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&#8220;the Group&#8221;) for the years ended December 31, 2012 and 2011 and the period from May 25, 2004 (inception) to December 31, 2012.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">In terms of the oil and gas industry lifecycle, the Company considers itself to be an exploration stage company. Since it has not realized any revenues from its planned principal operations, the Company presents its financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) that apply in establishing operating enterprises, i.e. development stage companies. As an exploration stage enterprise, the Company discloses the deficit accumulated during the exploration stage and the cumulative statements of operations and cash flows from inception to the current balance sheet date.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company, formerly known as Express Systems Corporation, was incorporated in the State of Nevada on July 9, 1998.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On April 10, 2007, the Company completed the Exchange Transaction whereby it acquired its then sole subsidiary DWM Petroleum AG, Baar (&#8220;DWM Petroleum&#8221;) pursuant to an exchange agreement signed in November 2006 whereby 100% of the shares of DWM Petroleum were exchanged for 80,000,000 common shares of the Company. As part of the closing of this exchange transaction, the Company issued 800,000 shares as finders&#8217; fees at the closing price of USD3.20. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The acquisition of DWM Petroleum was accounted for as a merger of a private operating company into a non-operating public shell. Consequently, the Company is the continuing legal registrant for regulatory purposes and DWM Petroleum is treated as the continuing accounting acquirer for accounting and reporting purposes. The assets and liabilities of DWM Petroleum remained at historic cost. Under accounting principles generally accepted in the United States of America, in transactions involving the merger of a private operating company into a non-operating public shell, the transaction is equivalent to the issuance of stock by DWM Petroleum for the net monetary assets of the Company, accompanied by a recapitalization. The accounting is identical to a reverse acquisition, except that no goodwill or other intangibles are recorded.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company has a focused strategy on exploration and developing oil and gas resources in Central Asia (Tajikistan, Mongolia and the Kyrgyz Republic). In the Balkan Region (Albania), France and Australia the Company holds an investment in associate (Petromanas Energy Inc.).</p> 1.00 80000000 800000 3.20 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>2.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>ACCOUNTING POLICIES</b> </p> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company&#8217;s Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures, if any, of contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Reclassification</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Company reclassified USD200,020 from &#8220;Accrued Expenses Professional Fees&#8221; to &#8220;Other Accrued Expenses&#8221; as of December 31, 2011 in order to conform to the current period presentation. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Successful Efforts Method of Accounting</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company uses the successful efforts method of accounting for oil and natural gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves, are capitalized. Upon sale or retirement of a proved property, the cost and accumulated depreciation, depletion and amortization are eliminated from property accounts and the resultant gain or loss is recognized.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Development costs of proved oil and natural gas properties, including estimated dismantlement, restoration, abandonment costs and acquisition costs, are depreciated and depleted on a well by well basis by the units-of-production method using estimated proved developed reserves.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">We perform quarterly assessments of unproved oil properties for impairment on a field basis, and recognize a loss at the time of impairment by recording an expense to &#8220;exploration costs&#8221;. In determining whether an unproved property is impaired we consider numerous factors including, but not limited to, dry holes drilled, current exploration plans, favorable or unfavorable exploratory activity on adjacent areas and our geologists' evaluation.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Scope and methods of consolidation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The consolidated financial statements include Manas Petroleum Corporation and all companies which Manas Petroleum Corporation directly or indirectly controls (over 50% of voting interest). The companies included in the consolidation are listed in Note 11. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Investments in which the Company exercises significant influence, but not control (generally 20% to 50% ownership) are accounted for using the equity method. The Group&#8217;s share of earnings or losses is included in consolidated net loss and the Group&#8217;s share of the net assets is included in long-term assets. Investments where the Company holds less than 50% and has no ability to exercise significant influence are accounted for using the cost method, unless we have elected the fair value option in accordance with ASC 820. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Principles of consolidation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The annual closing date of the individual financial statements is December 31, with all cost and income items being reported in the period to which they relate. Intercompany income and expenses, including unrealized gross profits from internal Group transactions and intercompany receivables, payables and loans, have been eliminated. Companies acquired or divested in the course of the year are included in the consolidated financial statements as of the date of purchase respectively up to the date of sale.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Non-controlling interests in the net assets of consolidated subsidiaries are reported as equity. The amount of net income attributable to the non-controlling interest is identified in the consolidated statements of operations and comprehensive loss.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Foreign currency translation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The consolidated financial statements of the Group are presented in US dollars (USD). The parent Company&#8217;s functional currency is the US dollar. Transactions in currencies other than the book currency are recorded using the appropriate exchange rate at the time of the transaction.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The functional currency for all of our consolidated subsidiaries is US dollar. For our subsidiary in Tajikistan that keeps its books in a currency other than US dollars, the company re-measures the Tajik financials as follows: Monetary assets and liabilities are translated using the balance sheet period-end date, while for the non-monetary assets and liabilities the historical rate is used. Expenses are translated using the average rate for the reporting period, except for depreciation and amortization, where the historical rate of the related asset or liability applies. Foreign currency translation gains and losses are reported on the statement of operations.