company’s acquisition of the interests in the Oyo Field that closed in April 2010, and upon consummation of the acquisition of the Non-Oyo Contract Rights as contemplated under the OML 120/121Agreement, the Company wil l have acquired CAMAC’s full interest in the OML 120/121 PSC.

In exchange for the Non-Oyo Contract Rights, the Company will pay $5 million in cash to Allied  within 15 days of the closing of the transaction, and has the option to retain these contract rights upon payment of additional consideration to Allied upon the occurrence of certain milestones as follows:  (i) upon commencement of drilling of the first well outside of the Oyo Field under the OML 120/121 PSC, the Company may elect to retain the Non-Oyo Contract Rights upon payment to Allied of $5 million, either in cash, or at Allied’s option, in shares of Company Common Stock; (ii) upon discovery of hydrocarbons outside of the Oyo Field under the OML 120/121 PSC in sufficient quantities to warrant the commercial development thereof, the Company may elect to retain the Non-Oyo Contract Rights upon payment to Allied of $5 million in cash or shares; (iii) upon the approval by the Management Committee of a Field Development Plan with respect to the development of non-Oyo Field areas under the OML 120/121 PSC, the Company may elect to retain the Non-Oyo Contract Rights upon payment to Allied of $20 million in cash or shares; and (iv) upon commencement of commercial hydrocarbon production outside of the Oyo Field under the OML 120/121 PSC, the Company may elect to retain the Non-Oyo Contract Rights 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 OML 120/121 PSC.  There are no further payments due to Allied after satisfaction of this milestone.

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 CAMAC without any compensation due to the Company and with Allied retaining all consideration paid by the Company to date.

The OML 120/121 Agreement contains the following conditions to the closing of the OML 120/121 Transaction:  (i) the Company, CINL, Allied, and 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 (preventing Allied from transferring its interest under the OML 120/121 PSC to a third party) 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 Allied must enter into a registration rights agreement with respect to the Shares in a form satisfactory to the Company and Allied; and (iii) the Oyo Field Agreement, dated April 7, 2010, by and among the Company, CEHL and Allied, must be revised in order to remove certain indemnities with respect to Non-Oyo Operating Costs (as defined therein), provided, however, that the indemnities set forth in Sections 3.1(b) and (d) thereunder shall remain in full force and effect.  In addition, CAMAC must deliver certain data and equipment to the Company in as-is condition.

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The OML 120/121Agreement also contains other customary terms, including, but not limited to, customary representations and warranties, conditions to closing, indemnification and limitation of liability provisions.  

The OML 120/121Agreement is intended by the parties to create a binding agreement between the parties with respect to the acquisition of the Non-Oyo Contract Rights by the Company, and the parties agree to endeavor to prepare and enter into a purchase and sale agreement to reflect the terms of the OML 120/121Agreement in further detail and shall endeavor to sign such OML 120/121 Agreement as soon as possible, with the OML 120/121 Transaction expected to close on or before November 30, 2010.

Dr. Kase Lawal, the Company’s Non-Executive Chairman and member of the Board of Directors, 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, 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 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.

ZIJINSHAN BLOCK OPERATIONS

In April 2008 the Company received written confirmation that the Ministry of Commerce of The People’s Republic of China approved the entry by the Company’s subsidiary, PAPL, into that certain Production Sharing Contract entered into on October 26, 2007 with China United Coalbed Methane Corp. Ltd. for the exploitation of gas resources in the Zijinshan block, which is a 175,000 acre area located in the Shanxi Province of China (the “Zijinshan Block”).

During 2009, the Company completed seismic data acquisition operations on the Zijinshan Block, including spending approximately $1.5 million to shoot 162 kilometers of seismic under the work program. This seismic data has since been processed and interpreted by the Company.  Based on the seismic interpretation, four potential well locations have been identified. A regional environmental impact assessment study (“EIA”) was also completed by the Company.  Following completion of a site specific EIA study, the Company spudded well ZJS-01. This well was targeted at the 4/5 coal seams in the Shanxi formation and 8/9 coal seams in the Taiyuan formation. The well was completed in November 2009.   Based on the results of this well, the Company has started drilling the first of two additional explorat ory wells in the Zijinshan Block as part of the 2010 approved work program at a total cost for the work program of approximately $2.8 million, subject to availability of funding.  Drilling of the first additional exploratory well commenced in August 2010, which is planned to be followed by commencement of drilling on the second well during the fourth quarter of 2010.

ENHANCED OIL RECOVERY AND PRODUCTION (EORP)

In May and June 2009, the Company and its wholly-owned Hong Kong subsidiary, PAPE, 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, Beijing Dong Fang Ya Zhou Petroleum Technology Service Company Limited (“Dong Fang”).  Dong Fang is 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.

