Oceanic Exploration 10QSB 2005 Q3 Quarterly report (small business)

Oceanic Exploration (OCEX) Inactive 10QSB2005 Q3 Quarterly report (small business)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)


þ		Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2005


o		Transition Report Under Section 13 or 15(d) of the Exchange Act

For the transition period from to Commission file number 0-6540.

Oceanic Exploration Company

(Exact name of small business issuer as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		84-0591071 (I.R.S. Employer Identification No.)

7800 East Dorado Place, Suite 250, Englewood, CO 80111
(Address of principal executive offices)

(303) 220-8330
(Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ


Shares outstanding at November 9, 2005 40,688,881		Common $.0625 Par Value

Transitional Small Business Disclosure Format (Check One)		YES o NO þ

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets (Unaudited)
Condensed Consolidated Statements of Operations (Unaudited)
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
Condensed Consolidated Statements of Cash Flows (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)

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

ITEM 3. CONTROLS AND PROCEDURES

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES

Rule 13a4-14(a) Certification of Chief Executive Officer
Rule 13a4-14(a) Certification of Chief Financial Officer
Rule 13a4-14(b) Certification of Officers

OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30,			December 31,
	2005			2004
Assets
Cash, unrestricted	$	63,466		$	382,436
Short-term investments		—			409,576
Due from affiliates		16,218			63,205
Prepaid expenses and other		18,485			8,485

Total current assets		98,169			863,702


Oil and gas property interests (note 5)		—			—

Furniture, fixtures, and equipment		61,003			81,216
Less accumulated depreciation		(48,327	)		(64,996	)

		12,676			16,220


Total assets	$	110,845		$	879,922


Liabilities and Stockholders’ Deficit
Accounts payable	$	118,870		$	167,860
Accrued expenses (note 4)		465,425			303,467
Note payable related party — NWO Resources, Inc. (note 6)		917,837			—

Total current liabilities		1,502,132			471,327

United Kingdom taxes payable, including accrued interest		685,601			730,486
Other non-current liabilities		5,073			7,914

Total non-current liabilities		690,674			738,400


Total liabilities		2,192,806			1,209,727


Commitments and contingencies (notes 2 and 4)

Stockholders’ deficit (note 3)
Preferred stock, $10 par value. Authorized 600,000 shares; No shares issued		—			—
Common stock, $.0625 par value. Authorized 50,000,000 shares; 40,688,881 shares issued and outstanding		2,543,055			2,543,055
Capital in excess of par value		3,323,410			3,323,410
Retained deficit		(7,948,426	)		(6,196,270	)

Total stockholders’ deficit		(2,081,961	)		(329,805	)


Total liabilities and stockholders’ deficit	$	110,845		$	879,922

See accompanying notes to condensed consolidated financial statements.

OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Revenue:
Management revenue — related parties	$	248,638		$	208,178		$	714,178		$	624,533

Costs and expenses:
Exploration expenses (note 4)		426,630			305,368			1,282,238			1,576,987
Amortization and depreciation		1,074			2,904			3,544			8,832
General and administrative		397,667			416,159			1,207,957			1,202,598


		825,371			724,431			2,493,739			2,788,417


Operating loss		(576,733	)		(516,253	)		(1,779,561	)		(2,163,884	)

Other income (expense):
Interest income and realized gains		40			5,694			11,499			4,115
Interest and financing costs		(20,986	)		(6,200	)		(36,293	)		(18,875	)
Foreign currency gains (losses)		19,126			29			52,199			57


		(1,820	)		(477	)		27,405			(14,703	)


Loss before income taxes		(578,553	)		(516,730	)		(1,752,156	)		(2,178,587	)

Income tax expense (note 7)		—			—			—			—


Net loss	$	(578,553	)	$	(516,730	)	$	(1,752,156	)	$	(2,178,587	)

Basic and diluted loss per common share	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	(0.06	)

Weighted average number of common shares outstanding		40,688,881			40,688,881			40,688,881			34,233,174

See accompanying notes to condensed consolidated financial statements.

OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)


	September 30,			December 31,
	2005			2004
Common stock:
Balance, beginning of year	$	2,543,055		$	1,932,259
Common stock issued in connection with rights offering		—			610,796

Balance, end of period	$	2,543,055		$	2,543,055


Capital in excess of par value:
Balance, beginning of year	$	3,323,410		$	1,847,241
Additional paid in capital from rights offering net of related costs (note 3)		—			1,476,169

Balance, end of period	$	3,323,410		$	3,323,410


Retained deficit:
Balance, beginning of year	$	(6,196,270	)	$	(3,456,457	)
Net loss for the nine months ended September 30, 2005 and the twelve months ended December 31, 2004, respectively		(1,752,156	)		(2,739,813	)

Balance, end of period	$	(7,948,426	)	$	(6,196,270	)


Total stockholders’ deficit	$	(2,081,961	)	$	(329,805	)

See accompanying notes to condensed consolidated financial statements.

OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2005			2004
Cash flows from operating activities:
Net loss	$	(1,752,156	)	$	(2,178,587	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		3,544			8,832
Changes in operating assets and liabilities:
Decrease in due from affiliates		46,987			26,979
(Increase) decrease in prepaid expenses and other assets		(10,000	)		25,148
Increase (decrease) in accounts payable		(48,990	)		68,435
Increase (decrease) in accrued expenses		161,958			(126,427	)
Increase (decrease) in United Kingdom taxes payable, including accrued interest payable		(44,885	)		27,300
Decrease in other non-current liabilities		(2,841	)		(2,460	)

Net cash used in operating activities		(1,646,383	)		(2,150,780	)


Cash used in investing activities:
Purchase of fixed assets		—			(1,489	)

Cash flows from financing activities:
Proceeds from sale of short-term investments		409,576			—
Proceeds from note payable, related party — NWO Resources, Inc.		917,837			—
Proceeds from rights offering, net		—			2,087,107

Net cash provided by financing activities		1,327,413			2,087,107

Net decrease in cash		(318,970	)		(65,162	)


Cash at beginning of period		382,436			1,364,240


Cash at end of period	$	63,466		$	1,299,078

See accompanying notes to condensed consolidated financial statements.

OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2005

(1)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated balance sheet as of December 31, 2004 that has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements included herein, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations, although Oceanic Exploration Company (‘Oceanic’ or ‘the Company’) believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments consisting of normal recurring accruals have been made which are necessary for the fair presentation of the periods included. Certain amounts recorded in prior periods have been reclassified to conform to current presentation. Interim results are not necessarily indicative of results for a full year. The information included herein should be read in conjunction with the financial statements and notes thereto included in the December 31, 2004 Form 10-KSB.

All of the Company’s revenue is derived from management contracts with related parties. The Company operates as one segment.

(2)

PENDING LITIGATION

On March 1, 2004, Oceanic and Petrotimor filed a Complaint in the United States District Court for the District of Columbia. Oceanic and Petrotimor, as plaintiffs, brought this action to redress the harm caused by the defendants’ (collectively including ConocoPhillips, Inc. and designated subsidiaries, the Timor Sea Designated Authority for the Joint Petroleum Development Area, the Timor Gap Joint Authority for the Zone of Cooperation, PT Pertamina and BP Migas) theft, misappropriation and conversion of oil and gas resources within the Company’s 14.8 million-acre Timor Gap concession. On March 1, 2005, the Complaint was amended to reflect claims that the misdeeds of the defendants effectively prevented the Company from competing for concessions granted by the Designated Authority.

The Complaint describes violations of the following United States statutes: Racketeer Influenced Corrupt Organizations Act (RICO), the Lanham Act and the Robinson-Patman Act. The Complaint seeks damages of at least $10.5 billion from the defendants, and cites unjust enrichment, unfair competition, and intentional interference with the contract and prospective economic advantage. Based upon the RICO and anti-trust claims, Oceanic and Petrotimor seek to recover treble damages, reasonable attorneys’ fees and punitive damages.

