Table ofContents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 
| **x**                                                  | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                             | ** **                                                                                               |
| **For the quarterly period ended: June 30, 2009** |
| ** **                                             | ** **                                                                                               |
| **or**                                                 |
| ** **                                             | ** **                                                                                               |
| **o**                                                  | **TRANSITION  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For the transition periodfrom         to         **

 

**Commission File Number: 001-12697**

 

**BPZRESOURCES, INC.**

(Exact Name of Registrant as Specified in Its Charter)

 

| **Texas**                                                      | ** ** | **33-0502730**                       |
|----------------------------------------------------------------|------------|--------------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization) |       | (I.R.S. Employer Identification No.) |

 

**580 Westlake Park Blvd., Suite 525Houston, Texas 77079**(Address of Principal Executive Office)

 

Registrant’s Telephone Number, Including Area Code:** (281)556-6200**

 

**N/A**

(Former Name, Former Address and Former Fiscal Year, If Changed SinceLast Report)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

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

 

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

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date:

 

As of June 30, 2009, there were 113,399,234shares of common stock, no par value, outstanding.

 

 

 

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Table ofContents

 

**TABLE OF CONTENTS**

 
| **PART I**  |
|------------------|
|             |   |   |   |
| Item 1.          | Financial Statements |   | 3 |
|             |   |   |   |
|             | Consolidated  Balance Sheets |   | 3 |
|             |   |   |   |
|             | Consolidated  Statements of Operations |   | 4 |
|             |   |   |   |
|             | Consolidated  Statements of Cash Flows |   | 5 |
|             |   |   |   |
|             | Notes to Consolidated Financial Statements |   | 6 |
|             |   |   |   |
| Item 2.          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   | 18 |
|             |   |   |   |
| Item 3.          | Quantitative  and Qualitative Disclosures About Market Risk |   | 29 |
|             |   |   |   |
| Item 4.          | Controls and  Procedures |   | 30 |
|             |   |   |   |
| **PART II** |
|             |   |   |   |
| Item 1.          | Legal Proceedings |   | 32 |
|             |   |   |   |
| Item 1A.         | Risk Factors |   | 32 |
|             |   |   |   |
| Item 4.          | Submission  of Matters to a Vote of Security Holders |   | 32 |
|             |   |   |   |
| Item 6.          | Exhibits |   | 32 |
|             |   |   |   |
|             | **SIGNATURES** | 33 |
|                  |  |  |  |  |

 

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**PART I**

 

# **Item 1. Financial Statements**

#  

**BPZ Resources, Inc. and Subsidiaries**

**Consolidated BalanceSheets**

**(In thousands, exceptshare data)**

** **
| ** **                                                                                                                                                                    | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| ** **                                                                                                                                                                    | ** ** | **(Unaudited)**   | ** ** | **(Audited)**         | ** ** |
| **ASSETS**                                                                                                                                                                    |       |              |       |                  |       |
|                                                                                                                                                                          |       |              |       |                  |       |
| Current assets:                                                                                                                                                               |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                                                     |       | $                 | 87,710     |                  | $          | 5,317 |   |
| Accounts receivable                                                                                                                                                           |       | 2,686             |       | 5,276                 |       |
| Value added tax receivable                                                                                                                                                    |       | 18,369            |       | 12,110                |       |
| Inventory                                                                                                                                                                     |       | 7,288             |       | 4,054                 |       |
| Prepaid and other current assets                                                                                                                                              |       | 3,091             |       | 3,268                 |       |
| Total current assets                                                                                                                                                          |       | 119,144           |       | 30,025                |       |
|                                                                                                                                                                          |       |              |       |                  |       |
| Property, equipment and construction in progress,  net                                                                                                                        |       | 208,952           |       | 193,934               |       |
| Restricted cash                                                                                                                                                               |       | 4,251             |       | 5,153                 |       |
| Other non-current assets                                                                                                                                                      |       | 1,558             |       | —                |       |
| Investment in Ecuador property, net                                                                                                                                           |       | 1,289             |       | 1,382                 |       |
| Deferred tax asset                                                                                                                                                            |       | 10,101            |       | 4,871                 |       |
| Total assets                                                                                                                                                                  |       | $                 | 345,295    |                  | $          | 235,365 |   |
|                                                                                                                                                                          |       |              |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                |       |              |       |                  |       |
|                                                                                                                                                                          |       |              |       |                  |       |
| Current liabilities:                                                                                                                                                          |       |              |       |                  |       |
| Accounts payable                                                                                                                                                              |       | $                 | 39,436     |                  | $          | 35,286 |   |
| Accrued liabilities                                                                                                                                                           |       | 6,014             |       | 9,920                 |       |
| Other liabilities                                                                                                                                                             |       | 922               |       | 720                   |       |
| Current income taxes payable                                                                                                                                                  |       | 188               |       | 6,841                 |       |
| Current maturity of long-term debt and capital  lease obligations                                                                                                             |       | 1,308             |       | 7,820                 |       |
| Total current liabilities                                                                                                                                                     |       | 47,868            |       | 60,587                |       |
| Asset retirement obligation                                                                                                                                                   |       | 758               |       | 580                   |       |
| Long-term debt and capital lease obligations                                                                                                                                  |       | 19,252            |       | 15,018                |       |
| Total long-term liabilities                                                                                                                                                   |       | 20,010            |       | 15,598                |       |
|                                                                                                                                                                          |       |              |       |                  |       |
| Commitments and contingencies (Note 14)                                                                                                                                       |       |              |       |                  |       |
|                                                                                                                                                                          |       |              |       |                  |       |
| Stockholders’ equity:                                                                                                                                                    |       |              |       |                  |       |
| Preferred stock, no par value, 25,000,000  authorized; none issued and outstanding                                                                                            |       | —            |       | —                |       |
| Common stock, no par value, 250,000,000 authorized;  113,399,234 and 78,748,390 shares issued and outstanding at June 30,  2009 and December 31, 2008, respectively |       | 362,235           |       | 227,137               |       |
| Accumulated deficit                                                                                                                                                           |       | (84,818           | )          | (67,957               | )          |
| Total stockholders’ equity                                                                                                                                               |       | 277,417           |       | 159,180               |       |
| Total liabilities and stockholders’ equity                                                                                                                               |       | $                 | 345,295    |                  | $          | 235,365 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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**BPZ Resources, Inc. and Subsidiaries**

**Consolidated Statements of Operations****(Unaudited)**

**(In thousands, except per share data)**

** **
| ** **                                                                 | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                                 | ** ** | **2009**                             | ** ** | **2008**                           | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Revenue                                                                    |       | $                                    | 11,049     |                               | $          | 7,035 |   | $ | 24,274 |   | $ | 11,403 |   |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Operating and administrative expenses:                                     |       |                                 |       |                               |       |   |   |   |   |
| Lease operating expense                                                    |       | 7,876                                |       | 1,140                              |       | 11,854 |   | 3,360 |   |
| General and administrative expense                                         |       | 7,998                                |       | 9,923                              |       | 16,481 |   | 18,238 |   |
| Geological, geophysical and engineering expense                            |       | 552                                  |       | 115                                |       | 899 |   | 296 |   |
| Depreciation, depletion and amortization expense                           |       | 5,508                                |       | 1,082                              |       | 13,386 |   | 2,273 |   |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Total operating expenses                                                   |       | 21,934                               |       | 12,260                             |       | 42,620 |   | 24,167 |   |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Operating loss                                                             |       | (10,885                              | )          | (5,225                             | )          | (18,346 | ) | (12,764 | ) |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Other income (expense):                                                    |       |                                 |       |                               |       |   |   |   |   |
| Income (expense) from investment in Ecuador property,  net of amortization |       | (47                                  | )          | 253                                |       | (94 | ) | 506 |   |
| Interest income                                                            |       | 3                                    |       | 147                                |       | 28 |   | 196 |   |
| Other income (expense)                                                     |       | (540                                 | )          | 317                                |       | (1,312 | ) | 225 |   |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Total other income (expense)                                               |       | (584                                 | )          | 717                                |       | (1,378 | ) | 927 |   |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Loss before income taxes                                                   |       | (11,469                              | )          | (4,508                             | )          | (19,724 | ) | (11,837 | ) |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Income tax expense (benefit)                                               |       | (1,656                               | )          | 148                                |       | (2,863 | ) | 241 |   |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Net loss                                                                   |       | $                                    | (9,813     | )                                  | $          | (4,656 | ) | $ | (16,861 | ) | $ | (12,078 | ) |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Basic and diluted net loss per share                                       |       | $                                    | (0.10      | )                                  | $          | (0.06 | ) | $ | (0.18 | ) | $ | (0.16 | ) |
|                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Weighted average common shares outstanding                                 |       | 95,347                               |       | 77,681                             |       | 92,002 |   | 76,103 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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**BPZ Resources, Inc. andSubsidiaries**

**Consolidated Statements ofCash Flows (Unaudited)**

**(In thousands)**

** **
| ** **                                                                                 | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                 | ** ** | **June 30,**            | ** ** |
| ** **                                                                                 | ** ** | **2009**                     | ** ** | **2008** | ** ** |
|                                                                                       |       |                         |       |   |   |
| Cash flows from operating activities:                                                      |       |                         |       |   |   |
| Net loss                                                                                   |       | $                            | (16,861    | ) | $ | (12,078 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used in) operating activities: |       |                         |       |   |   |
| Stock-based compensation                                                                   |       | 7,463                        |       | 8,460 |   |
| Depreciation, depletion and amortization                                                   |       | 13,386                       |       | 2,273 |   |
| Amortization of investment in Ecuador property                                             |       | 94                           |       | 94 |   |
| Deferred income taxes                                                                      |       | (5,230                       | )          | — |   |
| Changes in operating assets and liabilities:                                               |       |                         |       |   |   |
| Decrease (increase) in accounts receivable                                                 |       | 2,590                        |       | (1,084 | ) |
| Increase in value added tax receivable                                                     |       | (6,259                       | )          | (3,314 | ) |
| Increase in inventory                                                                      |       | (2,420                       | )          | (2,275 | ) |
| Decrease in other assets                                                                   |       | 10                           |       | 455 |   |
| Increase in accounts payable                                                               |       | 4,151                        |       | 6,504 |   |
| Increase (decrease) in accrued liabilities                                                 |       | (3,907                       | )          | 2,868 |   |
| Increase (decrease) in income taxes payable                                                |       | (6,653                       | )          | 148 |   |
| Increase in other liabilities                                                              |       | 231                          |       | 210 |   |
| Net cash provided by (used in) operating activities                                        |       | (13,405                      | )          | 2,261 |   |
|                                                                                       |       |                         |       |   |   |
| Cash flows from investing activities:                                                      |       |                         |       |   |   |
| Property and equipment additions                                                           |       | (30,433                      | )          | (38,534 | ) |
| Decrease (increase) in restricted cash                                                     |       | 902                          |       | (2,003 | ) |
| Net cash used in investing activities                                                      |       | (29,531                      | )          | (40,537 | ) |
|                                                                                       |       |                         |       |   |   |
| Cash flows from financing activities:                                                      |       |                         |       |   |   |
| Borrowings                                                                                 |       | 1,000                        |       | 2,819 |   |
| Repayments of borrowings                                                                   |       | (3,307                       | )          | (5,009 | ) |
| Proceeds from exercise of warrants, net                                                    |       | —                       |       | 750 |   |
| Proceeds from exercise of stock options, net                                               |       | 11                           |       | 931 |   |
| Proceeds from sale of common stock, net                                                    |       | 127,625                      |       | 41,092 |   |
| Net cash provided by financing activities                                                  |       | 125,329                      |       | 40,583 |   |
|                                                                                       |       |                         |       |   |   |
| Net increase in cash and cash equivalents                                                  |       | 82,393                       |       | 2,307 |   |
| Cash and cash equivalents at beginning of period                                           |       | 5,317                        |       | 7,514 |   |
| Cash and cash equivalents at end of period                                                 |       | $                            | 87,710     |   | $ | 9,821 |   |
|                                                                                       |       |                         |       |   |   |
| Supplemental cash flow information:                                                        |       |                         |       |   |   |
| **Cash paid for:**                                                                         |       |                         |       |   |   |
| Interest                                                                                   |       | $                            | 1,900      |   | $ | 2,468 |   |
| Income tax                                                                                 |       | 10,804                       |       | 92 |   |
| **Non — cash items:**                                                                 |       |                         |       |   |   |
| Purchase and additions to equipment with the  issuance of a capital lease obligation       |       | $                            | —     |   | $ | 9,480 |   |
| Accrued interest capitalized to construction in  progress                                  |       | 36                           |       | 230 |   |
| Depletion allocated to production inventory                                                |       | 814                          |       | 144 |   |
| Depreciation on support equipment capitalized to  construction in progress                 |       | 690                          |       | 413 |   |
| Asset retirement obligation capitalized to property  and equipment                         |       | 144                          |       | 134 |   |
| Property and equipment transferred to other long  term assets                              |       | (1,428                       | )          | — |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

**Note 1- Basis of Presentation and Significant Accounting Policies**

 

**Organization**

** **

BPZ Resources, Inc., (together with itssubsidiaries, collectively referred to as the “Company” or “BPZ” unless thecontext requires otherwise) a Texas corporation, is based in Houston, Texaswith offices in Lima, Peru and Quito, Ecuador. The Company is focused on theexploration, development and production of oil and natural gas in Peru andEcuador. The Company also intends to utilize part of its planned future naturalgas production as a supply source for the complementary development of a gas-firedpower generation facility which is expected to be partially owned by theCompany.

 

The Company maintains a subsidiary, BPZ Exploración & ProducciónS.R.L. (“BPZ E&P”), registered in Peru through its wholly-ownedsubsidiary BPZ Energy, LLC, a Texas limited liability company, formerlyBPZ Energy, Inc. (“BPZ — Texas”) and its subsidiary BPZ EnergyInternational Holdings, L.P., a British Virgin Islands limited partnership.Currently, the Company, through BPZ E&P, has exclusive rights and licenseagreements for oil and gas exploration and production covering a total ofapproximately 2.4 million acres, in four blocks, in northwest Peru. The Company’slicense contracts cover 100% ownership of Block Z-1 (0.8 million acres), BlockXIX (0.5 million acres), Block XXII (0.9 million acres) and Block XXIII (0.2million acres). The Block Z-1 contract was signed in November 2001, theBlock XIX contract was signed in December 2003 and Blocks XXII and XXIIIcontracts were signed in November 2007. The Company’s license contracts provide for an initial explorationperiod of seven and potentially up to thirteen years for Block Z-1 and sevenand potentially up to ten years for Blocks XIX, XXII and XXIII.  The license contracts require the Company toconduct specified activities in the respective blocks during the explorationperiod. If the exploration activities are successful, the total contract termcan extend up to 30 years for oil exploration and production and up to 40 yearsfor gas exploration and production. In the event a Block contains both oil andgas, as is the case in the Company’s Block Z-1 contract, the 40 year termapplies to oil exploration and production as well.