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.

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The Company has recently completed a review of its strategic business plan and has decided that the EORP business will not be a core business.

CRUDE OIL RESERVES

On November 5, 2010 the Company received an independent petroleum engineers report of its net proved crude oil reserves related to our interest in the  Oyo Field portion of OML 120/121 as of June 30, 2010 based upon the current assumptions that the Company shall participate in funding up to its maximum 30% share of future operating and capital costs (the "Reserve Report"). A summary of the Reserve Report is included as Exhibit 99.1 to this Form 10-Q. Under the OML 120/121 PSC the Company has the right, but not the obligation, to fund up to a maximum of 30% of such expenditures and to receive Cost Oil recovery on such amounts in cash distributions from sale of future production.  Future Cost Oil allocable to the Company therefore affects the quantity of reserves allocated as the Company’s share in t he total OML 120/121 reserves.

The Company’s net proved crude oil reserves reported as of June 30, 2010 are as follows (in thousands of barrels):

Net proved developed	1,200.8
Net proved undeveloped	4,176.1
Total net proved reserves	5,376.9

REGISTERED DIRECT OFFERINGS OF SECURITIES

On February 16, 2010, the Company consummated the offer and sale (the “February 2010 Offering”) of 5,000,000 shares (the "Shares") of its common stock, par value $0.001 per share ("Common Stock"), for an aggregate purchase price of $20 million, or $4.00 per share (the "Purchase Price"), pursuant to a Securities Purchase Agreement, dated February 10, 2010, among the Company and certain purchasers signatory thereto (the “Purchasers”).  In addition, the Company issued to the Purchasers:  (1) warrants to purchase up to an additional  2,000,000 shares of Common Stock of the Company, in the aggregate, at an exercise price of  $4.50 per share (subject to customary adjustments), exercisable commencing 6 months following the closing for a period of 36 months after such commencement da te (the “Series A Warrants”); and (2) warrants to purchase up to an  additional  2,000,000 shares of Common Stock of the Company, in the aggregate, at an exercise price $4.00 per share (subject to customary adjustments), exercisable immediately at the closing until November 1, 2010 (the “Series B Warrants”, together with the Series A Warrants, the “Warrants”).  If all the Warrants are exercised, the Company would receive additional gross proceeds of $17 million. The Shares and the Warrant Shares are to be sold pursuant to a shelf registration statement on Form S-3 declared effective by the SEC on February 3, 2010 (File No. 333-163869), as amended by the prospectus supplement filed with the SEC on February 12, 2010 and delivered to the Purchasers.

Rodman & Renshaw, LLC (“Rodman”) served as the Company’s exclusive placement agent in connection with the February 2010 Offering.  As consideration for its services as placement agent, Rodman  received  a cash fee equal to 6.0% of the gross proceeds of the offering ($1,200,000), as well as a  five year warrant to purchase shares of Common Stock of the Company equal to 3.0% of the aggregate number of shares sold in the offering (150,000 shares of Common Stock).  Rodman’s warrant is not exercisable until the six month anniversary of the closing and the exercise price is 125% of the per share purchase price of the shares issued in the offering ($5.00 per share).  In addition, subject to compliance with Financial Industry Regulatory Authority ("FINRA") Rul e 5110(f) (2) (D), the Company reimbursed Rodman’s out-of-pocket accountable expenses actually incurred in the amount of $25,000.

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On March 5, 2010, the Company consummated the offer and sale (the “March 2010 Offering”) of 4,146,922 shares (the “March 2010 Offering Shares”) of its Common Stock, for an aggregate purchase price of $17.5 million, or $4.22 per share (the "March 2010 Offering Purchase Price"), pursuant to a Securities Purchase Agreement, dated March 2, 2010, among the Company and certain purchasers signatory thereto (the “March 2010 Offering Purchasers”).  In addition, the Company issued to the March 2010 Offering Purchasers: (1) warrants to purchase up to an additional 1,658,769 shares of Common Stock of the Company, in the aggregate, at an exercise price of  $4.50 per share (subject to customary adjustments), immediately exercisable following the closing for a period of 42 months (the “Series C Warrants”); and (2) warrants to purchase up to an  additional 1,658,769 shares of Common Stock of the Company, in the aggregate, at an exercise price $4.12 per share (subject to customary adjustments), exercisable immediately at the closing until December 5, 2010 (the “Series D Warrants”,  together with the Series C Warrants, the “March 2010 Offering Warrants”).  If all the March 2010 Offering Warrants are exercised, the Company would receive additional gross proceeds of approximately $14.3 million. The March 2010 Offering Shares and the March 2010 Offering Warrant Shares were sold pursuant to a shelf registration statement on Form S-3 declared effective by the SEC on February 3, 2010 (File No. 333-163869), as amended by the prospectus supplement filed with the SEC on March 3, 2010 and delivered to the March 2010 Offering Purchasers.

