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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: December 31, 2011o

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


Commission file number 001-35432

ZAZA ENERGY CORPORATION(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction
of incorporation)

45-2986089(I.R.S. Employer
Identification Number)


ZaZa Energy Corporation
1301 McKinney St Suite 3000
Houston, Texas 77010

(Address of principal executive office)

Registrant's
telephone number, including area code:713-595-1900

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each Class:

Name of each exchange on which registered:COMMON STOCK, PAR
VALUE $0.01 PER SHARE

NASDAQ Stock Market, LLC


Securities
registered pursuant to Section 12(g) of the Exchange Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past
90 days. Yes o    No ý

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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a
smaller reporting company)

Smaller Reporting company o


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

The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates, computed by reference to
the closing sales price of such stock, as of June 30, 2011 was $0. (For purposes of determination of the aggregate market value, only directors, executive officers and 10% or greater
stockholders have been deemed affiliates.)

As
of May 31, 2012, there were 101,302,468 shares of common stock, par value $0.01 per share, outstanding.





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TABLE OF CONTENTS



PagePART I

1Items 1 and 2

Business and Properties

1Item 1A

Risk Factors

38Item 1B.

Unresolved Staff Comments

63Item 2.

Properties (see Items 1 and 2. Business and Properties)

63Item 3.

Legal Proceedings

63Item 4.

Mine Safety Disclosure

66PART II

67Item 5

Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities

67Item 6.

Selected Financial Data

67Item 7.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

71Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

113Item 8.

Financial Statements and Supplementary Data

115Item 9.

Changes In And Disagreements With Accountants On Accounting And Financial
Disclosure

115Item 9A

Controls and Procedures

116Item 9B

Other Information

116PART III

118Item 10.

Directors, Executive Officers and Corporate
Governance

118Item 11.

Executive Compensation

124Item 12.

Security Ownership Of Certain Beneficial Owners And Management And Related
Stockholder Matters

131Item 13.

Certain Relationships and Related Transactions, and Director
Independence

132Item 14.

Principal Accountant Fees And Services

134PART IV

135Item 15.

Exhibits and Financial Statement
Schedules

135


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PART I

Items 1 and 2    Business and Properties

See the "Glossary of Selected Oil and Natural Gas Terms" at the end of Item 1 for the definition of certain terms in this annual
report.

ZaZa
Energy Corporation ("ZaZa") is a Delaware corporation formed for the purpose of being a holding company of both Toreador Resources Corporation, a Delaware corporation ("Toreador"),
and ZaZa Energy LLC, a Texas limited liability company ("ZaZa LLC"), from and after completion of the Combination, as described below. Prior to the Combination on February 21,
2012, ZaZa had no assets
and had not conducted any material activities other than those incident to its formation. However, upon the consummation of the Combination, ZaZa became the parent company of ZaZa LLC and
Toreador. In this annual report on Form 10-K, unless the context provides otherwise, "we", "our", "us" and like references refer to ZaZa, its two subsidiaries (ZaZa LLC and
Toreador) and each of their respective subsidiaries.

ZaZa's
principal executive office is located at, 1301 McKinney Street, Suite 3000, Houston, Texas 77010 (telephone number: (713) 595-1900).

On
February 22, 2012 our common stock began trading on the NASDAQ Capital Market under the trading symbol "ZAZA".

Combination with ZaZa LLC and Toreador Resources Corporation

On February 21, 2012, we consummated the combination (the "Combination") of ZaZa LLC and Toreador, on the terms set forth
in the Agreement and Plan of Merger and Contribution, dated August 9, 2011 and as subsequently amended by Amendment No. 1 thereto on November 10, 2011 and Amendment No. 2
thereto on February 21, 2012 (as amended, the "Merger Agreement"), by and among us, ZaZa LLC, Toreador, and Thor Merger Sub Corporation, our wholly owned subsidiary ("Merger Sub"), as
previously described in our Current Report on Form 8-K filed on February 22, 2012.

Pursuant
to the Merger Agreement, (i) Merger Sub merged with and into Toreador (the "Merger"), with Toreador continuing as the surviving entity, (ii) the three former
members of ZaZa LLC (the "ZaZa LLC Members"), holding 100% of the limited liability company interests in ZaZa LLC, directly and indirectly contributed all of such interests to us
(the "Contribution"), and (iii) the holders of certain profits interests in ZaZa LLC contributed 100% of such interests to us (the "Profits Interests Contribution"). Upon the
consummation of the Combination, Toreador and ZaZa LLC became our wholly owned subsidiaries.

The
Merger has been treated as a reverse merger under the purchase method of accounting in accordance with GAAP. For accounting purposes, ZaZa LLC is considered to have acquired
Toreador in the Combination. Under the purchase method of accounting, the assets and liabilities of Toreador have been recorded at their respective fair values and added to those of ZaZa LLC in
our financial statements.

At
the effective time of the Merger, each share of common stock, par value $0.15625 per share, of Toreador issued and outstanding immediately prior to the effective time of the Merger
was converted
into the right to receive one share of ZaZa common stock, par value $0.01 per share (the "Common Stock"), which in the aggregate represented 25% of the issued and outstanding shares of Common Stock
immediately after the consummation of the Combination (but without giving effect to the shares of Common Stock issuable upon exercise of the Warrants as discussed below).

Simultaneously
with the consummation of the Merger, and pursuant to the Contribution Agreement dated August 9, 2011 among the ZaZa LLC Members and ZaZa (the "Contribution

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Agreement"),
the ZaZa LLC Members contributed all of the direct or indirect limited liability company interests in ZaZa LLC to us in exchange for (i) a number of shares of Common
Stock that, in the aggregate, represented 75% of the issued and outstanding shares of Common Stock immediately after the consummation of the Combination (but without giving effect to the shares of
Common Stock issuable upon exercise of the Warrants as discussed below), and (ii) subordinated notes in an aggregate amount of $38.25 million issued to the ZaZa LLC Members as
partial consideration for the Combination (the "Seller Notes"). In addition, as required under the terms of the Merger Agreement and the Contribution Agreement, we issued subordinated notes in an
aggregate amount of $9.08 million to the individuals that own and control the ZaZa LLC Members, Todd Alan Brooks, Gaston L. Kearby and John E. Hearn Jr. (together, the "ZaZa Founders"),
in respect of certain unpaid compensation amounts owing to the ZaZa Founders by ZaZa LLC (the "Compensation Notes") for back salary, bonuses, incentive compensation or other compensation
payable to them by ZaZa LLC in connection with or in respect of periods prior to the consummation of the Combination. The Seller Notes and Compensation Notes accrue interest at a rate of 8% per
annum, are payable monthly in cash, and mature on August 17, 2017. Subject to certain conditions, we may make regularly scheduled interest payments to the ZaZa LLC Members and the ZaZa
Founders on these notes and may prepay these notes at any time. We are required to repay these notes, pro rata, with 20% of the proceeds of any subordinated debt financing and 20% of the proceeds of
any equity financing completed on or after the third anniversary of the issuance of the Secured Notes, which are described below.

Immediately
after the consummation of the Merger and Contribution, and pursuant to the Net Profits Interest Contribution Agreement, dated August 9, 2011, among ZaZa,
ZaZa LLC and the holders of net profits interests in ZaZa LLC the holders of certain profits interests in ZaZa LLC completed the Profits Interests Contribution in exchange for
$4.8 million in cash.

Additionally,
in connection with the Combination, we issued senior secured notes with a principal amount of $100 million maturing in 2017 (the "Senior Notes") in a private
placement to a group of investors led by MSD Energy Partners, L.P. and Senator Investment Group LP. The Notes bear interest at a rate of 8% per annum, payable quarterly. In connection
with the issuance of the Notes, ZaZa also issued to the investors warrants to purchase an aggregate of approximately 26.3 million shares of our common stock at $3.15 per share (the "Warrants")
representing 20.6% of the outstanding shares of our common stock at the Closing of the Combination, on a fully diluted and on an
as-converted basis. The Warrants expire in five years and are exercisable at any time after the six month anniversary of the issuance date.

Subsidiaries of ZaZa Energy Corporation

ZaZa Energy, LLC

ZaZa LLC was a privately-held independent exploration and production company focused on the exploration and
development of unconventional onshore oil and gas resources in the United States of America, until February 21, 2012 when it was contributed to ZaZa as part of the Combination. ZaZa LLC
was controlled by the ZaZa Founders who each beneficially owned one-third of the outstanding limited liability company interests of ZaZa LLC. ZaZa LLC's operations are
concentrated in south Texas, including its largest exploration area in the core area of the Eagle Ford shale formation and in the eastern extension of the Eagle Ford/Woodbine formation, which we refer
to as the "Eaglebine." As of December 31, 2011, ZaZa LLC had accumulated lease acreage through a joint venture with Hess Corporation of approximately 121,000 gross acres (approximately
12,100 net acres), and had also accumulated approximately 82,000 gross acres (approximately 60,000 net acres) in the Eaglebine formation, which acreage is not part of its joint venture.
ZaZa LLC was formed in March 2009 primarily to acquire and develop unconventional oil and gas resources. ZaZa LLC has grown its existing property base by developing and exploring its
acreage, purchasing new undeveloped leases, and acquiring oil and gas producing properties and drilling prospects from third parties. According to Rex

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Morris,
an independent consulting reservoir engineer, as of December 31, 2011, ZaZa' LLC's proved reserves were 1.63 MMBOE and its proved plus probable reserves were 2.84 MMBOE.

