Basis of Presentation and Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation |
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The accompanying consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned direct and indirect subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations for the indicated periods. All such adjustments are of a normal recurring nature. |
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In January 2014, the Company’s Board of Directors declared a stock dividend on all shares of the Company’s outstanding common stock entitling stockholders of record as of the close of business on February 13, 2014, to receive an additional 1.4348 shares of common stock for every share of common stock held (the “Stock Dividend”). Payment of the Stock Dividend was effected on February 21, 2014. Because the Stock Dividend exceeded 25% of the total shares of common stock outstanding prior to the distribution, it was considered a large stock dividend. Accordingly, it has been accounted for as a stock split. The effect is a retroactive adjustment to the financial statements and associated footnotes as if the dividend had occurred at the beginning of the first period presented. |
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In February 2014, the Company completed the acquisition of the remaining economic interests that it did not already own in the Production Sharing Contract (“PSC”) covering Oil Mining Leases 120 and 121 located offshore Nigeria (the “OMLs”), which include the currently producing Oyo field (the “Allied Assets”), from Allied (the “Allied Transaction”). Pursuant to the terms of the Transfer Agreement entered into with Allied, the Company issued approximately 497.5 million shares of common stock to Allied, as partial consideration for the Allied Assets. Allied is a subsidiary of CEHL, the Company’s majority shareholder, and deemed to be under common control. Accordingly, the net assets acquired from Allied were recorded at their respective carrying values as of the acquisition date. The shares issued to Allied and the financial statements presented for all periods included herein are presented as though the transfer of the Allied Assets had occurred in June 2012, the effective date when Allied acquired the Allied Assets from an independent third party. See Note 4 – Acquisitions for further information. |
In August 2012, the Company divested its wholly owned Hong Kong subsidiary, Pacific Asia Petroleum Limited, for cash and shares of stock. The Company has classified the current and historical results of its China operations, including other inactive operations not involved in this sale, as discontinued operations, net of tax, in the accompanying consolidated statements of operations. See Note 13 - Discontinued Operations, for further information. |
Principles of Consolidation | Principles of Consolidation |
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The consolidated financial statements include the accounts and activities of the Company, subsidiaries in which the Company has a controlling financial interest, and entities for which the Company is the primary beneficiary. All material intercompany accounts and transactions have been eliminated in consolidation. |
Use of Estimates | Use of Estimates |
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The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates based on assumptions. Estimates affect the reported amounts of assets and liabilities, disclosure of contingent liabilities, and the reported amounts of revenues and expenses during the reporting periods. Accordingly, accounting estimates require the exercise of judgment. While management believes that the estimates and assumptions used in the preparation of the Company’s consolidated financial statements are appropriate, actual results could differ from those estimates. |
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Estimates that may have a significant effect on the Company’s financial position and results from operations include share-based compensation assumptions, oil and natural gas reserve quantities, depletion and amortization relating to oil and natural gas properties, asset retirement obligation assumptions, and income taxes. The accounting estimates used in the preparation of the consolidated financial statements may change as new events occur, more experience is acquired, additional information is obtained and our operating environment changes. |
Cash and Cash Equivalents | Cash and Cash Equivalents |
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Cash and cash equivalents include cash on hand, demand deposits and short-term investments with initial maturities of three months or less. |
Restricted Cash | Restricted Cash |
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Restricted cash consists of cash deposits that are contractually restricted for withdrawal or required to be maintained in a reserve bank account for a specific period of time, as provided for under certain agreements with third parties. |
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Restricted cash as of December 31, 2014 consists of $10.4 million held in a debt service reserve account to secure certain repayments pursuant to the Term Loan Facility in Nigeria. The Company had no restricted cash balance at December 31, 2013. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts |
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Accounts receivable are accounted for at cost less allowance for doubtful accounts. The Company establishes provisions for losses on accounts receivables if it is determined that collection of all or a part of an outstanding balance is not probable. Collectability is reviewed regularly and an allowance is established or adjusted, as necessary, using the specific identification method. As of December 31, 2014 and 2013, no allowance for doubtful accounts was necessary. |
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Partner accounts receivables consist of balances owed from joint venture (“JV”) partners. As of December 31, 2014, the Company was owed $0.5 million from its Ghana JV partners for their share of the expenditures incurred in the Shallow Water Tano block, pursuant to the Ghana JV Joint Operating Agreement. |
Crude Oil Inventory | Crude Oil Inventory |
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Inventories of crude oil are valued at the lower of cost or market using the first-in, first-out method and include certain costs directly related to the production process. The Company had crude oil inventory of $1.1 million and $16.3 million as of December 31, 2014 and 2013, respectively. |
