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UNITED STATES ~~SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549~~

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ý		ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2016
or
o		TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

☒ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2017

☐TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-32490

HYPERDYNAMICS CORPORATION ~~(Exact name of registrant as specified in its charter)~~

~~DELAWARE~~ (~~State~~Exact orname ~~other jurisdiction~~ of ~~incorporation~~registrant oras ~~organization)~~specified ~~87-0400335~~in ~~(IRS~~its ~~Employer Identification Number~~charter)

12012 Wickchester Lane, #475 Houston, Texas 77079 (Address of principal executive offices, including zip code)


DELAWARE		87-0400335
(State or other jurisdiction		(IRS Employer
of incorporation or organization)		Identification Number)

~~(713) 353-9400 (Issuer's~~ 12012 ~~telephone~~Wickchester ~~number~~Lane, ~~including area code)~~ #475

~~Securities~~ ~~registered~~ Houston, ~~under~~Texas ~~Section 12(b) of the Exchange Act:~~ 77079

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.001 par value		NYSE

(Address of principal executive offices, including zip code)

~~Indicate~~ by (713) ~~check mark if the registrant is a well~~353-~~known seasoned issuer, as defined in Rule 405 of the Securities~~9400 ~~Act Yes o No ý~~

~~Indicate~~ (Issuer’s bytelephone ~~check~~number, ~~mark~~including ifarea ~~the registrant is not required to file reports pursuant to Section 13 or Section 15(d~~code) ~~of the~~ ~~Act Yes o No ý~~

~~Indicate~~ Securities byregistered ~~check~~pursuant ~~mark whether the registrant (1) has filed all reports required~~ to ~~be filed by~~ Section ~~13 or 15~~12(db) of the ~~Securities Exchange~~ Act: 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 ý No o

~~Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be~~ ~~submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant~~ None ~~was required to submit and post such files). Yes ý No o~~

~~Indicate~~ Securities byregistered ~~check mark if disclosure of delinquent filers~~ pursuant to ~~Item 405~~section of12(g) ~~Regulation S-K is not contained herein, and will not be contained, to the best~~ of the ~~registrant's~~Act: ~~knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this~~ ~~Form 10-K. o~~

~~Indicate~~ Common ~~by check mark whether the registrant is a large accelerated filer~~Stock, an$0.001 ~~accelerated~~par ~~filer,~~value aper ~~non-accelerated filer, or a smaller reporting company.~~ share

~~Large accelerated filer o Accelerated filer o Non-accelerated filer o~~ (DoTitle ~~not~~of ~~check if a smaller reporting company~~class) ~~Smaller reporting company ý~~

~~Indicate~~ Indicate by check mark ~~whether~~if the registrant is a ~~shell~~well-known ~~company~~seasoned (issuer, as defined in Rule ~~12-b-2~~405 of the ~~Exchange~~ Securities Act) ☐ Yes o ☒ No ý

As Indicate ofby ~~December 31,~~check ~~2015,~~mark ~~the~~if ~~aggregate market value of~~ the registrant's ~~common~~is ~~stock~~not ~~held~~required byto ~~non-affiliates~~file ofreports ~~the~~pursuant ~~registrant~~to ~~was~~Section 13 ~~$24,624,511~~or ~~based~~Section 15(d) of on the ~~closing~~ ~~sale~~Act ☐ Yes ☒ ~~price as reported on the OTCQX. We had 21,046,591 shares of common stock outstanding on September 16, 2016.~~ No

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 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 ☐ No

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.


Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)		Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of December 31, 2016, the last business day of the most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $40,793,217 based on the closing sale price as reported on the OTCQX on that date. For purposes of this computation, all executive officers, directors, and persons known to the registrant to be beneficial owners of 10% or more of the registrant’s Common Stock were deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or 10% beneficial owners are, in fact, affiliates of the registrant.

We had 35,572,445 shares of common stock outstanding on November 15, 2017.

DOCUMENTS INCORPORATED BY REFERENCE

~~The~~ ~~information required in Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant's definitive proxy statement, which is due to be~~ None ~~filed within 120 days after the end of the registrant's fiscal year ended June 30, 2016.~~

Table of Contents

TABLE OF CONTENTS

Part I	1	1
Item 1. Business	2	1
Item 1A. Risk Factors	11	10
Item 1B. Unresolved Staff Comments	27	22
Item 2. Properties	27	22
Item 3. Legal Proceedings	27	22
Item 4. Mine Safety Disclosures	28	23
Part II	28	24
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	28	24
Item 6. Selected Financial Data	30	26
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	32	26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	36	30
Item 8. Financial Statements and Supplementary Data	36	31
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	37	32
Item 9A. Controls and Procedures	37	32
Item 9B. Other Information	37	32
PART III	38	33
Item 10. Directors, Executive Officers and Corporate Governance	38	33
Item 11. Executive Compensation	44	33
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	54	33
Item 13. Certain Relationships and Related Transactions, and Director Independence	55	33
Item 14. Principal Accounting Fees and Services	57	33
PART IV	58	34
Item 15. Exhibits, Financial Statement Schedules	58	34
SIGNATURES	64	38

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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This Report contains express or implied forward-looking statements (including, without limitation, in the sections captioned "Business," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere) that are based on our management's belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "should," "could," "expects," "intends," "plans," "anticipates," "future," "believes," "estimates," "predicts," "pro-forma," "potential," "attempt," "develop," "continue" or the negative of these terms or other comparable terminology. Forward-looking statements in this Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the development of our Concession, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), (iv) statements regarding our application to the government of Guinea for a two-year appraisal period for our offshore concession; (v) statements about the completion of the $6,000,000 investment by CLNG Limited (Hong Kong) (“CLNG”); and (vi) the assumptions underlying or relating to any statement described in points (i) through (v) above.

These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. These factors include, without limitation, our ability to raise additional funding as required to execute our exploration and development program, our dependence on a single exploration asset, our lack of proved reserves, our lack of operating revenue, dependence on joint development partners, the high operating risks of developing oil and gas resources, weather conditions and natural disasters, political conditions in the regions in which we operate or propose to operate, fluctuations in prices of oil and natural gas, the threat of terrorism, and general economic conditions. You should read this Report, along with the documents that we reference herein and have filed as exhibits hereto, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Report.

Investors should carefully review the disclosures detailed under "Risk Factors" below and the other information, including our financial statements and notes thereto, set forth in this Report.

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PART I

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Report contains "forward-looking statements" within the meaning of Section 27 A of the Securities Act of 1933, as amended, and Section 21 E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "plan," "project," "anticipate," "estimate," "believe," or "think." Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. We assume no duty to update or revise our forward-looking statements based on changes in plans or expectations or otherwise.

As used herein, references to "Hyperdynamics," "Company," "we," "us," and "our" refer to Hyperdynamics Corporation and our subsidiaries, including SCS Corporation Ltd ("SCS"). The rights in the Concession offshore Guinea are held by SCS.

Item 1. Business

Overview

We are an independent oil and gas exploration company ~~with~~and ~~large~~have ~~prospects~~been the Operator of a concession to explore 5,000 square kilometers of acreage in offshore Republic of Guinea ("Guinea") in Northwest Africa pursuant to rights granted to us by Guinea (the "Concession") under a Hydrocarbon Production Sharing Contract, as amended ("PSC"). The PSC granted to us the right to explore for hydrocarbons on the Concession and, if commercial discoveries are made, submit for the approval of the authorities of Guinea a development plan aimed at producing discovered hydrocarbons over a period of 25 years. We applied for and received a one-year extension to the Exploration Period of the PSC beginning on September 22, 2016. The one-year extension to the Exploration Period expired on September 21, 2017, and our 50% partner, South Atlantic Petroleum Ltd. (“SAPETRO”) elected not to apply for an appraisal period and officially withdrew from the Joint Operating Agreement and the PSC. However, on the basis of a five-meter calculated hydrocarbon pay zone encountered in the Fatala-1 well, we applied for a two-year appraisal period on a 100% basis on September 19, 2017 and we are awaiting the decision of the Government of Guinea on our appraisal application. There can be no assurance that such application will be approved, or if it is, that it will be on terms acceptable to us.

We ~~sold~~ The afollowing ~~23%~~discussion ~~gross~~generally ~~interest~~assumes inthat ~~the~~an ~~Concession~~appraisal toperiod ~~Dana~~on ~~Petroleum, PLC ("Dana"), a subsidiary of~~ the ~~Korean~~Concession ~~National~~is ~~Oil~~granted ~~Corporation,~~by ~~during~~ the ~~fourth~~government ~~quarter~~ of ~~fiscal~~Guinea ~~2010~~on ~~and~~acceptable ~~a 40%~~terms. If ~~gross~~this ~~interest~~does tonot ~~Tullow~~occur, ~~Guinea Ltd. ("Tullow") during~~ the ~~second~~PSC ~~quarter~~will ofhave ~~fiscal~~terminated ~~2013.~~by ~~Tullow~~its ~~became~~terms ~~the~~on ~~Operator~~September of21, ~~the Concession on April 1~~2017, ~~2013. Dana~~ and ~~Tullow~~we ~~transferred their~~will ~~interest~~not ~~back~~have toany usexploration onasset ~~August 15,~~nor ~~2016.~~any Onprospect ~~September 15,~~of ~~2016,~~revenues weor ~~signed~~cash aflows ~~Second~~to ~~Amendment~~cover tocurrent ~~the~~obligations ~~PSC~~and ~~with~~ongoing ~~the~~operating ~~Government~~expenses. On ofNovember ~~Guinea~~14, ~~granting~~2017, uswe ~~100%~~had ~~interest~~$0.7 million in ~~the~~unrestricted ~~Concession~~cash and ~~designating~~ us$9.9 asmillion ~~Operator~~in ~~upon~~current ~~receipt~~liabilities. Absent ofcash ainflows, ~~Presidential~~we ~~Decree.~~will Weexhaust ~~refer~~our tocurrent ~~Tullow,~~available ~~Dana~~liquidity ~~and~~within ~~us in~~ the ~~Concession~~next asthree ~~the "Consortium"~~months.

~~Pursuant~~ to We ~~the~~sold ~~terms~~a ~~Share~~23% ~~Purchase~~gross ~~Agreement~~interest ~~("Tullow~~in ~~SPA")~~the ~~between~~Concession ~~Tullow~~to ~~and~~Dana usPetroleum, ~~Tullow~~PLC ~~paid~~(“Dana”), usa ~~$26 million~~subsidiary inof ~~cash~~the ~~and~~Korean ~~agreed~~National toOil ~~pay~~Corporation, ~~our~~during ~~entire~~the ~~participating~~fourth ~~interest~~quarter ~~share~~ of ~~expenditures~~fiscal ~~associated~~2010 ~~with~~and ~~joint~~a ~~operations~~40% ingross ~~the~~interest ~~Concession~~to upTullow toGuinea aLtd. ~~gross~~(“Tullow”) ~~expenditure~~during ~~cap~~the second quarter of ~~$100 million~~fiscal ~~incurred~~2013. ~~during~~Tullow became the ~~carry~~Operator ~~period~~of ~~that~~the ~~began~~Concession on ~~September~~April 211, 2013. ~~The Consortium~~Dana ~~planned~~and toTullow ~~drill~~transferred ~~the~~their ~~exploration~~interest ~~well~~back into ~~the~~us ~~ultra-deepwater~~on ~~area~~August 15, of2016 ~~the~~following ~~Concession~~a ~~the~~dispute ~~first~~stemming ~~half~~from oftheir ~~calendar~~refusal ~~2014,~~to ~~but~~resume ~~Tullow~~petroleum ~~called~~operations. ~~Force~~As ~~Majeure~~part inof ~~March~~the oflegal ~~2014~~settlement ~~based~~with onTullow, ~~the~~we ~~mere existence~~received oflong-lead ~~Department~~items ofuseful ~~Justice~~in ~~("DOJ")~~the ~~and~~drilling ~~Securities~~of ~~and~~an ~~Exchange~~exploratory ~~Commission~~well, ~~("SEC")~~and ~~investigations~~$0.7 million ~~pursuant~~in tocash, ~~the~~in ~~Foreign Corrupt~~return ~~Practices~~for ~~Act~~a mutual release of ~~the~~all ~~United~~claims. ~~States~~We ~~("FCPA~~also ~~Investigations").~~agreed ~~Tullow~~to ~~withdrew~~pay ~~its~~Dana ~~Force~~a ~~Majeure~~success ~~declaration~~fee inwhich ~~May~~is ofbased ~~2014~~upon $50,000 ~~but~~per ~~did~~million ~~not~~barrels ~~resume~~upon ~~petroleum~~declaration ~~operations~~of ~~citing~~ the ~~existence~~certified commercial reserves of the ~~FCPA~~ ~~Investigations~~Fatala-1 ~~and~~well, ~~the~~if ~~Ebola~~it ~~outbreak~~results asin ~~the~~a ~~reason~~discovery. ~~The~~On ~~DOJ~~September 15, ~~investigation~~2016, ~~ended~~we insigned ~~May~~a ~~2015,~~Second Amendment to the ~~SEC~~PSC ~~investigation~~with ~~ended~~the inGovernment ~~September~~of ~~2015,~~Guinea ~~and~~granting ~~the~~us ~~World~~100% ~~Health~~interest ~~Organization~~in ~~declared~~the ~~Guinea Ebola~~Concession ~~free~~and ondesignating ~~December 29,~~us ~~2015.~~as ~~Notwithstanding~~Operator ~~the~~and ~~resolution~~received ofa ~~the~~Presidential ~~FCPA~~Decree ~~Investigations~~on September 22, ~~Dana~~2016. ~~insisted~~On onMarch 30, ~~further~~2017, ~~specific~~we ~~title~~sold ~~assurances~~a ~~from~~50% interest in the ~~Government~~Concession ofto ~~Guinea.~~SAPETRO Atand executed a ~~Petroleum Operations~~Third ~~Management~~Amendment ~~Committee~~to ~~meeting~~the PSC with the Government of Guinea ~~in Conakry~~ on ~~December~~April ~~16 and 17~~12, ~~2015,~~2017. ~~Tullow~~We ~~and~~received ~~SCS obtained~~ a ~~PSC~~Presidential ~~Amendment~~Decree ~~that~~on weApril 21, ~~believed provided such further assurances~~2017. As ~~Instead~~required ofby ~~signing~~this ~~the~~Presidential ~~PSC~~Decree, ~~Amendment~~we ~~both~~commenced ~~Tullow~~drilling ~~and~~operations ~~Dana~~upon ~~refused to execute~~ the ~~agreement.~~Pacific ~~Unable~~Scirocco todrillship ~~see~~entering aGuinean ~~path~~continental ~~forward~~shelf waters, weand ~~filed~~subsequent ~~legal~~to ~~actions~~that, ~~against~~spudded ~~Tullow~~the ~~and~~Fatala-1 ~~Dana~~well ~~under~~on ~~our Joint Operating Agreement. On~~ August 15 11, ~~2016~~2017, wefor ~~entered~~which ~~into~~drilling aoperations ~~Settlement~~were ~~and~~completed ~~Release~~on September 8, 2017.

1 In addition to clarifying certain elements of the PSC, we agreed in the Second PSC Amendment to drill one exploratory well to a minimum depth of 2,500 meters below the seabed (the “Extension Well”) within a one-year extension to the second exploration period (the “PSC Extension Period”) with the option of drilling additional wells. Upon testing the three objectives in the Fatala well by reaching a depth of 2,229 meters, below the seabed, Guinea agreed that the work obligation had been fulfilled. We also documented to the National Office of Petroleum of Guinea (“ONAP”), our expenditures on the well, which exceeded the $46 million expenditure obligation during the PSC Extension Period.

~~Table~~ The Farmout Agreement was completed between the SCS and SAPETRO on June 2, 2017. Pursuant to the terms of ~~Contents~~the Farmout Agreement, SCS assigned and transferred to SAPETRO 50% of its 100% gross participating interest in the PSC and executed a Joint Operating Agreement (“JOA”). Upon closing, SAPETRO (i) reimbursed SCS its proportional share of past costs associated with the preparations for the drilling of the Fatala-1 well which amounted to $4.4 million, and (ii) pay its participating interest's share of future costs in the Concession.

~~Agreement~~ with Tullow and Dana ("Settlement Agreement"), as more fully described in Note 10 "Subsequent Events" in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, that gave us 100% of the interest under the PSC, property useful in the drilling of an exploratory well, and cash, in return for a mutual release of all claims. On ~~August~~June 195, ~~2016,~~ we signed a non-binding Memorandum of Understanding with the Government of Guinea and executed a Second Amendment to the PSC ("2016 Amendment") on September 15, 2016. As more fully described below, upon receipt of a Presidential Decree, the 2016 Amendment will give us a one year extension to the second exploration period of the PSC to September 22, 2017 ~~("PSC Extension Period"). In addition to clarifying certain elements of the PSC~~, weSCS ~~agreed~~received ~~in the 2016 Amendment to drill one (~~$4.1) ~~exploratory~~million ~~well~~from toSAPETRO ain ~~minimum~~accordance ~~depth of 2,500 meters below the seabed within the PSC Extension Period~~ with a ~~projected~~Preliminary ~~commencement~~Closing ~~date~~Statement ofdelivered ~~April~~by ~~2017~~SCS, ~~(the~~thus ~~"Extension~~completing ~~Well")~~closing ~~with the option~~ of ~~drilling additional wells. If~~ the ~~Extension~~Farm-out ~~Well~~Agreement isand ~~not drilled within~~ the ~~PSC~~assignment ~~Extension Period, we will owe the Government of Guinea the difference between the actual expenditures in Guinea related~~ to ~~the~~SAPETRO ~~well and $46,000,000. Fulfillment~~ of the ~~work~~50% ~~obligation exempts us from the expenditure obligations during the PSC Extension Period.~~

In turn, we will retain an area equivalent to approximately 5,000 square kilometers in the Guinea offshore and will provide the Government of Guinea: (1) A parent company guarantee for the Extension Well, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis may result in a notice of termination with a 30 day period to cure), and (3) guarantees to Guinea that (a) no later than January 21, 2017, we will provide a mutually acceptable security for $5,000,000 on terms customary in international petroleum operations, provided that this security is to be released at the time the drilling rig for the Extension Well is on location offshore Guinea, and (b) no later than April 12, 2017, we will deliver a mutually acceptable security for the difference between $46,000,000 and the amount spent to date on the Extension Well. For the purposes of calculation for this clause, however, only costs spent for services and goods provided in Guinea shall be taken into account until the drilling rig to be used in the drilling of the Extension Well is located in the territorial waters of the Republic of Guinea. If we do not provide either security by the specified dates, the Government of Guinea may terminate the PSC immediately and without prior notice to remedy such deficiency.

Additionally, we agreed to limit the cost recovery pool to date to our share of expenditures in the PSC since 2009 (estimated to be approximately $150,000,000) and move into the territory of Guinea the long lead items we received in the Settlement Agreement that are currently in Takoradi, Ghana for the drilling of the Extension Well by January 31, 2017. Finally, we agreed to allocate and administer a training budget during the PSC Extension Period for the benefit of the Guinea National Petroleum Office of $250,000 in addition to any unused portion of the training program under Article 10.3 of the PSC, estimated to be approximately $500,000.

Failure to comply with the drilling and other obligations of the PSC as amended subjects us to financial penalties and a risk of loss of the Concession. The continued delays have affected adversely the ability to explore the Concession and reduces the attractiveness of the Concession to prospective industry participants and financing sources. While we currently hold 100% of the Concession, it is unknown whether we will be able to raise the necessary funds to drill the Extension Well during the PSC Extension Period.

Since the grant of the Concession, we have conducted 2-dimensional ("2D") and 3-dimensional ("3D") seismic surveys over a portion of the Concession and drilled one non-commercial well completed in February of 2012. The most recent 3D seismic survey covering approximately 4,000 square kilometers in the deeper water portion of the Concession was completed and processed.

As of March 31, 2016, based on our impairment assessment, we fully impaired the $14,331,000 of unproved oil and gas properties. This impairment assessment was based on the inability to resume

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~~petroleum~~ participating interest in the PSC, the parties executed the Joint Operating Agreement in the form attached to the Farm-out Agreement, governing the conduct of operations, and ~~drill~~Hyperdynamics ~~the~~executed ~~next~~a ~~exploration~~parent ~~obligation~~guaranty ~~well~~of SCS's obligations as required by the ~~PSC~~Farm-out Agreement. ~~Despite~~On ~~this~~June 12, ~~impairment~~2017, we ~~continued~~delivered to ~~pursue~~SAPETRO ~~opportunities~~a inFinal ~~order~~Adjustment toStatement ~~begin~~with ~~drilling~~the ~~activities~~final incalculation ~~our Concession.~~of ~~Our~~past ~~Settlement~~costs ~~and~~incurred ~~Release~~by ~~with~~SCS ~~Tullow~~in ~~and~~the ~~Dana,~~amount ~~coupled~~of ~~with~~$0.7 ~~the~~million. ~~one~~After ~~(1) year~~final ~~extension~~review todone ~~the~~by ~~PSC~~SAPETRO ~~provided~~the usFinal ~~the~~Adjustment ~~best~~Statement ~~chance~~was submitted to ~~drill~~SAPETRO, ~~the~~under ~~Extension~~which ~~Well~~SAPETRO ~~during~~paid ~~the~~to ~~PSC~~SCS ~~Extension Period~~$0.3 million.

~~Our~~ ~~primary~~ On ~~focus~~July 12, is2017, ~~the~~we ~~advancement~~obtained ofa ~~exploration~~letter ~~work~~from inthe ~~Guinea.~~Director WeGeneral ~~have no source~~ of ~~operating~~the ~~revenue,~~National ~~and~~Office ~~there~~of isPetroleum noof ~~assurance~~Guinea ~~when~~stating wethat ~~will,~~in ifthe ~~ever.~~event Weof ~~have~~an nooil ~~operating~~discovery ~~cash flows,~~at ~~and~~the weend ~~will~~of ~~require~~the ~~substantial~~drilling ~~additional~~of ~~funds,~~the ~~through~~Fatala-1 ~~additional participation arrangements~~well, ~~securities~~the ~~offerings,~~government orwould ~~through~~have ~~other~~no ~~means,~~objection to ~~fulfill~~granting ~~our~~an ~~business plans. If we farm-out~~ additional ~~interests~~period ~~in the Concession, our percentage will decrease. The terms~~ of ~~any~~two ~~such~~years ~~arrangements,~~to ifenable ~~made,~~us ~~may~~to ~~not~~carry beout ~~advantageous. Our need for additional funding may also be affected by~~ the ~~uncertainties~~ ~~involved~~work ~~with resumption~~ of ~~petroleum~~appraisal ~~operations~~on ~~and~~ the ~~planned exploratory well, and other risks discussed in Item 1A~~Concession.

~~Our~~ ~~executive~~ We ~~offices~~spudded ~~are~~the ~~located~~Fatala-1 atwell ~~12012~~in ~~Wickchester~~a ~~Lane~~water depth of 2,897 ~~Suite~~meters on August ~~475~~11, ~~Houston~~2017 and completed the well at a depth of 5,116 ~~Texas~~meters ~~77079~~below sea level on September 8, ~~and~~2017. ~~our~~We ~~telephone~~did ~~number~~not isencounter ~~(713) 353~~oil in the main zone of the well, but based on subsequent interpretation of the data, we calculated that we encountered a five-~~9400~~meter hydrocarbon pay zone, which we believe is a petroleum discovery that implies the presence of commercially exploitable resources. The Fatala-1 well was plugged and abandoned.

On September 19, 2017, SAPETRO notified us that it did not wish to participate in the application for the two-year appraisal program and subsequently withdrew from the JOA and the PSC on September 20, 2017.

We applied for an appraisal period on a 100% basis on September 19, 2017, in accordance with our PSC, which provides that in case there is a petroleum discovery during the Extension Period and there is insufficient time to carry out the appraisal works of said discovery, an appropriate representative of the Government of Guinea has the authority to grant an extension for two additional years.

We are awaiting the decision of the Government of Guinea on our appraisal application.

On October 8, 2017, we agreed to a settlement of all of SAPETRO’s remaining obligations under the PSC and JOA for a payment to us of $4,924,000.

Our primary focus is the advancement of exploration work in Guinea. We have not received any confirmation that our application for an appraisal program will be granted and are not certain if it ever will. We have no source of operating revenue, and there is no assurance when we will, if ever. We have no operating cash flows, and we will require substantial additional funds, through participation arrangements (if the appraisal period is granted), securities offerings, or through other means, to fulfill our business plans. If the appraisal period is granted and we farm-out interests in the Concession, our percentage interest will decrease. The terms of any such arrangements may not be advantageous. Our need for additional funding may also be affected by the uncertainties related to petroleum operations and the planned exploratory well, and other risks discussed under "Risk Factors" below.

Our executive offices are located at 12012 Wickchester Lane, Suite 475, Houston, Texas 77079, and our telephone number is +1-713-353-9400.

Stock Purchase Agreement with CLNG

On November 2, 2017, we executed an agreement to issue and sell 40 million shares of our common stock at a price of $0.15 per share (for a total purchase price of $6,000,000) to CLNG or its affiliate (the “Buyer”). CLNG is a private investment company involved in global energy and mineral projects. The closing of the sale is subject to (i) the completion of satisfactory due diligence by each party of the other, (ii) waiver by holders of our Series A Convertible Preferred Stock of their right of first refusal, (iii) negotiation of reductions in our outstanding current liabilities satisfactory to CLNG, and (iv) satisfaction of other customary closing conditions. The form of the stock purchase agreement with CLNG is filed as an Exhibit with this Form 10-K. If this purchase is completed, CLNG will own approximately 53% of our outstanding common stock.

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The Buyer agreed to place the $6,000,000 purchase price in escrow by November 9, 2017, but as of the date of this Report, that has not occurred. We agreed with the Buyer to delay depositing the funds in escrow until preliminary due diligence is concluded by both parties.

If the transaction closes, CLNG has informed us that it intends, as majority stockholder, to expand the Board of Directors to seven members and to appoint four directors who will form a majority of Hyperdynamics’ board of directors. The stock purchase agreement provides that Ray Leonard will remain President, Chief Executive Officer and a director of the Company, and Jason Davis will remain Chief Financial Officer, subject to the discretion of the board and resolutions of the stockholders. There can be no assurance that our due diligence of the Buyer will be acceptable to us, that the Buyer’s due diligence of us will be acceptable to the Buyer, that all holders of our Series A Convertible Preferred Stock will waive their right of first refusal, that we will successfully negotiate reductions in our outstanding current liabilities satisfactory to CLNG, or, even if these conditions are satisfied, that the stock purchase agreement will close.

We have agreed to indemnify the Buyer and its stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives against all actions, claims, losses, costs and damages, and expenses in connection therewith incurred by any indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by us in the stock purchase agreement and other agreements entered into by the parties in connection therewith (“Transaction Documents”) or any other certificate or document contemplated thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate or document contemplated thereby or (c) any cause of action, suit or claim brought or made against an indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the shares of common stock to the Buyer, or (iii) the status of the Buyer or holder of the common shares as an investor in the Company.

The Company intends to use the net proceeds of the stock purchase agreement to pay outstanding obligations.

CLNG has had no prior business relationship with the Company and, to the Company's knowledge, does not currently own any of the Company's securities.

See Item 1A, “Risk Factors—We have entered into an agreement to raise $6,000,000 through the sale of 40,000,000 shares of our common stock, but there can be no assurance that this financing will be completed,” —If the stock purchase agreement with CLNG closes, you will experience immediate and substantial dilution of your ownership interest, and our stock price could be negatively impacted,” and “—If the stock purchase agreement with CLNG closes, CLNG or its affiliate will own a majority of our outstanding voting stock and will have effective control of the Company and could preclude other stockholders from influencing significant corporate decisions” for a discussion of certain risks associated with the proposed sale of shares to CLNG or its affiliate.

OPERATIONS OFFSHORE GUINEA

The PSC

We have been conducting exploration work related to offshore Guinea since 2002. On September 22, 2006, we entered into the PSC with Guinea. Under that agreement, we were granted certain exclusive contractual rights to explore and exploit offshore oil and gas reserves, if any, off the coast of Guinea. We refer to the rights to the offshore area subject to the Concession as the "Contract Area."

On On March 25, 2010, we entered into ~~Amendment No. 1 to~~ the First PSC Amendment with Guinea ~~(the "PSC Amendment")~~. In May 2010, the government of Guinea issued a Presidential Decree approving the PSC, as amended by the First PSC Amendment. The First PSC Amendment clarified that we retained a Contract Area of approximately 25,000 square kilometers or 30% of the original Contract Area under the PSC. The First PSC Amendment required that an additional 25% of the retained Contract Area be relinquished by September 21, 2013 as part of the renewal of the second exploration period. As of June 30, 2016, the Contract Area was 18,750 square kilometers. Under the terms of the PSC Amendment, the first exploration period ended and the second exploration period began on September 21, 2010. The second exploration period ran until September 2013, at which point it was renewed to September 2016.

The PSC Amendment required the drilling of an exploration well, which had to be commenced by year-end 2011 and drilled to a minimum depth of 2,500 meters below seabed. This requirement was satisfied with the drilling of the Sabu-1 well which was commenced during October of 2011 and reached the minimum depth of 2,500 meters below the seabed in February of 2012. It also required the acquisition of at least 2,000 square kilometers of 3D seismic data which was satisfied by the 3,600 square kilometer seismic acquisition in 2010-2011. To satisfy the September 2013-2016 work requirement, the Consortium is required to commence drilling of an additional exploration well by the end of September 2016, to a minimum depth of 2,500 meters below seabed. The PSC Amendment required the expenditure of $15 million on each of the exploration wells ($30 million in the aggregate). Greater than $15 million was spent on the first exploration well. Fulfillment of work obligations exempted us from expenditure obligations and exploration work in excess of minimum work obligations for each exploration period may be carried forward to the following exploration period. We spent approximately $200 million fulfilling work obligations under the PSC through fiscal 2016.

Under the PSC Amendment, Guinea may participate in development of any discovery at a participating interest of up to 15% of costs being carried for its share. The cost of that carry is to be

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recovered out of 62.5% of Guinea's share of cost and profit oil. The PSC Amendment clarified that only those eligible expenditures, which were made following the date the PSC was signed, on September 22, 2006, are eligible for cost recovery. It required the establishment of an annual training budget of $200,000 for the benefit of Guinea's oil industry personnel, and obligated the Consortium to pay an annual surface tax of $2.00 per square kilometer on the retained Concession acreage. The PSC Amendment further provides that should the Guinea government note material differences between provisions of the PSC Amendment and international standards or the Petroleum Code, the parties will renegotiate the relevant articles. Additional information on terms under the PSC are included in Note 3 "Investment in Oil and Gas Properties—Guinea Concession" in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

On September 15, 2016, we executed the 2016 Amendment where we received a one (1) year extension to the second exploration period of the PSC to September 22, 2017 and confirmed that we are the holder of 100% interest in the Concession following the official withdrawal by Tullow and Dana on August 15, 2016. The 2016 Amendment is effective upon the receipt of a Presidential Decree.

Per the terms of the 2016 Amendment, we agreed to drill one (1) exploratory well to a minimum depth of 2,500 meters below the seabed within the PSC Extension Period with a projected commencement date of April 2017 and the option of drilling additional wells. If the Extension Well is not drilled within the PSC Extension Period, we will owe the Government of Guinea the difference between the actual expenditures in Guinea related to the well and $46,000,000. Fulfillment of the drilling obligation exempts us from the expenditure obligations during the PSC Extension Period.

In turn, we will retain an area equivalent to approximately 5,000 square kilometers in the Guinea offshore, agreed to limit the past cost recoverable expenses to those costs directly incurred by SCS through the execution of the 2016 Amendment, and agreed to move into the territory of Guinea the long lead items we received in the Settlement Agreement that are currently in Takoradi, Ghana for the drilling of the Extension Well by January 31, 2017.

We will provide the Government of Guinea: (1) A parent company guarantee for the well obligation, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis may result in a notice of termination with a 30 day period to cure), and (3) guarantees to Guinea that (a) no later than January 21, 2017 we will provide a mutually acceptable security for $5,000,000 on terms customary in international petroleum operations, provided that this security is to be released at the time the drilling rig for the Extension Well is on location offshore Guinea, and (b) no later than April 12, 2017, we will deliver a mutually acceptable security for the difference between $46,000,000 and the amount spent to date on the Extension Well. For the purposes of calculation for this clause, however, only costs spent for services and goods provided in Guinea will be taken into account until the drilling rig to be used in the drilling of the Extension Well is located in the territorial waters of the Republic of Guinea. If we do not provide either security by the specified dates, the Government of Guinea may terminate the PSC immediately and without prior notice to remedy such deficiency.

We agreed to allocate up to a maximum total budget of $120,000 for the actual travel and operating expenses incurred by Guinea for its participation in the management and administration of the Concession, subject to our review of receipts and limited to reimbursement of actual costs. Further, during the PSC Extension Period, the approved training budget for Guinean personnel was increased from $200,000 to $250,000. This amount is in addition to the unused portion of the training budget to date, subject to an audit of Tullow's expenditures on the training budget during its tenure as Operator, estimated to be approximately $500,000. Finally, we agreed that we would make available for the benefit of Guinea a virtual data room containing all seismic data in our possession relating to relinquished areas. We would not be agents of or work on behalf of Guinea, but will provide, at the

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~~request of~~Contract ~~Guinea~~Area ~~during~~was 18,750 square kilometers. Under the ~~PSC~~terms ~~Extension~~of ~~Period~~the First PSC Amendment, ~~access~~the tofirst exploration period ended and the ~~virtual~~second ~~data~~exploration ~~room~~period tobegan ~~interested~~on ~~third~~September 21, ~~parties~~2010. The second exploration period ran until September 2013, at which point it was renewed to September 2016.

~~Sale~~ The First PSC Amendment required the drilling of ~~Interest~~an exploration well, which had to ~~Dana~~ be commenced by year-end 2011 and drilled to a minimum depth of 2,500 meters below seabed. This requirement was satisfied with the drilling of the Sabu-1 well which was commenced during October of 2011 and reached the minimum depth of 2,500 meters below the seabed in February of 2012. It also required the acquisition of at least 2,000-square kilometers of 3D seismic data which was satisfied by the 3,600-square kilometer seismic acquisition in 2010-2011. To satisfy the September 2013-2016 work requirement, the Consortium is required to commence drilling of an additional exploration well by the end of September 2016, to a minimum depth of 2,500 meters below seabed. We spent approximately $200 million fulfilling work obligations under the PSC through fiscal 2016.