Toreador Resources Corporation

Toreador was a publicly held independent energy company engaged in the exploration and production of crude oil with interests in
developed and undeveloped oil properties in the Paris Basin, France. Toreador currently operates solely in the Paris Basin, which covers approximately 170,000 km2 of northeastern France,
centered 50 to 100 km east and south of Paris. At December 31, 2011, Toreador held interests in approximately 997,000 gross exploration acres (awarded and pending publication). According
to Gaffney, Cline & Associates Ltd, an independent petroleum and geological engineering firm, or Gaffney Cline, as of December 31, 2011, Toreador's proved reserves were
5.8 MMBbls, its proved plus probable reserves were 8.8 MMBbls and its proved plus probable plus possible reserves were 13.8 MMBbls. Toreador's production for 2011 averaged
approximately 854 Bbl/Day from two conventional oilfield areas in the Paris Basinthe Neocomian Complex and Charmottes fields. As of December 31, 2011, production from these
oil fields represented a majority of Toreador's total revenue and substantially all of Toreador's sales and other operating revenue. We intend to maintain production from these mature assets using
suitable oil recovery techniques. In addition to this production base, we have identified several additional conventional exploration targets, including the La Garenne field, which is the first
of these targets, and for which we intend to formulate a development plan.

Business Relationships

Joint Ventures with Hess Corporation

Our operations in the Eagle Ford have been conducted under Exploration and Development Agreements (Eagle Ford Shale Area, dated
April 28, 2010, and Hackberry Creek Area, dated March 26, 2010, each an "EDA" and collectively, the "EDAs") and Joint Operating Agreements with Hess, which we refer to as the Hess joint
venture. ZaZa LLC currently operates three of the twenty three wells under the Hess joint venture. Per the EDAs, ZaZa LLC retains a 10% working interest in all acreage acquired on behalf
of the joint venture and also earns a cash bonus of 10% on all acreage acquired on behalf of the joint venture. Under the terms of the joint venture, Hess has a right to participate in all leases
acquired by ZaZa LLC in the Eagle Ford. If Hess elects to participate in a lease, the lease becomes part of the joint venture and Hess pays all of the acquisition costs up to a cap, and pays
all of the exploration and development costs for a specified number of approved wells on the leased acreage until production. ZaZa LLC also receives a partial reimbursement of general and
administrative expenses while it is the operator of wells under the joint venture. ZaZa LLC's 10% working interest in each well in the joint venture is "carried" by Hess (Hess pays
ZaZa LLC's 10% share of the expenses of each well), subject to a cap on the number of carried wells
in each prospect area that is calculated by dividing the total gross leased acreage in such prospect area by 640. If, as currently expected, the joint venture's acreage is not expanded to more than
the current 121,000 acres, this would equal 188 "carried" wells. Assuming an average cost of $8 million per well, the 188 wells would represent a total carry of approximately
$1.51 billion ($151 million carry to ZaZa LLC). For any wells drilled above the carried number, the joint venture's costs for such wells are shared in proportion to each party's
working interest.

Termination of the EDAs

Based on public communications from Hess, it became obvious that Hess and ZaZa had different understandings about Hess's obligations
under the EDAs. Correspondence and communications between the parties led to the conclusion that it would be in the best interest of both parties to dissolve the joint venture and divide the combined
assets. On June 8, 2012, ZaZa, ZaZa LLC, ZaZa Energy

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France S.A.S.
(formerly known as Toreador Energy France S.A.S.)("ZEF"), Hess and Hess Oil France S.A.S. ("Hess France") entered into a Heads of Agreement ("HoA") as reported on
Form 8-K filed on June 11, 2012, that calls for the termination of the ongoing obligations of the parties under the EDAs and the "French Agreements" between ZEF and Hess France, including that
certain Investment Agreement dated May 10, 2010, as amended, and that certain Agreement dated July 21, 2011 with Vermillion REP, S.A.S., and the division of the assets covered by
the EDAs and the French Agreements. Definitive documentation is expected to be completed and executed on or before June 29, 2012.

The
HoA generally provides that the ongoing obligations of the parties under the EDAs and the French Agreements, including funding for additional leases, well carry or carry for
expenses, will be terminated upon consummation of the transactions. Under the HoA and subject to the completion of definitive documentation by June 30, 2012, or such later date as may be
extended pursuant to the HoA, ZaZa will receive upon consummation of the transactions outlined in the HoA:



Upon
consummation of the transactions outlined in the HoA, ZaZa's net acreage holdings in the Eagle Ford core will increase from a total of 11,500 acres to approximately 72,000 acres.
The acreage by area comprises approximately 1,970 acres in southern Frio County, 23,120 acres in the Hackberry Prospect Area (Lavaca and Colorado Counties), 10,810 acres in the Moulton Prospect Area
(Fayette, Gonzalez and Lavaca Counties) and 35,650 acres in the Sweet Home Prospect Area (DeWitt and Lavaca Counties). Per the HoA, ZaZa will have the rights to approximately 3,924 additional acres in
the Sweet Home Prospect Area that have not been timely transferred by a third-party lease broker but for which payment of approximately $10.4 million has been made under the EDAs. While ZaZa
hopes to receive all of the acreage, if ZaZa receives cash from the lease broker in lieu of the acreage, whether from a judgment, payment refund or otherwise, such cash must be split evenly with Hess.

As
part of the HoA, ZaZa also will transfer its 50% working interest in the Paris Basin exploration licenses as provided for in the French Agreements and retain a 5%
cost-free revenue interest in such licenses, in which the total proceeds relating thereto to ZaZa are capped at $130 million.

Under
the HoA and subject to the completion of definitive documentation, Hess will receive:



The
HoA is non-binding and subject to definitive documentation. There is no guarantee that the transactions contemplated by the HoA will be completed timely or completed at
all. If the definitive documentation is not completed, either party may terminate the HoA and enforce its rights under the EDAs and the French Agreements including submission of claims to arbitration.

In
connection with the execution of the HoA, ZaZa LLC and Hess entered into an amendment to the Exploration and Development Agreement Eagleford Shale Area dated April 28,
2010, as amended, and the applicable joint operating agreements, to eliminate Hess's obligation to carry the cost of wells under those agreements in the Cotulla Prospect Area, in exchange for a cash
payment by Hess to

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ZaZa LLC
of $15 million. This $15 million was paid to ZaZa on June 8, 2012. ZaZa LLC has the right under the amendment to reinstate Hess's well-carry
obligations at any time prior to September 28, 2012, so long as the Exploration and Development Agreement is still in effect, by paying Hess $15 million.

Strategy

Upon closing of definitive documentation with Hess terminating the EDAs, ZaZa will own approximately 72,000 net acres in the Eagle Ford
core and approximately 98,520 net acres in the Eaglebine. The Company's strategic objectives will consist of three key components:



Execution of ZaZa Energy Corporation's Portfolio of Drilling Opportunities

We expect to maintain financial discipline to allow us to execute on our portfolio of drilling opportunities while seeking to maximize
returns. Subject to definitive documentation reflecting the main terms of the HoA , and the availability of financing or pursuing a joint venture in the Eaglebine and/or the Eagle Ford, we intend to
do the following:



Subject
to definitive documentation reflecting the main terms of the HoA, in the case of the Paris Basin and the Eagle Ford, we no longer expect the costs of the foregoing programs to be
funded, or "carried," by Hess. We expect the costs associated with the contemplated one rig programs in the Paris Basin and the Eaglebine to be between $10 million and $30 million during
2012. Our ability to implement these one rig programs will be dependent on the proceeds from the transaction contemplated by the HoA, the availability of cash flow from operations or our ability to
obtain financing through borrowings, capital market transactions or agreements with joint venture partners. We can provide no assurance that we will be able to successfully obtain the necessary
financing or joint venture partners for the one rig programs.

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Expansion of ZaZa Energy Corporation's Pro Forma Portfolio

Our growth strategy includes acquiring additional oil and gas properties, subject to the availability of financing and agreements with
potential joint venture partners, including:



The
cost of implementing the forgoing programs will depend on the extent to which acquisition or farm-in opportunities become available. However, if such opportunities do
become available, the cost of pursuing them could be significant. Our ability to pursue any such opportunities that become available will be dependent on our ability to obtain financing through
borrowings, capital market transactions or agreements with joint venture partners. We can provide no assurance that we will have the necessary cash available or be able to successfully obtain the
necessary financing or joint venture partners to pursue any of the above opportunities.

Consolidation and Integration of ZaZa Energy Corporation's Operations



ZaZa LLC

Areas of Operation

ZaZa LLC owns producing and non-producing oil and gas properties in proven or prospective basins that are primarily
located in South Texas, including its largest producing area in the Eagle Ford shale. ZaZa LLC also owns prospect acreage in the Eaglebine formation. All of ZaZa LLC's assets, including
long-lived assets are located within the United States. The following is a summary of its major operating areas. This disclosure does not include any pro forma adjustments for the HoA.

Eagle
Ford Shale

For
the year ended December 31, 2011, ZaZa LLC drilled 20 gross (2 net) wells in the Eagle Ford shale, all of which were successful. In 2011,
ZaZa LLC's Eagle Ford operations were all conducted through the Hess joint venture.