 

Through its wholly-owned subsidiary, SMC EcuadorInc., a Delaware corporation, and its registered branch in Ecuador, the Companyowns a 10% non-operating working interest in an oil and gas producing property,Block 2, located in the southwest region of Ecuador (the “Santa Elena Property”).The license agreement covering the property extends through May 2016.

 

TheCompany is in the process of developing its oil and natural gas reserves andhas begun producing and selling oil from the CX-11 platform in the Corvinafield of Block Z-1 under an extended well testing program. Additionally, theCompany’s activities in Peru include analysis and evaluation of technical dataon its properties, preparation of the development plans for the properties,including detailed engineering and design of the power plant and gas processingfacilities, refurbishment of and designs for platforms, procuring machinery andequipment for an extended drilling campaign, obtaining all necessaryenvironmental and operating permits, bringing additional production on-line andsecuring the required capital and financing to conduct the current plan ofoperation.

 

**Basis of Presentation and Principles of Consolidation**

 

The accompanyingconsolidated financial statements of BPZ Resources, Inc. and itssubsidiaries have been prepared in accordance with accounting principlesgenerally accepted in the United States of America (“GAAP”) for interimfinancial information and with the instructions to Form 10-Q and Article 10of Regulation S-X. Accordingly,certain information and footnote disclosures normally included in financialstatements prepared in accordance with GAAP have been condensed or omittedpursuant to such rules and regulations. The unaudited financial statementsreflect all adjustments which are, in the opinion of management, necessary fora fair presentation of the financial position and results of operations for theinterim periods presented on a basis consistent with the annual auditedfinancial statements.  All suchadjustments are of a normal recurring nature. All significant transactions between BPZ and itsconsolidated subsidiaries have been eliminated. Certain prior period amountshave been reclassified to conform to current year presentation. Results ofoperations for interim periods are not necessarily indicative of the results ofoperations that may be expected for the entire year. The balance sheet at December 31,2008 has been derived from the audited financial statements at that date butdoes not include all of the information and footnotes required by GAAP forcomplete financial statements. These interim financial statements should beread in conjunction with the audited financial statements and notes theretoincluded in the Company’s Annual Report on Form 10-K for the year ended December 31,2008. Management has evaluated all subsequent events through August 10,2009, the date the financial statements were issued.

 

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**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

**Useof Estimates**

** **

The preparation of the consolidated financialstatements in accordance with GAAP requires management to make certainestimates and assumptions. These estimates and assumptions affect the reportedamounts of assets, liabilities, revenues and expenses in the consolidatedfinancial statements, and the disclosure of contingent assets and liabilities.Actual results could differ from these estimates.

 

**Summaryof Significant Accounting Policies**

 

The Company has provideda summary discussion of significant accounting policies, estimates andjudgments in Note 1 to the Notes to Consolidated Financial Statements includedin its Annual Report on Form 10-K for the year ended December 31,2008.

 

**Recent Accounting Pronouncements**

 

In June 2009, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy ofGenerally Accepted Accounting Principles—a replacement of FASB Statement No. 162”(the “Codification”)*.*  TheCodification will become the source of authoritative U.S. generally acceptedaccounting principles (GAAP) recognized by the FASB to be applied bynongovernmental entities. Rules and interpretive releases of theSecurities and Exchange Commission (“SEC”) under authority of federalsecurities laws are also sources of authoritative GAAP for SEC registrants. Onthe effective date of this statement, the Codification will supersede allthen-existing non-SEC accounting and reporting standards. All othernongrandfathered non-SEC accounting literature not included in the Codificationwill become nonauthoritative.   This statement is effective for financialstatements issued for interim and annual periods ending after September 15,2009.  There will be no impact on theCompany’s financial position, results of operations or cash flows as a resultof the Codification.

 

In May 2009, theFASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). Thisstandard establishes the accounting for and disclosure of events that occurafter the balance sheet date but before financial statements are issued or areavailable to be issued. It requires the disclosure of the date through which anentity has evaluated subsequent events and the basis for that date, that is,whether that date represents the date the financial statements were issued orwere available to be issued. The Company adopted SFAS No. 165 in thesecond quarter of 2009. There was no subsequent material impact on itsconsolidated financial position, results of operations or cash flows. See Note1, “Basis of Presentation and Significant Accounting Policies”, to theaccompanying consolidated financial statements for the related disclosure.

 

On December 31, 2008, the SEC adopted the final rules regardingamendments to current oil and gas reporting requirements. The amendments aredesigned to modernize and update the oil and gas disclosure requirements toalign them with current practices and changes in technology and include thefollowing:

 

·                  Requiring companies to report oiland gas reserves using an average price based upon the prior 12-month periodrather than year-end prices.

·                  Enabling companies to additionallydisclose their probable and possible reserves.

·                  Requiring previously nontraditionalresources, such as oil shales, to be classified as oil and gas reserves if thenontraditional resources are intended to be upgraded to synthetic oil and gas.

·                  Requiring companies to report theindependence and qualifications of a preparer or auditor, based on currentSociety of Petroleum Engineers criteria.

·                  Requiring the filing of reports forcompanies that rely on a third party to prepare reserves estimates or conduct areserves audit.

·                  Permitting the use of new technologiesto determine proved reserves if those technologies have been demonstratedempirically to lead to reliable conclusions about reserves volumes.

 

The amendments are effective for registrationstatements filed on or after January 1, 2010, and for annual reports on Form 10-Kand for fiscal years ending on or after December 31, 2009. Early adoptionis not permitted in either annual or quarterly reports before the first annualreport in which the revised disclosures are required. The Company is currentlyevaluating the impact of the amendments on its consolidated financial position,results of operations and cash flows.

 

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**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

**Note 2 —Value Added Tax Receivable**

 

Value-addedtax (referred to as “IGV” in Peru) is generally imposed on goods and servicesat a rate of 19%.

 

Peru currentlyhas an IGV early recovery program for oil and gas companies during theexploration phase. Under this program, IGV paid on the acquisition of certaingoods and services used directly in hydrocarbon exploration activities can berecovered prior to a commercial discovery taking place or the initiation ofproduction and revenue billings. Because the Company has oil sales in the CorvinaField under an extended well testing program,it is no longer eligible for the IGV early recovery program. Accordingly, the Company is recoveringits IGV receivable with IGV payables associated with future oil sales under thenormal IGV recovery process.

 

The Company’s value added tax receivable balance asof June 30, 2009 and December 31, 2008 was $18.4 million and $12.1 million,respectively. For the three and six months ended June 30, 2009 the Companyaccrued approximately $5.4 million and $15.0 million, respectively, for IGVrelated to expenditures, reduced by approximately ($3.3) million and ($8.7)million, respectively, for IGV related to the sale of oil for the same periods.

 

**Note 3 — Inventories**

 

Inventories consistprimarily of crude oil, tubular goods, accessories and spare parts forproduction equipment, stated at the lower of average cost or market. Thebalance of inventory at June 30, 2009 and December 31, 2008 was $7.3million and $4.1 million, respectively.

 

Inventory associated withtubular goods, accessories and spare parts inventory at June 30, 2009 and December 31,2008 was $5.3 million and $3.6 million, respectively.

 

The Company alsomaintains crude oil inventories in storage barges until the inventoryquantities are at a sufficient level that the refinery in Talara will acceptdelivery.  These inventories are also stated at the lower of average costor market value. Cost is determined on a weighted average basis based onproduction costs. The crude oil inventory at June 30, 2009 consisted ofapproximately 39,539 barrels at an estimated cost of $2.0 million or $51.00 perbarrel. The crude oil inventory at December 31, 2008 consisted ofapproximately 11,656 barrels at an estimated cost of $0.4 million or $37.56 perbarrel.

 

**Note 4 — Prepaid and Other Current Assets**

 

Belowis a summary of prepaid and other current assets as of June 30, 2009 and December 31,2008 (in thousands):

 
| ** **                 | ** ** | **June 30,   2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                       |       |                     |       |                        |       |
| Prepaid expenses and other |       | $                        | 1,444      |                        | $          | 1,981 |   |
| Deposits                   |       | 90                       |       | 86                          |       |
| Prepaid insurance          |       | 945                      |       | 590                         |       |
| Insurance receivable       |       | 612                      |       | 611                         |       |
|                       |       | $                        | 3,091      |                        | $          | 3,268 |   |

 

Prepaid expenses andother are primarily related to prepayments for drilling services, equipmentrental and material procurement. Deposits are primarily rent deposits inconnection with the Company’s offices in Houston and Peru. Prepaid insuranceconsists of premiums related to the Company’s operations as well as generalliability and director’ and officers’ insurance policies. Insurance receivableis related to the barge incident which occurred in early August 2006. TheCompany incurred an operational delay of approximately three weeks resultingfrom a navigation incident which caused the BPZ-01 barge to be grounded on asand bank in Talara Bay in northwest Peru during the second mobilization tripto the Corvina platform. As of June 30, 2009, the Company has an insurancereceivable of approximately $0.7 million for the estimated insurance repairclaims of $0.8 million expected to be filed with the insurance carrier. Adeductible of $75,000 will be applied to this insurance claim when reimbursed. The hull claim will be finalized upon the dry docking of the vessel,which is expected to occur during the first quarter of 2010.

 

8

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Table of Contents

 

**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

**Note 5 — Property, Equipment and Construction in Progress**

 

Below is a summary of property, equipment and construction in progress as of June 30, 2009 and December 31, 2008 (in thousands):

 
| ** **                                              | ** ** | **June 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                                    |       |                    |       |                        |       |
| Construction in progress:                               |       |                    |       |                        |       |
| Power plant and related equipment                       |       | $                       | 17,963     |                        | $          | 17,484 |   |
| Platforms and wells                                     |       | 31,167                  |       | 34,768                      |       |
| Pipelines and processing facilities                     |       | 5,194                   |       | 5,108                       |       |
| Producing properties                                    |       | 141,996                 |       | 110,230                     |       |
| Producing equipment                                     |       | 13,673                  |       | 18,399                      |       |
| Barge and related equipment                             |       | 30,786                  |       | 24,927                      |       |
| Office equipment, leasehold improvements, and  vehicles |       | 1,972                   |       | 1,960                       |       |
| Accumulated depreciation and amortization               |       | (33,799                 | )          | (18,942                     | )          |
| Net property, equipment and construction in process     |       | $                       | 208,952    |                        | $          | 193,934 |   |

 

During the sixmonths ended June 30, 2009, the Company incurred costs of approximately$31.3 million associated with its development initiatives for the explorationand production of oil and natural gas reserves in Peru.

 

Of the incurred costs mentioned above, the Company incurred capitalexpenditures related to the completion of the CX11-20XD well and the drillingand testing of the CX11-15D well of approximately $1.0 million and $21.9million, respectively. In preparation for the Company’s future drillingcampaigns, the Company incurred costs of $3.7 million and $0.6 million for theinspection and refurbishment of the Albacora and Piedra Redonda platforms,respectively.   For the six months ended June 30,2009, the Company incurred capital costs of $0.5 million related to initialdrilling activity in the Albacora field and $0.8 million related to the CaletaLa Cruz dock refurbishment.

 

For the three and sixmonths ended June 30, 2009, in accordance with the “successful efforts”method of accounting, the Company capitalized approximately $0.4 million and$0.7 million of depreciation expense, respectively, mainly related to thetender assist barges serving as support equipment to the Company’s drillingactivities, and $1.2 million and $2.2 million of interest expense,respectively, to construction in progress. For the same periods in 2008, theCompany capitalized approximately $0.3 million and $0.4 million of depreciationexpense, respectively, and $1.1 million and $2.0 million of interest expense,respectively, to construction in progress.

 

For the three and sixmonths ended June 30, 2009 the Company recognized $5.5 million and $13.4million of depreciation, depletion and amortization expense, respectively. Forthe same periods in 2008, the Company recognized $1.1 million and $2.3 millionof depreciation, depletion and amortization expense, respectively.

 

**Note 6— Asset Retirement Obligation**

 

An obligation wasrecorded for the future plug and abandonment of the producing oil wells, theCX11-21XD, CX11-14D, CX11-20XD, CX11-18XD and the CX11-15D, in accordance withthe provisions of SFAS No 143 “Accounting for Asset Retirement Obligations”.

 

Activity related to theCompany’s asset retirement obligation (“ARO”) for June 30, 2009 and December 31,2008 is as follows (in thousands):

 

9

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Table of Contents

 

**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 
| ** **                            | ** ** | **June 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                  |       |                    |       |                        |       |
| ARO as of the beginning of the period |       | $                       | 580        |                        | $          | 273 |   |
| Liabilities incurred during period    |       | 144                     |       | 268                         |       |
| Accretion expense                     |       | 34                      |       | 39                          |       |
| ARO as of the end of the period       |       | $                       | 758        |                        | $          | 580 |   |

 

**Note 7 — Investment in Ecuador Property**

 

The Company has a 10% net investment interest in anoil and gas property in Ecuador (the “Santa Elena Property”) totaling $1.3million and $1.4 million as of June 30, 2009 and December 31, 2008,respectively. The Company accounts for this investment under the cost methodand records its share of cash received or paid as other income or expense.Since the Company’s investment represents ownership of an oil and gas property,which is a depleting asset, the Company is amortizing the cost of theinvestment on a straight-line basis over the remaining term of the licenseagreement which expires in May 2016. For both the three and six months ended June 30, 2009, the Companydid not receive any income from its investment in Ecuador property, whilereceiving $0.3 million and $0.6 million during the same periods in 2008,respectively.  For both the three and sixmonths ended June 30, 2009, and 2008, the Company recorded investmentamortization expense of approximately $47,000 and $94,000, respectively.

 

**Note 8 — Restricted Cash and Performance Bonds**

 

As of June 30, 2009,the Company has restricted cash deposits of $4.3 million, which partiallycollateralizes insurance and performance bonds. In connection with the Company’sproperties in Peru, it has obtained four performance bonds totaling $5.3million that are partially collateralized by restricted cash deposits of $2.9million to insure certain performance obligations and commitments under thelicense contracts for Blocks Z-1, XIX, XXII and XXIII. Additionally, theCompany has $1.4 million of restricted cash to collateralize insurance bondsfor import duties related to the Floating, Production, Storage and Offloadingvessel (“FPSO”) and transport tanker.