Rodman served as the Company’s exclusive placement agent in connection with the March 2010 Offering.  As consideration for its services as placement agent, Rodman received a cash fee equal to 6.0% of the gross proceeds of the March 2010 Offering ($1,050,000), as well as a five year warrant to purchase shares of Common Stock of the Company equal to 3.0% of the aggregate number of shares sold in the March 2010 Offering (124,408 shares of Common Stock).  Rodman’s warrant is not exercisable until the six month anniversary of the closing and the exercise price is 125% of the per share purchase price of the shares issued in the March 2010 Offering ($5.275 per share).  In addition, subject to compliance with FINRA Rule 5110(f) (2) (D), the Company reimbursed Rodman’s out-of-pocket accountable expen ses actually incurred in the amount of $25,000.

Net proceeds from the above two offerings have been used by the Company for working capital purposes, andto fund  the Company’s acquisition from CAMAC of the Contract Rights with respect to  the Oyo Field, which was in production at the date of acquisition in April 2010.

FUNDING

To date the Company has raised approximately $59.1 million, gross, in equity financings to fund its ongoing working capital requirements, as well as actual and possible acquisition and development activities. The Company's business strategy includes possible maximizing of its participation in the Oyo Field under the OML 120/121 PSC and conducting short-term remedial work on Well #5 in the Oyo Field. In order to fully implement its business strategy, it is possible that the Company will need to raise additional capital, including debt to lower the overall cost of capital.  In the event the Company is unable to raise such capital on satisfactory terms or in a timely manner, the Company would be required to significantly revise its business plan.

In the nine months ended September 30, 2010, the Company, after paying $32 million cash as part of the purchase price, commenced realizing positive cash flow from its economic interest in the Production Sharing Contract (“OML 120/121 PSC”) with respect to the Oyo Field in Nigeria acquired from CAMAC in April 2010. However, the amount of cash realized in the initial period included a non-recurring amount of $13.8 million due to collection of receivables recorded in April 2010 as part of assets acquired in the Oyo Field interest acquisition. In July 2010, $6.8 million of this amount was used to liquidate the existing deferred cash purchase price obligation to CAMAC existing at the acquisition date.  The amount of cash realized in future periods from the Oyo Field economic interest will be affected by our share of net p roduction volumes and the price per barrel realized on sale of the production.  This provides a source of cash from operations and a basis for future growth.

You should read the information in this Item 2 together with our unaudited condensed consolidated financial statements and notes thereto that appear elsewhere in this Report.

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Plan of Operation

The following describes in general terms the Company’s plan of operation and development strategy for the twelve-month period ending September 30, 2011 (the “Next Year”).

The recent acquisition of CAMAC’s economic interest in the Oyo Field portion of OML 120/121 PSC in Nigeria, and if consummated, the acquisition of CAMAC’s interest in the remainder of  the OML 120/121 PSC, may result in future participation of the Company in funding of additional  development in OML 120/121.  Such participation is dependent on the Company’s assessment of the expected economic returns and availability of funds.  However, the Company is not contractually obligated to provide a portion of that funding. As discussed below under Results of Operations for Africa, the Company plans to spend up to $45 million for short-term remedial work to one well designed to improve the crude oil production rate, which will require the raising of additional financing beyond that in plac e at September 30, 2010.

Subsequent to the anticipated closing of the OML 120/121 Transaction in late 2010 as described above, the Company will assess further over time the potential of this opportunity, including whether to exercise its related milestone options and plans to work with NAE to determine a time schedule and cost for drilling of the first exploratory well outside of the Oyo Field, subject to availability of funding.

In China, the Company also plans to continue operations in its 100% owned and operated Zijinshan Block. These operations are expected to include the completion of drilling on one well in progress as of September 30, 2010;  drilling of an additional well expected to commence in the fourth quarter of 2010;  and undertaking appropriate laboratory testing and other activities. The Company has evaluated the development stage EORP business in connection with review of its business plan and has determined that EORP will not be a core business.

In addition to these opportunities, the Company is continuing to seek to identify other opportunities in the global energy sector that may enhance its production and cash flow, particularly with respect to oil and gas exploration, development, production, refining and distribution. During the time we were a development stage company, we were 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 payment of any required deposits, obtaining the necessary governmental approvals and executing binding agreements to obtain the rights we seek within limited timeframes.