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Eaglebine Shale

The
Eaglebine is an expansion area of the Eagle Ford shale, but is also prospective for the Woodbine shale as well as other conventional sands, hence the
industry term "Eaglebine." ZaZa LLC plans to drill six wells and acquire 100 square miles of 3-D seismic surveys to fully demonstrate the commercial viability of the play. Once
demonstrated, ZaZa LLC plans to move into the development phase, where it may drill up to one well per month, subject to availability of capital resources to do so. The company exercised
approximately $5.1 million in options on the Eaglebine leases in August of 2011, increasing its total leasehold in the Eaglebine to approximately 82,000 gross (60,000 net) acres. On
March 29, 2012, ZaZa LLC announced that it had entered into a farm-in transaction with Range to increase its position in the Eaglebine to approximately 143,400 gross acres
(98,500 net acres). ZaZa LLC's Eaglebine operations are wholly-owned, but ZaZa LLC intends to explore ways to accelerate the drilling program on its Eaglebine acreage by selectively
partnering with others. ZaZa LLC is currently seeking a potential joint venture partner. In the event that ZaZa LLC is not able to select a suitable partner, ZaZa LLC expects to
finance a portion of its Eaglebine program with cash flow from operations. If cash flow from operations is not sufficient to fund this program, ZaZa LLC would be required to seek additional
financing to maintain and expand this program.

Other
Onshore Domestic Plays

As
of December 31, 2011, ZaZa LLC owns non-operating working interests in four producing wells located in Gonzales County, all of
which are outside the Hess joint venture. Our management intends to continue to acquire non-operating working interests in both prospective and producing wells when the opportunity arises
to acquire such properties at attractive valuations. Such interests may be in wells that are considered either conventional or unconventional.

Title to Properties

We believe ZaZa LLC believes it has satisfactory title to all of its producing properties in accordance with standards generally
accepted in the oil and gas industry. As is customary in the oil and gas industry, ZaZa LLC makes title investigations and receives title opinions of local counsel not on acquisition but only
before it commences drilling operations. ZaZa LLC believes that it has satisfactory title to all of its other assets. ZaZa LLC's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other burdens, including other mineral encumbrances and restrictions. Although title to its properties is subject to encumbrances in
certain cases, ZaZa LLC believes that none of these burdens will materially detract from the value of ZaZa LLC's properties or from its interest therein or will materially interfere with
its use of the properties in the operation of its business.

Oil and Gas Operations

ZaZa LLC did not produce any oil or gas prior to 2010. For the year ended December 31, 2010, ZaZa LLC was in the
process of drilling its first wells in the Eagle Ford shale and, therefore, did not have significant production in that field. The only production of oil and gas during 2010 came from the four
conventional wells in South Texas for which ZaZa LLC holds an approximate 2.5% non-operating working interest. ZaZa LLC did have significant production in 2011.

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The
following tables present certain information with respect to its production data for the periods presented:

For the Year Ended
December 31, 2011Gas
(Mcf)

Oil
(Bbls)

Equivalents
(BOE)(1)Eagle Ford


9,551


24,829


26,421Other Onshore


2,095


2,955


3,304Total


11,646


27,784


29,725




For the Year Ended
December 31, 2010Gas
(Mcf)

Oil
(Bbls)

Equivalents
(BOE)(1)Eagle Ford








Other Onshore


4,247


4,331


5,038Total


4,247


4,331


5,038


(1)For
additional information regarding ZaZa LLC's oil and gas production, production prices and production costs, see "ZaZa Management's
Discussion & Analysis."


Capital Expenditures

The following table summarizes information regarding ZaZa LLC's development and exploration capital expenditures for the year
ended December 31, 2011 and 2010:

For the Year EndedDecember 31, 2011

December 31, 2010(In thousands)

(In thousands)Capital ExpendituresAcquisitions

$
10,667

$
6,436Other corporate


1,975


831Total capital expenditures

$
12,642

$
7,267


All
of ZaZa LLC's drilling costs in the Eagle Ford have been carried under its joint venture.

Productive Wells and Acreage

The following table sets forth ZaZa LLC's interest in undeveloped acreage, developed acreage and productive wells in which it
owns a working interest as of December 31, 2011. "Gross" represents the total number of acres or wells in which ZaZa LLC owns a working interest. "Net" represents its proportionate
working interest resulting from its ownership in the gross acres or wells. Productive wells are wells in which ZaZa LLC has a working interest and that are capable of producing oil or gas.

Productive WellsUndeveloped Acres

Developed Acres

Gross

NetGross

Net

Gross

Net

Gas

Oil

Gas

OilEagle Ford


120,855


12,085


740


74


1


19


0.1


1.9Eaglebine


82,000


60,000

















Other Onshore

















4





0.2Total


202,855


72,085


740


74


1


23


0.1


2.1


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The
following table shows its interest in undeveloped acreage as of December 31, 2011 that is subject to expiration in 2012, 2013, 2014 and thereafter:(1)

2012

2013

2014

ThereafterGross

Net

Gross

Net

Gross

Net

Gross

Net4,835


483


87,088


16,468


30,121


23,204


81,811


32,110


Drilling Activity

The following table sets forth the number of gross exploratory and development wells ZaZa LLC drilled or in which it
participated during 2010 and 2011. ZaZa LLC did not participate in the drilling of any wells in 2009. Productive wells are either producing wells or wells capable of production.

Exploratory

DevelopmentProductive

Dry

Total

Productive

Dry

TotalFor the year ended December 31, 2011











20





20For the year ended December 31, 2010











5





5


The
following table sets forth, for 2010 and 2011, the number of net exploratory and net development wells drilled by ZaZa LLC based on its proportionate working interest in such
wells.

Net WellsExploratory

DevelopmentProductive

Dry

Total

Productive

Dry

TotalFor the year ended December 31, 2011











2.0





2.0For the year ended December 31, 2010











0.2





0.2


As
of December 31, 2011, ZaZa LLC had an additional eight wells being drilled as part of its continuous development program. These wells were located in the South Texas
Eagle Ford shale, where it owned a 10% working interest in each well pursuant to the Exploration and Development Agreement with Hess.

Marketing and Customers

Since ZaZa LLC's inception, Hess has marketed to two purchasers, Shell Oil and Superior Oil Company, the crude oil produced by
ZaZa LLC under the Hess joint venture pursuant to an oral agreement between Hess and ZaZa LLC. Under this oral agreement, Hess markets all of the crude oil produced by the Hess joint
venture and remits payment to ZaZa LLC for its share of such sales, but does not provide detail of what percentage is sold to each of these purchasers. One hundred percent (100%) of revenue
derived from crude oil sales is attributable to domestic customers and not to foreign customers. In the future, ZaZa LLC may develop sales relationships with other purchasers. If our
disagreements with Hess over the Eagle Ford joint venture are not resolved amicably, we may be forced to enter into new marketing and sales agreements to replace the current Hess arrangement, which
could cause fluctuations in our results of operations depending on the length of time required to find a suitable replacement. The sales prices for crude oil are tied to industry standard posted
prices subject to negotiated price adjustments. The production from the four wells in Gonzales County, which are outside the Hess joint venture, is marketed by the operator, Riley-Huff
Energy Group, LLC.

Throughout
its short history, ZaZa LLC has been dependent upon Hess for all of its oil sales revenue, which to date has been delivered from two purchasers, Shell Oil and Superior
Oil Company. This concentration of purchasers may increase our overall exposure to credit risk, and ZaZa LLC's purchasers will likely be similarly affected by changes in economic and industry
conditions. Our financial condition and results of operations could be materially adversely affected if one or both of ZaZa LLC's significant purchasers fails to pay or ceases to acquire its
production on terms that are favorable to us, or if such purchasers decrease their demand. However, we believe ZaZa LLC's current

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purchasers
could be replaced by other purchasers under contracts with similar terms and conditions, although a loss of this type could cause significant fluctuations in our results of operations
because our expenses are fixed in the short term and ZaZa LLC's sales and development cycle to obtain new customers is long.

Until
the third quarter of 2011, ZaZa LLC had not sold any of its gas production pending completion of gas gathering facilities. Consequently, almost all gas produced prior to
that time was flared. However, we completed gathering facilities for a portion of its gas production during the third quarter of 2011 and commenced the sale of gas in the late third quarter of 2011.
Since completion of the gathering facility, ZaZa LLC began selling the gas production from five wells, which accounted for approximately 94% of the gas produced as of December 31, 2011,
to Texla Energy Management, Inc. We intend to gather and market the gas from additional wells if economically viable, but do not expect
revenues from the sale of gas to be significant in comparison to revenues from the sale of crude oil. One hundred percent (100%) of revenue derived from gas sales is attributable to domestic customers
and not foreign customers. Gas production that is not sold to Texla Energy Management is flared.

Competition

The oil and gas industry is highly competitive, and we compete with a substantial number of other companies that have greater resources
than us. Many of these companies explore for, produce and market oil and gas, carry on refining operations and market the resulting products on a worldwide basis. The primary areas in which we
encounter substantial competition are in locating and acquiring desirable leasehold acreage for development operations, locating and acquiring attractive producing oil and gas properties, and
obtaining purchasers and transporters of the oil and gas it produces. There is also competition between producers of oil and gas and other industries producing alternative energy and fuel.

Furthermore,
competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the federal, state and local
government. It is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon its future operations. Such legislation and regulations
may, however, substantially increase the costs of exploring for, or the development, production or marketing of oil and gas and may prevent or delay the commencement or continuation of a given
operation. The effect of these risks cannot be accurately predicted.

Toreador Resources Corporation

Proof of Concept Program

On October 12, 2010, ZaZa Energy France (formerly known as Toreador Energy France) ("ZEF") and Hess received approval from the
French government for its first four well permit applications, as well as the necessary environmental permits. On November 20, 2010, Hess executed an agreement for the provision of drilling and
related services for the initial six firm wells targeting the Liassic shale oil source rock system. The first of the four wells, which will be located on the Chateau Thierry Permit, is expected to be
drilled vertically to a total depth of 3,000 meters. The
primary geologic target of the well is the Liassic section, the top of which is expected to be encountered at an approximate depth of 2,300 meters. Conventional cores are expected to be taken
throughout the Liassic section to evaluate reservoir and rock properties.