 

As of December 31, 2008, the Company hadrestricted cash deposits of $5.1 million, which partially collateralizedinsurance bonds and four performance bonds. The four performance bonds totaling$5.3 million that were partially collateralized by restricted cash deposits of $2.9million to insure certain performance obligations and commitments under thelicense contracts for Blocks Z-1, XIX, XXII and XXIII. Additionally, theCompany had $2.2 million of restricted cash to collateralize insurance bondsfor import duties related to the FPSO and transport tanker.

 

All of the performanceand insurance bonds are issued by Peruvian banks and their terms are governedby the corresponding license contracts or customs laws.

 

**Note 9 — Long-Term Debt and Capital Lease Obligations**

** **

***At June 30, 2009 and December 31, 2008 long-termdebt and capital lease obligations consist of the following (in thousands):***

 
| ** **                                               | ** ** | **June 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                                     |       |                    |       |                        |       |
| $15 million IFC Senior Note, Libor plus 2.75%, due  2012 |       | $                       | 15,000     |                        | $          | 15,000 |   |
| Capital Lease Obligations                                |       | 5,560                   |       | 7,838                       |       |
|                                                     |       | 20,560                  |       | 22,838                      |       |
| Less: Current Portion of Long-Term Debt                  |       | 1,308                   |       | 7,820                       |       |
|                                                     |       | $                       | 19,252     |                        | $          | 15,018 |   |

 

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Table of Contents

 

**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

*$15.0Million IFC Reserve-Based Credit Facility*

 

The Company has a $15.0million reserve-based lending facility (“IFC Facility”) agreement (the “Loan Agreement”)with International Finance Corporation**(“**IFC”)through its subsidiaries BPZ E&P and BPZ Marine Peru S.R.L. asborrowers. The reserve-based lending facility matures in December 2012and bears interest at an approximate rate of LIBOR plus 2.75%, currentlyequivalent to 3.85% based on the six month LIBOR rate of 1.1% at June 30,2009.  The maximum amount available under this facility begins at $15.0million and will be reduced by $2.5 million beginning on December 16, 2010and every six months thereafter during the term of the Loan Agreement. The amount available under the Loan Agreement is subject to a semi-annualborrowing base determination based on the value of oil reserves.  Inaddition, the Company is subject to various financial covenants calculated asof the last day of each quarter, including a life of field coverage ratio, lifeof loan coverage ratio, debt to equity ratio and interest coverage ratio. TheCompany was in compliance with all applicable covenants of the Loan Agreementas of June 30, 2009.

 

*NotePayable*

 

In January 2009, inexchange for receipt of $1.0 million from an individual (“Note Holder”), theCompany signed a promissory note (the “Note”). The Note originally provided formaturity in July 2009 with an annual interest rate of 12.0%. However, in March 2009,the Company repaid the outstanding principal and accrued interest in full tothe Note Holder.

 

*CapitalLeases*

 

In February 2009,the Company made the final lease payment on the BPZ-02 deck barge, at whichpoint title to the barge was transferred to the Company.

 

In May 2009, theCompany entered into an amendment of its lease agreement for two bargescurrently under charter, the Namoku and the Nu’uanu. Under the terms of theamended lease agreement, the current charter, originally set to expire in November 2009,is extended for five years commencing on May 1, 2009.  During the first 18 months of the amendedlease term, the daily charter rate for the use of both barges isfixed. Commencing on November 2010, the daily charter rate for theuse of both vessels will be based on a tiered structure with the daily ratedependent upon the amount of the previous month’s average daily per barrelprice of West Texas Intermediate Crude Oil (“WTI”), as indicated on the NewYork Mercantile Exchange. Any amount paid by the Company after November 2010over the initial daily rate as a result of the escalated tiered structure basedon the price of WTI will be considered contingent rental payments.  The amended lease agreement contains a $3.0million purchase option after the third year of the lease, a $2.0 millionpurchase option after the fourth year of the lease and a mandatory $1.0 millionpurchase obligation after the fifth year of the lease.

 

The Company accounted for the amended lease agreementin accordance with SFAS No. 13, “Accounting for Leases (As Amended)”.Under the guidance, the lease agreement continues to be accounted for as acapital lease and the imputed interest rate necessary to reduce the net minimumlease payments to present value over the lease term is 34.9%.

 

The following is a summary of scheduled minimum leasepayments under the amended lease agreement at June 30, 2009 (inthousands):

 
| 2009                                                      |   | $     | 920    |   |
|-----------------------------------------------------------|--------|-------|--------|--------|
| 2010                                                      |   | 1,825 |   |
| 2011                                                      |   | 1,825 |   |
| 2012                                                      |   | 1,830 |   |
| 2013                                                      |   | 1,825 |   |
| Therafter                                                 |   | 1,600 |   |
| Total Minimum Lease Payments                              |   | 9,825 |   |
| Less: Amounts Representing Interest                       |   | 5,269 |   |
| Present Value of Minimum Lease Payments                   |   | 4,556 |   |
| Less: Current Portion of Obligations Under Capital  Lease |   | 341   |   |
| Long-Term Portion of Obligations Under Capital  Lease     |   | $     | 4,215  |   |

 

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**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

**Note10 — Stockholders’ Equity**

 

TheCompany has 25,000,000 shares of preferred stock, no par value, and 250,000,000shares of common stock, no par value, authorized for issuance.

 

**2009Registered Offering of Common Stock**

 

On June 30, 2009, the Company closed its sale of approximately18.8 million shares of its common stock, no par value, in a registered offeringunder an effective shelf registration statement.  The shares ofcommon stock were priced at $4.66 per share resulting in net proceeds to theCompany, after placement agent fees and other fees, of approximately $82.9million. In connection with the registered offering, the Company entered into aplacement agency agreement with Canaccord Adams Inc. as lead placement agentfor the offering along with Pritchard Capital Partners, LLC, and Raymond Jamesand Associates, Inc. In addition, Rodman & Renshaw, LLC, andWunderlich Securities, Inc. assisted as agents in the transaction. TheCompany paid approximately $4.4 million as a 5% placement agency fee of thegross proceeds received by the Company in accordance with the terms of theplacement agency agreement. The Company plans on using the proceeds of thisoffering to develop its properties under its existing license contracts.

 

Pursuant to the Subscription Agreement dated December 16, 2006(the “Subscription Agreement”) by and between IFC and the Company, IFC has theright, within 45 days of notice of the offering described above, topurchase shares of the Company’s common stock for the same price and terms asthe participants in the registered offering to retain its proportionateownership in the Company. As noted above, the price of the shares sold in theregistered offering that closed on June 30, 2009 was $4.66 pershare.  Notice of the proposed registered offering was given to IFC on June 17,2009. IFC has indicated it would like to exercise its purchase right topurchase up to 1,889,415 shares of common stock at the offering price of $4.66per share to which it is entitled under the Subscription Agreement. Pursuant to NYSE Amex rules, the Company is seeking shareholder approval at aspecial meeting to be held August 24, 2009 to permit it to sell up to1,889,145 additional shares of common stock to IFC at a price of $4.66 pershare.  Assuming the purchase of all 1,889,145 shares of common stock byIFC, gross proceeds to the Company would be approximately $8.8 million.  Any sale of such shares to IFC will be madeby means of a prospectus pursuant to the Company’s shelf registrationstatement, as amended, originally filed on November 16, 2007 and declaredeffective on December 7, 2007, or pursuant to a private transactionproviding for the shares to be registered for resale at a later time pendingfulfillment of any applicable securities law requirements.  If the Company does not receive shareholderapproval to permit it to issue up to an additional 1,889,415 shares of commonstock to IFC, the Company may fail to comply with its obligations to IFC as setforth in the Subscription Agreement, and may be potentially liable for thepayment of any resulting damages to IFC.

 

**2009Private Placement of Common Stock**

 

On February 23, 2009, the Company closed a private placement ofapproximately14.3 million shares of common stock, no par value, toinstitutional and accredited investors pursuant to a Stock Purchase Agreementdated February 19, 2009. Additionally, in March 2009, IFC exercisedits pre-emptive right to elect to participate in the private placement offeringresulting in an additional 1.4 million shares of common stock which brought thetotal to approximately 15.7 million shares of common stock sold in the privateplacement offering. The common stock was priced at $3.05 per share resulting innet proceeds to the Company, after placement agent and financial advisory fees,of approximately $45.2 million. No warrants or dilutive securities were issuedin connection with the private placement. A financial advisory fee of $0.7million was paid to Morgan Keegan and Company, Inc.  for investment services and consultingrelated to the offering. Additionally, a private placement fee of $2.2 millionwas paid to Pritchard Capital Partners, LLC for placement services related tothe offering. The Company plans on using the proceeds of this offering todevelop its properties under its existing license contracts.

 

Under the Stock PurchaseAgreement, the Company committed to file a registration statement with the SECand obtain the registration statement’s effectiveness within the time-framesoutlined in the Stock Purchase Agreement. On April 27, 2009, the Companyobtained effectiveness of the registration statement related to the StockPurchase Agreement in compliance with such time-frames.

 

**Potentially Dilutive Securities**

 

In addition to the shares issued and outstanding, the Company has the following potentially dilutive securities at June 30, 2009 and December 31, 2008.  None of these potentially dilutive shares have been included in the calculation of earnings per share, for the three and six months ended June 30, 2009 or for the year ended December 31, 2008, as the effect would be anti-dilutive.

 

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**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

The potentially dilutive shares are as follows (in thousands):

 
| ** **                                                          | ** ** | **June 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Stock options outstanding                                           |       | 4,582                   |       | 3,894                       |       |
| Total potentially dilutive securities issued                        |       | 4,582                   |       | 3,894                       |       |
| Shares available pursuant to Long-Term Incentive  Compensation Plan |       | 1,671                   |       | 2,541                       |       |

 

The Company has in effect the 2007 Long-Term IncentiveCompensation Plan (the “2007 LTIP”) and the 2007 Directors’ CompensationIncentive Plan (the “Directors’ Plan”). The 2007 LTIP and Directors’ Planprovides for awards of options, stock appreciation rights, restricted stock,restricted stock units, performance awards, other stock-based awards andcash-based awards to any of the Company’s officers, employees, consultants andthe employees of certain of the Company’s affiliates as well as non-employeedirectors. The number of shares authorized under the 2007 LTIP and Directors’Plan is 4.0 million and 2.5 million, respectively. As of June 30,2009, 295,650 shares remain available for future grants under the 2007 LTIP and1,375,000 shares remain available for future grants under the Directors’ Plan.

 

Thefollowing table summarizes stock-based compensation costs recognized under SFAS123(R) for the three and six months ended June 30, 2009 and 2008,respectively, and is generally included in “General and administrative expense”on the Consolidated Statements of Operations (in thousands):

 
| ** **                                                 | ** ** | **Three Months Ended** | ** ** | **Six  Months Months Ended** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------------|------------|
| ** **                                                 | ** ** | **June 30,**                | ** ** | **June 30,**                      | ** ** |
| ** **                                                 | ** ** | **2009**                         | ** ** | **2008**                               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                       |       |                             |       |                                   |       |   |   |   |   |
| Employee stock—based compensation costs               |       | $                                | 1,999      |                                   | $          | 2,552 |   | $ | 3,925 |   | $ | 5,805 |   |
| Director stock—based compensation costs  (a) (b) |       | 2,190                            |       | 1,346                                  |       | 3,538 |   | 2,655 |   |
|                                                       |       | $                                | 4,189      |                                   | $          | 3,898 |   | $ | 7,463 |   | $ | 8,460 |   |

 

----

| (a)    | For the three and six months ended June 30,  2009 approximately $0.4 million of stock-based compensation is included in  “Other income (expense)” on the Consolidated Statements of  Operations. The amount relates to 100,000 stock options awarded to a former member of the Board of Directors to purchase  the Company’s common stock. The grant date fair value of the award was  recognized upon issuance of the award. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (b)    | For the three and six months ended June 30,  2009 additional stock-based compensation of approximately $0.7 million was  recognized primarily related to the accelerated vesting for certain  restricted stock and stock option awards granted to a former member of the  Board of Directors.                                                                                                                                                |

 

**Restricted Stock Awards andPerformance Shares**

 

On July 1, 2009, the Company awarded 155,150shares of restricted stock to officers and other key employees under theCompany’s 2007 LTIP.   The restrictedstock awards generally vest on the second anniversary of the grant date. Thefair value of these awards is based on the closing market price on the date ofBoard approval of the grant, June 26, 2009.

 

**Stock Options**

 

During the three and six months ended June 30,2009, the Company awarded a former member of the Board of Directors 100,000options to purchase the Company’s common stock under the Company’s Directors’Plan.  25% of the awards will vest on thefirst anniversary from the date of grant, May 7, 2009, 50% of the awardswill vest on the second anniversary from the date of grant and the remaining25% will vest on the third anniversary from the date of grant. The totalvalue of the option award is approximately $0.4 million. The Company recognized the entire amountof expense on the grant date and the amount is included in “Other income (expense)” on theConsolidated Statements of Operations.

 

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**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

On July 1, 2009 the Company awarded officers andother key employees465,650 options to purchase the Company’s common stock under theCompany’s 2007 LTIP.  These optionsgenerally vest in equal annual installments over a three-year period from thegrant date. The exercise price of these awards is based on the closing marketprice on the date of Board approval of the grant, June 26, 2009.

 

On July 1, 2009 the Company awarded itsnon-employee directors 150,000 options to purchase the Company’s common stockunder the Directors’ Plan.  These options generally vest in equal annualinstallments over a two-year period from the grant date. The exercise price ofthese awards is based on the closing market price on the date of Board approvalof the grant, June 26, 2009.

 

The stock options were granted with a weighted averageexercise price of $5.43 and the fair value of the stock options was estimatedusing the Black-Scholes options pricing model with the following assumptions:

 
| ** **                                          | ** ** | **2009** | ** ** |
|-----------------------------------------------------|------------|----------|------------|
| Expected life (years) (a)                           |       | 4.5      |       |
| Risk-free interest rate (c)                         |       | 2.4      | %          |
| Volatility (b)                                      |       | 92.0     | %          |
| Dividend yield (d)                                  |       | —   |       |
| Weighted-average fair value per share at grant date |       | $        | 3.74       |   |
|                                                     |            |          |            |  |

 

----

| (a)    | The expected life was derived based on a weighting  between (a) the Company’s historical exercise and forfeiture activity  and (b) the average midpoint between vesting and the contractual term  and (c) from the analysis of other companies of a similar size and  operational life cycle. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                              |
| (b)    | The volatility is based on the historical volatility  of our stock for a period approximating the expected life.                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                              |
| (c)    | The risk-free interest rate is based on the observed  U.S. Treasury yield curve in effect at the time the options were granted.                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                              |
| (d)    | The dividend yield is based on the fact the Company  does not anticipate paying any dividends.                                                                                                                                                                                                                    |

 

**Note 11**—**Revenue**

 

TheCompany is currently producing oil from five wells in the Corvina Field underan extended well testing program. The oil is delivered by barge to the Petroperurefinery in Talara, located approximately 70 miles south of theplatform.  Produced oil is kept in production inventory until the Companyincreases the inventory quantities to a sufficient level that the refinery inTalara will accept delivery.