On Under ~~December 4,~~the ~~2009~~First PSC Amendment, weGuinea ~~entered~~may ~~into~~participate ain ~~Sale~~development ~~and~~of ~~Purchase~~any ~~Agreement~~discovery ~~("Dana~~at ~~SPA")~~a ~~with~~participating ~~Dana~~interest ~~for~~of ~~Dana~~up to ~~acquire a 23~~15% ~~gross interest~~of incosts ~~the~~being ~~PSC.~~carried Onfor ~~January 28,~~its ~~2010,~~share. weThe ~~closed~~cost onof ~~the~~that ~~transaction~~carry ~~with~~is ~~Dana,~~to ~~and~~be werecovered ~~entered~~out ~~into~~of an62.5% ~~Assignment~~ of ~~Participating~~Guinea's ~~Interest~~share ~~(the "Assignment"), a Deed~~ of ~~Assignment~~cost and ~~JOA~~profit oil. ~~Pursuant~~ It toalso required the ~~Assignment,~~establishment weof ~~assigned to Dana~~ an ~~undivided~~annual ~~23%~~training ofbudget ~~our~~for ~~participating~~the ~~interest~~benefit inof ~~the~~Guinea's ~~contractual~~oil ~~interests,~~industry ~~rights~~personnel, ~~obligations~~ and ~~duties~~obligated ~~under~~ the ~~PSC.~~Consortium .to Onpay ~~May 20,~~an ~~2010,~~annual ~~we completed~~surface ~~the~~tax ~~assignment~~of to$2.00 ~~Dana~~per ~~following~~square ~~the~~kilometer ~~receipt~~on of the ~~final~~retained ~~approvals~~Concession ~~from~~acreage. ~~the~~The ~~Government~~First ofPSC ~~Guinea,~~Amendment ~~which~~further ~~were~~provided inthat ~~the~~should ~~form of a Presidential Decree approving~~ the ~~PSC~~Guinea ~~and~~government anote ~~document,~~material ~~referred to~~differences asbetween anprovisions ~~Arrêté,~~of ~~from~~ the ~~Guinea~~First ~~Ministry~~PSC ofAmendment ~~Mines~~ and ~~Geology,~~ ~~confirming~~international ~~the~~standards ~~Guinea~~or ~~government's~~the ~~approval~~Petroleum ofCode, the ~~assignment~~parties ofwill arenegotiate ~~23% participating interest in~~ the ~~PSC~~relevant ~~to Dana~~articles.

~~Sale~~ On September 15, 2016, we executed the Second PSC Amendment in which we received a one (1) year extension to the second exploration period of ~~Interest~~the PSC to September 21, 2017 and confirmed that we were the holder of a 100% interest in the Concession following the official withdrawal by Tullow and Dana on August 15, 2016. The Second PSC Amendment became effective upon the receipt of a Presidential Decree on September 22, 2016.

On We ~~December 31,~~executed ~~2012, we closed~~ a ~~sale~~Second Amendment to ~~Tullow of a 40% gross interest in~~ the ~~Concession.~~PSC As("Second ~~consideration,~~PSC weAmendment") ~~received $27 million~~on ~~from Tullow as reimbursement of our past costs in the Concession and~~September 15, ~~as additional consideration~~2016, ~~Tullow~~and ~~agreed~~received ~~to: (i) pay our entire participating interest share of future costs associated with joint operations in the Concession, up to~~ a ~~gross~~Presidential ~~expenditure~~Decree ~~cap of $100 million incurred during the carry period that began~~ on September 2122, ~~2013;~~2016 ~~and (ii) pay~~that ~~our~~gave ~~participating~~us ~~interest~~a ~~share~~one-year ofextension ~~costs~~to ~~associated~~the ~~with~~second anexploration ~~appraisal~~period ~~well~~ of the ~~initial~~PSC ~~exploration well, if drilled, subject~~ to ~~a gross expenditure cap on the appraisal well of $100~~September ~~million The $27 million payment was received by us on December 31~~22, ~~2012~~2017 ~~and~~("PSC ~~was~~Extension ~~recorded~~Period") ~~as a reduction in unproved oil~~ and ~~gas~~became ~~properties,~~the ~~net~~designated ofOperator ~~transaction costs~~ of ~~approximately~~ ~~$3.3 million.~~the Concession.

~~The~~ ~~Assignment~~ In ~~was~~addition ~~approved~~to byclarifying ~~Guinea's~~certain ~~Ministry~~elements of ~~Mines~~the ~~and~~PSC, ~~Geology~~we byagreed ~~issuing~~in anthe ~~Arrêté~~Second onPSC ~~December 27,~~Amendment ~~2012~~to ~~which~~drill ~~formally~~one ~~authorized~~exploratory ~~our assignment~~well ofto a ~~participating~~minimum ~~interest~~depth toof ~~Tullow. SCS~~2,500 ~~Dana~~meters ~~and~~below ~~Tullow~~the ~~elected~~seabed ~~Tullow~~within asthe PSC Extension Period (the ~~Operator~~"Extension Well") with a projected commencement date of May 2017 and the ~~Concession~~option ~~beginning~~of ~~April 1,~~drilling ~~2013~~additional wells. Fulfillment of the work obligations exempts us from the expenditure obligations during the PSC Extension Period.

~~Settlement~~ In turn, we retained an area equivalent to approximately 5,000 square kilometers in the Guinea offshore waters and were obliged to provide the Government of ~~Claims~~Guinea: (1) A parent company guarantee for the well obligation, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis could result in a notice of termination with ~~Tullow~~a 30-day period to cure), and ~~Dana~~ (3) certain guarantees to Guinea.

~~On August 15, 2016, we entered into a Settlement and Release Agreement ("Settlement and Release") with Tullow and Dana with~~ ~~respect~~ For tothe ~~our~~purposes ~~dispute~~of incalculation ~~arbitration~~for ~~(American~~this ~~Arbitration~~clause ~~Association, Case No: 01-16-0000-0679, styled SCS Corporation Ltd v. Tullow Guinea Ltd. and Dana Petroleum~~ (~~E&P)~~Article ~~Ltd.).~~4 ~~Under~~of the ~~Settlement~~PSC), ~~and Release~~however, weonly ~~released~~costs ~~all~~spent ~~claims~~for ~~against~~services ~~Tullow~~ and ~~Dana~~goods ~~and~~provided ~~(i) issued~~in ~~to the Government of~~ Guinea awere ~~notice~~to ~~of withdrawal~~be ~~from~~taken ~~the~~into ~~Concession~~account ~~and~~until ~~PSC effective immediately, (ii) Tullow and Dana transferred their interest in~~ the ~~long~~drilling ~~lead~~rig ~~items~~to ~~previously~~be ~~purchased~~used ~~by the Consortium~~ in ~~preparation for~~ the drilling of the ~~Fatala~~Extension ~~well,~~Well ~~and~~is ~~agreed~~located toin ~~pay~~the ~~net~~territorial ~~cash~~waters of ~~$686,570 to us. We also agreed to pay Dana a success fee based upon~~ the ~~certified~~Republic ~~reserves~~ of ~~the Fatala well if it results in a discovery~~Guinea. ~~We will record the long lead items and a gain once they have been inspected and appropriately valued.~~

~~Exploration~~ Additionally, ~~Strategies~~we agreed to limit the cost recovery pool to that date to our share of expenditures in the PSC since 2009 (estimated to be approximately $165,000,000 net to our interest). Finally, we agreed to allocate and ~~Work~~administer a training budget during the PSC Extension Period for the benefit of the Guinea National Petroleum Office of $250,000 in addition to ~~Date~~ any unused portion of the training program under Article 10.3 of the PSC. The unused portion of the training program is now estimated to be approximately $221,000.

~~Our~~ We ~~business~~also ~~plan~~agreed ~~incorporates~~to allocate up to a ~~multi-channel~~maximum ~~approach~~total tobudget ~~exploring~~of $120,000 for the actual travel and ~~developing~~operating ~~our~~expenses ~~Contract~~incurred ~~Area~~by ~~under~~Guinea for its participation in the ~~PSC.~~management Weand ~~plan~~administration ~~to continue~~of the Concession, subject to ~~develop~~our review of receipts and ~~evaluate~~limited ~~drilling~~to ~~targets~~reimbursement ~~and~~of ~~complete~~actual ~~technical~~costs. ~~work~~The ~~and~~unused ~~planning~~portion ~~with~~of ~~Tullow~~this ~~and~~budget ~~Dana.~~is now estimated to be $22,000.

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Finally, we agreed that we would make available for the benefit of Guinea a virtual data room containing all seismic data in our possession relating to relinquished areas. We would not be agents of or work on behalf of Guinea, but would provide, at the request of Guinea during the PSC Extension Period, access to the virtual data room to interested third parties.

On March 30, 2017, we entered into the Farm-out Agreement with SAPETRO. On April 12, 2017 SCS, SAPETRO and Guinea executed a Third Amendment to the PSC (the "Third PSC Amendment") that was subject to the receipt of a Presidential Decree and the closing of the Farm-out Agreement. The Presidential Decree was signed on April 21, 2017 approving the assignment of 50% of SCS' participating interest in the Guinea concession to SAPETRO, and confirmed the two companies' rights to explore for oil and gas on our 5,000-square-kilometer Concession offshore the Republic of Guinea. The contract required that drilling operations in relation to the obligation well Fatala-1 (the "Extension Well") were to begin no later than May 30, 2017 and provided that additional exploration wells may be drilled within the exploration period at the companies' option.

The Third PSC Amendment further reaffirmed clear title of SAPETRO and SCS to the Concession as well as amended the security instrument requirements under the PSC. SCS and SAPETRO agreed to joint and several liability to the Government of Guinea in respect to the PSC.

SAPETRO and SCS further agreed that if SCS were unable to pay its share of any Fatala-1 well costs, SAPETRO could elect to pay for a portion of SCS's Fatala-1 well costs such amount so long as SCS is not in default of either the PSC or the Farmout Agreement. In case SAPETRO had made such payments for a share of SCS's costs of, SCS would have been obligated to assign to SAPETRO a 2% participating interest in the Concession for each $1 million of SCS's costs paid by SAPETRO.

On May 21, 2017, drilling operations commenced upon the Pacific Scirocco drillship entering Guinean continental shelf waters.

The Farmout Agreement was completed between the SCS and SAPETRO on June 2, 2017. Pursuant to the terms of the Farmout Agreement, SCS assigned and transferred to SAPETRO 50% of its 100% gross participating interest in the PSC and executed a Joint Operating Agreement. Upon closing, SAPETRO (i) reimbursed SCS its proportional share of past costs associated with the preparations for the drilling of the Fatala-1 well which amounted to $4.4 million, and (ii) agreed to pay its participating interest's share of future costs in the Concession.

On June 5, 2017, SCS received $4.1 million from SAPETRO in accordance with a Preliminary Closing Statement delivered by SCS, thus completing closing of the Farm-out Agreement and the assignment to SAPETRO of the 50% participating interest in the PSC, the parties executed a Joint Operating Agreement governing the conduct of operations, and Hyperdynamics executed a parent guaranty of SCS's obligations as required by the Farm-out Agreement. On June 12, 2017, we delivered to SAPETRO a Final Adjustment Statement with the final calculation of past costs incurred by SCS in the amount of $0.7 million. After final review done by SAPETRO the Final Adjustment Statement was submitted to SAPETRO, under which SAPETRO paid to SCS $0.3 million.

On July 12, 2017, we obtained a letter from the Director General of the National Office of Petroleum of Guinea stating that in the event of an oil discovery at the end of the drilling of the Fatala-1 well, the government would have no objection to granting an additional period of two years to enable us to carry out the work of appraisal on the Concession.

On August 11, 2017, the actual drilling of the Fatala well commenced. The well was completed on September 8, 2017, at a depth of 5,116 meters below sea level. No oil shows were encountered during the drilling and the prime objective was apparently filled with silt and clay rather than reservoir quality sand and the Fatala-1 well was plugged and abandoned.

However, following detailed evaluation of the well results regarding the oil saturation calculation — plus our internal review and the log analysis conducted by eSeis, an independent geophysical and petrophysical consultant — , we have identified a section in our secondary objective, an upper Cenomanian channel (Cenomanian 03) located above the primary target formation that contained a five-meter interval with 17% porosity and 61% hydrocarbon saturation, which we believe is a petroleum discovery that implies the presence of commercially exploitable resources. On the basis of this

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discovery, on September 19, 2017, we applied to the government of Guinea for a two-year appraisal program of the Concession pursuant to Article 3.7 of our PSC on a 100% basis following SAPETRO’s vote by notice not to participate in the appraisal application. SAPETRO formally exited from the JOA and the PSC on September 20, 2017.

We are awaiting the decision of the Government of Guinea on our appraisal application. There can be no assurance that such application will be approved, or if it is, that it will be on terms acceptable to us. If the Government of Guinea does not approve our appraisal period application, the PSC will have terminated by its terms on September 21, 2017.

Settlement of Claims with Tullow and Dana

On August 15, 2016, we entered into a Settlement and Release Agreement (“Settlement and Release”) with Tullow and Dana with respect to our dispute in arbitration (American Arbitration Association, Case No: 01-16-0000-0679, styled SCS Corporation Ltd v. Tullow Guinea Ltd. and Dana Petroleum (E&P) Ltd.). Under the Settlement and Release, we released all claims against Tullow and Dana and (i) issued to the Government of Guinea a notice of withdrawal from the Concession and PSC effective immediately, (ii) Tullow and Dana transferred their interest in the long lead items previously purchased by the Consortium in preparation for the drilling of the Fatala well, and agreed to pay net cash of $686,570 to us. We also agreed to pay Dana a success fee which was based upon $50,000 per million barrels upon declaration of the certified commercial reserves of the Fatala-1 well, if it resulted in a commercial discovery. We recorded the long lead items and a gain once they had been inspected and appropriately valued.

Exploration Strategies and Work to Date

Our business plan incorporates a multi-channel approach to exploring and developing our Contract Area under the PSC. We plan to continue to develop and evaluate drilling targets and complete technical work.

From the inception of our involvement in Guinea beginning in 2002 through June 2009, we accomplished exploration work, including:

a 1,000 kilometer 2D seismic data shoot, the processing of the seismic data acquired, and the evaluation of that data and data that had been acquired in the past;

a 4,000 kilometer 2D seismic data shoot, the processing of the seismic data acquired, and the evaluation of that data and data that had been acquired in the past;

acquisition and geochemical analysis of core samples from the Contract Area and a satellite seeps study;

third party interpretation and analysis of our seismic data, performed by PGS;

reconnaissance within Guinea to evaluate drilling infrastructure, support services, and the operating environment;

a 2,800 kilometer 2D seismic data shoot, the processing of the seismic data acquired, and the evaluation of that data and data that had been acquired in the past;

Since July 2009, we have accomplished critical exploration work, including:

an oil seep study performed by TDI Brooks;

a 10,400 kilometer 2D seismic data shoot, the processing of the seismic data acquired, and the evaluation of that data;

a 3,635 square kilometer 3D seismic data shoot covering the shallower-water portion of the deep water area, and the processing of the seismic data acquired, and the evaluation of that data;

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completion of the drilling of the Sabu-1, an non-commercial exploratory well, to a depth of 3,601 meters below sea level, and evaluation of associated core and fluid samples;

a 4,080 square kilometer 3D seismic data shoot primarily covering the deeper water area, and the pre-stack depth migration processing and evaluation of the seismic data acquired;

commissioned eSeis, Inc., to do further specialized processing of our 3D seismic data covering the Survey C deepwater fan play in order to estimate fluid and rock properties; and

the Fatala-1 exploration well was spudded on August 11, 2017 and completed on September 8, 2017 to a depth of 5,116 meters below sea level. The well did not encounter hydrocarbons in the main zone but encountered a zone of 5-meters of calculated hydrocarbon pay in the secondary objective.

If our appraisal program application on the block is approved, we will need to raise further capital to develop and implement the appraisal program. We may raise capital through issuing equity and/or debt securities and/or farming out a portion of our participating interest in the Concession in exchange for cash and/or carry to finance project costs in respect of the retained participating interest in the Concession. There can be no assurance that such funding will be available in the amounts and at the times required.

Subject to our ability to raise capital, we believe that we have necessary staff and knowledge to continue being project operator through the appraisal period. However, we would likely seek a large oil & gas company to farm into the Concession to become an operator for the development phase of the project. To achieve this, we may seek to dispose of a portion of our participating interest in the Concession to such operator for consideration to be determined. No assurance can be given that any of these actions can be completed.

DESCRIPTION OF OIL AND GAS PROPERTIES

The Contract Area is located in the Transform Margin play, offshore Guinea. Following the relinquishment of approximately 77% of the remaining Contract Area as required by the ~~2016~~Second PSC Amendment, we ~~have~~had the exclusive exploration and production rights, along with our then partner SAPETRO, to explore and develop approximately 5,000 square kilometers in offshore Guinea under the Concession. ~~We submitted a request for an extension of the second exploration period on July 16 2016~~ and ~~agreed~~received to a one -year extension of the PSC to September 2221, 2017. The extension period is not renewable except in the case of a discovery, ~~where~~in which case, ~~following~~if ~~two~~an ~~months'~~appraisal ~~notice~~program tois ~~Guinea~~approved, we will have up to two additional years to allow the completion of the appraisal of any discovery made. ~~Delays~~Following ~~have~~a ~~adversely~~discovery ~~affected~~on the ~~ability~~Fatala-1 towell, ~~explore~~we ~~the~~have ~~Concession,~~submitted ~~forced~~an usapplication to ~~relinquish~~be granted a ~~sizable~~two-year ~~remaining~~appraisal ~~portion~~period for the block, although the marginal nature of the ~~Concession~~discovery ~~and~~means ~~reduce~~that it is by no means certain that the ~~attractiveness~~Government of Guinea will accept our appraisal program proposal. We are currently awaiting the ~~Concession~~ todecision ~~prospective~~of ~~industry~~the ~~participants~~Government ~~and~~of ~~financing~~Guinea ~~sources.~~on our appraisal application.

An An exploration well with a minimum depth of 2,500 meters below the seabed and a minimum cost of $46,000,000 iswas required to be drilled by September 2221, 2017 to satisfy the work requirement during the PSC Extension Period. ofUnder the terms of a Third PSC. ~~Failure~~Amendment, we agreed to ~~comply~~provide ~~with~~a satisfactory Security instrument in the ~~drilling~~amount ~~and~~of ~~other~~$5 million ~~obligations~~within 30 days of the ~~PSC~~receipt ~~subject~~of usthe toApril 21, ~~risk~~2017 ofPresidential ~~loss~~Decree, which was released at such time that the drilling rig used in the drilling of the ~~Concession~~extension ~~and~~well ~~will~~was ~~obligate~~located usin tothe ~~pay~~ shelf waters of the ~~Government~~Republic of Guinea, ~~the~~including ~~difference~~its ~~between~~territorial waters. We also agreed that drilling operations for the ~~amounts~~Fatala-1 ~~actually~~well ~~spent~~must oncommence ~~work~~no ~~realized~~later inthan ~~fulfillment~~May 30, 2017. The Pacific Sirocco entered territorial waters of the Republic of Guinea and began drilling operations on May 21, 2017.

6 Our prospects are in an underexplored basin among multiple highly prospective trends with Turbidite fans and 4-way closures. Two wells have been drilled in the Contract Area: the GU-2B-1 well (1977) and the Sabu-1 well (2012). The GU-2B-1 well was drilled by another company reaching a total depth of 3,253 meters below seabed. Drilling of the Sabu-1 well by us was finished in February 2012 reaching a total depth of 2,891 meters below seabed.

The GU-2B-1 well drilled in 1977 demonstrated good Upper Cretaceous shelf reservoirs and source rock. The oil seep and oil slick evaluation done by us in 2009 indicated a working petroleum system with mature Upper Cretaceous

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~~obligations and~~marine ~~$46,000,000~~source. ~~Fulfillment~~Well data from the Sabu-1 well also confirmed to us the presence of a working petroleum system. Hydrocarbons in fluid inclusions in the rock drilled in the well demonstrate that the well was part of an oil-migration pathway, and oil and gas shows during drilling ~~obligation~~of the well indicate the presence of hydrocarbons in the ~~Extension~~upper ~~Well~~Cretaceous ~~exempts~~section. usOur ~~from~~well-log interpretations indicated residual oil (non-commercial oil saturations) in a 400-meter section of the ~~minimum~~Upper ~~cost~~Cretaceous. ~~obligation~~The fluid sampling of ~~$46,000,000~~Upper Cretaceous intervals did not find movable oil. We believe the Sabu-1 well was not a commercial success because of the lack of a reservoir seal such as marine shales or reservoir-seal pairs needed for a commercial accumulation.

~~Our~~ ~~prospects~~ We ~~are~~acquired approximately 18,200 kilometers of 2D seismic and 7,635 square kilometers of 3D seismic (with 4,000 square kilometers acquired during fiscal 2012 in anthe ~~underexplored~~deep-water ~~basin~~portion ~~among~~of ~~multiple~~the ~~highly~~Concession) ~~prospective~~to ~~trends~~evaluate the Concession. The most recent 3D seismic (Survey C) shows thick wedges of sediment that may contain deep water sandstone reservoirs with ~~Turbidite~~marine ~~fans~~shale seals that may trap significant oil accumulations, similar to recent discoveries by others on trend. We believe the Sabu-1 well results, demonstrating good reservoir and 4a working petroleum system, reduced the risks associated with the deeper water exploration program and support the possibility of a continuation into Guinea of the oil-~~way~~prone ~~closures.~~play along the Equatorial Atlantic margin.

~~Two~~ ~~wells~~ The ~~have~~Fatala-1 ~~been~~well ~~drilled~~encountered in the ~~Contract~~main ~~Area:~~objective, ~~the~~a ~~GU-2B-1~~Cenomanian ~~well~~Channel, ~~(1977)~~however, it was filled with silt and ~~the~~clay ~~Sabu-1~~rather ~~well~~than ~~(2012)~~reservoir potential sand and also had no hydrocarbon shows. However, ~~The~~the ~~GU-2B-1~~secondary ~~well~~objective, an upper Cenomanian channel, was ~~drilled~~penetrated byat ~~another~~its ~~company~~edge ~~reaching~~and aencountered ~~total~~five ~~depth~~meters of ~~3,253 meters~~good ~~below~~quality ~~seabed.~~reservoir ~~Drilling~~(17% ofporosity) ~~the~~with ~~Sabu-1~~calculated hydrocarbon saturation of 61%. The well ~~was~~result ~~finished~~will inbe ~~February~~integrated ~~2012~~with ~~reaching~~the aseismic ~~total~~data ~~depth~~to ofdetermine ~~2,891~~the ~~meters~~commercial ~~below~~potential ~~seabed.~~of this zone.

~~The~~ ~~GU-2B-1~~ Reserves ~~well~~Reported drilled in 1977 demonstrated good Upper Cretaceous shelf reservoirs and source rock. The oil seep and oil slick evaluation done by us in 2009 indicated a working petroleum system with mature Upper Cretaceous marine source. Well data from the Sabu-1 well also confirmed to usOther ~~the presence of a working petroleum system. Hydrocarbons in fluid inclusions in the~~Agencies rock drilled in the well demonstrate that the well was part of an oil-migration pathway, and oil and gas shows during drilling of the well indicate the presence of hydrocarbons in the upper Cretaceous section. Our well-log interpretations indicated residual oil (noncommercial oil saturations) in a 400-meter section of the Upper Cretaceous. The fluid sampling of Upper Cretaceous intervals did not find movable oil. We believe the Sabu-1 well was not a commercial success because of the lack of a reservoir seal such as marine shales or reservoir-seal pairs needed for a commercial accumulation.

We acquired approximately 18,200 kilometers of 2D seismic and 7,635 square kilometers of 3D seismic (with 4,000 square kilometers acquired during fiscal 2012 in the deepwater portion of the Concession) to evaluate the Concession. The most recent 3D seismic (Survey C) shows thick wedges of sediment that may contain deep water sandstone reservoirs with marine shale seals that may trap significant oil accumulations, similar to recent discoveries by others on trend. We believe the Sabu-1 well results, demonstrating good reservoir and a working petroleum system, reduced the risks associated with the deeper water exploration program and support the possibility of a continuation into Guinea of the oil-prone play along the Equatorial Atlantic margin.

Reserves Reported To Other Agencies

We have not reported any estimates of proved or probable net oil or gas reserves to any federal authority or agency since July 1, 2008, on producing properties owned in the United States at that time, but subsequently sold in 2009.

Production

We have no producing properties and have had no production during the years covered by the financial statements in this Report.

Delivery Commitments

We have no existing contracts or agreements obligating us to provide a fixed or determinable quantity of oil or gas in the future.

Employees and Independent Contractors

As of ~~September 16,~~the ~~2016~~date of this report, we have 1016 employees, all of whom are based in the United States. We also use independent contractors from time to time for specific projects and functions. No employees are represented by a union.

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Competition

~~Many~~ We ~~companies~~are an independent oil and ~~individuals~~gas ~~engage~~company inthat, ~~drilling~~if the government approves our application for ~~gas~~a ~~and~~two-year ~~oil~~appraisal period, will have the exclusive exploration and ~~there~~production isrights ~~competition~~to ~~for~~explore ~~the~~and ~~most~~develop ~~desirable~~our ~~prospects~~appraisal area offshore Guinea. We ~~expect to~~are ~~encounter~~the ~~intense~~only ~~competition~~operator ~~from~~that ~~other~~has ~~companies~~conducted ~~and~~exploration ~~other~~for ~~entities~~oil and gas in the ~~sale~~entire ofoffshore ~~our~~Guinea ~~oil~~area ~~and~~since ~~gas~~1977. We ~~could~~face becompetition ~~competing~~from ~~with~~other ~~numerous~~companies ~~oil~~looking to evaluate the Concession for prospectivity and ~~gas~~will ~~companies~~likely ~~which~~in ~~may~~the ~~have~~future ~~financial~~face ~~resources significantly~~competition ~~greater~~regarding ~~than~~the ~~ours.~~sale of hydrocarbons if oil is found and produced.

Productive Wells and Acreage; Undeveloped Acreage

We do not have any productive oil or gas wells, and we do not have any developed acres (i.e. acres spaced or assignable to productive wells). Undeveloped Acreage is owned through our Concession in offshore Guinea, a description ~~of and the terms of which are described above under "Operations Offshore Guinea—The PSC." The following table sets forth the undeveloped acreage that we held as of June 30, 2016:~~

	Undeveloped Acreage(1)(2)(3)
Foreign	Gross Acres		Net Acres
Offshore Guinea		4,632,000		1,713,840

Total		4,632,000		1,713,840

~~(1)A gross~~ Table ~~acre is an acre in which a working interest is owned. A net acre is deemed to exist when the sum~~ of ~~fractional ownership working or participation~~Contents ~~interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof. Undeveloped acreage~~ is considered to be those leased acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of crude oil and natural gas regardless of whether or not such acreage contains proved reserves. (2)One square mile equals 640 acres. The Contract Area in the Concession is approximately 18,750 square kilometers, or 7,238 square miles. We have a 37% working interest in the Concession. (3)On September 15, 2016, we entered into a new PSC Amendment ("2016 Amendment"). Under the terms of the 2016 Amendment, we received a one year extension to the Second Exploration Period of the PSC to September 22, 2017 and confirmed that we are the holder of a 100% interest in the Concession following the official withdrawal by Tullow and Dana on August 15, 2016. In return, we will drill one exploratory well to a minimum depth of 2500 meters below the mudline for an estimated amount of $46,000,000, relinquished approximately 77% of the remaining Contract Area, and agreed to limit the past cost recoverable expenses to those costs directly incurred by SCS through the execution of the 2016 Amendment. After the 77% relinquishment, we will have approximately 1,065,000 gross and net acres.

of and the terms of which are described above under “Operations Offshore Guinea – The PSC.” The following table sets forth the undeveloped acreage that we held as of June 30, 2017:


	Undeveloped Acreage (1)(2)(3)
	Gross Acres	Net Acres
Foreign
Offshore Guinea	1,235,840	617,920
Total	1,235,840	617,920

The PSC Extension Period expired on September 21, 2017. However, we have applied for a two-year appraisal period on a 100% basis on September 19, 2017 and are awaiting a response to our application.

(1)

A gross acre is an acre in which a working interest is owned. A net acre is deemed to exist when the sum of fractional ownership working or participation interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof. Undeveloped acreage is considered to be those leased acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of crude oil and natural gas regardless of whether or not such acreage contains proved reserves.

(2)

One square mile equals 640 acres. The Contract Area in the Concession is approximately 5,000 square kilometers, or 1,931 square miles.

Drilling Activity

An exploratory well is a well drilled to find crude oil or natural gas in an unproved area, to find a new reservoir in a field previously found to be productive of crude oil or natural gas in another reservoir, or to extend a known reservoir. A development well is a well drilled within the proved area of a crude oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

In October 2011, we commenced drilling operations on the Sabu-1 well. In February 2012, the Sabu-1 exploratory well reached the planned total depth of 3,600 meters.

We spudded the Fatala-1 well in a water depth of 2,897 meters on August 11, 2017 and the well was completed on September 8, 2017 at a depth of 5,116 meters below sea level.

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There have been no drilling activities during the two years ended June 30, 2016.

Geographical Information

The following table sets out long-lived assets associated with Guinea, including our investment in the Concession offshore Guinea as well as fixed assets:

		June 30, 2016			June 30, 2015
		June 30, 2017			June 30, 2016
Long-lived assets related to Guinea		$	—		$	~~14,311,000~~—

~~The~~ The seismic data we collected prior to Tullow becoming Operator and our geological and geophysical work product are maintained in our offices in the United States. As of ~~March 31~~June 30, 2017 and 2016, based on our impairment assessment, we fully impaired ~~the~~$13.3 million and $14~~,331,000~~.3 million of unproved oil and gas properties. ~~This~~In fiscal year 2017, we impaired unproven oil and gas properties due to uncertainties surrounding the ability of the Company to continue operations and following the determination of non-commerciality of the Fatala-1 well ultimately fully impaired unproven oil and gas properties. The fiscal year 2016 impairment assessment was based on the continued impasse by our members of the Consortium to resume petroleum operations and drill the next exploration obligation well, which ~~needs~~needed to be commenced by the end of September 2016, and our inability to get interim injunctive relief from the American Arbitration Association requiring Tullow and Dana to join with SCS in the negotiation of an acceptable amendment to the PSC and to agree to a process that would result in the execution of the amendment which we hoped would have led to the resumption of petroleum operations. ~~Thus~~At the time, we ~~believe~~believed all legal measures to require Tullow and Dana to drill the planned exploration well ~~have~~ ~~been~~were exhausted. We entered in a Settlement and Release agreement with Tullow and Dana on August 15, 2016 and signed a new PSC Amendment with Guinea on September 15, 2016 granting us a one year extension to the PSC to September 22, 2017, that includes the obligation to begin drilling activities in our Concession prior to the end of the Extension Period.

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2016, and signed the Second PSC Amendment with Guinea on September 15, 2016, granting us a one-year extension to the PSC to September 22, 2017. We also executed a Farm-out Agreement with SAPETRO and a Third PSC Amendment with the Republic of Guinea.

Cost of Compliance with Environmental Laws

~~Environmental~~ Management ~~laws~~makes ~~have~~judgments ~~not~~and ~~materially~~estimates ~~hindered~~in ~~nor~~accordance ~~adversely~~with ~~affected~~applicable ~~our~~accounting ~~business~~rules when it establishes reserves for environmental remediation, litigation and other contingent matters. ~~Capital~~Provisions ~~expenditures~~for ~~relating~~such matters are charged to ~~environmental control~~expense ~~facilities~~when ~~have~~it ~~not~~is probable that a liability has been ~~prohibitive~~incurred toand ~~our~~reasonable ~~operations~~estimates of the liability can be made. WeEstimates ~~believe~~of weenvironmental liabilities are inbased ~~compliance~~on ~~with~~a ~~all~~variety ~~applicable~~of matters, including, but not limited to, the stage of investigation, the stage of the remedial design, evaluation of existing remediation technologies, and presently enacted laws and regulations. In future periods, a number of factors could significantly change our estimate of environmental remediation costs, such as changes in laws and regulations, or changes in their interpretation or administration, revisions to the remedial design, unanticipated construction problems, identification of additional areas or volumes of contaminated soil and groundwater, and changes in costs of labor, equipment and technology. Consequently, it is not possible for management to reliably estimate the amount and timing of all future expenditures related to environmental or other contingent matters and actual costs may vary significantly from our estimates.

Available Information

We are currently subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "“Exchange Act"”). We file periodic reports, proxy materials and other information with the SEC. In addition, we expect to furnish stockholders with annual reports containing audited financial statements certified by our independent registered public accounting firm and interim reports containing unaudited financial information as may be necessary or desirable. We will provide without charge to each person who receives a copy of this report, upon written or oral request, a copy of any information that is incorporated by reference in this report (not including exhibits to the information that is incorporated by reference unless the exhibits are themselves specifically incorporated by reference). Such request should be directed to: ~~Ray~~Jason ~~Leonard~~Davis, Hyperdynamics Corporation, 12012 Wickchester Lane, Suite 475, Houston, Texas 77079, voice: (713) 353-9400, fax: (713) 353-9421. Our website Internet address is www.hyperdynamics.com.

We provide free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable.

~~Members~~ Members of the public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, and Washington, DC 20549. Members of the public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-–800-–SEC-–0330. The Internet address of the Commission is www.sec.gov. That website contains reports, proxy and information statements and other information regarding issuers, like Hyperdynamics Corporation, that file electronically with the Commission. Visitors to the Commission'’s website may access such information by searching the EDGAR database.

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Item 1A. Risk Factors

An investment in shares of our ~~common~~securities ~~stock~~is highly speculative and involves ~~significant~~a ~~risks.~~high ~~Prior~~degree toof ~~making~~risk. aWe ~~decision~~face ~~about~~a ~~investing~~variety inof ~~common~~risks ~~stock,~~that ~~and~~may ~~in consultation~~affect ~~with~~our ~~your~~operations ~~own~~or financial results and ~~legal~~many ~~advisors~~of those risks are driven by factors that we cannot control or predict. Before investing in our securities, you should carefully consider, ~~among~~the ~~other~~following ~~matters~~risks, together with the ~~following~~financial ~~risk~~and ~~factors~~other information contained in this Report. ~~The~~Our ~~risks~~business, prospects, financial condition and ~~uncertainties~~results ~~described~~of ~~below~~operations ~~are~~could ~~not~~be ~~the~~materially ~~only ones~~adversely ~~facing~~affected ~~us.~~as ~~Additional~~a result of any of these risks. ~~and~~In ~~uncertainties~~that ~~not~~case, ~~presently~~the ~~known~~trading toprice usof orour ~~that~~common westock ~~currently~~would ~~consider~~likely ~~immaterial~~decline ~~may~~and ~~also~~you ~~inadvertently~~may ~~affect~~lose ~~us.~~all Ifor ~~any~~a part of ~~the~~your ~~following~~investment. ~~risks~~Only ~~occur,~~those ~~our business,~~investors ~~financial~~who ~~condition~~can orbear ~~results~~the risk of ~~operations~~loss ~~could~~of betheir ~~materially~~entire ~~harmed.~~investment should invest in our securities.

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Risks Relating to Our Business and the Industry in Which We Operate.

Our business is dependent on a single exploration asset; if the proposed appraisal program is not approved, we will not have any exploration assets.