</p> <p>&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Concentrations of risk</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally these deposits may be redeemed upon demand. Cash and cash equivalents are subject to currency exchange rate fluctuations.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Cash and cash equivalents</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Cash and cash equivalents include highly liquid investments with original maturities of three months or less (petty cash, bank balances and fiduciary deposits).</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Investment in associate measured at fair value</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> For one of our investment in associates, we have elected the fair value option in accordance with ASC 820 for the subsequent measurement of the investment in associate. The shares of this investment in associate are traded on an active market and the quoted market price represents a readily determinable fair value and can be taken as a basis for the calculation of the fair value. Since the shares of our investment in associate are held in escrow and are subject to hold periods and an escrow release schedule, we apply an annual discount rate of 12% on the quoted market price based on the time before the shares become freely tradable. The discount rate is an estimate of the cost of capital, based on previous long-term debt the company has issued. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Accounts receivable and prepaid expenses</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">This position includes receivables from third parties, value added taxes, withholding taxes, loans to employees, prepaid expenses for goods and services not yet received as well as income from the current year that will not be received until the following year. The carrying amount of these assets approximates their fair value. There is currently no reserve for bad debt.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Tangible fixed assets, computer software and depreciation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Tangible fixed assets (office equipment, vehicles and furniture) and computer software are recorded at cost and are depreciated on a straight-line basis over the following estimated useful lives:</p> <div align="center"> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="60%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Office equipment</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 4 years </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Vehicles</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 5 - 6 years </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Furniture</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 5 years </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Computer software</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 2 years </td> </tr> </table> </div> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Tangible fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The carrying value of a long-lived asset or asset group is considered to be impaired when the undiscounted expected cash flows from the asset or asset group are less than its carrying amount. In that event, an impairment loss is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined based on quoted market prices, where available, or is estimated as the present value of the expected future cash flows from the asset or asset group discounted at a rate commensurate with the risk involved.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Leased assets</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Rentals payable under operating leases are charged to the income statement on a straight line basis.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Current liabilities</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Current liabilities include current or renewable liabilities due within a maximum period of one year. Current liabilities are carried at their nominal value, which approximates fair market value.</p> <p align="center" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Fair value of financial instruments</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company&#8217;s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, investment in Petromanas, transaction prepayment, accounts payable and refundable deposits. The fair value of these financial instruments approximate their carrying value due to the short maturities of these instruments, unless otherwise noted.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Non-current liabilities</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Non-current liabilities include all known liabilities as per year end, which can reliably be quantified with a due date of at least one year after the date of the balance sheet.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Income taxes</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Taxes on income are accrued in the same period as the revenues and expenses to which they relate.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Deferred taxes are calculated on the temporary differences that arise between the tax base of an asset or liability and its carrying value in the balance sheet of the Group companies prepared for consolidation purposes, with the exception of temporary differences arising on investments in foreign subsidiaries where the Group has plans to permanently reinvest profits into the foreign subsidiaries.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Deferred tax assets on tax loss carry-forwards are only recognized to the extent that it is more likely than not, that future profits will be available and the tax loss carry-forward can be utilized.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Changes to tax laws or tax rates enacted at the balance sheet date are taken into account in the determination of the applicable tax rate provided that they are likely to be applicable in the period when the deferred tax assets or tax liabilities are realized.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Group is required to pay income taxes in a number of countries. Significant judgment is required in determining income tax provisions and in evaluating tax positions.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Group recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Group adjusts its recognition of these uncertain tax benefits in the period in which new information is available impacting either the recognition of measurement of its uncertain tax positions. Interest and penalties related to uncertain tax positions are recognized as income tax expense. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Revenue recognition</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is reasonably assured. The Group&#8217;s revenue during the year 2008 consists of consulting fees from contracts with fees based on time and materials which are recognized as the services are performed and amounts are earned and options premiums received for the farm-out of the Group&#8217;s exploration interests. The Group did not earn revenue during the years 2012 and 2011.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Exploration costs</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">For exploration and evaluation costs the successful efforts method is applied.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Related parties</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Parties are considered to be related if one party directly or indirectly controls, is controlled by, or is under common control with the other party, if it has an interest in the other party that gives it significant influence over the party, if it has joint control over the party, or if it is an associate or a joint venture. Senior management of the company and close family members are also deemed to be related parties.