 

In January 2009, the Company, through its wholly-owned subsidiaryBPZ E&P, entered into a long-term oil supply agreement with Petroperu.Under the terms of the contract, the Company agrees to sell, and Petroperuagrees to purchase, all of the Company’s crude oil production originating fromthe Corvina oilfield in Block Z-1. The contract term is for approximately sevenyears or until 17 million barrels of crude oil has been delivered to thePetroperu refinery located in Talara, whichever comes first. The price perbarrel of oil under the agreement is determined using a basket of crude oilsbased on a 15-day average of Forties, Oman, and Suez blend crude oil prices, asquoted in the Spot Crude Prices Assessment published in Platt’s Crude OilgramPrice Report, minus $1 per barrel and other customary purchase priceadjustments.

 

During the three and six months ended June 30,2009, the Company produced approximately 209,391 barrels and 564,566 barrels,respectively.  For the same periods in 2008, the Company producedapproximately 81,575 barrels and 126,751 barrels, respectively.  For thethree and six months ended June 30, 2009, the Company sold approximately205,836 barrels and 536,683 barrels at an average price, net of royalties, of$53.68 per barrel and $45.23 per barrel, respectively. For the sameperiods in 2008, the Company sold approximately 59,186 barrels and 115,072barrels at an average price, net of royalties, of $118.87 per barrel and $99.09per barrel, respectively

 

The Company’s revenues are reported net of royalties owed to thegovernment of Peru. Royalties are calculated by Perupetro as stipulated in theBlock Z-1 license agreement based on the same basket of crude oils pricesdiscussed above, however, their 

 

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**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

calculationis based on the past five-day average price before the crude oil delivery date.For both the three and six months ended June 30, 2009, the revenuesreceived by the Company are net of royalty costs of approximately 5% of grossrevenues or $0.6 million and $1.4 million, respectively. For the same periodsin 2008, the revenues received by the Company are net of royalty costs ofapproximately 5% of gross revenues or $0.4 million and $0.6 million,respectively.

 

**Note 12 — Income Tax**

** **

For the three and sixmonths ended June 30, 2009, the Company recognized an income tax benefitof approximately $1.7 million and $2.9 million, respectively, on a net loss beforeincome tax of approximately $11.5 million and $19.7 million, respectively,resulting in an effective tax rate of 14% and 15%, respectively.  For the same periods in 2008, the Companyrecognized an income tax provision of approximately $0.1 million and $0.2million, respectively, on pre-tax losses of approximately $4.5 million and$11.8 million, respectively.  Thedifference between the effective tax rate recognized and the 22% statutory rateprovided for under the Block Z-1 License Contract is largely due to:

 

·                  The Company has a 100% allowance on itsnet operating losses generated in the United States — The Company has avaluation allowance for the full amount of the domestic deferred tax assetresulting from the income tax benefit generated from net losses in the U.S., asit believes, based on the weight of available evidence, that it is more likelythan not that the deferred tax asset will not be realized prior to theexpiration of net operating loss carryforwards in various amounts through 2027.

 

·                  Certain U.S. expenses are not deductiblein Peru - The tax benefit is based on a taxable Peruvian loss that excludescertain U.S. expenses that are not deductible at the Peruvian level.

 

Estimated interest andpenalties related to potential underpayment on unrecognized tax benefits, ifany, are classified as a component of tax expense in the Consolidated Statementof Operations. For the three and six months ended June 30, 2009 and 2008,respectively, the Company did not have any accrued interest or penalties associatedwith any unrecognized tax benefits, nor was any interest expense recognizedduring those periods.

 

**Note 13 — Business Segment Information**

 

The Company determines and discloses its segments in accordance withSFAS No. 131 “Disclosures about Segments of an Enterprise and RelatedInformation” which uses a “management” approach for determining segments. Themanagement approach designates the internal organization that is used bymanagement for making operating decisions and assessing parlance as the sourceof the Company’s reportable segments. SFAS No. 131 also requiresdisclosures about products or services, geographic areas, and major customers.The Company’s management reporting structure provided for only one segment forthe three and six months ended June 30, 2009 and 2008 and accordingly, noseparate segment information is presented. In addition, the Company operatesonly in Peru and has only one customer for its oil production. The majority ofthe Company’s long-lived assets are located in Peru.

 

**Note 14 — Commitments and Contingencies**

 

*ProfitSharing*

 

The Constitution of Peru and Legislative Decree Nos. 677 and 892 givesPeru employees working in private companies engaged in activities generatingincome classified as third category income by the Income Tax Law the right toshare in the Company’s Peruvian subsidiaries profits. According to Article 3of the United Nations International Standard Industrial Classification, BPZ E&P’stax category is classified under the “mining companies” section, which sets therate at 8%. However, in Peru the Hydrocarbons’ Law states, and the SupremeCourt ruled, that hydrocarbons are not related to mining activities.Hydrocarbons are included under “Companies Performing Other Activities” thusOil and Gas Companies pay profit sharing at a rate of 5%. The 5% of net incomeis determined by calculating a percentage of the Company’s Peruviansubsidiaries annual total revenues subject to income tax less the expensesrequired to produce revenue or maintain the source of revenues. The benefitgranted by the law to employees is calculated on the basis of “income subjectto taxation” per the Peruvian tax code and not based on income/(loss) beforeincomes taxes as reported under GAAP. For the three and six months ended June 30,2009, profit sharing expense of $0.2 million and $0.5 million, respectively, isincluded in “General and administrative expense” on the Consolidated Statementof Operations as the Company’s Peruvian subsidiaries have “income subject totaxation” per the Peruvian tax code. For the three and six months ended June 30,2008, the Company did not recognize profit sharing expense as the Company’sPeruvian subsidiaries did not have “income subject to taxation” per thePeruvian tax code during this period.

 

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**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

*BargeIncident*

 

In August 2006, theCompany incurred an operational delay resulting from a navigation incidentwhich caused the BPZ-01 barge to be grounded on a sand bar in Talara Bay innorthwest Peru.  The Company expects to file an insurance claim after thedry docking of the vessel.  The dry dock of the BPZ-01 is scheduled duringthe first quarter of 2010.  As of June 30, 2009, the Company has notpresented a final claim to its insurance carrier for the barge repairs.

 

The Company believes themajority of the costs associated with the grounding incident will be reimbursedthrough insurance or through a third party.  No assurances can be given,however, that any such recoveries will be sufficient to cover all costsassociated with the incident or to the timing of any such recoveries.  TheCompany intends to file an insurance claim with its underwriters after it hasfully assessed the damages and estimated repair costs as well as finalized thereimbursement agreement with the third party.

 

*PeruProperties*

 

As of June 30, 2009,the Company has total restricted cash deposits of $4.3 million. In connectionwith the Company’s properties in Peru, it has obtained four performance bondstotaling $5.3 million that are partially collateralized by restricted cashdeposits of $2.9 million to insure certain performance obligations and commitmentsunder the license contracts for Blocks Z-1, XIX, XXII and XXIII. Additionally,the Company has $1.4 million of restricted cash to collateralize insurancebonds for import duties related to the FPSO and transport tanker.  See Note 8, “Restricted Cash andPerformance Bonds” for further discussion.

 

*GETurbine Purchase Agreement and Amendment*

 

On September 26,2008, the Company, through its subsidiary, entered into a $51.5 millioncontract (the “Agreement”) for the purchase of three LM6000 gas-fired turbinesfrom GE Packaged Power, Inc. and GE International, Inc. Sucursal dePeru (collectively “GE”).  In January 2009 the Company and GE enteredinto an amendment of the Agreement. Under the terms of the amendment, both GEand BPZ agreed to a suspension period under the Agreement from and including December 15,2008 through November 15, 2009, whereby no failure on the part of BPZ orGE to perform any obligations under the Agreement will give rise to a breach ofcontract or the right to terminate the contract, provided the Company makes a$3.4 million progress payment no later than February 25, 2009 and a $3.5million progress payment to GE no later than November 16, 2009.  On February 24, 2009, the Company paidthe first progress payment of $3.4 million. Failure to make the second paymentin full would result in immediate termination of the Agreement with no cureperiod or time to correct the breach.

 

Once the Companydetermines to bring the Agreement out of the suspension period, it will provideevidence that payment security has been established and new delivery dates,pricing and payment terms may be determined by the Company and GE. All previouspayments made by the Company on the Agreement will be applied against any suchnew terms.

 

*Reserve-BasedCredit Facility*

 

In July 2009, theCompany, through its subsidiary, BPZ E&P, secured formal commitments for a$70.0 million reserve based credit facility. The syndication of this facility is led by Natixis, a major French bank.  The other institutions participating in thesyndicate include IFC, Scotiabank and Banco de Crédito del Perú.

 

The credit facility willprovide the Company’s subsidiary, BPZ E&P, with a revolving line of creditfor capital expenditures and working capital. Subject to final negotiations anddocumentation, the facility is expected to: (i) be secured by a pledge ofthe ownership units of the borrower; (ii) be a senior secured revolvingcredit facility maturing four years from date of closing; (iii) bearinterest at LIBOR plus 7.0%; and (iv) be subject to a commitment fee of3.50% on the unutilized portion of the borrowing base.   The $70.0 million credit facility willinclude the $15.0 million previously received under the IFC Facility and theinitial borrowing base available under the facility is expected to beapproximately $50.0 million, inclusive of the $15.0 million already fundedunder the IFC Facility.  The creditfacility will be subject to a semi-annual borrowing base determinationbased on the value of oil reserves from the Corvina field and may includefuture reserves booked from the Albacora field. Both fields are locatedoffshore in northwest Peru in Block Z-1.

 

Closing of the creditfacility is dependent upon the successful negotiation of the related loandocuments, and funding is predicated on the satisfaction of certain customaryconditions precedent as will be specified in the loan documents.  Both the commercial banks and IFC facilitieswill be governed by a single Common Terms Agreement ensuring the efficientadministration of the credit facility. Closing of this financing is expected during the third quarter of thisyear. However, the Company cannot provide assurance that the financingwill close when anticipated, if at all.

 

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**BPZ Resources, Inc. and Subsidiaries**

**Notes To ConsolidatedFinancial Statements**

**(Unaudited)**

 

*Gas-to-PowerProject Financing*

 

The Corvina gas-to-power project entails the installation of a 10-milegas pipeline from the CX-11 platform to shore, construction of gas processingfacilities and an approximately 135 megawatt (“MW”) simple-cycle electricgenerating plant.  The proposed power plant site is located adjacent to anexisting substation and power transmission lines which, with certain upgrades,are expected to be capable of handling up to 360 MW of power.

 

The Company currently estimates the gas-to-powerproject will cost approximately $145.0 million, excluding 19% value added taxwhich will be recovered via early recovery and/or future revenuebillings.  The $145.0 million includes $120.0 million for the estimatedcost of the power plant and $25.0 million for the estimated cost of theconstruction of the natural gas pipeline. Based upon discussions with IFC,approximately 60% of the project’s costs are expected to be financed withtraditional project financing, given current market conditions.   Accordingly, the Company commenceddiscussions with potential joint venture partners for the gas-to-power projectin an attempt to secure additional equity for the project.  Afterreceiving proposals for the Corvina gas-to-power project, management selected apotential joint venture partner in June 2009 and negotiations with thatparty have begun.  The closing of the proposed joint venture, which istargeted for fourth quarter 2009, will be subject to the satisfactorynegotiation of a joint venture agreement and related documents. TheCompany expects any joint venture to result in it holding a minority positionin the project.  The Company expects to retain the responsibility for theconstruction of the pipeline as well as retain ownership of the pipeline. Following the consummation of joint venture documentation, the Company willenter into negotiations with IFC regarding restructuring of the gas-to-powerproject financing, if necessary. The Company expects the terms of suchfinancing to reflect the current market conditions at the time of closing alongwith typical covenants for this type of financing.

 

**Note 15 — Legal Proceedings**

 

*NavyTanker Litigation*

 

On October 24, 2007,Tecnomarine SAC, a former contractor to a subsidiary of the Company, BPZE&P, entered into two short term agreements with the commercial division ofthe Peruvian Navy to charter two small tankers for use in the Company’soffshore oil production operation.  On January 30, 2008, one of thetankers, the Supe, sank after catching fire. Neither of the Peruviangovernmental agencies charged with investigating the incident found fault withTecnomarine SAC or the Company’s subsidiary, BPZ E&P. A lawsuit wasnonetheless filed in the 152nd Judicial District Court of Harris County, Texasby two crewmembers and the family and estate of two deceased sailors injured inthe incident, claiming negligence and gross negligence on the part of the BPZResources, Inc. and BPZ Energy LLC., parent entities of BPZ E&P thatwere not parties to the charter operation.  Based on the Company’sassessment of the available facts, including the fact that none of the Peruviangovernment-sanctioned investigations into the Supe incident found fault on thepart of Tecnomarine or BPZ E&P, the Company does not believe the outcome ofthe legal proceeding will have a material adverse effect on its financialcondition, results of operations or cash flows. The Company intends tovigorously defend this action but cautions that there is inherent risk inlitigation, which is difficult to quantify, especially at the early stage oflitigation proceedings.   TheCompany believes in any event that any monetary damages arising from theincident would be adequately covered by its insurance policies, after acustomary deductible.

 

*Disputed Contract Settlement*

 

Towards the end of the first quarter of 2009, the Company was notified of an alleged breach of a contractual obligation to a former consultant of the Company related to services provided to both the Company and its predecessor at the time the Company became publicly traded.  The Company has settled this dispute and as a result of the settlement, the Company agreed to pay $0.8 million in exchange for a release of all claims against the Company for damages related to the disputed contract obligation.  The payment is included in “Other income/(expense)” in the Consolidated Statements of Operations.  The Company paid the $0.8 million settlement in April 2009.