The Concession is our single exploration asset. We have been conducting exploration work related to offshore Guinea since 2002, including significant seismic data surveys, processing, evaluations and studies, but we have no reserves and there is no assurance that our exploration work will result in any discoveries or in any commercial success. ~~The PSC, as amended in September 15, 2016, requires the drilling of a minimum of one additional exploration well to a minimum depth of 2,500 meters below the seabed at a~~ minimum cost of $46 million by September 21, 2017. The PSC has financial and other administrative additional obligations that need to be performed to maintain compliance with the PSC. Failure to comply could subject us to risk of loss of the Concession. In addition, oil and natural gas operations in Africa may be subject to higher political, health and security risks than operations in other areas of the world. Any adverse development affecting our operations such as, but not limited to, the drilling and operational hazards described below, could result in damage to, or destruction of, any wells and producing facilities constructed on the Concession as well as damage to life. As the Concession is our only exploration asset, any adverse development affecting it could have a material adverse effect on our financial position and results of operations.

We After ~~require~~the ~~additional~~completion ~~financing~~of the Fatala-1 well, we applied for a two-year appraisal period on the basis of the marginal discovery of five meters of calculated hydrocarbon pay in the well. Our 50% partner, SAPETRO, decided not to ~~meet~~join ~~our~~us ~~obligations~~in ~~under~~the application and exited the ~~PSC~~JOA and ~~are~~PSC, ~~unable~~so toit ~~predict~~was made on a 100% basis. There is no assurance that the Government of Guinea will approve the application at all or on acceptable terms. If the Government of Guinea does not approve the appraisal period on acceptable terms, our ~~ability~~ PSC will have expired by its terms and we will not have any exploration assets nor any prospect of revenues or cash flows to ~~meet~~cover ~~those~~current obligations or ongoing operating expenses.

~~Our~~ The ~~current~~Concession, ~~capital~~permits ~~resources~~and ~~are~~contracts ~~not~~which ~~sufficient~~rely on the Concession may be changed, thus adversely affecting our ability to ~~cover~~continue the ~~required~~operations. ~~additional~~In ~~exploration~~addition, ~~activity~~the PSC has financial and other administrative obligations that need to be performed in order to maintain compliance with the ~~Concession~~PSC. WeFailure ~~will require~~to ~~additional~~comply ~~funding~~could subject us to ~~pay~~risk ~~for~~of ~~any~~losing ~~exploration~~the ~~activity~~Concession. WeIn ~~will~~addition, ~~seek~~oil ~~such~~and ~~funding~~natural ~~through~~gas ~~additional~~operations ~~sales~~in ofAfrica ~~interest~~may be subject to higher political, health and security risks than operations in other areas of the ~~Concession~~world. Any adverse development affecting our operations such as, ~~from~~but ~~equity~~not orlimited ~~debt~~to, the drilling and operational hazards described below, could result in damage to, or ~~other~~destruction ~~financial~~of, ~~instruments. The~~any wells and producing facilities constructed on the Concession ~~offshore~~as ~~Guinea~~well as damage to life. As the Concession is our ~~principal~~only exploration asset, ~~and~~any weadverse dodevelopment ~~not~~affecting it could have ~~the~~a ~~funds~~material ~~necessary~~adverse toeffect ~~fulfill~~on our ~~obligations~~financial ~~under~~position ~~the~~and ~~PSC~~results asof ~~amended~~operations.

In ~~order~~ We tohave ~~retain~~entered ~~the~~into ~~Concession,~~an weagreement ~~settled our disputes with Tullow and Dana with limited financial benefit~~ to ~~SCS~~raise ~~and~~$6,000,000 ~~require~~through ~~additional financing. Our ability to obtain additional financing is likely dependent upon~~ the ~~valuation~~sale of ~~this asset~~40, ~~prospects for exploration in the Concession area~~000,000 ~~the~~shares ~~time left in the Concession, as well as market and other forces outside~~ of our ~~control.~~ ~~Continued~~common ~~delays~~stock, tobut ~~resume~~there ~~petroleum~~can ~~operations had a material adverse effect on our Concession and we are unable to predict if we will~~ be ~~able~~no toassurance ~~obtain~~that ~~the~~this ~~necessary~~ financing inwill time to cover the PSC and operational obligations for the PSC Extension Period. We do not have any firm commitments from external financing sources or third parties to allow us to fulfill our obligations under the PSC, and if obtained, the terms may not be ~~advantageous to us~~completed. ~~We may seek such funding through additional sales of~~ ~~interest in the Concession, from equity or debt financings, or through other means.~~

~~The~~ On ~~absence~~November of2, ~~cash~~2017, ~~inflows~~we ~~into~~executed ~~our~~an ~~company~~agreement ~~raises~~to ~~substantial~~issue ~~doubts~~and ~~about~~sell 40 million shares of our ~~ability~~common tostock ~~continue as~~at a ~~going~~price ~~concern~~of $0.15 per asshare ~~reflected~~(for ina total purchase price of $6,000,000) to CLNG or its affiliate. The closing of the ~~opinion~~sale is subject to substantial conditions, including (i) the completion of satisfactory due diligence by each party of the ~~auditors~~other, (ii) waiver by holders of our ~~financial~~Series ~~statements.~~A IfConvertible wePreferred ~~are~~Stock ~~not~~of ~~successful~~their right of first refusal, (iii) negotiation of reductions in ~~carrying~~our ~~out~~outstanding current liabilities satisfactory to CLNG, and (iv) satisfaction of other customary closing conditions. If this purchase is completed, CLNG will own approximately 53% of our ~~plans~~outstanding common stock. There can be no assurance that our due diligence of CLNG will be acceptable to us, wethat ~~may~~CLNG’s ~~not~~due diligence of us will be ~~able~~acceptable to ~~continue~~CLNG, ~~operations~~that all holders of our Series A Convertible Preferred Stock will waive their right of first refusal, that we will successfully negotiate reductions in our outstanding current liabilities satisfactory to CLNG, or, even if these conditions are satisfied, that the stock purchase agreement will close.

~~Our~~ The ~~financial~~net ~~statements~~proceeds ~~have~~of ~~been~~this ~~prepared~~stock ~~assuming~~sale, ~~that~~if weit occurs, may not be sufficient to pay all of our outstanding liabilities and will ~~continue~~not asbe asufficient ~~going~~to ~~concern.~~cover Ascurrent ~~noted~~operating expenses or, if the two-year appraisal period in ~~Note 1~~Guinea tofor ~~our financial~~which ~~statements~~we have applied is granted, to be able to fund operations for the ~~absence~~appraisal ofprogram. See ~~cash~~the ~~inflows~~following ~~raises~~Risk ~~substantial~~Factor ~~doubt~~for additional information.

10 We require additional financing to meet our general and administrative obligations and in order to fulfill our PSC commitments during an appraisal program. We are currently not in a position to predict when, if ever, we will be able to meet those obligations.

The Concession offshore Guinea is our principal asset and we do not have the funds necessary to fulfill the proposed appraisal program under the PSC. On November 14, 2017, we had $0.7 million in unrestricted cash and $9.9 million in current liabilities. In the absence of operating cash flows, in order to meet our current obligations as they become due over the next quarter and 12 months and, if the two-year appraisal period for which we have applied is granted, to be able to continue with our operations, we intend to rely exclusively on issuing equity or debt securities or, alternatively,

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~~about our~~divestiture ~~ability~~of toadditional ~~continue~~participating asinterests ain ~~going~~the ~~concern~~Concession. ~~Our~~There ~~auditors~~is ~~have~~no ~~noted~~assurance ~~this~~that ~~concern~~we inwill ~~their~~be ~~opinion~~successful onin ~~our~~raising ~~financial~~the ~~statements.~~funds ~~Our~~or ~~financial~~acquiring ~~statements~~the dopartners ~~not~~in ~~include~~the ~~any~~time ~~adjustments~~needed ~~that~~to ~~might result~~execute ~~from~~ the ~~outcome~~program ofrequired ~~this~~in ~~uncertainty~~the PSC. If ~~Our~~the ~~plans~~two-year toappraisal ~~address~~period ~~this~~is ~~problem~~not ~~are~~granted ~~discussed~~by inthe ~~Note 1.~~Guinea ~~There~~government, ~~can~~the bePSC ~~no assurance that we~~ will behave ~~successful~~expired inby ~~carrying~~its ~~out~~terms ~~our~~and ~~plans~~it tois ~~obtain additional~~unlikely ~~cash~~that ~~resources. If~~ we ~~are~~will ~~unable~~be able to ~~obtain~~raise additional ~~cash resources~~funds, weunless ~~may~~the ~~not~~investment beby ~~able~~CLNG ~~to continue operations~~closes.

The absence of cash inflows into our company raises substantial doubts about our ability to continue as a going concern as reflected in the opinion of the auditors of our financial statements. If we are not successful in carrying out our fund-raising plans, we will not be able to continue operations.

Our financial statements have been prepared assuming that we will continue as a going concern. As noted in Note 1 to our financial statements for the fiscal year ended June 30, 2017, the absence of cash inflows raises substantial doubt about our ability to continue as a going concern. Our auditors have noted this concern in their opinion on our audited financial statements for the fiscal year ended June 30, 2017. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our plans to address this problem are discussed in Note 1. There can be no assurance that we will be successful in carrying out our plans to obtain additional cash resources. If we are unable to obtain additional cash resources, we will not be able to continue operations.

We have no proved reserves and our exploration program may not yield oil in commercial quantities or quality, or at all.

We have no proved reserves. WeTo date, we have drilled ~~one~~two exploratory ~~well~~wells which had non-commercial results. We have identified prospects and leads based on seismic and geological information that we believe indicate the potential presence of hydrocarbons. However, we ~~operated~~operate in a virgin basin without any commercial hydrocarbon discoveries and the areas to be drilled may not yield oil in commercial quantities or quality, or at all. Even when properly used and interpreted, 2-dimensional ("2D") and 3-dimensional ("3D") seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the interpreter to know whether hydrocarbons are, in fact, present in those structures. Accordingly, we do not know if any of our prospects will contain oil in sufficient quantities or quality, or at all, orto ~~quality~~allow us to recover drilling and completion costs or to be economically viable. Even if oil is found in commercial quantities, construction costs of oil pipelines or floating production systems, as applicable, and transportation costs may prevent such leads from being economically viable. If these exploration efforts do not prove to be successful, our business, financial condition and results of operations will be materially adversely affected.

Efforts to attract commercial partners may not be successful and may not be on terms advantageous to us.

We have no source of operating revenue and will need to obtain additional resources through sales of additional participating interests in the Concession, equity or debt financings, or through other means. If we seek to sell additional participating interests in the Concession, we may not be successful in attracting a commercial ~~partner,~~partners. orIn ~~the~~addition, ~~commercial partner~~if ~~may not have the capital resources or other attributes that are deemed desirable by us. If~~ we enter into an arrangement, the terms of such arrangement may not be advantageous to us. Any such arrangement will likely involve ~~the~~a further transfer of a ~~negotiated~~participating interest in the Concession, which could reduce the potential profitability of our interest in the Concession.

An extended period of depressed oil and gas prices could adversely affect our financial condition, liquidity, ability to obtain financing and future operating results. Oil and gas prices are volatile, and we have no ability to control the price of oil and gas. A continued substantial or extended decline in prices could adversely affect our financial condition, liquidity, ability to obtain financing and future operating results.

We currently have no source of operating revenue ~~and are no longer carried on our expenses in Guinea following the settlement with Tullow and Dana~~. Our financial condition is based solely on our ability to sell equity or debt securities to investors, enter into an additional joint operating agreement or similar strategic relationship with an industry partner, sell interests related to the Concession or borrow funds. We expect that entering into these joint operating or similar relationships would entail transferring a portion of our interest in the Concession to such partner. Such investors would consider the price of oil and gas in making an investment decision. Prolonged periods of low oil and gas prices could adversely affect our financial condition, liquidity, ability to obtain financing, and operating results. Low oil and gas prices in the future will likely also reduce the amount of oil and gas that we could produce economically and could ~~have a negative effect on our future financial results. Historically, oil and gas prices and markets have been volatile and they are likely to continue to be volatile, with prices~~

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have a negative effect on our future financial results. Historically, oil and gas prices and markets have been volatile and they are likely to continue to be volatile, with prices fluctuating widely in response to relatively minor changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control. These factors include:

the level of domestic and foreign supplies of oil;

the level of consumer product demand;

weather conditions and natural disasters;

political conditions in oil producing regions throughout the world;

the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil production;

speculation as to the future price of oil and natural gas and the speculative trading of oil and natural gas futures contracts;

price and production controls;

political and economic conditions, including embargoes in oil-producing countries or affecting other oil-producing activities, particularly in the Middle East, Africa, Russia and South America;

continued threat of terrorism and the impact of military and other action, including U.S. military operations in the Middle East;

the level of global oil and natural gas exploration and production activity;

the price of foreign oil imports;

actions of governments;

domestic and foreign governmental regulations;

the price, availability and acceptance of alternative fuels;

technological advances affecting energy consumption;

global economic conditions; and

the value of the U.S. dollar, the Euro and fluctuations in exchange rates generally.

These factors and the volatile nature of the energy markets make it impossible to predict oil and gas prices. Our inability to respond appropriately to changes in these factors could have a material adverse effect on our business plan, financial position, results of operations and future cash flows.

~~Legal~~ The ~~fees~~terms ~~and~~of ~~associated~~the ~~costs~~PSC inmay ~~connection~~become ~~with~~subject ~~legal~~to ~~proceedings~~renegotiation ~~and~~under ~~the~~certain ~~Tullow~~circumstances, ~~and~~which ~~Dana~~may ~~legal matters~~have ~~adversely~~an ~~affected~~adverse ~~our~~impact ~~liquidity~~upon ~~and~~our ~~financial~~operations ~~condition~~ and ~~results of operations~~profitability.

We The ~~are~~PSC ~~involved~~provides inthat ~~legal~~should ~~proceedings~~the Guinea government note material differences between provisions of the PSC and ~~although~~international westandards ~~recently~~or ~~settled~~the Guinea Petroleum Code, the ~~arbitration~~parties ~~against~~will ~~Tullow~~renegotiate the relevant articles of the PSC. If the Guinea government identifies material differences between the PSC's provisions and ~~Dana~~international standards or the Guinea Petroleum Code, there is no assurance that we ~~incurred~~will ~~significant legal~~be ~~fees~~able into ~~the~~negotiate ~~arbitration~~an ~~proceedings~~acceptable modification to the PSC. If

14 ~~The 2016 PSC Amendment significantly reduced our acreage in the Concession and we agreed to a very tight timeline to obtain financing and begin drilling the exploration well.~~

We received a one year extension and 100% of the Concession pursuant to rights granted to us under the 2016 PSC Amendment signed on September 15, 2016. Pursuant to the terms of the 2016 PSC Amendment, we agreed to relinquish an additional 77% of the remaining acreage, agreed to a timeline to drill a well planned for April 2017 and promised to provide security to the Government of Guinea and agreed to financial penalties for failure to drill the exploration well. Our reduced acreage, tight timeline, guarantees to the Government of Guinea, and financial penalties have reduced the value of the Concession and our ability to attract financing and third parties to join us in exploration

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~~activities~~the parties are not successful in renegotiating the relevant articles of the PSC, the parties may be required to submit the matter to international arbitration. There is no ~~guarantee~~assurance that weany ~~will~~arbitration would be ~~able~~successful or otherwise lead to ~~provide~~articles that are more favorable to us than the ~~promised~~present ~~security~~articles. Therefore, ~~raise~~ the ~~necessary~~results ~~funds~~of such negotiations or ~~meet~~arbitration ~~the~~could ~~drilling~~be ~~timeline..~~unfavorable to us and, as a result, could have a material adverse effect on our business, financial position, results of operation and future cash flows.

The PSC is subject to renegotiation under certain conditions which may have an adverse impact upon our operations and profitability.

The PSC provides that should the Guinea government note material differences between provisions of the PSC and international standards or the Guinea Petroleum Code, the parties will renegotiate the relevant articles of the PSC. If the Guinea government identifies material differences between the PSC's provisions and international standards or the Guinea Petroleum Code, there is no assurance that we will be able to negotiate an acceptable modification to the PSC. If the parties are not successful in renegotiating the relevant articles of the PSC, the parties may be required to submit the matter to international arbitration. There is no assurance that any arbitration would be successful or otherwise lead to articles that are more favorable to us than the present articles. Therefore, the results of such negotiations or arbitration could be unfavorable to us and, as a result, could have a material adverse effect on our business, financial position, results of operation and future cash flows.

We may not be able to obtain the additional capital necessary to achieve our business plan.

Our business is capital intensive and we must invest a significant amount in our activities. We intend to make substantial capital expenditures to find, develop, and produce natural gas and oil reserves.

Additional capital could be obtained from a combination of funding sources. The current potential funding sources and the potential adverse effects attributable thereto, include:

if the two-year appraisal period for which we have applied is granted, sales or assignments of interests in the Concession and exploration program, which would reduce any future revenues from that program while at the same time offsetting potential expenditures;

offerings of equity, equity-linked and convertible debt securities, which would dilute the equity interests of our stockholders;

debt and convertible debt offerings, which would increase our leverage and add to our need for cash to service such debt and which could result in assets being pledged as collateral; and

borrowing from financial institutions, which may subject us to certain restrictive covenants, including covenants restricting our ability to raise additional capital or pay dividends.

It is difficult to quantify the amount of financing we may need to fund our business plan in the longer term. The amount of funding we may need in the future depends on various factors such as:

our financial position;

the cost of exploration and drilling;

the prevailing market price of natural gas and oil; and

the lead time required to bring any discoveries to production.

If we do not obtain capital resources in the future it is unlikely that we will be able to continue to pursue exploration offshore Guinea and our financial condition and operations will be adversely affected.

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We are highly dependent on our management team and consultants, and any failure to retain the services of such parties could adversely affect our ability to effectively manage our operations or successfully execute our business plan.

Our business is dependent on retaining the services of a small number of key personnel of the appropriate caliber as the business develops. Our success is, and will continue to be to a significant extent, dependent upon the expertise and experience of the directors, senior management and certain key consultants, but the retention of their services cannot be guaranteed. The loss of key members of our management team or other highly qualified professionals has adversely affected our ability to effectively manage our overall operations or successfully execute current or future business strategies. If any further member of management, director, or other consultants were to leave our company, it may have a material adverse effect on our business, financial condition, results of operations and/or growth prospects.

15 ~~We have claims and lawsuits against us that may result in adverse outcomes.~~

We are subject to a variety of claims and lawsuits concerning shareholder claims and other matters. Adverse outcomes in some or all of these claims may result in significant monetary damages or limit our ability to engage in our business activities. While we have director and officer insurance, it may not apply to or fully cover any liabilities we incur as a result of these lawsuits. Although management currently believes resolving all of these matters, individually or in the aggregate, will not have a material adverse impact on our financial statements, the litigation and other claims are subject to inherent uncertainties and management's view of these matters may change in the future. A material adverse impact on our financial statements also could occur for any period it was determined that an unfavorable final outcome is probable and reasonably estimable.

Drilling wells is speculative and potentially hazardous. Actual costs may be more than our estimates, and may not result in any discoveries. The cost of our recently drilled exploratory well was significantly higher than expected.

Exploring for and developing oil reserves involves a high degree of operational and financial risk, which precludes definitive statements as to the time required and costs involved in reaching certain objectives. The budgeted costs of drilling, completing, and operating wells are often exceeded. The cost of our exploratory well, the Sabu-1, was higher than we initially expected, primarily due to numerous delays and issues related to mechanical and operational matters on the rig, logistical delays resulting from limited port facilities in Guinea, and an expanded well logging program. In addition, oil was not discovered in commercial quantities. Unexpected delays and increases in costs associated with the upcoming well drilled in the future, could adversely affect our results of operation, financial position, liquidity and business plans.

Drilling may be unsuccessful for many reasons, including geological conditions, weather, cost overruns, equipment shortages and mechanical difficulties. Exploratory wells bear a much greater risk of loss than development wells. The successful drilling of an oil well may not be indicative of the potential for the development of a commercially viable field and will not necessarily result in a profit on investment. A variety of factors, both geological and market-related, can cause a well to become uneconomic or only marginally economic.

There are a variety of operating risks, including:

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Claims and lawsuits against us may result in adverse outcomes.

While there are currently no pending legal proceedings to which we are a party (or that are, to our knowledge, contemplated by governmental authorities) that we believe will have individually or in the aggregate, a material adverse effect on our business, financial condition or operating results, from time to time we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business or otherwise. Litigation is subject to inherent uncertainties, and an adverse result in any such matters could occur that could harm our business, financial condition or results of operations, including significant monetary damages or limitations on our ability to engage in our business activities. Although we have director and officer insurance, in case such claims arise it may not apply to or fully cover any liabilities we may incur as a result of these lawsuits.

Although we would intend to contract what we believe to be a high quality modern drillship rig and reliable contractors for a significant portion of any future drilling technological services, exploring for and developing hydrocarbon reserves involves a high degree of operational and financial risk, which precludes definitive statements as to the time required and costs involved in reaching certain objectives. The budgeted costs of drilling, completing, and operating wells are often exceeded, especially in the ultra-deep offshore. The cost of our prior exploratory well, the Sabu-1, was higher than we initially expected, primarily due to numerous delays and issues related to mechanical and operational matters on the rig, logistical delays resulting from limited port facilities in Guinea, and an expanded well logging program. In addition, oil was not discovered in commercial quantities. Although the Fatala-1 well was completed within budget, it also did not encounter hydrocarbons in commercial quantities. Unexpected delays and increases in costs associated with any future wells could adversely affect our results of operation, financial position, liquidity and business plans.

Drilling may be unsuccessful for many reasons, including geological conditions, weather, cost overruns, equipment shortages and mechanical difficulties. Exploratory wells bear a much greater risk of loss than development wells. The successful drilling of an oil well may not be indicative of the potential for the development of a commercially viable field and will not necessarily result in a profit on investment. A variety of factors, both geological and market-related, could cause a well to become uneconomic or only marginally economic.

These factors include a variety of operating risks, such as:

blowouts, cratering and explosions;

mechanical and equipment problems;

uncontrolled flows of oil and gas or well fluids;

fires;

marine hazards with respect to offshore operations;

formations with abnormal pressures;

pollution and other environmental risks; and

weather conditions and natural disasters.

Offshore operations are subject to a variety of operating risks particular to the marine environment, such as capsizing and collisions. Also, offshore operations are subject to damage or loss from adverse weather conditions. Any of these events could result in loss of human life, significant damage to property, environmental pollution, impairment of our operations and substantial losses.

~~The~~ ~~site for the next exploratory well we plan to drill will be in the ultra-deep water. Deepwater drilling generally requires more time and more advanced drilling technologies than~~ ~~exploration in shallower waters, involving a higher risk of equipment failure and higher drilling costs. In addition, even if there is a discovery, taking it to production presents risks that we may~~ 16 ~~not be currently aware of. If we participate in the development of new subsea infrastructure and use floating production systems to transport oil from producing wells, these operations may require~~ substantial time for installation or encounter mechanical difficulties and equipment failures that could result in significant liabilities, cost overruns, or delays. Furthermore, deepwater operations generally, and operations in West Africa in particular, lack the physical oilfield service infrastructure present in other regions. As a result, a significant amount of time may elapse between a deepwater discovery and the marketing of the associated oil and natural gas, increasing both the financial and operational risks involved with these operations. Because of the lack and high cost of this infrastructure, further discoveries we may make in Guinea may never be economically producible.

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The site for the Fatala-1 exploratory well we completed is in the ultra-deep water. Even though this well was drilled safely and on budget, the following risks apply to any future ultra-deep water drilling: Deep-water drilling generally requires more time and more advanced drilling technologies than exploration in shallower waters, involving a higher risk of equipment failure and higher drilling costs. In addition, even if there is a discovery, taking it to production presents risks that we may not be currently aware of. If we participate in the development of new subsea infrastructure and use floating production systems to transport oil from producing wells, these operations may require substantial time for installation or encounter mechanical difficulties and equipment failures that could result in significant liabilities, cost overruns, or delays. Furthermore, deep-water operations generally, and operations in West Africa in particular, lack the physical oilfield service infrastructure that is often present in other regions. As a result, a significant amount of time may elapse between a deep-water discovery and the marketing of the associated oil and natural gas, thus increasing both the financial and operational risks involved with these operations. Because of the lack and high cost of this infrastructure, further discoveries we may make in Guinea may never be economically producible.

The cost of drilling rigs, equipment, supplies, personnel and oilfield services, as well as gathering systems and processing facilities, and our dependence on industry contractors generally, could adversely impact us.

We are dependent on industry contractors for the success of our oil and gas exploration projects. In particular, our drilling activity offshore of Guinea will require that we have access to offshore drilling rigs and contracts with experienced operators of such rigs. The availability and cost of drilling rigs and other equipment and services, and the skilled personnel required to operate those rigs and equipment, is affected by the level and location of drilling activity around the world. An increase in drilling operations worldwide may reduce the availability and increase the cost to us of drilling rigs, other equipment and services, and appropriately experienced drilling contractors. The reduced availability of such equipment and services may delay our ability to discover reserves and higher costs for such equipment and services may increase our costs, both of which may have a material adverse effect on our business, results of operations and future cash flow. If we succeed in constructing oil wells, we may be required to shut them because access to pipelines, gathering systems or processing facilities may be limited or unavailable. If that were to occur, we would be unable to realize revenue from those wells until arrangements were made to deliver the production to market, which could cause a material adverse effect on our results of operations and financial condition.

Operator's responsibilities pose high risk in terms of organizing operations safely, in an environmentally responsible way and within the terms prescribed by the applicable legislation.

Under the terms of the PSC, SCS is designated as the Operator. SCS will be liable for the obligations under the PSC to the Government of the Republic of Guinea. Due to the complexity of the oil and gas operations of drilling deep-water exploration wells, we are unable to provide assurances that complications during drilling operations will not occur, whether we will be able to cover claims that may arise, and whether we will be able to carry sufficient catastrophic well insurance to adequately cover us.

We are exposed to the failure or non-performance of commercial counterparties.

Our operations will be dependent on certain third parties with whom we have commercial agreements (such as drilling contractors and the parties responsible for transporting and/or storing our production) for our future exploration, development, production, sales or other activities. The efficiency, timeliness and quality of contract performance by third party providers are largely beyond our direct control. If one or more of these third parties fails to meet its contractual obligations to us, or if such services are temporarily or permanently unavailable (for example, as a result of technical problems or industrial action), or not available on commercially acceptable terms, we may experience a material adverse effect to our business, results of operations, financial condition and future cash flow. In addition, as a named party under the PSC, we could be held liable for the environmental, health and safety impacts arising out of the activities of our drilling project management contractor or any other third-party service provider contracted by us or on our behalf, which could have a material adverse effect on our business, results of operations and future cash flow.

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problems or industrial action), or not available on commercially acceptable terms, we may experience a material adverse effect on our business, results of operations, financial condition and future cash flow. In addition, as a named party under the PSC, we could be held liable for the environmental, health and safety impacts arising out of the activities of our drilling project management contractor or any other third party service provider contracted by us or on our behalf, which could have a material adverse effect on our business, results of operations and future cash flow.

Participants in the oil and gas industry are subject to numerous laws that can affect the cost, manner or feasibility of doing business.

Exploration and production activities in the oil and gas industry are subject to local laws and regulations. We may be required to make large expenditures to comply with governmental laws and regulations, particularly in respect of the following matters:

licenses for drilling operations;

tax increases, including retroactive claims;

unitization of oil accumulations;

local content requirements (including the mandatory use of local partners and vendors); and

environmental requirements and obligations, including investigation and/or remediation activities.

Under these and other laws and regulations, we could be liable for personal injuries, property damage and other types of damages. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, new laws and regulations may be enacted and current laws and regulations could change or their interpretations could change, in ways that could substantially increase our costs. These risks may be higher in the developing countries in which we conduct our operations, where there could be a lack of clarity or lack of consistency in the application of these laws and regulations. Any resulting liabilities, penalties, suspensions or terminations could have a material adverse effect on our financial condition and results of operations.

Furthermore, the explosion and sinking in April 2010 of the Deepwater Horizon oil rig during operations on the Macondo exploration well in the Gulf of Mexico, and the resulting oil spill, may have increased certain of the risks faced by those drilling for oil in ~~deepwater~~deep-water regions, including increased industry standards, governmental regulation and enforcement, and less favorable investor perception of the risk-adjusted benefits of ~~deepwater~~deep-water offshore drilling.

The occurrence of any of these factors, or the continuation thereof, could have a material adverse effect on our business, financial position or future results of operations.

We may not be able to commercialize our interests in any oil and natural gas produced from our Guinea Concession.

Our Concession is in the deepwater area offshore Guinea. Even if we find accumulations of hydrocarbons, we may not be able to commercialize our interests due to the geology, water depth, distance to shore, or a ready market for the hydrocarbons. Further, the development of the market for natural gas in West Africa is in its early stages. Currently there is no infrastructure to transport and process natural gas on commercial terms in Guinea, and the expenses associated with constructing such infrastructure ourselves may not be commercially viable given local prices currently paid for natural gas. Accordingly, there may be limited or no value derived from any natural gas produced from our Guinea Concession.

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Our insurance coverage may be insufficient to cover losses, or we could be subject to uninsured liabilities which could materially affect our business, results of operations or financial condition.

There are circumstances where insurance will not cover, or where it will be not sufficient to cover, the consequences of an event, or where we may become liable for costs incurred in events or incidents against which we either cannot insure or may elect not to have insured (whether on account of prohibitive premium costs or for other commercial reasons). Further, insurance covering certain matters (such as sovereign risk, terrorism and many environmental risks) may not be available to us. Moreover, we may be subject to large excess payments in the event a third party has a valid claim against us, and therefore may not be entitled to recover the full extent of our loss, or may decide that it is not economical to seek to do so. The realization of any significant liabilities in connection with our future activities could have a material adverse effect on our business, results of operations, financial condition and future cash flow.

There are risks associated with the drilling of oil and natural gas wells which could significantly reduce our revenues or cause substantial losses, impairing our future operating results. We may become subject to liability for pollution, blow-outs or other hazards, including those arising out of the activities of our third-party contractors. We intend to obtain insurance with respect to certain of these hazards, but such insurance likely will have limitations that may prevent us from recovering the full extent of such liabilities. The payment by us of such liabilities could reduce the funds available to us or could, in an extreme case, result in a total loss of our properties and assets. Moreover, oil and natural gas production operations are also subject to all the risks typically associated with such operations, including premature decline of reservoirs and the invasion of water into producing formations.

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We may incur a variety of costs to engage in business transactions, and the anticipated benefits of those transactions may never be realized.

As a part of our business strategy, we enter into business transactions, or significant investments in, other assets, particularly those that would allow us to produce oil and natural gas and generate revenue to fund our exploration activities. Any future acquisitions would be accompanied by risks such as:

diversion of our management’s attention from ongoing business concerns;

our potential inability to maximize our financial and strategic position through the successful development of the asset or assets acquired;

impairment of our relationship with our existing employees if we cannot hire employees to staff any new operations and our existing employees are required to staff both old and new operations; and

maintenance of uniform standards, controls, procedures and policies.

We cannot guarantee that we will be able to successfully integrate any business, products, technologies or personnel that we might acquire in the future, and our failure to do so could harm our business.

We have competition from other companies that have larger financial and other resources than we do, which puts us at a competitive disadvantage.

A large number of companies and individuals engage in drilling for gas and oil, and there is competition for the most desirable prospects. We are likely to face competition from international oil and gas companies, which already may have significant operations in a region, together with potential new entrants into such markets, any of which may have greater financial, technological and other resources than us. There is a high degree of competition for the discovery and acquisition of properties considered to have a commercial potential. We compete with other companies for the acquisition of oil

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and gas interests, as well as for the recruitment and retention of qualified employees and other personnel.

There can be no assurance that we will be able to continue to compete effectively with other existing oil and gas companies, or any new entrants to the industry. Any failure by us to compete effectively could have a material adverse effect on our business, results of operations, financial condition and future cash flow.

We do not have reserve reports for the Concession and our expectations as to oil and gas reserves are uncertain and may vary substantially from any actual production.

We doneither ~~not~~ have reserves nor ~~do we have~~ any reserve reports for the Concession. A reserve report is the estimated quantities of oil and gas based on reports prepared by third party reserve engineers. Reserve reporting is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. Expectations as to oil and gas reserves are uncertain and may vary substantially from any actual production.

Risks Relating to Operating in Guinea

We operate in the Republic of Guinea, a country which is considered a high-risk jurisdiction for corruption; such corruption could impair our ability to do business in the future or result in significant fines or penalties.

We have been the Operator in a Concession offshore the Republic of Guinea, a country where corruption has been known to exist. There is a risk of violating either the US Foreign Corrupt Practices Act, laws or legislation promulgated pursuant to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or Guinea anti-corruption regulations that generally prohibit the making of improper payments to foreign officials for the purpose of obtaining or keeping business.

The Republic of Guinea is largely a cash-based society and that creates additional internal control and related risks. We have been subject to investigations by the Department of Justice and Securities and Exchange Commission under the US Foreign Corrupt Practices Act ("FCPA") into how we obtained or retained the original Concession and, as a result, expended approximately $12.8 million in legal fees in working with the US Government. While those matters were resolved in 2015, should the DOJ, the SEC, or the Republic of Guinea open additional investigations regarding prior or current activities in the Republic Guinea or elsewhere, we do not have the financial ability to bear the costs related to any additional investigations and are unable to predict whether we would be able to raise the funds to properly defend the Company.

Geopolitical instability where we operate subjects us to political, economic and other uncertainties.

We conduct business in Guinea, which is in a region of the world where there have been prior civil wars, revolutions, coup d'’états and internecine conflicts. There is the risk of political violence and increased social tension in Guinea as a result of the past political upheaval, and there is a risk of civil unrest, crime and labor unrest at times. Since 2010, democratic elections have been held, a president was democratically elected and re-elected. While these developments indicate that the political situation in Guinea is improving, external or internal political forces potentially could create a political or military climate that might cause a change in political leadership, the outbreak of hostilities, or civil unrest. Such uncertainties could result in our having to cease our Guinea operations and result in the loss or delay of our rights under the PSC.

~~Further,~~ ~~we face political and economic risks and other uncertainties with respect to our operations, which may include, among other~~ ~~things:~~ 19

Realization of any of these factors could have a material adverse effect on our business, financial condition, results of operations and/or growth prospects. The Consortium's operations in Guinea also may be adversely affected by laws and policies of multiple jurisdictions.

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An2010, ~~Epidemic~~democratic ofelections ~~the~~have ~~Ebola~~been ~~virus~~held, ~~disease~~a president was democratically elected and re-elected. While these developments indicate that the political situation in Guinea is improving, external or internal political forces potentially could ~~adversely~~create ~~affect~~a political or military climate that might cause a change in political leadership, the outbreak of hostilities, or civil unrest. Such uncertainties could result in our ~~business~~having to cease our Guinea operations and ~~financial~~ ~~condition~~result in the loss or delay of our rights under the PSC.