Successful Efforts Method of Accounting for Oil and Gas Activities | Successful Efforts Method of Accounting for Oil and Gas Activities |
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The Company follows the successful efforts method of accounting for its costs of acquisition, exploration and development of oil and gas properties. Under this method, oil and gas lease acquisition costs and intangible drilling costs associated with exploration efforts that result in the discovery of proved reserves and costs associated with development drilling, whether or not successful, are capitalized when incurred. Drilling costs of exploratory wells are capitalized pending determination that proved reserves have been found. If the determination is dependent upon the results of planned additional wells and require additional capital expenditures to develop the reserves, the drilling costs will be capitalized as long as sufficient reserves have been found to justify completion of the exploratory well as a producing well, and additional wells are underway or firmly planned to complete the evaluation of the well. Exploratory wells not meeting the criteria for continued capitalization are expensed when such a determination is made. Other exploration costs are expensed as incurred. |
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A portion of the Company’s oil and gas properties include oilfield materials and supplies inventory to be used in connection with the Company’s drilling program. These inventories are stated at the lower of cost or market, which approximates fair value, and they are regularly assessed for obsolescence. Oilfield materials and supplies inventory balances were $30.5 million and $25.4 million at December 31, 2014 and 2013, respectively. |
Depreciation, depletion and amortization costs for productive oil and gas properties are recorded on a unit-of-production basis. For other depreciable property, depreciation is recorded on a straight-line basis over the estimated useful life of the assets, which range between three to five years, or the lease term if shorter. Repairs and maintenance charges, including workover costs, are charged to expense as incurred. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets |
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The Company reviews its long-lived assets in property, plant and equipment for impairment each reporting period, or whenever changes in circumstances indicate that the carrying amount of assets may not be fully recoverable. 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. |
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An impairment loss is recognized for proved properties when the estimated undiscounted future cash flows expected to result from the asset are less than its carrying amount. The Company estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. Cash flows are determined on the basis of reasonable and documented assumptions that represent the best estimate of the future economic conditions during the remaining useful life of the asset. The Company’s cash flow projections into the future include assumptions on variables, such as future sales, sales prices, operating costs, economic conditions, market competition and inflation. Prices used to quantify the expected future cash flows are estimated based on forward prices prevailing in the marketplace and management’s long-term planning assumptions. Impairment is measured by the excess of carrying amount over the fair value of the assets. |
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Unevaluated leasehold costs are assessed for impairment at the end of each reporting period and transferred to proved oil and gas properties to the extent they are associated with successful exploration activities. Significant unevaluated leasehold costs are assessed individually for impairment, based on the Company’s current exploration plans, and any indicated impairment is charged to expense. |
Asset Retirement Obligations | Asset Retirement Obligations |
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The Company accounts for asset retirement obligations in accordance with ASC Topic 410 (Asset Retirement and Environmental Obligations), which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. ASC 410 requires the Company to record a liability for the present value, using a credit-adjusted risk free interest rate, of the estimated site restoration costs with a corresponding increase to the carrying amount of the related long-lived assets. |
Revenues | Revenues |
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Revenues are recognized when crude oil is delivered to a buyer. The recognition criteria are satisfied when there exists a signed contract with defined pricing, delivery, and acceptance, as defined in a contract, and there is no significant uncertainty of collectability. Crude oil revenues are recorded net of royalties. |
Income Taxes | Income Taxes |
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The Company provides for income taxes using the asset and liability method of accounting for income taxes in accordance with ASC Topic 740 (Income Taxes). Under the asset and liability method, deferred tax assets and liabilities are recognized for temporary differences between the tax bases of assets and liabilities and their carrying values for financial reporting purposes and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established to reduce deferred tax assets to their net realizable amounts if it is more likely than not that the related tax benefits will not be fully realized. |
The Company routinely evaluates any tax deduction and tax refund positions in a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained. If that test is met, the second step is to determine the amount of benefit or expense to recognize in the consolidated financial statements. See Note 12 – Income Taxes for further information. |
Debt Issuance Costs | Debt Issuance Costs |
Debt issuance costs consist of certain costs paid to lenders in the process of securing a borrowing facility. Debt issuance costs incurred are capitalized and subsequently charged to interest expense over the term of the related debt, using the effective interest rate method. |
As of December 31, 2014, unamortized debt issuance costs were $1.9 million, of which $1.3 million was classified as long-term. There were no debt issuance costs as of December 31, 2013. |