 

**Note 16 — Subsequent Events**

 

Subsequent to June 30, 2009, the Company issued certainstock-based compensation awards and is holding a special shareholder meeting tovote on permitting IFC to participate in the 2009 registered offering. See Note10 “Stockholders’ Equity” for further information.

 

Subsequent to June 30, 2009, the Company, through its subsidiaryBPZ E&P, secured commitments for a reserve-based credit facility. See Note14 “Commitments and Contingencies” for further information.

 

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**Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

**Overview**

 

You should read the following discussion andanalysis together with our consolidated financial statements and notes theretoand the discussion contained in Item 7. “Management’s Discussion and Analysisof Financial Condition and Results of Operations,” Item 7A, “Quantitative andQualitative Disclosures About Market Risk” and Item 1A.  “RiskFactors” included in our Annual Report on Form 10-K, for the year ended December 31,2008.  The following information containsforward-looking statements that involve risks, uncertainties andassumptions.  Should one or more of theserisks or uncertainties materialize, our actual results may differ from thoseexpressed or implied by the forward-looking statements.  See “Disclosure Regarding Forward-LookingStatements” below.

 

BPZ Resources, Inc., (together with its subsidiaries,collectively referred to as “we, “us”, the “Company” or “BPZ” unless thecontext requires otherwise) aTexas corporation, is based in Houston, Texas with offices in Lima, Peru andQuito, Ecuador. We are focused on the exploration, development and productionof oil and natural gas in Peru and Ecuador. We also intend to utilize part ofour planned future natural gas production as a supply source for thecomplementary development of a gas-fired power generation facility in Peruwhich is expected to be partially owned by us.

 

We maintain a subsidiary, BPZ Exploración & Producción S.R.L.(“BPZ E&P”),registeredin Peru through our wholly-owned subsidiary BPZ Energy, LLC, a Texaslimited liability company, formerly BPZ Energy, Inc. (“BPZ — Texas”) andits subsidiary BPZ Energy International Holdings, L.P., a British VirginIslands limited partnership. Currently, we, through BPZ E&P, have exclusiverights and license agreements for oil and gas exploration and productioncovering a total of approximately 2.4 million acres, in four blocks, innorthwest Peru. Our license contracts cover 100% ownership of Block Z-1 (0.8 millionacres), Block XIX (0.5 million acres), Block XXII (0.9 million acres) and BlockXXIII (0.2 million acres). The Block Z-1 contract was signed in November 2001,the Block XIX contract was signed in December 2003 and Blocks XXII andXXIII contracts were signed in November 2007. Our license contractsprovide for an initial exploration period of seven and potentially up tothirteen years for Block Z-1 and seven and potentially up to ten years forBlocks XIX, XXII and XXIII. The license contracts require us to conductspecified activities in the respective blocks during the exploration period. If the exploration activities are successful,our total contract term can extend up to 30 years for oil exploration andproduction and up to 40 years for gas exploration and production. In the eventa Block contains both oil and gas, as is the case in our Block Z-1, the 40 yearterm applies to oil exploration and production as well.

 

Additionally, through our wholly-owned subsidiary, SMC Ecuador Inc., aDelaware corporation, and its registered branch in Ecuador, we own a 10%non-operating working interest in an oil and gas producing property, Block 2,located in the southwest region of Ecuador (the “Santa Elena Property”). Thelicense agreement covering the property extends through May 2016.

 

We are in the process of developing our oil and natural gas reservesand have begun producing and selling oil from the CX-11 platform in the Corvinafield of Block Z-1 under an extended well testing program. Additionally ouractivities in Peru include analysis and evaluation of technical data on ourBlocks, preparation of the development plans for the Blocks, including detailedengineering and design of the power plant and gas processing facilities,refurbishment of and designs for platforms to perform our drilling campaigns inthe Corvina and Albacora fields in Block Z-1, procuring machinery and equipmentfor an extended drilling campaign, obtaining all necessary environmental andoperating permits, bringing additional production on-line and securing therequired capital and financing to conduct the current plan of operation.

 

At December 31, 2008, we had estimated net proved oil reserves of17.2**MMBbls all ofwhich were in the Corvina field in Block Z-1 located offshore northwestPeru. Of our total proved reserves, 4.2 MMBbls (25%) are classified asproved developed producing reserves and 12.9 MMBbls (75%) are classified asproved undeveloped reserves.

 

Wehave determined our reporting structure provides for only one operating segmentbecause we currently operate solely in Peru and have only one customer for ourproduction.

 

**Our Business Plan**

 

Our business plan is to enhance shareholder value primarily throughapplication of our unique knowledge of our targeted areas in Peru andleveraging management’s relationship with the local suppliers and regulatoryauthorities to effectively and efficiently (i) develop the value of ouroil and gas holdings in Peru; (ii) increase production from our holdings;and (iii) create a revenue stream through implementation of ourgas-to-power project.

 

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Our focus is to re-appraise and develop properties in northwest Peru thathave been explored by other companies and have reservoirs that appear tocontain commercially productive quantities of oil and gas, as well as otherareas that have geological formations that we believe potentially containcommercial amounts of hydrocarbons.

 

Two of the four blocks, for which we currently have exclusive rightsand license agreements for oil and gas exploration and production, containstructures drilled by previous operators who encountered hydrocarbons. However,at the time the wells were drilled, the operators did not consider iteconomically feasible to produce those hydrocarbons.  Having found oil inour first well in the Corvina field in offshore Block Z-1 in 2007, we areprimarily focused on development of the proved oil reserves in Corvina, as wellas re-developing the Albacora oil field which has a platform in place withthree shut in oil wells drilled and produced by Belco Oil and Gas Company inthe 1980’s.

 

In addition, our business plan includes a gas-to-power project, whichentails the installation of a 10-mile gas pipe from the CX-11 platform toshore, construction of gas process facilities and an approximately 135 megawatt(“MW”) simple cycle electric generating plant. The proposed power plant site islocated adjacent to an existing substation and power transmission lines which,with certain upgrades, are expected to be capable of handling up to 360 MW ofpower. See the discussion below under “Gas-to-Power Project” for additionalinformation.

 

Our management team has extensive engineering, geological, geophysical,technical and operational experience. Additionally our management team hasextensive knowledge of international oil and gas operations throughout LatinAmerica and in particular, Peru.

 

We will concentrate our efforts on areas we believe contain proven oiland gas reserves that can be economically developed and produced in commercialquantities and leverage our knowledge of oil and gas operations in the areas weoperate.  We believe this strategy will allow us to develop the oil andgas effectively and efficiently to enhance the profitability of the Company,and thus increase shareholder value.

 

**Oil Development**

 

 ***General***

 

We will conduct additional drilling activities basedin part on an ongoing assessment of economic efficiencies, likely success andlogistical issues such as license requirements, scheduling, requiredmaintenance and replacement of equipment.  This assessment could result inincreased emphasis and activities on a given prospect and conversely, couldresult in decreased emphasis on a given prospect for a period of time.  Inparticular, we will assess allocation of our resources among Corvina, Albacora,Piedra Redonda and onshore prospects as they develop.

 

***Corvina Field***

 

We are producing oil from our recent discoveries atthe CX-11 platform, located in the Corvina Field within the offshore Block Z-1,under an extended well testing program that started on November 1,2007.  The Corvina field consists of approximately 47,000 acres in waterdepths of less than 200 feet.  We are currently concentrating our drillingefforts on West Corvina, which consists of 3,500 acres and have completed atotal of five oil producing wells, the CX11-15D, the CX11-21XD, the CX11-20XD,the CX11-18XD and the CX11-14D.  The oil is delivered by barge to thePetroperu refinery in Talara, located approximately 70 miles south of theplatform.  Produced oil is kept in production inventory until such time itis delivered to the refinery.

 

In November 2008,we commenced drilling on the CX11-15D well and reached total drilling depth in January 2009.However, during the testing it was confirmed that the deeper prospective sandswere found lower than expected and were located below the estimated oil-watercontact, thus testing formation water. Subsequently, we commenced sidetrackingthe CX11-15D well, targeting a location higher in the geological formation andreached total drilling depth of 9,390 feet in March 2009.  We begantesting the sands that previously tested water and found them to be oil-bearing.We added the CX11-15D well to the wells currently producing under our long-termwell testing program in June 2009.   The CX11-15D well wascompleted with a single production string in three of the oil sands that weresuccessfully tested, leaving two accessible oil sands to be added at a laterdate and leaving the two uppermost oil sands isolated from the producingsands.  The gas sands will remain behind pipe until they are needed forthe gas-to-power project we are pursuing. During the testing of theCX11-15D well, gas channeling was discovered.  Further testing wasnecessary to determine what zones the gas was channeling from, as well as toidentify possible solutions to the gas channeling problem.  We expectedthe evaluation process would take several weeks.  Therefore, we moved therig to the CX11-20XD well to perform a workover to correct gas channelingproblems there, similar to the CX11-15D well.

 

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Wecompleted the workover of the CX11-20XD well in Corvina in June 2009 andproceeded to finish the completion of the CX11-15D well. Both wells had gaschanneling from gas sands above the oil zones.  We expect both wells to beback online by the first part of August, 2009.

 

Inaddition, we successfully upgraded both production flow lines from the CX-11platform in Corvina to the floating production, storage and offloading barge (“FPSO”).The new lines have enhanced capacity to handle the combined production of oil,gas and water from the CX-11 platform in a safe and efficient manner.

 

***Albacora Field***

 

The Albacora Field is located in the northern part of our offshoreBlock Z-1.  It consists of approximately6,000 acres and, like the Corvina field, Albacora is located in water depths ofless than 200 feet. Once the new drilling rig has been moved from Talara andset in place at the Albacora A-1 platform, which is currently beingrefurbished, we plan to drill the A-14XD well, a twin well to Albacora’s 8-X-2discovery well drilled in 1972.  Thefirst well in Albacora will qualify as an exploratory well as we plan ontesting the prospective Lower Zorritos formation sands.  The 8-X-2 discovery well, drilled 35 yearsago, tested oil and gas in the upper Zorritos formation sands at quantities webelieve to be commercially producible. We expect to commence drilling on the A-14XD well during the thirdquarter of 2009.

 

**2009Registered Offering of Common Stock**

 

On June 30, 2009, weclosed the sale of approximately 18.8 million shares of our common stock, nopar value, in a registered offering under an effective shelf registrationstatement.  The shares of common stock were priced at $4.66 per shareresulting in net proceeds to us, after placement agent fees and other fees, ofapproximately $82.9 million. In connection with the registered offering, weentered into a placement agency agreement with Canaccord Adams Inc. as leadplacement agent for the offering along with Pritchard Capital Partners, LLC,and Raymond James and Associates, Inc. In addition, Rodman &Renshaw, LLC, and Wunderlich Securities, Inc. assisted as agents in thetransaction. We paid approximately $4.4 million as a 5% placement agency fee ofthe gross proceeds received by us in accordance with the terms of the placementagency agreement. We plan on using the proceeds of this offering to develop ourproperties under our existing license contracts.

 

Pursuant to the Subscription Agreement dated December 16,2006 (the “Subscription Agreement”) by and between International FinanceCorporation (“IFC”) and us, IFC has the right, within 45 days of notice of theoffering described above, to purchase shares of our common stock for the sameprice and terms as the participants in the registered offering to retain itsproportionate ownership in us. As noted above, the price of the shares sold inthe registered offering that closed on June 30, 2009 was $4.66 pershare.  Notice of the proposed registered offering was given to IFC on June 17,2009. IFC has indicated it would like to exercise its purchase right topurchase up to 1,889,415 shares of common stock at the offering price of $4.66per share to which it is entitled under the Subscription Agreement. Pursuant to NYSE Amex rules, we are seeking shareholder approval at a specialmeeting to be held August 24, 2009 to permit us to sell up to 1,889,145additional shares of common stock to IFC at a price of $4.66 per share. Assuming the purchase of all 1,889,145 shares of common stock by IFC, grossproceeds to us would be approximately $8.8 million.  Any sale of such shares to IFC will be madeby means of a prospectus pursuant to our shelf registration statement, asamended, originally filed on November 16, 2007 and declared effective on December 7,2007, or pursuant to a private transaction providing for the shares to beregistered for resale at a later time pending fulfillment of any applicablesecurities law requirements.  If we donot receive shareholder approval to permit us to issue up to an additional1,889,415 shares of common stock to IFC, we may fail to comply with ourobligations to IFC as set forth in the Subscription Agreement, and may bepotentially liable for the payment of any resulting damages to IFC.

 

**2009 PrivatePlacement of Common Stock**

 

On February 23,2009, we closed a private placement of approximately14.3 million shares ofcommon stock, no par value, to institutional and accredited investors pursuantto a Stock Purchase Agreement dated February 19, 2009. Additionally, in March 2009,IFC exercised its pre-emptive right to elect to participate in the privateplacement offering resulting in an additional 1.4 million shares of commonstock which brought the total to approximately 15.7 million shares of commonstock sold in the private placement offering. The common stock was priced at$3.05 per share resulting in net proceeds to us, after placement agent andfinancial advisory fees, of approximately $45.2 million. No warrants ordilutive securities were issued in connection with the private placement. Afinancial advisory fee of $0.7 million was paid to Morgan Keegan and Company, Inc.  for investment services and consultingrelated to the offering. Additionally, a private placement fee of $2.2 millionwas paid to Pritchard Capital Partners, LLC for placement services related tothe offering. We plan on using the proceeds of this offering to develop ourproperties under our existing license contracts.

 

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Under the Stock PurchaseAgreement, we committed to file a registration statement with the SEC andobtain the registration statement’s effectiveness within the time-framesoutlined in the Stock Purchase Agreement. On April 27, 2009, we obtainedeffectiveness of the registration statement related to the Stock PurchaseAgreement in compliance with such time-frames.

 

**Reserve-Based Credit Facility**

 

In July 2009, we,through our subsidiary, BPZ E&P, secured formal commitments for a $70.0million reserve based credit facility. The syndication of this facility is led by Natixis, a major Frenchbank.  The other institutionsparticipating in the syndicate include IFC, Scotiabank and Banco de Crédito delPerú.

 

The credit facility willprovide our subsidiary, BPZ E&P, with a revolving line of credit forcapital expenditures and working capital. Subject to final negotiations anddocumentation, the facility is expected to: (i) be secured by a pledge ofthe ownership units of the borrower; (ii) be a senior secured revolvingcredit facility maturing four years from date of closing; (iii) bearinterest at LIBOR plus 7.0%; and (iv) be subject to a commitment fee of3.50% on the unutilized portion of the borrowing base.   The $70.0 million credit facility willinclude the $15.0 million previously received under the IFC Facility and theinitial borrowing base available under the facility is expected to beapproximately $50.0 million, inclusive of the $15.0 million already fundedunder the reserve-based lending facility with IFC (the “IFC Facility”).  The credit facility will be subject to asemi-annual borrowing base determination based on the value of oil reservesfrom the Corvina field and may include future reserves booked from the Albacorafield. Both fields are located offshore in northwest Peru in Block Z-1.