~~There was an outbreak of the Ebola virus disease in Guinea. While the World Health Organization declared Guinea Ebola free on~~ ~~December 29~~ Further, ~~2015,~~we ~~any~~face ~~future~~political ~~outbreak~~and ofeconomic ~~the~~risks ~~Ebola~~and ~~virus~~other ~~will~~uncertainties ~~adversely~~with ~~affect~~respect to our ~~business~~ operations, ~~and~~which ~~financial~~may ~~condition.~~include, among other things:

~~Any drilling~~· ~~activities~~loss inof ~~Guinea~~future ~~will~~revenue, ~~require~~property ~~safe access to the Conakry airport~~ and ~~port~~equipment, as ~~well~~a asresult ~~other infrastructure in Guinea. If there is another Ebola virus outbreak, drilling plans will likely be delayed, could be compromised and costs~~ of ~~operations~~hazards ~~will~~such beas ~~increased. Further~~expropriation, ~~if contractors or subcontractors impose travel bans or personnel refuse to travel to Guinea~~war, ~~drilling~~ ~~plans~~acts ~~will be further delayed or interrupted after commencement. It is likely that the cost~~ of ~~any services could be significantly higher than planned which in turn could have a material adverse effect on our liquidity~~terrorism, ~~business,~~insurrection and ~~results~~other ofpolitical ~~operations.~~ risks;

We· ~~operate~~increases in ~~Guinea,~~taxes aand ~~country~~governmental ~~where corrupt behavior exists that could impair our ability to do business in the future or result in significant fines or penalties.~~ royalties;

We· ~~operate~~unilateral in Guinea, a country where governmental corruption has been known to exist. There is a risk of violating either the US Foreign Corrupt Practices Act, laws or legislation promulgated pursuant to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions or other applicable anti-corruption regulations that generally prohibit the making of improper payments to foreign officials for the purpose of obtaining or keeping business. In addition, the future success of our Guinea operations may be adversely affected by risks associated with international activities, including economic and labor conditions, political instability, risk of war, expropriation, terrorism, renegotiation or ~~modification~~cancellation of ~~existing~~ contracts, ~~tax~~by ~~laws~~governmental ~~and changes in exchange rates.~~ entities;

~~We have~~· ~~been~~difficulties ~~subject~~enforcing toour arights ~~Department~~against ofa ~~Justice~~governmental ~~and~~agency ~~Securities~~because ~~and~~of ~~Exchange Commission FCPA investigation into how we obtained or retained~~ the ~~Concession~~doctrine and spent approximately $12.8 million in legal fees in working with the US Government. Those matters were resolved in 2015, but should the DOJ, the SEC, or Guinea open additional investigations we currently do not have the financial ability to bear the cost of ~~additional~~sovereign ~~investigations~~immunity and ~~are~~foreign ~~unable~~sovereignty toover ~~predict~~international ~~whether we will be able to raise the funds to properly defend the Company.~~ operations;

changes in laws and policies governing operations of foreign-based companies; and

currency restrictions and exchange rate fluctuations.

Realization of any of these factors could have a material adverse effect on our business, financial condition, results of operations and/or growth prospects. The Consortium’s operations in Guinea also may be adversely affected by laws and policies of multiple jurisdictions.

An epidemic of the Ebola virus disease in Guinea could adversely affect our business operations and financial condition.

There was an outbreak of the Ebola virus disease in Guinea in 2013 to 2015. While the World Health Organization declared Guinea Ebola free on December 29, 2015, sporadic new cases of infection have occurred, and any future outbreak of the Ebola virus will adversely affect our business operations and financial condition.

Any drilling activities in Guinea will require safe access to the Conakry airport and port as well as other infrastructure in Guinea. If there is another Ebola virus outbreak, drilling plans will likely be delayed, could be compromised and costs of operations will be increased, which additional costs we may not be able to cover in a timely manner and thus we could lose our participating interest in the Guinea Concession. Further, if contractors or subcontractors impose travel bans or personnel refuse to travel to Guinea, drilling plans will be further delayed or interrupted after commencement. It is likely that the cost of any services could be significantly higher than planned which in turn could have a material adverse effect on our liquidity, business, and results of operations.

We are subject to governmental regulations, the cost of compliance with which may have an adverse effect on our financial condition, results of operations and future cash flow.

Oil and gas operations in Guinea will be subject to government regulation and to interruption or termination by governmental authorities on account of ecological and other considerations. It is impossible to predict future government proposals that might be enacted into law, future interpretation of existing laws or future amendments to the Guinea Petroleum Code or any other laws, or the effect those new or amended laws or changes in interpretation of existing laws might have on us. Restrictions on oil and gas activities, such as production restrictions, price controls, tax increases and pollution and environmental controls may have a material adverse effect on our financial condition, results of operations and future cash flows.

20 ~~Social, economic and health conditions in Guinea may adversely affect our business, results of operation, financial condition and future cash flow.~~

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~~acquisitions,~~ ~~disposals~~ Social, ~~imports~~economic and ~~exports,~~health ~~currency,~~conditions ~~environmental~~in ~~protection,~~Guinea ~~management~~may ofadversely ~~natural~~affect ~~resources~~our business, ~~exploration~~results ~~and development~~ of ~~mines~~operation, ~~labor~~financial ~~and~~condition ~~safety standards,~~ and ~~historical and cultural preservation). The costs associated with compliance with these laws and regulations are substantial, and possible~~ future ~~laws~~cash and regulations as well as changes to existing laws and regulations could impose additional costs on us, require us to incur additional capital expenditures and/or impose restrictions on or suspensions of our operations and delays in the development of our assetsflow.

As all of our potential revenue generating assets are currently located in Guinea, our operations are dependent on the economic and political conditions prevailing in Guinea. Accordingly, we are subject to the risks associated with conducting business in and with a foreign country, including the risks of changes in the country’s laws and policies (including those relating to taxation, royalties, acquisitions, disposals, imports and exports, currency, environmental protection, management of natural resources, exploration and development of mines, labor and safety standards, and historical and cultural preservation). The costs associated with compliance with these laws and regulations are substantial, and possible future laws and regulations as well as changes to existing laws and regulations could impose additional costs on us, require us to incur additional capital expenditures and/or impose restrictions on or suspensions of our operations and delays in the development of our assets.

Further, these laws and regulations may allow government authorities and private parties to bring legal claims based on damages to property and injury to persons resulting from the environmental, health and safety impacts of our past and current operations and could lead to the imposition of substantial fines, penalties or other civil or criminal sanctions. If material, these compliance costs, claims or fines could have a material adverse effect on our business, results of operations, financial condition and/or growth prospects. In addition, Guinea has high levels of poverty, crime, unemployment and an undeveloped health care system.

The legal and judicial system in Guinea is relatively undeveloped and subject to frequent changes, and we may be exposed to similar risks if we operate in certain other jurisdictions.

Guinea has a less developed legal and judicial system than more established economies which could result in risks such as: (i) effective legal redress in the courts of such jurisdictions, whether in respect of a breach of contract, law or regulation, or in an ownership dispute, being more difficult to obtain; (ii) a higher degree of discretion on the part of Governmental authorities who may be susceptible to corruption; (iii) the lack of judicial or administrative guidance on interpreting applicable rules and regulations; (iv) inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions; or (v) relative inexperience of the judiciary and courts in such matters. In Guinea and certain other jurisdictions, the commitment of local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating particular concerns with respect to the Concession or other licenses, permits or approvals required by us for the operation of our business, which may be susceptible to revision or cancellation, and legal redress may be uncertain or delayed. There can be no assurance that joint ventures, licenses, license applications or other legal arrangements will not be adversely affected by the actions of government authorities or others, and the effectiveness of and enforcement of such arrangements in these jurisdictions cannot be assured.

Risks Relating to Our ~~Common Stock~~ Securities

~~Uncertainties~~ You ~~and our present capital resources, absent a cash inflow, create substantial doubt we can continue as a going concern. If we do not obtain additional financing, we~~ could belose ~~forced~~all toof ~~curtail~~your ~~operations~~investment.

~~Due~~ An toinvestment ~~uncertainties~~in ~~related~~our tosecurities ~~the~~is ~~cost,~~speculative ~~pendency~~ and ~~ultimate~~involves ~~outcome~~a ofhigh ~~legal~~degree ~~proceedings~~of ~~and~~risk. ~~the~~Potential ~~costs~~investors ~~and~~should ~~outcome~~be ofaware ~~any ultra-deep~~that ~~water~~the ~~exploration~~value ~~well~~of toan beinvestment ~~drilled,~~in ~~there~~the isCompany ~~substantial~~may ~~doubt~~go ~~about~~down ~~our~~as ~~ability~~well ~~to continue~~ as aup. ~~going~~In ~~concern.~~addition, Ifthere wecan ~~are~~be ~~unable~~no tocertainty ~~obtain~~that ~~additional~~the ~~financing,~~market wevalue ~~could~~of bean ~~unable~~investment ~~to continue~~in ~~exploration~~the ~~and~~Company ~~execute~~will ~~our~~fully ~~business~~reflect ~~plan,~~its ~~and~~underlying wevalue. You could belose ~~forced~~your toentire ~~curtail operations~~investment.

We have obtained shareholder approval for a 1-for-2 to 1-for-6 reverse stock split, and in the event that our board of directors decides to effectuate such reverse split, it could adversely affect the liquidity of our common stock and market capitalization.

We may effectuate a between 1-for-2 and 1-for-6 reverse split of our common stock. On June 30, 2017, our board of directors approved a reverse stock split in that range and directed the Company to solicit the requisite votes of the stockholders of the Company for their approval of such reverse stock split by written consents in lieu of a special meeting. On August 10, 2017, we obtained shareholder approval for a reverse stock split in that range, with the exact reverse split

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ratio to be determined within that range by the board of directors in its sole discretion, and with such reverse stock split to be effective at such date and time, if at all, as determined by the board of directors in its sole discretion.

A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in our overall market capitalization. If the per share market price does not increase proportionately as a result of the reverse stock split, then the value of our Company as measured by our market capitalization will be reduced, perhaps significantly. This would also significantly reduce the number of shares of our common stock that are outstanding, and the liquidity of our common stock could be adversely affected and you may find it more difficult to purchase or sell shares of our common stock.

You may experience dilution of your ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.

In the future, we may issue our authorized but previously unissued equity securities, which would result in the dilution of the ownership interests of our present stockholders and the purchasers of our common stock offered hereby. The Company is authorized to issue an aggregate of 87,000,000 shares of common stock and 20,000,000 shares of "blank check" preferred stock. We may issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. We will need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise prices) below the price you paid for your stock.

If the stock purchase agreement with CLNG closes, you will experience immediate and substantial dilution of your ownership interest, and our stock price could be negatively impacted.

If the stock purchase agreement with CLNG closes (of which there is no assurance), we will issue to them 40,000,000 shares of common stock, and current shareholders will experience immediate and substantial dilution. If this purchase is completed, CLNG or its affiliate will own approximately 53% of our then outstanding common stock, and existing stockholders will hold only approximately 47%. The issuance of these shares, or other factors relating to the transaction, could cause our stock price to decline, perhaps significantly.

If the stock purchase agreement with CLNG closes, CLNG or its affiliate will own a majority of our outstanding voting stock and will have effective control of the Company and could preclude other stockholders from influencing significant corporate decisions.

If the stock purchase agreement with CLNG is completed, CLNG or its affiliate will own approximately 53% of our outstanding common stock and will have the ability to elect all of our directors as well as to exercise a controlling influence over other matters requiring stockholder approval, including approval of significant corporate transactions and dilutive share issuances, and may have significant control over our management and policies.

If the transaction closes, CLNG has informed us that it or its affiliate intends to appoint representatives who will form a majority of our board of directors, but no specific agreement has yet been entered into in this respect, nor have such director candidates been definitively identified. Such majority of directors would be able to effectively control the Company, by directing its business and controlling its finances, future issuances of stock and other securities, and otherwise. A new board of directors could decide to change, expand or contract the business plan of the Company in its discretion.

While the stock purchase agreement provides that Ray Leonard will remain President, Chief Executive Officer and a director of the Company, and Jason Davis will remain Chief Financial Officer, they may be removed as officers by the board (subject, in the case of Mr. Leonard, to the provisions of his employment agreement), and Mr. Leonard can be

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removed by, or not re-elected by, the stockholders in accordance with our certificate of incorporation and bylaws and Delaware law.

Future sales of our common stock or securities convertible or exchangeable for our common stock, or the perception that such sales might occur, may cause our stock price to decline and may dilute your voting power and your ownership interest in us.

If our existing stockholders or warrant or option holders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the price of our common stock could decline. The perception in the market that these sales may occur could also cause the price of our common stock to decline. Upon the effectiveness of the registration statement we have filed to register for resale certain shares of common stock by our stockholders or we could elect to file with respect to any other outstanding shares of common stock, any sales of those shares or any perception in the market that such sales may occur could cause the trading price of our common stock to decline. As of the date of effectiveness of such registration statement, such shares registered for resale will be freely tradable without restriction under the Securities Act of 1933.

The ability of our board of directors to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of the Company.

Our board of directors is authorized to issue up to 87,000,000 shares of common stock and 20,000,000 shares of preferred stock with powers, rights and preferences designated by it. (A total of 595 shares of Series A Preferred Stock are currently outstanding.) Shares of voting or convertible preferred stock could be issued, or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of the Company. The ability of the board of directors to issue such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of the Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance of such additional shares of preferred stock to persons friendly to the board of directors could make it more difficult to remove incumbent managers and directors from office even if such change were to be favorable to stockholders generally.

There currently is a limited market for our common stock and there can be no assurance that an active public market will ever develop. Failure to develop or maintain an active trading market could negatively affect the value of our common stock and make it difficult or impossible for you to sell your shares.

There is currently only a limited public market for shares of our common stock, and an active trading market may never develop. Our common stock is quoted on the OTC Markets. The OTC Markets is a thinly traded market and lacks the liquidity of certain other public markets with which some investors may have more experience. We may not ever be able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which is often a more widely-traded and liquid market. Some, but not all, of the factors which may delay or prevent the listing of our common stock on a more widely-traded and liquid market include the following: our stockholders' equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may be too low; our common stock may not be sufficiently widely held; we may not be able to secure market makers for our common stock; and we may fail to meet the rules and requirements mandated by the several exchanges and markets to have our common stock listed. Should we fail to satisfy the initial listing standards of the national exchanges, or our common stock is otherwise rejected for listing, and remains listed on the OTC Markets or is suspended from the OTC Markets, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.

We have not applied, and currently do not intend to apply, for the listing of our common stock on any national securities exchange. We do not currently meet the listing criteria of any such exchange, and no assurance can be given that we will at any time in the future.

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The price of our common stock historically has been volatile. This volatility may affect the price at which you could sell your common stock, and the sale of substantial amounts of our common stock could adversely affect the price of our common stock.

The closing price for our common stock has varied between a high of $12.9880 on ~~November 3~~January 4, ~~2015~~2017 and a low of $0.3637 on ~~June 29~~ July 26, 2016 for the fiscal year ended June 30, ~~2016~~2017. Since June 30, 2017, the closing price for our common stock has varied between a high of $2.05 and a low of $0.06. On ~~September 16~~November 14, ~~2016~~2017, the closing price of our common stock was $10.14. This volatility may affect the price at which an investor could sell the common stock, and the sale of substantial amounts of our common stock could adversely affect the price of our common stock. Our stock price is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market and other factors, including the other factors discussed in “— Risks Relating to Our Business and the Industry in Which We Operate”; variations in our quarterly operating results from our expectations or those of securities analysts or investors; downward revisions in securities analysts’ estimates; and announcement by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments.

20 Our common stock is currently subject to the "penny stock" rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.

Rule 15g-9 under the Exchange Act establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person's account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Our stock may be traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell your shares.

Until our common stock is listed on a national securities exchange such as the New York Stock Exchange or The Nasdaq Stock Market, we expect our common stock to remain eligible for quotation on the OTC Markets, or on another over-the-counter quotation system. In those venues, however, the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell his or her shares at or near bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may

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~~adversely affect~~deter ~~the~~broker-dealers ~~price~~from ofrecommending or selling our common stock~~. Our stock price is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market and other factors~~, ~~including~~ ~~the~~which ~~other~~may ~~factors~~further ~~discussed~~affect ~~in "—Risks Relating to Our Business and~~ the ~~Industry~~liquidity inof ~~Which We Operate"; variations in~~ our ~~quarterly~~common ~~operating~~stock. ~~results~~This ~~from~~would ~~our~~also ~~expectations~~make ~~or those~~it ofmore ~~securities~~difficult ~~analysts~~for ~~or investors; downward revisions in securities analysts' estimates; and announcement by~~ us orto ~~our~~raise ~~competitors of significant acquisitions, strategic partnerships, joint ventures or~~ capital ~~commitments~~.

~~Our~~ We ~~common~~do ~~stock~~not ~~was~~anticipate ~~delisted~~paying ~~from~~dividends ~~the New York Stock Exchange ("NYSE")~~ on ~~March 10,~~our ~~2015~~common ~~and we~~stock. Any ~~began~~return ~~trading~~ on ~~the~~your ~~OTCQX~~investment ~~market~~will onlikely ~~March 11,~~be ~~2015.~~limited ~~Delisting~~to ~~from~~ the ~~NYSE~~value ~~has limited the liquidity~~ of our common stock~~, and hinders our ability to raise additional capital as well as having other negative results~~.

~~Our~~ Cash dividends have never been declared or paid on our common stock, ~~was~~and ~~delisted~~we ~~from~~do ~~the~~not ~~NYSE~~anticipate insuch ~~March~~a ~~2015~~declaration ~~due~~or topayment ~~our~~for ~~failure~~the foreseeable future. We expect to ~~satisfy~~use ~~the~~future ~~NYSE's~~earnings, ~~continued~~if ~~listing~~any, ~~criteria.~~to ~~Our common~~fund ~~stock~~business isgrowth. ~~now~~Therefore, ~~traded~~stockholders onwill ~~the~~not ~~OTCQX~~receive ~~which~~any isfunds absent a ~~less~~sale ~~prestigious~~of ~~and~~their ~~less~~shares ~~active~~of ~~marketplace~~common stock. ~~Accordingly,~~If ~~liquidity~~we indo ~~the~~not ~~trading~~pay ofdividends, our common stock ismay ~~limited,~~be ~~which~~less ~~could~~valuable ~~limit~~because ~~the~~a ~~ability~~return on your investment will only occur if our stock price appreciates. We cannot assure stockholders of ~~shareholders~~ toa positive return on their investment when they sell ~~securities~~their inshares, ~~the~~nor ~~secondary~~can ~~market~~we ~~and~~assure ~~limit~~that ~~our~~stockholders ~~ability~~will tonot ~~raise~~lose ~~funds.~~the entire amount of their investment.

~~Trading~~ on We anare ~~over-the-counter~~a ~~quotation~~smaller ~~system~~reporting ~~could~~company ~~adversely~~and ~~affect~~we ~~our~~cannot ~~ability~~be tocertain ~~raise~~if ~~additional~~the ~~financing~~reduced ~~through~~disclosure ~~public~~requirements orapplicable ~~private~~to ~~sales~~smaller ofreporting ~~equity~~companies ~~securities~~will ~~and~~make ~~could~~our ~~also~~common ~~have other~~stock ~~negative~~less ~~results,~~attractive ~~including~~to ~~the loss of institutional investor interest and fewer business development opportunities~~investors.

We ~~may~~qualify ~~issue~~as ~~additional~~a ~~shares~~"smaller reporting company" (meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of ~~common~~a ~~stock~~parent incompany that is not a smaller reporting company, and we have a public float of less than $75 million as of the ~~future~~last business day of our most recently completed second fiscal quarter), which ~~could~~allows ~~adversely~~us ~~affect~~to take advantage of a number of exemptions from SEC disclosure requirements in our periodic reports and proxy statements, including, among other things, simplified executive compensation disclosures, only being required to provide two (rather than three) years of audited financial statements, and not being required to comply with the ~~market~~ ~~price~~requirements of Section 404 of the Sarbanes-Oxley Act that our ~~shares~~independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. Decreased disclosures in our SEC filings due to our status as a "smaller reporting company" may make it harder for investors to analyze our results of operations and financial prospects and may cause ~~dilution~~some investors to ~~existing~~find ~~stockholders~~our common stock less attractive because we rely on these exemptions, there may be a less active trading market for our common stock, and our stock price may be more volatile.

~~We will seek to raise funds through a variety of means and plan to issue additional shares of our common stock in the future which~~ ~~could~~ Certain ~~adversely~~provisions ~~affect the market price~~ of ~~our~~Delaware ~~shares.~~law ~~Significant~~and ~~sales of shares of~~ our ~~common~~charter ~~stock~~documents bymay ~~major~~impede ~~stockholders,~~ or ~~the~~discourage ~~public~~a ~~perception~~takeover, ~~that~~which ~~an offering or sale may occur also~~ could ~~have~~ anadversely ~~adverse~~impact ~~effect on~~ the market price of ~~shares of~~ our ~~common stock. Issuance of additional~~ shares ~~of common stock will dilute the percentage ownership interest of the existing stockholders, and may dilute the book value per share of our shares of common stock held by existing stockholders~~.

~~Sales~~ As ofa ~~substantial~~Delaware ~~amounts~~corporation, we are governed by anti-takeover provisions of ~~shares~~Section 203 of ~~our~~the Delaware General Corporation Law (the "DGCL") that prohibit certain publicly-traded Delaware corporations from engaging in a business combination with anyone who owns at least 15% of its common stock for a period of three years after the date of the transaction in which the ~~public~~person ~~market~~acquired ~~could~~the ~~harm~~15% ownership, unless the ~~market~~ ~~price~~certificate of incorporation or by-laws of the ~~shares~~corporation contain a provision expressly electing not to be governed by this anti-takeover statute, the merger or combination is approved in a prescribed manner, or the corporation does not have a class of voting stock that is listed on a national securities exchange or held by more than 2,000 stockholders of record. We are currently not subject to these restrictions; however, our certificate of incorporation and by-laws do not contain a provision electing not to be governed by this statute, and once our common stock is listed on a national securities exchange or held by more than 2,000 stockholders of record, we will become subject to these restrictions, which may discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the market price of our common stock.

~~The~~ Certain ~~sale~~other provisions of ~~substantial~~Delaware ~~amounts~~law and of ~~shares~~our certificate of ~~our~~incorporation ~~common~~and ~~stock~~bylaws ~~(including~~impose ~~shares~~various ~~issuable~~impediments ~~upon~~to ~~exercise~~the ability of ~~outstanding~~a ~~options~~third ~~and warrants~~party to ~~purchase~~acquire ~~shares)~~control ~~may~~of ~~cause~~us, ~~substantial~~even ~~fluctuations~~if a change in ~~the~~control ~~price~~would ofbe ~~shares~~beneficial ofto our ~~common~~existing ~~stock.~~stockholders, ~~Because~~or ~~investors~~could ~~may~~discourage bea ~~more~~potential ~~reluctant~~acquirer tofrom ~~purchase~~making ~~shares~~a oftender offer for our common stock. ~~following substantial~~In ~~sales~~addition, these provisions may frustrate or ~~issuances,~~prevent ~~the~~any ~~sale~~attempt ofby ~~shares~~our instockholders anto ~~offering~~replace ~~could~~or ~~impair~~remove our ~~ability~~current management by making it more difficult to ~~raise~~replace ~~capital~~or inremove ~~the~~our ~~near~~Board ~~term~~of Directors. These provisions include:

~~Delaware~~Ÿ ~~law~~no ~~and~~cumulative ~~our~~voting ~~charter~~in ~~documents may impede or discourage a takeover, which could adversely impact~~ the ~~market~~election ~~price~~ of ~~our shares.~~ directors;

~~We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third~~ ~~party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Certain provisions of Delaware law and our certificate of incorporation and bylaws could~~ ~~impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could~~ 25 ~~reduce the market price of our common stock.~~

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the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the Board of Directors or the resignation, death or removal of a director;

a requirement that special meetings of stockholders be called only by the chairperson of the board of directors, the chief executive officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of directors,

an advance notice requirement for stockholder proposals and nominations;

the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine; and

elimination of personal liability for breaches of fiduciary duty as a director, to the extent permitted under the Delaware law.

These restrictions, under certain circumstances, could reduce the market price of our common stock.

Any failure to maintain effective internal control over our financial reporting could materially adversely affect us.

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include in our annual reports on Form 10-K an assessment by management of the effectiveness of our internal control over financial reporting. In addition, at such time, if any, as we are no longer a "smaller reporting company," our independent registered public accounting firm will have to attest to and report on management's assessment of the effectiveness of such internal control over financial reporting. Based upon the last evaluation conducted as of June 30, 2017, our management concluded that our internal control over financial reporting was not effective as of such date to provide reasonable assurance to the Company's management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our management identified a material weakness in our internal control over financial reporting that occurred during our fiscal quarter ended March 31, 2017 and continued through June 30, 2017 and thereafter through the date of this filing, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During the fiscal year 2017, the Company has experienced turnover in its accounting group and as of June 30, 2017, it lacked a sufficient number of competent accounting personnel. This material weakness in our internal controls over financial reporting had a material adverse impact on our quarterly and annual financial close process and reporting. The Company is in the process of remediating this weakness by adding additional competent accounting personnel.

If we fail to maintain effective internal control over financial reporting, we may be unable to prevent or detect fraud or provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. This could result in a loss of investor confidence in the reliability of our financial statements, which in turn could negatively affect the price of our common stock.

In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and (if required in future) our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404(b). Our compliance with Section 404(b) may require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group. We may need to retain the services of additional accounting and financial staff or consultants with appropriate public company experience and technical accounting knowledge to satisfy the ongoing requirements of Section 404(b). We intend to review the effectiveness of our internal controls and procedures and make any changes management determines appropriate, including to achieve compliance with Section 404(b) by the date on which we are required to so comply.

***

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IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING THIS REPORT, POTENTIAL INVESTORS SHOULD KEEP IN MIND THAT OTHER POSSIBLE RISKS MAY ADVERSELY IMPACT THE COMPANY’S BUSINESS OPERATIONS AND THE VALUE OF THE COMPANY’S SECURITIES.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Information on Oil and Gas Properties is included in Item 1. Business above in this Annual Report on Form 10-K., and is incorporated herein by reference.

Our executive and administrative offices are located at 12012 Wickchester Lane, Suite 475, Houston, Texas 77079 where we lease 13,850 square feet of space pursuant to a lease agreement that expires in March 2020.

Item 3. Legal Proceedings

~~From~~ While there are currently no pending legal proceedings to which we are a party (or that are to our knowledge contemplated by governmental authorities) that we believe will have individually or in the aggregate, a material adverse effect on our business, financial condition or operating results, from time to time, we may become involved in various lawsuits and ~~our~~legal ~~subsidiaries~~proceedings ~~are~~that ~~involved~~arise in the ordinary course of business ~~disputes~~or otherwise. WeLitigation ~~are~~is ~~unable~~subject to ~~predict~~inherent ~~the~~uncertainties, ~~outcome~~and ofan adverse result in any such matters ~~when they~~could ~~arise.~~occur ~~Currently~~that ~~pending~~could ~~proceedings~~harm our business, financial condition or results of operation, including significant monetary damages or limitations on our ability to engage in our ~~opinion,~~business ~~will~~activities. ~~not~~Although we have adirector ~~material~~and ~~adverse~~officer ~~effect~~insurance, ~~upon~~in ~~our~~case ~~consolidated~~such ~~financial~~claims ~~statements.~~arise ~~The~~it ~~following~~may isnot apply to or fully cover any liabilities we may incur as a ~~description~~result of ~~certain~~these ~~disputes involving us~~lawsuits.

~~Tullow~~ The following are descriptions of certain concluded legal proceedings in which we were involved that have historical significance in relation to the discussions herein under "Business," "Management's Discussion and ~~Dana~~Analysis ~~Legal~~of ~~Actions~~ Financial Condition and Results of Operations" and elsewhere, and are included for reference purposes.

On January 11, 2016, we filed legal actions against members of the Consortium under the Joint Operating Agreement governing the oil and gas exploration rights offshore Guinea ("JOA") in the United States District Court for the Southern District of Texas and before the AAA against Tullow for their failure to meet their obligations under the JOAC. On January 28, 2016, the action in the Federal District Court was voluntarily dismissed by us and refiled in District Court in Harris County, Texas. On February 8, 2016 Tullow and Dana removed the case to Federal District Court.

On February 2, 2016, SCS filed an Application for Emergency Arbitrator and Interim Measures of Protection and requested the following relief: (a) expedite discovery prior to the constitution of the arbitral tribunal; (b) provide that the time period permitted by the parties' arbitration agreement for the selection of the arbitrators and the filing of any responsive pleadings or counterclaims be accelerated; (c) require Tullow, as the designated operator under the JOA, to maintain existing "well-planning activities"; (d) require Tullow to undertake and complete certain planning activities; and (e) require Tullow and Dana to join with SCS in completing the negotiation of an acceptable amendment to the PSC and to agree to a process that will result in the execution of the amendment. With the exception of limited relief regarding discovery and agreement by Tullow to maintain certain well plan readiness, the Emergency Arbitrator ruled on February 17, 2016, that SCS is not entitled to the emergency injunctive relief it requested. Further, the Emergency Arbitrator enjoined all parties to the dispute from pursuing parallel District Court proceedings. On February 12, 2016, the case was voluntarily stayed by us. SCS believes that it has exhausted all of its options for the pursuit of legal measures to require Tullow and Dana to drill the planned exploration well.

The AAA action seeks (1) a determination that Tullow and Dana are in breach of their contractual obligations and (2) the damages caused by the repeatedly delays in well drilling caused by the activities of Tullow and Dana. We determined to bring the legal actions only after it became apparent that Tullow and Dana would not move forward, despite many opportunities to do so, with petroleum operations. The action before the American Arbitration Association is ongoing, but neither the timing nor the outcome is known at this time. SCS expects that action will not conclude before 2017 at the earliest.

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Subsequent Event—Settlement of Claims with Tullow and Dana

On August 15, 2016, we entered into a Settlement and Release Agreement ("Settlement and Release") with Tullow and Dana with respect to our dispute in arbitration (American Arbitration Association, Case No: 01-16-0000-0679, styled SCS Corporation Ltd v. Tullow Guinea Ltd. and Dana Petroleum (E&P) Ltd.). Under the Settlement and Release, we released all claims against Tullow and Dana and Tullow and Dana (i) issued to the Government of Guinea a notice of withdrawal from the Concession and PSC effective immediately, (ii) transferred their interest in the long lead items previously purchased by the Consortium in preparation for the drilling of the Fatala well, and agreed to pay net cash of $686,570 to us. We also agreed to pay Dana a success fee based upon the certified reserves of the Fatala well if it results in a discovery. We will record the long lead items and a gain once they have been inspected and appropriately valued.

Shareholder Lawsuits

Beginning on March 13, 2014, two lawsuits styled as class actions were filed in the U.S. District Court for the Southern District of Texas against us and several then-current officers of the Company alleging that we made false and misleading statements that artificially inflated our stock prices. The lawsuits allege, among other things, that we misrepresented our compliance with the Foreign Corrupt Practices Act and anti-money laundering statutes and that we lacked adequate internal controls. The lawsuits seek damages based on Sections 10(b) and 20 of the Securities Exchange Act of 1934, although the specific amount of damages is not specified. On May 12, 2014, a shareholder filed a motion for appointment as lead plaintiff, which remains pending. One of the March 2014 lawsuits has now been dismissed voluntarily, and the parties to the remaining suit await the issuance of a scheduling order in that matter. We have assessed the status of the remaining March 2014 lawsuit and have concluded that an adverse judgment remains reasonably possible, but not probable. As a result, no provision has been made in the consolidated financial statements. We are unable to estimate a range of possible loss; however, in our opinion, the outcome of this dispute will not have a material effect on our financial condition and results of operations.

In addition, we have received demands from shareholders to inspect our books and records.

Iroquois Lawsuit

On May 9, 2012, a lawsuit was filed in the Supreme Court of the State of New York against us and all of our directors. The plaintiffs, five hedge funds, including Iroquois Master Fund Ltd., that invested in us in early 2012, allege that we breached an agreement with the plaintiffs, and that we and the directors made certain negligent misrepresentations relating to our drilling operations. Among other claims, the plaintiffs ~~allege~~alleged that we misrepresented the status of our drilling operations and the speed with which the drilling would be completed. The plaintiffs ~~advance~~advanced claims for breach of contract and negligent misrepresentation and ~~seek~~sought damages in the amount of $18.5 million plus pre-judgment interest. On ~~July 12, 2012, we and the directors moved to dismiss the suit for failure to state a claim as to all defendants and for lack of personal jurisdiction over the director defendants. On~~ June 19, 2013, the court dismissed the negligent misrepresentation claim but declined to dismiss the breach of contract claim. ~~The negligent misrepresentation claim was dismissed without prejudice, meaning plaintiffs could attempt to refile it.~~ On August 12, 2013, the plaintiffs filed an amended complaint. That complaint ~~names~~named only us and ~~seeks~~sought recovery for alleged breaches of contract. ~~We filed an answer to the~~ plaintiffs' amended complaint on September 9, 2013, and the court has entered a scheduling order governing pre-trial proceedings in the matter. The maximum possible loss is the full amount of $18.5 million plus interest accrued thereon until judgment. We, however, have assessed the status of this matter and have concluded that although an adverse judgment is reasonably possible, it is not probable. As a result, no provision has been made in the consolidated financial statements. In our opinion, the outcome of this dispute will not have a material effect on our financial condition and results of operations.

On December 31, 2016, we entered into a settlement agreement with the five hedge funds in this lawsuit. Under the terms of the settlement agreement, Hyperdynamics would issue to the plaintiffs a total of 600,000 new shares of common stock, and it would cause a payment to be made of $1.35 million in cash that would be covered under its directors' and officers' insurance policy. The plaintiffs are restricted from selling the shares of common stock before April 1, 2017 under the terms of the agreement.

On January 26, 2017, an order to approve the settlement agreement was entered in the Supreme Court of the State of New York, New York County and subsequently approved by the Court on the same day.

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On January 11, 2017, a payment of $1.35 million was made by the insurance underwriters of the Company's directors' and officers' insurance policy to the hedge funds in the Iroquois lawsuit on behalf of the Company. On February 2, 2017, the Company issued 600,000 shares of its common stock to the hedge funds named in the settlement agreement.

Tullow and Dana Legal Actions

On January 11, 2016, we filed legal actions against members of the Consortium under the Joint Operating Agreement governing the oil and gas exploration rights offshore Guinea ("First JOA") in the United States District Court for the Southern District of Texas and before the AAA against Tullow for their failure to meet their obligations under the First JOA. On January 28, 2016, the action in the Federal District Court was voluntarily dismissed by us and refiled in District Court in Harris County, Texas. On February 8, 2016 Tullow and Dana removed the case to Federal District Court.

On February 2, 2016, SCS filed an Application for Emergency Arbitrator and Interim Measures of Protection and requested the following relief: (a) expedite discovery prior to the constitution of the arbitral tribunal; (b) provide that the time period permitted by the parties' arbitration agreement for the selection of the arbitrators and the filing of any responsive pleadings or counterclaims be accelerated; (c) require Tullow, as the designated operator under the First JOA, to maintain existing "well-planning activities"; (d) require Tullow to undertake and complete certain planning activities; and (e) require Tullow and Dana to join with SCS in completing the negotiation of an acceptable amendment to the PSC and to agree to a process that will result in the execution of the amendment. With the exception of limited relief regarding discovery and agreement by Tullow to maintain certain well plan readiness, the Emergency Arbitrator ruled on February 17, 2016, that SCS is not entitled to the emergency injunctive relief it requested. Further, the Emergency Arbitrator enjoined all parties to the dispute from pursuing parallel District Court proceedings. On February 12, 2016, the case was voluntarily stayed by us.