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Pension plans</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> In accordance with ASC 715-30, <i>Defined Benefit Plans &#8211; Pension</i> , the Group recognizes the funded status of the defined benefit plans in the balance sheet. Actuarial gains and losses are fully recognized in the statement of operations of the respective period. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Stoc</b> <strong>k-b</strong> <b>ased compensation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Stock-based compensation costs are recognized in earnings using the fair-value based method for all awards granted. Compensation costs for unvested stock options and awards are recognized in earnings over the requisite service period based on the fair value of those options and awards. For employees fair value is estimated at the grant date and for non-employees fair value is re-measured at each reporting date as required by ASC 718, <i>Compensation-Stock Compensation,</i> and ASC 505-50, <i>Equity-Based Payments to Non-Employees</i> . Fair values of awards granted under the share option plans are estimated using a Black-Scholes option pricing model. The model input assumptions are determined based on available internal and external data sources. The risk free rate used in the model is based on the US treasury rate for the expected contractual term. Expected volatility is based on the Company&#8217;s own historical share price volatility, since the Company&#8217;s share price data can be traced back to April 2, 2007. For restricted share grants, we calculate the fair value applying a prorated discount of 12% on the share price at the grant date over the restriction period. The discount rate is an estimate of the cost of capital, based on previous long-term debt the Company has issued. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Earnings per share</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Basic earnings per share are calculated using the Company&#8217;s weighted-average outstanding common shares. When the effects are not anti-dilutive, diluted earnings per share is calculated using the weighted-average outstanding common shares and the dilutive effect of warrants and stock options as determined under the treasury stock method.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Reclassification</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Company reclassified USD200,020 from &#8220;Accrued Expenses Professional Fees&#8221; to &#8220;Other Accrued Expenses&#8221; as of December 31, 2011 in order to conform to the current period presentation. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Successful Efforts Method of Accounting</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company uses the successful efforts method of accounting for oil and natural gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves, are capitalized. Upon sale or retirement of a proved property, the cost and accumulated depreciation, depletion and amortization are eliminated from property accounts and the resultant gain or loss is recognized.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Development costs of proved oil and natural gas properties, including estimated dismantlement, restoration, abandonment costs and acquisition costs, are depreciated and depleted on a well by well basis by the units-of-production method using estimated proved developed reserves.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">We perform quarterly assessments of unproved oil properties for impairment on a field basis, and recognize a loss at the time of impairment by recording an expense to &#8220;exploration costs&#8221;. In determining whether an unproved property is impaired we consider numerous factors including, but not limited to, dry holes drilled, current exploration plans, favorable or unfavorable exploratory activity on adjacent areas and our geologists' evaluation.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Scope and methods of consolidation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The consolidated financial statements include Manas Petroleum Corporation and all companies which Manas Petroleum Corporation directly or indirectly controls (over 50% of voting interest). The companies included in the consolidation are listed in Note 11. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Investments in which the Company exercises significant influence, but not control (generally 20% to 50% ownership) are accounted for using the equity method. The Group&#8217;s share of earnings or losses is included in consolidated net loss and the Group&#8217;s share of the net assets is included in long-term assets. Investments where the Company holds less than 50% and has no ability to exercise significant influence are accounted for using the cost method, unless we have elected the fair value option in accordance with ASC 820. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Principles of consolidation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The annual closing date of the individual financial statements is December 31, with all cost and income items being reported in the period to which they relate. Intercompany income and expenses, including unrealized gross profits from internal Group transactions and intercompany receivables, payables and loans, have been eliminated. Companies acquired or divested in the course of the year are included in the consolidated financial statements as of the date of purchase respectively up to the date of sale.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Non-controlling interests in the net assets of consolidated subsidiaries are reported as equity. The amount of net income attributable to the non-controlling interest is identified in the consolidated statements of operations and comprehensive loss.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Foreign currency translation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The consolidated financial statements of the Group are presented in US dollars (USD). The parent Company&#8217;s functional currency is the US dollar. Transactions in currencies other than the book currency are recorded using the appropriate exchange rate at the time of the transaction.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The functional currency for all of our consolidated subsidiaries is US dollar. For our subsidiary in Tajikistan that keeps its books in a currency other than US dollars, the company re-measures the Tajik financials as follows: Monetary assets and liabilities are translated using the balance sheet period-end date, while for the non-monetary assets and liabilities the historical rate is used. Expenses are translated using the average rate for the reporting period, except for depreciation and amortization, where the historical rate of the related asset or liability applies. Foreign currency translation gains and losses are reported on the statement of operations.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Concentrations of risk</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally these deposits may be redeemed upon demand. Cash and cash equivalents are subject to currency exchange rate fluctuations.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Cash and cash equivalents</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Cash and cash equivalents include highly liquid investments with original maturities of three months or less (petty cash, bank balances and fiduciary deposits).