On February 8, 2005, the Court heard oral arguments on the defendants’ motions to dismiss. The Court denied the defendants’ motions to dismiss as moot. However, the Court also dismissed the plaintiffs’ First Amended Complaint without prejudice to the filing of a Second Amended Complaint, as described below, to more fully reflect the plaintiffs’ case. The Complaint was amended to reflect claims that the Company was effectively prevented from obtaining concessions granted by the Designated Authority due to the misdeeds of other defendants. The Court directed the plaintiffs to precisely respond to each and every argument raised by the defendants’ “compelling motions to dismiss.” The Second Amended Complaint was filed with the Court on March 1, 2005. The defendants filed new motions to dismiss with the Court on March 28, 2005. The Company’s opposition to defendants’ motions to dismiss was filed with the Court on April 18, 2005. A final response by the defendants to the Company’s revised complaint was filed on April 28, 2005. No communication has been received from the Court since the last filing with the Court.

The Company awaits the decision of the Court on the defendants’ motion to dismiss. The Company is unable to predict when the Court will reach a decision on this motion, nor can the Company predict the Court’s decision on the merits of this motion. As stated in the Second Amended Complaint, the Company has consistently proposed to locate liquefied natural gas facilities in East Timor which would significantly benefit the people of East Timor, yet the Company has not been given an opportunity to bid on production sharing contracts granted by the Designated Authority due to bribes and corruption. Under

these circumstances, the Company believes it is entitled to prove its case, and if given the opportunity by the Court, intends to do so. The Company continues to believe that it has a persuasive case against the defendants based on the evidence.

The Company anticipates that the defendants will continue to deny the allegations of the Second Amended Complaint and will otherwise vigorously defend against the Company’s claims. The Company understands that pursuing this lawsuit to its fullest extent in 2005 could take substantial time by Company personnel and substantial Company expense. Additional resources may be required in connection with this litigation. The Company believes that the financial opportunity justifies this substantial commitment of time and expense.

(3)

RIGHTS OFFERING

On April 21, 2004, Oceanic filed a Registration Statement on Form SB-2 with the SEC, seeking to register shares of common stock to be issued to stockholders pursuant to a rights offering. Under the terms of the rights offering, the Company offered the holders of its common stock the right to subscribe for additional shares at a purchase price of $.22 per share on the basis of 0.3161043 shares of common stock for each share held as of May 28, 2004. A total of 9,772,727 shares of common stock were offered to all stockholders. The Registration Statement was declared effective on June 1, 2004 and the offering expired on July 1, 2004. A total of $2,087,107, net of related costs of $62,893, was collected and 9,772,727 shares were issued through the rights offering. The proceeds from the rights offering were used to fund the cost of the rights offering, pay for the legal and professional expenses associated with the Petrotimor lawsuit and to cover the cost of operations.

(4)

EXPLORATION EXPENSES

On August 21, 2001, Oceanic and Petrotimor issued a Statement of Claim (as amended) out of the Federal Court of Australia against the Commonwealth of Australia, the Joint Authority established under the Timor Gap Treaty and the Phillips Petroleum companies operating within the Timor Gap area (the ‘Respondents’). Oceanic and Petrotimor claimed that the Timor Gap Treaty and the related legislation of the Australian Parliament was void or invalid for a number of reasons including (i) the Timor Gap Treaty and the legislation sought to claim significant portions of the continental shelf over which it had no sovereign rights for Australia, which the Company believes under international law belonged to East Timor, and (ii) the Timor Gap Treaty and the legislation attempted to extinguish the property interest and rights granted by the then legitimate power, Portugal, to Oceanic and Petrotimor, without providing for just compensation as required by Australian law. On February 3, 2003, the Federal Court of Australia issued an adverse decision in Petrotimor v. Commonwealth of Australia. The Federal Court ruled that it lacked the jurisdiction to hear the claims made by Oceanic and Petrotimor. The Company sought special leave in 2003 to appeal to the High Court. These appeals were discontinued on February 6, 2004 when the Company determined that the most appropriate venue, under the circumstances, would be in the United States courts.