The AAA action sought (1) a determination that Tullow and Dana were in breach of their contractual obligations and (2) the damages caused by the repeated delays in well drilling caused by the activities of Tullow and Dana. We determined to bring the legal actions only after it became apparent that Tullow and Dana would not move forward, despite many opportunities to do so, with petroleum operations. SCS believed that it exhausted all of its options for the pursuit of legal measures to require Tullow and Dana to drill the planned exploration well.

On August 15, 2016, we subsequently entered into a Settlement and Release Agreement with Tullow and Dana ("Settlement and Release") with respect to our dispute in arbitration. Under the Settlement and Release, we released all claims against Tullow and Dana and Tullow and Dana (i) issued to the Government of Guinea a notice of withdrawal from the Concession and PSC effective immediately, (ii) transferred their interest in the long lead items of well construction material previously purchased by the Consortium in preparation for the initial drilling of the Fatala well, and agreed to pay net cash of $0.7 million to us. We also agreed to pay Dana a success fee which is based upon $50,000 per million barrels upon declaration of the certified commercial reserves of the Fatala-1 well, if it results in a discovery.

Item 4. Mine Safety Disclosures

Not Applicable.

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PART II

Item 5. Market for Registrant'’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

~~Price~~ Market ~~Range~~Information ofand ~~Common Stock~~ Holders

~~Shares~~ Our ~~of our~~ common stock, ~~for~~trades ~~the periods presented below, were traded~~ on the ~~NYSE~~QX ~~through~~Tier ~~March 10,~~of ~~2015~~OTC ~~and~~Markets ~~traded on the~~ (OTCQX ~~since March 11~~), ~~2015.~~under ~~The following table sets forth~~ the ~~quarterly~~symbol ~~high and low sales prices per share for our common stock, as reported by the NYSE and the OTCQX exchanges for the respective periods~~"HDYN. "

	High		Low
Fiscal 2016:
Fourth Quarter	$	0.60	$	0.36
Third Quarter		1.24		0.39
Second Quarter		1.98		0.80
First Quarter		0.90		0.53
Fiscal 2015:
Fourth Quarter	$	1.30	$	0.39
Third Quarter		0.90		0.17
Second Quarter		1.75		0.77
First Quarter		3.25		1.78

As of November 14, 2017, we had 35,572,445 shares of our common stock issued and outstanding held by approximately 142 stockholders of record.

On ~~September 16, 2016, the last price for our common stock as reported by the OTCQX was $1.14 per share, and there were approximately 57 stockholders of record of the common~~ ~~stock.~~ 28

Dividends

Equity Compensation Plan Information

The following table gives aggregate information under all equity compensation plans of Hyperdynamics as of June 30, 2016.

Equity Compensation Plan Information

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)
	A		B		C
Equity compensation plans approved by security holders		1,016,997	$	5.03		945,710
Equity compensation plans not approved by security holders		N/A		N/A		N/A

Total		1,016,997	$	5.03		945,710

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~~The~~ ~~Stock~~ The ~~and~~following ~~Stock~~table ~~Option~~sets ~~Plan~~forth (the ~~"1997~~quarterly ~~Plan")~~high ofand ~~Hyperdynamics~~low ~~was~~closing ~~adopted~~bid ~~May 7,~~prices ~~1997~~per ~~and~~share ~~amended~~for onour ~~December 3,~~common ~~2001,~~stock on ~~January 21,~~the ~~2005,~~QX ~~and~~Tier ~~on February 20,~~of ~~2008~~the OTC Markets. The ~~total~~quotations ~~number~~reflect ofinter-dealer ~~shares~~prices, ~~authorized~~without ~~under~~retail ~~the Plan~~mark-up, asmark-down ~~amended,~~or ~~was~~commission ~~1,750,000.~~and ~~The~~may ~~Board~~not ~~terminated~~represent ~~the~~actual ~~1997~~transactions. ~~Plan~~Our ~~effective~~common ~~upon~~stock ~~stockholder~~is ~~approval~~thinly traded and, thus, pricing of ~~the~~our ~~2010~~common ~~Equity Incentive~~stock ~~Plan~~on ~~(the~~OTC ~~"2010~~Markets ~~Plan").~~does not necessarily represent its fair market value.

Our 2008 Restricted Stock Award Plan (the "2008 Plan") was adopted on February 20, 2008. The total number of shares authorized under the 2008 Plan was 375,000. The Board terminated the 2008 Plan effective upon stockholder approval of the 2010 Plan.


	High		Low
Fiscal 2017:
Fourth Quarter	$	1.78	$	1.42
Third Quarter		2.77		0.70
Second Quarter		2.42		1.11
First Quarter		1.25		0.35

Fiscal 2016:
Fourth Quarter	$	0.57	$	0.35
Third Quarter		1.25		0.32
Second Quarter		1.97		0.78
First Quarter		0.81		0.45

On ~~February 18,~~ On ~~2010,~~November ~~at our annual meeting of stockholders~~14, ~~the board of directors and stockholders approved the 2010 Plan. Subsequently~~2017, ~~on February 17, 2012,~~ the ~~2010 Plan~~last ~~was~~reported ~~amended~~sales toprice ~~increase~~for ~~the maximum shares issuable under the 2010 Plan from 625,000 shares to 1,250,000 shares and again on January 27, 2016, at~~ our ~~annual~~common ~~meeting~~stock ofas ~~stockholders,~~reported ~~the stockholders approved amending the 2010 Plan to increase the number of shares available for issuance~~ by ~~750,000~~OTC ~~shares~~Markets towas ~~2,000,000 shares~~$0.14 per share.

Dividends

We have not paid, and we do not currently intend to pay in the foreseeable future, cash dividends on our common stock. The current policy of our Board of Directors is to retain all earnings, if any, to provide funds for operation and expansion of our business. The declaration of dividends, if any, will be subject to the discretion of the Board of Directors, which may consider such factors as our results of operations, financial condition, capital needs and acquisition strategy, among others. Other than provisions of the Delaware Revised Statutes requiring post-dividend solvency according to certain measures, there are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock.

Securities Authorized for Issuance under Equity Compensation Plans

On February 18, 2010, at our annual meeting of stockholders, our Board of Directors and stockholders approved our 2010 Equity Incentive Plan (the "2010 Plan"). Subsequently, on February 17, 2012, the 2010 Plan was amended to increase the maximum shares issuable under the 2010 Plan from 625,000 shares to 1,250,000 shares and again on January 27, 2016, at our annual meeting of stockholders, the stockholders approved amending the 2010 Plan to increase the number of shares available for issuance by 750,000 shares to 2,000,000 shares.

The 2010 Plan provides for the grants of shares of common stock, restricted stock units or incentive stock options and/or nonqualified stock options to purchase our common stock to selected employees, directors, officers, agents, consultants, attorneys, vendors and advisors. Shares of common stock, options, or restricted stock can only be granted under the Plan within 10 years from the effective date of February 18, 2010.

The purpose of the Plan is to further our interest, and the interest of our subsidiaries and our stockholders by providing incentives in the form of stock or stock options to key employees, consultants, directors, and vendors who contribute materially to our success and profitability. We believe that our future success will depend in part on our continued ability to attract and retain highly qualified personnel as employees, independent consultants, and directors. The issuance of stock and grants of options will recognize and reward outstanding individual performances and contributions and will give such persons a proprietary interest in us, thus enhancing their personal interest in our continued success and progress. We pay wages, salaries, and consulting rates that we believe are competitive. We use the 2010 Plan to augment our compensation packages.

~~The~~ ~~following table provides a reconciliation of the securities remaining available for issuance as of June 30, 2016 under the 2010 Plan:~~ 29


Shares available for issuance, June 30, 2015	44,503
Stock options granted	(183,860	)
Restricted stock granted	—
Stockholder approved increase in shares issuable	750,000
Previously issued options cancelled or expired	335,067

Shares available for issuance, June 30, 2016	945,710

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The following table provides information as of June 30, 2017, with respect to the shares of common stock that may be issued under our existing equity compensation plans:

Equity Compensation Plan Information


				Number of Securities
				Remaining Available
				for Future Issuance
	Number of Securities			Under Equity
	to be Issued Upon	Weighted-Average		Compensation Plans
	Exercise of	Exercise Price of		(Excluding Securities
	Outstanding Options,	Outstanding Options,		Reflected in Column
Plan Category	Warrants, and Rights	Warrants and Rights		(A)
	A		B	C
Equity compensation plans approved by security holders(1)	1,110,165	$	3.19	267,912
Equity compensation plans not approved by security holders	N/A		N/A	N/A
Total	1,110,165	$	3.19	267,912

(1)

2010 Equity Incentive Plan

The following table provides a reconciliation of the securities remaining available for issuance as of June 30, 2017 under the 2010 Plan:


		2010 Plan
Shares available for issuance, June 30, 2016		945,710
Stock options granted		(498,500)
Restricted stock granted		(401,146)
Previously issued options cancelled or expired		221,848
Shares available for issuance, June 30, 2017		267,912

Item 6. Selected Financial Data

	Year ended June 30,
(In thousands, except earnings per share data)	2016			2015
Revenue	$	—		$	—
Full-Cost ceiling test write-down	$	(14,331	)	$	—
Loss from operations	$	(22,846	)	$	(13,394	)
Net loss	$	(22,846	)	$	(13,392	)
Basic loss per common share	$	(1.09	)	$	(0.64	)
Diluted loss per common share	$	(1.09	)	$	(0.64	)
Weighted Average Shares Outstanding		21,047			21,047
Cash and cash equivalents	$	10,327		$	18,374
Oil and Gas Properties	$	—		$	14,311
Total Assets	$	11,678		$	34,096
Long-Term Liabilities	$	—		$	—
Shareholder's Equity	$	9,935		$	32,428

The following table summarizes certain selected consolidated financial data for the periods presented. The selected historical financial data as of and for the years ended June 30, 2017 and 2016, has been derived from our audited consolidated financial statements, included elsewhere in this Report.

~~Item 7.~~ You should read the following information, together with "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations " and our consolidated financial statements and notes thereto included elsewhere in this Report.

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	Year ended June 30,
(In thousands, except loss per share data)	2017		2016
Revenue	$	—	$	—
Full-Cost ceiling test write-down	$	(13,316)	$	(14,331)
Loss from operations	$	(25,687)	$	(22,846)
Net loss	$	(21,526)	$	(22,846)
Net loss available to common stockholders	$	(23,037)	$	(22,846)
Basic loss per common share	$	(1.06)	$	(1.09)
Diluted loss per common share	$	(1.06)	$	(1.09)
Weighted Average Shares Outstanding		21,766		21,047

Cash and cash equivalents	$	2,454	$	10,327
Oil and Gas Properties	$	—	$	—
Total Assets	$	2,725	$	11,678
Long-Term Liabilities	$	2,030	$	—
Shareholder’s (Deficit) Equity	$	(3,987)	$	9,935

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Our corporate mission is to provide energy for the future by exploring for, developing new, and re-establishing pre-existing sources of energy. Our primary focus is the advancement of exploration work in Guinea. We have no source of operating revenue, and there is no assurance when we will, if ever. We have no operating cash flows, and we will require substantial additional funds, through additional participants, securities offerings, or through other means, to fulfill our business plans.

Our operating plan within the next 12 months includes the following:

Evaluating the results of the Fatala-1 exploration well

Gain acceptance for the application for the 2-year appraisal period over the entire concession and initiate the appraisal drilling program

Consider financing alternatives and other measures to pursue our exploration objectives offshore Guinea.

Analysis of changes in financial position

Our current assets decreased by $~~7,998,000~~8.9 million from $~~19,625,000~~11.6 million on June 30, ~~2015~~2016 compared to $~~11,627,000~~2.7 million on June 30, ~~2016~~2017. The decrease in current assets is primarily due to cash used for general and administrative expenditures, including costs incurred on legal matters in addition to a decrease in prepaid expenses by $1.3 million.

~~Our~~ Our long-term assets ~~decreased~~consists ~~$14,420,000,~~of ~~from~~property ~~$14,471,000~~and onequipment ~~June 30,~~and ~~2015,~~has toremained at $51,000 on June 30, ~~2016.~~2017 ~~This decrease was primarily due to our fully impairing the $14,331,000 of unproved oil~~ and ~~gas~~June ~~properties as of March 31~~30, 2016, ~~and also to the year over year depreciation of our fixed assets~~respectively.

~~Our~~ Our current liabilities increased $753.0 million,~~000,~~ from $1~~,668,000~~.7 million on June 30, ~~2015~~2016 compared to $~~1,743,000~~4.7 million on June 30, ~~2016.~~2017 due to increased spending for the Fatala-1 exploration well.

We ~~had~~ Our no long-term liabilities atincreased $2.0 million, from $0 on June 30, ~~2015~~2016 orto at$2.0 million on June 30, ~~2016~~2017. This increase was due to the inception of a derivative liability relating to warrants on preferred and common stock.

Results of Operations

Based on the factors discussed below, the net loss ~~attributable to common shareholders~~ for the year ended June 30, ~~2016~~2017, ~~increased~~ decreased by $91.3 million,~~452,000,~~ to a net loss of $~~22,846,000,~~21.5 million or $(1.0906) per basic and diluted share in ~~2016~~2017 from a net loss of $1322.8 million,~~392,000,~~ or $0(1.6409) per basic and diluted share in ~~2015~~2016.

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Reportable segments

We have one reportable segment: our international oil and gas exploration activities in Guinea conducted through our subsidiary SCS.

Comparison for Fiscal Years ~~2016~~2017 and ~~2015~~ 2016

Revenues. There were no revenues for the years ended June 30, ~~2016~~2017 and ~~2015~~2016.

Depreciation. Depreciation decreased 5456%, or $~~128~~61,000, from fiscal ~~2015~~2016 to fiscal ~~2016~~2017. Depreciation expense was $~~109~~48,000 and $~~237~~109,000 in the years ended June 30, ~~2016~~2017 and ~~2015~~2016, respectively. The decrease is primarily attributed to no asset additions in the current year and a portion of assets used in the prior year being fully depreciated in the current year.

~~Full impairment of unproved oil and gas properties. At March 31, 2016, we fully impaired our unproved oil and gas properties as~~ ~~discussed in~~ ~~Note 3, Investment in Oil and Gas Properties, which totaled $14.3 million.~~ 32

~~General, Administrative and Other Operating Expenses. Our general, administrative and other operating expenses were $8.4 million~~ ~~and~~ ~~$13.2 million~~ Table ~~for the years ended June 30, 2016 and 2015, respectively. This represents a decrease~~ of ~~36% or, $4.8 million from fiscal 2015 to fiscal 2016. The $4.8 million~~Contents ~~decrease in expense was attributable to a decrease in legal and other professional fees of $3.4 million, which can be attributed primarily to a decrease in legal and other professional fees~~ related to the FCPA investigations ($5.0 million) offset somewhat by increased legal and other professional fees related to our lawsuits against Tullow and Dana ($1.6 million). Additionally, we had a decrease in personnel related costs of approximately $1.8 million, which can be attributed to a decline in headcount as a result of fiscal 2015 and 2016 staff reductions. These factors resulting in decreased costs were partially offset by a partial year increase in our Director and Officer insurance costs of approximately $0.4 million.

~~Loss~~ General, ~~from~~Administrative ~~Continuing~~and ~~Operations. Primarily~~Other asOperating aExpenses. Our ~~result~~general, ofadministrative ~~the~~and ~~decrease~~other inoperating ~~general~~expenses ~~and~~were ~~administrative~~$12.3 ~~expenses~~million ofand $8.4~~,777,000,~~ ~~offset~~million by for the ~~full impairment~~years ofended ~~unproved~~June ~~oil~~30, 2017 and ~~gas~~2016, ~~properties~~respectively. This represents an increase of ~~$14,331,000,~~47% ~~our~~or ~~loss~~$3.9 million from ~~continuing~~fiscal ~~operations~~2016 ~~increased~~to byfiscal 2017. The $3.9~~,454,000,~~ ~~from~~million increase in expense was attributable mainly to an increase in Houston general and administrative contractor expense by $~~13,392,000~~4.2 million due to increased operations in Guinea. Included in the ~~year~~increase ~~ended~~is ~~June 30,~~salary ~~2015~~expense toby $~~22,846,000~~0.6 ~~for~~ million due to increased staff at the ~~year~~corporate ~~ended~~office ~~June 30,~~as ~~2016~~well as increased expense for travel and other employee expenses by $0.5 million.

Full-Cost ceiling test write-down. During fiscal year ended June 30, 2017, we had a full-cost ceiling test write-down of $13.3 million due to uncertainties surrounding the ability of the Company to continue operations and following the determination of non-commerciality of the Fatala-1 well ultimately fully impaired unproven oil and gas properties. During fiscal year ended June 30, 2016, we fully impaired our unproved oil and gas properties, which totaled $14.3 million.

Loss from Operations. Primarily as a result of the increase in general and administrative expenses of $3.9 million, offset by the decrease in the full-cost ceiling test write-down of $1.0 million, our loss from operations increased by $2.9 million from $22.8 million for the year ended June 30, 2016 to $25.7 million for the year ended June 30, 2017.

Other Income (expense). Other income increased by $4.2 million due to net gain on legal matters of $3.5 million and gain on warrant liability of $0.7 million.

Liquidity and Capital Resources

General

	Year Ended June 30,
	2016			2015
	2017			2016
Net cash used in operating activities	$	(810,~~027~~328)	)	$	(168,~~833~~027)	)
Net cash used in investing activities		(205,086)	)		(6320)	)
Net cash provided by financing activities		—7,541			—

DECREASE IN CASH AND CASH EQUIVALENTS		(7,873)			(8,047)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(8,047	)		(16,896	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		10,327			18,374
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		18,374			35,270
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	2,454		$	10,327

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	10,327		$	18,374

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Operating Activities

Net cash used in operating activities for the year ended June 30, ~~2016~~2017 was $810.0 3 million compared to $~~16.~~8 .0 million for the year ended June 30, ~~2015~~2016. The ~~decrease~~increase in cash used in operating activities is primarily attributable to ~~our~~a ~~$4.8 million~~ decrease in ~~General,~~prepaid ~~administrative and other operating~~ expenses ~~and~~ by ~~changes in working capital during the periods, primarily a~~ $41.1 million ~~working~~and ~~capital~~stock ~~change~~issued infor ~~accounts~~settlement ~~payable~~of ~~in the current year when compared to the previous year~~$1.3 million.

Investing Activities

Net cash used in investing activities for the year ended June 30, ~~2016~~2017 was $~~(20)~~5.1 ~~thousand~~million compared to $~~(63)~~20 thousand in the year ended June 30, ~~2015~~2016. Increase in cash used was due to investments in oil and gas properties.

Financing Activities

~~There~~ Net ~~was no~~ cash provided by financing activities ~~during~~for the ~~years~~year ended June 30, 2017 was $7.5 million compared to $0 for the year ended June 30, 2016. The increase in cash provided by financing activities is primarily attributed to the issuance of common stock, preferred stock and ~~2015~~warrants for $7.2 million and proceeds from the exercise of stock options and other items of $0.2 million.

33 ~~Liquidity~~

On June 30, 2016, we had $10.3 million in cash and $1.7 million in liabilities, all of which are current. We plan to use our existing cash to fund our general corporate needs and our expenditures associated with the Concession.

While the DOJ and SEC investigations are resolved, the investigations were costly and adversely affected our liquidity. We incurred approximately $7.5 million in legal and professional fees related to these investigations in the year ended June 30, 2014, approximately $5.2 million in the year ended June 30, 2015, and approximately $0.1 million in the year ended June 30, 2016 for a total of $12.8 million. The legal and professional fees related to legal actions taken against Tullow and Dana, as described in Note 8, could materially affect our liquidity.

The Consortium sent notice in July 2013 to the Government of Guinea of its intention to renew the second exploration period to September 2016 and the coordinates of the area to be relinquished as required under the PSC. A renewal of the second exploration period by the Minister of Mines and Geology occurs upon application when the work and expenditure obligations from the preceding period have been fulfilled. There has been no question raised by the Minister or others regarding satisfaction of these conditions.

The second and final exploration period may be extended with two months' notice prior to September 2016 to the Minister of Mines and Geology of Guinea for up to one additional year beyond September 2016 to allow the completion of a well in progress and for up to two additional years to allow the completion of the appraisal of any discovery made. Additionally, to satisfy the September 2013-2016 work requirement, one exploration well is required to be drilled, which is to be commenced by the end of September 2016, to a minimum depth of 2,500 meters below seabed.

On September 15, 2016, we executed a second amendment to our Production Sharing Contract where we received a one (1) year extension to September 22, 2017 and confirmed we are the holder of 100% and Operator of the Concession.

In turn, we agreed to drill one (1) exploratory well to a minimum depth of 2,500 meters below the seabed with a projected commencement of April 2017 and a budget of approximately $46,000,000.

Failure to comply with the drilling and other obligations of the PSC subjects us to risk of loss of the Concession. Continued delays have affected adversely the ability to explore the Concession and will diminish the attractiveness of the Concession to prospective industry participants and financing sources.

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~~Our~~ ~~costs related to the items referred to above and any additional expenses, or any negative outcomes, could adversely affect our liquidity and financial condition and results of~~ Liquidity operations. Absent cash inflows, we could exhaust our current available liquidity within the next twelve months. The timing and amount of our cash outflows are dependent on a number of factors including: a negative outcome related to any of our legal proceedings, inability to resume petroleum operations or drilling delays, joint operations expenditures and well costs exceeding our carry, or if we have unfavorable well results. As a result, absent cash inflows, there is substantial doubt as to whether we will have adequate capital resources to meet our current obligations as they become due and therefore be able to continue as a going concern. Our ability to meet our current obligations as they become due over the next twelve months, and to be able to continue exploration, will depend on obtaining additional resources through sales of additional interests in the Concession, equity or debt financings, or through other means, and the resumption of petroleum operations although no assurance can be given that any of these actions can be completed.

On June 30, 2017, we had $2.5 million in unrestricted cash and $4.7 million in current liabilities. On November 14, 2017, we had $0.7 million in unrestricted cash and $9.9 million in current liabilities. We plan to use our existing cash to fund our general corporate needs and our expenditures associated with the Concession.

We will need to raise further capital to pay off existing obligations and to develop and implement the appraisal program, if it is approved by the Government of the Republic of Guinea, which would likely include some additional exploration wells.

Our costs related to the items referred to above and any additional expenses, or any negative outcomes, could adversely affect our liquidity and financial condition and results of operations. Absent cash inflows, we will exhaust our current available liquidity within the next three months. The timing and amount of our cash outflows are dependent on a number of factors. As a result, absent cash inflows, there is substantial doubt as to whether we will have adequate capital resources to meet our current obligations as they become due and therefore be able to continue as a going concern. Our auditors have noted this concern in their opinion on our audited financial statements for the fiscal year ended June 30, 2017. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that we will be successful in carrying out our plans to obtain additional cash resources. If we are unable to obtain additional cash resources, we will not be able to continue operations.

Our ability to meet our current obligations as they become due over the next three months, and to be able to continue exploration, will depend on obtaining additional resources through sales of additional interests in the Concession, equity or debt financings, or through other means, and the resumption of petroleum operations, although no assurance can be given that any of these actions can be completed.

Contractual Commitments and Obligations

Disclosure of Contractual Obligations as of June 30, ~~2016~~ 2017

	Payments due by period ($thousands)
Contractual Obligations(1):	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
			Less than 1						More than 5
Operating Lease Obligations	$	1,506	$	—	$	791	$	715	$	—
Contractual Obligations (1):	Total		year		1-3 years		3-5 years		years

Operating Lease Obligations	$	1,114	$	399	$	715	$	—	$	—

(1) We are subject to certain commitments under the PSC as discussed in Item 1 above.

CRITICAL ACCOUNTING POLICIES

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those estimates that may have a significant effect on our financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 to our Consolidated Financial Statements. The following discussion of critical accounting policies addresses those policies that are both important to the portrayal of our financial condition and results of operations and require significant judgment and estimates. We base our estimates and judgment on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Oil and Gas Properties

We account for oil and natural gas producing activities using the full-cost method of accounting as prescribed by the SEC. Accordingly, all costs incurred in the acquisition, exploration, and development of oil and natural gas properties, including the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized. All selling, general and administrative corporate costs unrelated to drilling activities are expensed as incurred. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change, or to the extent that the sale proceeds exceed our capitalized costs. Depletion of evaluated oil and natural gas properties is computed on the units of production method based on proved reserves. The net capitalized costs of proved oil and natural gas properties are subject to a full cost ceiling limitation in which the costs are not allowed to exceed their related estimated future net revenues discounted at 10%, net of tax

29 34

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including the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized. All selling, general and administrative corporate costs unrelated to drilling activities are expensed as incurred. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change, or to the extent that the sale proceeds exceed our capitalized costs. Depletion of evaluated oil and natural gas properties is computed on the units of production method based on proved reserves. The net capitalized costs of proved oil and natural gas properties are subject to a full cost ceiling limitation in which the costs are not allowed to exceed their related estimated future net revenues discounted at 10%, net of tax considerations. In accordance with SEC release 33-8995, prices based on the preceding 12-months'’ average price based on closing prices on the first day of each month, or prices defined by existing contractual arrangements, are used in deriving future net revenues discounted at 10%, net of tax. The application of the full-cost method of accounting for oil and gas properties generally results in higher capitalized costs and higher depreciation, depletion and amortization rates compared to the successful efforts method of accounting for oil and gas properties.

Costs Excluded

Costs associated with unevaluated properties are excluded from amortization until evaluated. We review our unevaluated properties at the end of each quarter to determine whether the costs incurred should be transferred to the amortization base.

We We assess unproved property on a quarterly basis for possible impairment or reduction in value. We assess properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term under our concession; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. We assess our unproved properties on a country-by-country basis. During any period in which these factors indicate impairment, the adjustment is recorded through earnings of the period. As of March 31, 2016, based on our impairment assessment, we fully impaired the $14~~,331,000~~.3 million of unproved oil and gas properties. AtDuring the year ended June 30, ~~2016~~2017, we incurred a full-cost ceiling test write-down of $13.3 million and at June 30, 2017, we had no capitalized costs associated with our Guinea operations.

Environmental Obligations and Other Contingencies

Management makes judgments and estimates in accordance with applicable accounting rules when it establishes reserves for environmental remediation, litigation and other contingent matters. Provisions for such matters are charged to expense when it is probable that a liability has been incurred and reasonable estimates of the liability can be made. Estimates of environmental liabilities are based on a variety of matters, including, but not limited to, the stage of investigation, the stage of the remedial design, evaluation of existing remediation technologies, and presently enacted laws and regulations. In future periods, a number of factors could significantly change our estimate of environmental remediation costs, such as changes in laws and regulations, or changes in their interpretation or administration, revisions to the remedial design, unanticipated construction problems, identification of additional areas or volumes of contaminated soil and groundwater, and changes in costs of labor, equipment and technology. Consequently, it is not possible for management to reliably estimate the amount and timing of all future expenditures related to environmental or other contingent matters and actual costs may vary significantly from our estimates.

Share-Based Compensation

We follow ASC 718 which requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). ASC 718 also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. We account for non-employee share-based awards based upon the provisions of ASC 505-50, " “Equity-Based Payments to Non-Employees." ”

~~Item 7A. Quantitative and Qualitative Disclosures About Market Risk~~ 35

Our functional currency is the US dollar. We had, prior to their closures, some foreign currency exchange rate risk resulting from our in-country offices in Guinea and the United Kingdom and from

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~~certain~~ ~~costs~~ Off-Balance inSheet ~~our drilling program. US dollars are accepted in Guinea and many of our purchases and purchase obligations, such as our office lease in Guinea, were denominated in US dollars.~~Transactions However, our costs for labor, supplies, and fuel could have increased if the Guinea Franc, the Euro, or the Pound Sterling significantly appreciated against the US dollar. We did not hedge the exposure to currency rate changes. We do not believe our exposure to market risk to be material.

The Company did not engage in any "off-balance sheet arrangements" (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of June 30, 2017.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our functional currency is the US dollar. We had, prior to their closures, some foreign currency exchange rate risk resulting from our in-country offices in Guinea and the United Kingdom and from certain costs in our drilling program. US dollars are accepted in Guinea and many of our purchases and purchase obligations, such as our office lease in Guinea, were denominated in US dollars. However, our costs for labor, supplies, and fuel could have increased if the Guinea Franc, the Euro, or the Pound Sterling significantly appreciated against the US dollar. We did not hedge the exposure to currency rate changes. We do not believe our exposure to market risk to be material.

Item 8. Financial Statements and Supplementary Data

The Financial Statements and Supplementary Data information required hereunder is included in this report as set forth in the "Index to Financial Statements" on page F-1.

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HYPERDYNAMICS CORPORATION

Index to Financial Statements

TABLE OF CONTENTS

Report of Management on Internal control Over Financial Reporting		F-2
Report of Management on Internal Control Over Financial Reporting	F-2
Report of Independent Registered Public Accounting Firm—Hein & Associates LLP		F-3
Report of Independent Registered Public Accounting Firm – Hein & Associates LLP	F-3
Consolidated Balance Sheets as of June 30, 2016 and 2015		F-4
Consolidated Balance Sheets as of June 30, 2017 and 2016	F-4
Consolidated Statements of Operations for the fiscal years ended June 30, 2016 and 2015		F-5
Consolidated Statements of Operations for the fiscal years ended June 30, 2017 and 2016	F-5
Consolidated Statements of Shareholders' Equity for the fiscal years ended June 30, 2016 and 2015		F-6
Consolidated Statements of Shareholders' (Deficit) Equity for the fiscal years ended June 30, 2017 and 2016	F-6
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2016 and 2015		F-7
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2017 and 2016	F-7
Notes to Consolidated Financial Statements	F-8	~~F-8~~
Quarterly Results (Unaudited)	F-38	~~F-29~~
Supplemental Oil and Gas Information (Unaudited)	F-38	~~F-30~~

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REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Hyperdynamics Corporation (the "“Company"” or "“our"”), including the Company'’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company'’s internal control system was designed to provide reasonable assurance to the Company'’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Internal control over financial reporting includes the controls themselves, monitoring (including internal auditing practices), and actions taken to correct deficiencies as identified.

Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements. The design of an internal control system is also based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that an internal control will be effective under all potential future conditions. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance with respect to the financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

~~Management~~ Management assessed the effectiveness of the Company'’s internal control over financial reporting as of June 30, ~~2016~~2017. In making this assessment, management used the criteria for internal control over financial reporting described in Internal Control — Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission ("“COSO"”). Management'’s assessment included an evaluation of the design of the Company'’s internal control over financial reporting and testing of the operating effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company'’s Board of Directors. Based on this assessment, management has concluded that, as of June 30, ~~2016~~2017, the Company'’s internal control over financial reporting was ~~effective~~ineffective. During the fiscal year 2017, the Company has experienced turnover in its accounting group and as of June 30, 2017, it lacked a sufficient number of competent accounting personnel. This material weakness in our internal controls over financial reporting had a material adverse impact on our quarterly and annual financial close process and reporting. The Company is in the process of remediating this weakness by adding additional competent accounting personnel.

F-2

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To ~~the~~ Board of Directors and Shareholders of ~~Hyperdynamics Corporation Houston, Texas~~

We ~~have audited the accompanying consolidated balance sheets of~~ Hyperdynamics Corporation ~~and subsidiaries (the "Company") as of June 30, 2016 and 2015, and the related~~ consolidated statements of operations, shareholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

We ~~conducted~~ We ~~our~~have ~~audits~~audited inthe ~~accordance~~accompanying ~~with~~consolidated ~~the~~balance ~~standards~~sheets of ~~the~~Hyperdynamics ~~Public~~Corporation ~~Company~~and ~~Accounting~~subsidiaries ~~Oversight Board~~ (~~United~~the ~~States~~"Company"). ~~Those~~as ~~standards~~of ~~require~~June ~~that~~30, we2017 ~~plan~~ and ~~perform~~2016, ~~the~~and ~~audits to obtain reasonable assurance about whether~~ the related consolidated ~~financial~~ statements ~~are free~~ of ~~material misstatement. The Company is not required to have~~operations, ~~nor~~shareholders' ~~were~~(deficit) ~~we engaged to perform~~equity, anand ~~audit~~cash offlows ~~its internal~~for ~~control~~the ~~over~~years ~~financial~~then ~~reporting as of June 30, 2016~~ended. ~~Our~~These ~~audits~~consolidated ~~included consideration of internal control over~~ financial ~~reporting~~statements ~~as a basis for designing audit procedures that~~ are ~~appropriate~~ in the ~~circumstances,~~responsibility ~~but not for the purpose~~ of ~~expressing an opinion on~~ the ~~effectiveness of the~~ Company's ~~internal~~management. ~~control~~Our ~~over~~responsibility ~~financial~~is ~~reporting~~to ~~as of June 30, 2016. Accordingly, we~~ express noan ~~such~~ opinion. ~~An audit also includes examining,~~ on ~~a test basis, evidence supporting~~ the ~~amounts and disclosures in the~~ consolidated financial statements, ~~assessing~~based ~~the accounting~~on ~~principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that~~ our audits ~~provide a reasonable basis for our opinion~~.

In We conducted our ~~opinion,~~audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements ~~referred~~are free of material misstatement. The Company is not required to ~~above~~have, ~~present~~nor ~~fairly~~were we engaged to perform, inan ~~all~~audit ~~material~~of ~~respects~~its internal control over financial reporting as of June 30, ~~the~~2017. ~~consolidated~~Our audits included consideration of internal control over financial ~~position~~reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of ~~Hyperdynamics~~expressing ~~Corporation~~an ~~and subsidiaries~~opinion on the effectiveness of the Company’s internal control over financial reporting as of June 30, ~~2016~~2017. ~~and~~Accordingly, ~~2015~~we express no such opinion. An audit also includes examining, ~~and~~on ~~the~~a ~~results~~test ofbasis, ~~their~~evidence ~~consolidated~~supporting ~~operations~~the amounts and ~~their~~disclosures in the consolidated ~~cash~~financial ~~flows~~statements, ~~for~~assessing the ~~years~~accounting ~~then~~principles ~~ended~~used and significant estimates made by management, inas ~~conformity~~well ~~with~~as ~~U.S.~~evaluating ~~generally accepted~~the ~~accounting~~overall ~~principles~~consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~The~~ ~~accompanying~~ In ~~consolidated~~our ~~financial~~opinion, ~~statements have been prepared assuming that~~ the ~~Company~~consolidated ~~will~~financial ~~continue~~statements asreferred ato ~~going~~above ~~concern.~~present Asfairly, ~~discussed~~ in ~~Note 1~~all tomaterial respects, the consolidated financial ~~statements,~~position ~~the absence~~ of ~~cash~~Hyperdynamics ~~inflows~~Corporation ~~raises~~and ~~substantial~~subsidiaries ~~doubt about the Company's ability to continue~~ as aof ~~going~~June ~~concern.~~30, ~~Management's~~2017 ~~plans~~and in2016, ~~regard~~and tothe ~~these~~results ~~matters~~of ~~are~~their ~~also discussed in Note 1 to the~~ consolidated ~~financial~~operations ~~statements.~~and ~~The~~their consolidated ~~financial~~cash ~~statements~~flows dofor ~~not~~the ~~include~~years ~~any~~then ~~adjustments~~ended, ~~that~~in ~~might~~conformity ~~result~~with ~~from~~U.S. ~~the~~generally ~~outcome~~accepted ofaccounting ~~this uncertainty~~principles.

