10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

OR

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

For the transition period from                      to                     

Commission File Number: 01-34525

CAMAC ENERGY INC.

(Exact name of registrant as specified in its charter)

Delaware	30-0349798
(State or Other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1330 Post Oak Blvd., Suite 2250, Houston, Texas	77056
(Address of principal executive offices)	(Zip Code)

(713) 797-2940

(Registrant’s telephone number, including area code)

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

At August 5, 2014, there were 1,261,550,807 shares of common stock, par value $0.001 per share, outstanding.

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:	3
	Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 (unaudited)	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)	4
	Consolidated Statements of Equity for the six months ended June 30, 2014 (unaudited)	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.	Controls and Procedures	20
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 6.	Exhibits	22
Signatures		23
Exhibits

Page 2 of 23

PART I. – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CAMAC ENERGY INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

	June 30,			December 31,
	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	39,742		$	163
Accounts receivable		144			1,112
Crude oil inventory		14,379			16,254
Prepaids and other current assets		11,435			856
Total current assets		65,700			18,385
Property, plant and equipment:
Oil and gas properties (successful efforts method of accounting), net		462,171			435,035
Other property, plant and equipment, net		1,100			752
Total property, plant and equipment, net		463,271			435,787
Other assets		46			52
Total Assets	$	529,017		$	454,224
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	30,938		$	31,668
Accrued expenses		20,325			7,446
Asset retirement obligations		13,029			12,479
Notes payable - related party		-			6,496
Total current liabilities		64,292			58,089
Asset retirement obligations		8,462			8,122
Long-term notes payable - related party		57,146			-
Other long-term liabilities		71			67
Total liabilities		129,971			66,278
Equity:
Preferred stock $0.001 par value - 50,000,000 shares    authorized; zero issued and outstanding at June 30,    2014 and December 31, 2013		-			-
Common stock $0.001 par value - 2,500,000,000 shares    authorized; 1,261,550,807 and 382,362,236 shares    outstanding as of June 30, 2014 and December 31, 2013		1,262			382
Paid-in capital		773,464			736,456
Accumulated deficit		(375,680	)		(348,892	)
Total equity		399,046			387,946
Total liabilities and equity	$	529,017		$	454,224

See accompanying notes to unaudited consolidated financial statements.

Page 3 of 23

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014				2013		2014				2013
Revenues:
Oil and gas revenue	$	14,940		$	20,007		$	34,834		$	42,013
Operating costs and expenses:
Production costs		15,459			21,489			38,356			43,602
Exploratory expenses		427			1,899			2,703			3,097
Depreciation, depletion and amortization		5,985			5,142			10,956			10,609
General and administrative expenses		4,340			3,401			8,773			7,113
Total operating costs and expenses		26,211			31,931			60,788			64,421
Operating loss		(11,271	)		(11,924	)		(25,954	)		(22,408	)
Other income (expense):
Interest expense		(681	)		(6	)		(866	)		(10	)
Other, net		22			-			32			-
Total other income (expense)		(659	)		(6	)		(834	)		(10	)
Loss before income taxes		(11,930	)		(11,930	)		(26,788	)		(22,418	)
Income tax expense		-			-			-			-
Net loss	$	(11,930	)	$	(11,930	)	$	(26,788	)	$	(22,418	)
Net loss per common share:
Basic	$	(0.01	)	$	(0.03	)	$	(0.03	)	$	(0.06	)
Diluted	$	(0.01	)	$	(0.03	)	$	(0.03	)	$	(0.06	)
Weighted average common shares outstanding:
Basic		1,188,214			380,196			932,571			380,287
Diluted		1,188,214			380,196			932,571			380,287

See accompanying notes to unaudited consolidated financial statements

Page 4 of 23

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

			Additional
	Common		Paid-in			Accumulated			Total
	Stock		Capital			Deficit			Equity
At December 31, 2013	$	382	$	736,456		$	(348,892	)	$	387,946
Common stock issued		880		269,535			-			270,415
Stock-based employee compensation		-		1,394			-			1,394
Net loss		-		-			(26,788	)		(26,788	)
Allied transaction		-		(220,000	)		-			(220,000	)
Allied Transaction adjustments		-		(13,921	)		-			(13,921	)
At June 30, 2014	$	1,262	$	773,464		$	(375,680	)	$	399,046

See accompanying notes to unaudited consolidated financial statements.

Page 5 of 23

CAMAC ENERGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2014			2013
Cash flows from operating activities
Net loss	$	(26,788	)	$	(22,418	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation, depletion and amortization		10,066			9,515
Asset retirement obligation accretion		890			1,094
Stock-based compensation		1,394			889
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(13,161	)		708
(Increase) decrease in inventories		4,144			1,484
(Increase) decrease in other current assets		(10,579	)		77
Increase (decrease) in accounts payable and accrued liabilities		8,648			2,649
Net cash used in operating activities		(25,386	)		(6,002	)
Cash flows from investing activities
Capital expenditures		(22,179	)		(490	)
Allied transaction		(170,000	)		-
Net cash used in investing activities		(192,179	)		(490	)
Cash flows from financing activities
Proceeds from issuance of common stock		270,000			-
Proceeds from exercise of stock options		415			-
Proceeds from  note payable - related party		650			-
Allied Transaction adjustments		(13,921	)		4,671
Net cash provided by financing activities		257,144			4,671
Net increase (decrease) in cash and cash equivalents		39,579			(1,821	)
Cash and cash equivalents at beginning of period		163			3,806
Cash and cash equivalents at end of period	$	39,742		$	1,985
Supplemental disclosure of cash flow information
Cash paid for:
Interest, net	$	8		$	9
Supplemental disclosure of non-cash investing and financing activities:
Related party accounts payable capital expenditures, offset with related party accounts receivable	$	14,129		$	-

See accompanying notes to unaudited consolidated financial statements.

Page 6 of 23

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Company Description

CAMAC Energy, Inc. (NYSE MKT: CAK, JSE: CME) is an independent oil and gas exploration and production company focused on energy resources in Africa. The Company’s asset portfolio consists of nine licenses across four countries covering an area of approximately 43,000 square kilometers (approximately 10 million acres) including current production and other prospects offshore Nigeria, as well as exploration licenses offshore Ghana and The Gambia, and both offshore and onshore Kenya.

CAMAC Energy Inc. is headquartered in Houston, Texas, and has additional offices in Lagos, Nigeria; Nairobi, Kenya; and Banjul, The Gambia.

The Company’s operating subsidiaries include CAMAC Energy Ltd., CAMAC Petroleum Limited (“CPL”), CAMAC Energy International Ltd., CAMAC Energy Ghana Limited, CAMAC Energy Kenya Limited, CAMAC Energy Gambia A2 Ltd. and CAMAC Energy Gambia A5 Ltd. The terms “we,” “us,” “our,” “the Company,” and “our Company” refer to CAMAC Energy Inc. and its subsidiaries and affiliates.

The Company’s related parties include CAMAC Energy Holdings Limited (“CEHL”), CAMAC International Nigeria Limited, CAMAC International Limited, Oceanic Consultants (“Oceanic”), and Allied Energy Plc (“Allied”).

2. Basis of Presentation and Recently Issued Accounting Standards

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned direct and indirect subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All significant intercompany transactions and balances have been eliminated in consolidation. The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations for the indicated periods. All such adjustments are of a normal recurring nature.  This Form 10-Q should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

In February 2014, the Company completed the acquisition of the remaining economic interests that it did not already own in the Production Sharing Contract (“PSC”) covering Oil Mining Leases 120 and 121 (“OMLs 120 and 121”) offshore Nigeria, which include the currently producing Oyo Field (the “Allied Assets”), from Allied (the “Allied Transaction”). Allied is a subsidiary of CEHL, the Company’s majority shareholder, and deemed to be under common control (transactions between subsidiaries of the same parent). Accordingly, the net assets acquired from Allied were recorded at their respective carrying values as of the acquisition date. The financial statements presented for all periods included herein are presented as though the transfer of the Allied assets had occurred at the beginning of the first period presented.

In June 2014, the Company’s management concluded that the Company’s unaudited financial statements included in its quarterly report on Form 10-Q for the first quarter of 2014 contained errors.  These errors were identified in the course of preparing recast historical financial information of the Company to account for the February 2014 acquisition of economic interests in OML 120/121 from Allied as a combination of businesses under common control.  In July 2014, the Company restated its previously filed interim financial statements for the first quarter of 2014.  The revised financial statements for the quarter ended March 31, 2014 include adjustments to reflect (i) an increase in crude oil inventory as of December 31, 2013 and a corresponding increase in production costs for the first quarter of 2014, (ii) an increase in operating costs due to the receipt of additional third-party vendor cost information from Allied and (iii) a reclassification of the adjustments to the net assets of Allied on the unaudited consolidated statement of cash flows.  For further information about the restatement, see our Quarterly Report on Form 10-Q/A for the period ended March 31, 2014, filed with the SEC on July 18, 2014.

Recently Issued Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance that changes the criteria for reporting discontinued operations including enhanced disclosure requirements. Under the updated guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization´s operations and financial results. The standards update is effective for fiscal years beginning after December 15, 2014. We will adopt this standards update, as required, beginning with the first quarter of 2015. The adoption of this standards update affects presentation only and, as such, is not expected to have a material impact on our consolidated financial statements.

Page 7 of 23

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In May 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers.  The objective of the guidance is to establish principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.  The updated standard is effective for interim and annual periods beginning after December 15, 2016.  We will adopt this standards update, as required, beginning with the first quarter of 2017.  The Company is in the process of evaluating the impact, if any, of this guidance on its consolidated financial statements.

In June 2014, the FASB issued updated guidance around share-based compensation.  The guidance was issued to clarify the accounting treatment for performance based stock awards.  The update states that companies should not record compensation expense related to an award for which transfer to the employee is contingent on the company’s satisfaction of a performance target until it becomes probable that the performance target will be met.  The update does not contain any new disclosure requirements and is effective for interim and annual periods beginning after December 15, 2015.  We will adopt this standards update, as required, beginning with the first quarter of 2016.  The adoption of this standards update is not expected to have a material impact on our consolidated financial statements.

3. Acquisitions

In February 2014, the Company completed the Allied Transaction thereby acquiring the Allied Assets. Pursuant to the terms of the Transfer Agreement among the Company, Allied and the other parties thereto, (“Transfer Agreement”), the Company, as partial consideration for the Allied Assets, paid $85.0 million in cash, issued 497,454,857 shares of the Company’s common stock and delivered a $50.0 million Convertible Subordinated Note (the “Convertible Subordinated Note”) of which $25.0 million was deemed advanced, with interest accruing per the terms of the Convertible Subordinated Note.

To fund the cash portion of the Allied Transaction and a portion of the anticipated capital expenditures for development of the Oyo Field, the Company also entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with the Public Investment Corporation (SOC) Limited, a state-owned company incorporated in the Republic of South Africa (“PIC”), for an aggregate cash investment of $270.0 million through a private placement of 376,884,422 shares of common stock (the “Private Placement”). The Share Purchase Agreement provided that the Private Placement would be completed in two installments. The first installment of $135.0 million (the “First Closing”) in exchange for 188,442,211 shares of the Company’s common stock was completed at the closing of the Allied Transaction. The second installment (the “Second Closing”) of $135.0 million in exchange for 188,442,211 shares of the Company’s common stock was completed in May 2014.

Following the Second Closing with the PIC, the Company paid to Allied the additional $85.0 million in cash due under the Transfer Agreement, and the remaining $25.0 million Convertible Subordinated Note was deemed advanced with interest accruing per the terms of the Convertible Subordinated Note.

The contractual purchase consideration paid and the assets acquired and liabilities assumed are as follows (In thousands):

Cash consideration paid upon First Closing	$	85,000
Cash consideration paid upon Second Closing		85,000
CAMAC Energy Inc. common stock		-
Long-term convertible subordinated note payable - related party		50,000
Total purchase price	$	220,000
Asset acquired and liabilities assumed:
Property, plant and equipment, net	$	248,736
Accounts payable		(25,429	)
Asset retirement obligations		(20,890	)
Net assets acquired		202,417
Consideration in excess of carrying value acquired	$	17,583

The Allied Transaction is being accounted for as a transfer of entities under common control, whereby the net assets acquired are combined with the Company’s assets at their historical amounts.  Since the cash and debt consideration exceeds the carrying cost of the assets acquired, no value was assigned to the shares issued.

Page 8 of 23

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Property, Plant and Equipment

Property, plant and equipment is comprised of the following (In thousands):

	June 30,			December 31,
	2014			2013
Wells and production facilities	$	28,874		$	28,874
Proved properties		386,196			386,196
Work in progress and other		125,912			86,634
Oilfield assets		540,982			501,704
Accumulated depletion		(87,051	)		(74,909	)
Oilfield assets, net		453,931			426,795
Unevaluated leaseholds		8,240			8,240
Oil and gas properties, net		462,171			435,035
Other property and equipment		2,131			1,590
Accumulated depreciation		(1,031	)		(838	)
Other property and equipment, net		1,100			752
Total property, plant and equipment, net	$	463,271		$	435,787

5. Suspended Exploratory Well Costs

In November 2013, the Company achieved both its primary and secondary drilling objectives for the Oyo-7 well. The primary drilling objective was to establish production from the existing Pliocene reservoir.  The secondary drilling objective was to confirm the presence of hydrocarbons in the deeper Miocene formation. Hydrocarbons were encountered in three intervals totaling approximately 65 feet, as interpreted by the logging-while-drilling (“LWD”) data. Management is making plans to further explore the Miocene formation in future wells.  The Company’s suspended exploratory wells costs were $26.5 million at June 30, 2014 and December 31, 2013, respectively, for the costs related to the Miocene exploratory drilling activities.

6. Asset Retirement Obligations

The Company’s asset retirement obligations primarily represent the estimated fair value of the amounts that will be incurred to plug, abandon and remediate our producing properties at the end of their productive lives. Significant inputs used in determining such obligations include, but are not limited to, estimates of plugging and abandonment costs, estimated future inflation rates and changes in property lives. The inputs are calculated based on historical data as well as current estimated costs.

The following summarizes changes in the Company’s asset retirement obligations during the period (In thousands):

	2014
Carrying amount at January 1	$	20,601
Accretion expense		890
Carrying amount at June 30	$	21,491

Accretion expense is recognized as a component of depreciation, depletion and amortization expense in the accompanying statements of operations.