As part of the Australian litigation, Oceanic was required to provide Bank Guarantees as security for costs. The Australia and New Zealand Banking Group (“ANZ Bank”) in Sydney, Australia provided the necessary guarantees. As of September 30, 2005 and December 31, 2004, the Company had $282,907 and $282,031, respectively, on deposit with ANZ Bank as collateral for the guarantees. The change in the balance is due to the exchange rate fluctuation between the U.S. and Australian dollars offset by interest earned on the account. In September 2005, the Australian Government Solicitor accepted the Company’s offer of $250,000AU ($190,075 in U.S. dollars) in full and final settlement of their outstanding costs. The Company expects this amount to be withdrawn from the ANZ bank account in November 2005. The Company has increased the reserve to $750,000AU ($570,225 in U.S. Dollars) to cover any other claims for costs. At the present time, the Company does not know whether there will be claims for further costs assessed against it by the Court. The Company believes that the remaining deposit may be forfeited to pay for the defendants’ legal expenses. Accordingly, the Company maintains an accrued amount of $287,318 to cover the estimated full liability.

During the nine months ended September 30, 2005 and 2004, the Company incurred expenses of $1,258,296 and $1,576,987, respectively, related to legal, consulting and commercial activities in Australia and the Timor Gap area. These expenses have been recorded as exploration expenses in the accompanying statements.

Although Oceanic is not currently directly involved in any other oil and gas exploration or production activities, the Company continues to evaluate potential exploration and production activities elsewhere in the world, including Indonesia and Libya. The Company did not receive any revenue from oil and gas properties in 2005 or 2004. Other than the potential recovery of

damages from the pending litigation, the Company is not currently conducting any activities that would result in material oil and gas revenue in 2005.

(5)

OIL AND GAS INTERESTS

Oceanic holds various interests in concessions or leases for oil and gas exploration around the world as described in the December 31, 2004 Form 10-KSB. Costs for these oil and gas property interests have been charged to expense in prior years so no amounts are reflected on the balance sheet. The Company is not currently conducting any direct exploration activities other than pursuing legal claims relating to the disputed oil and gas concession existing in the Timor Gap between East Timor and Australia.

(6)

NOTE PAYABLE — RELATED PARTY

On March 7, 2005, Oceanic established a $2,000,000 line of credit with NWO Resources Inc. (“NWO”), Oceanic’s principal shareholder, to fund operations if necessary. As of September 30, 2005, $900,000 was outstanding under the line of credit. An additional $17,837 was accrued for interest calculated on the outstanding balance at 2% over the U.S. Bank prime-lending rate in effect on the date of each draw against the line of credit. The line of credit is evidenced by an unsecured promissory note that is due upon the earlier of the following: (i) obtaining alternative financing in an amount not less than $2,000,000, or (ii) resolution of the East Timor suit to the benefit of Oceanic for an amount not less than $2,000,000, or (iii) March 7, 2006.

In addition to the line of credit, the Company obtained a commitment from NWO to provide up to $2,000,000 of additional financing under certain conditions. The Company believes that the cash on hand at September 30, 2005 plus cash generated from 2005 revenues and additional funding available from NWO, will be sufficient to fund operations beyond December 31, 2005. The Company is also evaluating other potential financing sources for long-term capital, including the potential of term debt financing from NWO and the potential of raising additional equity capital from existing shareholders. The Company has no firm plans or commitments for the provision of long-term capital. The status of Oceanic’s current litigation may substantially affect our need for and the ability to raise capital in the long-term.

(7)

INCOME TAXES

Oceanic and NWO maintain a tax-sharing agreement with the same provisions applicable to all subsidiaries included in NWO’s consolidated return. Oceanic’s tax provision is calculated using the then-current statutory rates, on a stand-alone basis, and specifically estimating the book-tax differences, including the share of any differences applied ratably to all subsidiaries. Oceanic will include a tax benefit from losses to the extent of the previous profits, but only to the extent such profits were included in the NWO consolidated return. To the extent a tax benefit for a loss has not been previously allowed, and Oceanic has profits in a future year which falls within the period to which, on a stand-alone basis, the prior tax loss could be carried forward under United States tax rules, the benefit of the loss will be included in the provision to the extent the loss would provide a tax benefit.