</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Investment in associate measured at fair value</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> For one of our investment in associates, we have elected the fair value option in accordance with ASC 820 for the subsequent measurement of the investment in associate. The shares of this investment in associate are traded on an active market and the quoted market price represents a readily determinable fair value and can be taken as a basis for the calculation of the fair value. Since the shares of our investment in associate are held in escrow and are subject to hold periods and an escrow release schedule, we apply an annual discount rate of 12% on the quoted market price based on the time before the shares become freely tradable. The discount rate is an estimate of the cost of capital, based on previous long-term debt the company has issued. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Accounts receivable and prepaid expenses</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">This position includes receivables from third parties, value added taxes, withholding taxes, loans to employees, prepaid expenses for goods and services not yet received as well as income from the current year that will not be received until the following year. The carrying amount of these assets approximates their fair value. There is currently no reserve for bad debt.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Tangible fixed assets, computer software and depreciation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Tangible fixed assets (office equipment, vehicles and furniture) and computer software are recorded at cost and are depreciated on a straight-line basis over the following estimated useful lives:</p> <div align="center"> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="60%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Office equipment</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 4 years </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Vehicles</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 5 - 6 years </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Furniture</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 5 years </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Computer software</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 2 years </td> </tr> </table> </div> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Tangible fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The carrying value of a long-lived asset or asset group is considered to be impaired when the undiscounted expected cash flows from the asset or asset group are less than its carrying amount. In that event, an impairment loss is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined based on quoted market prices, where available, or is estimated as the present value of the expected future cash flows from the asset or asset group discounted at a rate commensurate with the risk involved.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Leased assets</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Rentals payable under operating leases are charged to the income statement on a straight line basis.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Current liabilities</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Current liabilities include current or renewable liabilities due within a maximum period of one year. Current liabilities are carried at their nominal value, which approximates fair market value.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Fair value of financial instruments</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company&#8217;s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, investment in Petromanas, transaction prepayment, accounts payable and refundable deposits. The fair value of these financial instruments approximate their carrying value due to the short maturities of these instruments, unless otherwise noted.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Non-current liabilities</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Non-current liabilities include all known liabilities as per year end, which can reliably be quantified with a due date of at least one year after the date of the balance sheet.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Income taxes</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Taxes on income are accrued in the same period as the revenues and expenses to which they relate.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Deferred taxes are calculated on the temporary differences that arise between the tax base of an asset or liability and its carrying value in the balance sheet of the Group companies prepared for consolidation purposes, with the exception of temporary differences arising on investments in foreign subsidiaries where the Group has plans to permanently reinvest profits into the foreign subsidiaries.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Deferred tax assets on tax loss carry-forwards are only recognized to the extent that it is more likely than not, that future profits will be available and the tax loss carry-forward can be utilized.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Changes to tax laws or tax rates enacted at the balance sheet date are taken into account in the determination of the applicable tax rate provided that they are likely to be applicable in the period when the deferred tax assets or tax liabilities are realized.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Group is required to pay income taxes in a number of countries. Significant judgment is required in determining income tax provisions and in evaluating tax positions.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Group recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Group adjusts its recognition of these uncertain tax benefits in the period in which new information is available impacting either the recognition of measurement of its uncertain tax positions. Interest and penalties related to uncertain tax positions are recognized as income tax expense. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Revenue recognition</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is reasonably assured. The Group&#8217;s revenue during the year 2008 consists of consulting fees from contracts with fees based on time and materials which are recognized as the services are performed and amounts are earned and options premiums received for the farm-out of the Group&#8217;s exploration interests. The Group did not earn revenue during the years 2012 and 2011.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Exploration costs</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">For exploration and evaluation costs the successful efforts method is applied.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Related parties</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Parties are considered to be related if one party directly or indirectly controls, is controlled by, or is under common control with the other party, if it has an interest in the other party that gives it significant influence over the party, if it has joint control over the party, or if it is an associate or a joint venture. Senior management of the company and close family members are also deemed to be related parties.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Pension plans</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> In accordance with ASC 715-30, <i>Defined Benefit Plans &#8211; Pension</i> , the Group recognizes the funded status of the defined benefit plans in the balance sheet. Actuarial gains and losses are fully recognized in the statement of operations of the respective period. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Stoc</b> <strong>k-b</strong> <b>ased compensation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Stock-based compensation costs are recognized in earnings using the fair-value based method for all awards granted. Compensation costs for unvested stock options and awards are recognized in earnings over the requisite service period based on the fair value of those options and awards. For employees fair value is estimated at the grant date and for non-employees fair value is re-measured at each reporting date as required by ASC 718, <i>Compensation-Stock Compensation,</i> and ASC 505-50, <i>Equity-Based Payments to Non-Employees</i> . Fair values of awards granted under the share option plans are estimated using a Black-Scholes option pricing model. The model input assumptions are determined based on available internal and external data sources. The risk free rate used in the model is based on the US treasury rate for the expected contractual term. Expected volatility is based on the Company&#8217;s own historical share price volatility, since the Company&#8217;s share price data can be traced back to April 2, 2007. For restricted share grants, we calculate the fair value applying a prorated discount of 12% on the share price at the grant date over the restriction period. The discount rate is an estimate of the cost of capital, based on previous long-term debt the Company has issued. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Earnings per share</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Basic earnings per share are calculated using the Company&#8217;s weighted-average outstanding common shares. When the effects are not anti-dilutive, diluted earnings per share is calculated using the weighted-average outstanding common shares and the dilutive effect of warrants and stock options as determined under the treasury stock method.</p> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="60%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Office equipment</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 4 years </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Vehicles</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 5 - 6 years </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Furniture</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 5 years </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Computer software</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 2 years </td> </tr> </table> 4 5 6 5 2 200020 0.50 0.20 0.50 0.50 0.12 0.50 0.12 <table border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; border-color: black; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>3.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>NEW ACCOUNTING STANDARDS</b> </p> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">In May 2011, the FASB released ASU 2011-4, Fair Value Measurement (Topic 720) &#8211; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and in IFRS as part of its convergence efforts with the IASB to ensure that fair value has the same meaning in US GAAP and in IFRS and that their respective fair value measurement and disclosure requirements are the same, except for minor stylistic differences. Importantly, the ASU does not change when a fair value measurement is required under US GAAP. The amendments in ASU 2011-4 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011. The adoption of this standard as of January 1, 2012 had no effect on our results of operation or our financial position. See Note 15 for additional information.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">In February 2013, the FASB released ASU 2013-02 &#8212; Other Comprehensive Income (Topic 220). The amendments in this Update supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 (issued in June 2011) and 2011-12 (issued in December 2011) for all public and private organizations. The amendments would require an entity to provide additional information about reclassifications out of accumulated other comprehensive income. This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2012-240&#8212;Comprehensive Income (Topic 220) which has been deleted. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. 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The Group&#8217;s cash equivalents are placed with high credit rated financial institutions. 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During the year 2012 no stocks were granted.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Recognition of Stock-based Compensation Costs</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Stock-based compensation costs are recognized in earnings using the fair-value based method for all awards granted. For employees fair value is estimated at the grant date and for non-employees fair value is re-measured at each reporting date. 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0);" valign="bottom"> <b>Total</b> </td> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> <b> 15,950,000 </b> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> <b> 7.0427 </b> </td> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td 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roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>8.2.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>Share Grants</b> </p> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Company calculates the fair value of share grants at the grant date based on the market price at closing. 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style="border-top: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <b>Non-vested shares 2011</b> </td> <td align="left" style="border-top: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="center" style="border-top: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> <b>Shares</b> </td> <td align="center" style="border-top: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> <td align="center" style="border-top: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="center" style="border-top: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> <b>Weighted-average</b> <b>grant date fair value</b> </td> <td align="left" style="border-top: 1px solid rgb(0, 0, 0); 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1px solid rgb(0, 0, 0);" width="12%"> (407,589 </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">)</td> </tr> </table> 1047699 97395 35702 421729 1083401 519124 1046587 926713 36814 -407589 20000000 0.10 1000 923317 0.26 250000 0.03 7500 1186 1765 1500000 0.70 2131 125000 100000 90 25000 90 100000 10000 500000 0.225 18 166666 166667 166667 2000000 2000000 0.12 356800 9100000 0.215 24 3000000 0.215 24 500000 0.20 24 125000 125000 125000 125000 0.16 697113 0.7 0.12 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>9.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>PUBLIC OFFERING &#8211; UNIT FINANCING</b> </p> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On May 6, 2011, the Company completed a public offering of units pursuant to a long form prospectus filed in all of the Provinces of Canada except Quebec and a registration statement filed with the Securities and Exchange Commission on Form S-1 in the United States. In the Offering, the Company sold a total of 44,450,500 units at a price of USD0.50 per unit for aggregate gross proceeds of USD22,225,250. Each unit consisted of one share of common stock in the capital of the Company and one common share purchase warrant (&#8220;Unit Warrants&#8221;). Each Unit Warrant entitles the purchaser to purchase one additional common share until May 6, 2014 at a purchase price of USD0.70. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Raymond James Ltd. acted as agent in the Offering. As consideration for its assistance, the Company paid to Raymond James a cash commission equal to 6.75% of the gross proceeds of the offering (i.e. USD1,500,204) and reimbursed Raymond James for expenses. In addition, the Company issued to Raymond James agents' warrants (&#8220;Agent Warrants&#8221;) that entitle Raymond James to purchase 1,333,515 shares of the Company's common stock at a purchase price of USD0.60 until May 6, 2013. 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This amount was directly charged against equity and had no impact on the Company&#8217;s statement of operations. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The following table summarizes the payments of issuance costs (in USD):</p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-top: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Agent commission</p> </td> <td align="left" bgcolor="#e6efff" style="border-top: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-top: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 1,552,093 </td> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0); border-top: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Legal</p> </td> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 448,857 </td> <td align="left" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Audit</p> </td> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 128,876 </td> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Other</p> </td> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 218,424 </td> <td align="left" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Total issuance costs (cash)</p> </td> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 2,348,250 </td> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Net cash proceeds from the public offering amounted to USD19,877,000 and were recorded in shareholders&#8217; equity, net of non-cash issuance costs associated with the Agent Warrants, i.e. USD19,596,829. 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border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Expected dividend yield</p> </td> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 0% </td> <td align="left" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Expected volatility</p> </td> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 99% </td> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Risk-free rate</p> </td> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 0.57% </td> <td align="left" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Expected term (in years)</p> </td> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 2 </td> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> </table> 0.46 0.00 0.99 0.0057 2 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-top: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; 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border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 218,424 </td> <td align="left" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom"> <p style="margin-left: 5pt; font-family: times new roman,times,serif; font-size: 10pt;">Total issuance costs (cash)</p> </td> <td align="left" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 2,348,250 </td> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%">&#160;</td> </tr> </table> 1552093 448857 128876 218424 2348250 44450500 0.50 22225250 0.70 0.0675 1500204 1333515 0.60 0.2101 280171 19877000 19596829 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>10.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>WARRANTS&#160;</b> </p> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company&#8217;s risk management objectives are to ensure that business and financial exposures to risk that have been identified and measured are minimized using the most effective and efficient methods to reduce, transfer and, when possible, eliminate such exposures. Operating decisions contemplate associated risks and management strives to structure proposed transactions to avoid or reduce risk whenever possible. ASC 815 requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position.</p> <ul style="text-align: justify;"> <li style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>2011</b> </li> </ul> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On May 6, 2011, upon completion of its public offering, the Company issued 44,450,500 Unit Warrants and 1,333,515 Agent Warrants. The Unit Warrants are exercisable until May 6, 2014 and the Agent Warrants until May 6, 2013, respectively (please refer to Note 9, above, for additional information about this public offering). In accordance with ASC 815, the Company determined that the Unit Warrants and the Agent Warrants are to be classified in stockholders&#8217; equity due to the fact that there are no cash settlement provisions, no re-set provisions or any other provisions that would require liability accounting. </p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>10.1.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>Warrant activity</b> </p> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The following tables summarize the Company&#8217;s warrant activities for the years ended December 31, 2012 and 2011:</p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; 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font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>11.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>INVESTMENT IN PETROMANAS</b> </p> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On February 12, 2010, the Company&#8217;s wholly-owned subsidiary DWM Petroleum, signed a Share Purchase Agreement and completed the sale of all of the issued and outstanding shares of Manas Adriatic to Petromanas Energy Inc. (&#8220;Petromanas&#8221;). After closing, the Share Purchase Agreement was amended by an amending agreement dated May 25, 2010. As a result of this transaction, the Company acquired 200,000,000 common shares of Petromanas. 100,000,000 of these were issued on March 3, 2010 pursuant to the original terms of the Share Purchase Agreement; the additional 100,000,000 were received on May 26, 2010, pursuant to the amending agreement. The shares were subject to a hold period expiring September 24, 2011 and bore a legend to that effect. 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On August 17, 2012, pursuant to agreements dated August 13, 2012, DWM Petroleum sold an additional 90,000,000 of these Petromanas shares to twelve purchasers at a price of CAD0.115 per common share for gross proceeds of CAD10,350,000 (USD10,445,050) together with the right to receive 22.5% of the Performance Shares if and when any Performance Shares are issued by Petromanas. As of December 31, 2012 no proceeds were allocated to these performance shares as they are only issuable upon achievement of certain conditions and the likelihood of the contingent event is not reasonably determined. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On December 31, 2011, we owned 200,000,000 shares of Petromanas Energy. 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The discount rate is an estimate of the cost of capital, based on previous long-term debt the Company has issued. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The quoted market price for one common share of Petromanas on December 31, 2012 was CAD0.175. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> In order to calculate the fair value of the Company&#8217;s investment in Petromanas, the Company has discounted the market price of the shares based on the escrow release schedule. 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width="50%">2012</td> </tr> <tr> <td align="left">Tajikistan</td> <td align="center" width="50%">2012&#160;</td> </tr> </table> 82744 12 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>14.