7. Debt

As of June 30, 2014, Long-term notes payable – related party consists of $7.1 million outstanding under the Promissory Note owed to Allied and a $50.0 million Convertible Subordinated Note issued in connection with the Allied Transaction.  

Page 9 of 23

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Promissory Note

The Company has a $25.0 million borrowing facility under a Promissory Note (the “Promissory Note”) with Allied.  Interest accrues on the outstanding principal under the Promissory Note at a rate of the 30-day London Interbank Offered Rate (“LIBOR”) plus 2% per annum.  The obligations under the Promissory Note have been guaranteed by the Company.  In August 2014, the Promissory Note was amended to extend the maturity date by one year to July 2015, and to allow for the entire $25.0 million facility amount to be utilized for general corporate purposes.  

Convertible Subordinated Note

As partial consideration in connection with the February 2014 closing of the Allied Transaction, the Company issued a $50.0 million Convertible Subordinated Note in favor of Allied. The principal of the Convertible Subordinated Note was deemed advanced in two equal $25.0 million tranches at each of the First Closing and the Second Closing of the Private Placement. Interest on the Convertible Subordinated Note accrues at a rate per annum of one-month LIBOR plus 5%, payable quarterly in cash until the maturity of the Convertible Subordinated Note five years from the closing of the Allied Transaction. At the election of the holder, the Convertible Subordinated Note is convertible into shares of the Company’s common stock at an initial conversion price of $0.7164 per share, subject to customary anti-dilution adjustments. The Convertible Subordinated Note is subordinated to the Company’s existing and future senior indebtedness and is subject to acceleration upon an Event of Default (as defined in the Convertible Subordinated Note). The Company may, at its option, prepay the note in whole or in part, at any time, without premium or penalty. The note is subject to mandatory prepayment upon (i) the Company’s issuance of capital stock or incurrence of indebtedness, the proceeds of which the Company does not apply to repayment of senior indebtedness or (ii) any capital markets debt issuance to the extent the net proceeds of such issuance exceed $250.0 million. Allied may assign all or any part of its rights and obligations under the Convertible Subordinated Note to any person upon written notice to the Company.

8. Share-Based Compensation

During the six months ended June 30, 2014, the Company issued 1,439,707 shares of common stock as a result of the exercise of options.

During the six months ended June 30, 2014, the Company granted employees a total of 3,914,215 shares of restricted stock, and options to purchase a total of 2,267,394 shares of common stock, with vesting periods from 24 months to 36 months.  

The Company also grants shares of restricted stock to non-employee Directors.  The Company granted 1,000,002 shares of restricted stock to non-employee Directors in May 2014, which vest after a one- year period.

9. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share are computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2014 and 2013 were as follows (In thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Basic		1,188,214		380,196		932,571		380,287
Diluted		1,188,214		380,196		932,571		380,287

Page 10 of 23

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The weighted average number of stock options and restricted stock awards that were excluded from dilutive shares outstanding as these potentially dilutive securities are anti-dilutive because the Company was in a loss position for the three and six months ended June 30, 2014 and 2013 were as follows (In thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Stock options		7,135		-		7,296		-
Nonvested restricted stock awards		6,457		1,877		5,862		1,570
		13,592		1,877		13,158		1,570

10. Financial Instruments and Fair Value Measurements

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, trade receivables, inventory, accounts payable, accrued expenses, other long-term liabilities and debt at floating interest rates approximate their fair values at June 30, 2014, principally due to the short-term nature, maturities or nature of interest rates of the above listed items.

11. Commitments and Contingencies

Commitments

In January 2014, a long-term drilling contract was signed for the drillship Energy Searcher. The rig arrived at the Oyo Field offshore Nigeria in June 2014 and has commenced the Oyo Field development campaign.  The agreement covers an initial term of one year, with an option to extend the contract for an additional one year. The minimum commitment pursuant to the initial term of the agreement is approximately $86.0 million.

In February 2014, a long-term contract was signed for the floating, production, storage, and offloading vessel (“FPSO”) Armada Perdana, which is the vessel currently connected to the Company’s producing wells Oyo-5 and Oyo-6 in OML 120. The contract provides for an initial term of seven years beginning January 1, 2014, with an automatic extension for an additional term of two years unless terminated by the Company with prior notice. The FPSO can process up to 40,000 barrels of liquid per day, with a storage capacity of approximately one million barrels.  The annual minimum commitment per the terms of the agreement is approximately $35.0 million in the first year and approximately $48.0 million thereafter.

The Company also has commitments related to four production sharing contracts with the Government of the Republic of Kenya (the “Kenya PSCs”) and two Petroleum Exploration, Development & Production Licenses with the Republic of The Gambia (the “Gambia Licenses”), in each case entered into by the Company through a wholly owned subsidiary. To maintain compliance and ownership, the Company is required to fulfill minimum work obligations and to make certain payments as stated in each of the Kenya PSCs and The Gambia Licenses.

Legal Proceedings

From time to time we may be involved in various legal proceedings and claims in the ordinary course of our business. As of June 30, 2014, and through the filing date of this report, we believe the ultimate resolution of such actions or potential actions of which we are currently aware will not have a material effect on our consolidated financial position or our results of operations.

Page 11 of 23

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12. Related Party Transactions

The Company has transactions in the normal course of business with its shareholders, CEHL and their affiliates. The following table summarizes related party transactions for the respective periods (In thousands):

	June 30,		December 31,
	2014		2013
Accounts receivable	$	-	$	1,026
Other current assets	$	624	$	624
Accounts payable and accrued expenses	$	15,520	$	25,721
Promissory Note	$	7,146	$	6,496
Convertible Subordinated Note	$	50,000	$	-

The Company was owed $1.0 million as of December 31, 2013, for billings under the Technical Services Agreement (“TSA”) signed with Allied in January 2013. Under the TSA, the Company agreed to provide certain services related to the Oyo Field within OML 120, in exchange for payments from Allied of $150,000 per month with effect from September 2012.  The TSA was terminated as of the closing of the Allied Acquisition in February 2014 pursuant to the Transfer Agreement.

The Company was owed $0.6 million as of June 30, 2014 and December 31, 2013, respectively, as a result of an estimated overpayment made for royalty and petroleum profit taxes in Nigeria under the PSC.

As of June 30, 2014 and December 31, 2013, the Company owed $15.5 million and $25.7 million, respectively, to Allied as reimbursement for costs incurred related to the drilling of development wells in Oyo Field, as well as other costs incurred to support the operations.  

As of June 30, 2014 and December 31, 2013, the Company had total outstanding notes payable balances of $57.1 million and $6.5 million, respectively, owed to Allied.  See “Note 7 – Debt”,for details relating to the notes payable transactions.  

13. Segment Information

The Company’s current operations are based in Nigeria, Kenya and The Gambia. Management reviews and evaluates the operations of each geographic segment separately. Segments include exploration for and production of hydrocarbons where commercial reserves have been found and developed. Revenues and expenditures are recognized at the relevant geographical location. The Company evaluates each segment based on operating income (loss).

Segment activity for the three and six months ended June 30, 2014 and 2013 are as follows (In thousands):

	Nigeria			Kenya			The Gambia			Corporate and Other			Total
Three months ended June 30,
2014
Revenues	$	14,940			-			-			-		$	14,940
Operating loss	$	(6,404	)		(83	)		(374	)		(4,410	)	$	(11,271	)
2013
Revenues	$	20,007			-			-			-		$	20,007
Operating loss	$	(6,679	)		(1,011	)		(200	)		(4,034	)	$	(11,924	)
Six months ended June 30,
2014
Revenues	$	34,834			-			-			-		$	34,834
Operating loss	$	(14,309	)		(2,075	)		(642	)		(8,928	)	$	(25,954	)
2013
Revenues	$	42,013			-			-			-		$	42,013
Operating loss	$	(12,222	)		(1,665	)		(436	)		(8,085	)	$	(22,408	)

Page 12 of 23

CAMAC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Total assets by segment are as follows (In thousands):

	Nigeria		Kenya		The Gambia		Corporate and Other		Total
Total Assets
As of June 30, 2014	$	485,944		1,717		2,656		38,700	$	529,017
As of December 31, 2013	$	449,857		1,484		2,025		858	$	454,224

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

Our Business

CAMAC Energy Inc. is an independent oil and gas exploration and production company focused on energy resources in Africa. Our strategy is to acquire and develop high-potential exploration and production assets in Africa through strategic partnerships with national oil companies, indigenous local partners and other independent oil companies. Our shares are traded on the New York Stock Exchange under the symbol “CAK” and on the Johannesburg Stock Exchange (“JSE”) under the symbol “CME”.

The Company’s asset portfolio consists of nine licenses across four countries covering an area of approximately 43,000 square kilometers (approximately 10 million acres), including current production and other projects offshore Nigeria, as well as exploration licenses offshore Ghana and The Gambia, and both offshore and onshore Kenya.

The Company’s operating subsidiaries include CAMAC Energy Ltd.,  CAMAC Petroleum Limited, CAMAC Energy International Ltd., CAMAC Energy Ghana Limited, CAMAC Energy Kenya Limited, CAMAC Energy Gambia A2 Ltd. and CAMAC Energy Gambia A5 Ltd. and the Company’s related parties include CAMAC Energy Holdings Limited, CAMAC International Nigeria Limited, CAMAC International Limited, Oceanic Consultants (“Oceanic”), and Allied Energy Plc (“Allied”). The terms “we,” “us,” “our,” “Company,” and “our Company” refer to CAMAC Energy Inc. and its subsidiaries and affiliates.

In February 2014, the Company completed the acquisition of the remaining economic interests that it did not already own in the Production Sharing Contract (“PSC”) covering Oil Mining Leases 120 and 121 (“OMLs 120 and 121”) offshore Nigeria, which include the currently producing Oyo Field (the “Allied Assets”), from Allied (the “Allied Transaction”). Pursuant to the terms of the Transfer Agreement, the Company, as partial consideration for the Allied Assets, paid $85.0 million in cash, issued 497,454,857 shares of the Company’s common stock and delivered a $50.0 million Convertible Subordinated Note (the “Convertible Subordinated Note”), of which $25.0 million was deemed advanced, with interest accruing per the terms of the Convertible Subordinated Note.

To fund the cash portion of the Allied Transaction and a portion of the anticipated capital expenditures for development of the Oyo Field, the Company also entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with the Public Investment Corporation (SOC) Limited, a state-owned company incorporated in the Republic of South Africa (“PIC”), for an aggregate cash investment of $270.0 million through a private placement of 376,884,422 shares of common stock (the “Private Placement”). The Share Purchase Agreement provided that the Private Placement would be completed in two installments. The first installment of $135.0 million (the “First Closing”) in exchange for 188,442,211 shares of the Company’s common stock was completed at the closing of the Allied Transaction in February 2014. The second installment (the “Second Closing”) of $135.0 million in exchange for 188,442,211 shares of the Company’s common stock was completed in May 2014.

Following the Second Closing with the PIC, the Company paid to Allied the additional $85.0 million in cash due under the Transfer Agreement, and the remaining $25.0 million Convertible Subordinated Note was deemed advanced, with interest accruing per the terms of the Convertible Subordinated Note.

Nigeria

The Company currently owns 100% of the economic interests under the PSC and related assets, contracts and rights pertaining to OMLs 120 and 121 including the currently producing Oyo Field located in deepwater offshore Nigeria.

From September 2013 to November 2013, the first phase of drilling operations was conducted on the Oyo-7 well. Based on logging-while-drilling (“LWD”) data, the well encountered gross oil pay of 133 feet (net oil pay of 115 feet) and gross gas pay of 103 feet (net gas pay of 93 feet) in the gas cap from the currently producing Pliocene reservoir, with excellent reservoir quality.  As a secondary objective, the Oyo-7 well confirmed the presence of hydrocarbons in the deeper Miocene formation. This marked the first time a well had been successfully drilled into the Miocene formation on OML 120. Hydrocarbons were encountered in three intervals totaling approximately 65 feet, as interpreted from the LWD data. The Oyo-7 well has been temporarily plugged and suspended but is expected to be re-entered and completed horizontally in the Pliocene reservoir as an oil producer in late 2014.

In January 2014, a long-term drilling contract was signed for the drillship Energy Searcher. The rig arrived on location in the Oyo Field on OML 120 in June 2014 and commenced drilling the Oyo-8 well. The drilling agreement is for an initial term of one year, with an option to extend the contract for an additional one year. The minimum commitment pursuant to the initial term of the agreement is approximately $86.0 million.

In August 2014, the Oyo-8 well was drilled to a total depth of 6,059 feet, and successfully encountered four new oil and gas reservoirs with total gross hydrocarbon thickness of 112 feet, based on results from the LWD data, reservoir pressure measurement, and reservoir fluid sampling.  The well will be completed horizontally as a producing well in the Pliocene formation of the Oyo Field.

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Current plans are to shut-in the currently producing Oyo-5 and Oyo-6 wells and recover their subsea equipment, which will be used to complete the Oyo-7 and Oyo-8 wells.

In addition to the development wells in the Oyo Field offshore Nigeria, the Company has identified ten exploration prospects and twelve leads in OMLs 120 and 121, and is in the process of maturing several prospects to drill-ready status, each containing substantial prospective resources. The Company currently plans to commence exploration well drilling in 2015.

In February 2014, a long-term contract was signed for the floating, production, storage, and offloading vessel (“FPSO”) Armada Perdana, which is the vessel currently connected to the Company’s producing wells Oyo-5 and Oyo-6. The contract provides for an initial term of seven years beginning January 1, 2014, with an automatic extension for an additional term of two years unless terminated by the Company with prior notice. The FPSO can process up to 40,000 barrels of liquid per day, with a storage capacity of approximately one million barrels. The annual minimum commitment per the terms of the agreement is approximately $35.0 million in the first year and approximately $48.0 million thereafter.

Kenya

In May 2012, the Company, through a wholly owned subsidiary, entered into four production sharing contracts with the Government of the Republic of Kenya (the “Kenya PSCs”), covering onshore exploration blocks L1B and L16, and new offshore exploration blocks L27 and L28. For all blocks, the Company is the operator, with the Government having the right to participate up to 20%, either directly or through an appointee, in any area subsequent to declaration of a commercial discovery. The Company is responsible for all exploration expenditures.