In evaluating the realizability of the net deferred tax assets, the Company takes into account a number of factors, primarily relating to the ability to generate taxable income. Where it is determined that it is likely that the Company will be unable to realize deferred tax assets, a valuation allowance is established against the portion of the deferred tax asset.

Because it cannot be accurately determined when the Company will become profitable, a valuation allowance was provided against the entire deferred income tax asset attributable to the net operating loss incurred during the nine months ended September 30, 2005 and 2004.

The foreign tax credit carryforwards of Oceanic from taxable periods prior to April 2, 2003 can only be used to reduce the taxes on the Company’s foreign source income. Because it cannot be accurately determined when Oceanic will have foreign source taxable income, a valuation allowance was provided against the entire deferred income tax asset attributable to the foreign tax credit carryforward from years prior to April 2, 2003.

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

Any statements that are contained in this Form 10-QSB that are not statements of historical fact are forward-looking statements. Readers can identify these statements by words such as ‘may,’ ‘will,’ ‘expect,’ ‘anticipate,’ ‘estimate,’ ‘continue’ or other similar words. These statements discuss future expectations, contain projections of results of operations or financial condition or state other forward-looking information and are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including such factors as uncertainties in cash flow, expected costs of litigation, the outcome of litigation, the potential impact of government regulations and rulings, fluctuations in the economic environment and other such matters, many of which are beyond the control of the Company. Readers are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those expressed or implied in the forward-looking statements.

The following discussion and analysis should be read in conjunction with Oceanic’s condensed consolidated financial statements and notes thereto as of December 31, 2004 and September 30, 2005 and 2004, for the respective periods then ended.

Critical Accounting Policies

The discussion and analysis of financial condition and results of operations is based on the Company’s condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. On an on-going basis, management evaluates the estimates including those related to the realizability of income tax assets and the provision for loss contingencies. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the Company’s condensed consolidated financial statements.

To record income tax expense, the Company is required to estimate income taxes in each of the jurisdictions in which it operates. This involves estimating actual current tax exposure together with assessing temporary differences that result in deferred tax assets and liabilities and expected future tax rates. The Company records a valuation allowance to reduce the deferred tax assets to an amount that management believes is more likely than not to be realized. Management considers future taxable income and prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If management subsequently determines that the Company will realize more or less of the net deferred tax assets in the future, such adjustment would be recorded as an increase or reduction of income tax expense in the period such determination is made.

In evaluating the need to provide for contingent liabilities, the Company takes into account a number of factors, including the expected likelihood of an unfavorable outcome and the ability to reasonably estimate the financial impact of an unfavorable outcome and management’s intentions with respect to the contingency.

Liquidity and Capital Resources

Oceanic has historically addressed long-term liquidity needs for oil and gas exploration and development through the use of farm-out agreements. Under such agreements, the Company sells a portion of its ownership interest in the concession to an outside party who is then responsible for the exploration activities. This is a strategy that management intends to continue in the event it becomes feasible to begin further exploration in any of the areas where the Company currently owns concessions.

Cash Flow.Cash used in operating activities was $1,646,383 for the first nine months of 2005, compared to $2,150,780 in the first nine months of 2004. Financing activities, including the sale of short-term investments and borrowings from the note

payable from NWO, generated positive cash flows in the first nine months of 2005 of $1,327,413 compared to the 2004 proceeds from the rights offering of $2,087,107. The first nine months of 2005 ended with a net decrease in total cash of $318,970. This decrease in cash is primarily because of legal and professional fees paid in connection with the pending litigation regarding the East Timor disputed concession. Ongoing legal and professional fees associated with the pending litigation have required substantial expenditures. During the nine months ended September 30, 2005 and 2004, Oceanic actually paid cash of $862,795 and $1,437,168, respectively, related to legal and professional activities in Australia and the Timor Gap area. An additional $395,501 of expenses were accrued and remained unpaid as of September 30, 2005. These costs are included in exploration expenses. Exploration expenses have decreased in 2005 compared to the same period in 2004, primarily because much of the legal research for the pending litigation has been completed. Until a final judgment is obtained or settlement of the lawsuit occurs, exploration expenses will continue to be high and will consume a majority of Oceanic’s cash resources.