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 U.S. and international energy companies and will seek to utilize their experience, expertise and contacts to create value for shareholders.

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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 CAMAC 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 the 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.

Product Research and Development

The Company to date has not engaged in any material product research or development activities.

Liquidity and Capital Resources

As of September 30, 2010, the Company had net working capital of $14,278,000, which included cash, cash equivalents and short-term investments of $11,074,000.

Net cash provided by operating activities for the first nine months of 2010 was $9,508,000 compared to net cash used in operating activities of $5,204,000 for the first nine months of 2009.  The net increase of $14,712,000 includes approximately $19,400,000 from the collection of receivables and liquidation of the profit oil portion of inventories acquired in the Oyo asset purchase. This benefit was partly offset by cash expenses incurred in the normal course of business.

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Net cash used in investing activities was $38,029,000 for the first nine months of 2010, as compared to net cash provided by investing activities of $465,000 for the first nine months of 2009.  The net change of $38,494, 000 was principally due to the $38,840,000 of cash payments in April and July 2010 as partial consideration for the Oyo Field interest. Net cash provided by financing activities in the first nine months of 2010 was $35,736,000 versus zero in the first nine months of 2009.  The 2010 amount was due principally to two registered direct offerings of equity securities in 2010 for which the proceeds were used in the purchase of the Oyo Field interest.

Below in the section “Results of Operations” we discuss a non-cash impairment charge of $186,235,000 recorded at September 30, 2010 relative to Africa operations.   This charge did not result in accrual of any liabilities and accordingly has no effect on future cash funding requirements for operations.

Our future working capital requirements will depend upon numerous factors, including capital demands related to the Oyo Field, including proposed short-term remedial work on one Oyo Field well, progress of our exploration and development programs, and market developments. Our available working capital and continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing, strategic alliances, and cash provided by future operations of our economic interest in the OML 120/121 PSC with respect to the Oyo Field. Such additional funds may not always become available on acceptable terms, if at all, and any additional funding obtained may not be sufficient to meet our needs in the long-term. Through September 30, 2010 virtually all of our financing has been raise d through private placements and registered direct offerings of equity securities.  The Company at September 30, 2010 had no credit lines for financing and no short-term or long-term debt. Our current position of no debt provides flexibility in capital raising options.

We intend to continue to fund operations for the foreseeable future from cash on hand, cash provided by our economic interest in the OML 120/121 PSC with respect to the Oyo Field and through other sources of capital  including equity and debt financing. Any additional capital that we are able to obtain may not be sufficient to meet our needs. We believe we will continue to incur a net cash outflow for China operating activities for the next 1-2 years.  The extent to which we will need additional equity or debt financing to expand our operations in the future will depend upon the rate of spending in our development plans and the amount of cash provided from our share of sales of oil production from the Oyo Field.

If during the Next Year or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.

To the extent the Company acquires additional oil and gas assets and other energy-related investments and rights, consistent with its business plan, the Company may also need to raise additional funds for such projects.

As a result of limited capital resources in the past, the Company has relied on the issuance of equity securities as a significant 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. The Company may continue to compensate employees and non-employees partially with equity compensation for services.

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Results of Operations

In the three months ended June 30, 2010, the Company commenced recording significant revenues from operations. We may experience fluctuations in operating results in future periods 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.

Africa Operations

Our Africa operations are comprised of an economic interest in the OML 120/121 PSC for the Oyo Field in offshore Nigeria.  The Oyo Field commenced crude oil production in December 2009, and the Company acquired its economic interest on April 7, 2010 from CAMAC Energy Holdings Limited and certain of that company’s affiliates (collectively “CAMAC”).  Under the structure of the OML 120/121 PSC, 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.  Past expenditures for capital and operating costs of this field since the commencement of the OML 120/121 PSC wi th the current partner have been funded entirely by the other partner.  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 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 an offshore FPSO vessel until sufficient tanker-size quantity is available for lifting.  The exact timing of liftings is affected by the rate of daily production, which is not currently sufficient for a lifting every month.  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 percentage we receive from each lifting is subject to fluctuation because the proportions of cost oil and profit oil in each settlement can vary.  This is dependent upon whether the maximum allowable cost oil recovery, or a lesser amount, is elected by the operating contractor in computing its share, which then affects the levels of profit oil for both parties. Inventory barrels included in the assets acquired at April 7, 2010 are excluded from the Company’s production volumetric statistics as this amount constitutes physical production prior to the acquisition date.  Average revenue per barrel on crude oil sold in the nine months and three months ended September 30, 2010 was $83.23 and $75.09 respectively.