The Kenya PSCs for onshore blocks L1B and L16 each provide for an initial exploration period, now extended through June 2015, with specified minimum work obligations during that period. Prior to the end of the initial exploration period, the Company was required to conduct, for each block, a gravity and magnetic survey and acquire, process and interpret 2D seismic data. The gravity and magnetic survey was completed in April 2013. In December 2013, the Company initiated an Environmental and Social Impact Assessment (“ESIA”) study which was successfully completed in March 2014, and the reports were submitted for approval to the Kenya National Environment Management Authority in order to obtain the license to carry out the required additional 2D seismic survey in the two blocks. The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the acquisition of 3D seismic data and the drilling of one exploratory well on each block during each such additional period.

The Kenya PSCs for offshore blocks L27 and L28 each provide for an initial exploration period of three years, through August 2015, with specified minimum work obligations during that period. Prior to the end of the initial exploration period, the Company is required to conduct, for each block, a regional geological and geophysical study, acquire 2D seismic data and acquire, process and interpret 3D seismic data. The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploratory well on each block, during each such additional period. The Company participated in a multi-client combined gravity / magnetic and 2D seismic survey covering blocks L27 and L28.  The survey was successfully completed in March 2014.  The 2D seismic data is currently being processed. Further, in March 2014 the Company started the regional geophysical study for these two blocks.

In addition to the minimum work obligations, each of the Kenya PSCs requires annual surface rental payments, training fund payments and contributions to local community development projects.

The Gambia

In May 2012, the Company, through a wholly owned subsidiary, signed two Petroleum Exploration, Development & Production Licenses with The Republic of The Gambia, for offshore exploration blocks A2 and A5. For both blocks, the Company is the operator, with the Gambian National Petroleum Company (“GNPCo”) having the right to elect to participate up to a 15% interest, following approval of a development and production plan. The Company is responsible for all expenditures prior to such approval even if the GNPCo elects to participate.

The Gambia Licenses provide for an initial exploration period of four years with specified minimum work obligations during that period. Prior to the end of the initial exploration period, the Company will conduct, on each block, a regional geological study, acquire, process and interpret seismic data, drill one exploration well and evaluate drilling results, with the first two work obligations (regional geological study and 3D seismic data acquisition and processing) due prior to the end of the second year. The Company has the right to apply for up to two additional two-year exploration periods with specified additional minimum work obligations, including the drilling of one exploration well during each additional period for each block.

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In addition to the minimum work obligations, The Gambia Licenses require annual surface rental payments, training and resources, and community development fees.

Ghana

In April 2014, the Company signed a Petroleum Agreement relating to the Expanded Shallow Water Tano block in Ghana.  The Company has been named technical operator and will hold an indirect 30% participating interest in the block.  The block contains three discovered fields, and the work program requires the partners to determine, within nine months of the effective date, the economic viability of developing the discovered fields. In collaboration with its joint venture partners, the Company is working on plans to conduct basin modeling and field studies.

Results of Operations

The following discussion pertains to the Company’s results of operations, financial condition, liquidity and capital resources and should be read together with our unaudited consolidated financial statements and the notes thereto contained in this report, and our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2013.  

As stated above, the Company completed the Allied Transaction in February 2014. Allied is a subsidiary of CEHL, the Company’s majority shareholder and deemed to be under common control (transactions between subsidiaries of the same parent). Accordingly, the net assets acquired from Allied were recorded at their respective carrying values as of the acquisition date. The results of operations presented for all periods included herein are reflected as though the transfer of the Allied assets had occurred at the beginning of the first period presented.

Three months ended June 30, 2014, compared to the three months ended June 30, 2013

Revenues

Revenue is recognized when a lifting (sale) occurs. Crude oil revenues for the three months ended June 30, 2014 were $14.9 million, as compared to $20.0 million for the three months ended June 30, 2013.  For the three months ended June 30, 2014, the Company sold approximately 135,000 net barrels of oil at an average price of $110.40/Bbl. In the three months ended June 30, 2013, the Company sold approximately 194,000 net barrels of oil at an average price of $103.12/Bbl.

During the three months ended June 30, 2014, the average net daily production from the Oyo Field was approximately 1,600 barrels of oil per day (“BOPD”), as compared to approximately 2,000 BOPD for the three months ended June 30, 2013.

Operating Costs and Expenses

Production costs for the three months ended June 30, 2014 were $15.5 million, as compared to $21.5 million for the three months ended June 30, 2013.  The reduction in production costs is primarily due to lower contractual operating day rates for the FPSO vessel.

During the three months ended June 30, 2014, the Company incurred $0.4 million of exploration expenses, primarily spent in The Gambia.  During the three months ended June 30, 2013, the Company incurred $1.9 million of exploration expenses, including $0.9 million spent at the corporate level for exploration activities, $0.8 million in Kenya, and $0.2 million in The Gambia.

Depreciation, depletion and amortization (“DD&A”) expenses for the three months ended June 30, 2014 were $6.0 million, as compared to $5.1 million for the three months ended June 30, 2013. In the three months ended June 30, 2014, DD&A expenses increased as compared to the three months ended June 30, 2013, primarily due to higher average depletion rates, partially offset by lower sales volumes for the current period.  The average depletion rate for the three months ended June 30, 2014 was $44.23/Bbl., as compared to $26.53/Bbl for the three months ended June 30, 2013.

General and administrative expenses for the three months ended June 30, 2014 were $4.3 million, as compared to $3.4 million for the three months ended June 30, 2013. The increase in general and administrative expenses for the three months ended June 30, 2014, as compared to the three months ended June 30, 2013, was primarily due to increased corporate overhead costs to support the development of the Oyo Field offshore Nigeria and the Company’s expanding exploration activities. The Company incurred non-cash stock-based compensation expenses of $0.9 million and $0.6 million for the three months ended June 30, 2014 and 2013, respectively.

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Other Income (Expense)

Other expense for the three months ended June 30, 2014 was $0.7 million, primarily for interest expense on the related party notes payable. Other expense was approximately $6,000 for the three months ended June 30, 2013.

Income Taxes

Income taxes were nil for the three months ended June 30, 2014 and 2013.

Six months ended June 30, 2014, compared to the Six months ended June 30, 2013

Revenues

Revenue is recognized when a lifting (sale) occurs. Crude oil revenues for the six months ended June 30, 2014 were $34.8 million, as compared to $42.0 million for the six months ended June 30, 2013.  For the six months ended June 30, 2014, the Company sold approximately 317,000 net barrels of oil at an average price of $109.66/Bbl. In the six months ended, June 30, 2013, the Company sold approximately 397,000 net barrels of oil at an average price of $105.80/Bbl.

During the six months ended June 30, 2014, the average net daily production from the Oyo Field was approximately 1,600 BOPD, as compared to approximately 2,000 BOPD for the six months ended June 30, 2013.

Operating Costs and Expenses

Production costs for the six months ended June 30, 2014 were $38.4 million, as compared to $43.6 million for the six months ended June 30, 2013. The lower production costs in the six months ended June 30, 2014 compared to the same period in 2013 is primarily due to lower contractual operating day rates for the FPSO.

During the six months ended June 30, 2014, the Company incurred $2.7 million of exploration expenses, including $2.1 million spent in Kenya, and $0.6 million spent in The Gambia for seismic acquisition activities.  During the six months ended June 30, 2013, the Company incurred $3.1 million of exploration expenses, including $1.4 million spent at the corporate level for exploration activities, $1.4 million in Kenya, and $0.3 million in The Gambia.

Depreciation, depletion and amortization (“DD&A”) expenses for the six months ended June 30, 2014 were $11.0 million, as compared to $10.6 million for the six months ended June 30, 2013. In the six months ended June 30, 2014, DD&A expenses increased as compared to the six months ended June 30, 2013 primarily due to higher average depletion rates, partially offset by lower sales volumes for the current period.  The average depletion rate for the six months ended June 30, 2014 was $34.49/Bbl., as compared to $26.73/Bbl for the six months ended June 30, 2013.

General and administrative expenses for the six months ended June 30, 2014 were $8.8 million, as compared to $7.1 million for the six months ended June 30, 2013. The increase in general and administrative expenses for the six months ended June 30, 2014, as compared to the six months ended June 30, 2013, was primarily due to increased corporate overhead costs to support the development of the Oyo field offshore Nigeria and the Company’s expanding exploration activities. The Company incurred non-cash stock-based compensation expenses of $1.4 million and $0.9 million for the six months ended June 30, 2014 and 2013, respectively.

Other Income (Expense)

Other expense for the six months ended June 30, 2014 was $0.8 million, primarily for interest expense on the related party notes payable.  Other expense was approximately $10,000 for the six months ended June 30, 2013.

Income Taxes

Income taxes were nil for the six months ended June 30, 2014 and 2013.

Headline Earnings 

In addition to the Company’s primary listing on the New York Stock Exchange, the Company’s common stock also began trading on the JSE on February 24, 2014.  The Company is required to publish certain documents filed with the SEC with the JSE.  The JSE requires that we calculate Headline Earnings Per Share (“HEPS”) which, per the SEC, is considered a non-GAAP measurement. 

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As defined in the Circular 3/2009 of The South African Institute of Chartered Accountants, headline earnings is an additional earnings number that excludes certain separately identifiable remeasurements, net of related tax, and related non-controlling interest.

The number of shares used to calculate basic and diluted HEPS is the same as basic and diluted EPS. In the three and six months ended June 30, 2014 and 2013, there were no separate identifiable remeasurements required and headline earnings was the same as net loss per share as disclosed on the unaudited consolidated statements of operations.  Therefore, HEPS for the three months ended June 30, 2014 and 2013, were $(0.01) and $(0.03), respectively, and for the six months ended June 30, 2014 and 2013 were $(0.03) and $(0.06), respectively.

Liquidity and Capital Resources  

As of June 30, 2014, the Company had current asset and current liability balances of $65.7 million and $64.3 million, respectively, resulting in a net positive working capital of $1.4 million.

During the six months ended June 30, 2014, net cash used in operating activities was $25.4 million as compared to $6.0 million for the six months ended June, 2013. The net increase in cash used in operating activities of $19.4 million was primarily due to $4.4 million higher net loss and $15.9 million negative variance in changes in operating assets and liabilities, partially offset by positive $0.9 million non-cash adjustments to net income.  

During the six months ended June 30, 2014, net cash used in investing activities was $192.2 million, including $170.0 million paid to Allied as partial consideration for the Allied Assets, and $22.2 million spent for additions to property, plant and equipment.  During the six months ended June 30, 2013, net cash used in investing activities was $0.5 million, primarily for additions to property, plant and equipment.

During the six months ended June 30, 2014, net cash provided by financing activities was $257.1 million, consisting of the $270.0 million investment from the PIC, $0.4 million for the issuance of stock pursuant to employee stock option exercises, and $0.7 million additional borrowings under the Promissory Note, partially offset by a $13.9 million adjustment to the net assets of Allied in connection with the Allied Transaction.  During the six months ended June 30, 2013, cash provided by financing was $4.7 million due to an adjustment to the net assets of Allied in connection with the Allied Transaction.

The Company has a $25.0 million borrowing facility under a Promissory Note (the “Promissory Note”) with Allied. In August 2014, the Promissory Note was amended to extend the maturity date by one year to July 2015 and to allow for the entire $25.0 million facility amount to be utilized for general corporate purposes. As of June 30, 2014, the Company had the availability to borrow $17.9 million under the Promissory Note.

In February 2014, the Company completed the Allied Transaction and the First Closing of the Private Placement with the PIC, in accordance with the terms of the Transfer Agreement and the Share Purchase Agreement, respectively. In May 2014, the Company completed the Second Closing of the Private Placement with the PIC. In aggregate, the Company received $270.0 million pursuant to the Closing of both the First and Second Private Placements with the PIC.  The Company paid Allied a total sum of $170.0 million in cash, resulting in a net $100.0 million retained by the Company.

As partial consideration in connection with the February 2014 closing of the Allied Transaction, the Company issued the $50.0 million Convertible Subordinated Note in favor of Allied. The principal of the Convertible Subordinated Note was deemed advanced in two equal $25.0 million tranches at each of the First Closing and the Second Closing of the Private Placement. Interest on the Convertible Subordinated Note accrues at a rate per annum of one-month LIBOR plus 5%, payable quarterly in cash until the maturity of the Convertible Subordinated Note five years from the closing of the Allied Transaction. At the election of the holder, the Convertible Subordinated Note will be converted into shares of the Company’s common stock at an initial conversion price of $0.7164 per share, subject to customary anti-dilution adjustments. The Convertible Subordinated Note is subordinated to the Company’s existing and future senior indebtedness and is subject to acceleration upon an Event of Default (as defined in the Convertible Subordinated Note). The Company may, at its option, prepay the note, in whole or in part, at any time, without premium or penalty. The note is subject to mandatory prepayment upon (i) the Company’s issuance of capital stock or incurrence of indebtedness, the proceeds of which the Company does not apply to repayment of senior indebtedness or (ii) any capital markets debt issuance to the extent the net proceeds of such issuance exceed $250.0 million. Allied may assign all or any part of its rights and obligations under the Convertible Subordinated Note to any person upon written notice to the Company.

Although there are no assurances that the Company’s plans will be realized, management believes that the Company will have sufficient capital resources to meet projected cash flow requirements for the next twelve months from the date of filing this report.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than normal operating leases and employee contracts, that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this report, including without limitation the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are, or may be deemed to be, forward-looking statements. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements contained in this report.

We may from time to time make written or oral forward-looking statements with respect to our long-term objectives or expectations which may be included in our filings with the SEC, reports to stockholders and information provided on our website.

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

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

· Limited operating history, operating revenue or earnings history.

· Ability to raise capital to fund our business plan, including developing the Oyo Field and other oil and gas licenses we may participate in, on terms and conditions acceptable to the Company.

· Ability to develop oil and gas reserves.

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

· Fluctuation in quarterly operating results.

· Possible significant influence over corporate affairs by significant stockholders.

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

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

· Competition from large petroleum and other energy interests.

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

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

· Expropriation and other risks associated with foreign operations.

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

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

· Environmental risks and changing economic conditions.

· The material weakness in our internal controls over financial reporting as of June 30, 2014.

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For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Risk Factors” in Item 1A of Part II of this report and in our Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Foreign Currency Exchange Risk

In addition to the U.S. dollar, the Company pays some of its expenses in Nigeria, The Gambia, and Kenya in Naira, Dalasi, and Shillings respectively. Therefore we are subject to foreign currency exchange risk on non-U.S. dollar denominated transactions on cash flows.