Oceanic had $63,466 in cash and cash equivalents at September 30, 2005 compared with $382,436 in cash and cash equivalents at December 31, 2004. The Company had a negative working capital of ($1,403,963), where current liabilities exceeded cash and other current assets, at September 30, 2005, compared to a positive working capital of $392,375 at December 31, 2004. This decrease in working capital was a result of the payment of legal and investigatory expenses charged to exploration expenses as discussed above.

Revenue.Oceanic provides management services to various entities with which our Chairman of the Board of Directors and Chief Executive Officer is affiliated. Services provided are:

	•		Management, administrative and bookkeeping services to San Miguel Valley Corporation (“San Miguel”),

	•		Management, administrative and professional services to Cordillera Corporation (“Cordillera”), and

	•		Consulting services, including monitoring exploration and production activities on a worldwide basis to identify potential investment opportunities for Harvard International Resources Ltd. (“HIRL”).

Together, these management services provided all of Oceanic’s total revenue for the nine months ended September 30, 2005 and 2004.

Management Fee Revenue
(Unaudited)


	Nine months ended September 30,
		2005				2004
Cordillera		$	355,230	50	%	$	267,613	43	%
San Miguel Valley Corporation			320,580	45	%		334,420	54	%
Harvard International Resources, Ltd.			38,368	5	%		22,500	3	%

Total management fee revenue		$	714,178			$	624,533

Except for the contract with HIRL, all labor services are provided at payroll cost plus benefits and include a 5% mark up on that total to cover the administrative expense. This charge is calculated annually and readjusted at year-end. All expenses are billed at cost. The purpose of the management agreements is to avoid duplication of functions and costs for the economic benefit of all of the companies involved.

Results of Operations

Revenue.Management fee revenue for the nine months ended September 30, 2005 increased $89,645, or 14%, compared to the nine months ended September 30, 2004. The total increase is due to an increase in fees charged to Cordillera, offset by a smaller decrease in the fees charged to San Miguel. Because the level of service is dependent upon the needs of the applicable corporations and available employees, it is normal to see fluctuations in management fee rates from year to year.

Exploration Expenses.The Company continues to have ongoing legal and professional fees associated with the litigation in the U.S. District Court and the pursuit of commercial opportunities in East Timor. During the nine months ended September 30, 2005 and 2004, the Company incurred total exploration expenses of $1,282,238 and $1,576,987, respectively. These related primarily to legal and professional fees associated with the litigation in the U.S. court and the pursuit of commercial opportunities in East Timor. These expenses have been recorded as exploration expenses.

In 1974, Petrotimor, a 99% owned subsidiary of Oceanic, was granted an exclusive offshore concession by Portugal to explore for and develop oil and gas in an approximately 14.8 million-acre area between East Timor and Australia in an area known as the ‘Timor Gap.’ At that time, Portugal had administrative control and was internationally recognized as having sovereignty over East Timor. On January 5, 1976, following Indonesia’s unlawful invasion and occupation of East Timor, Petrotimor applied for and obtained on April 14, 1976, Portugal’s consent to a suspension of performance under the concession agreement based upon force majeure. This force majeure status remained in effect until at least October 25, 1999.

On December 11, 1989, Australia and Indonesia, ignoring Petrotimor’s rights under its concession from Portugal, signed the Timor Gap Treaty purporting to create a joint zone of cooperation, whereby these two countries could control the exploration and development of hydrocarbons in an area over which both countries claimed rights. A portion of this area, designated as Zone A, falls largely within the area where Petrotimor holds rights under its concession agreement with Portugal. The treaty created a Joint Authority that purported to grant and enter into production contracts with various companies who have subsequently carried out exploration activities in the joint zone of cooperation.

On March 6, 2003, the Australian Parliament ratified the Timor Sea Treaty governing oil and gas projects in the Joint Development Area between Australia and East Timor. In addition, an Australian senior official and Timorese ministers in Dili initialed the Sunrise International Unitization Agreement (‘IUA’) and a related memorandum of understanding on fiscal issues. Published reports indicate that the IUA states that Australia and East Timor have overlapping maritime claims in the Timor Sea, and that the current boundaries are not permanent. It is uncertain when, if ever, these overlapping maritime claims will be resolved.