By
way of an accelerated legislative procedure, the French General Assembly passed a bill on May 11, 2011 to ban hydraulic fracturing of oil and gas wells in France. The French
Senate passed an amended bill on June 9, 2011 that allowed hydraulic fracturing under a regulated framework of scientific experimentation. A committee of representatives from both the Senate
and General Assembly recommended text for the bill on June 17, 2011 that excluded the ability to undertake hydraulic fracturing in the context of scientific experimentation. A special purpose
scientific commission will

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present
an annual report to the French legislature on whether experimental hydraulic fracturing should be allowed. This bill was passed by the Senate on June 30, 2011 and became law on
July 14th, 2011. This law required all operators of the 64 currently awarded exploration licenses in France to submit, by September 13, 2011, a report on the exploration methods they
intend to use in these licenses. Failure to submit would result in immediate cancellation of the relevant license. ZEF submitted all required reports in a timely fashion, stressing it will not use the
now banned practice of hydraulic fracturing.

On
October 13, 2011, the French authorities published a list of cancelled exploration licenses, which did not contain any of the exploration licenses in which Toreador has a
working interest. We now intend to commence our proof of concept drilling program as soon as possible. This proof of concept phase, for which the drilling has been delegated to Hess Oil France, does
not require hydraulic fracturing.

On
June 8, 2012, Hess and ZaZa executed the HoA (seeBusinessTermination of the EDAs). If definitive documentation
reflecting the terms of the HoA is executed, ZEF will no longer participate in the Proof of Concept Program. The following does not include any pro forma adjustments for the HoA.

Concessions Renewal

The decrees relating to the renewal of the Châteaurenard concession and of the
Saint-Firmin-des-Bois concession, which together account for 93% of our existing reserves, received final French government approvals on February 1, 2011, and were
published in the Journal Officiel on February 3, 2011. The renewals extend the expiry date of both concessions to January 1, 2036.

Title to Oil Properties

Toreador does not hold title to any of its properties; it holds interests in permits or concessions granted by French governmental
authorities granting us the right to explore and develop oil properties in France. Toreador currently hold interests in approximately 780,000 gross exploration acres in the Paris Basin and have
publications pending for approximately 214,000 additional gross acres. Toreador's conventional exploration and production operations consist primarily of our existing producing fields. In addition to
this production base, we have identified several additional conventional exploration targets, including the La Garenne field, which is the first of these targets, and for which we intend to formulate
a development plan. Toreador's unconventional exploration operations consist primarily of the potential exploration of the prospective shale oil play within its Paris Basin acreage position. We have
ready access to existing infrastructure (pipelines) and end-markets (refineries) in the Paris Basin. The table below summarizes the acreage covered by the exploration permits and
exploitation concessions that Toreador currently holds, or for which Toreador has applied. For exploration permits, under the terms of the Hess Investment Agreement, ZEF and Hess Oil France had
designated an area of mutual interest within the Paris Basin (the "AMI"). If either party acquired or applied for a working interest in an exploration permit or exploitation concession within the AMI,
such party would be required to offer to the other party 50% of such interest on the same terms and conditions. On June 8, 2012, Hess and ZaZa executed the HoA (see BusinessTermination of the EDAs). If definitive documentation reflecting the terms of the HoA is executed, the AMI will cease to exist and
all of the working interest held by ZEF in the Exploration Permits, the Applications and the Permits Pending publication will be

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transferred
to Hess Oil France. For a more detailed description of each permit, concession or application, see "Permits, Concessions and Pending Applications" below.

Permit Name

Working
Interest

Type

Expiration Date

Gross AcreageCharmottes


100
%
Production

October 24, 2013**


9,019Chateaurenard


100
%
Production

January 1, 2036


11,268St. Firmin Des Bois


100
%
Production

January 1, 2036


3,973Total Production


24,260Aufferville


50
%
Exploration

June 16, 2010**


33,112Rigny le Ferron


50
%
Exploration

February 20, 2011**


83,780Joigny


50
%
Exploration

February 20, 2011**


33,176Mairy


25
%
Exploration

August 15, 2011**


109,715Nogent sur Seine


50
%
Exploration

August 8, 2012


65,730Leudon en Brie


50
%
Exploration

August 8, 2012


26,934Nemours


25
%
Exploration

June 16, 2013


47,296Courtenay


50
%
Exploration

October 1, 2013


76,603Chateau Thierry


50
%
Exploration

October 24, 2014


192,989Champrose


40
%
Exploration

October 21, 2015


113,421Total Exploration


782,756Coulommiers




Pending publication




45,748
***L'Ourcq




Pending publication




48,683
***Mary sur Marne




Pending publication




30,620
***Nangis




Pending publication




23,828
***Nanteuil




Pending publication




48,682
***Valence en Brie




Pending publication




16,118
***Total Pending


213,679Chevry / Ozoir




Application




97,606
****Coole




Application




207,816
****Fere-en-Tardenois




Application




48,646
****Leudon extension




Application




12,956
****Maisoncelles




Application




49,630
****Meaux




Application




155,081
****Plaisir




Application




32,668
****Rozay en Brie




Application




35,583
****Mailly le Camp




Application




48,037
****Senonais




Application




33,073
****Total Applications


721,096Total Exploration, Pending and Applications









1,717,531


Note: all numbers in the table are direct conversion from the surface estimates in square kilometers **Renewal
application pending. Lack of timely renewal of Aufferville, Rigny and Joigny owing to exceptional delays relating to the revised legislative
framework. Licensing authority has written comfort letters acknowledging the delay following the commencement of legal proceedings by Toreador and Hess.***No
longer subject to competitive application but not yet formalized by publication in the Official Journal of the French Republic****The
application award process may result in Toreador and Hess receiving less than a 100% working interest in the pending applications or only part or
nothing of the acreage represented by an application(°)Assuming
successful applications


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Producing Fields

Toreador production for 2011 was 312 MBbl, representing an average of approximately 854 BBL/D, from two areas for which we hold
exploitation concessions: the Neocomian Complex and Charmottes fields (producing from the Dogger and Trias horizon). As of December 31, 2011, these fields represented 100% of our total proved
reserves (5.8 MMBbls).

All
Toreador production is currently sold to Total pursuant to an agreement signed with Elf Antar in 1996, as amended. The agreement automatically renews for one-year periods
unless notice of termination is given at least six months in advance. The sale price is based on the monthly-average dated Brent price over the month of production, less a discount. In 2011, sales to
Total, representing all Toreador oil production revenues, totaled $33 million.

La Garenne and Prospect Inventory

Toreador began drilling on the La Garenne well on November 12, 2009. The well confirmed a five-meter reservoir
within a 50-meter oil column in the target Dogger formation. Based on our continued evaluation of the well results, we believe the well confirms a porous and hydrocarbon-bearing reservoir
with a localized low-permeability area at the crest of the structure. Toreador completed production testing of the well in January 2010, and the results were inconclusive. The well flowed
only limited quantities from one of its two horizons in the Dogger. Following additional technical review and discussions with our partner Hess, Toreador has identified two possible locations for the
drilling of a second well on the structure, and technical discussions are ongoing.

We
intend to formulate a development plan for La Garenne following this second well.

We
expect that the vertical well Toreador drilled in 2009 will be used as a water disposal or an injection well in the development of this field.

Unconventional Exploration: Paris Basin Shale Oil

In addition to Toreador's conventional exploration and production, we are also currently focused on exploiting Toreador's shale oil
acreage in the Paris Basis pursuant to the Hess Investment Agreement and pending the result of the France Shale Study and any interim or subsequent political developments. See "Recent
Developments-Operations Update-Proof of Concept Program" above.

In
accordance with the Hess Investment Agreement, Hess made a $15 million upfront payment (plus applicable VAT of $2.9 million) to ZEF on June 10, 2010. In addition,
subject to government approval, ZEF has transferred 50% of its working interest in each permit to Hess. The Ministry of Industry, Energy, and Numeric Economy (Ministère de l'Industrie,
de l'Energie, et de l'Énergie numérique) in France granted first-stage approval of these transfers on June 25, 2010. An application for the grant to Hess of title
(together with ZEF) to the permits has also been filed with the French government and is pending. Upon such approval, Hess would become title holder and have the right to become operator of record for
those exploration permits.

Fiscal Environment and Infrastructure

Fiscal
Environment

We
believe that the Paris Basin presents attractive and stable fiscal terms. Mineral rights in France belong to the French State, and production of
hydrocarbons occurs under a concession regime. Holders of a concession or production license must pay the French tax authorities a royalty proportional to the value of the products extracted. This
royalty is paid starting from production. The royalty regime distinguishes between "old production" and "new production" and is ring-fenced by production concession. Under the current
French Mining Code, the royalty payable is progressive and depends on annual production levels, with royalty rates currently ranging between 0% (below 50,000 tonnes, i.e., 970 BBL/D) and
12% (above

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300,000 tonnes,
i.e., 5,820 BBL/D) for "new production". "Old production" is subject to an 8% royalty (below 50,000 tonnes), increasing to 30% (above 300,000 tonnes,
i.e., 5,820 BBL/D).

Local
mining taxes, or RCDM (redevance communale et départementale des mines), are also payable to the applicable administrative French county and municipality on whose
territory the oil is produced. This local tax is determined by multiplying production by a unit rate, which is set each year by the Ministry of the Economy, Finances and Industry. The local mining tax
is payable in arrears (tax for the production of 2010 is payable in 2012), is ring-fenced by well, and the regime distinguishes between fields entered into production before and after
January 1, 1992. For the year 2011 (payable in 2013), the level of tax has been set at €17.47 per ton of oil equivalent to approximately $3.44 per BBL based on an exchange rate
of 0.719, for pre-1992 production and €5.44 per ton of oil produced for post-1992 production, equivalent to approximately $1.05 per BBL based on an exchange
rate of 0.719. Both the royalties and local mining taxes described above generally apply only to onshore fields; there is a reduced rate for offshore fields located less than one nautical mile from
the coast (Toreador does not currently hold any permits covering offshore fields). Each of the taxes is deductible when determining the profit subject to French corporate tax. Toreador is not required
to pay surface rental or fees.