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

Commodity Price Risk

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

Interest Rate Risk

We are exposed to changes in interest rates which affect the interest earned on our interest-bearing deposits and the interest paid on the Promissory Note and the Convertible Subordinated Note. Currently, we do not use interest rate derivative instruments to manage exposure to interest rate changes. At June 30, 2014, we had $7.4 million and $50.7 million principal and interest outstanding under the Promissory Note and the Convertible Subordinated Note, respectively. Interest on the Promissory Note accrues at a rate per annum equal to 2% plus LIBOR and interest on the Convertible Subordinated Note accrues at a rate per annum equal to 5% plus the one-month LIBOR. The maturity date of the Promissory Note is July 15, 2015, and the maturity date for the Convertible Subordinated Note is January 15, 2019.

ITEM 4. CONTROLS AND PROCEDURES

Description of Material Weakness

As disclosed in our Quarterly Report on Form 10-Q/A for the period ended March 31, 2014, filed with the SEC on July 18, 2014, we previously identified a material weakness in our internal controls over financial reporting with respect to complex, non-recurring transactions.  Management is actively engaged in developing a remediation plan to address this material weakness and will provide an update as to the Company’s implementation of remediation measures in a subsequent Quarterly Report on Form 10-Q.

Evaluation of Disclosure Controls and Procedures

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

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2014. As a result of the material weakness in the Company’s internal control over financial reporting with respect to complex, non-recurring transactions for which remediation had not been completed as of June 30, 2014, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2014.

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Changes in Internal Control Over Financial Reporting

Subject to the foregoing description of the material weakness in internal control over financial reporting and our efforts to remediate such material weakness, there have not been any changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The disclosures required in this Item 1 are included in “Note 11 - Commitments and Contingencies”, in the unaudited consolidated financial statements included in Part I, Financial Information, Item 1, Financial Statements and incorporated herein by reference.

Item 1A. Risk Factors

The risk factor below is an addition to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on March 14, 2014 for the fiscal year ended December 31, 2013.

A material weakness in our internal control over financial reporting with respect to complex, non-recurring transactions could, if not remediated, result in a misstatement of the annual or interim financial statements.

We are required to maintain effective internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with generally accepted accounting principles.  It has been determined that we had a material weakness as of March 31, 2014 relating to our internal controls over complex, non-recurring transactions, and management is actively engaged in developing a remediation plan to address this material weakness. Although we have implemented the steps to remediate this material weakness as of the filing date of this report, if these steps are unsuccessful in remediating this material weakness, it could result in a misstatement of our future annual or interim financial statements in the event of future complex transactions.

Item 6. Exhibits

The following exhibits are filed with this report:

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 10-SB filed on August 16, 2007).
3.2	Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 13, 2010).
3.3	Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 19, 2014).
3.4	Amended and Restated Bylaws of the Company as of April 11, 2011 (incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q filed on May 3, 2011).
10.1	Second Amended and Restated Promissory Note effective August 7, 2014, by and among the Company and Allied Energy Plc.
31.1	Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101. INS	XBRL Instance Document.
101. SCH	XBRL Schema Document.
101. CAL	XBRL Calculation Linkbase Document.
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document
101. LAB	XBRL Label Linkbase Document.
101. PRE	XBRL Presentation Linkbase Document.

Page 22 of 23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAMAC Energy Inc.

Date: August 11, 2014

/s/ Earl W. McNiel

Earl W. McNiel

Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

Page 23 of 23

EX-10

Execution Copy

Exhibit 10.1

SECOND AMENDED AND RESTATED PROMISSORY NOTE

This SECOND AMENDED AND RESTATED PROMISSORY NOTE dated as of August 7, 2014 (this “Note”) amends and restates in its entirety that certain PROMISSORY NOTE executed as of June 6, 2011, and amended and restated by the Amended and Restated Promissory Note executed as of September 10, 2013, by CAMAC PETROLEUM LIMITED (”CPL”), a company incorporated in the Federal Republic of Nigeria and a wholly owned subsidiary of CAMAC Energy Inc., a Delaware corporation (the “Parent,” and together with CPL, the “Borrower”), in favor of ALLIED ENERGY PLC, a Nigerian public limited company (the “Lender”).  Borrower, for value received, promises and agrees to pay to the order of Lender, to the Payment Account (as such term is hereinafter defined) the aggregate principal sum of all Loans (as such term is hereinafter defined) outstanding from time to time under this Note, which aggregate principal sum shall not exceed the maximum amount of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided for herein, and to pay interest on the unpaid principal amount of the Loans made by the Lender to the Borrower hereunder, to such Payment Account, in like money and funds, for the time period commencing on the date each Loan is made until such Loan shall be finally and indefeasibly paid in full, at the rates per annum and on the dates provided for herein.

The Lender is hereby authorized by the Borrower to endorse on Annex I (or a continuation thereof) attached to this Note, the identity of the Borrower, the principal amount of each Loan, the date such Loan is made, the amount of any payments or prepayments, the dates of any such payments or prepayments, and the principal balance of the Note outstanding from time to time. The entries made by the Lender on Annex I (or any continuation thereof) shall be prima facie evidence of the existence and amounts of the obligations recorded therein (absent manifest error or failure by the Lender to deliver the corresponding principal amount of each Loan to the Borrower), provided that any failure by the Lender to make any such endorsement shall not affect the obligations of the Borrower under this Note in respect of the Loans or otherwise.

By accepting this Note, the Lender agrees to comply with the obligations of the Lender that are expressly and specifically set forth herein.

Section 1. Terms Generally; Accounting Terms; GAAP; Defined Terms. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Note in its entirety and not to any particular provision hereof, (d) all references herein to Sections and

Annexes shall be construed to refer to Sections of, and Annexes to, this Note and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts, crude oil and crude oil reserves.

Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Lender that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Lender notifies the Borrower that the Lender requests an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

As used in this Note, the following terms shall have the meanings set forth below:

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Availability Period” means the time period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of the termination of the Commitment.

“Borrower” has the meaning set forth in the first paragraph of this Note.

“Borrowing Request” means a request by the Borrower for a Loan in accordance with Section 3.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in Houston, Texas are authorized or required by law to remain closed.

“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“Change in Control” means the acquisition by a group of Persons or entities that are not Affiliates of the Lender and/or its Affiliates of a majority of the Equity Interests of the Borrower, or the possession, directly or indirectly, by such a group of the power to direct or cause the direction of the management or policies of the Borrower.

“Commitment” means the commitment of the Lender to make Loans hereunder, subject to a maximum Lender Commitment amount of $25,000,000.00.

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“Control” means (a) the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise or (b) the ownership of at least ten percent (10%) of the Equity Interest in such Person. “Controlling” and “Controlled” have meanings correlative thereto.

“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“dollars” or “$” refers to lawful money of the United States of America.

“Effective Date” means the date on which the conditions specified in Section 8(a) are satisfied (or waived in accordance with Section 14).

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.

“Event of Default” has the meaning assigned to such term in Section 12.

“GAAP” means generally accepted accounting principles in the United States of America.

“Guaranty” means that certain Guaranty Agreement, dated as of June 6, 2011, made by the Parent in favor of the Lender, as amended.

“Highest Lawful Rate” means, with respect to the Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Loans under laws applicable to the Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws allow as of the date hereof.

“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business and not past due), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guarantee, (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, bank guaranties, surety bonds and similar instruments and (k) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment

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in respect of any Equity Interests in such Person or any other Person or any warrants, rights or options to acquire such Equity Interests, valued, in the case of redeemable preferred interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor. For purposes of this Note, Indebtedness shall not include any indebtedness incurred by the Borrower from the Parent that is due and payable to the Parent by the Borrower in connection with amounts paid by the Parent on the Borrower’s behalf, or otherwise loaned to the Borrower by the Parent, for reasonable general and administrative operating expenses of the Borrower.

“Indemnitee” has the meaning specified in Section 15(b).

“Interest Period” means, with respect to any Loan, the period beginning on (and including) the date on which such Loan is made or on the last day of the immediately preceding Interest Period applicable to such Loan, as applicable, and ending on (but excluding) the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is one month thereafter; provided, that (i) if such Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is in a different calendar month, in which case such Interest Period shall end on the next preceding Business Day) and (ii) any Interest Period that begins on the last Business Day of a month (or on a day for which there is no numerically corresponding day in the month at the end of such Interest Period) shall end on the last Business Day of the month at the end of such Interest Period.

“Lender” has the meaning specified in the first paragraph of this Note.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

“LIBOR” means, for any Interest Period for any Loan, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the rate determined by the Lender to be the offered rate that appears on a nationally recognized service such as Dow Jones Telerate Inc. (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period.

“Loan” means each loan made by the Lender to the Borrower pursuant to Section 3 of this Note.

“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations or condition, financial or otherwise, of the Borrower and the Parent/Subsidiaries,

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taken as a whole, (b) the ability of the Borrower to perform any of its obligations under this Note or the ability of the Parent to perform any of its obligations under the Guaranty, (c) the validity or enforceability of this Note or the Guaranty, or (d) the rights or remedies of, or benefits available to, the Lender under this Note or the Guaranty.

“Material Indebtedness” means Indebtedness (other than the Loans), or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and the Parent/Subsidiaries in an aggregate principal amount exceeding $500,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any Parent/Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Parent/Subsidiary would be required to pay if such Swap Agreement were terminated at such time.

“Maturity Date” means July 15, 2015.

“Net Proceeds” means with respect to any sale, lease or other disposition of any assets or properties of the Borrower or any Parent/Subsidiary, or Indebtedness incurred thereby, the gross amount received by the Borrower or any Parent/Subsidiary from such sale, lease or other disposition, or incurrence of Indebtedness, minus the sum of (a) the amount, if any, of all taxes paid or payable by the Borrower or any Parent/Subsidiary directly resulting from such sale, lease or other disposition or incurrence of Indebtedness (including the amount, if any, estimated by the Borrower in good faith at the time of such sale, lease or other disposition for taxes payable by the Borrower or any Parent/Subsidiary on or measured by net income or gain resulting from such sale, lease or other disposition), and (b) the reasonable and documented out-of-pocket costs and expenses incurred by the Borrower or such Parent/Subsidiary in connection with such sale, lease or other disposition or incurrence of Indebtedness (including reasonable and documented brokerage fees paid to a Person other than an Affiliate of the Borrower or an Affiliate of any Parent/Subsidiary, but excluding any fees or expenses paid to an Affiliate of the Borrower or an Affiliate of any Parent/Subsidiary).

“Note” means this Promissory Note, as amended, supplemented or modified from time to time in accordance with the terms hereof.

“Parent” has the meaning set forth in the first paragraph of this Note.

“Parent/Subsidiary” means the Parent and any subsidiary of the Borrower or the Parent.

“Payment Account” has the meaning specified in Section 7.

“Payment Date” has the meaning specified in Section 4(b).

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity.

“Profit Oil” has the meaning set forth in the Production Sharing Contract by and between Allied Energy Resources Nigeria Limited, CAMAC International (Nigeria) Limited and Nigerian AGIP Exploration Limited covering Oil Mining Leases 120 and 121 Deep Offshore Nigeria,

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dated July 22, 2005, a copy of which is in the possession of both Borrower and Lender, as novated.

“Security Agreement” means that certain Security Agreement executed by the Parent in favor of the Lender dated as of the date hereof.

“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

Section 2. Commitment. Subject to the terms and conditions set forth herein, the Lender agrees to make Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in the aggregate principal amount of all Loans outstanding hereunder exceeding the Commitment. Borrower acknowledges that on the date on which Borrower executes this Note, there is an outstanding principal balance of $7,146,420 and that such outstanding balance is treated as a Loan as of such date and included in the outstanding Loan amount against the Commitment.  Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may obtain Loans hereunder from time to time and may prepay and reborrow such Loans. Unless previously terminated, the Commitment shall terminate on the Maturity Date.

Section 3. Requests for Loans. To request the funding of a Loan hereunder, the Borrower shall deliver a written Borrowing Request to the Lender not later than 11:00 a.m., Houston, Texas time, at least threeBusiness Days before the date of the proposed Loan. Each such written Borrowing Request shall be irrevocable and shall be in the form attached hereto as Annex II and signed by the Borrower. Each such written Borrowing Request shall specify the following information:

(a) the aggregate amount of the requested Loan;

(b) the date on which such Loan is to be made, which shall be a Business Day; and

(c) the name of the Borrower and the location and number of the Borrower’s account to which the Loan funds are to be disbursed.

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Section 4. Repayment of Loans; Interest. (a) Without in any way limiting the Borrower’s obligation to make prepayments pursuant to Section 5, the Borrower shall pay to the Lender the then unpaid aggregate outstanding principal amount of all Loans on the Maturity Date.

(b) Each Loan shall accrue interest at a rate per annum during each Interest Period applicable thereto equal to the lesser of (i) the sum of LIBOR for such Interest Period plus 2.00% and (ii) the Highest Lawful Rate. Accrued interest on each Loan shall be due and payable on the last day of each calendar quarter, on any date when such Loan is prepaid hereunder on the portion so prepaid, and on the Maturity Date (each such date, a “Payment Date”); provided that any interest accrued pursuant to paragraph (c) of this Section shall be payable on demand. With respect to each Payment Date, the Lender shall provide the Borrower at least three Business Days advance notice prior to any quarterly interest payment date and the Maturity Date, and one Business Day advance notice prior to any prepayment date, of the amount of interest to be paid by the Borrower on such Payment Date, subject to adjustment in the event of error or changes in principal balance between the date of furnishing such estimate and the Payment Date; provided, however, that any failure by the Lender to so provide such a calculation shall not affect the validity of the Borrower’s obligations hereunder, including the obligation of the Borrower to pay all amounts required to be paid hereunder on such Payment Date.

(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at the lesser of (i) the interest rate that is or would otherwise be applicable to a Loan plus an additional 2.00% per annum, and (ii) the Highest Lawful Rate.

(d) All interest hereunder shall be computed on the basis of a year of 360 days, and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

Section 5. Prepayments of the Loans; Mandatory Prepayments. (a) The Borrower shall have the right at any time and from time to time to prepay any Loan in whole or in part, provided that the Borrower shall notify the Lender in writing of any prepayment hereunder not later than 11:00 a.m. Houston, Texas time, one Business Day before the date of the prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of the Loan or Loans to be prepaid. Each such prepayment shall be accompanied by accrued unpaid interest on the amount prepaid.