 

Closing of the creditfacility is dependent upon the successful negotiation of the related loandocuments, and funding is predicated on the satisfaction of certain customaryconditions precedent as will be specified in the loan documents.  Both the commercial banks and IFC facilitieswill be governed by a single Common Terms Agreement ensuring the efficientadministration of the credit facility. Closing of this financing is expected during the third quarter of thisyear. However, we cannot provide assurance that the financing will closewhen anticipated, if at all.

 

**Gas-to-PowerProject**

 

The Corvina gas-to-power project entails the installationof a 10-mile gas pipeline from the CX-11 platform to shore, construction of gasprocessing facilities and an approximately 135 MW simple-cycle electricgenerating plant.  The proposed power plant site is located adjacent to anexisting substation and power transmission lines which, with certain upgrades,are expected to be capable of handling up to 360 MW of power.

 

On September 26, 2008, we, through oursubsidiary, entered into a $51.5 million contract (the “Agreement”) for thepurchase of three LM6000 gas-fired turbines from GE Packaged Power, Inc.and GE International, Inc. Sucursal de Peru (collectively “GE”).  In January 2009,BPZ and GE entered into an amendment of the Agreement. Under the terms of theamendment, both GE and BPZ agreed to a suspension period under the Agreementfrom and including December 15, 2008 through November 15, 2009,whereby no failure on the part of BPZ or GE to perform any obligations underthe Agreement will give rise to a breach of contract or the right to terminate thecontract, provided we make a $3.4 million progress payment no later than February 25,2009 and a $3.5 million progress payment to GE no later than November 16,2009.  On February 24, 2009, we paid the first progress payment of$3.4 million. Failure to make the second payment in full would result inimmediate termination of the Agreement with no cure period or time to correctthe breach.

 

Once we determine to bring the Agreement out of thesuspension period, we will provide evidence that payment security has beenestablished and new delivery dates, pricing and payment terms may be determinedby us and GE. All previous payments made by us on the Agreement will be appliedagainst any such new terms.

 

We currently estimate the gas-to-power project willcost approximately $145.0 million, excluding 19% value added tax which will berecovered via early recovery and/or future revenue billings.  The $145.0million includes $120.0 million for the estimated cost of the power plant and$25.0 million for the estimated cost of the construction of the natural gaspipeline. Based upon discussions with IFC, approximately 60% of the project’scosts are expected to be financed with traditional project financing, givencurrent market conditions.  Accordingly, we commenced discussions with potential joint venturepartners for the gas-to-power project in an attempt to secure additional equityfor the project.  After receiving proposals for the Corvina gas-to-powerproject, management selected a potential joint venture partner in June 2009and negotiations with that party have begun.  The closing of the proposedjoint venture, which is targeted for fourth quarter 2009, will be subject tothe satisfactory negotiation of a joint venture agreement and relateddocuments. We expect any joint venture to result in us holding a minorityposition in the project.  We expect to retain the responsibility for theconstruction of the pipeline as well as retain ownership of the pipeline. Following the consummation of joint venture documentation, we will enter intonegotiations with IFC regarding restructuring of the gas-to-power projectfinancing, if 

 

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necessary. We expect the terms of such financing toreflect the current market conditions at the time of closing along with typicalcovenants for this type of financing.

 

**Results ofOperations**

 

The following table sets forth revenues and operatinglosses for the three and six months ended June 30, 2009 and 2008 (inthousands):

 
| ** **                                       | ** ** | **Three Months Ended** | ** **    | ** **    | ** ** | **Six Months Ended** | ** **  | ** **    | ** **   |
|--------------------------------------------------|------------|----------------------------------|---------------|---------------|------------|--------------------------------|-------------|---------------|--------------|
| ** **                                       | ** ** | **June 30,**                | ** **    | **Increase/** | ** ** | **June 30,**              | ** **  | **Increase/** | ** **   |
| ** **                                       | ** ** | **2009**                         | ** **    | **2008**      | ** ** | **(Decrease)**                 | ** **  | **2009**      | ** **   | **2008** | ** ** | **(Decrease)** | ** ** |
| Net sales volume:                                |       |                             |          |          |       |                           |        |          |         |   |   |   |   |
| Oil and condensate (MBbls)                       |       | 206                              |          | 59            |       | 147                            |        | 537           |         | 115 |   | 422 |   |
|                                             | ** ** | ** **                       | ** **    | ** **    | ** ** | ** **                     | ** **  |          |         |   |   |   |   |
| Net revenue:                                     |       |                             |          |          |       |                           |        |          |         |   |   |   |   |
| Oil and condensate                               |       | $                                |  11,049  |          | $          |  7,035                    |        | $             |  4,014  |   | $ |  24,274 |   | $ |  11,403 |   | $ |  12,871 |   |
|                                             | ** ** | ** **                       | ** **    | ** **    | ** ** | ** **                     | ** **  |          |         |   |   |   |   |
| Average sales price (approximately):             | ** ** | ** **                       | ** **    | ** **    | ** ** | ** **                     | ** **  |          |         |   |   |   |   |
| Oil (per Bbl)                                    |       | $                                |  53.68   |          | $          |  118.87                   |        | $             |  (65.19 | ) | $ |  45.23 |   | $ |  99.09 |   | $ |  (53.86 | ) |
|                                             | ** ** | ** **                       | ** **    | ** **    | ** ** | ** **                     | ** **  |          |         |   |   |   |   |
| Operating expenses                               | ** ** | ** **                       | ** **    | ** **    | ** ** | ** **                     | ** **  |          |         |   |   |   |   |
| Lease operating expense                          |       | 7,876                            |          | 1,140         |       | $                              |  6,736 |          | 11,854       |   | 3,360 |   | $ |  8,494 |   |
| General and administrative expense               |       | 7,998                            |          | 9,923         |       | (1,925                         | )           | 16,481        |         | 18,238 |   | (1,757 | ) |
| Geological, geophysical and engineering expense  |       | 552                              |          | 115           |       | 437                            |        | 899           |         | 296 |   | 603 |   |
| Depreciation, depletion and amortization expense |       | 5,508                            |          | 1,082         |       | 4,426                          |        | 13,386        |         | 2,273 |   | 11,113 |   |
| Total operating expenses                         |       | $                                |  21,934  |          | $          |  12,260                   |        | $             |  9,674  |   | $ |  42,620 |   | $ |  24,167 |   | $ |  18,453 |   |
|                                             |       |                             |          |          |       |                           |        |          |         |   |   |   |   |
| Operating loss                                   |       | $                                |  (10,885 | )             | $          |  (5,225                   | )           | $             |  (5,660 | ) | $ |  (18,346 | ) | $ |  (12,764 | ) | $ |  (5,582 | ) |

 

*Net Revenue*

 

For both the three and six months ended June 30,2009 and 2008, all oil production in the Corvina field was produced under anextended well testing program.

 

For the three months ended June 30, 2009, our netrevenue increased by $4.0 million to $11.0 million from $7.0 million for thesame period in 2008. The increase in net revenue is primarily due to the 147MBbls of increased oil production from the CX-11 platform located in theCorvina field within Block Z-1 in northwest Peru. At June 30, 2009, we hadfive producing wells, CX11-15D, CX11-20XD, CX11-18XD, CX11-21XD and theCX11-14D, compared to three producing wells, the CX11-21XD, CX11-14D and theCX11-18XD, at the same period in 2008. During the three months ended June 30,2009, oil production from the CX11-20XD well was partially suspended due toworkover of the CX11-20XD well. Oil production from the CX11-15D began towardthe end of the quarter and was limited due to well testing. During the sameperiod in 2008, oil production operations were voluntarily suspended after January 30,2008 and our oil sales did not resume until June 2008, due to an incidentinvolving a small tanker leased from the Peruvian Navy. Offsetting the increasein production is an overall 55% decrease, quarter on quarter, in the per barrelaverage sales price received.

 

For the six months ended June 30, 2009, our netrevenue increased by $12.9 million to $24.3 million from $11.4 million for thesame period in 2008. The increase in net revenue is primarily due to the 422MBbls of increased oil production from the CX-11 platform located in theCorvina field within Block Z-1 in northwest Peru. During the six months ended June 30,2009, we had full oil production from three of the five wells and partialproduction from two of the five wells due to workover and timing of completionof the well CX11-15D.  During the sameperiod in 2008, oil production operations were voluntarily suspended after January 30,2008 and our oil sales did not resume until June 2008, due to an incidentinvolving a small tanker leased from the Peruvian Navy. Offsetting the increasein production is an overall 54% decrease in the per barrel average sales pricereceived for the six months ending June 30, 2009 compared to the sixmonths ending June 30, 2008.

 

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The revenues above are reported net of royalties owedto the government of Peru. Royalties are calculated by Perupetro as stipulatedin the Block Z-1 license agreement based on a blend of crude oil prices. However, the royalty calculation is based on the prior five-day average pricebefore the crude oil delivery date, as opposed to the price we receive for oilwhich is based on the prior two-week average price before the crude oildelivery date. For both the three and six months ended June 30, 2009, therevenues received by us are net of royalty costs of approximately 5% of grossrevenues or $0.6 million and $1.4 million, respectively. For the same periodsin 2008, the revenues received by us are net of royalty costs of approximately5% of gross revenues or $0.4 million and $0.6 million, respectively.

 

*Lease Operating*

 

For the three months ended June 30, 2009, leaseoperating expenses increased by $6.7 million to $7.9 million ($38.26 per Bbl)from $1.1 million ($19.27 per Bbl) for the same period in 2008. The increase inexpense is primarily attributable to the additional production costs associatedwith increased production and additional maintenance expenses incurred in 2009.The primary reason for the increase in the per Bbl amounts is due to $2.8million of workover expenses related to the CX11-20XD well and $1.3 million ofexpense related to the replacement of certain underwater hoses and flow linesof our Corvina oil production facility.

 

For the six months ended June 30, 2009, leaseoperating expenses increased by $8.5 million to $11.9 million ($22.09 per Bbl)from $3.4 million ($29.20 per Bbl) for the same period in 2008. The increase inexpense is primarily attributable to the additional production costs associatedwith increased production and additional maintenance expenses incurred in 2009.The primary reason for the decrease in the per Bbl amounts is due to theincreased production compared to the same period in 2008.  As a result of our suspended oil production andsales in the first quarter of 2008 as a result of the incident involving asmall tanker leased from the Peruvian Navy, our per barrel lease operatingexpense is higher than the per barrel expense in 2009 despite the $2.8 millionand $1.3 million of additional expense incurred in the second quarter of 2009for the CX11-20XD workover and replacement of underwater hoses and flow lines,respectively.

 

*General and Administrative*

 

For the three months ended June 30, 2009, generaland administrative expenses decreased ($1.9) million to $8.0 million from $9.9million for the same period in 2008. Stock-based compensation expense, a subset of general and administrativeexpenses, decreased by ($0.2) million to $3.7 million for the three monthsended June 30, 2009 from $3.9 million for the same period in 2008. Thedecrease in stock-based compensation expense is primarily due to the decreasein fair market value of awards granted in 2009 as a result of the decline inthe stock price of BPZ.  Stock-basedcompensation expense for the quarter in 2009 includes approximately $0.7million of stock-based compensation expense related to the accelerated vestingfor certain restricted stock and stock option awards granted to a former memberof the Board of Directors. Other general and administrative expenses decreased($1.7) million to $4.3 million from $6.0 million for the same period in 2008.The decrease is primarily due to ($0.7) million reduced salary compensationexpenses, ($0.1) million reduced traveling expenses, ($0.4) million reducedconsulting and contract labor expenses, ($0.3) million reduced legal fees and($0.4) million reduced non-deductable tax fees. Partially offsetting these reductions are increases in financial servicefees of $0.2 million. The reduction in salary and compensation expense isprimarily due to the timing of executive bonuses and employee salary increases.During the early part of the second quarter of 2008 executives received bonusesand employees received salary increases that were retroactive to the beginningof the year. During the same period in 2009, employees did not receive salaryincreases or bonuses. Other general and administrative expense reductions areprimarily due to cost control measures initiated by us in 2009.

 

For the six months ended June 30, 2009, generaland administrative expenses decreased ($1.8) million to $16.5 million from$18.2 million for the same period in 2008. A subset of general andadministrative expense, stock-based compensation expense decreased by ($1.4)million to $7.0 million for the six months ended June 30, 2009 from $8.4million for the same period in 2008. The decrease in stock-based compensationexpense is primarily due to the reasons mentioned above.  Other general and administrative expensesdecreased ($0.3) million to $9.5 million from $9.8 million for the same periodin 2008. The primary reason for the decrease is a reduction in taxes,consulting, and traveling expenses that more than offset increases in legal,accounting, bank, and rent fees.

 

*Geological, Geophysical andEngineering*

 

For the three months ended June 30, 2009,geological, geophysical and engineering expenses increased $0.5 million to $0.6million compared to $0.1 million for the same period in 2008. For the sixmonths ended June 30, 2009, geological, geophysical and engineeringexpenses increased $0.6 million to $0.9 million compared to $0.3 million forthe same period in 2008.  The increase ingeophysical and engineering expenses for both periods is primarily due toincreased environmental impact studies performed on Blocks XIX, XXII and XXIIIin the current year in preparation for our seismic commitments compared to theactivities of the prior year.

 

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*Depreciation, Depletion andAmortization*

 

For the three months ended June 30, 2009,depreciation, depletion and amortization expense increased $4.4 million to $5.5million from $1.1 million for the same period in 2008. For the six months endedJune 30, 2009, depreciation, depletion and amortization expense increased$11.1 million to $13.4 million from $2.3 million for the same period in 2008.The increase for both periods is primarily due to increased productiondiscussed above.

 

*Other Income/(Expense)*

 

For the three months ended June 30, 2009, incomefrom our investment in Ecuador property, net of investment amortization,decreased by $0.3 million to an expense of $47,000 from income of $0.3 millionin 2008. For the six months ended June 30, 2009, income from ourinvestment in Ecuador property, net of investment amortization, decreased by$0.6 million to an expense of $0.1 million from income of $0.5 million in 2008.For both periods, the primary difference is due to not receiving payments fromour investment in the Santa Elena Property during 2009 while receiving $0.3million in the first quarter and $0.3 million in the second quarter during2008. Income/(expense) from our investment in Ecuador is net of investmentamortization expense.  For both the threeand six months ended June 30, 2009 and 2008, investment income / (expense)includes amortization expense of approximately $47,000 and $94,000,respectively.