Infrastructure

The
Paris Basin is conveniently located to utilize existing French infrastructure. The Grandpuits refinery operated by Total is in the heart of the Paris Basin
(approximately 30 miles south of the Chateau Thierry permit). Paris Basin crude oil production is currently approximately 11,000 BBL/D (as of December 31, 2011). Our current Paris Basin oil is
trucked to the Grandpuits refinery operated by Total after being stored in on-site storage tanks. There is also a major pipeline operated by Lundin Petroleum from the Villeperdue field to
the Grandpuits refinery, in which there is substantial free capacity.

Permits, Concessions and Pending Applications

Exploration
Permits

Toreador
holds a 50% working interest in the following exploration permits: Rigny le Ferron, Chateau Thierry, Aufferville, Courtenay, Joigny, Nogent sur
Seine, Leudon en Brie; a 25% working interest in the Nemours and Mairy exploration permits; and a 40% working interest in the Champrose exploration permit.

Under
French mining law, an exploration permit ("permis exclusif de recherches") gives the holder an exclusive right to explore for hydrocarbons within the permit area. Any area,
offshore and onshore, which is not covered yet by such a permit may be subject to application at any time. An application for a permit, or a renewal of a permit, is awarded by ministerial order
following an administrative consultation and a submission to the regulatory authorities. An exploration permit is initially granted for a period of up to five years and may be renewed twice for up to
five years each time; however, except under exceptional circumstances, the area covered by the permit is reduced by half at the first renewal and by a quarter of the remaining area at the second
renewal. The permit holder may designate the areas to remain after such reduction, and in any event, the area covered by a permit may not be reduced below 175 km2. The exploration permits have minimum
financial requirements, and if such obligations are not met, the permits could be subject to forfeiture. The renewal of an exploration permit is generally granted, provided the holder has met all its
obligations thereunder and has agreed to certain future financial commitments at least equal to the financial commitments made during the previous permit period, pro-rated by the duration
of the renewal and the area remaining. In case the ministerial decision to renew an exploration permit has not been issued before the expiry date of the permit, the permit holder is entitled to keep
on exploring within the perimeter authorized by the exploration permit until an express decision is issued by the minister in charge of energy.

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Toreador
holds a 50% working interest in, and operates, the Rigny le Ferron permit, which covers approximately 83,780 acres. The existing seismic lines representing around 1,000 km2 were
reprocessed and interpreted in 2008, following which several Dogger prospects were identified and mapped. Toreador began drilling on the La Garenne well on November 12, 2009. Toreador completed
production testing of the well in January 2010, and the results were inconclusive. The well flowed only limited quantities from one of its two horizons in the Dogger. We intend to formulate a
development plan for La Garenne following a more detailed analysis. The Rigny le Ferron permit expired in February 2011;
however Toreador filed a renewal application on this permit in August 2010, which is currently pending. Although no renewal decision has been issued before the expiry date of the Rigny
le Ferron permit, under the current French Mining Code, such permit can still be operated until an express decision is issued by the minister with respect to its renewal.



Toreador
holds a 50% working interest in, and operates, the Chateau Thierry permit, which covers approximately 192,989 acres. We transferred the remaining 50% working interest to Hess in
accordance with the Hess Investment Agreement. The Chateau Thierry permit first period of validity expires in 2014 and the permit can be renewed for two additional periods of 5 year each until
2024.



Toreador
holds a 50% working interest in, and operates, the Aufferville permit, which covers approximately 33,112 acres. We transferred the remaining 50% working interest to Hess in
accordance with the Hess Investment Agreement. The Aufferville permit second period expired in June 2010; however Toreador has filed a renewal application on this permit in 2009 for a third period of
5 year running until June 2013, which is currently pending.



Toreador
holds a 25% working interest in the Nemours permit, which covers approximately 47,296 acres and is operated by Lundin Petroleum AB. Toreador transferred 25% of our
working interest in this permit to Hess in accordance with the Hess Investment Agreement. The second period of Nemours permit expires in 2013 and a renewal application has been filed on Feb 13,
2012.



Toreador
holds a 50% working interest in, and operates, the Courtenay permit, which covers approximately 76,603 acres located east of the Neocomian Complex. Toreador transferred the
remaining 50% working interest to Hess in accordance with the Hess Investment Agreement. The Courtenay permit expires in 2013.



Toreador
holds a 50% working interest in, and operates, the Joigny permit, which covers approximately 33,176 acres. Toreador transferred the remaining 50% working interest to Hess in
accordance with the Hess Investment Agreement. Seismic interpretation is underway on the acreage to delineate prospects in the Portlandian limestone. The Joigny permit expired in February 2011;
however, Toreador filed in August 2010 a renewal application for a second period of four years, which is currently pending.



Toreador
currently holds a 25% working interest in, and operates, the Mairy permit, which covers approximately 109,715 acres. Toreador transferred 25% of our working interest in this
permit to Hess in accordance with the Hess Investment Agreement. In 2011, Toreador intended to drill one well on the Mairy permit but operations had to be delayed for. Toreador filed in February 2011
a renewal application for a second period of validity of fours year running until February 2015, which is currently pending.

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Toreador
holds a 50% working interest in, and operates, the Nogent sur Seine permit, which covers approximately 65,730 acres. Toreador transferred the remaining 50% working interest to
Hess in accordance with the Hess Investment Agreement. The first period of Nogent sur Seine permit expires in 2012 and it is the intent to ask for a second period of validity from 2012 to 2016.



Toreador
holds a 50% working interest in, and operates, the Leudon en Brie permit, which covers approximately 26,934 acres. Toreador transferred the remaining 50% working interest to
Hess in accordance with the Hess Investment Agreement. The first period of validity of Leudon en Brie permit
expires in 2012 and it is the intent of the partners to ask for a second period of validity from 2012 to 2016.



Following
first-stage approval by the government in December 2010 of farm-in agreement with Poros SAS and Hess, Toreador currently holds a 40% working interest in the
Champrose permit, which covers approximately 113,421 acres. The first period of validity of Champrose permit expires in 2015.

Exploitation
Concessions

Toreador
holds two exploitation concessions covering two producing oil fields in the Paris Basin: the Neocomian Complex and Charmottes fields (Dogger and
Triassic). As of December 31, 2011, production from these oil fields represented almost all of Toreador's total revenue and substantially all of Toreador's sales and other operating revenue.

At December 31, 2011Property

Permit
Expiration
Year

Total
Proved
Reserves
(MBBL)

Post-
Expiration
Proved
Reserves
(MBBL)

Percent of
Proved
Reserves
Post-
ExpirationNeocomian Fields


2036


5,427


1,883


34.70
%Charmottes Fields*


2013


344


26


7.56
%


*Reserve
estimate for Charmottes field is based on an assumed renewal of the concession in 2013.


Under
French mining law, hydrocarbons may only be developed once a concession has been granted. During the exploration permit period, the permit holder has the exclusive right to obtain
an exploitation concession. An exploitation concession is granted by decree, after a public enquiry, a local administrative consultation and a submission to the regulatory authorities. The decree sets
forth the concession's perimeter and duration, which cannot exceed 50 years. To be awarded an exploitation concession, the applicant must, among other things, prove that it has the appropriate
technical and financial capabilities to perform the operations and comply with safety and environmental regulations. An exploitation concession may be extended several times, each time for no longer
than 25 years. An application for a renewal must be submitted two years before the expiration of the concession. The French government is not obligated to renew an exploitation concession, and
such renewal would be subject to our satisfaction of technical and financial capability requirements.

Holders
of a concession or production license must pay the French government a royalty proportional to the value of the products extracted. This royalty generally applies only to onshore
fields and is backdated when the concession is granted but paid as from the day of the first sale of the products extracted. It is deductible from the French corporate tax. Local mining taxes are also
payable by the holder, and are determined by multiplying production by a unit rate, which is set each year by

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the
regulatory authorities. These taxes also generally apply only to onshore fields; there is a reduced rate for offshore fields located less than one nautical mile from the coast (we do not currently
hold any permits covering offshore fields). Mining taxes are deductible when determining profit subject to French corporate tax.



Toreador
holds a 100% working interest in, and operates, the two concessions (Chateaurenard and St. Firmin Des Bois) covering the Neocomian Complex, which consist of a group of
four smaller field units. As of December 31, 2011, the complex had 80 producing oil wells, and production was approximately 765 BBL/D. The Chateaurenard concession, which covers approximately
11,268 acres,
and the St. Firmin Des Bois concession, which covers approximately 3,973 acres, were both renewed on February 1, 2011 and the renewal decrees published in the French Journal Officiel on
February 3, 2011. The renewals extend the expiration date of both concessions to January 1, 2036.



Toreador
holds a 100% working interest in, and operates, the Charmottes concession, which consists of two oil fields at different horizons (Dogger and Triassic). As of
December 31, 2011, the fields had seven producing oil wells, and production was approximately 89 Bbl/Day. The Charmottes concession, which covers approximately 9,019 acres, expires in October
2013. We filed an application for renewal of the Charmottes concession in February 2011, for an additional 25 year period until 2038.