(b) Upon the incurrence of funded Indebtedness by the Borrower or any Parent/Subsidiary, the Borrower shall prepay as much of the Loans as the Net Proceeds received from such funded Indebtedness will enable the Borrower to pay.

(c) At any time that the Borrower or any Parent/Subsidiary receives net cash proceeds from the sale, lease, or other disposition of any of their respective assets or properties (including, for the avoidance of doubt, as a result of the issuance of Equity Interests, the sale of crude oil (other than Profit Oil), the sale of oil reserves, or the sale of any interest in any production sharing or other contract), the Borrower shall prepay within five (5) Business Days after such receipt an aggregate principal amount of the Loans equal to 100% of the Net Proceeds thereof (including proceeds from the issuance of Equity Interests) if an Event of Default has occurred and is continuing, or, otherwise, 100% of the Net Proceeds thereof (including proceeds from the

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issuance of Equity Interests) that, when combined with other funds of the Borrower and the Parent/Subsidiaries, as estimated in good faith by the Borrower, immediately prior to the receipt of such Net Proceeds, are not (i) needed to satisfy other legal or contractual commitments of the Borrower or any Parent/Subsidiary, or (ii) otherwise needed for reasonable general and administrative operating expenses of the Borrower or any Parent/Subsidiary. The Lender shall not apply to the prepayment of the Loans amounts held by the Lender and due to the Borrower from crude oil sales prior to receiving notice from the Borrower or the Parent of the portion of such amounts allowed to be retained by the Borrower or the Parent under the preceding subsections (i) and (ii).

Section 6. Taxes. Any and all payments by or on account of any obligation of the Borrower hereunder or under any document executed in connection herewith shall be made free and clear of and without deduction for any taxes; provided that if the Borrower shall be required to deduct any taxes from such payments, then (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions and (c) the Borrower shall pay the full amount deducted to the relevant governmental authority in accordance with applicable law and, thereafter, promptly provide the Lender with a copy of any receipt received from the relevant governmental authority or other proof of payment with respect to such taxes paid.

Section 7. Payments Generally. The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, or other amounts payable hereunder) prior to 12:00 noon, Houston, Texas time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the account of the Lender notified to the Borrower in writing from time to time for such purposes (the “Payment Account”). If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in United States dollars.

Section 8. Conditions. (a) Conditions Precedent to Initial Loan. The obligation of the Lender to make its initial Loan shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 14):

(i) the Lender shall have received this Note, duly executed and delivered by the Borrower;

(ii) the Lender shall have received the Guaranty, duly executed and delivered by the Parent;

(iii) the Lender shall have received the Security Agreement, duly executed and delivered by the Parent; and

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(vii) since June 30, 2014, no event or condition has occurred that has had or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

(b) Conditions Precedent to Each Loan. The obligation of the Lender to make each Loan hereunder is also subject to the satisfaction of the following conditions:

(i) the representations and warranties of the Borrower set forth in this Note shall be true and correct on and as of the date such Loan is made;

(ii) at the time of and immediately after giving effect to the making of such Loan, no Default shall have occurred and be continuing;

(iii) the proceeds of such Loan will be used only for reasonable general corporate business purposes in the ordinary course of business, such use of the proceeds being referred to herein as “Approved Corporate Purposes”; and

(iv) the Lender shall have received such other documents as the Lender may reasonably request, all in form and substance reasonably satisfactory to the Lender.

Each borrowing of a Loan hereunder shall be deemed to constitute a representation and warranty by the Borrower on the date that such Loan is made as to the matters specified in the immediately preceding clauses (i), (ii), and (iii).

Section 9. Representations and Warranties. The Borrower represents and warrants to the Lender that:

(a) Organization; Powers. Each of the Borrower and each Parent/Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.

(b) Authorization; Enforceability. The transactions contemplated by this Note and the Guaranty are within the Borrower’s and the Parent’s corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Note, the Security Agreement and the Guaranty and the other documents executed in connection herewith or therewith have been duly executed and delivered by the Borrower and the Parent, as applicable, and constitute legal, valid and binding obligations of the Borrower and the Parent, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(c) Governmental Approvals; No Conflicts. The transactions contemplated hereby and in the Guaranty (i) do not require any consent or approval of, registration or filing with, or any other action by, any governmental authority, except such as have been obtained or made and are in full force and effect, (ii) will not violate any applicable law or regulation or the certificate of formation, bylaws or other organizational documents of the Borrower or any Parent/Subsidiary or any order of any governmental authority, (iii) will not violate or result in a default under any

9

indenture, agreement or other instrument binding upon the Borrower or any Parent/Subsidiary or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any Parent/Subsidiaries, and (iv) will not result in the creation or imposition of any Lien on any asset of the Borrower or any Parent/Subsidiary.

(d) Financial Condition. The Parent has heretofore furnished to the Lender its (i) consolidated audited annual financial statements for the fiscal year ended December 31, 2013, and (ii) consolidated unaudited quarterly financial statements for the period endedMarch 31, 2014. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Parent and its consolidated subsidiaries as of such dates and for such periods in accordance with GAAP, subject, with respect to the unaudited quarterly financial statements, to normal year-end audit adjustments and the absence of footnotes.

(e) Litigation. There are no actions, suits or proceedings by or before any arbitrator or governmental authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Parent/Subsidiary that involve this Note, the Guaranty or the transactions contemplated hereby or thereby.

(f) Compliance with Laws and Agreements. Each of the Borrower and each Parent/Subsidiary is in compliance with all laws, regulations and orders of any governmental authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to so comply could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. No Default has occurred and is continuing.

(g) Investment and Holding Company Status. Neither the Borrower nor any Parent/Subsidiary is (i) an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended or (ii) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended.

(h) Disclosure. The Borrower has disclosed to the Lender all agreements, instruments and corporate or other restrictions to which it or any Parent/Subsidiary is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other written information furnished by or on behalf of the Borrower or any Parent/Subsidiary to the Lender in connection with the negotiation of this Note and the Guaranty or delivered hereunder or thereunder (as modified or supplemented by other written information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

Section 10. Affirmative Covenants. Until the Commitment has expired or been terminated and the principal of and interest on the Loans and all other amounts payable hereunder have been finally and indefeasibly paid in full, the Borrower covenants and agrees with the Lender that:

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(a) Information. The Borrower will furnish to the Lender promptly following any request therefor, such information regarding the operations, business affairs and financial condition of the Borrower or any Parent/Subsidiary, or compliance with the terms of this Note or the Guaranty, as the Lender may reasonably request.

(b) Notice of Material Events. The Borrower will furnish to the Lender prompt written notice of the following:

(i) the occurrence of any Default;

(ii) the filing or commencement of any action, suit or proceeding by or before any arbitrator or governmental authority against or affecting the Borrower, any Parent/Subsidiary or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; and

(iii) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a statement of an officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

(c) Existence; Conduct of Business. The Borrower will, and will cause each Parent/Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business.

(d) Payment of Obligations. The Borrower will, and will cause each Parent/Subsidiary to, pay its obligations, including tax liabilities, as the same become due and payable, except where (i) the validity or amount thereof is being contested in good faith by appropriate proceedings, (ii) the Borrower or such Parent/Subsidiary has established adequate reserves with respect thereto in accordance with GAAP and (iii) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.

(e) Maintenance of Properties; Insurance. The Borrower will, and will cause each Parent/Subsidiary to, (i) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (ii) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations.

(f) Books and Records; Inspection Rights. The Borrower will, and will cause each Parent/Subsidiary to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each Parent/Subsidiary to, permit any representatives designated by the Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested.

11

(g) Compliance with Laws. The Borrower will, and will cause each Parent/Subsidiary to, comply in all respects with all laws, rules, regulations and orders of any governmental authority applicable to it or its property, except where the failure to so comply could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(h) Use of Proceeds. The Borrower hereby agrees that each Borrowing Request shall only be for an amount then needed for Approved Corporate Purposes.No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any federal, state or local law, rule or regulation (including investment limitations) or any of the regulations of the Board of Governors of the Federal Reserve System, including Regulations T, U and X.

Section 11. Negative Covenants. Until the Commitment has expired or been terminated and the principal of and interest on the Loans and all other amounts payable hereunder have been finally and indefeasibly paid in full, the Borrower covenants and agrees with the Lender that:

(a) Fundamental Changes. The Borrower will not, and will not permit any Parent/Subsidiary to, engage in any business other than businesses of the type conducted by the Borrower and such Parent/Subsidiary on the date of execution of this Note and businesses reasonably related thereto.

(b) Restrictive Agreements. The Borrower will not, and will not permit any Parent/Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of the Borrower or any Parent/Subsidiary to (i) pay dividends or other distributions with respect to any of its Equity Interests or (ii) repay loans to the Lender, the Borrower or any Parent/Subsidiary, as applicable.

Section 12. Events of Default. If any of the following events (“Events of Default”) shall occur:

(a) the Borrower shall fail to pay any principal of any Loan or any interest on any Loan when and as the same shall become due and payable, whether at the due date thereof, by acceleration or otherwise;

(b) the Borrower shall fail to pay any other amount (other than an amount set forth in Section 12(a)) owing hereunder when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days;

(c) the Parent shall fail to pay any amount owing under the Guaranty when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days;

(d) this Note after delivery hereof shall for any reason, except to the extent permitted by the terms hereof, cease to be in full force and effect and valid, binding and enforceable in accordance with its terms, or this Note shall be repudiated by the Borrower;

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(e) the Guaranty after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with its terms, or the Guaranty shall be repudiated by the Parent;

(f) any representation or warranty made or deemed made by or on behalf of the Borrower or any Parent/Subsidiary in or in connection with this Note or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Note or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made;

(g) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Sections 10(b), 10(c) (with respect to the Borrower’s or any Parent/Subsidiary’s existence), or 10(h) or in Section 11;

(h) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Note (other than those specified in clause (a), (b), (d) or (g) of this Section) or the Parent shall fail to observe or perform any covenant, condition or agreement contained in the Guaranty (other than those specified in clause (c) or (e) of this Section), and, in any such case, such failure shall continue unremedied for a period of 30 days after the earlier to occur of (i) notice thereof from the Lender to the Borrower or the Parent or (ii) an officer of the Borrower or the Parent otherwise becoming aware of such default;

(i) the Borrower or any Parent/Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness when and as the same shall become due and payable;

(j) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any such Material Indebtedness or any trustee or agent on its or their behalf to cause any such Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity;

(k) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Parent/Subsidiary or their respective debts, or of a substantial part of their respective assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Parent/Subsidiary or for a substantial part of their respective assets, and, in any such case, such proceeding or petition shall continue undismissed for 30 days or an order or decree approving or ordering any of the foregoing shall be entered;

(l) the Borrower or any Parent/Subsidiary  shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in Section 12(k), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or such

13

Parent/Subsidiary or for a substantial part of their respective assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

(m) the Borrower or any Parent/Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;

(n) (i) one or more judgments for the payment of money in an aggregate amount in excess of $100,000 shall be rendered against the Borrower, any Parent/Subsidiary, or any combination thereof or (ii) any one or more non-monetary judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, shall be rendered against the Borrower, any Parent/Subsidiary, or any combination thereof, and, in either such case, the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Parent/Subsidiary.

(o) a Change in Control shall occur;

then, and in every such event (other than an event with respect to the Borrower or any Parent/Subsidiary described in clause (k) or (l) of this Section), and at any time thereafter during the continuance of such event, the Lender may, by notice to the Borrower, take either or both of the following actions, at the same time or different times: (i) terminate the Commitment, and thereupon the Commitment shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower or any Parent/Subsidiary described in clause (k) or (l) of this Section, the Commitment shall automatically terminate and the principal of all Loans then outstanding, together with accrued interest thereon and all other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

Section 13. Notices. (a) All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile or electronic mail, as follows:

(i) if to the Borrower, to it at:

CAMAC Petroleum Limited

CAMAC Energy Inc.
c/o CAMAC Energy Inc.
Attn: General Counsel
1330 Post Oak Boulevard, Suite 2250
Houston, TX 77056

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Telephone: 713-797-2940
Facsimile: 713-797-2990

Email:  nevanoff@camacenergy.com

(ii) if to the Lender, to it at:

Allied Energy PLC
c/o CAMAC International Corporation
Attn: Kamoru A. Lawal
1330 Post Oak Boulevard
Suite 2200
Houston, TX 77056
Telephone: 713-965-5108
Facsimile: 713-965-0008

Email:  kamorulawal@camac.com

(b) Any party hereto may change its address, facsimile number or electronic mail address for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Note shall be deemed to have been given on the date of receipt.

Section 14. Waivers; Amendments. (a) No failure or delay by the Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Lender hereunder are cumulative and are not exclusive of any rights or remedies that it would otherwise have. No waiver of any provision of this Note or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

(b) Neither this Note nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Lender.

Section 15. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Lender, including the reasonable fees, charges and disbursements of counsel for the Lender, in connection with the preparation and administration of this Note, the Guaranty or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Lender, including the fees, charges and disbursements of any counsel for the Lender, in connection with the enforcement or protection of its rights in connection with this Note or the Guaranty, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of any Loan.

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(b) The Borrower shall indemnify the Lender and its Affiliates and the respective directors, officers, employees, agents and advisors of the Lender and its Affiliates (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Note, the Guaranty or any agreement or instrument contemplated hereby or thereby, or the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) the Loans or the use of the proceeds therefrom, or (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted solely from the gross negligence or wilful misconduct of such Indemnitee.

(c) To the extent permitted by applicable law, the Borrower shall not assert, and shall cause each Parent/Subsidiary not to assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Note, the Guaranty or any agreement or instrument contemplated hereby or thereby, the Loans, or the use of the proceeds thereof.

(d) All amounts due under this Section shall be payable promptly after written demand therefor containing reasonable supporting details.

Section 16. Successors and Assigns. The provisions of this Note shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Note, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, and the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Note. The Lender may assign to one or more assignees all or a portion of its rights and obligations under this Note (including all or a portion of any Loan at the time owing to it) without the consent of the Borrower.

Section 17. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Note shall be considered to have been relied upon by the Lender and shall survive the execution and delivery of this Note and the making of each Loan, regardless of any investigation made by the Lender or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any other amount payable under this Note is outstanding and unpaid. The provisions of Sections 6, 15, 21 and 22 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, or the termination of this Note or any provision hereof.

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Section 18. Integration. This Note, the Guaranty and the other instruments and agreements contemplated hereby and thereby constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.