 

For the three and sixmonths ended June 30, 2009, in accordance with the “successful efforts”method of accounting, we capitalized approximately $0.4 million and $0.7million of depreciation expense, respectively, mainly related to the tenderassist barges serving as support equipment to our drilling activities, and $1.2million and $2.2 million of interest expense, respectively, to construction inprogress. For the same periods in 2008, we capitalized approximately $0.3million and $0.4 million of depreciation expense, respectively, and $1.1million and $2.0 million of interest expense, respectively, to construction inprogress.

 

For the three months and six months ended June 30,2008, we recorded interest income of approximately $0.1 million and $0.2million, respectively. For the same periods in 2009 interest income wasnegligible. The decrease in interest income is primarily due to the decreasedcash balances in 2009 and lower interest rates compared to the cash balancesand interest rates during the same periods in 2008.

 

For the three monthsended June 30, 2009 and 2008, other expense increased by $0.8 million toan expense of $0.5 million in 2009 from income of $0.3 million in 2008. Theprimary reason for the increase in expense is due to $0.4 million of stockcompensation expense related to stock options awarded to a former member of the Board of Directors that wasrecognized upon issuance of the award. Additionally, we recognized $0.1 millionof expenses as part of the separation agreement with the former Director.During the same period in 2008, we recognized $0.3 million of foreign currencyexchange gains.

 

For the six months ended June 30,2009 and 2008, other expense increased by $1.5 million to an expense of $1.3million in 2009 from income of $0.2 million in 2008.  The primary reason for the increase inexpense is due to the reasons mentioned above and also includes approximately$0.8 million of expense related to the settlement of a disputed contractual obligation with aformer consultant of ours concerning services provided to both BPZ and its predecessorat the time BPZ became publicly traded. We were notified of this allegeddispute towards the end of the first quarter of 2009. The settlement waspaid in April 2009. Additionally, for the six months ended June 30,2008, we recognized $0.2 million of foreign currency gains and for the sameperiod in 2009 we recognized approximately $0.1 million in foreign currencylosses.

 

*Income Taxes*

 

For the three and sixmonths ended June 30, 2009, we recognized an income tax benefit ofapproximately $1.7 million and $2.9 million, respectively, on a net loss beforeincome tax of approximately $11.5 million and $19.7 million, respectively,resulting in an effective tax rate of 14 % and 15%, respectively. For the sameperiods in 2008, we recognized an income tax provision of approximately $0.1million and $0.2 million, respectively, on pre-tax losses of approximately $4.5million and $11.8 million, respectively. The difference between the effectivetax rate recognized and the 22% statutory rate provided for under the Block Z-1License Contract is largely due to:

 

·                  We have a 100% allowance on our netoperating losses generated in the United States - We have a valuation allowancefor the full amount of the domestic deferred tax asset resulting from theincome tax benefit generated from net losses in the U.S., as we believe, basedon the weight of available evidence, that it is more likely than not that thedeferred tax asset will not be realized prior to the expiration of netoperating loss carryforwards in various amounts through 2027.

 

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·                  Certain U.S. expenses are not deductiblein Peru - The tax benefit is based on a taxable Peruvian loss that excludescertain U.S. expenses that are not deductible at the Peruvian level.

 

Estimated interest andpenalties related to potential underpayment on unrecognized tax benefits, ifany, are classified as a component of tax expense in the Consolidated Statementof Operations. For both the three and six months ended June 30, 2009 and2008, we did not have any accrued interest or penalties associated with anyunrecognized tax benefits, nor was any interest expense recognized during thoseperiods.

 

For the three months ended June 30, 2009, our netloss increased ($5.2) million to ($9.8) million or ($0.10) per basic anddiluted share from ($4.7) million or ($0.6) per basic and diluted share for thesame period in 2008. For the six months ended June 30, 2009, our net lossincreased ($4.8) million to ($16.9) million or ($0.18) per basic and dilutedshare from ($12.1) million or ($0.16) per basic and diluted share for the sameperiod in 2008.

 

**Liquidity,Capital Resources and Capital Expenditures**

 

At June 30, 2009, we had cash and cashequivalents of $87.7 million and current accounts receivable related to our June oilsales of $2.7 million. We also had $18.4 million in Value Added Tax receivablewhich we will collect over time as we invoice our oil sales. At December 31,2008, we had cash and cash equivalents of $5.3 million, current accountsreceivable of $5.3 million and a Value Added Tax receivable of $12.1 million.

 

At June 30, 2009 and December 31, 2008, wehad a working capital/(deficit) balance of $71.3 million and ($30.6) million,respectively.

 

At June 30, 2009 and December 31, 2008, ouroutstanding long-term debt consisted of a $15.0 million IFC Facility bearinginterest at LIBOR plus 2.75% due December 31, 2012. Additionally ourcapital lease obligations, primarily related to the barges used in our marineoperations was $5.6 million and $7.8 million, respectively.

 
| ** **                  | ** ** | **For the Six Months Ended** | ** **    |
|-----------------------------|------------|------------------------------|---------------|
| ** **                  | ** ** | **June 30,**            | ** **    |
| **Cash Flows**              | ** ** | **2009**                     | ** **    | **2008** | ** ** |
| ** **                  | ** ** | **(in thousands)**           | ** **    |
| Cash provided by (used in): |       |                         |          |   |   |
| Operating activities        |       | $                            |  (13,405 | ) | $ |  2,261 |   |
| Investing activities        |       | (29,531                      | )             | (40,537 | ) |
| Financing activities        |       | 125,329                      |          | 40,583 |   |
|                             |            |                              |               |  |  |  |  |

 

*OperatingActivities*

 

Cash provided by (used in) operating activitiesdecreased by ($15.7) million to ($13.4) million for the six months ended June 30,2009 from $2.3 million for the same period in 2008. Cash flow before changes inoperating assets and liabilities provided $0.1 million and changes in operatingassets and liabilities provided a use of cash of ($15.8) million primarily dueto increases in our VAT receivables and decreases in our current liabilities.

 

*InvestingActivities*

 

Net cash used ininvesting activities decreased by ($11.0) million to ($29.5) million forthe six months ended June 30, 2009 from ($40.5) million for the sameperiod in 2008 and is primarily due to ($8.1) million decreased capitalexpenditures partially offset by the change in restricted cash proceeds of($2.9) million.

 

*2009 Equipment Activity*

 

During the sixmonths ended June 30, 2009, we incurred costs of approximately $31.3million associated with our development initiatives for the exploration andproduction of oil and natural gas reserves in Peru.

 

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Of the incurred costs mentioned above, we incurred capital expendituresrelated to the completion of the CX11-20XD well and the drilling and testing ofthe CX11-15D well of approximately $1.0 million and $21.9 million,respectively. In preparation for our future drilling campaigns, we incurredcosts of $3.7 million and $0.6 million for the inspection and refurbishment ofthe Albacora and Piedra Redonda platforms, respectively.   For the six months ended June 30, 2009,we incurred capital costs of $0.5 million related to initial drilling activityin the Albacora field and $0.8 million related to the Caleta La Cruz dockrefurbishment.

 

For the three and sixmonths ended June 30, 2009, in accordance with the “successful efforts”method of accounting, we capitalized approximately $0.4 million and $0.7million of depreciation expense, respectively, mainly related to the tenderassist barges serving as support equipment to our drilling activities, and $1.2million and $2.2 million of interest expense, respectively, to construction inprogress. For the same periods in 2008, we capitalized approximately $0.3million and $0.4 million of depreciation expense, respectively and $1.1 millionand $2.0 million of interest expense, respectively, to construction inprogress.

 

For the three and sixmonths ended June 30, 2009, we recognized $5.5 million and $13.4 millionof depreciation, depletion and amortization expense, respectively. For the sameperiods in 2008, we recognized $1.1 million and $2.3 million of depreciation,depletion and amortization expense, respectively.

 

*FinancingActivities*

 

Cash provided by financing activities increased by$84.7 million to $125.3 million for the six months ended June 30,2009 from $40.6 million for the same period in 2008. The increase in cashprovided by financing activities reflects $86.5 million in cash proceeds fromequity offerings and $1.7 million in increased cash as a result of a decrease inthe repayments of debt offset by ($1.8) million less cash received as a resultof less borrowings in 2009, and ($1.7) million less cash received for theissuances of stock options and warrants.

 

*Shelf Registration*

 

To finance our operations we may sell additionalshares of our common stock. Our certificate of formation does not provide forpreemptive rights. We currently have approximately $134.6 million in commonstock available under an effective shelf registration statement, which we maysell from time to time in one or more offerings pursuant to underwritten publicofferings, negotiated transactions, block trades or a combination of thesemethods.

 

*Long-TermDebt and Capital Lease Obligations*

 

***At June 30, 2009 and December 31, 2008 long-termdebt and capital lease obligations consist of the following (in thousands):***

 
| ** **                                               | ** ** | **June 30,  2009** | ** **   | **December 31,  2008** | ** ** |
|----------------------------------------------------------|------------|-------------------------|--------------|-----------------------------|------------|
|                                                     |       |                    |         |                        |       |
| $15 million IFC Senior Note, Libor plus 2.75%, due  2012 |       | $                       |  15,000 |                        | $          |  15,000 |   |
| Capital Lease Obligations                                |       | 5,560                   |         | 7,838                       |       |
|                                                     |       | 20,560                  |         | 22,838                      |       |
| Less: Current Portion of Long-Term Debt                  |       | 1,308                   |         | 7,820                       |       |
|                                                     |       | $                       |  19,252 |                        | $          |  15,018 |   |

 

*$15.0Million IFC Reserve-Based Credit Facility*

 

Pursuant to the IFCFacility we have a $15.0 million reserve-based lending facility agreement (the “LoanAgreement”) with IFC through our subsidiaries BPZ E&P and BPZ Marine PeruS.R.L., as borrowers. The reserve-based lending facility matures in December 2012and bears interest at an approximate rate of LIBOR plus 2.75%, currentlyequivalent to 3.85% based on the six month LIBOR rate of 1.1% at June 30,2009.  The maximum amount available under this facility begins at $15.0million and will be reduced by $2.5 million beginning on December 16, 2010and every six months thereafter during the term of the Loan Agreement. The amount available under the Loan Agreement is subject to a semi-annualborrowing base determination based on the value of oil reserves.  Inaddition, we are subject to various financial covenants calculated as of thelast day of each quarter, including a life of field coverage ratio, life ofloan coverage ratio, debt to equity ratio and interest coverage ratio. We werein compliance with all applicable covenants of the Loan Agreement as of June 30,2009.

 

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*NotePayable*

 

In January 2009, inexchange for receipt of $1.0 million from an individual (“Note Holder”), wesigned a promissory note (the “Note”). The Note originally provided formaturity in July 2009 and bore an annual interest rate of 12.0%. However,in March 2009 we repaid the principal amount and accrued interest in fullto the Note Holder.

 

*CapitalLeases*

 

In February 2009, we made the final lease paymenton the BPZ-02 deck barge at which point title to the barge was transferred tous.

 

In May 2009, weentered into an amendment of our lease agreement for two barges currently undercharter, the Namoku and the Nu’uanu. Under the terms of the amended leaseagreement, the current charter, originally set to expire in November 2009,is extended for five years commencing on May 1, 2009.  During the first 18 months of the amendedlease term, the daily charter rate for the use of both barges isfixed. Commencing on November 2010, the daily charter rate for theuse of both vessels will be based on a tiered structure with the daily ratedependent upon the amount of the previous month’s average daily per barrelprice of West Texas Intermediate Crude Oil (“WTI”), as indicated on the NewYork Mercantile Exchange. Any amount paid by us after November 2010 overthe initial daily rate as a result of the escalated tiered structure based onthe price of WTI will be considered contingent rental payments.  The amended lease agreement contains a $3.0million purchase option after the third year of the lease, a $2.0 millionpurchase option after the fourth year of the lease and a mandatory $1.0 millionpurchase obligation by us after the fifth year of the lease.

 

We accounted for the amended lease agreement inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 13,“Accounting for Leases (As Amended)”. Under the guidance, the lease agreementcontinues to be accounted for as a capital lease and the imputed interest ratenecessary to reduce the net minimum lease payments to present value over thelease term is 34.9%.

 

The following is a summary of scheduled minimum leasepayments under the amended lease agreement at June 30, 2009 (inthousands):

 
| 2009                                                      |   | $     | 920         |   |
|-----------------------------------------------------------|--------|-------|-------------|--------|
| 2010                                                      |   | 1,825 |        |
| 2011                                                      |   | 1,825 |        |
| 2012                                                      |   | 1,830 |        |
| 2013                                                      |   | 1,825 |        |
| Therafter                                                 |   | 1,600 |        |
| Total Minimum Lease Payments                              |   | 9,825 |        |
| Less: Amounts representing interest                       |   | 5,269 |        |
| Present Value of Minimum Lease Payments                   |   | 4,556 |        |
| Less: Current Portion of Obligations Under Capital  Lease |   | 341   |        |
| Long-Term Portion of Obligations Under Capital  Lease     |   | $     |  4,215 |   |

 

*Performance Bonds*

 

As of June 30, 2009,we have restricted cash deposits of $4.3 million, which partiallycollateralizes insurance and performance bonds. In connection with ourproperties in Peru, we have obtained four performance bonds totaling $5.3million that are partially collateralized by restricted cash deposits of $2.9million to insure certain performance obligations and commitments under thelicense contracts for Blocks Z-1, XIX, XXII and XXIII. Additionally, we have$1.4 million of restricted cash to collateralize insurance bonds for importduties related to the FPSO and transport tanker.

 

All of the performanceand insurance bonds are issued by Peruvian banks and their terms are governedby the corresponding license contracts or customs laws.

 

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*Liquidity Outlook*

 

We estimate for theremainder of 2009 our required principal and interest payments for ouroutstanding debt to be approximately $0.3 million, our required principaland interest payments for our capital lease obligations to beapproximately $1.9 million and capital expenditures to be approximately$55 million, which includes $42 million for the drilling, development andproduction in the Corvina and Albacora fields located in Block Z-1 in northwestPeru, and approximately $13 million of capital expenditures for otherfacilities and activities within Block Z-1.