Share-Based Compensation | Stock-Based Compensation |
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The Company recognizes all stock-based payments to employees, including grants of employee stock options, in the consolidated financial statements based on their grant-date fair values in accordance with ASC Topic 718-10 (Stock Compensation). The Company values its stock options awarded using the Black-Scholes option pricing model. Restricted stock awards are valued at the grant date closing market price. Stock based compensation costs are recognized over the vesting period, which is the period during which the employee is required to provide service in exchange for the award. Stock-based compensation paid to non-employees are valued at the fair value at the applicable measurement date and charged to expense as services are rendered. |
Reporting and Functional Currency | Reporting and Functional Currency |
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The Company has adopted the U.S. dollar as the functional currency for all of its foreign subsidiaries. Gains and losses on foreign currency transactions are included in results of operations, in accordance with ASC Topic 830 (Foreign Currency Matters). |
Net Earnings (Loss) Per Common Share | Net Earnings (Loss) Per Common Share |
The Company computes earnings or loss per share under ASC Topic 260 (Earnings per Share). Basic net earnings or loss per common share is computed by dividing net earnings or loss by the weighted average number of shares of common stock outstanding at the end of the reporting period. Diluted net earnings or loss per share is computed by dividing net earnings or loss by the fully dilutive common stock equivalent, which consists of shares outstanding, augmented by potentially dilutive shares issuable upon the exercise of the Company’s stock options, unvested restricted stock awards, and stock warrants and conversion of the Convertible Subordinated Note, calculated using the treasury stock method. |
The table below sets forth the number of stock options, warrants, non-vested restricted stock, and shares issuable upon conversion of Convertible Subordinated Note that were excluded from dilutive shares outstanding during the years ended December 31, 2014, 2013 and 2012, as these securities are anti-dilutive because the Company was in a loss position each year. |
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| Years ended December 31, | |
(In thousands) | 2014 | | | 2013 | | | 2012 | |
Stock options | | 6,227 | | | | - | | | | 4 | |
Stock warrants | | 39 | | | | - | | | | - | |
Non-vested restricted stock awards | | 5,982 | | | | 2,154 | | | | 796 | |
Convertible note | | 60,041 | | | | - | | | | - | |
| | 72,289 | | | | 2,154 | | | | 800 | |
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Upon the occurrence of certain events, the Company is also contingently liable to make additional payments to Allied, under the Transfer Agreement, up to an additional amount totaling $50.0 million in cash, or the equivalent in shares of the Company’s common stock, at Allied’s option. See Note 10 – Commitments and Contingencies for further information. |
Non Controlling Interest | Non-Controlling Interests |
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The Company reports its non-controlling interests as a separate component of equity. The Company also presents the consolidated net loss and the portion of the consolidated net loss allocable to the non-controlling interests and to the shareholders of the Company separately in its consolidated statements of operations. Losses attributable to the non-controlling interests are allocated to the non-controlling interests even when those losses are in excess of the non-controlling interests’ investment basis. |
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As of December 31, 2014, the non-controlling interest recorded in equity was $0.7 million, attributable to the joint ownership of an affiliate in our CAMAC Energy Ghana Limited subsidiary. No non-controlling interests existed as of December 31, 2013. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments |
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Fair value is the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. |
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The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, inventory, deposits, accounts payable and accrued liabilities, and debts at floating interest rates, approximate their fair values at December 31, 2014 and 2013, respectively, principally due to the short-term nature, maturities or nature of interest rates of the above listed items. |
Reclassification | Reclassification |
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Certain reclassifications have been made to the 2013 and 2012 consolidated financial statements to conform to the 2014 presentation. These reclassifications were not material to the accompanying consolidated financial statements. |
Recently Issued Accounting Standards | Recently Issued Accounting Standards |
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In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU No. 2014-08 changes the criteria for reporting discontinued operations including enhanced disclosure requirements. Under the updated guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization´s operations and financial results. ASU No. 2014-08 is effective for fiscal years beginning after December 15, 2014, and the Company will adopt this standards update, as required, beginning with the first quarter of 2015. The adoption of this standards update affects presentation only and, as such, is not expected to have a material impact on the Company’s consolidated financial statements. |
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which are guidance for recognizing revenue from contracts with customers. The objective of this guidance is to establish principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers, including qualitative and quantitative disclosures around contracts with customers, significant judgments and change in judgments, and assets recognized from the costs to obtain or fulfill a contract, and will replace most existing revenue recognition guidance when it becomes effective. ASU No. 2014-09 is effective for interim and annual periods beginning after December 15, 2016, and the Company will adopt this standards update, as required, beginning with the first quarter of 2017. The Company is in the process of evaluating the impact, if any, of this guidance on its consolidated financial statements. |