Section 19. Severability. Any provision of this Note held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 20. Right of Setoff. If an Event of Default shall have occurred and be continuing, the Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any obligations at any time owing by the Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Note, irrespective of whether or not the Lender shall have made any demand under this Note and although such obligations may be unmatured. The rights of the Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which the Lender may have.

Section 21. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Note shall be construed in accordance with and governed by the law of the State of Texas.

(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of the District Court of the State of Texas sitting in Harris County, Texas and of the United States District Court of the Southern District of Texas, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Note, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Texas state or, to the extent permitted by law, in such federal court. Such Texas state court or federal court shall apply the substantive laws of the State of Texas in interpreting and construing this Note. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Note shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Note against the Borrower or its properties in the courts of any jurisdiction.

(c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Note in any court referred to in paragraph (b) of this Section. Each of the Borrower and the Lender hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) The Borrower and the Lender hereby irrevocably consent to service of process in the manner provided for notices in Section 13. Nothing herein will affect the right of the Borrower or the Lender to serve process in any other manner permitted by law.

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Section 22. Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH OF THE BORROWER AND THE LENDER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 23. Interest Rate Limitation. It is the intention of the parties hereto that the Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to the Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to the Lender notwithstanding the other provisions of this Note), then, in that event, notwithstanding anything to the contrary herein, it is agreed as follows: (a) the aggregate of all consideration which constitutes interest under law applicable to the Lender that is contracted for, taken, reserved, charged or received by the Lender hereunder or otherwise in connection with the Loans shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by the Lender on the principal amount of the Loans (or, to the extent that the principal amount of the Loans shall have been or would thereby be paid in full, refunded by the Lender to the Borrower); and (b) in the event that the maturity of the Loans is accelerated by reason of an election of the Lender resulting from any Event of Default under this Note, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Note shall be canceled automatically by the Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by the Lender on the principal amount of the Loans (or, to the extent that the principal amount of the Loans shall have been or would thereby be paid in full, refunded by the Lender to the Borrower). All sums paid or agreed to be paid to the Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to the Lender, be amortized, prorated, allocated and spread throughout the stated term of the Loans until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to the Lender on any date shall be computed at the Highest Lawful Rate applicable to the Lender and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to the Lender would be less than the amount of interest payable to the Lender computed at the Highest Lawful Rate applicable to the Lender, then the amount of interest payable to the Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to the Lender until the total amount of interest payable to the Lender shall equal the total amount of interest which would have been payable to the Lender if the total amount of interest had been computed without giving effect to the Highest Lawful Rate.

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Section 24.  Joint and Several Liability.  The obligations of Parent and CPL under this Note shall be joint and several.

[SIGNATURE PAGE FOLLOWS]

19

IN WITNESS WHEREOF, the Borrower has executed this Promissory Note as of the 7^th day of August, 2014.

CAMAC ENERGY INC.

By: /s/ Earl W. McNiel

Name: Earl W. McNiel

Title:   Senior Vice President

CAMAC PETROLEUM LIMITED

By:  /s/ Adama Traore

Name: Adama Traore

Title:  Director

ACKNOWLEDGED AND AGREED TO BY:

ALLIED ENERGY PLC,
as Lender

By: /s/ Kamoru Lawal
Name: Kamoru Lawal
Title: Director

20

ANNEX I

Information Regarding Loans

The foregoing Note evidences Loans made by the Lender to the Borrower, which Loans were in the principal amounts and were made and repaid or prepaid on the dates set forth below:

Borrower PrincipalAmount of EachLoan Date Each Loanwas Made Date ofPayment orPrepayment Amount Paid orPrepaid BalanceOutstanding

ANNEX II

21

Form of Borrowing Request

[Date]

[Delivered by hand][Delivered by overnight courier service][Mailed by certified mail][Mailed by registered mail][Sent by facsimile][Sent by electronic mail]

Allied Energy PLC
c/o CAMAC International Corporation
Attn: Kamoru A. Lawal
1330 Post Oak Boulevard
Suite 2200
Houston, TX 77056

Re: Borrowing Request Under Promissory Note

Mr. Kamoru Lawal:

Notice is hereby given to Allied Energy PLC (the “Lender”) by [CAMAC Petroleum Limited][CAMAC Energy Inc.] (the “Borrower”) that, pursuant to that certain Promissory Note, dated ____________, 2014 (the “Note”), executed by the Borrower, the Borrower requests the funding of a Loan (as defined in the Note) under the Note as follows:

A.	Aggregate amount of the requested Loan:
B.	Date on which the Loan is to be made:
C.	Location and number of the Borrower’s account to which the Loan funds are to be disbursed:
D.	Purpose of Loan:

Sincerely,

[CAMAC Petroleum Limited][CAMAC Energy Inc.]

By:

Name:

Title:

22

EX-31

Exhibit 31.1

CERTIFICATION PURSUANT TO

15 U.S.C. § 7241

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dr. Kase Lukman Lawal, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of CAMAC Energy Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2014	/s/ Dr. Kase Lukman Lawal
	Dr. Kase Lukman Lawal
	Chief Executive Officer (Principal Executive Officer)

EX-31

Exhibit 31.2

CERTIFICATION PURSUANT TO

15 U.S.C. § 7241

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Earl W. McNiel, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of CAMAC Energy Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2014	/s/ Earl W. McNiel
	Earl W. McNiel Senior Vice President and Chief Financial Officer (Principal Financial Officer)

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as the Principal Executive Officer of CAMAC Energy Inc. (the “Company”), that the Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and the results of operations of the Company.

Date: August 11, 2014	/s/ Dr. Kase Lukman Lawal
	Dr. Kase Lukman Lawal
	Chief Executive Officer (Principal Executive Officer)

EX-32

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as the Principal Financial Officer of CAMAC Energy Inc. (the “Company”), that the Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and the results of operations of the Company. 

Date: August 11, 2014	/s/ Earl W. McNiel
	Earl W. McNiel
	Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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Related Party Transactions - Additional Information (Details) (USD $)			6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014 Monthly Revenue From Allied
Related Party Transaction [Line Items]
Crude oil lifting receivables and billings		$ 1,026,000
Revenue from Related Parties			150,000
Other current assets	624,000	624,000
Accounts payable and accrued expenses	15,520,000	25,721,000
Long-term notes payable - related party	57,146,000
Notes payable - related party	$ 7,146,000	$ 6,496,000

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Debt - Additional Information (Details) (USD $) In Millions, except Per Share data, unless otherwise specified		6 Months Ended	1 Months Ended	6 Months Ended	1 Months Ended
	Jun. 30, 2014	Jun. 30, 2014 Promissory Note To Allied	Feb. 28, 2014 Convertible Subordinated Note to Allied Tranches	Jun. 30, 2014 Convertible Subordinated Note to Allied	Jun. 30, 2011 London Interbank Offered Rate (LIBOR) Promissory Note To Allied	Feb. 28, 2014 London Interbank Offered Rate (LIBOR) Convertible Subordinated Note to Allied
Disclosure Debt Additional Information Details [Line Items]
Convertible subordinate note issued	$ 50.0		$ 50.0
Debt instrument, basis spread on variable rate					2.00%	5.00%
Promissory note extended maturity date, description		Promissory Note was amended to extend the maturity date by one year to July 2015
Promissory note extended maturity date		Jul. 31, 2015
Promissory note extended maturity period		1 year
Notes payable maximum borrowing capacity during extended period		25.0
Number of tranches			2
Convertible subordinated note deemed advanced			25.0
Debt instrument, convertible, conversion price			$ 0.7164
Long-term debt, description				The note is subject to mandatory prepayment upon (i) the Company’s issuance of capital stock or incurrence of indebtedness, the proceeds of which the Company does not apply to repayment of senior indebtedness or (ii) any capital markets debt issuance to the extent the net proceeds of such issuance exceed $250.0 million.
Minimum threshold proceeds from capital market debt issuance for mandatory prepayment option			$ 250.0

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Related Party Transactions (Tables)

6 Months Ended

Jun. 30, 2014

Summary of Related Party Transactions and Balances

The Company has transactions in the normal course of business with its shareholders, CEHL and their affiliates. The following table summarizes related party transactions for the respective periods (In thousands):

	June 30,		December 31,
	2014		2013
Accounts receivable	$	-	$	1,026
Other current assets	$	624	$	624
Accounts payable and accrued expenses	$	15,520	$	25,721
Promissory Note	$	7,146	$	6,496
Convertible Subordinated Note	$	50,000	$	-

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Commitments and Contingencies - Additional Information (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014 bbl
Other Commitments [Line Items]
Minimum commitment	$ 86.0
Barrels processing capacity	40,000
Maximum storage capacity for the FPSO	1,000,000
Minimum commitment, due in first year	35.0
Minimum commitment, due thereafter	$ 48.0
Kenya PSCs
Other Commitments [Line Items]
Production sharing contracts with the Government of the Republic of Kenya	4
Gambia Licenses
Other Commitments [Line Items]
Petroleum Exploration, Development & Production Licenses with the Republic of the Gambia	2

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Acquisitions

6 Months Ended

Jun. 30, 2014

Acquisitions

3. Acquisitions

In February 2014, the Company completed the Allied Transaction thereby acquiring the Allied Assets. Pursuant to the terms of the Transfer Agreement among the Company, Allied and the other parties thereto, (“Transfer Agreement”), the Company, as partial consideration for the Allied Assets, paid $85.0 million in cash, issued 497,454,857 shares of the Company’s common stock and delivered a $50.0 million Convertible Subordinated Note (the “Convertible Subordinated Note”) of which $25.0 million was deemed advanced, with interest accruing per the terms of the Convertible Subordinated Note.

To fund the cash portion of the Allied Transaction and a portion of the anticipated capital expenditures for development of the Oyo Field, the Company also entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with the Public Investment Corporation (SOC) Limited, a state-owned company incorporated in the Republic of South Africa (“PIC”), for an aggregate cash investment of $270.0 million through a private placement of 376,884,422 shares of common stock (the “Private Placement”). The Share Purchase Agreement provided that the Private Placement would be completed in two installments. The first installment of $135.0 million (the “First Closing”) in exchange for 188,442,211 shares of the Company’s common stock was completed at the closing of the Allied Transaction. The second installment (the “Second Closing”) of $135.0 million in exchange for 188,442,211 shares of the Company’s common stock was completed in May 2014.

Following the Second Closing with the PIC, the Company paid to Allied the additional $85.0 million in cash due under the Transfer Agreement, and the remaining $25.0 million Convertible Subordinated Note was deemed advanced with interest accruing per the terms of the Convertible Subordinated Note.

The contractual purchase consideration paid and the assets acquired and liabilities assumed are as follows (In thousands):

Cash consideration paid upon First Closing	$	85,000
Cash consideration paid upon Second Closing		85,000
CAMAC Energy Inc. common stock		-
Long-term convertible subordinated note payable - related party		50,000
Total purchase price	$	220,000
Asset acquired and liabilities assumed:
Property, plant and equipment, net	$	248,736
Accounts payable		(25,429	)
Asset retirement obligations		(20,890	)
Net assets acquired		202,417
Consideration in excess of carrying value acquired	$	17,583

The Allied Transaction is being accounted for as a transfer of entities under common control, whereby the net assets acquired are combined with the Company’s assets at their historical amounts.  Since the cash and debt consideration exceeds the carrying cost of the assets acquired, no value was assigned to the shares issued.

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Purchase Consideration Paid and Assets Acquired and Liabilities Assumed (Details) (USD $) In Thousands, unless otherwise specified	1 Months Ended
	Feb. 28, 2014
Business Acquisition [Line Items]
CAMAC Energy Inc. common stock
Long-term convertible subordinated note payable - related party	50,000
Total purchase price	220,000
Asset acquired and liabilities assumed:
Property, plant and equipment, net	248,736
Accounts payable	(25,429)
Asset retirement obligations	(20,890)
Net assets acquired	202,417
Consideration in excess of carrying value acquired	17,583
Cash consideration paid upon First Closing
Business Acquisition [Line Items]
Cash consideration	85,000
Cash consideration paid upon Second Closing
Business Acquisition [Line Items]
Cash consideration	$ 85,000

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Acquisitions - Additional information (Details) (USD $)		1 Months Ended
	Jun. 30, 2014	Feb. 28, 2014 Share Purchase Agreement Private Placement Installment	Feb. 28, 2014 Share Purchase Agreement Installment One Private Placement	May 31, 2014 Share Purchase Agreement Installment Two Private Placement	May 31, 2014 Allied Transaction Convertible Subordinated Note	Feb. 28, 2014 Allied Transaction Convertible Subordinated Note
Business Acquisition [Line Items]
Convertible subordinate note issued	$ 50,000,000					$ 50,000,000
Convertible subordinated note deemed advanced					25,000,000	25,000,000
Business acquisition, number of shares issued		376,884,422	188,442,211	188,442,211		497,454,857
Cash consideration					85,000,000	85,000,000
Business acquisition, value of shares issued		$ 270,000,000	$ 135,000,000	$ 135,000,000
Number of installments		2

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Property, Plant and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Property Plant And Equipment [Line Items]
Wells and production facilities	$ 28,874	$ 28,874
Proved properties	386,196	386,196
Work in progress and other	125,912	86,634
Oilfield assets	540,982	501,704
Accumulated depletion	(87,051)	(74,909)
Oilfield assets, net	453,931	426,795
Unevaluated leaseholds	8,240	8,240
Oil and gas properties, net	462,171	435,035
Other property and equipment	2,131	1,590
Accumulated depreciation	(1,031)	(838)
Other property and equipment, net	1,100	752
Total property, plant and equipment, net	$ 463,271	$ 435,787

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Suspended Exploratory Well Costs - Additional Information (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Costs Incurred Oil And Gas Property Acquisition Exploration And Development Activities [Line Items]
Suspended exploratory well cost	$ 26.5	$ 26.5

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Basis of Presentation and Recently Issued Accounting Standards

6 Months Ended

Jun. 30, 2014

Basis of Presentation and Recently Issued Accounting Standards

2. Basis of Presentation and Recently Issued Accounting Standards

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned direct and indirect subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All significant intercompany transactions and balances have been eliminated in consolidation. The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations for the indicated periods. All such adjustments are of a normal recurring nature.  This Form 10-Q should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

In February 2014, the Company completed the acquisition of the remaining economic interests that it did not already own in the Production Sharing Contract (“PSC”) covering Oil Mining Leases 120 and 121 (“OMLs 120 and 121”) offshore Nigeria, which include the currently producing Oyo Field (the “Allied Assets”), from Allied (the “Allied Transaction”). Allied is a subsidiary of CEHL, the Company’s majority shareholder, and deemed to be under common control (transactions between subsidiaries of the same parent). Accordingly, the net assets acquired from Allied were recorded at their respective carrying values as of the acquisition date. The financial statements presented for all periods included herein are presented as though the transfer of the Allied assets had occurred at the beginning of the first period presented.