Understanding the Results

The Company’s share of net production (which excludes royalties and the share of the other partner) from two oil producing wells for the period April 7 to September 30, 2010 (177 days) averaged 461 barrels per day and for the three months ended September 30, 2010 averaged 375 barrels per day.  Oyo Field total gross oil production per day decreased in the three month period ended September 30, 2010 versus the period April 7 to June 30, 2010. The source of the decline has been identified as mainly due to two issues: gas channeling from a natural gas cap into production of well #5 that has occurred at the expense of oil production, and increased produced water that has occurred principally in production of well #6.  The total gross production from the Oyo Field for the period April 7 to September 30, 2010 was 1,496, 000 barrels, including royalty barrels. The Company’s share of net production, which excludes royalty barrels and the share of the other partner, was 81,570 barrels for that period.

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The net operating income (before non-cash impairment)  for the Africa operations shown below for the nine month and three month interim periods ended September 30, 2010 should not be viewed as predictive of results for future periods.  For the nine month interim period, this is partially because virtually all of the crude oil revenue in the six months ending June 30, 2010 arose from the sale of crude oil inventory included in the Oyo Field assets acquired on April 7, 2010 and recorded at fair value at that date under applicable accounting principles.  This fair value per barrel approximated the ultimate sales price per barrel realized in the subsequent April 2010 third party lifting (sale) of  Oyo Field crude oil. The initial inventory amount was fully charged to cost of sales against the April 2010 sale under the Company’s first in, first out accounting method for valuing inventories.  Thus the Company recorded only a small profit margin on the initial inventory that was liquidated in April 2010 although significant sales revenues were recorded. For future periods compared to the current nine month and three month interim periods, net operating income for Africa 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 crude oil production.

Impairment of Assets

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 “Reserve Report”).

Upon review of the 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 assetwas impaired.The estimate of cash flows included the use of the above 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 $186,235,000 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.

Remediation Plan for Well # 5

The Management Committee (MACOM) under the OML 120/121 PSC has approved a short-term remedial work plan for well #5 under which pumping of a chemical sealant will occur to block the flow of gas after identifying the locations of gas entry into the well bore. The estimated cost will be approximately $45 million. The Company is exploring available options for funding of these costs. When and if the Company funds these costs, it will be entitled to cost recovery of such expenses as non-capital costs (operating costs) from cost oil under the terms of the OML 120/121 PSC. In the calculation of cost oil recovery, non-capital costs are recoverable before capital costs, as defined by the OML 120/121 PSC. Planning for the work is in progress including designating the rig Transocean Marianas to perform the work.  Once funding is assured a nd the work plan is finalized, the remedial work could commence in the fourth quarter of 2010 and be completed in approximately 30 days.

Asia Operations

Our Asia active operations in China comprise two areas of focus at present --- gas reserves development and enhanced oil recovery and production (EORP).

In the Zijinshan Block located in Shanxi province, the Company performed seismic work in 2009 and drilled its first exploratory well in late 2009.   For 2010 the Company plans to drill two additional exploratory wells with an expected drilling cost totaling $2 million included in total expected expenditures of $2.8 million for the year. At September 30, 2010, drilling had commenced on the first of these two wells. As of September 30, 2010, $523,000 was capitalized in properties, plant and equipment as wells in progress of drilling. Under the production sharing contract covering this area, the Company is obligated to drill an additional four wells in future periods, estimated to cost $1 million each, for a total of seven wells in the exploratory phase before commencement of formal development. Therefore, no revenues are expe cted from this area in 2010 and 2011.

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The EORP activities involve two aspects.  First, revenue is currently realized through sales of our proprietary formula mixed EORP chemicals by a third party company to customers for EORP treatment of their oil wells Second, we have been evaluating prospective projects for application of our EORP technology in China involving our proprietary formula for mixed EORP chemicals in which the Company would perform the well treatment either as contractor or as part interest holder in a production sharing contract.  The Company has recently completed a review of its strategic business plan and has decided that the EORP business will not be a core business.

Segment Analysis

Our segment analysis that follows is segmented on a geographic basis between our active operations in Africa (Nigeria) and Asia (China) for revenues and among Africa, Asia and Corporate for net income/loss.  This is based upon the current management structure of our Company.