 

Our major sources offunding to date have been through oil sales, equity financing and, to a lesserextent, debt financing activities. With our current cash balance, proceeds fromthe expected IFC and Natixis debt facilities, as discussed above, currentand prospective Corvina and Albacora oil development cash flow, other potentialthird-party financing and potential financing from future sales of equity, webelieve we will have sufficient capital resources to execute our currentCorvina and Albacora oil development projects, service our current debtobligations, and execute our gas-to-power project once a suitable joint ventureagreement is executed and project funding becomes available. However, thetiming and execution of our projects are dependent on a variety of factors,including the technical design of facilities, permitting approval, availabilityof equipment, time and costs required for delivery of materials andconstruction operations, performance by contractors and the success ofnegotiations with a joint venture partner and planned financing, many of whichfactors are outside our control and the success of which cannot be assured.

 

**Off-BalanceSheet Arrangements**

 

As of June 30, 2009, we had notransactions, agreements or other contractual arrangements with unconsolidatedentities or financial partnerships, often referred to as special purposeentities, which generally are established for the purpose of facilitatingoff-balance sheet arrangements.

 

**Critical Accounting Estimates**

 

In our annual report on Form 10-K for the year ended December 31,2008, we identified our most critical accounting policies. In preparing thefinancial statements, we make assumptions, estimates and judgments that affectthe amounts reported. We periodically evaluate our estimates and judgments thatare most critical in nature which are related to oil reserves, successfulefforts method of accounting, revenue recognition, impairment of long-livedassets, future dismantlement, restoration, and abandonment costs, as well asstock-based compensation. Our estimates are based on historical experience andon our future expectations that we believe are reasonable. Those estimates andassumptions affect the reported amounts of assets, liabilities, revenues andexpenses in the consolidated financial statements, and the disclosure ofcontingent assets and liabilities. Actual results are likely to differfrom our current estimates and those differences may be material.

 

In addition,******on December 31, 2008 the SEC adopted the final rules regardingamendments to current oil and gas reporting requirements. The amendments aredesigned to modernize and update the oil and gas disclosure requirements toalign them with current practices and changes in technology and include thefollowing:

 

·                  Requiring companies to report oiland gas reserves using an average price based upon the prior 12-month periodrather than year-end prices.

·                  Enabling companies to additionallydisclose their probable and possible reserves.

·                  Requiring previously nontraditionalresources, such as oil shales, to be classified as oil and gas reserves if thenontraditional resources are intended to be upgraded to synthetic oil and gas.

·                  Requiring companies to report theindependence and qualifications of a preparer or auditor, based on currentSociety of Petroleum Engineers criteria.

·                  Requiring the filing of reports forcompanies that rely on a third party to prepare reserves estimates or conduct areserves audit.

·                  Permitting the use of newtechnologies to determine proved reserves if those technologies have beendemonstrated empirically to lead to reliable conclusions about reservesvolumes.

 

The amendments are effective for registrationstatements filed on or after January 1, 2010, and for annual reports on Form 10-Kand for fiscal years ending on or after December 31, 2009. Early adoptionis not permitted in either annual or quarterly reports before the first annualreport in which the revised disclosures are required. We are currentlyevaluating the impact of the amendments on our consolidated financial position,results of operations and cash flows.

 

In May 2009, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”).This standard establishes the accounting for and disclosure of events thatoccur after the balance sheet date but before

 

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financial statements are issued or are available to beissued. It requires the disclosure of the date through which an entity hasevaluated subsequent events and the basis for that date, that is, whether thatdate represents the date the financial statements were issued or were availableto be issued. We adopted SFAS No. 165 in the second quarter of 2009. Therewas no subsequent material impact on our consolidated financial position,results of operations or cash flows.

 

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy ofGenerally Accepted Accounting Principles—a replacement of FASB Statement No. 162”(the “Codification”)*.*  TheCodification will become the source of authoritative U.S. generally acceptedaccounting principles (GAAP) recognized by the FASB to be applied bynongovernmental entities. Rules and interpretive releases of theSecurities and Exchange Commission (SEC) under authority of federal securitieslaws are also sources of authoritative GAAP for SEC registrants. On theeffective date of this statement, the Codification will supersede allthen-existing non-SEC accounting and reporting standards. All othernongrandfathered non-SEC accounting literature not included in the Codificationwill become nonauthoritative.   This statement is effective for financialstatements issued for interim and annual periods ending after September 15,2009.  There will be no impact on ourfinancial position, results of operations or cash flows as a result of theCodification.

 

**Disclosure Regarding Forward-LookingStatements**

 

We caution that thisdocument contains forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995, Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934.  All statements, other than statements ofhistorical facts, included in or incorporated by reference into this Form 10-Qwhich address activities, events or developments which we expect, believe oranticipate will or may occur in the future are forward-looking statements.  The words “believes,” “intends,” “expects,” “anticipates,”“projects,” “estimates,” “predicts,” “plans” and similar expressions, or thenegative thereof, are also intended to identify forward-looking statements.  In particular, statements, expressed orimplied, concerning future operating results, the ability to replace orincrease reserves, or to increase production, or the ability to generate incomeor cash flows are by nature, forward-looking statements.  These statements are based on certainassumptions and analyses made by the management of BPZ in light of itsexperience and its perception of historical trends, current conditions andexpected future developments as well as other factors it believes are appropriatein the circumstances.  However,forward-looking statements are not guarantees of performance and no assurancecan be given that these expectations will be achieved.

 

Important factors thatcould cause actual results to differ materially from the expectations reflectedin the forward-looking statements include, but are not limited to any of thefollowing in the jurisdictions in which BPZ or its subsidiaries are doingbusiness:  Market conditions,uncertainties inherent in oil and gas production operations and estimatingreserves, unexpected future capital expenditures, the timing and extent ofchanges in commodity prices for crude oil, natural gas and related products,currency exchange rates, interest rates, inflation, the availability of goodsand services, drilling and other operational risks, successful installation andoperation of the new turbines, availability of capital resources, timing ofsyndication of and disbursements under the anticipated debt financing with IFCand Natixis, success of our operational risk management activities,governmental relations, legislative or regulatory changes, politicaldevelopments, acts of war and terrorism. A more detailed discussion on risks relating to the oil and natural gasindustry and to us is included in our Annual Report on Form 10-K for theyear ended December 31, 2008.

 

In light of these risks,uncertainties and assumptions, we caution the reader that these forward-lookingstatements are subject to risks and uncertainties, many of which are beyond ourcontrol, which could cause actual events or results to differ materially fromthose expressed or implied by the statements. All subsequent written and oral forward-looking statements attributableto us or persons acting on our behalf are expressly qualified in their entiretyby the cautionary statements.  Weundertake no obligations to update or revise our forward-looking statements,whether as a result of new information, future events or otherwise.

 

**Item 3. Quantitative and Qualitative Disclosures About Market Risk**

 

Theprimary objective of the following information is to provide forward-lookingquantitative and qualitative information about our potential exposure to marketrisks.  The term “market risk” refers tothe risk of loss arising from adverse changes in interest rates, oil andnatural gas prices and foreign currency exchange rates.  The disclosures are not meant to be preciseindicators of expected future losses, but rather indicators of reasonablepossible losses.  This forward-lookinginformation provides indicators of how we view and manage our ongoing marketrisk exposures.  All of our market risksensitive instruments were entered into for purposes other than speculativetrading.

 

*Interest Rate Risk.*

 

As of June 30, 2009, we had long-term debt andcapital lease obligations of approximately $19.3 million and current maturitiesof long-term debt and capital lease obligations of approximately $1.3 million,consisting of capital lease obligations for the FPSO and production equipmentand two loans for office furniture.

 

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The $15.0 million reserve-based lending facility isvariable rate debt and bears interest at an approximate rate of LIBOR plus2.75%. The variable rate debt exposes us to the risk of increased interestexpense in the event of increases in short-term interest rates. If the variableinterest rate were to increase by 1% from December 2008 levels, interestexpense would increase by approximately $0.2 million annually. Thecarrying value of the variable interest rate debt approximates fair value as itbears interest at current market rates.

 

The capital lease obligation for the FPSO and transportationbarges began in August 2007 and is set to expire in May 2014. Leasepayments are variable based on the working status of the barges, with apurchase option of $3.0 million in May 2012, $2.0 million in May 2013,and required to be purchased by us for $1.0 million in May 2014.  Theimputed interest rate necessary to reduce the net minimum lease payments topresent value over the lease term is 34.9%. The capital lease obligation forthe production equipment on board the FPSO barge, the Namoku, is set to expirein June 2010, and contains a purchase option at the end of twelve monthsand stipulates an interest rate of 18.0%.  We have two additional loansfor office equipment containing a term of 60 months and bearing fixed interestrates of 5.94% and 9.44%, respectively, with principal and interest paymentsdue on a monthly basis. We do not expect a significant change in the marketinterest rate to impact the interest on our term debt.  However,significant changes in market interest rates may significantly affect the levelof financing IFC and Natixis will structure with respect to our project inPeru.

 

*Commodity Price Risk.*

 

With respect to our oil and gas business, anyrevenues, cash flow, profitability and future rate of growth we achieve will begreatly dependent upon prevailing prices for oil and gas.  Our ability tomaintain or increase our borrowing capacity and to obtain additional capital onattractive terms is also expected to be dependent on oil and gas prices. Historically, oil and gas prices and markets have been volatile and are likelyto continue to be volatile in the future.  Prices for oil and gas aresubject to potentially wide fluctuations in response to relatively minorchanges in supply of and demand for oil and gas, market uncertainty, and avariety of additional factors that are beyond our control.

 

Lower oil and natural gas prices may not only decreaseour revenues on a per unit basis, but may also reduce the amount of oil andnatural gas we can produce economically, if any.  A substantial orextended decline in oil and natural gas prices may materially affect our futurebusiness, financial condition, results of operations, liquidity and borrowingcapacity, and may require a reduction in the carrying value of our oil and gasproperties.  While our revenues may increase if prevailing oil and gasprices increase significantly, exploration and production costs and acquisitioncosts for additional properties and reserves may also increase.

 

With respect to our planned electricity generation business,the price we can obtain for the sale of power may not rise at the same rate, ormay not rise at all, to match a rise in our cost to produce and transport gasreserves to our initial 135MW power plant in Caleta Cruz.  Prices for bothelectricity and natural gas have been very volatile in the past year and haveincreased significantly over the past two years.  The profitability ofthis business depends in large part on the difference between the price ofpower and the price of fuel used to generate power, or “spark spread.”

 

*Foreign Currency Exchange Rate Risk.*

 

The U.S. Dollar is the functional currency for ouroperations in both Peru and Ecuador.  Ecuador has adopted the U.S. Dollaras its official currency.  Peru, however, uses its local currency, theNuevo Sol, in addition to the U.S. Dollar, and therefore, our financial resultsare subject to favorable or unfavorable fluctuations in the exchange rate andinflation in that country.  Transaction differences have been nominal todate but are expected to increase as our activities in Peru continue toescalate.  For the three and six months ended June 30, 2009, exchangerate gains and losses were negligible. For the same periods in 2008, we recognized exchange rate gains ofapproximately $0.3 million and $0.2 million, respectively.

 

**Item 4. Controls and Procedures**

 

**(a) Evaluation of Disclosure Controls and Procedures**

 

As of the end of the period covered by this report, we carried out anevaluation, under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) ofthe Exchange Act.  Based upon thatevaluation our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures as defined in Rule 13a-15(e) ofthe Exchange Act were effective as of the end of the period covered by thisreport to ensure that information required to be disclosed by the Company inthe reports that the Company files or submits under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.  Our disclosure controls and proceduresinclude controls and procedures designed to ensure that information required tobe disclosed in reports filed or submitted under the Exchange Act is

 

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accumulatedand communicated to our management, including our principal executive officerand principal financial officer, as appropriate, to allow timely decisionsregarding required disclosure.

 

**(b) Changes in Internal Control over Financial Reporting**

 

During the quarter ended June 30, 2009, therewas no change in internal control over financial reporting that materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

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**PART II**

 

**Item 1. Legal Proceedings**

 

See Note 15, “Legal Proceedings”, of the Notes to Unaudited Consolidated FinancialStatements included in thisForm 10-Q and Item 3 of Part I of our 2008 Annual Report foradditional discussion of legal proceedings which are incorporated into Part II,Item 1. “Legal Proceedings” by reference.

 

**Item 1A. Risk Factors**

 

Item 1A, “Risk Factors” of our Annual Report on Form 10-Kfor the year ended December 31, 2008, includes a detailed discussion ofour risk factors.  For the three and sixmonths ended June 30, 2009, there are no material changes in our riskfactors as previously described in our Annual Report on Form 10-K.

 

**Item 4. Submission of Matters to aVote of Security Holders**

 

The 2009 annual meeting of shareholders was held on June 26,2009. At this meeting, the following two Class II directors werere-elected by the following vote:

 
| **Director**                                 | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|----------------------------------------------|------------|--------------------|------------|-------------------------|------------|
| Dr. Fernando  Zúñiga y Rivero |       | 64,214,053         |       | 2,758,252               |       |
| Dennis  G. Strauch                           |       | 64,415,131         |       | 2,557,174               |       |

 

Class II Directors will serve until the 2012annual meeting of shareholders or their successors are elected and qualified.

 
| **Proposal**                                                                                                       | ** ** | **Votes For** | ** ** | **Votes  Against** | ** ** | **Abstentions** | ** ** | **Broker  Non-votes** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|-----------------|------------|-----------------------|------------|
| Ratification  of Johnson Miller & Co., CPA’s PC asthe Company’s independent public  accountants |       | 66,821,271         |       | 63,908             |       | 87,125          |       | —                |       |

 

**Item 6. Exhibits**

 
| 31.1   |   | Certification  of Chief Executive Officer pursuant to Section 302 of the Sarbanes -  Oxley Act of 2002. (Filed herewith)                                                     |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                              |
| 31.2   |   | Certification  of Chief Financial Officer pursuant to Section 302 of the Sarbanes -  Oxley Act of 2002. (Filed herewith)                                                     |
|   |   |                                                                                                                                                                              |
| 32.1   |   | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted  pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. (Filed  herewith) |
|   |   |                                                                                                                                                                              |
| 32.2   |   | Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted  pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. (Filed  herewith) |

 

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**SIGNATURES**

 

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

 
|                  |     | BPZ RESOURCES, INC.                                        |
|-----------------------|----------|------------------------------------------------------------|
|                  |     |                                                       |
| Date: August 10, 2009 |     | /s/  MANUEL PABLO ZÚÑIGA-PFLÜCKER |
|                  |     | Manuel Pablo Zúñiga-Pflücker                |
| * *              | * * | *President, Chief Executive Officer  and Director*         |

 

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