Applications
Pending Official Publication

Below
is a description of the exploration permits for which Toreador has applied that are no longer subject to competition but for which official award is
pending publication of the ministerial order.



Toreador
has a pending application for the Coulommiers permit, which covers approximately 45,748 acres. This is an amended surface from the original Coulommiers application made in
November 2009. We are currently awaiting publication of the ministerial order granting us the permit. At granting, we will share the interest of 50% with Hess resulting in a net 25% working interest.



Toreador
filed an amended application in 2010 for the L'Ourcq permit, which covers approximately 48,683 acres. This permit is an amended surface of the original
Fere-en-Tardenois application made in August 2009. We are currently awaiting publication of the ministerial order granting us the permit. At granting, we will share the
interest of a 331/3% interest in the acreage with Hess, resulting in a net 162/3% working interest to us.



Toreador
filed an application for the Mary sur Marne permit, which covers approximately 30,620 acres. This is an amended surface of the original Fere-en-Tardenois
and Coulommiers applications. We are currently awaiting publication of the ministerial order granting us the permit. At granting, we will share the 100% interest with Hess, resulting in a 50% net
working interest to us.



Toreador
filed an application in January 2009 for the Nangis permit, which covers approximately 23,828 acres. We are currently awaiting publication of the ministerial order granting us
the permit. At granting we will share our 100% interest with Hess having a 50% net working interest.

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Toreador
filed an application for the Nanteuil permit, which covers approximately 48,682 acres. This permit is an amended surface of the original
Fere-en-Tardenois application made in August 2009. We are currently awaiting publication of the decree granting us the permit. At granting, we will share the
331/3% interest with Hess, resulting in a 162/3% net working interest to us.



Toreador
filed an application in January 2009 for the Valence en Brie permit, which covers approximately 16,118 acres. We are currently awaiting publication of the ministerial order
granting us the permit. At granting, we will share the 50% interest with Hess resulting in a 25% net working interest to us.

Pending
Applications

Below
is a description of the exploration permits for which Toreador has applied and is awaiting the results of the application process. The application award
process may result in Toreador and Hess getting less than a 100% working interest in the pending applications or only part of that application depending on competition for all or part of the acreage.
In case the application file is more than two years old, the application is still valid until a formal rejection is pronounced by the government. Recent jurisprudence has however cast doubt over the
decree's applicability. In a decision relating to the Aufferville permit, the administrative court decided that a permit still remains valid irrespective of such 15 month period having lapsed,
unless and until explicitly rejected.



Toreador
filed in March 2012 a new "Lettre d'acceptation préalable" on this 48,037 acre area which was initially part of the Sezanne application. Toreador is waiting for
the granting of this permit. At granting, Toreador will share the 100% interest with Hess resulting in a 50% net working interest to us.



Toreador
filed an application in September 2008 (revised in December 2008) for the Plaisir permit, which covers approximately 32,668 acres. Toreador is waiting the result of the
application award process. Despite the fact that the application was filed two years ago, the application is still valid and will be examined by the government.



Toreador
filed an application in August 2009 for the Fere-en-Tardenois permit, which, following certain amendment applications reflecting revised surfaces, now
covers approximately 48,646 acres. Toreador is waiting the result of the application award process.



Toreador
filed an application in June 2010 for the Rozay-en-Brie permit, jointly with Hess, which covers approximately 35,583 acres. Toreador is waiting the
result of the application award process.



Toreador
filed an application in June 2010 for the Meaux permit, jointly with Hess, which covers approximately 155,081 acres. Toreador is waiting the result of the application award
process.



In
August 2010, Toreador, together with Hess, entered into an agreement with Poros SAS to join their application for the Chevry/Ozoir permit, which they initially filed in December 2008,
and which covers approximately 97,606 acres. We are still waiting the result of the application award process.

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Toreador
filed an application in August 2010 for the Maisoncelles permit, jointly with Hess, which covers approximately 49,630 acres. Toreador is waiting the result of the application
award process.



Toreador
filed an application in October 2010 for an extension to our existing Leudon permit, jointly with Hess, which covers approximately 12,956 acres. Toreador is waiting the result
of the application award process.



Toreador
filed an application in November 2010 for the Coole permit, jointly with Hess, which covers approximately 207,816 acres. Toreador is waiting the result of the application award
process.



Toreador
filed an application in October 2011 for the Senonais permit, jointly with Hess, which covers approximately 33,073 acres representing the relinquished blocks of the Rigny
permit. Toreador is awaiting the result of the application award process.

Productive Wells

The following table shows Toreador's gross and net interests in productive oil wells as of December 31, 2011 producing or
capable of production.

Gross(1)
Oil

Net(2)
Oil

Total
TotalFrance


133


133


133


(1)"Gross"
refers to wells in which Toreador has a working interest.(2)"Net"
refers to the aggregate of Toreador's percentage working interest in gross wells before royalties, before or after payout, as appropriate.


Acreage

The following table shows the developed and undeveloped acreage attributable to Toreador's ownership as of December 31, 2011.

Developed Acreage

Undeveloped Acreage

Total AcreageGross

Net

Gross

Net

Gross

NetFrance


24,260


24,260


782,756


340,783


807,016


365,043


Undeveloped
acreage includes only those acres on which wells have not been drilled or completed to permit the production of commercial quantities of oil and natural gas regardless of
whether or not the acreage contains proved reserves.

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Table of Contents

Drilling and Other Exploratory and Development Activities

The following table shows Toreador's drilling activities on a gross and net basis for the years ended 2011, 2010 and 2009.

For The Year Ended December 31,2011

2010

2009Gross(1)

Net(2)

Gross(1)

Net(2)

Gross(1)

Net(2)FRANCEExploratory:Abandoned(3)


1


1








1


1


(1)"Gross"
is the number of wells in which Toreador has a working interest.(2)"Net"
is the aggregate obtained by multiplying each gross well by Toreador's after payout percentage working interest.(3)"Abandoned"
means wells that were dry when drilled and were abandoned without production tubing being run.


Production, Production Prices and Costs

The following table summarizes Toreador's oil production, net of royalties, for the periods indicated for France. It also summarizes
calculations of Toreador's total average unit sales prices and unit costs.

For The Year Ended December 31,2011

2010

2009Production:Oil (BBL)


311,556


323,073


328,416Daily average (BBL/D)


854


885


900Unit prices:Average oil price ($/BBL)

$
105.78

$
76.67

$
57.17Unit costs ($/BOE):Lease operating

$
39.95

$
35.90

$
25.57Exploration and acquisition*


6.31


0.64


Depreciation, depletion and amortization


19.32


13.59


16.66Dry hole costs








General and administrative


66.56


46.98


11.25Total

$
132.14

$
97.10

$
53.48


*Exploration
and acquisition expense are net of personal, general and administrative cost of ZEF as Operator and invoiced to Hess under the Hess Investment
Agreement.


Markets and Competition

All of Toreador's production is currently sold to Total, the largest purchaser in the Paris Basin, pursuant to an agreement signed with
Elf Antar in 1996, as amended. The agreement automatically renews for one-year periods unless notice of termination is given at least six months in advance. The sale price is based on the
monthly-average dated Brent price over the month of production, less a discount. In 2011, sales to Total, representing all of Toreador's oil production net revenues (after French State royalty),
totaled $33.0 million and represented 92%% of Toreador's total revenue and other income. In 2010 and 2009, sales to Total represented all of Toreador's oil production revenues

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from
France, totaled (after French State royalty) $24.0 million and $19.2 million, respectively, and represented 59% and 98%, respectively, of Toreador's total revenues and other income.
This production is shipped by truck to the nearby Total Grandpuits refinery.

The
oil industry is highly competitive. Toreador encounters strong competition from other independent operators and from major oil companies in acquiring exploration permits and
exploitation concessions, contracting for drilling equipment and securing trained personnel. Many of these competitors have financial and technical resources and staffs substantially larger than those
available to us. As a result, our competitors may secure desirable permits and concessions, and they may pay more to evaluate, bid for and purchase a greater number of permits and concessions or
prospects than our financial or personnel resources permit us to do.

Toreador
is also affected by competition for drilling rigs and the availability of tubular goods and certain other equipment. While the oil industry has experienced shortages of drilling
rigs and equipment, pipe and personnel in the past, Toreador is not presently experiencing any shortages and do not foresee any such shortages in the near future; however, we are unable to predict how
long current market conditions will continue.

Competition
for attractive oil permits and concessions and drilling rights is also strong, and we can give no assurance Toreador will be able to compete satisfactorily in acquiring these
permits and concessions. Since many major oil companies have publicly indicated their decision to focus on non-U.S. activities, we cannot ensure Toreador will be successful in acquiring
any such permits and concessions.

Repatriation of Earnings

Currently, there are no restrictions on the repatriation of earnings or capital to foreign entities from France. However, there can be
no assurance that any such restrictions on repatriation of earnings or capital from the aforementioned countries or any other country where we may invest will not be imposed in the future.

Segment Reporting

See Note 20 in the Notes to Consolidated Financial Statements for Toreador Resources Corporation for information about oil
producing activities and operating segments.

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Summary of Oil and Natural Gas Reserves as of December 31, 2011 and 2010

ZaZa LLC

The following table sets forth information about ZaZa LLC's estimated net proved reserves, probable reserves and possible
reserves at December 31, 2011 for our properties in the Eagle Ford. Rex Morris, an independent petroleum reservoir engineer, audited our proved developed reserves, proved undeveloped reserves,
probable reserves, possible reserves and discounted present value (pretax) as of December 31, 2011. ZaZa LLC did not have material proved reserves at December 31, 2010. We
prepared the estimate of standardized measure of proved reserves in accordance with FASB ASC 932,"Extractive Activities-Oil and Gas."No
reserve reports have been provided to any governmental agencies.