(In thousands)	Nine Months Ended				Three Months Ended
	September 30,				September 30,
Revenues	2010		2009		2010		2009
Africa	$	21,037	$	-	$	8,790	$	-
Asia		203		56		30		56
Total	$	21,240	$	56	$	8,820	$	56

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
Net Income (Loss)		2010			2009			2010			2009
Africa - before impairment	$	839		$	-		$	636		$	-
Africa - impairment		(186,235	)		-			(186,235	)		-
Asia		(1,885	)		(3,358	)		(644	)		(1,013	)
Corporate and other		(7,622	)		(4,367	)		(2,314	)		(1,631	)
Net income (loss) - CAMAC Energy Inc. and Subsidiaries	$	(194,903	)	$	(7,725	)	$	(188,557	)	$	(2,644	)

Revenues and net income for Africa before impairment in the nine months and three months ended September 30, 2010 reflected initial crude oil sales revenues since the acquisition in April 2010 of the Oyo Field production sharing contract interest.  Africa results include a non-cash impairment loss of $186,235,000 as discussed above under “Africa Operations – Impairment of Assets”.

Revenues in Asia for the nine months and three months ended September 30, 2010 and 2009 related to sales of EORP chemicals.  Net losses in Asia decreased in the nine months ended September 30, 2010 versus the comparable period in 2009 due to decreased exploratory expenses. 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.  For the three months ended September 30, 2010, net operating losses decreased versus the comparable period in 2009 principally due to decreased consulting and EORP expenses.

Net operating losses for Corporate and other items increased in the nine months ended September 30, 2010 versus the comparable 2009 periods principally due to increased salaries and bonus expense of $663,000 (including termination and accrued vacation payments of $345,000 to executives retiring in 2010); increased insurance expense of $221,000; increased executive recruiting fees of $254,000; increased  NYSE Amex listing fees of $142,000; and increased stock-based employee compensation expense of $1,370,000. The latter 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.

Net operating losses for Corporate and other items increased in the three months ended September 30, 2010 versus the comparable 2009 periods principally due to increased salaries and bonus expense of $347,000; increased executive recruiting fees of $254,000;  and  increased insurance expense of  $110,000. This was partially offset by decreased stock-based employee compensation expense of $321,000, principally due to a decrease of $380,000 for effects of accelerating vesting dates of certain awards and reversal of expense on forfeited awards previously granted to former executive officers who retired in 2010.

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Condensed Consolidated Statements of Income – Operating loss detail

Nine months ended September 30, 2010 versus nine months ended September 30, 2009

·   Revenues from sales and services:  The increase in revenues of $21,184,000 is principally due to crude oil sales from the Oyo Field in 2010, the initial year of activity.  China EORP operations’ sales of finished chemicals and services revenues also increased but did not have a significant effect on the total increase.

·   Crude oil and products cost of sales:  The increase of $18,108,000 is principally due to crude oil sales from the Oyo Field in 2010, the initial year of activity.  Cost of sales from sales of finished chemicals in China also increased but did not have a significant effect.

·   Operating expenses:  The increase of $185,000 is principally due to $204,000 in Nigeria in 2010, the initial year of activity.

·    Selling, general and administrative expenses:  The increase of $3,320,000 is principally due to increased salaries and bonus expense of $663,000 (including termination and accrued vacation payments of $345,000 to executives retiring in 2010); increased insurance expense of $221,000; increased executive recruiting fees of $254,000; increased NYSE Amex listing fees of $142,000; and increased stock- based employee compensation expense of $1,370,000.  The latter 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.

·   Exploratory expenses:  The decrease of $1,382,000 is related to China gas operations and was affected by the timing of expenditures and well completion status at the end of the respective periods.

·   Impairment of assets: The increase of $186,235,000 is due to the year 2010 charge of that amount on the Oyo Field in Nigeria as discussed above under “Africa Operations – Impairment of Assets.”

· Depreciation, depletion and amortization:  The increase of $2,149,000 is principally due to depletion expense on the Oyo Field in 2010, the initial year of activity.

Three months ended September 30, 2010 versus three months ended September 30, 2009

·   Revenues from sales and services: The increase in revenues of $8,764,000 is principally due to crude oil sales from the Oyo Field in 2010, the initial year of activity.  China EORP operations’ sales of finished chemicals and services revenues decreased but did not have a significant effect on the total increase.

·   Crude oil and products cost of sales: The increase of $6,030,000 is principally due to crude oil sales from the Oyo Field in 2010, the initial year of activity.  Cost of sales from sales of finished chemicals in China also decreased but did not have a significant effect.

·   Operating expenses: The decrease of $116,000 is principally due to a decrease of $120,000 from China EORP operations, a decrease in consulting expense of $248,000 principally in China EORP operations, partially offset by an increase of $204,000 for Nigeria in 2010, the initial year of activity.

·    Selling, general and administrative expenses: The increase of $647,000 is principally due to increased salaries and bonus expense of $347,000; increased executive recruiting fees of $254,000; and increased insurance expense of $110,000. This was partially offset by decreased stock-based employee compensation expense of $321,000, principally due to a decrease of $380,000 for effects of accelerating vesting dates of certain awards and reversal of expense on forfeited awards previously granted to former executive officers who retired in 2010.