~~/s/~~ ~~Hein &~~ The ~~Associates LLP~~accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the working capital deficit and stockholders’ deficit, along with the absence of cash inflows, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~Houston,~~ ~~Texas September 22,~~ /S/ ~~2016~~Hein & Associates LLP

Houston, Texas

November 15, 2017

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HYPERDYNAMICS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Number of Shares and Per Share Amounts)

	June 30, 2016			June 30, 2015
	June 30,			June 30,
ASSETS
	2017			2016
Current assets:
ASSETS
Cash and cash equivalents	$	10,327		$	18,374
Current assets
Prepaid expenses		1,294			1,170
Restricted cash	$	75		$	—
Other current assets		6			81
Unrestricted cash and cash equivalents		2,454			10,327

Prepaid expenses		35			1,294
Total current assets		11,627			19,625
Other current assets		110			6
Property and equipment, net of accumulated depreciation of $2,075 and $1,983		51			160
Total current assets		2,674			11,627
Unproved oil and gas properties excluded from amortization (Full-Cost method)		—			14,311
Property and equipment, net of accumulated depreciation of $2,109 and $2,075		51			51

Unproved oil and gas properties excluded from amortization (Full-Cost method)		—			—
		51			14,471
Total long-term assets		51			51

Total assets	$	2,725		$	11,678
Total assets	$	11,678		$	34,096
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

Current Liabilities

Accounts payable and accrued expenses	$	4,682		$	1,743

Total current liabilities		4,682			1,743
LIABILITIES AND SHAREHOLDERS' EQUITY
Warrants derivative liability		2,030			—
Current Liabilities—Accounts payable and accrued expenses	$	1,743		$	1,668
Total Liabilities		6,712			1,743

Commitments and contingencies (Note 8)		—			—
Commitments and contingencies (Note 8)		—			—
Shareholders' (deficit) equity
Shareholders' equity:
Preferred stock, $0.001 par value; 20,000,000 authorized, 1,951 and 1,791 shares issued and outstanding as of June 30, 2017 and -0- issued and outstanding on June 30, 2016		—			—
Preferred stock, $0.001 par value; 20,000,000 authorized, 0 shares issued and outstanding		—			—
Common stock, $0.001 par value, 87,000,000 shares authorized; 27,405,283 and 21,046,591 shares issued and outstanding as of June 30, 2017 and June 30, 2016, respectively		175			169
Common stock, $0.001 par value, 43,750,000 shares authorized; 21,046,591 shares issued and outstanding		169			169
Additional paid-in capital		325,355			317,757
Additional paid-in capital		317,757			317,404
Accumulated deficit		(329,517)			(307,991)
Accumulated deficit		(307,991	)		(285,145	)
Total shareholders' (deficit) equity		(3,987)			9,935

Total liabilities and shareholders' (deficit) equity	$	2,725		$	11,678
Total shareholders' equity		9,935			32,428

Total liabilities and shareholders' equity	$	11,678		$	34,096

The accompanying notes are an integral part of these consolidated financial statements.

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HYPERDYNAMICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Number of Shares and Per Share Amounts)

	Years Ended June 30,
	2016			2015
	2017			2016
Costs and expenses:
Depreciation	$	~~109~~48		$	~~237~~109
General, administrative and other operating		812,~~406~~323			138,~~157~~406
Full impairment of unproved oil and gas properties		14,331			—
Full-Cost ceiling test write-down		13,316			14,331

Loss from operations		25,687			22,846
Loss from operations		(22,846	)		(13,394	)
Other income (expense):

Gain on settlement agreement		4,764			—
Other income (expense):
Cost of legal settlement		(1,308)			—
Interest income		—			2
Unrealized gain on change in warrants derivative liability		705			—

Total other income (expense)		4,161			—
Total other income (expense)		—			2
Loss before income tax		(21,526)			(22,846)

Income tax		—			—
Loss before income tax		(22,846	)		(13,392	)
Net loss		(21,526)			(22,846)
Income tax		—			—
Non-cash preferred dividend		(1,511)			—

Net loss available to common stockholders	$	(23,037)		$	(22,846)
Net loss	$	(22,846	)	$	(13,392	)
Basic and diluted loss per common share	$	(1.06)		$	(1.09)

Weighted average shares outstanding - basic and diluted		21,765,985			21,046,591


Basic and diluted loss per common share	$	(1.09	)	$	(0.64	)



Weighted average shares outstanding—basic and diluted		21,046,591			21,046,591

The accompanying notes are an integral part of these consolidated financial statements.

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HYPERDYNAMICS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS'’ (DEFICIT) EQUITY

(In Thousands, Except Number of Shares)

	Common Stock
											Additional
							Additional Paid- in Capital			Accumulated Deficit
	Common Stock					Preferred Stock					Paid-in			Accumulated
	Shares		Amount	~~Amount~~		Shares		Amount			Capital		~~Total~~	Deficit		Total
Balance, July 1, 2014		21,046,591		$	169		$	316,760		$	(271,753	)	$	45,176
Balance, July 1, 2015	21,046,591		$	169		—		$	—		$	317,404		$	(285,145)	$	32,428

Net loss	—			—		—			—			—			(22,846)		(22,846)

Amortization of fair value of stock options	—			—		—			—			353			—		353

Balance, June 30, 2016	21,046,591		$	169		—		$	—		$	317,757		$	(307,991)	$	9,935
Net loss	—	—		—	—	—		—	—		~~(13,392~~	)—		~~(13,392~~	(21,526)		(21,526)
Amortization of fair value of stock options	—	—		—	—	—		~~644~~	—		—	190		~~644~~	—		190

Exercise of stock options	183,492			—		—			—			121			—		121
Balance, June 30, 2015		21,046,591		$	169		$	317,404		$	(285,145	)	$	32,428
Stock issued in lieu of cash bonuses	536,091			—		—			—			57			—		57

Stock issued for legal settlement	600,000			1		—			—			1,307			—		1,308

Stock issued for services	567,859			1		—			—			999			—		1,000

Common stock issued, net of fees	4,335,625			4		—			—			3,606			—		3,610
Net loss		—			—			—			(22,846	)		(22,846	)
Preferred stock issued, net of fees, discount, and preferred dividends of $1,511 associated with the beneficial conversion feature	—			—		1,951			—			1,238			—		1,238
Amortization of fair value of stock options		—			—			353			—			353
Conversion of preferred stock	135,625			—		(160)			—			—			—		—

Other	—			—		—			—			80			—		80
Balance, June 30, 2016		21,046,591		$	169		$	317,757		$	(307,991	)	$	9,935
Balance, June 30, 2017	27,405,283		$	175		1,791		$	—		$	325,355		$	(329,517)	$	(3,987)

The accompanying notes are an integral part of these consolidated financial statements.

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tested

HYPERDYNAMICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Years Ended June 30,
	2016			2015
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2221,~~846~~526)	)	$	(1322,~~392~~846)	)
Adjustments to reconcile net loss to net cash used in operating activities:		—			—
Depreciation		109			237
Gain on legal settlement		(4,079)			—
Full Impairment of unproved oil and gas properties		14,331			—
Depreciation		48			109
Stock based compensation		353			644
Loss on disposal of fixed assets		1			—
Changes in operating assets and liabilities:
Full-Cost ceiling test write-down		13,316			14,331
Increase in Prepaid expenses		(124	)		(338	)
Unrealized gain on change in warrants derivative liability		(705)			—
(Increase) decrease in Other current assets		75			(2	)
Stock based compensation		190			353
Increase (decrease) in Accounts payable and accrued expenses		75			(3,982	)
Stock issued in lieu of cash bonuses		57			—

Stock issued for settlement		1,308			—
Net cash used in operating activities		(8,027	)		(16,833	)
Cost of equity issuance for warrants		244			—

Changes in operating assets and liabilities:
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in Prepaid expenses		1,259			(124)
Sale of property and equipment		—			1
(Increase) decrease in Other current assets		(104)			75
Investment in oil and gas properties		(20	)		(64	)
Increase (decrease) in Accounts payable and accrued expenses		(337)			75

Net cash used in operating activities		(10,328)			(8,027)
Net cash used in investing activities		(20	)		(63	)
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment		(49)			—
DECREASE IN CASH AND CASH EQUIVALENTS		(8,047	)		(16,896	)
Increase in restricted cash		(75)			—
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		18,374			35,270
Proceeds from sale of 50% interest to SAPETRO		4,100			—

Investment in oil and gas properties		(9,062)			(20)
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	10,327		$	18,374
Net cash used in investing activities		(5,086)			(20)

CASH FLOWS FROM FINANCING ACTIVITIES:
SUPPLEMENTAL DISCLOSURES:
Common stock issued, net of stock issuance cost of $664		5,666			—
Interest paid in cash	$	—		$	—
Preferred stock issued, net of stock issuance cost of $308		1,643			—
Income taxes paid in cash	$	—		$	—
Other		111			—
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Proceeds from exercise of stock options		121			—
Accounts payable for oil and gas property	$	—		$	(12	)
Net cash provided by financing activities		7,541			—
DECREASE IN CASH AND CASH EQUIVALENTS		(7,873)			(8,047)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		10,327			18,374
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	2,454		$	10,327
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Capital expenditures in accounts payable at June 30, 2017	$	3,276		$	—
Stock issued to Pacific Drilling in lieu of cash	$	1,000		$	—
Investor warrants issued as part of equity offerings (reduction to equity)	$	2,492		$	—

The accompanying notes are an integral part of these consolidated financial statements.

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HYPERDYNAMICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of business

Hyperdynamics Corporation ("“Hyperdynamics,"” the "“Company,"” "“we,"” "“us,"” and "“our"”) is a Delaware corporation formed in March 1996. Hyperdynamics has two wholly-owned subsidiaries, SCS Corporation Ltd (SCS), a Cayman corporation, and HYD Resources Corporation (HYD), a Texas corporation. Through SCS’s ~~and~~branch ~~its wholly-owned subsidiary, SCS Guinea SARL (SCSG), which is a Guinea limited liability company formed under the laws of the Republic of Guinea ("Guinea")~~ located in Conakry, Guinea, Hyperdynamics focuses on oil and gas exploration offshore the coast of West Africa. Our exploration efforts are pursuant to a Hydrocarbon Production Sharing Contract, as amended (the "“PSC"”). We refer to the rights granted under the PSC as the "“Concession."” We began operations in oil and gas exploration, seismic data acquisition, processing, and interpretation in late fiscal 2002.

As As used herein, references to "“Hyperdynamics,"” "“Company,"” "“we,"” "“us,"” and "“our"” refer to Hyperdynamics Corporation and our subsidiaries, including SCS Corporation ~~Ltd~~ ~~("SCS")~~Ltd. The rights in the Concession offshore Guinea are held by SCS.

Status of our Business , Liquidity and Going Concern

We have no source of operating revenue and there is no assurance when we will, if ever. ~~On June 30, 2016, we had~~ $10.3 million in cash, and $1.7 million in liabilities, all of which are current liabilities. We plan to use our existing cash to fund our general corporate needs and our expenditures associated with the Concession.

On ~~December 31~~ On June 30, ~~2012~~2017, we ~~closed~~had a$2.5 ~~sale~~million toin ~~Tullow,~~unrestricted acash ~~subsidiary~~and of$4.7 ~~Tullow~~million ~~Oil plc,~~in accounts payable and accrued expense liabilities. As of athe ~~40%~~date ~~gross~~of ~~interest~~this infiling, the ~~Concession~~Company’s trade accounts payable and accrued expenses substantially exceeded our cash balances. We ~~Through~~have ~~June 30,~~no ~~2016,~~other wematerial ~~held~~commitments aother ~~37% participating~~than ~~interest,~~ordinary ~~with~~operating ~~Dana~~costs. ~~Petroleum, PLC~~Our ~~("Dana"),~~net ~~which~~working iscapital awill ~~subsidiary~~not ofbe sufficient to meet our corporate needs and Concession related activities for the ~~Korean~~year ~~National~~ending ~~Oil~~June ~~Corporation~~30, ~~holding~~2018. As of the ~~remaining~~date ~~23%~~of ~~interest~~this infiling, ~~the~~our ~~Concession.~~substantial Weworking ~~refer~~capital ~~to Tullow~~deficit, ~~Dana~~stockholders’ deficit and usabsence inof ~~the~~cash ~~Concession~~inflows raise substantial doubt about our ability to continue as ~~the~~a ~~"Consortium"~~going concern.

~~Pursuant~~ We are currently pursuing several avenues to raise funds including the ~~Share~~signing ~~Purchase~~of ~~Agreement~~a share purchase agreement for the sale of greater than 50% of our stock to CLNG for $6 million (~~"Tullow~~See ~~SPA"~~Note 9). ~~between~~These ~~Tullow~~funds ~~and~~are ~~us,~~not ~~Tullow~~sufficient ~~agreed~~ to pay off all of our ~~entire~~existing ~~participating~~trade ~~interest~~debts, ~~share~~therefore, ofwe ~~expenditures~~have ~~associated~~engaged in settlement discussions with ~~joint operations~~our increditors. ~~the~~If ~~Concession~~we upare tosuccessful in negotiating a ~~gross~~settlement ~~expenditure~~with ~~cap~~our ofexisting ~~$100 million~~trade ~~incurred~~creditors, ~~during~~and if we complete the ~~carry~~sale ~~period~~of ~~that~~our ~~began~~stock onto ~~September 21~~CLNG, ~~2013.~~we ~~Additionally,~~will ~~Tullow~~be ~~agreed~~able to pay ~~our participating~~down ~~interest~~a ~~share~~substantial portion of ~~future~~our ~~costs~~existing ~~for~~trade debts. If the ~~drilling~~transaction ofwith anCLNG ~~appraisal~~closes, of the ~~initial~~net ~~exploration~~proceeds ~~well~~will not be sufficient to cover current operating expenses and, if ~~drilled~~the two-year appraisal period in Guinea for which we have applied is granted, upwill not be sufficient to afund ~~gross~~operations ~~expenditure~~for ~~cap~~the ofappraisal ~~$100 million~~program. To meet any capital and operational needs over the next twelve months, the company will have to raise additional funds through farm-out, debt, or equity financings, which may not be available on acceptable terms to us or at all.

We ~~signed~~ On aAugust ~~non-binding~~15, ~~Memorandum~~2016, ofwe ~~Understanding~~entered ~~with~~into ~~the~~a ~~Government~~Settlement ~~of Guinea on August 19, 2016~~ and aRelease ~~second~~Agreement ~~amendment~~with toDana ~~the~~Petroleum, ~~PSC~~PLC (~~"2016 Amendment"~~“Dana”) ~~on September 15~~, ~~2016.~~ Asa ~~more~~subsidiary ~~fully~~of ~~described below,~~ the ~~2016~~Korean ~~Amendment~~National ~~gave~~Oil usCorporation, aand ~~one~~Tullow ~~year~~Guinea ~~extension~~Ltd. ~~to the PSC to September 22, 2017~~ (~~"PSC Extension Period"~~“Tullow”). ~~During~~ (the ~~PSC~~“Settlement ~~Extension~~Agreement”) ~~Period,~~that wereturned ~~agreed~~ to ~~drill~~ anus ~~exploration~~100% ~~well to a minimum depth~~ of ~~two~~the ~~thousand~~interest ~~five~~under ~~hundred~~the (2PSC,~~500)~~ ~~meters~~long-lead ~~below~~item ~~the~~property ~~seabed~~useful ~~for~~in anthe ~~estimated~~drilling ~~amount~~ of ~~forty~~an ~~six~~exploratory ~~million~~well, USand ~~Dollars (~~$~~46,000,000 USD)~~0.7 ~~The projected~~million ~~commencement~~in ~~date~~cash, ofin ~~drilling~~return offor ~~the exploration well is April 2017 with~~ a ~~currently~~mutual ~~estimated~~release ~~time to completion~~ of ~~42 days~~all claims. ~~Additional~~We ~~exploration~~also ~~wells~~agreed ~~may~~to bepay ~~drilled~~Dana ~~during~~a ~~the PSC~~success ~~Extension~~fee ~~Period.~~which ~~If the well~~ is ~~not~~based ~~drilled~~upon ~~within the PSC Extension Period~~$50,000 weper ~~will~~million ~~owe~~barrels ~~the~~upon ~~Government~~declaration of ~~Guinea~~ the ~~difference~~certified ~~between~~commercial ~~the~~reserves ~~actual~~of ~~expenditures related to~~ the Fatala-1 well, ~~and~~if ~~U.S. $46,000,000.~~it ~~Failure~~resulted toin ~~comply~~a discovery.

We executed a Second Amendment to the PSC (“Second PSC Amendment”) with the Government of Guinea on September 15, 2016, and received a Presidential decree that gave us a one-year extension to the second exploration period of the PSC to September 22, 2017 (“PSC Extension Period”) and became the designated operator of the Concession.

In addition to clarifying certain elements of the PSC, we agreed in the Second PSC Amendment to drill one exploratory well to a minimum depth of 2,500 meters below the seabed within the PSC Extension Period (the “Extension

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~~HYPERDYNAMICS~~Well”) ~~CORPORATION~~with the option of drilling additional wells. The extension well is the Fatala-1 well. Fulfillment of this work obligations exempts us from the expenditure obligations during the PSC Extension Period.

In ~~NOTES~~turn, TOwe ~~CONSOLIDATED~~retained ~~FINANCIAL~~an ~~STATEMENTS~~area equivalent to approximately 5,000-square kilometers in the Guinea offshore waters and took on the obligation to provide the Government of Guinea: (~~Continued~~1) A parent company guarantee for the well obligation, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis could result in a notice of termination with a 30-day period to cure), and (3) certain guarantees.

1. Additionally, ~~ORGANIZATION~~we ~~AND~~agreed ~~SIGNIFICANT~~to ~~ACCOUNTING~~limit ~~POLICIES~~the cost recovery pool to date to our share of expenditures in the PSC since 2009 (~~Continued~~estimated to be approximately $165.0 million net to our interest) and began to move into the territory of Guinea the long lead items we received in the Settlement Agreement that are currently stored in Takoradi, Ghana. The movement of approximately $1.6 million of the $4.1 million of equipment was started on January 29, 2017 and was completed on February 5, 2017. Finally, we agreed to allocate and administer a training budget during the PSC Extension Period for the benefit of the Guinea National Petroleum Office of approximately $0.25 million in addition to any unused portion of the training program under Article 10.3 of the PSC. The unused portion of the training program is now estimated to be approximately $0.2 million.

~~with~~ We also agreed to allocate up to a maximum total budget of $120,000 for the ~~drilling~~actual travel and ~~other~~operating ~~obligations~~expenses ofincurred by Guinea for its participation in the ~~PSC~~management asand ~~amended~~administration ~~subjects~~of usthe Concession, subject to ~~financial~~our ~~penalties~~review of receipts and alimited ~~risk~~to reimbursement of ~~loss~~actual costs. The unused portion of this budget is now estimated to be $22,000. Finally, we agreed that we would make available for the ~~Concession~~benefit of Guinea a virtual data room containing all seismic data in our possession relating to relinquished areas. We would not be agents of or work on behalf of Guinea, but would provide, at the request of Guinea during the PSC Extension Period, access to the virtual data room to interested third parties.

~~The~~ ~~continued~~ On ~~delays~~March 30, ~~have~~2017, ~~affected~~we ~~adversely~~entered into the ~~ability~~Farm-out toAgreement ~~explore~~with ~~the~~SAPETRO. ~~Concession~~On April 12, 2017 SCS, SAPETRO and ~~reduces~~Guinea ~~the~~executed ~~attractiveness~~a ofThird Amendment to the ~~Concession~~PSC (the "Third PSC Amendment") that was subject to ~~prospective~~the ~~industry~~receipt ~~participants~~of a Presidential Decree and ~~financing sources~~the closing of the Farm-out Agreement. ~~While~~The wePresidential ~~currently~~Decree ~~hold~~was ~~100~~signed on April 21, 2017 approving the assignment of 50% of SCS' participating interest in the ~~Concession,~~Guinea itconcession isto ~~unknown~~SAPETRO, ~~whether~~and weconfirmed ~~will~~the betwo ~~able~~companies' rights to ~~raise~~explore for oil and gas on our 5,000-square-kilometer Concession offshore the ~~necessary~~Republic ~~funds~~of toGuinea. ~~drill~~The contract required that drilling operations in relation to the ~~exploratory~~obligation well ~~during~~Fatala-1 (the ~~PSC~~ "Extension ~~Period.~~Well") were to begin no later than May 30, 2017 and provided that additional exploration wells may be drilled within the exploration period at the companies' option.

As described in Note 8, SCS filed parallel actions on January 11, 2016, in the United States District Court for the Southern District of Texas and before the American Arbitration Association ("AAA") against Tullow and Dana. The ~~legal~~Third ~~actions~~PSC ~~sought~~Amendment ~~(1) a~~further ~~determination~~reaffirmed ~~that~~clear ~~Tullow~~title ~~and Dana are in breach~~ of ~~their~~SAPETRO ~~contractual obligations~~ and ~~(2) orders requiring~~SCS ~~Tullow and Dana~~ to ~~move forward with well drilling activities offshore Guinea. In addition,~~ the ~~arbitration~~Concession ~~action~~as ~~seeks the damages caused by the repeated delays in~~ well ~~drilling~~as ~~resulting from~~amended the ~~activities~~security ofinstrument ~~Tullow~~requirements ~~and~~under ~~Dana. On January 28, 2016,~~ the ~~action in the Federal District Court was voluntarily dismissed by us and refiled in District Court in Harris County, Texas (the "Texas District Court")~~PSC. OnSCS ~~February 8, 2016 Tullow~~ and ~~Dana~~SAPETRO ~~removed~~agreed ~~the case~~ to ~~Federal~~joint ~~District Court. On February 2, 2016, SCS filed an Application for Emergency Arbitrator~~ and ~~Interim~~ ~~Measures~~several ofliability ~~Protection and requested the following relief: (a) expedite discovery prior~~ to the ~~constitution~~Government of ~~the~~Guinea arbitral tribunal; (b) provide that the time period permitted by the parties' arbitration agreement for the selection of the arbitrators and the filing of any responsive pleadings or counterclaims be accelerated; (c) require Tullow, as the designated operator under the JOA, to maintain existing "well-planning activities"; (d) require Tullow to undertake and complete certain planning activities; and (e) require Tullow and Dana to join with SCS in ~~completing~~respect ~~the negotiation of an acceptable amendment~~ to the PSC ~~and to agree to a process that will result in the execution of the amendment~~. ~~With the exception of limited relief~~ regarding discovery and agreement by Tullow to maintain certain well plan readiness, the Emergency Arbitrator ruled on February 17, 2016 that SCS is not entitled to the emergency injunctive relief it requested. Further, the Emergency Arbitrator enjoined all parties to the dispute from pursuing parallel Federal District Court proceeding. The Federal District Court action was voluntarily stayed by us on February 12, 2016.

~~Subsequently,~~ on SAPETRO ~~August 15, 2016, we entered into a Settlement~~ and ~~Release~~SCS ~~Agreement~~further ~~with~~agreed ~~Tullow~~that ~~and~~if ~~Dana~~SCS ~~("Settlement~~were ~~and~~unable ~~Release") with respect~~ to ~~our~~pay ~~dispute~~its inshare ~~arbitration (American~~of ~~Arbitration~~any ~~Association,~~Fatala-1 ~~Case~~well ~~No: 01-16-0000-0679~~costs, ~~styled~~SAPETRO ~~SCS~~could ~~Corporation Ltd~~elect v.to ~~Tullow~~pay ~~Guinea Ltd.~~for ~~and~~a ~~Dana~~portion ~~Petroleum~~of ~~(E&P) Ltd.).~~SCS's ~~Under~~Fatala-1 ~~the~~well ~~Settlement~~costs ~~and~~such ~~Release,~~amount ~~we released~~so ~~all~~long ~~claims~~as ~~against~~SCS ~~Tullow~~is ~~and~~not ~~Dana~~in ~~and~~default ~~Tullow and Dana (i) issued to the Government~~ of ~~Guinea~~either ~~a notice of withdrawal from~~ the ~~Concession and~~ PSC ~~effective~~or ~~immediately, (ii) transferred their interest in~~ the ~~long~~Farmout ~~lead~~Agreement. ~~items~~In ~~previously~~case ~~purchased~~SAPETRO byhad ~~the~~made ~~Consortium~~such inpayments ~~preparation~~ for ~~the~~a ~~drilling~~share of ~~the~~SCS's ~~Fatala~~costs ~~well~~of, ~~and~~SCS ~~agreed~~would tohave ~~pay~~been ~~net~~obligated ~~cash of $686,570~~ to ~~us. We~~assign ~~also agreed~~ to ~~pay~~SAPETRO ~~Dana~~ a ~~success~~2% ~~fee~~participating ~~based~~interest ~~upon the certified reserves of the Fatala well if it results~~ in ~~a discovery. We will record~~ the ~~long~~Concession ~~lead~~for ~~items~~each ~~and~~$1 million aof ~~gain~~SCS's ~~once~~costs ~~they~~paid ~~have~~by ~~been inspected and appropriately valued~~SAPETRO.

~~The~~ ~~timing~~ On ~~and~~May 21, ~~amount of our cash outflows are dependent on a number of factors including: a negative outcome related to any of our legal proceedings~~2017, ~~inability~~drilling ~~to resume petroleum~~ operations orcommenced ~~drilling~~upon ~~delays,~~the ~~well~~Pacific ~~costs~~Scirocco ~~exceeding~~drillship ~~our~~entering ~~carry,~~Guinean orcontinental ifshelf ~~we have unfavorable well results~~waters. ~~As a result, absent cash inflows, there is substantial doubt as to whether we will have adequate~~ capital resources to meet our current obligations as they become due and therefore be able to continue as a going concern. Our ability to meet our current obligations as they become due over the next twelve-months, and to be able

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~~HYPERDYNAMICS~~participating ~~CORPORATION~~interest in the PSC, the parties executed a Joint Operating Agreement governing the conduct of operations, and Hyperdynamics executed a parent guaranty of SCS's obligations as required by the Farm-out Agreement. On June 12, 2017, we delivered to SAPETRO a Final Adjustment Statement with the final calculation of past costs incurred by SCS in the amount of $0.7 million. After final review done by SAPETRO the Final Adjustment Statement was submitted to SAPETRO, under which SAPETRO paid to SCS $0.3 million.

On ~~NOTES~~July 12, TO2017, ~~CONSOLIDATED~~we ~~FINANCIAL~~obtained ~~STATEMENTS~~a ~~(Continued)~~letter from the Director General of the National Office of Petroleum of Guinea stating that in the event of an oil discovery at the end of the drilling of the Fatala-1 well, the government would have no objection to granting an additional period of two years to enable us to carry out the work of appraisal on the Concession.

1 On August 11, 2017, the actual drilling of the Fatala well commenced. The ~~ORGANIZATION~~drilling ~~AND~~operations ~~SIGNIFICANT~~were ~~ACCOUNTING~~completed ~~POLICIES~~following ~~(Continued)~~a non-commercial discovery on September 8, 2017, and the Fatala-1 well was plugged and abandoned.

to ~~continue~~ We ~~exploration,~~are ~~will~~awaiting ~~depend~~the ondecision ~~obtaining~~of ~~additional~~the ~~resources~~Government ~~through~~of ~~sales~~Guinea ofon ~~additional~~our ~~interests~~appraisal inapplication. ~~the~~There ~~Concession,~~can ~~equity~~be orno ~~debt~~assurance ~~financings~~that such application will be approved, or ~~through~~if ~~other~~it ~~means~~is, ~~although~~that noit ~~assurance can~~will be ~~given~~on ~~that~~terms ~~any~~acceptable to us. If the Government of ~~these~~Guinea ~~actions~~does ~~can~~not beapprove ~~completed~~our appraisal period application, the PSC will have terminated by its terms on September 21, 2017.

As more fully described in Note 6, between March 17 and April 26, 2017, we held four closings of a private placement offering (the “Series A Offering”) of an aggregate of 1,951 Units of our securities, at a purchase price of $1,000 per Unit. Each “Unit” consisted of (i) one share of the Company’s 1% Series A Convertible Preferred Stock, with a stated value of $1,040 per share (“Stated Value”), and (ii) a warrant (the “Series A Investor Warrant”) to purchase 223 shares of the Company’s common stock, exercisable from issuance until March 17, 2019, at an exercise price of $3.50 per share (subject to adjustment in certain circumstances). At the closings, we issued to the subscribers an aggregate of: (i) 1,951 Units of Series A Preferred Stock and (ii) the Series A Investor Warrants to purchase an aggregate of 435,073 shares of common stock.

The Company received an aggregate of approximately $2.0 million in gross cash proceeds, before deducting placement agent fees and expenses, legal, accounting and other fees and expenses, in connection with the sale of the Units in the Series A Offering. Katalyst Securities, LLC was engaged by the Company as placement agent (the “Placement Agent”) for the Series A Offering, on a reasonable best effort basis. We paid the Placement Agent a total of $0.2 million of cash fees and issued to the Placement Agent or its designees warrants (the “Placement Agent Warrants”) to purchase an aggregate of 51,650 shares of common stock.

On June 5, 2017, we held a closing of a private placement offering (the "Common Unit Offering") of an aggregate of 4,335,625 Units of our securities, at a purchase price of $1.46 per Unit. Each "Unit" consisted of (i) one share of our common stock, and (ii) a warrant (the "Common Unit Investor Warrant") to purchase three quarters (3/4) of a share of the Company's common stock, exercisable for two years from issuance, at an exercise price of $1.825 per whole share (subject to adjustment in certain circumstances). At the closing, we issued to the subscribers an aggregate of: (i) 4,335,625 shares of common stock and (ii) Common Unit Investor Warrants to purchase an aggregate of 3,251,726 shares of common stock. The Company received an aggregate of approximately $6.3 million in gross cash proceeds, before deducting placement agent fees and expenses, legal, accounting and other fees and expenses, in connection with the sale of the Units. The Company engaged Katalyst Securities, LLC as Placement Agent for the Common Unit Offering, on a reasonable best effort basis. At that closing, we paid the Placement Agent $0.6 million of cash fees and issued to the Placement Agent or its designees warrants (“Common Unit Placement Agent Warrants’) to purchase an aggregate of 303,502 shares of common stock.

On October 8, 2017, SAPETRO and Hyperdynamics agreed to a settlement of all of SAPETRO’s remaining obligations under the PSC and JOA for a payment to us of $4,924,000.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Hyperdynamics and its direct and indirect wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. ~~The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (SEC).~~

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The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (“SEC”).

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses at the balance sheet date and for the period then ended. We believe our estimates and assumptions are reasonable; however, such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates. Significant estimates and assumptions underlying these financial statements include:

estimates in the calculation of share-based compensation expense,

estimates in the value of our warrants derivative liability,

estimates made in our income tax calculations,

estimates in the assessment of current litigation claims against the company, and

estimates and assumptions involved in our assessment of unproved oil and gas properties for impairment.

We are subject to legal proceedings, claims, and liabilities that arise in the ordinary course of business. We accrue for losses when such losses are considered probable and the amounts can be reasonably estimated.

Cash and cash equivalents

Cash equivalents are highly liquid investments with an original maturity of three months or less. For the years presented, we maintained all of our cash in bank deposit accounts which, at times, exceed the federally insured limits.

Oil and Gas Properties

Full-Cost Method

We account for oil and natural gas producing activities using the full-cost method of accounting as prescribed by the SEC. Accordingly, all costs incurred in the acquisition, exploration, and development of oil and natural gas properties, including the costs of abandoned properties, dry holes, geophysical costs and annual lease rentals are capitalized. All selling, general and administrative corporate costs unrelated to drilling activities are expensed as incurred. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of capitalized costs to proved reserves would significantly change, or to the extent that the sale proceeds exceed our capitalized costs. Depletion of evaluated oil and natural gas properties would be computed on the units of production method based on proved reserves. The net capitalized costs of proved oil and natural gas properties are subject to quarterly impairment tests.

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HYPERDYNAMICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of capitalized costs to proved reserves would significantly change, or to the extent that the sale proceeds exceed our capitalized costs. Depletion of evaluated oil and natural gas properties would be computed on the units of production method based on proved reserves. The net capitalized costs of proved oil and natural gas properties are subject to quarterly impairment tests.

Costs Excluded from Amortization

Costs associated with unproved properties are excluded from amortization until it is determined whether proved reserves can be assigned to the properties. We review our unproved properties at the end of each quarter to determine whether the costs incurred should be transferred to the amortization base.

We assess unproved property on a quarterly basis for possible impairment or reduction in value. We assess properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term under our concession; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. We assess our unproved properties on a country-by-country basis. During any period in which these factors indicate an impairment, the adjustment is recorded through earnings of the period.

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Full-Cost Ceiling Test

At the end of each quarterly reporting period, the capitalized costs less accumulated amortization and deferred income taxes shall not exceed an amount equal to the sum of the following items: (i) the present value of estimated future net revenues of oil and gas properties (including future development and abandonment costs of wells to be drilled) using prices based on the preceding 12-months'’ average price based on closing prices on the first day of each month, or prices defined by existing contractual arrangements, discounted at 10%, (ii) the cost of properties not being amortized, and (iii) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, less related income tax effects ("“Full-Cost Ceiling Test"”).

~~The~~ The calculation of the Full-Cost Ceiling Test is based on estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing, and plan of development. The accuracy of any reserves estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing, and production subsequent to the date of the estimate may justify revision of such estimates. Accordingly, reserves estimates are often different from the quantities of oil and natural gas that are ultimately recovered. We have no proved reserves. We recognized a $13.3 million and $14.3 million Full-Cost Ceiling test write-down in the ~~year~~years ended June 30, ~~2016.~~2017 Noand ~~Full-Cost Ceiling test write-down was recognized in the year ended~~ June 30, ~~2015~~2016, respectively.

Property and Equipment, other than Oil and Gas

Property and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, generally three to five years.

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HYPERDYNAMICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

We account for income taxes in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("“ASC"”) 740, "“Income Taxes,"” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carryforwards. Valuation allowances are provided when recovery of deferred tax assets is not considered likely.

~~Tax~~ Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. As of June 30, ~~2016~~2017 and ~~2015~~2016, the Company has unrecognized tax benefits totaling $5.5 million.

~~Our~~ Our policy is to recognize potential accrued interest and penalties related to unrecognized tax benefits within income tax expense. For the years ended June 30, ~~2016~~2017 and ~~2015~~2016, we did not recognize any interest or penalties in our consolidated statements of operations, nor did we have any interest or penalties accrued on our consolidated balance sheets at June 30, ~~2016~~ 2017 and ~~2015~~2016 relating to unrecognized benefits.

~~The~~ The tax years 2011-~~2015~~2016 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which we are subject.