In June 2014, the Company’s management concluded that the Company’s unaudited financial statements included in its quarterly report on Form 10-Q for the first quarter of 2014 contained errors.  These errors were identified in the course of preparing recast historical financial information of the Company to account for the February 2014 acquisition of economic interests in OML 120/121 from Allied as a combination of businesses under common control.  In July 2014, the Company restated its previously filed interim financial statements for the first quarter of 2014.  The revised financial statements for the quarter ended March 31, 2014 include adjustments to reflect (i) an increase in crude oil inventory as of December 31, 2013 and a corresponding increase in production costs for the first quarter of 2014, (ii) an increase in operating costs due to the receipt of additional third-party vendor cost information from Allied and (iii) a reclassification of the adjustments to the net assets of Allied on the unaudited consolidated statement of cash flows.  For further information about the restatement, see our Quarterly Report on Form 10-Q/A for the period ended March 31, 2014, filed with the SEC on July 18, 2014.

Recently Issued Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance that changes the criteria for reporting discontinued operations including enhanced disclosure requirements. Under the updated guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization´s operations and financial results. The standards update is effective for fiscal years beginning after December 15, 2014. We will adopt this standards update, as required, beginning with the first quarter of 2015. The adoption of this standards update affects presentation only and, as such, is not expected to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers.  The objective of the guidance is to establish principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.  The updated standard is effective for interim and annual periods beginning after December 15, 2016.  We will adopt this standards update, as required, beginning with the first quarter of 2017.  The Company is in the process of evaluating the impact, if any, of this guidance on its consolidated financial statements.

In June 2014, the FASB issued updated guidance around share-based compensation.  The guidance was issued to clarify the accounting treatment for performance based stock awards.  The update states that companies should not record compensation expense related to an award for which transfer to the employee is contingent on the company’s satisfaction of a performance target until it becomes probable that the performance target will be met.  The update does not contain any new disclosure requirements and is effective for interim and annual periods beginning after December 15, 2015.  We will adopt this standards update, as required, beginning with the first quarter of 2016.  The adoption of this standards update is not expected to have a material impact on our consolidated financial statements.

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Asset Retirement Obligations - Summary of Change in Asset Retirement Obligations (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Long Lived Assets To Be Abandoned [Line Items]
Carrying amount	$ 20,601
Accretion expense	890	1,094
Carrying amount	$ 21,491

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Segment Activity (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Segment Reporting Information [Line Items]
Revenues	$ 14,940	$ 20,007	$ 34,834	$ 42,013
Operating loss	(11,271)	(11,924)	(25,954)	(22,408)
Total Assets	529,017		529,017		454,224
Corporate and Other
Segment Reporting Information [Line Items]
Operating loss	(4,410)	(4,034)	(8,928)	(8,085)
Total Assets	38,700		38,700		858
Nigeria
Segment Reporting Information [Line Items]
Revenues	14,940	20,007	34,834	42,013
Operating loss	(6,404)	(6,679)	(14,309)	(12,222)
Total Assets	485,944		485,944		449,857
Kenya
Segment Reporting Information [Line Items]
Operating loss	(83)	(1,011)	(2,075)	(1,665)
Total Assets	1,717		1,717		1,484
Gambia
Segment Reporting Information [Line Items]
Operating loss	(374)	(200)	(642)	(436)
Total Assets	$ 2,656		$ 2,656		$ 2,025

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 39,742	$ 163
Accounts receivable	144	1,112
Crude oil inventory	14,379	16,254
Prepaids and other current assets	11,435	856
Total current assets	65,700	18,385
Property, plant and equipment:
Oil and gas properties (successful efforts method of accounting), net	462,171	435,035
Other property, plant and equipment, net	1,100	752
Total property, plant and equipment, net	463,271	435,787
Other assets	46	52
Total Assets	529,017	454,224
Current liabilities:
Accounts payable	30,938	31,668
Accrued expenses	20,325	7,446
Asset retirement obligations	13,029	12,479
Notes payable - related party		6,496
Total current liabilities	64,292	58,089
Asset retirement obligations	8,462	8,122
Long-term notes payable - related party	57,146
Other long-term liabilities	71	67
Total liabilities	129,971	66,278
Equity:
Preferred stock $0.001 par value - 50,000,000 shares authorized; zero issued and outstanding at June 30, 2014 and December 31, 2013
Common stock $0.001 par value - 2,500,000,000 shares authorized; 1,261,550,807 and 382,362,236 shares outstanding as of June 30, 2014 and December 31, 2013	1,262	382
Paid-in capital	773,464	736,456
Accumulated deficit	(375,680)	(348,892)
Total equity	399,046	387,946
Total liabilities and equity	$ 529,017	$ 454,224

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities
Net loss	$ (26,788)	$ (22,418)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation, depletion and amortization	10,066	9,515
Asset retirement obligation accretion	890	1,094
Stock-based compensation	1,394	889
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(13,161)	708
(Increase) decrease in inventories	4,144	1,484
(Increase) decrease in other current assets	(10,579)	77
Increase (decrease) in accounts payable and accrued liabilities	8,648	2,649
Net cash used in operating activities	(25,386)	(6,002)
Cash flows from investing activities
Capital expenditures	(22,179)	(490)
Allied transaction	(170,000)
Net cash used in investing activities	(192,179)	(490)
Cash flows from financing activities
Proceeds from issuance of common stock	270,000
Proceeds from exercise of stock options	415
Proceeds from note payable - related party	650
Allied Transaction adjustments	(13,921)	4,671
Net cash provided by financing activities	257,144	4,671
Net increase (decrease) in cash and cash equivalents	39,579	(1,821)
Cash and cash equivalents at beginning of period	163	3,806
Cash and cash equivalents at end of period	39,742	1,985
Cash paid for:
Interest, net	8	9
Supplemental disclosure of non-cash investing and financing activities:
Related party accounts payable capital expenditures, offset with related party accounts receivable	$ 14,129

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Weighted Average Number of Common Shares Outstanding for Computing Basic and Diluted Earnings (Loss) Per Common Share (Details) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Weighted Average Number of Common Shares Outstanding [Abstract]
Basic	1,188,214	380,196	932,571	380,287
Diluted	1,188,214	380,196	932,571	380,287

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Property, Plant and Equipment (Tables)

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment

Property, plant and equipment is comprised of the following (In thousands):

	June 30,			December 31,
	2014			2013
Wells and production facilities	$	28,874		$	28,874
Proved properties		386,196			386,196
Work in progress and other		125,912			86,634
Oilfield assets		540,982			501,704
Accumulated depletion		(87,051	)		(74,909	)
Oilfield assets, net		453,931			426,795
Unevaluated leaseholds		8,240			8,240
Oil and gas properties, net		462,171			435,035
Other property and equipment		2,131			1,590
Accumulated depreciation		(1,031	)		(838	)
Other property and equipment, net		1,100			752
Total property, plant and equipment, net	$	463,271		$	435,787

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Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities	13,592	1,877	13,158	1,570
Stock options
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities	7,135		7,296
Nonvested restricted stock awards
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities	6,457	1,877	5,862	1,570

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Earnings (Loss) Per Common Share (Tables)

6 Months Ended

Jun. 30, 2014

Weighted Average Number of Common Shares Outstanding for Computing Basic and Diluted Earnings (Loss) Per Common Share

Basic earnings (loss) per common share are computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2014 and 2013 were as follows (In thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Basic		1,188,214		380,196		932,571		380,287
Diluted		1,188,214		380,196		932,571		380,287

Antidilutive Securities Excluded from Computation of Earnings Per Share

The weighted average number of stock options and restricted stock awards that were excluded from dilutive shares outstanding as these potentially dilutive securities are anti-dilutive because the Company was in a loss position for the three and six months ended June 30, 2014 and 2013 were as follows (In thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Stock options		7,135		-		7,296		-
Nonvested restricted stock awards		6,457		1,877		5,862		1,570
		13,592		1,877		13,158		1,570

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Company Description

6 Months Ended

Jun. 30, 2014

Company Description

1. Company Description

CAMAC Energy, Inc. (NYSE MKT: CAK, JSE: CME) is an independent oil and gas exploration and production company focused on energy resources in Africa. The Company’s asset portfolio consists of nine licenses across four countries covering an area of approximately 43,000 square kilometers (approximately 10 million acres) including current production and other prospects offshore Nigeria, as well as exploration licenses offshore Ghana and The Gambia, and both offshore and onshore Kenya.

CAMAC Energy Inc. is headquartered in Houston, Texas, and has additional offices in Lagos, Nigeria; Nairobi, Kenya; and Banjul, The Gambia.

The Company’s operating subsidiaries include CAMAC Energy Ltd., CAMAC Petroleum Limited (“CPL”), CAMAC Energy International Ltd., CAMAC Energy Ghana Limited, CAMAC Energy Kenya Limited, CAMAC Energy Gambia A2 Ltd. and CAMAC Energy Gambia A5 Ltd. The terms “we,” “us,” “our,” “the Company,” and “our Company” refer to CAMAC Energy Inc. and its subsidiaries and affiliates.

The Company’s related parties include CAMAC Energy Holdings Limited (“CEHL”), CAMAC International Nigeria Limited, CAMAC International Limited, Oceanic Consultants (“Oceanic”), and Allied Energy Plc (“Allied”).

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CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Preferred stock par value (in Dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized shares	50,000,000	50,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, authorized shares	2,500,000,000	2,500,000,000
Common stock, outstanding shares	1,261,550,807	382,362,236

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies

11. Commitments and Contingencies

Commitments

In January 2014, a long-term drilling contract was signed for the drillship Energy Searcher. The rig arrived at the Oyo Field offshore Nigeria in June 2014 and has commenced the Oyo Field development campaign.  The agreement covers an initial term of one year, with an option to extend the contract for an additional one year. The minimum commitment pursuant to the initial term of the agreement is approximately $86.0 million.

In February 2014, a long-term contract was signed for the floating, production, storage, and offloading vessel (“FPSO”) Armada Perdana, which is the vessel currently connected to the Company’s producing wells Oyo-5 and Oyo-6 in OML 120. The contract provides for an initial term of seven years beginning January 1, 2014, with an automatic extension for an additional term of two years unless terminated by the Company with prior notice. The FPSO can process up to 40,000 barrels of liquid per day, with a storage capacity of approximately one million barrels.  The annual minimum commitment per the terms of the agreement is approximately $35.0 million in the first year and approximately $48.0 million thereafter.

The Company also has commitments related to four production sharing contracts with the Government of the Republic of Kenya (the “Kenya PSCs”) and two Petroleum Exploration, Development & Production Licenses with the Republic of The Gambia (the “Gambia Licenses”), in each case entered into by the Company through a wholly owned subsidiary. To maintain compliance and ownership, the Company is required to fulfill minimum work obligations and to make certain payments as stated in each of the Kenya PSCs and The Gambia Licenses.

Legal Proceedings

From time to time we may be involved in various legal proceedings and claims in the ordinary course of our business. As of June 30, 2014, and through the filing date of this report, we believe the ultimate resolution of such actions or potential actions of which we are currently aware will not have a material effect on our consolidated financial position or our results of operations.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 05, 2014
Document And Entity Information [Line Items]
Entity Registrant Name	CAMAC Energy Inc.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		1,261,550,807
Amendment Flag	false
Entity Central Index Key	0001402281
Entity Filer Category	Accelerated Filer
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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Related Party Transactions

6 Months Ended

Jun. 30, 2014

Related Party Transactions

12. Related Party Transactions

The Company has transactions in the normal course of business with its shareholders, CEHL and their affiliates. The following table summarizes related party transactions for the respective periods (In thousands):

	June 30,		December 31,
	2014		2013
Accounts receivable	$	-	$	1,026
Other current assets	$	624	$	624
Accounts payable and accrued expenses	$	15,520	$	25,721
Promissory Note	$	7,146	$	6,496
Convertible Subordinated Note	$	50,000	$	-

The Company was owed $1.0 million as of December 31, 2013, for billings under the Technical Services Agreement (“TSA”) signed with Allied in January 2013. Under the TSA, the Company agreed to provide certain services related to the Oyo Field within OML 120, in exchange for payments from Allied of $150,000 per month with effect from September 2012.  The TSA was terminated as of the closing of the Allied Acquisition in February 2014 pursuant to the Transfer Agreement.

The Company was owed $0.6 million as of June 30, 2014 and December 31, 2013, respectively, as a result of an estimated overpayment made for royalty and petroleum profit taxes in Nigeria under the PSC.

As of June 30, 2014 and December 31, 2013, the Company owed $15.5 million and $25.7 million, respectively, to Allied as reimbursement for costs incurred related to the drilling of development wells in Oyo Field, as well as other costs incurred to support the operations.  

As of June 30, 2014 and December 31, 2013, the Company had total outstanding notes payable balances of $57.1 million and $6.5 million, respectively, owed to Allied.  See “Note 7 – Debt”,for details relating to the notes payable transactions.  

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenues:
Oil and gas revenue	$ 14,940	$ 20,007	$ 34,834	$ 42,013
Operating costs and expenses:
Production costs	15,459	21,489	38,356	43,602
Exploratory expenses	427	1,899	2,703	3,097
Depreciation, depletion and amortization	5,985	5,142	10,956	10,609
General and administrative expenses	4,340	3,401	8,773	7,113
Total operating costs and expenses	26,211	31,931	60,788	64,421
Operating loss	(11,271)	(11,924)	(25,954)	(22,408)
Other income (expense):
Interest expense	(681)	(6)	(866)	(10)
Other, net	22		32
Total other income (expense)	(659)	(6)	(834)	(10)
Loss before income taxes	(11,930)	(11,930)	(26,788)	(22,418)
Income tax expense
Net loss	$ (11,930)	$ (11,930)	$ (26,788)	$ (22,418)
Net loss per common share:
Basic	$ (0.01)	$ (0.03)	$ (0.03)	$ (0.06)
Diluted	$ (0.01)	$ (0.03)	$ (0.03)	$ (0.06)
Weighted average common shares outstanding:
Basic	1,188,214	380,196	932,571	380,287
Diluted	1,188,214	380,196	932,571	380,287

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Asset Retirement Obligations

6 Months Ended

Jun. 30, 2014

Asset Retirement Obligations

6. Asset Retirement Obligations

The Company’s asset retirement obligations primarily represent the estimated fair value of the amounts that will be incurred to plug, abandon and remediate our producing properties at the end of their productive lives. Significant inputs used in determining such obligations include, but are not limited to, estimates of plugging and abandonment costs, estimated future inflation rates and changes in property lives. The inputs are calculated based on historical data as well as current estimated costs.