In June 2014, the FASB issued ASU No. 2014-09, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The guidance was issued to clarify the accounting treatment for performance-based stock awards. The update states that companies should not record compensation expense related to an award for which transfer to the employee is contingent on the company’s satisfaction of a performance target until it becomes probable that the performance target will be met. The update does not contain any new disclosure requirements, and is effective for interim and annual periods beginning after December 15, 2015. The Company will adopt this standards update, as required, beginning with the first quarter of 2016. The adoption of this standards update is not expected to have a material impact on its consolidated financial statements. |
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU No 2014-15 contains updated guidance on determining when and how reporting entities must disclose going concern uncertainties in its financial statements. The objective of the update is to define management’s responsibility to evaluate, each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued and to provide related footnote disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. The Company will adopt this standards update, as required, beginning with the first quarter of 2017. The Company is in the process of evaluating the impact this guidance will have on its footnote disclosures. |
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In November 2014, the FASB issued ASU No. 2014-17, Business Combinations: Pushdown Accounting. This ASU provides companies with the option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The election to apply pushdown accounting can be made either in the period in which the change of control occurred, or in a subsequent period. This ASU was effective on November 18, 2014. Implementation of this standard is not expected to have a material effect on the Company’s consolidated financial statements. |
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NOTE 3. - LIQUIDITY MATTERS |
The Company’s primary cash requirements are for capital expenditures for the redevelopment of the Oyo field in the OMLs, operating expenditures, exploration activities in its unevaluated leaseholds, working capital needs, and interest and principal payments under current indebtedness. |
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The Company currently anticipates commencement of production from the Oyo-8 and Oyo-7 wells in March and May 2015, respectively, and expects combined initial production rates from the two wells of approximately 14,000 BOPD. If the Company experiences significant delays in bringing the Oyo-8 and Oyo-7 wells onto production, if actual production rates are substantially below anticipated rates, or if oil prices decline significantly from current levels, the Company will need to seek additional sources of capital. |
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The following discussion relates to the Company’s liquidity plans to finance the redevelopment of the Oyo field, as well as required operating and exploration expenditures. |
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The Company has a $25.0 million borrowing facility under a Promissory Note with Allied, with a maturity date now extended through August 2016. The current terms of the Promissory Note allow for the entire $25.0 million facility amount to be utilized for general corporate purposes. As of December 31, 2014, $11.2 million was outstanding under the Promissory Note. See Note 8 – Debt for further information. |
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In February 2015, the Company received a term sheet from a trading company for a commodity-based Full Recourse Prepayment Facility (the “Prepayment Facility”). The Prepayment Facility would allow the Company to borrow an initial sum, up to $65.0 million, towards the Oyo field redevelopment program. Additional funds, up to $100.0 million, would be available for borrowings post-production. The Company expects the Full Recourse Prepayment Facility to be finalized in the second quarter of 2015. |
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In March 2015, the Company entered into a borrowing facility with Allied for a Convertible Note (the “2015 Convertible Note”) separate from the existing $25.0 million Promissory Note and the $50.0 million Convertible Subordinate Note, allowing the Company to borrow up to $50.0 million for general corporate purposes. The 2015 Convertible Note matures in December 2016. Interest accrues at the rate of LIBOR plus 5.0%, and is payable quarterly. |
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The 2015 Convertible Note is convertible into shares of the Company’s common stock upon the occurrence and continuation of an event of default, at the sole option of the holder. The number of shares issuable upon conversion is the conversion amount divided by the conversion price, defined as the volume weighted average of the closing sale prices on the NYSE MKT for a share of common stock for the five complete trading days immediately preceding the conversion date. |
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Upon execution of the 2015 Convertible Note, the Company drew $20.0 million under the note and issued to Allied warrants to purchase approximately 9.8 million shares of the Company’s common stock at a $0.41 strike price. Additional warrants will be issuable in connection with future draws, with the strike price for those warrants determined based on the market price of the Company’s common stock at the time of such future draws. |
The Company’s majority shareholder has formally committed to provide the Company with additional funding, the form of which would be determined at the time of funding, sufficient to maintain the Company’s operations and to allow the Company to meet its current and future obligations as they become due for one year from March 12, 2015, the date of said commitment. |
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Although there are no assurances that the Company’s plans will be realized, management believes that the Company will have sufficient capital resources to meet projected cash flow requirements for the next twelve months from the date these financial statements are issued. |
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