December 31, 2011(MBbl)

(MMcf)

(MBOE)Proved developed


442.6


1,433.3


681.5Proved undeveloped


501.8


2,696.4


951.2Total Proved(1)


944.4


4,129.7


1,632.7Probable


2,860.8


7,221.4


1,203.6


(1)Does
not include any pro forma adjustments for the HOA with Hess.


Our
proved reserves at December 31, 2011 were 1.63 MMBOE. All of our proved reserves are located in the Eagle Ford Shale located in South Texas.

Proved Reserves Disclosures

Recent SEC Rule-Making Activity.In December 2008, the Securities and Exchange Commission ("SEC") announced that it had adopted
amendments designed to modernize the oil and gas company reserves reporting requirements. The most significant amendments to the requirements include the
following:



ZaZa LLC
adopted these rules in 2011.

Probable and Possible Reserves

Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with
proved reserves, are as likely as not to be recovered. When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will

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exceed
the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the
proved plus probable reserves estimates. Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain,
even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than
the proved area if these areas are in communication with the proved reservoir. Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery
of the hydrocarbons in place than assumed for proved reserves.

Possible
reserves are those additional reserves that are less certain to be recovered than probable reserves. When deterministic methods are used, the total quantities ultimately
recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total
quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates. Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves
where data control and
interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area and vertical limits of
commercial production from the reservoir by a defined project. Possible reserves also include incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than the
recovery quantities assumed for probable reserves.

Internal Controls Over Reserves Estimates

Our policies regarding internal controls over the recording of reserves estimates require reserves to be in compliance with the SEC
definitions and guidance and prepared in accordance with generally accepted petroleum engineering principles. Responsibility for compliance in reserves bookings is delegated to a qualified petroleum
engineer in our Houston office under the supervision of our Chief Executive Officer. The petroleum engineer prepares all reserves estimates for our two producing assets. Data used in these integrated
assessments include information obtained directly from the subsurface via wellbores such as well logs, reservoir cores, fluid samples, static and dynamic information, production test data and
production history. Other types of data used include 2D seismic recently reprocessed and calibrated to available well control. The tools used to interpret the data included reservoir modeling and
simulation, Decline Curve Analyses and data analysis packages. The preliminary reserves assessment was prepared by our petroleum engineer who left the employ of the company early in the fourth quarter
of the year after a three-month handover. The final reserves analysis was updated and reviewed by our Engineering Manager who is a petroleum engineer and has had the opportunity to assess the work and
concurs with the approach and the results obtained by his predecessor. Our Engineering Consultant holds a degree in mathematics and has over 42 years of experience in various petroleum industry
roles including several years of combined experience in reservoir engineering and reserves evaluation, all focused mainly in both on and offshore United States. He has been a member of the Society of
Petroleum Engineers (SPE) for more than 35 years. We engage a third-party petroleum consulting firm (Rex Morris) to audit all of our reserves. See "Third-Party Reserves Audit" below.

Third-Party Reserves Audit

The reserves audit of ZaZa LLC for the year ended December 31, 2011 was performed by Rex Morris a Consulting Reservoir
Engineer. Mr. Morris has over 30 years' experience as a practicing petroleum engineer specializing in reservoir modeling and economics. He earned a Bachelor's of Science in Natural Gas
Engineering from Texas A&I University and is a member in good standing in the Society of Petroleum Engineers.

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Rex Morris determined that our estimates of reserves for ZaZa LLC conform to the guidelines of the SEC, including the criteria of "reasonable certainty,"
as it pertains to expectations about the recoverability of reserves in future years, under existing economic and operating conditions, consistent with the definition in the recently amended
Rule 4-10(a) of Regulation S-X. Rex Morris issued an unqualified audit opinion on our proved reserves at December 31, 2011, based upon his evaluation. The
opinion concluded that our estimates of proved, probable and possible reserves were, in aggregate, reasonable and have been prepared in accordance with generally accepted petroleum engineering and
evaluation principles. The report is attached to this Annual Report on Form 10-K as Exhibit 23.1.

Proved Undeveloped Reserves

As of December 31, 2011, our proved undeveloped reserves ("PUDs") totaled 501.8 Mbbl of crude oil and 2,696.4 Mmcf of natural
gas, all of which were associated with the Eagle Ford field. As of December 31, 2011, PUDs represented approximately 58% of our total proved reserves. We currently estimate that future
development costs relating to the development of these PUDs are projected to be approximately $2.3 million, $1.8 million and $3.3 million in 2012, 2013 and 2014, respectively.

Toreador Resources Corporation

The following table sets forth information about Toreador's estimated net proved reserves, probable reserves and possible reserves at
December 31, 2011 and 2010 for our properties in France. Gaffney, Cline & Associates Ltd, an independent petroleum engineering firm in the United Kingdom ("GCA"), audited our
proved developed reserves, proved undeveloped reserves, probable reserves, possible reserves and discounted present value (pretax) as of December 31, 2011 and 2010. We prepared the estimate of
standardized measure of proved reserves in accordance with FASB ASC 932,"Extractive Activities-Oil and Gas."No reserve reports have been
provided to any governmental agencies.

December 31,2011

2010(MBbl)

(MBbl)Proved developed


5,344


5,111Proved undeveloped


427


412Total Proved


5,771


5,523Probable


3,047


3,562Possible


4,944


4,816


Toreador's
proved reserves at December 31, 2011 were 5.8 MMBbls. All of our proved reserves are located in the Paris Basin, France. The Neocomian Complex, one of our two producing
assets, accounted for 94.04% of our proved reserves. The increase of our proved reserves from 5.5 MMBbls in 2010 to 5.8 MMBbls in 2011 can be explained primarily by an increase in oil prices used to
calculate the reserves in 2010 and 2011 ($79.35 and $108.72 per Bbl, respectively).

Proved Reserves Disclosures

In December 2008, the Securities and Exchange Commission ("SEC") announced that it had adopted amendments designed to modernize the oil
and gas company reserves
reporting requirements. The most significant amendments to the requirements include the following:



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We
adopted these rules effective December 31, 2009 which was the first time we requested GCA to provide us with a third-party opinion on our two producing assets, the Charmottes
field and the Neocomian Complex (see "Third-Party Reserves Audit" below for further detail).

Probable and Possible Reserves

Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with
proved reserves, are as likely as not to be recovered. When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved
plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves
estimates. Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted
reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if
these areas are in communication with the proved reservoir. Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons
in place than assumed for proved reserves.

Possible
reserves are those additional reserves that are less certain to be recovered than probable reserves. When deterministic methods are used, the total quantities ultimately
recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total
quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates. Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves
where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area
and vertical limits of commercial production from the reservoir by a defined project. Possible reserves also include incremental quantities associated with a greater percentage recovery of the
hydrocarbons in place than the recovery quantities assumed for probable reserves.

Internal Controls Over Reserves Estimates

Our policies regarding internal controls over the recording of reserves estimates require reserves to be in compliance with the SEC
definitions and guidance and prepared in accordance with generally accepted petroleum engineering principles. Responsibility for compliance in reserves bookings is delegated to the Engineering Manager
in our Paris office who reports to the Country Manager for France and our Chief Executive Officer. The Engineering Manager and his team prepare all reserves assessments for our two producing assets.
Data used in these integrated
assessments include information obtained directly from the subsurface via wellbores such as well logs, reservoir cores, fluid samples, static and dynamic information, production test data and
production history. Other types of

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data
used include 2D seismic recently reprocessed and calibrated to available well control. The tools used to interpret the data included Decline Curve Analyses and data analysis packages. Our
Engineering Manager is a qualified petroleum engineer, holding a degree in chemical engineering and with over 30 years of experience in various petroleum industry roles including several years
of combined experience in reservoir engineering and reserves evaluation, all focused mainly on the Western Canadian and Williston basins of North America and with minor exposure to other basins. He is
a licensed Professional Engineer in the Province of Alberta, Canada which qualifications are recognized byLa Commission des Titres d'Ingénieurs of
Franceand has been a member of the Society of Petroleum Engineers (SPE) for more than 25 years. We engage a third-party petroleum consulting firm (GCA) to audit all of
our reserves. See "Third-Party Reserves Audit" below.

Third-Party Reserves Audit

The reserves audit of Toreador for the year ending December 31, 2011 was performed by Gaffney, Cline & Associates
("GCA"), a leading international petroleum engineering consultancy.

GCA
noted in its report that the concession that covers the Charmottes field expires in 2013. Under French law, exploitation concessions can generally be renewed for periods of up to
25 years. Although the French government has no obligation to renew the exploitation concessions, renewals have been generally granted as long as the operator demonstrates continued financial
and technical capabilities to operate under such concessions. Toreador applied for a renewal of the concession covering the Charmottes field in February 2011 for a 25 year additional period.
GCA has assumed for purposes of its report that the renewal will be granted and that the economic terms of the concessions will not be altered on renewal. Renewal of the concessions covering the
Neocomian Complex was granted on February 1, 2011, and effective as of January 1, 2011. The renewal decrees extended the validity period of the concessions covering the Neocomian Complex
to January 1, 2036.

GCA
determined that our estimates of reserves conform to the guidelines of the SEC, including the criteria of "reasonable certainty," as it pertains to expectations about the
recoverability of reserves in future years, under existing economic and operating conditions, consistent with the definition in the recently amended Rule 4-10(a) of
Regulation S-X. GCA issued an
unqualified audit opinion on our proved reserves at December 31, 2011, based upon its evaluation. The GCA opinion concluded that our estimates of proved, probable and possible reserves were, in
aggregate, reasonable and have been prepared in accordance with generally accepted petroleum engineering and evaluation principles. GCA's report is attached to this Annual Report on
Form 10-K as an exhibit.