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>ISSUED CAPITAL AND RESERVES</b> </p> </td> </tr> </table> <br/> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-top: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="left" style="border-top: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="center" colspan="4" style="border-top: 1px solid rgb(0, 0, 0);" width="27%"> <i>Year 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There are no different share categories.</p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-top: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="left" style="border-top: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="center" colspan="4" style="border-top: 1px solid rgb(0, 0, 0);" width="27%"> <i>Year ended</i> </td> <td align="left" style="border-top: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>Shares Manas Petroleum Corporation</b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> <b>Dec 31,2012</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> <b>Dec 31, 2011</b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Total number of authorized shares</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> 600,000,000 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> 300,000,000 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left">Total number of fully paid-in shares</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> 172,592,292 </td> <td align="left" width="2%">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> 172,467,292 </td> <td align="left" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Par value per share (in USD)</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> 0.001 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> 0.001 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>Total share capital (in USD)</b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 172,592 </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 172,467 </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> </tr> </table> 600000000 300000000 172592292 172467292 0.001 0.001 172592 172467 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>15.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>COMMITMENTS &amp; CONTINGENT LIABILITIES</b> </p> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Legal actions and claims (Kyrgyz Republic, Republic of Tajikistan, Mongolia and Chile)</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">In the ordinary course of business, members of the Group doing business in Mongolia, Republic of Tajikistan, the Kyrgyz Republic, and Chile may be subject to legal actions and complaints from time-to-time. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition, the results of future operations or cash flows of the associates/subsidiaries in Mongolia, Republic of Tajikistan, the Kyrgyz Republic and Chile.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">During the initial phase of applying for our Chilean Exploration license, we formed a joint bidding group with Improved Petroleum Recovery Tranquillo Chile (commonly referred to as &#8220;IPR&#8221;) and a start-up company called Energy Focus Limitada (&#8220;Energy Focus&#8221;). Each had a one-third interest. Of its own accord, Energy Focus left the bidding group. The three parties signed a side letter which provided that Energy Focus would have an option to rejoin the bidding group under certain conditions.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Even though Energy Focus had been asked many times to join the group by contributing its prorated share of capital, it failed to do so. Despite this, Energy Focus claims that it is entitled to participate in the consortium at any future time, not just under certain conditions. We and IPR believe that Energy Focus no longer has any right to join the bidding group because the conditions specified in the side letter did not occur and can no longer occur.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Energy Focus commenced litigation for specific performance and damages in an unspecified amount in Santiago de Chile, claiming interest in the Tranquilo Block from our company and IPR, and our respective subsidiaries. Our company, IPR and our respective legal counsel are of the view that the Energy Focus claim is without merit, that it was brought in the wrong jurisdiction and that Energy Focus has failed to properly serve the parties. The trial courts of Santiago have dismissed the case, but the verdict was open to appeal. Energy Focus took an Appeal, and that too was dismissed by the Chilean courts. Energy Focus has now taken a second Appeal. Our legal advisors are of the opinion that Energy Focus will not succeed in the second appeal. Our management believes that the ultimate liability, if any, arising from the Energy Focus litigation will not have a material adverse effect on the financial condition, the results of future operations or cash flows of our company.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">At December 31, 2012, there had been no legal actions against any member of the Group in the Kyrgyz Republic, Republic of Tajikistan and Mongolia.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Management believes that the members of the Group are in substantial compliance with the tax laws affecting their respective operations in the Kyrgyz Republic, Republic of Tajikistan, and Mongolia. However, the risk remains that relevant authorities could take differing positions with regards to interpretative issues.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Management believes that the ultimate liability, if any, arising from any of the above will not have a material adverse effect on the financial condition or the results of future operations and on cash flows of the Group in the Kyrgyz Republic, Republic of Tajikistan, and Mongolia.</p> <ul style="text-align: justify;"> <li style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>License agreements held by Gobi Energy Partners (Mongolia)</b> </li> </ul> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The following table sets forth the approximate financial commitment amounts to be incurred by us pursuant to each production sharing contract for Blocks XIII and XIV during the periods indicated (in USD):</p> <div align="left"> <table border="1" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="60%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>Production Sharing Contract</b> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> <b>2013**</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);">Block XIII</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 6,900,000 </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Block XIV</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 6,900,000 </td> </tr> </table> </div> <p align="justify" style="margin-top: 0px; font-family: times new roman,times,serif; font-size: 10pt;">**financial commitment for the fifth contract year (starting April 21 of each year) of the production sharing contract</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">We are currently in discussions with the Mongolian government about extending both, our licensed areas as well as our exploration period, and we anticipate the commitment to change.