Commercial Opportunity in East Timor.The Company submitted an application for an Expansion of Seabed Concession to the transitional government of East Timor in October 2001 requesting that Petrotimor’s 1974 concession area be expanded to include the additional maritime areas within the properly determined seabed delimitation of East Timor. The Company believes that East Timor is entitled, under international law, to exercise sovereign jurisdiction over its seabed and to have an Exclusive Economic Zone as codified in the 1982 United Nations Convention on the Law of the Sea. Oceanic believes that by so doing, East Timor could acquire jurisdiction over hydrocarbon reserves containing approximately 12 trillion cubic feet of natural gas and associated condensate.

Neither the transitional government, nor the new East Timor government that took effect on May 20, 2002 has recognized the Company’s concession in East Timor. The Company submitted an application for an Expansion of Seabed Concession to the transitional government in East Timor and received no formal response acknowledging the application. An article carried on the Dow Jones Newswires on September 26, 2002 quotes a ‘senior East Timor government official’ stating that the government does not recognize this concession. Oceanic has not been officially advised of the status of the application or if the new East Timor government is even considering it. A formal response may never be issued, or the Company could receive an unfavorable response.

If the East Timor government were to recognize the concession and grant the application, it would expand the 1974 Petrotimor concession to correspond with the offshore area over which East Timor is entitled to claim sovereign rights under international law. The Company sponsored a seminar in East Timor in 2001 for the purpose of explaining appropriate maritime boundaries under applicable international law and the resulting benefits to East Timor if such boundaries are enforced.

Gap Treaty and the related legislation of the Australian Parliament was void or invalid for a number of reasons including (i) the Timor Gap Treaty and the legislation sought to claim significant portions of the continental shelf over which it had no sovereign rights for Australia, which the Company believed under international law belonged to East Timor, and (ii) the Timor Gap Treaty and the legislation attempted to extinguish the property interest and rights granted by the then legitimate power, Portugal, to Oceanic and Petrotimor, without providing for just compensation as required by Australian law.

There were several procedural challenges by the Respondents. A hearing by the full court on the question of whether the Court had jurisdiction over this claim was held on May 16 and 17, 2002. On February 3, 2003, the Federal Court of Australia issued an adverse decision in Petrotimor v. Commonwealth of Australia, ruling that it lacked the jurisdiction to hear the claims made by Oceanic and Petrotimor. On May 6, 2003, the Federal Court ruled that it lacked jurisdiction relating to claims of misuse of confidential information. The Company sought special leave in 2003 to appeal to the High Court. These appeals were discontinued on February 6, 2004 when the Company determined that the most appropriate venue, under the circumstances, would be in the United States courts.

Pending Litigation.On March 1, 2004, Oceanic and Petrotimor filed a Complaint in the United States District Court for the District of Columbia. Oceanic and Petrotimor, as plaintiffs, brought this action to redress the harm caused by the defendants’ (collectively including ConocoPhillips, Inc. and designated subsidiaries, the Timor Sea Designated Authority for the Joint Petroleum Development Area, the Timor Gap Joint Authority for the Zone of Cooperation, PT Pertamina and BP Migas) theft, misappropriation and conversion of oil and gas resources within our 14.8 million-acre Timor Gap concession. On March 1, 2005, the Complaint was amended to reflect claims that the misdeeds of the defendants effectively prevented the Company from competing for concessions granted by the Designated Authority.

The Complaint describes violations of the following United States statutes: Racketeer Influenced Corrupt Organizations Act (“RICO”), the Lanham Act and the Robinson-Patman Act. The Complaint seeks damages of at least $10.5 billion from the defendants, also citing unjust enrichment, unfair competition, and intentional interference with the contract and with prospective economic advantage. Based upon the RICO and anti-trust claims, Oceanic and Petrotimor seek to recover treble damages, reasonable attorneys’ fees and punitive damages.