The following summarizes changes in the Company’s asset retirement obligations during the period (In thousands):

	2014
Carrying amount at January 1	$	20,601
Accretion expense		890
Carrying amount at June 30	$	21,491

Accretion expense is recognized as a component of depreciation, depletion and amortization expense in the accompanying statements of operations.

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Suspended Exploratory Well Costs

6 Months Ended

Jun. 30, 2014

Suspended Exploratory Well Costs

5. Suspended Exploratory Well Costs

In November 2013, the Company achieved both its primary and secondary drilling objectives for the Oyo-7 well. The primary drilling objective was to establish production from the existing Pliocene reservoir.  The secondary drilling objective was to confirm the presence of hydrocarbons in the deeper Miocene formation. Hydrocarbons were encountered in three intervals totaling approximately 65 feet, as interpreted by the logging-while-drilling (“LWD”) data. Management is making plans to further explore the Miocene formation in future wells.  The Company’s suspended exploratory wells costs were $26.5 million at June 30, 2014 and December 31, 2013, respectively, for the costs related to the Miocene exploratory drilling activities.

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Asset Retirement Obligations (Tables)

6 Months Ended

Jun. 30, 2014

Summary of Changes in Asset Retirement Obligations

The following summarizes changes in the Company’s asset retirement obligations during the period (In thousands):

	2014
Carrying amount at January 1	$	20,601
Accretion expense		890
Carrying amount at June 30	$	21,491

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Segment Information

6 Months Ended

Jun. 30, 2014

Segment Information

13. Segment Information

The Company’s current operations are based in Nigeria, Kenya and The Gambia. Management reviews and evaluates the operations of each geographic segment separately. Segments include exploration for and production of hydrocarbons where commercial reserves have been found and developed. Revenues and expenditures are recognized at the relevant geographical location. The Company evaluates each segment based on operating income (loss).

Segment activity for the three and six months ended June 30, 2014 and 2013 are as follows (In thousands):

	Nigeria			Kenya			The Gambia			Corporate and Other			Total
Three months ended June 30,
2014
Revenues	$	14,940			-			-			-		$	14,940
Operating loss	$	(6,404	)		(83	)		(374	)		(4,410	)	$	(11,271	)
2013
Revenues	$	20,007			-			-			-		$	20,007
Operating loss	$	(6,679	)		(1,011	)		(200	)		(4,034	)	$	(11,924	)
Six months ended June 30,
2014
Revenues	$	34,834			-			-			-		$	34,834
Operating loss	$	(14,309	)		(2,075	)		(642	)		(8,928	)	$	(25,954	)
2013
Revenues	$	42,013			-			-			-		$	42,013
Operating loss	$	(12,222	)		(1,665	)		(436	)		(8,085	)	$	(22,408	)

Total assets by segment are as follows (In thousands):

	Nigeria		Kenya		The Gambia		Corporate and Other		Total
Total Assets
As of June 30, 2014	$	485,944		1,717		2,656		38,700	$	529,017
As of December 31, 2013	$	449,857		1,484		2,025		858	$	454,224

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Earnings (Loss) Per Common Share

6 Months Ended

Jun. 30, 2014

Earnings (Loss) Per Common Share

9. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share are computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2014 and 2013 were as follows (In thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Basic		1,188,214		380,196		932,571		380,287
Diluted		1,188,214		380,196		932,571		380,287

The weighted average number of stock options and restricted stock awards that were excluded from dilutive shares outstanding as these potentially dilutive securities are anti-dilutive because the Company was in a loss position for the three and six months ended June 30, 2014 and 2013 were as follows (In thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Stock options		7,135		-		7,296		-
Nonvested restricted stock awards		6,457		1,877		5,862		1,570
		13,592		1,877		13,158		1,570

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Debt

6 Months Ended

Jun. 30, 2014

Debt

7. Debt

As of June 30, 2014, Long-term notes payable – related party consists of $7.1 million outstanding under the Promissory Note owed to Allied and a $50.0 million Convertible Subordinated Note issued in connection with the Allied Transaction.  

Promissory Note

The Company has a $25.0 million borrowing facility under a Promissory Note (the “Promissory Note”) with Allied.  Interest accrues on the outstanding principal under the Promissory Note at a rate of the 30-day London Interbank Offered Rate (“LIBOR”) plus 2% per annum.  The obligations under the Promissory Note have been guaranteed by the Company.  In August 2014, the Promissory Note was amended to extend the maturity date by one year to July 2015, and to allow for the entire $25.0 million facility amount to be utilized for general corporate purposes.  

Convertible Subordinated Note

As partial consideration in connection with the February 2014 closing of the Allied Transaction, the Company issued a $50.0 million Convertible Subordinated Note in favor of Allied. The principal of the Convertible Subordinated Note was deemed advanced in two equal $25.0 million tranches at each of the First Closing and the Second Closing of the Private Placement. Interest on the Convertible Subordinated Note accrues at a rate per annum of one-month LIBOR plus 5%, payable quarterly in cash until the maturity of the Convertible Subordinated Note five years from the closing of the Allied Transaction. At the election of the holder, the Convertible Subordinated Note is convertible into shares of the Company’s common stock at an initial conversion price of $0.7164 per share, subject to customary anti-dilution adjustments. The Convertible Subordinated Note is subordinated to the Company’s existing and future senior indebtedness and is subject to acceleration upon an Event of Default (as defined in the Convertible Subordinated Note). The Company may, at its option, prepay the note in whole or in part, at any time, without premium or penalty. The note is subject to mandatory prepayment upon (i) the Company’s issuance of capital stock or incurrence of indebtedness, the proceeds of which the Company does not apply to repayment of senior indebtedness or (ii) any capital markets debt issuance to the extent the net proceeds of such issuance exceed $250.0 million. Allied may assign all or any part of its rights and obligations under the Convertible Subordinated Note to any person upon written notice to the Company.

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Share-Based Compensation

6 Months Ended

Jun. 30, 2014

Share-Based Compensation

8. Share-Based Compensation

During the six months ended June 30, 2014, the Company issued 1,439,707 shares of common stock as a result of the exercise of options.

During the six months ended June 30, 2014, the Company granted employees a total of 3,914,215 shares of restricted stock, and options to purchase a total of 2,267,394 shares of common stock, with vesting periods from 24 months to 36 months.  

The Company also grants shares of restricted stock to non-employee Directors.  The Company granted 1,000,002 shares of restricted stock to non-employee Directors in May 2014, which vest after a one- year period.

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Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2014

Financial Instruments and Fair Value Measurements

10. Financial Instruments and Fair Value Measurements

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, trade receivables, inventory, accounts payable, accrued expenses, other long-term liabilities and debt at floating interest rates approximate their fair values at June 30, 2014, principally due to the short-term nature, maturities or nature of interest rates of the above listed items.

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Share-Based Compensation - Additional Information (Details)	6 Months Ended
	Jun. 30, 2014
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock Issued During Period, Shares, Restricted Stock Award, Gross	1,439,707
Stock Issued During Period, Shares, Restricted Stock Award, Gross	3,914,215
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	2,267,394
Non-employee Directors
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	1,000,002
Minimum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	24 months
Maximum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	36 months

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Acquisitions (Tables)

6 Months Ended

Jun. 30, 2014

Schedule of Purchase Consideration Assets Acquired and Liabilities Assumed

The contractual purchase consideration paid and the assets acquired and liabilities assumed are as follows (In thousands):

Cash consideration paid upon First Closing	$	85,000
Cash consideration paid upon Second Closing		85,000
CAMAC Energy Inc. common stock		-
Long-term convertible subordinated note payable - related party		50,000
Total purchase price	$	220,000
Asset acquired and liabilities assumed:
Property, plant and equipment, net	$	248,736
Accounts payable		(25,429	)
Asset retirement obligations		(20,890	)
Net assets acquired		202,417
Consideration in excess of carrying value acquired	$	17,583

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Segment Information - Restated (Tables)

6 Months Ended

Jun. 30, 2014

Schedule of Segment Activity

Segment activity for the three and six months ended June 30, 2014 and 2013 are as follows (In thousands):

	Nigeria			Kenya			The Gambia			Corporate and Other			Total
Three months ended June 30,
2014
Revenues	$	14,940			-			-			-		$	14,940
Operating loss	$	(6,404	)		(83	)		(374	)		(4,410	)	$	(11,271	)
2013
Revenues	$	20,007			-			-			-		$	20,007
Operating loss	$	(6,679	)		(1,011	)		(200	)		(4,034	)	$	(11,924	)
Six months ended June 30,
2014
Revenues	$	34,834			-			-			-		$	34,834
Operating loss	$	(14,309	)		(2,075	)		(642	)		(8,928	)	$	(25,954	)
2013
Revenues	$	42,013			-			-			-		$	42,013
Operating loss	$	(12,222	)		(1,665	)		(436	)		(8,085	)	$	(22,408	)

Total assets by segment are as follows (In thousands):

	Nigeria		Kenya		The Gambia		Corporate and Other		Total
Total Assets
As of June 30, 2014	$	485,944		1,717		2,656		38,700	$	529,017
As of December 31, 2013	$	449,857		1,484		2,025		858	$	454,224

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CONSOLIDATED STATEMENTS OF EQUITY (USD $) In Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Deficit
Balance at Dec. 31, 2013	$ 387,946	$ 382	$ 736,456	$ (348,892)
Common stock issued	270,415	880	269,535
Stock-based employee compensation	1,394		1,394
Net loss	(26,788)			(26,788)
Allied transaction	(220,000)		(220,000)
Allied Transaction adjustments	(13,921)		(13,921)
Balance at Jun. 30, 2014	$ 399,046	$ 1,262	$ 773,464	$ (375,680)

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Property, Plant and Equipment

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment

4. Property, Plant and Equipment

Property, plant and equipment is comprised of the following (In thousands):

	June 30,			December 31,
	2014			2013
Wells and production facilities	$	28,874		$	28,874
Proved properties		386,196			386,196
Work in progress and other		125,912			86,634
Oilfield assets		540,982			501,704
Accumulated depletion		(87,051	)		(74,909	)
Oilfield assets, net		453,931			426,795
Unevaluated leaseholds		8,240			8,240
Oil and gas properties, net		462,171			435,035
Other property and equipment		2,131			1,590
Accumulated depreciation		(1,031	)		(838	)
Other property and equipment, net		1,100			752
Total property, plant and equipment, net	$	463,271		$	435,787

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Company Description - Additional Information (Details)	Jun. 30, 2014 License Country acre
Company description [Abstract]
Area of land held for exploration activities	10
Number of countries company operates in Africa	4
Number of exploration and production licenses	9

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Summary of Related Party Transactions and Balances (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Related Party Transaction [Line Items]
Accounts receivable		$ 1,026,000
Other current assets	624,000	624,000
Accounts payable and accrued expenses	15,520,000	25,721,000
Promissory Note	7,146,000	6,496,000
Convertible subordinate note issued	$ 50,000,000

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Basis of Presentation and Recently Issued Accounting Standards (Policies)

6 Months Ended

Jun. 30, 2014

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned direct and indirect subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All significant intercompany transactions and balances have been eliminated in consolidation. The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations for the indicated periods. All such adjustments are of a normal recurring nature.  This Form 10-Q should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

In February 2014, the Company completed the acquisition of the remaining economic interests that it did not already own in the Production Sharing Contract (“PSC”) covering Oil Mining Leases 120 and 121 (“OMLs 120 and 121”) offshore Nigeria, which include the currently producing Oyo Field (the “Allied Assets”), from Allied (the “Allied Transaction”). Allied is a subsidiary of CEHL, the Company’s majority shareholder, and deemed to be under common control (transactions between subsidiaries of the same parent). Accordingly, the net assets acquired from Allied were recorded at their respective carrying values as of the acquisition date. The financial statements presented for all periods included herein are presented as though the transfer of the Allied assets had occurred at the beginning of the first period presented.

In June 2014, the Company’s management concluded that the Company’s unaudited financial statements included in its quarterly report on Form 10-Q for the first quarter of 2014 contained errors.  These errors were identified in the course of preparing recast historical financial information of the Company to account for the February 2014 acquisition of economic interests in OML 120/121 from Allied as a combination of businesses under common control.  In July 2014, the Company restated its previously filed interim financial statements for the first quarter of 2014.  The revised financial statements for the quarter ended March 31, 2014 include adjustments to reflect (i) an increase in crude oil inventory as of December 31, 2013 and a corresponding increase in production costs for the first quarter of 2014, (ii) an increase in operating costs due to the receipt of additional third-party vendor cost information from Allied and (iii) a reclassification of the adjustments to the net assets of Allied on the unaudited consolidated statement of cash flows.  For further information about the restatement, see our Quarterly Report on Form 10-Q/A for the period ended March 31, 2014, filed with the SEC on July 18, 2014.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance that changes the criteria for reporting discontinued operations including enhanced disclosure requirements. Under the updated guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization´s operations and financial results. The standards update is effective for fiscal years beginning after December 15, 2014. We will adopt this standards update, as required, beginning with the first quarter of 2015. The adoption of this standards update affects presentation only and, as such, is not expected to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers.  The objective of the guidance is to establish principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.  The updated standard is effective for interim and annual periods beginning after December 15, 2016.  We will adopt this standards update, as required, beginning with the first quarter of 2017.  The Company is in the process of evaluating the impact, if any, of this guidance on its consolidated financial statements.

In June 2014, the FASB issued updated guidance around share-based compensation.  The guidance was issued to clarify the accounting treatment for performance based stock awards.  The update states that companies should not record compensation expense related to an award for which transfer to the employee is contingent on the company’s satisfaction of a performance target until it becomes probable that the performance target will be met.  The update does not contain any new disclosure requirements and is effective for interim and annual periods beginning after December 15, 2015.  We will adopt this standards update, as required, beginning with the first quarter of 2016.  The adoption of this standards update is not expected to have a material impact on our consolidated financial statements.