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>License agreement held by CJSC Somon Oil (Republic of Tajikistan)</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The following table sets forth the approximate commitments pursuant to the licenses during the periods indicated (in USD):</p> <div> <table border="1" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>License Area</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b>2013*</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b>2014*</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b>2015*</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b>2016*</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);"> West <sup>1</sup> </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 4,500,000 </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 2,500,000 </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> nil </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> nil </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> North-West <sup>2</sup> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 8,680,000 </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 8,700,000 </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 3,600,000 </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 4,600,000 </td> </tr> </table> </div> <br/> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left">* Commitments are based on calendar year. Amounts indicative, work plan prevails.</td> </tr> <tr valign="top"> <td align="left"> <sup>1</sup> granted on July 25, 2007 </td> </tr> <tr valign="top"> <td align="left"> <sup>2</sup> License granted on July 28, 2009 </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Santos continued to fund current capital expenditures, as well as certain general and administrative costs of Somon Oil until January 2013. DWM is in negotiations to set-up a new consortium for this acreage. The anticipated farm-in agreement, foresees that DWM is fully carried and there are no liquidated damages in case of failure.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>License agreements held by CJSC South Petroleum Company (Kyrgyz Republic)</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The results of the ongoing re-evaluation have not been finalized yet. Our commitments in Kyrgyzstan will be renegotiated. There will be no liquidated damages.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Operating leases</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Company has entered into a lease contract over five years for offices beginning on October 1, 2010 and ending on September 30, 2015. The annual rate of the lease amounts to CHF 124,500 and is tied to Swiss CPI, adjustable on a yearly basis. The office lease contract can be terminated at any time, if the Company finds a subsequent tenant. In October 2011, the Company concluded lease contracts for two cars. The contracts have a term of 48 months each. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> For the years ended December 31, 2012 and 2011 we had expenses for these items of USD182,689 and USD152,213, respectively. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Future net lease payments for two leased cars and for office rent are presented in the table below (in USD):</p> <div> <table border="1" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>Year</b> </td> <td align="right" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <b>Lease payments</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);">2013</td> <td align="right" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> 161,085 </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">2014</td> <td align="right" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> 161,085 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);">2015</td> <td align="right" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> 122,886 </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">2016</td> <td align="right" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> - </td> </tr> <tr> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);">2017</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> - </td> </tr> <tr> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Thereafter</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> - </td> </tr> <tr> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>Total</b> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <b> 445,056 </b> </td> </tr> </table> </div> <p align="center" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p>&#160;</p> <table border="1" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="60%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>Production Sharing Contract</b> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> <b>2013**</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);">Block XIII</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 6,900,000 </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Block XIV</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> 6,900,000 </td> </tr> </table> 6900000 6900000 <table border="1" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>License Area</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b>2013*</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b>2014*</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b>2015*</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b>2016*</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);"> West <sup>1</sup> </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 4,500,000 </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 2,500,000 </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> nil </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> nil </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> North-West <sup>2</sup> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 8,680,000 </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 8,700,000 </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 3,600,000 </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> 4,600,000 </td> </tr> </table> 4500000 2500000 0 0 8680000 8700000 3600000 4600000 <table border="1" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>Year</b> </td> <td align="right" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <b>Lease payments</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);">2013</td> <td align="right" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> 161,085 </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">2014</td> <td align="right" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> 161,085 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);">2015</td> <td align="right" bgcolor="#e6efff" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> 122,886 </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">2016</td> <td align="right" style="border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> - </td> </tr> <tr> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);">2017</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> - </td> </tr> <tr> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">Thereafter</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> - </td> </tr> <tr> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);"> <b>Total</b> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <b> 445,056 </b> </td> </tr> </table> 161085 161085 122886 0 0 0 445056 124500 48 182689 152213 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>16.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt; margin: inherit;"> <b>PERSONNEL COSTS AND EMPLOYEE BENEFIT PLANS</b> </p> </td> </tr> </table> <br/> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-top: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);"> <b>Personnel Costs (in USD)</b> </td> <td align="left" style="border-top: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-top: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> <b>2012</b> </td> <td align="left" style="border-top: 1px solid rgb(0, 0, 0); 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font-size: 10pt;"> <b>Defined Benefit Plan</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">We maintain Swiss defined benefit plans for eight of our employees. 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