Stock-Based Compensation

ASC 718, "“Compensation-Stock Compensation"” requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). We measure the cost of employee services received in exchange for an award based on the grant-date fair value of the award. We account for non-employee share-based awards based upon ASC 505-50, "“Equity-Based Payments to Non-Employees." ”

Earnings Per Share

Basic loss per common share has been computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. In a period of earnings, diluted earnings per common share are calculated by dividing net income available to common shareholders by weighted-average common shares outstanding during the period plus weighted-average dilutive potential common shares. Diluted earnings per share calculations assume, as of the beginning of the period, exercise of stock options and warrants using the treasury stock method.

All potential dilutive securities, including potentially dilutive options, warrants and convertible securities, if any, were excluded from the computation of dilutive net loss per common share for the years ended June 30, 2016, and 2015, respectively, as their effects are antidilutive due to our net loss for those periods.

Stock options to purchase approximately 1.0 million common shares at an average exercise price of $5.03 were outstanding at June 30, 2016. Using the treasury stock method, had we had net income,

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~~HYPERDYNAMICS~~ Earnings ~~CORPORATION~~Per Share

Basic ~~NOTES~~loss TOper ~~CONSOLIDATED~~common ~~FINANCIAL~~share ~~STATEMENTS~~has ~~(Continued)~~been computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. In a period of earnings, diluted earnings per common share are calculated by dividing net income available to common shareholders by weighted-average common shares outstanding during the period plus weighted-average dilutive potential common shares. Diluted earnings per share calculations assume, as of the beginning of the period, exercise of stock options and warrants using the treasury stock method.

1. All ~~ORGANIZATION~~potential ~~AND~~dilutive ~~SIGNIFICANT~~securities, ~~ACCOUNTING~~including ~~POLICIES~~potentially ~~(Continued)~~dilutive options, warrants and convertible securities, if any, were excluded from the computation of dilutive net loss per common share for the years ended June 30, 2017, and 2016, respectively, as their effects are antidilutive due to our net loss for those periods.

~~approximately~~ Stock options to purchase approximately 1.1 million common shares at an average exercise price of $3.19 were outstanding at June 30, 2017. Using the treasury stock method, had we had net income, approximately 25 thousand common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share for the year ended June 30, ~~2016~~2017.

~~Stock~~ Stock options to purchase approximately 1.2 0 million common shares at an average exercise price of $7.43 ~~and warrants to purchase approximately 0.03 million shares of common stock at an average exercise price of $12.64~~ were outstanding at June 30, ~~2015~~2016. Using the treasury stock method, had we had net income, approximately ~~four~~25 ~~hundred~~thousand common shares attributable to our outstanding stock options would have been included in the fully diluted earnings per share ~~calculation~~ for the year ended June ~~30,~~ 2015. There would have been no dilution attributable to our outstanding warrants to purchase common shares. Had we had net income, approximately four thousand common shares attributable to restricted stock awards would have been included in the fully diluted earnings per share for the year ended June 30, ~~2015~~2016.

There were 1,791 Series A Preferred Stock units that were convertible at June 30, 2017. Using the treasury stock method, had we had net income, approximately 1,545,776 common shares attributable to our outstanding Series A Preferred Stock would have been included in the fully diluted earnings per share for the year ended June 30, 2017. There were no Series A Preferred Stock Units outstanding at June 30, 2016.

Contingencies

We are subject to legal proceedings, claims and liabilities. We accrue for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred. See Note 8 for more information on legal proceedings.

~~Foreign~~ Fair ~~currency~~Value ~~gains and losses from current operations~~ Measurements

In The ~~accordance~~accounting ~~with~~standards ~~ASC~~define ~~Topic~~fair ~~830~~value, ~~Foreign~~establish ~~Currency~~a ~~Matters,~~three-level ~~the~~valuation ~~functional~~hierarchy ~~currency~~for disclosures of ~~our~~ ~~international~~fair ~~subsidiaries~~value ismeasurements ~~the U.S. Dollar. Gains~~ and ~~losses~~enhance ~~from~~disclosure ~~foreign~~requirements ~~currency~~for ~~transactions~~fair ~~arising~~value ~~from operating assets and liabilities are included in general, administrative and other operating expense, have not been significant~~measures. ~~Net~~The ~~foreign~~three ~~currency~~levels ~~transaction~~of ~~gains~~valuation ~~(losses)~~hierarchy ~~were~~are ~~($3)~~defined ~~thousand~~as ~~and ($0.1) million for the years ended June 30, 2016 and 2015, respectively.~~ follows:

~~Subsequent~~· ~~Events~~ Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

~~The~~· ~~Company~~Level ~~evaluated~~2 ~~all~~- ~~subsequent~~inputs ~~events~~to ~~from~~the ~~June 30~~valuation methodology include quoted prices for similar assets and liabilities in active markets, ~~2016~~and ~~through~~inputs that are observable for the ~~date~~asset ofor ~~issuance~~liability, either directly or indirectly, for substantially the full term of ~~these~~the financial ~~statements~~instrument.

2.· ~~PROPERTY~~Level ~~AND~~3 ~~EQUIPMENT~~ - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A We ~~summary~~determined a fair value of ~~property~~the ~~and~~well construction equipment asmaterial (Level 3 fair value measurement) that we received at the time of ~~June 30~~our legal settlement with Tullow and Dana. The fair value estimate was based on the combination of cost and market approaches taking into consideration a number of factors, ~~2016~~which included but were not limited to the original cost and ~~2015~~the iscondition asof ~~follows:~~the material and demand for steel and tubulars at the time of measurement. As discussed

		June 30,
(in thousands)	Useful Life	2016			2015
Computer equipment and software	3 years	$	1,285		$	1,302
Office equipment and furniture	5 years		307			307
Leasehold improvements	3 years		534			534

Total Cost			2,126			2,143
Less—Accumulated depreciation			(2,075	)		(1,983	)

		$	51		$	160

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~~HYPERDYNAMICS~~further ~~CORPORATION~~below the fair value of the warrants derivative liability was determined using the Binomial Option Pricing Model. The warrants derivative liability is carried on the balance sheet at its fair value. Significant Level 3 inputs used to calculate the fair value of the warrants include expected volatility, risk-free interest rate and expected dividends.

Financial ~~NOTES~~assets TOand ~~CONSOLIDATED~~liabilities ~~FINANCIAL~~are ~~STATEMENTS~~classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has determined that Investor Warrants and Placement Agent Warrants issued in March, April, and June 2017 qualify as derivative financial instruments. These warrant agreements include provisions designed to protect holders from a decline in the stock price (~~Continued~~‘down-round’ provision) by reducing the exercise price of warrants in the event we issue equity shares at a price lower than the exercise price of the warrants. Such down-round provisions were triggered upon issuance of our common shares in June 2017 and the exercise price of investor warrants associated with preferred stock was adjusted down accordingly and reflected in fair value measurement of such warrants as of June 30, 2017. These warrants are considered derivative liabilities and as such, are recorded at fair value at date of issuance and at each reporting date. The change in the fair value of derivative instruments during the period is recorded in earnings as “Other income (expense) — Gain (loss) on change in warrants derivative liability.” As such, we recorded an unrealized gain on the change in value of warrants derivative liability of $0.7 million to account for the change in fair value of our derivative liability compared to amount at issuance. We had no warrant derivative liability as of June 30, 2016.

2. The ~~PROPERTY~~following ~~AND~~table ~~EQUIPMENT~~sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2017 (~~Continued)~~in thousands):

We review assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of June 30, 2016 and 2015, there were no impairments of property and equipment.


	Carrying
	Value at		Fair Value Measurement at June 30, 2017
	June 30, 2017		Level 1		Level 2		Level 3
Warrants derivative liability	$	2,030	$	—	$	—	$	2,030

3. Summary ~~INVESTMENT~~information INregarding ~~OIL~~the ~~AND~~warrant ~~GAS~~derivative ~~PROPERTIES~~ liability as of June 30, 2017 (in thousands):

Investment in oil and gas properties consists entirely of our Guinea Concession in offshore West Africa. We owned a 77% participating interest in our Guinea Concession prior to the sale of a 40% gross interest to Tullow which closed on December 31, 2012. We now own a 37% interest in the Concession.


	Warrant Derivative Liability
Warrant derivative liability as of June 30, 2016	$ -
Liabilities incurred	2,735
Unrealized gain	(705)
Warrant derivative liability as of June 30, 2017	$ 2,030

~~Guinea~~ The ~~Concession~~ following describes some of the key inputs into our fair value model as it relates to valuation of warrants.

~~We have been conducting exploration work related to the area off the coast of Guinea since 2002. On September 22, 2006 we~~ ~~entered~~ Expected ~~into the PSC with Guinea. Under that agreement, we were granted certain exclusive contractual rights by Guinea to explore and exploit offshore oil and gas reserves, if any, off the coast of~~Volatility ~~Guinea. We are conducting our current work in Guinea under the PSC, as amended on March 25, 2010 (the "PSC Amendment").~~

~~The~~ ~~PSC~~ The ~~Amendment~~expected ~~clarified~~stock ~~that~~price wevolatility ~~retained~~for athe ~~Contract~~Company’s ~~Area~~common ofstock ~~approximately~~was ~~25,000~~estimated ~~square~~by ~~kilometers,~~taking ~~which~~the isaverage ~~approximately~~of ~~equivalent~~the toobserved ~~9,650~~volatility ~~square miles or 30%~~ of ~~the~~industry ~~original Contract~~peers ~~Area~~based ~~under~~on ~~the~~daily ~~PSC,~~price ~~following~~observations. aIndustry ~~December 31,~~peers ~~2009~~consist ~~relinquishment~~ of ~~approximately~~several ~~70%~~public ofcompanies in the ~~original~~Company’s ~~Contract Area~~industry. The ~~PSC~~Company ~~Amendment~~intends ~~required~~to ~~that~~continue ~~the~~to ~~Consortium~~consistently ~~relinquish~~apply ~~an additional~~this ~~25%~~process ofusing the ~~retained~~same ~~Contract~~or ~~Area~~similar bypublic ~~September 30,~~companies ~~2013.~~until ~~The~~a ~~Contract~~statistically ~~Area~~significant isamount ~~currently~~of ~~18,750~~historical ~~square~~information ~~kilometers.~~regarding ~~Under~~ the ~~terms~~volatility of ~~the~~its ~~PSC~~own ~~Amendment,~~share ~~the~~price ~~first~~becomes ~~exploration~~available, ~~period ended~~or ~~and~~unless ~~the~~circumstances ~~Consortium~~change ~~entered~~such ~~into~~that the ~~second~~identified ~~exploration~~companies ~~period~~are onno ~~September 21,~~longer ~~2010.~~similar ~~The~~to ~~second~~the ~~exploration~~Company, ~~period~~in ~~ran~~which ~~until September 2013~~case, atmore ~~which~~suitable ~~point~~companies itwhose ~~was~~share ~~renewed~~prices toare ~~September 2016~~publicly ~~and~~available ~~may~~would be ~~extended~~used ~~for up to one (1) additional year to allow the completion of a well~~ in ~~process and for up to two (2) additional years to allow~~ the ~~completion of the appraisal of any discovery made~~calculation.

~~The~~ ~~PSC Amendment required the drilling of an exploration well, which had to be commenced by the year~~ Risk-~~end~~Free ~~2011,~~Interest ~~to a minimum depth of 2,500 meters below seabed. This requirement was~~Rate satisfied with the drilling of the Sabu-1 well which was commenced during October of 2011 and reached the minimum depth of 2,500 meters below the seabed in February of 2012. The Consortium is required to drill an additional exploration well, which is to be commenced by the end of September 2016, to a minimum depth of 2,500 meters below seabed. The PSC Amendment requires the expenditure of $15 million on each of the exploration wells ($30 million in the aggregate). The Consortium was also required to acquire a minimum of 2,000 square kilometers of 3D seismic by September 2013 with a minimum expenditure of $12 million. This requirement was satisfied with the first 3D seismic survey acquired in 2010. Fulfillment of work obligations exempts us from expenditure obligations and exploration work in excess of minimum work obligations for each exploration period may be carried forward to the following exploration period. If the Consortium does not fulfil the work requirement under the PSC, it is required to pay to Guinea the difference between the amounts actually spent on work realized in fulfillment of the obligations of the work program and the amounts estimated for the total work program.

~~Under~~ ~~the~~ The ~~PSC~~risk-free ~~Amendment, Guinea may participate in development of any discovery at a participating~~ interest ofrate upis tobased ~~15%~~on ofthe ~~costs~~zero-coupon ~~being carried for its share~~U.S. ~~The~~Treasury ~~cost of that carry is~~notes. ~~to be~~

Expected Dividend Yield

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~~HYPERDYNAMICS~~ The ~~CORPORATION~~Company does not anticipate paying any dividends on the common stock in the foreseeable future and, therefore, uses an expected dividend yield of zero in the Binomial Option Pricing Model.

Foreign ~~NOTES~~currency TOgains ~~CONSOLIDATED~~and ~~FINANCIAL~~losses ~~STATEMENTS~~from ~~(Continued)~~current operations

3 In accordance with ASC Topic 830, Foreign Currency Matters, the functional currency of our international subsidiaries is the U.S. ~~INVESTMENT~~Dollar. Gains INand ~~OIL~~losses ~~AND~~from ~~GAS~~foreign ~~PROPERTIES~~currency ~~(Continued)~~transactions arising from operating assets and liabilities are included in general, administrative and other operating expense, have not been significant.

~~recovered~~ ~~out~~ New ofAccounting ~~62.5% of Guinea's share of cost and profit oil. The PSC Amendment clarified that only those eligible expenditures, which were made following the date the PSC was signed, on~~Pronouncements September 22, 2006, are eligible for cost recovery. We are required to establish an annual training budget of $200,000 for the benefit of Guinea's oil industry personnel, and we are also obligated to pay an annual surface tax of $2.00 per square kilometer on our retained Concession acreage. The PSC Amendment also provides that should the Guinea government note material differences between provisions of the PSC Amendment and international standards or the Petroleum Code, the parties will renegotiate the relevant articles.

~~Under~~ In July 2017, the ~~PSC~~FASB issued Update No. 2017-11—Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and ~~PSC~~Hedging ~~Amendment~~(Topic ~~our~~815): ~~Guinea~~(Part ~~Concession~~I) isAccounting ~~subject~~for toCertain aFinancial ~~10%~~Instruments ~~royalty~~with ~~interest~~Down toRound ~~Guinea~~Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. OfFor public business entities, the ~~remaining~~amendments ~~90%~~in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the ~~first~~amendments ~~production~~in Part I of this Update are effective for fiscal years beginning after December 15, we2019, ~~will~~and ~~receive~~interim ~~75%~~periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. The Company has determined that Investor Warrants and Placement Agent Warrants issued in fiscal year 2017 qualify as derivative financial instruments. These warrant agreements include provisions designed to protect holders from a decline in the stock price (‘down-round’ provision) by reducing the exercise price of warrants in the ~~revenue~~event ~~for recovery~~we issue equity shares at a price lower than the exercise price of the ~~cost~~warrants. As a result of ~~operations~~this down-round provision, these warrants are considered derivative liabilities and ~~Guinea~~as ~~will~~such, ~~receive~~are ~~25%~~recorded at fair value at date of issuance and at each reporting date. Change in fair value of derivative instruments during the period are recorded in earnings as “Other income (expense) — Gain (loss) on warrants derivative liability.” The Company is in the process of evaluating this new update and whether to early adopt this amendment.

~~After~~ ~~recovery~~ In ~~cost~~August 2014, the FASB issued ASU No. 2014-15 “Presentation of ~~operations,~~Financial ~~revenue~~Statements: Going ~~will~~Concern (Subtopic be205-40)” ~~split~~which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as ~~outlined~~a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter. The adoption of ASU 2014-15 did not have a material effect on the Company’s Consolidated Financial Statements and has been disclosed in this Form 10-K. Please refer to Note 1in reference to management’s discussion regarding the ~~table~~conclusion ~~below:~~about substantial doubt of the Company’s ability to continue as a going concern and management’s plans for remediation.

Daily production (b/d)
From 0 to 2,000	25	%	75	%
From 2,001 to 5,000	30	%	70	%
From 5,001 to 100,000	41	%	59	%
Over 100,001	60	%	40	%

Subsequent Events

~~The~~ ~~Guinea~~ The ~~Government~~Company ~~may~~evaluated ~~elect~~all tosubsequent ~~take~~events afrom ~~15%~~June ~~working~~30, ~~interest~~2017 inthrough ~~any~~the ~~exploitation~~date ~~area~~of issuance of these financial statements. See Note 9.

On May 20, 2010, we completed a 23% assignment to Dana following the receipt of the final approvals from the Government of Guinea, which were in the form of a Presidential Decree approving the PSC and a document, referred to as an Arrêté, from the Guinea Ministry of Mines and Geology. On December 27, 2012, we received an Arrêté which formally authorized our 40% assignment of a participating interest to Tullow.

Sale of Interest to Tullow

On December 31, 2012, we closed a sale to Tullow of a 40% gross interest in the Concession. As consideration, we received $27 million from Tullow as reimbursement of our past costs in the Concession and, as additional consideration, Tullow agreed to: (i) pay our participating interest share of future costs associated with joint operations in the Concession, up to a gross expenditure cap of $100 million incurred during the carry period that began on September 21, 2013; and (ii) pay our participating interest share of costs associated with an appraisal well of the initial exploration well, if drilled, subject to a gross expenditure cap on the appraisal well of $100 million. Tullow will continue to pay our costs, subject to the gross expenditure cap of $100 million, until 90 days following the date on which the rig contracted to drill the exploration well moves off the well location. We are responsible for our share of any costs exceeding the gross expenditure cap of $100 million per well. The $27 million payment was received by us on December 31, 2012 and was recorded as a reduction in unproved oil and gas properties, net of transaction costs of approximately $3.3 million.

In connection with the transaction, SCS, Tullow and Dana entered into a Joint Operating Agreement Novation and Amendment Agreement reflecting that as a result of the sale to Tullow, the interest of the parties in the Concession are SCS 37%, Dana 23%, and Tullow 40%, and that Tullow agreed to be bound by the PSC and the JOA previously entered into between SCS and Dana. Tullow

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~~HYPERDYNAMICS~~ 2. ~~CORPORATION~~PROPERTY AND EQUIPMENT

A ~~NOTES~~summary TOof ~~CONSOLIDATED~~property ~~FINANCIAL~~and ~~STATEMENTS~~equipment ~~(Continued)~~as of June 30, 2017 and 2016 is as follows:

3. INVESTMENT IN OIL AND GAS PROPERTIES (Continued)


		June 30,
(in thousands)	Useful Life	2017		2016
Computer equipment and software	3 years	$	1,319	$	1,285
Office equipment and furniture	5 years		307		307
Leasehold improvements	3 years		534		534
Total Cost			2,160		2,126
Less - Accumulated depreciation			(2,109)		(2,075)
		$	51	$	51

~~assumed~~ ~~all~~ We ~~the~~review ~~respective~~assets ~~liabilities~~for ~~and~~impairment ~~obligations~~whenever ofevents ~~SCS~~or changes in ~~respect~~circumstances ofindicate that the ~~assigned~~carrying ~~40%~~amount ~~interest. SCS and Tullow executed a Deed~~ of ~~Assignment. The Assignment was approved by Guinea's Ministry of Mines and Geology by issuing~~ an ~~Arrêté~~asset onmay ~~December 27,~~not ~~2012~~be ~~which~~recoverable. ~~formally~~As ~~authorized our assignment~~ of aJune ~~participating interest to Tullow. SCS~~30, ~~Dana~~2017 and ~~Tullow have~~2016, ~~elected~~there ~~Tullow~~were asno ~~the~~impairments ~~Operator~~ of ~~the~~property ~~Concession~~and ~~beginning April 1, 2013~~equipment.

~~Accounting~~ 3. ~~for~~INVESTMENT ~~oil~~IN ~~and~~OIL ~~gas~~AND ~~property~~GAS ~~and equipment costs~~ PROPERTIES

We Investment ~~follow~~in ~~the~~oil ~~"Full-Cost"~~and ~~method~~gas ofproperties ~~accounting~~consists ~~for~~entirely ~~oil~~of ~~and~~our ~~natural~~Guinea ~~gas~~Concession ~~property~~in ~~and~~offshore ~~equipment~~West ~~costs~~Africa. ~~Under~~We ~~this~~owned ~~method,~~a ~~internal~~37% ~~costs incurred~~participating ~~that~~interest ~~are~~in ~~directly~~our ~~identified~~Guinea ~~with~~Concession ~~exploration,~~prior ~~development,~~to ~~and~~the ~~acquisition~~relinquishment ~~activities~~of ~~undertaken~~a by40% usshare ~~for~~owned ~~our~~by ~~own~~Tullow ~~account,~~ and ~~which~~a ~~were~~23% ~~not~~interest ~~related~~owned toby ~~production,~~Dana. On ~~general~~June ~~corporate overhead~~2, ~~or similar activities~~2017, ~~are~~we ~~capitalized.~~completed ~~Capitalization~~the sale of ~~internal~~a ~~costs~~50% ~~was~~gross ~~discontinued~~interest ~~April 1,~~to ~~2013 when Tullow became the operator~~SAPETRO. On ~~Geological~~September ~~and~~19, ~~geophysical~~2017, ~~costs~~SAPETRO ~~incurred~~notified us that ~~are~~ ~~directly~~it ~~associated~~did ~~with~~not ~~specific~~wish ~~unproved~~to ~~properties~~participate ~~are~~in ~~capitalized~~the inapplication ~~"Unproved~~for ~~properties~~the ~~excluded~~two-year ~~from~~appraisal ~~amortization"~~program and ~~evaluated~~formally aswithdrew ~~part~~from of the ~~total~~Joint ~~capitalized~~Operating ~~costs~~Agreement ~~associated~~(“JOA”) ~~with~~and ~~a prospect.~~PSC ~~The~~on ~~cost~~September of20, ~~unproved~~2017. ~~properties~~On ~~not~~the ~~being~~basis ~~amortized~~of isa ~~assessed~~five-meter tocalculated ~~determine~~hydrocarbon ~~whether~~pay ~~such~~zone ~~properties~~encountered ~~have~~in ~~been~~the ~~impaired.~~Fatala-1 Inwell, ~~determining~~we ~~whether~~applied ~~such~~for ~~costs~~a ~~should~~two-year beappraisal ~~impaired,~~period weon ~~evaluate current~~a ~~drilling~~100% ~~results~~basis ~~and~~on ~~available~~September ~~geological~~19, 2017 and ~~geophysical~~we ~~information. If petroleum operations~~ are ~~not~~awaiting ~~commenced~~the ~~soon,~~decision ~~our~~of ~~ability~~the toGovernment ~~obtain~~of ~~additional~~Guinea ~~financing~~on ~~and~~ our ~~financial~~appraisal ~~condition will~~application. beIf ~~adversely~~the ~~affected,~~Government ~~which~~of ~~will~~Guinea ~~likely~~does ~~impact~~not approve our ~~ability~~appraisal toperiod ~~conduct~~application, ~~exploration.~~the NoPSC ~~reserves~~will have ~~been~~terminated ~~attributed~~by toits ~~the~~terms ~~concession.~~on September 21, 2017.

We ~~exclude capitalized costs of unproved oil and gas properties from amortization until evaluated. Geological and geophysical information pertaining to the~~ Guinea ~~concession was collected and evaluated and no reserves have been attributed to the~~ Concession~~. In February 2012, we completed the drilling of the Sabu-1 well, which was determined to be non-commercial. As a result,~~ we evaluated certain geological and geophysical related costs in unproved properties along with the drilling costs of the Sabu-1 well totaling $116.8 million and determined that these properties were subject to the Full-Cost Ceiling Test. As we have no proved reserves to include in the Full-Cost Ceiling Test, the entire $116.8 million resulted in a Full-Cost Ceiling Test write-down of our unproved oil and gas properties. As of March 31, 2016, based on our impairment assessment, we fully impaired the $14,331,000 of unproved oil and gas properties. This impairment assessment was based on the continued impasse by our members of the Consortium to resume petroleum operations and drill the next exploration obligation well, which needs to be commenced by the end of September 2016, and our inability to get interim injunctive relief from the American Arbitration Association requiring Tullow and Dana to join with SCS in the negotiation of an acceptable amendment to the PSC and to agree to a process that would result in the execution of the amendment which we hoped would have led to the resumption of petroleum operations. Thus, we believe all legal measures to require Tullow and Dana to drill the planned exploration well have been exhausted. Despite this impairment, we continued to pursue any avenues in order to begin drilling activities in our Concession.

On March 25, 2010, we entered into the First PSC Amendment with Guinea. In May 2010, the government of Guinea issued a Presidential Decree approving the PSC, as amended by the First PSC Amendment. The First PSC Amendment clarified that we retained a Contract Area of approximately 25,000 square kilometers or 30% of the original Contract Area under the PSC. The First PSC Amendment required that an additional 25% of the retained Contract Area be relinquished by September 21, 2013 as part of the renewal of the second exploration period. As of June 30, 2016, the Contract Area was 18,750 square kilometers. Under the terms of the First PSC Amendment, the first exploration period ended and the second exploration period began on September 21, 2010. The second exploration period ran until September 2013, at which point it was renewed to September 2016.

The First PSC Amendment required the drilling of an exploration well, which had to be commenced by year-end 2011 and drilled to a minimum depth of 2,500 meters below seabed. This requirement was satisfied with the drilling of the Sabu-1 well which was commenced during October of 2011 and reached the minimum depth of 2,500 meters below the seabed in February of 2012. It also required the acquisition of at least 2,000-square kilometers of 3D seismic data which was satisfied by the 3,600-square kilometer seismic acquisition in 2010-2011. To satisfy the September 2013-2016 work requirement, the Consortium is required to commence drilling of an additional exploration well by the end of September 2016, to a minimum depth of 2,500 meters below seabed. We spent approximately $200 million fulfilling work obligations under the PSC through fiscal 2016.

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~~HYPERDYNAMICS~~ Under ~~CORPORATION~~the First PSC Amendment, Guinea may participate in development of any discovery at a participating interest of up to 15% of costs being carried for its share. The cost of that carry is to be recovered out of 62.5% of Guinea's share of cost and profit oil. It also required the establishment of an annual training budget for the benefit of Guinea's oil industry personnel, and obligated the Consortium to pay an annual surface tax of $2.00 per square kilometer on the retained Concession acreage. The First PSC Amendment further provided that should the Guinea government note material differences between provisions of the First PSC Amendment and international standards or the Petroleum Code, the parties will renegotiate the relevant articles.

On ~~NOTES~~September 15, TO2016, ~~CONSOLIDATED~~we ~~FINANCIAL~~executed ~~STATEMENTS~~the Second PSC Amendment in which we received a one (~~Continued~~1) year extension to the second exploration period of the PSC to September 21, 2017 and confirmed that we are the holder of a 100% interest in the Concession following the official withdrawal by Tullow and Dana on August 15, 2016. The Second PSC Amendment became effective upon the receipt of a Presidential Decree on September 22, 2016.

3. We ~~INVESTMENT~~executed INa ~~OIL~~Second ~~AND~~Amendment ~~GAS~~to ~~PROPERTIES~~the PSC (~~Continued~~"Second PSC Amendment") on September 15, 2016, and received a Presidential Decree on September 22, 2016 that gave us a one-year extension to the second exploration period of the PSC to September 22, 2017 ("PSC Extension Period") and became the designated Operator of the Concession.

~~The~~ ~~following~~ In ~~table~~addition ~~provides~~to ~~detail~~clarifying certain elements of ~~total~~the ~~capitalized~~PSC, ~~costs~~we ~~for~~agreed ~~our~~in ~~Guinea~~the ~~Concession~~Second asPSC Amendment to drill one exploratory well to a minimum depth of ~~June 30~~2,500 ~~2016~~meters ~~and~~below ~~2015~~the seabed within the PSC Extension Period (inthe ~~thousands~~"Extension Well"): with a projected commencement date of May 2017 and the option of drilling additional wells. Fulfillment of the work obligations exempts us from the expenditure obligations during the PSC Extension Period.

	June 30, 2016		June 30, 2015
Oil and Gas Properties:
Unproved oil and gas Properties	$	—	$	14,311
Other Equipment Costs		—		—

Unproved properties not subject to amortization	$	—	$	14,311

In turn, we retained an area equivalent to approximately 5,000 square kilometers in the Guinea offshore waters and were obliged to provide the Government of Guinea: (1) A parent company guarantee for the well obligation, (2) monthly progress reports and a reconciliation of budget to actual expenditures, (failure to provide the reports and assurances on a timely basis could result in a notice of termination with a 30-day period to cure), and (3) certain guarantees to Guinea.

~~During~~ For the ~~year~~purposes ~~ended~~of ~~June~~calculation for this clause (Article 304 of the PSC), ~~2016~~however, ~~our~~only ~~oil~~costs spent for services and ~~gas~~goods ~~property~~provided ~~balance~~in ~~increased~~Guinea bywere ~~$20 thousand~~to be taken into account until the drilling rig to ~~$14,331,000~~be asused ain ~~result~~the drilling of ~~additional~~the ~~geological~~Extension ~~and~~Well ~~geophysical~~is ~~costs incurred~~located in the territorial waters of the Republic of Guinea.

~~Subsequently~~ ~~on August 19~~ Additionally, ~~2016,~~ we ~~signed~~agreed ato ~~non-binding~~limit ~~Memorandum~~the ofcost ~~Understanding~~recovery ~~with~~pool ~~the~~to ~~Government~~that ofdate ~~Guinea~~to ~~and~~our ~~executed~~share aof ~~Second~~expenditures ~~Amendment~~in to the PSC ~~("2016~~since ~~Amendment")~~2009 ~~on September 15,~~(estimated ~~2016.~~to ~~The~~be ~~2016~~approximately ~~Amendment~~$165, ~~upon receipt of a Presidential Decree~~000,000 ~~will~~net ~~give us a one year extension~~ to ~~the~~our ~~second exploration period of the PSC to September 22, 2017 ("PSC Extension Period"~~interest). ~~In addition to clarifying certain elements of the PSC~~ Finally, we agreed ~~in the 2016 Amendment~~ to ~~drill~~allocate ~~one~~and ~~(1) exploratory~~administer ~~well to~~ a ~~minimum~~training ~~depth~~budget ofduring ~~2,500 meters below~~ the ~~seabed within the~~ PSC Extension Period ~~with~~for athe ~~projected~~benefit ~~commencement date~~ of ~~April 2017 (~~the ~~"Extension~~Guinea ~~Well")~~National ~~with~~Petroleum ~~the~~Office ~~option~~ of ~~drilling~~$250,000 ~~additional~~in ~~wells.~~addition Ifto ~~the~~any ~~Extension~~unused ~~Well~~portion isof ~~not drilled within~~ the ~~PSC~~ ~~Extension~~training ~~Period,~~program weunder ~~will~~Article 10.3 ~~owe~~of the ~~Government~~PSC. ofThe ~~Guinea~~unused ~~the~~portion ~~difference~~of ~~between~~ the ~~actual~~training ~~expenditures~~program inis ~~Guinea~~now ~~related~~estimated to ~~the~~be ~~well~~approximately ~~and~~ $46221,000~~,000~~. ~~Fulfillment of the work obligations exempts us~~ ~~from the expenditure obligations during the PSC Extension Period.~~

In ~~turn,~~ We wealso ~~will~~agreed ~~retain~~to ~~only~~allocate anup ~~area~~to ~~equivalent~~a tomaximum ~~approximately~~total 5budget of $120,000 ~~square~~for ~~kilometers in~~ the ~~Guinea~~actual ~~offshore~~travel and ~~will~~operating ~~provide~~expenses ~~the~~incurred ~~Government~~by of Guinea: ~~(1) A~~for ~~parent~~its ~~company guarantee~~participation ~~for~~in the ~~well~~management ~~obligation, (2) monthly progress reports~~ and aadministration ~~reconciliation~~ of ~~budget~~the ~~to actual expenditures~~Concession, ~~(failure~~subject to ~~provide~~our ~~the~~review ~~reports and assurances on a timely basis in a notice~~ of ~~termination~~receipts ~~with a 30 day period to cure),~~ and ~~(3) guarantees~~limited to ~~Guinea~~reimbursement ~~that~~of ~~(a) no~~actual ~~later~~costs. ~~than~~The ~~January 21,~~unused ~~2017~~portion weof ~~will~~this ~~provide~~budget ais ~~mutually~~now ~~acceptable~~estimated ~~security~~to ~~for~~ be $522,000. Finally,~~000~~ onwe ~~terms~~agreed ~~customary in international petroleum operations, provided~~ that ~~this~~we ~~security~~would ismake toavailable ~~be released at the time the drilling rig~~ for the ~~Extension~~benefit ~~Well~~of ~~is on location offshore~~ Guinea~~, and~~ ~~(b) no later than April 12, 2017, we will deliver~~ a ~~mutually~~virtual ~~acceptable~~data ~~security~~room ~~for~~containing ~~the~~all ~~difference~~seismic ~~between~~data ~~$46,000,000~~in ~~and~~our ~~the~~possession ~~amount~~relating ~~spent~~ to ~~date~~relinquished ~~on the Extension Well~~areas. ~~For~~We ~~the purposes~~would ofnot ~~calculation for this clause, however, only costs spent for services and goods provided in Guinea shall~~ be ~~taken~~agents ~~into~~of ~~account~~or ~~until~~work ~~the~~on ~~drilling~~behalf ~~rig to be used in the drilling~~ of ~~the Extension~~Guinea, ~~Well~~but iswould ~~located~~provide, inat the ~~territorial~~request ~~waters~~ of ~~the Republic of~~ Guinea. Ifduring ~~we do not provide either security by~~ the ~~specified~~PSC ~~dates~~Extension Period, ~~the~~access ~~Government~~to ~~of Guinea may terminate~~ the ~~PSC~~virtual ~~immediately and~~data ~~without~~room ~~prior notice~~ to ~~remedy~~interested ~~such~~third ~~deficiency~~parties.

~~Additionally,~~ we On ~~agreed~~March 30, to2017, ~~limit~~we ~~the~~entered ~~cost~~into ~~recovery~~the ~~pool~~Farm-out toAgreement ~~date~~with toSAPETRO. ~~our~~On ~~share~~April 12, of2017 ~~expenditures~~SCS, inSAPETRO ~~the~~and ~~PSC~~Guinea ~~since~~executed ~~2009~~a ~~(estimated~~Third Amendment to bethe ~~approximately~~PSC ~~$150,000,000~~(the "Third PSC Amendment") ~~and~~that ~~move~~was ~~into~~subject to the ~~territory~~ receipt of ~~Guinea~~a ~~the~~Presidential ~~long~~Decree ~~lead~~and ~~items~~the weclosing ~~received~~of in the ~~Settlement~~Farm-out Agreement. ~~that~~The ~~are~~Presidential ~~currently~~Decree inwas ~~Takoradi~~signed on April 21, ~~Ghana~~2017 ~~for~~approving the ~~drilling~~assignment of ~~the~~50% ~~Extension~~of ~~Well~~SCS' byparticipating ~~January 31,~~interest ~~2017.~~in ~~Finally,~~the ~~we agreed~~Guinea concession to ~~allocate~~SAPETRO, and ~~administer~~confirmed athe ~~training~~two ~~budget~~companies' ~~during~~rights ~~the~~to ~~PSC~~explore ~~Extension~~for ~~Period~~oil ~~for~~and ~~the~~gas ~~benefit~~on ofour 5,000-square-kilometer Concession offshore the Republic of Guinea. ~~National~~The ~~Petroleum~~contract ~~Office~~required ofthat ~~$250,000~~drilling operations in ~~addition~~relation to ~~any~~the ~~unused~~obligation ~~portion~~well ofFatala-1 (the ~~training~~ ~~program~~"Extension ~~under~~Well") ~~Article 10.3~~were ofto ~~the~~begin ~~PSC~~no later than May 30, ~~estimated~~2017 toand provided that additional exploration wells may be ~~approximately~~drilled ~~$500,000.~~within the exploration period at the companies' option.