·   Exploratory expenses: The decrease of $45,000 is related to China gas operations and was affected by the timing of expenditures and well completion status at the end of the respective periods.

·   Impairment of assets:  The increase of $186,235,000 is due to the year 2010 charge of that amount on the Oyo Field in Nigeria as discussed above under “Africa Operations – Impairment of Assets”.

·   Depreciation, depletion and amortization:  The increase of $2,031,000 is principally due to depletion expense on the Oyo Field in 2010, the initial year of activity.

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Off-Balance Sheet Arrangements

The Company does nothave any off-balance sheet arrangements.

Inflation

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

Tabular Disclosure of Contractual Obligations

Refer to Part II, Item 7 of the Company’s year 2009 Annual Report on Form 10-K and 10-K/A, for a table summarizing the Company’s significant contractual obligations as of December 31, 2009.   

Recently Issued Accounting Standards Not Yet Adopted

As of September 30, 2010 there were no new accounting standards not yet adopted that were expected to have a material effect on the Company in the foreseeable future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information about market risks relative to foreign currency denominated financial instruments owned for the nine months ended September 30, 2010, is not materially different from that provided in Part II, Item 7A of the Company’s 2009 Annual Report on Form 10-K and 10-K/A.

At September 30, 2010, the Company’s exposure to a decrease in income on its short-term investments if interest rates decline was not materially different as compared to December 31, 2009.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including Mr. Byron A. Dunn, our Chief Executive Officer, and Mr. Abiola L. Lawal, our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2010.  Based on that evaluation, Mr. Dunn and Mr. Lawal concluded that as of September 30, 2010, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended September 30, 2010, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.   OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

None.

ITEM 1A.  RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and related discussion in Part I, "Item 1A. Risk Factors" in our 2009 Annual Report on Form 10-K and 10-K/A, in our March 19, 2010 proxy regarding the Oyo Field transaction, and as amended below.

Risks previously disclosed in the above incorporations by reference as “Risks Related to the CAMAC Transaction” or “Risk Factors Associated With the Transaction” no longer apply for risks associated only with failure to complete the CAMAC Transaction or risks that existed only up to the date of completion of the CAMAC Transaction.

Risks previously disclosed in the above incorporations by reference as specific to the Oyo Field or the Oyo Field Production Sharing Contract now apply to all of OML 120/121 due to the OML 120/121 Transaction.

Risks previously disclosed in the above incorporations by reference as “Risks Related to Chinese and Other International Operations” now also apply to Nigeria operations except for risks that are country-specific to China for Chinese currency and trade sanction issues.

The explanation following the previously disclosed risk below is revised due to the change in executive officers during year 2010:

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

We believe that our success depends on the continued service of our key employees, as well as our ability to hire additional key employees, when and as needed. Each of Byron A. Dunn, our President and Chief Executive Officer, Abiola Lawal, our Executive Vice President and Chief Financial Officer, and Richard Grigg, our Senior Vice President and Managing Director, has the right to terminate his employment at any time without penalty under his employment agreement. The unexpected loss of the services of either Mr. Dunn, Mr. Lawal, Mr. Grigg, or any other key employee, or our failure to find suitable replacements within a reasonable period of time thereafter, could have a material adverse effect on our ability to execute our business plan and therefore, on our financial condition and results of operations.

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The following additional risk is added as a result of the change of control of the Company in year 2010 and the pending OML 121/121 Transaction:

Our business partner, CAMAC, is a related party, and our non-executive chairman is a principal owner and one of the directors of CAMAC.

Our majority shareholder, CEHL, is one of the entities constituting our business partner, CAMAC.  Dr. Kase Lawal, the Company’s Non-Executive Chairman and member of the Board of Directors, is a director of CEHL as well as CINL and Allied, also entities constituting CAMAC. 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 CAMAC including the agreements entered into with CAMAC in April 2010 and the OML 120/121 Transaction that we expect to enter into and close by November 30, 2010. 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.

The following additional risk is added as a result of the Company’s initial reporting of proved reserves:

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.