On February 8, 2005, the Court heard oral arguments on the defendants’ motions to dismiss. The Court denied the defendants’ motions to dismiss as moot. However, the Court also dismissed the plaintiffs’ First Amended Complaint without prejudice to the filing of a Second Amended Complaint, as described above, to more fully reflect the plaintiffs’ case. The Complaint was amended to reflect claims that the Company was effectively prevented from obtaining concessions granted by the Designated Authority due to the misdeeds of other defendants. The Court directed the plaintiffs to precisely respond to each and every argument raised by the defendants’ “compelling motions to dismiss.” The Second Amended Complaint was filed with the Court on March 1, 2005. The defendants filed new motions to dismiss with the Court on March 28, 2005. The Company’s opposition to defendants’ motions to dismiss was filed with the Court on April 18, 2005. A final response, by the defendants, to the Company’s revised complaint was filed on April 28, 2005. No communication has been received from the Court since the last filing with the Court.

in East Timor which would significantly benefit the people of East Timor, yet the company has not been given an opportunity to bid on production sharing contracts granted by the Designated Authority due to bribes and corruption. Under these circumstances, the Company believes it is entitled to prove its case, and if given the opportunity by the Court, intends to do so. The Company continues to believe that it has a persuasive case against the defendants based on the evidence.

The Company anticipates that the defendants will continue to deny the allegations of the Second Amended Complaint and will otherwise vigorously defend against the Company’s claims. The Company understands that pursuing this lawsuit to its fullest extent in 2005 could take substantial time by Company personnel and substantial Company expense. Additional resources will be required in connection with this litigation. The Company believes that the financial opportunity justifies this substantial commitment of time and expense.

General and Administrative Expenses.Total general and administrative costs and expenses for the nine months ended September 30, 2005 increased by $5,359 or .4% from the same period in 2004. Part of this increase can be attributed to general salary increases of 4% plus corresponding increases in benefits and payroll taxes of approximately 2%. Legal and professional fees decreased by over $74,000 in 2005, due to the resolution of legal issues. Foreign and domestic taxes decreased in 2005 by approximately $6,300 because of the 2004 payments of franchise taxes, ad valorem taxes to the state of Texas and initial value added tax (VAT) payments to the government of Portugal.

Other Income and Expense.Interest income for the nine months ended September 30, 2005 is $7,384 higher than the amount for the same period last year. Interest expense of $17,767 is from the United Kingdom estimated tax liability which is compounded on both static principal and the increasing accrued interest payable. Additional interest of $17,837 is accrued on the note payable to NWO Resources, Inc. Foreign exchange gains of $52,199 resulted from the fluctuations in exchange rates in 2004 and 2005 between the U.S. dollar, the British pound, the EURO and the Australian dollar.

ITEM 3.CONTROLS AND PROCEDURES

At the end of the period covered by this report, the President and the Chief Financial Officer carried out an evaluation, which included inquiries made to certain other of our employees, of the Company’s disclosure controls and procedures (as defined in Rules 13a — 15(e) and 15d — 15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.

Based upon that evaluation, the President and Chief Financial Officer have concluded that the design and operation of the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and forms.

There have been no changes in the Company’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

Legal proceeding developments in 2004 were reported in the December 31, 2004 Form 10-KSB. See ‘Pending Litigation’ sections above for activity through November 9, 2005.

ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits filed herewith are listed below and attached to this Report. The ‘Exhibit Number’ refers to the Exhibit Table in Item 601 of Regulation S-B.


Exhibit Number		Name of Exhibit
31.1		Rule 13a4-14(a) Certification of Chief Executive Officer

31.2		Rule 13a4-14(a) Certification of Chief Financial Officer

32		Rule 13a4-14(b) Certification of Officers

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

EXHIBIT INDEX


Exhibit Number		Name of Exhibit
31.1		Rule 13a4-14(a) Certification of Chief Executive Officer

31.2		Rule 13a4-14(a) Certification of Chief Financial Officer

32.1		Rule 13a4-14(b) Certification of Officers

Oceanic Exploration Company

Date: November 9, 2005

/s/ Charles N. Haas

Charles N. Haas — President

Date: November 9, 2005

/s/ Courtney Cowgill

Courtney Cowgill — Chief Financial Officer