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Table of Contents

~~HYPERDYNAMICS~~ The ~~CORPORATION~~Third PSC Amendment further reaffirmed clear title of SAPETRO and SCS to the Concession as well as amended the security instrument requirements under the PSC. SCS and SAPETRO agreed to joint and several liability to the Government of Guinea in respect to the PSC.

SAPETRO ~~NOTES~~and TOSCS ~~CONSOLIDATED~~further ~~FINANCIAL~~agreed ~~STATEMENTS~~that ~~(Continued)~~if SCS were unable to pay its share of any Fatala-1 well costs, SAPETRO could elect to pay for a portion of SCS's Fatala-1 well costs such amount so long as SCS is not in default of either the PSC or the Farmout Agreement. In case SAPETRO had made such payments for a share of SCS's costs of, SCS would have been obligated to assign to SAPETRO a 2% participating interest in the Concession for each $1 million of SCS's costs paid by SAPETRO.

3. On ~~INVESTMENT~~May 21, IN2017, ~~OIL~~drilling ~~AND~~operations ~~GAS~~commenced ~~PROPERTIES~~upon ~~(Continued)~~the Pacific Scirocco drillship entering Guinean continental shelf waters.

~~Failure~~ to The ~~comply~~Farmout ~~with~~Agreement ~~the~~was ~~drilling~~completed ~~and~~between ~~other~~the ~~obligations~~SCS ofand ~~the~~SAPETRO ~~PSC~~on asJune ~~amended~~2, ~~subjects~~2017. usPursuant to ~~financial~~the ~~penalties~~terms ~~and~~of athe ~~risk~~Farmout ofAgreement, ~~loss~~SCS ofassigned ~~the~~and ~~Concession.~~transferred ~~The~~to ~~continued~~SAPETRO ~~delays~~50% ~~have affected~~of ~~adversely~~its ~~the~~100% ~~ability~~gross toparticipating ~~explore~~interest in the ~~Concession~~PSC and ~~reduces~~executed ~~the~~a ~~attractiveness~~Joint ofOperating ~~the~~Agreement. ~~Concession~~Upon toclosing, ~~prospective~~SAPETRO ~~industry~~(i) reimbursed ~~participants~~SCS ~~and~~its ~~financing~~proportional ~~sources.~~share ~~While~~of wepast ~~currently~~costs ~~hold~~associated ~~100%~~with of the ~~Concession,~~preparations itfor isthe ~~unknown~~drilling ~~whether~~of wethe ~~will~~Fatala-1 bewell ~~able~~which amounted to ~~raise~~$4.4 ~~the~~million, ~~necessary~~and ~~funds~~(ii) agreed to pay ~~drill~~its ~~the~~participating ~~exploratory~~interest's ~~well~~share ~~during~~of ~~the~~future ~~PSC~~costs ~~Extension~~in ~~Period.~~the Concession.

On June 5, 2017, SCS received $4.1 million ~~ACCOUNTS~~from ~~PAYABLE~~SAPETRO ~~AND~~in ~~ACCRUED~~accordance ~~EXPENSES~~ with a Preliminary Closing Statement delivered by SCS, thus completing closing of the Farm-out Agreement and the assignment to SAPETRO of the 50% participating interest in the PSC, the parties executed a Joint Operating Agreement governing the conduct of operations, and Hyperdynamics executed a parent guaranty of SCS's obligations as required by the Farm-out Agreement. On June 12, 2017, we delivered to SAPETRO a Final Adjustment Statement with the final calculation of past costs incurred by SCS in the amount of $0.7 million. After final review done by SAPETRO the Final Adjustment Statement was submitted to SAPETRO, under which SAPETRO paid to SCS $0.3 million.

~~Accounts~~ On ~~payable~~July 12, ~~and~~2017, ~~accrued~~we ~~expenses~~obtained asa letter from the Director General of ~~June 30~~the National Office of Petroleum of Guinea stating that in the event of an oil discovery at the end of the drilling of the Fatala-1 well, ~~2016~~the ~~and~~government ~~2015~~would ~~include~~have no objection to granting an additional period of two years to enable us to carry out the ~~following~~work ~~(in~~of ~~thousands):~~appraisal on the Concession.

	2016		2015
Accounts payable—trade	$	1,361	$	1,157
Accounts payable—legal costs		61		342
Accrued payroll		321		169

	$	1,743	$	1,668

On August 11, 2017, the actual drilling of the Fatala well commenced. The drilling operations were completed on September 8, 2017 and the Fatala-1 well was plugged and abandoned.

~~The~~ ~~single~~ We ~~largest~~applied ~~payable~~to in the ~~Accounts~~government ~~payable~~of ~~trade~~Guinea ~~balances~~for isa ~~for~~two-year ~~the~~appraisal ~~yearly~~program ~~Director &~~of ~~Officer~~the ~~Insurance~~Concession ~~renewal~~pursuant ~~and~~to ~~was~~Article ~~$1.~~3 ~~million~~.7 ~~and~~of $1our PSC on a 100% basis following SAPETRO’s vote by notice not to participate in the appraisal application.~~1 million~~ SAPETRO ~~for 2016~~formally exited from the JOA and ~~2015~~the PSC on September 20, ~~respectively~~2017.

5 We are awaiting the decision of the Government of Guinea on our appraisal application. ~~INCOME~~There ~~TAXES~~ can be no assurance that such application will be approved, or if it is, that it will be on terms acceptable to us. If the Government of Guinea does not approve our appraisal period application, the PSC will have terminated by its terms on September 21, 2017.

~~Federal~~ After ~~Income~~recovery ~~taxes~~cost ~~are not currently due since Hyperdynamics has had losses since inception. Components~~ of ~~deferred tax assets as of June 30~~operations, ~~2016~~revenue ~~and~~will ~~2015~~be ~~are~~split as ~~follows~~outlined (in ~~thousands):~~ the table below:

	2016			2015
Daily production (b/d)	Guinea Share		Contractor Share
Current deferred tax assets:
From 0 to 2,000	25	%	75	%
Other current deferred tax assets	$	—		$	—
From 2,001 to 5,000	30	%	70	%

From 5,001 to 100,000	41	%	59	%
Total current temporary differences		—			—
Over 100,001	60	%	40	%
Less: valuation allowance		—			—

Net current deferred tax assets	$	—		$	—



Non-current deferred tax assets
Stock compensation	$	2,464		$	2,389
Property and Equipment		69			164
Oil and gas properties		21,504			16,503
Capital loss		144			144

Total non-current deferred tax assets	$	24,181		$	19,200



Non-current deferred tax liabilities
Property and Equipment		—			—

Net operating losses		36,138			34,128

		60,319			53,328
Less: valuation allowance		(60,319	)		(53,328	)

Net non-current deferred tax assets (liabilities)	$	—		$	—

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Table of Contents

~~HYPERDYNAMICS~~ The ~~CORPORATION~~ Guinea Government may elect to take a 15% working interest in any exploitation area.

Accounting ~~NOTES~~for TOoil ~~CONSOLIDATED~~and ~~FINANCIAL~~gas ~~STATEMENTS~~property ~~(Continued)~~ and equipment costs

5 We follow the “Full-Cost” method of accounting for oil and natural gas property and equipment costs. ~~INCOME~~Under ~~TAXES~~this ~~(Continued)~~ method, internal costs incurred that are directly identified with exploration, development, and acquisition activities undertaken by us for our own account, and which were not related to production, general corporate overhead, or similar activities, are capitalized. Capitalization of internal costs was discontinued April 1, 2013 when Tullow became the operator. Geological and geophysical costs incurred that are directly associated with specific unproved properties are capitalized in “Unproved properties excluded from amortization” and evaluated as part of the total capitalized costs associated with a prospect. The cost of unproved properties not being amortized is assessed to determine whether such properties have been impaired. In determining whether such costs should be impaired, we evaluate current drilling results and available geological and geophysical information. If petroleum operations are not commenced soon, our ability to obtain additional financing and our financial condition will be adversely affected, which will likely impact our ability to conduct exploration. No reserves have been attributed to the concession.

~~Deferred~~ We ~~tax~~exclude ~~assets~~capitalized costs of unproved oil and gas properties from amortization until evaluated. Geological and geophysical information pertaining to the Guinea concession was collected and evaluated and no reserves have been ~~fully~~attributed ~~reserved~~to ~~due~~the Concession. In February 2012, we completed the drilling of the Sabu-1 well, which was determined to ~~determination~~be ~~that~~non-commercial. itAs isa ~~more~~result, ~~likely~~we ~~than~~evaluated ~~not~~certain geological and geophysical related costs in unproved properties along with the drilling costs of the Sabu-1 well totaling $116.8 million and determined that these properties were subject to the ~~Company~~Full-Cost ~~will~~Ceiling ~~not~~Test. beAs ~~able~~we have no proved reserves to ~~realize~~include in the ~~benefit~~Full-Cost ~~from~~Ceiling ~~them~~Test, the entire $116.8 Inmillion ~~accordance~~resulted ~~with generally~~in ~~accepted~~a ~~accounting~~Full-Cost ~~principles~~Ceiling Test write-down of our unproved oil and gas properties. At June 30, no2016, ~~deferred~~based ~~income~~on ~~tax~~our ~~asset~~impairment ~~has~~assessment, ~~been~~we ~~recognized~~fully ~~for~~impaired the $~~118~~ 14.3 million ~~excess~~of unproved oil and gas properties. This impairment assessment was based on the continued impasse by our members of the ~~income~~Consortium ~~tax~~to ~~basis~~resume inpetroleum ~~SCS~~operations and drill the next exploration obligation well, which needed to be commenced by the ~~Company's~~end ~~Cayman~~of ~~Island~~September ~~operating subsidiary~~2016, ~~over~~and our inability to get interim injunctive relief from the ~~book~~American ~~basis~~Arbitration Association requiring Tullow and Dana to join with SCS in the negotiation of an acceptable amendment to the ~~subsidiary.~~PSC ~~This~~and ~~potential~~to ~~tax~~agree ~~benefit~~to ~~will~~a ~~only~~process bethat ~~fully~~would ~~realized~~result ifin the ~~subsidiary~~execution orof the ~~Concession~~amendment iswhich ~~sold~~we athoped awould ~~taxable~~have ~~gain~~led to the resumption of petroleum operations. Thus, ~~subject~~we believed all legal measures to ~~potential~~require ~~tax limitations~~Tullow and Dana to drill the planned exploration well had been exhausted. In fiscal year 2017, we impaired unproven oil and gas properties due to uncertainties surrounding the ability of the Company to continue operations and following the determination of non-commerciality of the Fatala-1 well ultimately fully impaired unproven oil and gas properties.

~~Hyperdynamics~~ ~~has~~ The ~~U.S.~~following ~~net~~table ~~operating~~provides ~~loss~~detail ~~carryforwards~~ of ~~approximately~~total ~~$115.8 million~~capitalized atcosts ~~June 30,~~for ~~2016.~~our ~~The~~Guinea ~~U.S.~~Concession ~~net~~as ~~operating losses contain excess tax benefits related to stock compensation in the amount~~ of ~~$2.2 million~~June ~~which~~30, ~~have~~2017 ~~not~~and ~~been~~2016 ~~included~~ (in ~~the financial statements.~~ thousands):

Internal Revenue Code Section 382 restricts the ability to use these carryforwards whenever an ownership change, as defined, occurs. Hyperdynamics incurred such an ownership change on January 14, 1998 and again on June 30, 2001. As a result of the first ownership change, Hyperdynamics' use of net operating losses as of January 14, 1998, of $949,000, is restricted to $151,000 per year. The availability of losses from that date through June 30, 2001 of $3,313,000 is restricted to $784,000 per year.

~~The~~ ~~Company underwent a restructuring during fiscal 2012 that removed approximately $13~~ 4.~~2 million~~ ofACCOUNTS ~~net~~PAYABLE ~~operating~~AND ~~losses~~ACCRUED ~~from the U.S. consolidated tax return. It is unlikely~~EXPENSES that the entity where these net operating losses reside will ever generate U.S. taxable income sufficient to utilize any of these losses. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on the results of operations or financial position of the Company. The U.S. net operating loss carryforwards expire from 2020 to 2035.

~~The~~ ~~difference~~ Accounts ~~between~~payable ~~the statutory tax rates~~ and ~~our~~accrued ~~effective~~expenses ~~tax~~as ~~rate is primarily due to the valuation allowance applied against our deferred tax assets generated by net operating losses. A reconciliation~~ of ~~the actual taxes to the U.S. statutory tax rate for the years ended~~ June 30, ~~2016~~2017 and ~~2015~~2016 isinclude asthe ~~follows~~following (in thousands):

	2016			2015
	2017			2016
Income tax (benefit) at the statutory federal rate (35%)	$	(7,996	)	$	(4,687	)
Accounts payable – trade	$	4,010		$	1,361
Increase (decrease) resulting from nondeductible stock compensation		56			172
Other Accrued		672			382
Foreign Rate Differential		914			1,885
	$	4,682		$	1,743
Other, net		35			21
Change in valuation allowance		6,991			2,609

Net income tax expense	$	—		$	—

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Table of Contents

~~HYPERDYNAMICS~~ 5. ~~CORPORATION~~INCOME TAXES

Federal ~~NOTES~~Income TOtaxes ~~CONSOLIDATED~~are ~~FINANCIAL~~not ~~STATEMENTS~~currently due since Hyperdynamics has had losses since inception. Components of deferred tax assets as of June 30, 2017 and 2016 are as follows (~~Continued)~~in thousands):

5. INCOME TAXES (Continued)


	2017		2016
Current deferred tax assets:
Other current deferred tax assets	$	—	$	—
Total current temporary differences		—		—
Less: valuation allowance		—		—
Net current deferred tax assets	$	—	$	—

Non-current deferred tax assets
Stock compensation	$	2,470	$	2,464
Property and Equipment		15		69
Oil and gas properties		13,582		21,504
Capital loss		144		144
Other		111		—
Total non-current deferred tax assets	$	16,322	$	24,181
Non-current deferred tax liabilities
Property and Equipment		—		—
Net operating losses		40,281		36,138
		56,603		60,319
Less: valuation allowance		(56,603)		(60,319)
Net non-current deferred tax assets (liabilities)	$	—	$	—

~~The~~ ~~following~~ Deferred ~~table~~tax ~~summarizes~~assets have been fully reserved due to determination that it is more likely than not that the ~~activity~~Company ~~related~~will not be able to ~~our~~realize ~~gross~~the ~~unrecognized~~benefit from them. In accordance with generally accepted accounting principles, no deferred income tax ~~benefits~~asset ~~from~~has ~~July 1~~been recognized for the $130 million excess of the income tax basis in SCS, ~~2014~~the toCompany’s ~~June 30~~Cayman Island operating subsidiary, ~~2016~~over ~~(in~~the ~~thousands):~~book basis of the subsidiary. This potential tax benefit will only be fully realized if the subsidiary or the Concession is sold at a taxable gain, subject to potential tax limitations.

	Federal, State and Foreign Tax
	(In thousands)
Balance at July 1, 2014	$	5,485

Additions to tax positions related to the current year		—
Additions to tax positions related to prior years		—
Statute expirations		—

Balance at June 30, 2015	$	5,485

Additions to tax positions related to the current year		—
Additions to tax positions related to prior years		—
Statute expirations		—

Balance at June 30, 2016	$	5,485

Hyperdynamics has U.S. net operating loss carryforwards of approximately $127.4 million at June 30, 2017. The U.S. net operating losses contain excess tax benefits related to stock compensation in the amount of $2.2 million which have not been included in the financial statements.

~~The~~ ~~total~~ Internal ~~unrecognized~~Revenue ~~tax~~Code ~~benefits~~Section 382 ~~that~~restricts the ability to use these carryforwards whenever an ownership change, ifas ~~recognized~~defined, ~~would~~occurs. ~~affect~~Hyperdynamics ~~our~~incurred ~~effective~~such ~~tax~~an ~~rate~~ownership ~~was~~change $5on January 14,~~485,000~~ ~~for~~1998 ~~the~~and ~~years~~again ~~ended~~on June 30, ~~2016~~2001. As ~~and~~a result of the first ownership change, Hyperdynamics’ use of net operating losses as of January 14, 1998, of $0.9 million, is restricted to $0.2 million per year. The availability of losses from that date through June 30, ~~2015~~2001 of $3.3 million is restricted to $0.8 million per year.

The Company underwent a restructuring during fiscal 2012 that removed approximately $13.3 million of net operating losses from the U.S. consolidated tax return. It is unlikely that the entity where these net operating losses reside will ever generate U.S. taxable income sufficient to utilize any of these losses. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on the results of operations or financial position of the Company. The U.S. net operating loss carryforwards expire from 2020 to 2035.

F-20

Table of Contents

The difference between the statutory tax rates and our effective tax rate is primarily due to the valuation allowance applied against our deferred tax assets generated by net operating losses. A reconciliation of the actual taxes to the U.S. statutory tax rate for the years ended June 30, 2017 and 2016 is as follows (in thousands):


	2017		2016
Income tax (benefit) at the statutory federal rate (35%)	$	(7,534)	$	(7,996)
Increase (decrease) resulting from nondeductible stock compensation		38		56
Foreign Rate Differential		(330)		914
Disallowed foreign capital loss		12,136		—
Derivative loss		(247)		35
Other, net		(323)		—
Change in valuation allowance		(3,740)		6,991
Net income tax expense	$	—	$	—

The following table summarizes the activity related to our gross unrecognized tax benefits from July 1, 2015 to June 30, 2017 (in thousands):


	Federal, State and
	Foreign Tax
	(In thousands)
Balance at July 1, 2015	$	5,485
Additions to tax positions related to the current year		—
Additions to tax positions related to prior years		—
Statute expirations		—
Balance at June 30, 2016	$	5,485
Additions to tax positions related to the current year		—
Additions to tax positions related to prior years		—
Statute expirations		—
Balance at June 30, 2017	$	5,485

The total unrecognized tax benefits that, if recognized, would affect our effective tax rate was $5,485,000 for the years ended June 30, 2017 and June 30, 2016.

We file income tax returns, including tax returns for our subsidiaries, with federal, state, local, and foreign jurisdictions. Our tax returns are subject to routine compliance review by the taxing authorities in the jurisdictions in which we file tax returns in the ordinary course of business. We consider the United States to be our most significant tax jurisdiction; however, the taxing authorities in Guinea may audit various tax returns. We currently have no ongoing federal or state audits. The normal statute of limitations for tax returns being available for IRS audit is three years from the filing date of the return. However, net operating losses are subject to adjustment upon utilization of the loss to offset taxable income regardless of when the net operating loss was generated. Therefore, all of our historic losses are subject to adjustment until they are utilized or expire. We do not believe there will be any decreases to our unrecognized tax benefits within the next twelve months.

6. SHAREHOLDERS'’ EQUITY

Preferred Stock issuances

Series A Preferred Stock Offering

On March 17, 2017, we held the first closing of the Series A Offering of 680 Units of our securities, at a purchase price of $1,000 per Unit and on March 28, 2017, we consummated a second closing of the Series A Offering and issued and sold an additional 511 Units of our securities, at a purchase price of $1,000 per Unit. On April 18, 2017, we consummated a third closing of the Series A Offering and issued and sold additional 710 Units of our securities, at a purchase price of $1,000 per Unit. On April 26, 2017, we consummated a fourth closing of the Series A Offering and

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issued and sold additional 50 Units of our securities at a purchase price of $1,000 per Unit. Each “Unit” consisted of (i) one share of the Company’s Series A Preferred Stock, and (ii) the Series A Investor Warrant.

We entered into subscription agreements for the Units (the “Subscription Agreements”) with certain accredited investors (as such term is defined in the Rule 501 under the Securities Act of 1933, as amended (the “Securities Act”) (the “Subscribers”). The subscription agreements contained customary representations and warranties of the Company and the Subscribers, and indemnification of the Company and the Placement Agent by the Subscribers.

The Company received an aggregate of approximately $2.0 million in gross cash proceeds, before deducting placement agent fees and expenses, legal, accounting and other fees and expenses, in connection with the sale of the Units. The Company used the net proceeds of approximately $1.6 million from the sale of the Units for general corporate purposes and to further its business interests in the Republic of Guinea, including, but not limited to the drilling of an exploration well on the Company’s offshore Concession.

At the March 17, 2017 closing, we issued to the Subscribers an aggregate of: (i) 680 Units of Series A Preferred Stock and (ii) Series A Investor Warrants to purchase an aggregate of 151,640 shares of common stock and at the March 28, 2017 closing we issued to the Subscribers an aggregate of (i) 511 Units of Series A Preferred Stock and (ii) Series A Investor Warrants to purchase an aggregate of 113,953 shares of common stock. At the April 18, 2017 closing, we issued to the Subscribers an aggregate of (i) 710 shares of Series A Preferred Stock and (ii) Series A Investor Warrants to purchase an aggregate of 158,330 shares of common stock. At the April 26, 2017 closing, we issued to the Subscribers an aggregate of (i) 50 shares of Series A Preferred Stock and (ii) Series A Investor Warrants to purchase an aggregate of 11,150 shares of Common Stock.

Subscribers in the Offering had an option (the “Subscriber Option”) to purchase their pro rata share of up to an aggregate of $3,000,000 in additional Units following the effective date of the registration statement registering for resale the shares of Common Stock issuable upon conversion of the Series A Preferred Stock and exercise of the Investor Warrants and Placement Agent Warrants, which we filed on May 1, 2017 and amended on May 18, 2017, June 7, 2017, and June 20, 2017. See Note 9 for the subscriber option exercises.

On March 17, 2017, the Company filed a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (the “Certificate of Designations”) with the Secretary of State of the State of Delaware, authorizing, and establishing the voting powers, designations, preferences, limitations, restrictions and relative rights of, the Series A Preferred Stock. The Certificate of Designations was adopted by resolution of the Company’s board of directors pursuant to the Company’s Certificate of Incorporation, as amended, which vests in the Company’s board of directors with the authority to provide for the authorization and issuance of one or more series of preferred stock of the Company within the limitations and restrictions set forth therein. The Certificate of Designations contains the following key terms:

Each holder of Series A Preferred Stock is entitled to receive dividends payable on the Stated Value of such Series A Preferred Stock at the rate of 1% per annum, which shall be cumulative and be due and payable in Common Stock on the applicable conversion date or in cash in the case of a redemption of the Series A Preferred Stock by the Company.

Shares of Series A Preferred Stock are redeemable, in whole or in part, at the option of the Company, in cash, at a price per share equal to 115% of the Stated Value plus 115% of accrued but unpaid dividends.

In the event of any liquidation, dissolution or winding up of the Company, holders of Series A Preferred Stock will be entitled to receive, out of assets available therefor, an amount equal to 115% of the Stated Value of their shares plus 115% of any accrued but unpaid dividends.

The Series A Preferred Stock is convertible at the option of the holder, in whole or in part, into shares of Common Stock at any time after the earlier of (i) the date the Registration Statement is declared effective by the SEC or (ii) six months after the date of the closing. If no conversion has taken place within nine months

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after the date of the closing, the Series A Preferred Stock, plus any accrued but unpaid dividends, will automatically convert into shares of Common Stock.

The conversion price per share of common stock in either event is the lesser of (i) $2.75 per share (subject to adjustment in certain circumstances), or (ii) 80% of the lowest closing price during 21 consecutive trading days ending on the trading day immediately prior to the conversion date, subject to a floor of $0.25 per share (which floor is subject to “full ratchet” adjustment in certain circumstances if we issue Common Stock (or Common Stock equivalents) in the aggregate amount of not less than $1.0 million at a price below $0.25 per share of Common Stock, and to proportionate adjustment in certain other circumstances).

Except in certain limited circumstances affecting the rights of the holders of Series A Preferred Stock or as required by law, holders of the Series A Preferred Stock will not have voting rights.

Until the date that is six months following the date of the closing, the Company will not authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation senior to the Series A Preferred Stock, without the consent of holders of no less than 66 2/₃ % of the then-outstanding shares of Series A Preferred Stock.

We also agreed in the Subscription Agreements that until the date that is 12 months following the closing, we will not create or allow to be created any security interest, lien, charge or other encumbrance on any of our or our subsidiaries’ rights under or interests in the PSC, as amended, that secures the repayment of indebtedness of the Company or any of its subsidiaries for money borrowed.

The Company engaged Katalyst Securities, LLC as Placement Agent for the Series A Offering, on a reasonable best effort basis. We agreed to pay to the Placement Agent (and any sub agent) a cash commission of 9% of the gross purchase price paid by the Subscribers for the Units (including for Units that may be issued upon exercise of the Subscriber Option), and to issue to the Placement Agent (and any sub agent) warrants to purchase a number of shares of common stock equal to 7% of the number of shares of common stock initially issuable upon conversion of the shares of Series A Preferred Stock at a fixed price of $2.75 per share contained in the Units sold in Series A Offering (including Units that may be issued upon exercise of the Subscriber Option), at the exercise price of $3.00 per share (the “Placement Agent Warrants”).

We also agreed to reimburse the Placement Agent for certain expenses related to the Series A Offering. At the March 17, 2017 closing, we paid the Placement Agent $61,200 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 18,002 shares of common stock. At the March 28, 2017 closing, $45,990 of cash fees were paid and Placement Agent Warrants to purchase an aggregate of 13,528 shares of common stock were issued to the Placement Agent or its designees. In conjunction with the April 18, 2017 and April 26, 2017 closing, we paid the Placement Agent $68,400 of cash fees and issued to the Placement Agent or its designees Placement Agent Warrants to purchase an aggregate of 20,120 shares of common stock. The Placement Agency Agreement between the Company and the Placement Agent contains customary representations, warranties and covenants of and indemnifications by the parties.

Series A Investor Warrants – Series A Offering

The exercise price is subject to weighted average anti-dilution provisions. The Series A investor warrants are exercisable at any time at the option of the holder until the second annual anniversary of the first closing of the financing which was March 17, 2017.

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The combined fair value of the Series A investor warrants is estimated to be $0.1 million as of June 30, 2017. The following are weighted average assumptions:



	June 30,
	2017

Expected term (in years)	1.75
Expected volatility%	75	%
Risk-free interest rate%	1.34	%
Expected dividend yield%	—	%

Placement Agent Warrants – Series A Offering

As part of the placement agent’s fees, the Placement Agent received warrants to purchase 51,650 shares of the Company’s stock at the exercise price of $3.00 per share in connection with these four closings of the Series A Offering. The exercise price is subject to weighted average anti-dilution provisions. The Placement Agent Warrants are exercisable at any time at the option of the holder until the second annual anniversary of the first closing of the financing which was March 17, 2017.

The Company estimated the aggregate fair value of the Series A warrants issued to the placement agent to be $15,029 as of June 30, 2017. The fair value of placement agent warrants which was not material at the issuance date, was considered part of total equity issuance cost and allocated between reduction to additional paid-in capital and expense based on relative values of investor warrants and preferred stock relative to proceeds from issuance.

The Series A Placement Agent Warrants were valued using the following weighted average assumptions:



	June 30,
	2017

Expected term (in years)	1.75
Expected volatility%	75	%
Risk-free interest rate%	1.34	%
Expected dividend yield%	—	%

The Series A Investor Warrants and the Placement Agent Warrants have provisions for the “weighted average” adjustment of their exercise price in the event that we issue shares of common stock (or common stock equivalents) for a consideration per share less than the exercise price then in effect, subject to certain exceptions.

On March 28, 2017, we also entered into an amendment to the Subscription Agreements (the “Amendment”) with Subscribers that purchased the Units in the initial closing of the Offering on March 17, 2017, and with the Subscribers in this closing, to expand the scope of a right of first refusal contained in the Subscription Agreement. As so amended, the Subscription Agreement provides that if, following the termination of the Offering and prior to December 17, 2017, the Company determines to offer for sale or to accept an offer to purchase any additional shares of common stock or securities convertible into or exercisable or exchangeable for shares of common stock (subject to certain limitations and adjustments described therein) for consideration consisting of cash and/or outstanding debt of the Company, each Subscriber who previously purchased Units in the Offering will have an option to purchase such Subscriber’s pro rata share of such securities on the same terms and conditions on which such securities are proposed to be issued, exercisable on the terms set forth in the Subscription Agreement.

Beneficial Conversion Feature

For the March 17, 2017 and the March 28, 2017 closing of the Series A Offering, the Company determined that the conversion feature in the Preferred Stock represented a beneficial conversion feature. The fair value of the common stock ranging from $1.60 to $1.75 per share on the Commitment Dates was greater than the effective conversion price of $0.47 per share of common stock, representing a beneficial conversion feature of $2.6 million in aggregate. Since the

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intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the convertible instrument, the amount of the reduction (the “Discount”) assigned to the beneficial conversion feature was limited to the amount of the proceeds allocated to the convertible instrument. A total of $1.2 million was recorded as the Discount to additional paid-in capital. The Discount resulting from the allocation of value to the beneficial conversion feature is required to be amortized on a non-cash basis from the issuance date over a six-month period, or fully amortized upon an accelerated date of redemption or conversion, and recorded as a preferred dividend.

For the April 18, 2017 and the April 26, 2017 closing of the Series A Offering, the Company determined that the conversion feature in the Preferred Stock represented a beneficial conversion feature. The fair value of the common stock ranging from $1.46 to $1.75 per share on the Commitment Dates was greater than the effective conversion price of $0.80 to $0.87 per share of common stock, representing a beneficial conversion feature of $0.5 million in aggregate. A total of $0.7 million was recorded as the Discount to additional paid-in capital. The Discount resulting from the allocation of value to the beneficial conversion feature is required to be amortized on a non-cash basis from the issuance date over a six-month period, or fully amortized upon an accelerated date of redemption or conversion, and recorded as a preferred dividend.

The S-1 Registration Statement (SEC File No. 333-217577) that we filed on May 1, 2017 and subsequently amended on May 18, 2017, June 7, 2017, and June 20, 2017, and which was declared effective by the SEC on June 22, 2017, triggered the full amortization of the beneficial conversion feature for the quarter and year ended June 30, 2017. Accordingly, a preferred dividend of $1.5 million was recorded as a reduction to additional paid in capital since the Company has no retained earnings.

Common Stock issuances

~~There~~ Shares ~~were~~issued nofor ~~stock options or warrants exercised during the years ended June 30, 2016 or 2015.~~ services

In consideration for the Drilling Contract Amendment and taking into account certain significant costs incurred by Pacific Scirocco while waiting for SCS to agree terms of the Farm-out Agreement with SAPETRO and the Third Amendment to the Production Sharing Contract between SCS and the Government of the Republic of Guinea, the Company agreed to issue to Pacific Drilling Operations a number of shares of our common stock equal to $1.0 million divided by the volume-weighted average price for the ten trading days preceding the date of the agreement, which was June 2, 2017. Under this agreement the issuance price was calculated at $1.761 per share, and 567,859 unregistered shares of our common stock were delivered to Pacific Drilling Operations within 10 business days.

Conversion of Series A Preferred Stock

During the year ended June 30, 2017, a total of 135,625 shares of common stock were issued upon the conversion of 160 shares of Series A Preferred Stock.

Common Unit Offering

On June 5, 2017, the Company held a first closing of the Common Unit Offering of 4,335,625 Units of our securities, at a purchase price of $1.46 per Unit.

The Company received an aggregate of approximately $6.3 million in gross cash proceeds, before deducting placement agent fees and expenses, legal, accounting and other fees and expenses, in connection with the sale of the Units.

Katalyst Securities, LLC, was engaged by the Company as Placement Agent for the Common Unit Offering, on a reasonable best effort basis. We agreed to pay to the Placement Agent (and any sub agent) a cash commission of 9% of the gross purchase price paid by the Subscribers for the Units, and to issue to the Placement Agent (and any sub agent) warrants to purchase a number of shares of common stock equal to 7% of the number of shares of common stock contained in the Units sold in the Common Unit Offering, at the exercise price of $1.825 per share (the "Common Unit Placement Agent Warrants"). We also agreed to reimburse the Placement Agent for certain expenses related to the Common Unit Offering. We paid the Placement Agent a total of $0.6 million of cash fees and issued to the Placement Agent or its designees Common Unit Placement Agent Warrants to purchase an aggregate of 303,502 shares of common stock.

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Investor Warrants - Common Unit Offering

As part of the Common Unit Offering, each "Unit" consisted of (i) one share of our common stock, and (ii) (the Common Unit Investor Warrant to purchase three quarters (3/₄) of a share of our common stock, exercisable for two years from issuance, at an exercise price of $1.825 per whole share (subject to adjustment in certain circumstances). We entered into subscription agreements (the “Subscription Agreements”) for the Units with certain accredited investors (as such term is defined in the Rule 501 under the Securities Act). The Subscription Agreements contained customary representations and warranties of the Company and the subscribers, and indemnification of the Company and the Placement Agent by the subscribers. At that closing, we issued to the subscribers an aggregate of: (i) 4,335,625 shares of common stock and (ii) Common Unit Investor Warrants to purchase an aggregate of 3,251,726 shares of common stock.

The exercise price is subject to weighted average anti-dilution provisions. The Common Unit Investor Warrants are exercisable at any time at the option of the holder until the second annual anniversary of the common unit closing of the financing which was June 5, 2017.

The fair value of the Common Unit Investor Warrants is estimated to be $1.7 million as of June 30, 2017. The following are weighted average assumptions:



	June 30,
	2017

Expected term (in years)	1.93
Expected volatility%	76	%
Risk-free interest rate%	1.37	%
Expected dividend yield%	—	%

Placement Agent Warrants – Common Unit Offering

As part of the placement agent’s fees, the Placement Agent received Common Unit Placement Agent Warrants to purchase 303,502 shares of the Company’s stock at the exercise price of $1.825 per share. The exercise price is subject to weighted average anti-dilution provisions. These placement agent warrants are exercisable at any time at the option of the holder until the second annual anniversary of the closing of the common unit offering which was June 5, 2017.

The Company estimated the fair value of the warrants issued to the placement agent to be $161,410 as of June 30, 2017. The fair value of warrants at issuance date of $201,000 was considered part of total equity issuance cost and allocated between reduction to additional paid-in capital and expense based on relative values of investor warrants and common stock relative to proceeds from issuance.

The Common Unit Placement Agent Warrants were valued using the following weighted average assumptions:



		June 30,
		2017

Oil and Gas Properties:

Unproved oil and gas Properties

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