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 quantitie s 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 following additional risk is added:

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, CEHL, 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 CEHL 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 CEHL’s majority interest in us were to be diluted or reduce due to additional issuances of equity by the Company, CEHL’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 ke y advantages in the Nigerian oil and gas market and our results of operations could materially suffer.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales to United States Persons

On July 16, 2010 and, the Company issued an aggregate of  14,110 shares of Common Stock to one individual upon the cashless "net" exercise by such individual of placement agent warrants held by him exercisable for an aggregate of 21,000 shares of the Company's Common Stock at a price of $1.25 per share.  The aggregate number of shares of Common Stock issued upon exercise of the warrants was reduced from 21,000 to 14,110 shares of Common Stock to effect the cashless "net" exercise of the warrants in accordance with their terms, assuming a deemed fair market value of $3.81 per share as calculated under the warrants as the closing price quoted for one share of the Company's Common Stock as reported on the NYSE Amex on the last trading day prior to the exercise date.  The warrants were originally issued to Garden State Sec urities, Inc. in its role as a placement agent for the Company on May 7, 2007, and subsequently assigned to the individual warrant holders in August 2007.  

On July 29, 2010, the Company issued an aggregate of 13,871 shares of Common Stock to one individual upon the cashless "net" exercise by such individual of placement agent warrants held by him exercisable for an aggregate of 20,863 shares of the Company's Common Stock at a price of $1.25 per share.  The aggregate number of shares of Common Stock issued upon exercise of the warrants was reduced from 20,863 to 13,871 shares of Common Stock to effect the cashless "net" exercise of the warrants in accordance with their terms, assuming a deemed fair market value of $3.73 per share as calculated under the warrants as the closing price quoted for one share of the Company's Common Stock as reported on the NYSE Amex on the last trading day prior to the exercise date.  The warrants were originally issued to Garden State Securities, Inc. i n its role as a placement agent for the Company on May 7, 2007, and subsequently assigned to the individual warrant holders in August 2007.  

On August 30, 2010, the Company issued an aggregate of 18,961 shares of Common Stock to one individual upon the cashless "net" exercise by such individual of placement agent warrants held by him exercisable for an aggregate of 40,906 shares of the Company's Common Stock at a price of $1.25 per share.  The aggregate number of shares of Common Stock issued upon exercise of the warrants was reduced from 40,906 to 18,961 shares of Common Stock to effect the cashless "net" exercise of the warrants in accordance with their terms, assuming a deemed fair market value of $2.33 per share as calculated under the warrants as the closing price quoted for one share of the Company's Common Stock as reported on the NYSE Amex on the last trading day prior to the exercise date.  The warrants were originally issued to Garden State Securities, Inc. in its role as a placement agent for the Company on May 7, 2007, and subsequently assigned to the individual warrant holders in August 2007.  

On August 30, 2010, the Company issued an aggregate of 14,249 shares of Common Stock to one individual upon the cashless "net" exercise by such individual of placement agent warrants held by him exercisable for an aggregate of 40,000 shares of the Company's Common Stock at a price of $1.50 per share.  The aggregate number of shares of Common Stock issued upon exercise of the warrants was reduced from 40,000 to 14,249 shares of Common Stock to effect the cashless "net" exercise of the warrants in accordance with their terms, assuming a deemed fair market value of $2.33 per share as calculated under the warrants as the closing price quoted for one share of the Company's Common Stock as reported on the NYSE Amex on the last trading day prior to the exercise date.  The warrants were originally issued to Garden State Securities, Inc. in its role as a placement agent for the Company on May 7, 2007, and subsequently assigned to the individual warrant holders in August 2007.  

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No underwriters were involved in the transactions described above.  All of the securities issued in the foregoing transactions were issued by the Company in reliance upon the exemption from registration available under Section 4(2) of the Securities Act, including Regulation D promulgated  thereunder, in that the transactions involved the issuance and sale of the Company’s securities to financially sophisticated individuals or entities that were aware of the Company’s activities and business and financial condition and took the securities for investment purposes and understood the ramifications of their actions.  The Company did not engage in any form of general solicitation or general advertising in connection with the transactions.  All certificates representing the securities issued h ave a legend imprinted on them stating that the shares have not been registered under the Securities Act and cannot be transferred until properly registered under the Securities Act or an exemption applies.

Stock Repurchases

None. 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    (REMOVED AND RESERVED)

ITEM 5.  OTHER INFORMATION

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this Report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6.  EXHIBITS

Exhibit Number	Description
10.1	Employment Agreement, dated September 21, 2010,  by and between Byron A. Dunn and the Company
10.2	Employment Offer Letter, dated September 1, 2010, by and between Abiola L. Lawal and the Company
23.1	Consent of  Netherland, Sewell & Associates, Inc.
31.1	Certification of the Registrant’s Principal Executive Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Registrant’s Principal Financial Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Registrant’s Principal Executive Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Registrant’s Principal Financial Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Report of  Netherland, Sewell & Associates, Inc.

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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.

	CAMAC ENERGY INC.
Dated:  November 8, 2010	By:	/s/ Byron A. Dunn
		Byron A. Dunn
		Chief Executive Officer

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