Under
the SEC rules, proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be
economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The term "reasonable certainty" implies
a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. Reasonable certainty can be established using techniques that have
proved effective by actual comparison of production from projects in the same reservoir interval, an analogous reservoir or by other evidence using reliable technology that establishes reasonable
certainty. Reliable technology is a grouping of one or more technologies (including computational methods) that have been field tested and have been demonstrated to provide reasonably certain results
with consistency and repeatability in the formation being evaluated or in an analogous formation.

In
order to establish reasonable certainty with respect to our estimated proved reserves, our reservoir engineers and Gaffney, Cline & Associates employed technologies that have
been demonstrated to yield results with consistency and repeatability. The technologies and economic data used in the estimation of our proved reserves include, but are not limited to, production and
injection data, electrical logs, radioactivity logs, acoustic logs, downhole pressure measurements, geologic maps,

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well
test data, field operating cost history and published regulatory data. Reserves attributable to undeveloped locations were estimated using performance from analogous wells with similar geologic
depositional environments, rock quality, appraisal plans and development plans to assess the estimated ultimate recoverable reserves as a function of the original oil in place. These qualitative
measures are benchmarked and validated against sound petroleum reservoir engineering principles and equations to estimate the ultimate recoverable reserves volume. These techniques include, but are
not limited to, decline curve analysis and material balance.

The
technical personnel at GCA responsible for overseeing the audit of our reserves estimate are Brian Rhodes and Chris Freeman. Mr. Rhodes holds a B.Sc (Hons) Geology, is a
member of the Energy Institute, the Petroleum Exploration Society of Great Britain, the Society of Petroleum Engineers and the European Association of Geoscientists and Engineers, and has more than
30 years industry experience. Dr. Freeman has nearly 30 years of Industry experience, holds a B.Sc. (Hons) Physics from Lancaster University, a Ph.D. from the University of
Cambridge, an MBA from Cass Business School in London, he has been a member of the Society of Petroleum Engineers (SPE) for over 25 years, and is a member of the Petroleum Exploration Society
of Great Britain, and the Energy Institute.

Proved Undeveloped Reserves

As of December 31, 2011, our proved undeveloped reserves ("PUDs") totaled 427 MBBL of crude oil, all of which were associated
with the Neocomian field. As of December 31, 2011, PUDs represented approximately 7.4% of our total proved reserves. We currently estimate that future development costs relating to the
development of these PUDs are projected to be approximately $2.5 million in 2013. In 2011 the preparation of the application package for authorization of a drilling program was initiated to, in
part, develop the PUDs.

Government Regulation

The oil and gas industry is subject to extensive laws that are subject to change. These laws have a significant impact on oil and gas
exploration, production and marketing activities and increase the cost of doing business, and consequently, affect profitability. Some of the legislation and regulation affecting the oil and gas
industry carry significant penalties for failure to comply. While there can be no assurance that it will not incur fines or penalties, we believe we are currently in material compliance with the
applicable federal, state and local laws. Because enactment of new laws affecting the oil and gas business is common and because existing laws are often amended or reinterpreted, we are unable to
predict the future cost or impact of complying with such laws. We do not expect that any of these laws would affect us in a materially different manner than any other similarly sized oil and gas
company. The following are significant types of legislation affecting our business

United States Regulation

Exploration and Production Regulation.Oil and gas production is regulated under a wide range of federal, state and local statutes,
rules, orders and
regulations, including laws related to the location, drilling and casing of wells; well production limitations; spill prevention plans; surface use and restoration; platform, facility and equipment
removal; the calculation and disbursement of royalties; the plugging and abandonment of wells; bonding; permits for drilling operations; and production, severance and ad valorem taxes. The
availability of a ready market for oil, gas and natural gas liquids production
depends upon numerous factors beyond our control. These factors include regulation of natural gas, crude oil and natural gas liquids production, federal and state regulations governing environmental
quality and pollution control, state limits on allowable rates of production by well or proration unit, the amount of oil, gas and natural gas liquids available for sale, the availability of adequate
pipeline and other transportation and processing facilities and the marketing of competitive fuels. For example, a

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productive
natural gas well may be "shut-in" because of an oversupply of natural gas or lack of an available gas pipeline in the areas in which ZaZa LLC may conduct operations.
State and federal regulations generally are intended to prevent waste of oil, gas and natural gas liquids, protect rights to produce oil, gas and natural gas liquids between owners in a common
reservoir, control the amount of oil, gas and natural gas liquids produced by assigning allowable rates of production and control contamination of the environment. Pipelines are subject to the
jurisdiction of various federal, state and local agencies. We are also subject to changing and extensive tax laws, the effects of which cannot be predicted.

The
following discussion summarizes the regulation of the United States oil and gas industry. We believe that ZaZa LLC is in substantial compliance with the various statutes,
rules, regulations and governmental orders to which its operations may be subject, although there can be no assurance that this is or will remain the case. Moreover, such statutes, rules, regulations
and government orders may be changed or reinterpreted from time to time in response to economic or political conditions, and there can be no assurance that such changes or reinterpretations will not
materially adversely affect its results of operations and financial condition.

The
following discussion is not intended to constitute a complete discussion of the various statutes, rules, regulations and governmental orders to which ZaZa LLC's operations may
be subject.

Regulation of Gas, Oil and Natural Gas Liquids Exploration and Production.ZaZa LLC's operations are subject to various types of
regulation at
the federal, state and local levels. Such regulation includes requiring permits for the drilling of wells, maintaining bonding requirements in order to drill or operate wells and regulating the
location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandoning of wells and the disposal of fluids
used in connection with operations. ZaZa LLC's operations are also subject to various conservation laws and regulations. These include the unitization or pooling of oil and gas properties, the
regulation of the size of drilling and spacing or proration units and the density of wells that may be drilled in gas properties. In this regard, some states allow the forced pooling or integration of
tracts to facilitate exploration while other states rely primarily or exclusively on voluntary pooling of lands and leases. In areas where pooling is voluntary, it may be more difficult to form units,
and therefore more difficult to develop a project, if the operator owns less than 100% of the leasehold. In addition, state
conservation laws, which establish maximum rates of production from oil and gas wells, generally prohibit the venting or flaring of natural gas and impose certain requirements regarding the ratability
of production. The effect of these regulations may limit the amount of oil, gas and natural gas liquids ZaZa LLC may produce from its wells and may limit the number of wells or the locations at
which it may drill. The regulatory burden on the oil and gas industry increases its costs of doing business and, consequently, affects its profitability. Inasmuch as such laws and regulations are
frequently expanded, amended and reinterpreted, we are unable to predict the future cost or impact of complying with such regulations.

Regulation of Sales and Transportation of Natural Gas.Federal legislation and regulatory controls have historically affected the price
of natural
gas produced by ZaZa LLC and the manner in which such production is transported and marketed. Under the Natural Gas Act of 1938, or "NGA," the Federal Energy Regulatory Commission, or the
"FERC," regulates the interstate transportation and the sale in interstate commerce for resale of natural gas. Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act, or the
"Decontrol Act," deregulated natural gas prices for all "first sales" of natural gas, including all sales by ZaZa LLC of its own production. As a result, all of our domestically produced
natural gas may now be sold at market prices, subject to the terms of any private contracts that may be in effect. However, the Decontrol Act did not affect the FERC's jurisdiction over natural gas
transportation.

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Under
the provisions of the Energy Policy Act of 2005, or the "2005 Act," the NGA has been amended to prohibit market manipulation by any person, including marketers, in connection with
the purchase or sale of natural gas, and the FERC has issued regulations to implement this prohibition. The Commodity Futures Trading Commission, or the "CFTC," also holds authority to monitor certain
segments of the physical and futures energy commodities market including oil and gas. With regard to physical purchases and sales of natural gas and other energy commodities, and any related hedging
activities that it undertakes, we are thus required to observe anti-market manipulation laws and related regulations enforced by the FERC and/or the CFTC. These agencies hold substantial
enforcement authority, including the ability to assess civil penalties of up to $1 million per day per violation.

Under
the 2005 Act, the FERC has also established regulations that are intended to increase natural gas pricing transparency through, among other things, new reporting requirements and
expanded dissemination of information about the availability and prices of gas sold. To the extent that we enter into transportation contracts with interstate pipelines that are subject to FERC
regulation, it is subject to FERC requirements related to use of such interstate capacity. Any failure on our part to comply with the FERC's regulations or an interstate pipeline's tariff could result
in the imposition of civil and criminal penalties.

ZaZa LLC's
natural gas sales are affected by intrastate and interstate gas transportation regulation. Following the Congressional passage of the Natural Gas Policy Act of 1978, or
the "NGPA," the FERC adopted a series of regulatory changes that have significantly altered the transportation and marketing of natural gas. Beginning with the adoption of Order No. 436, issued
in October 1985, the FERC has implemented a series of major restructuring orders that have required pipelines, among other things, to perform "open access" transportation of gas for others, "unbundle"
their sales and transportation functions, and allow shippers to release their unneeded capacity temporarily and permanently to other shippers. As a result of these changes, sellers and buyers of gas
have gained direct access to the particular pipeline services they need and are better able to conduct business with a larger number of counterparties. We believe these changes generally have improved
access to markets while, at the same time, substantially increasing competition in the natural gas marketplace. It remains to be seen, however, what effect the FERC's other activities will have on
access to markets, the fostering of competition and the cost of doing business. We cannot predict what new or different regulations the FERC and other regulatory agencies may adopt, or what effect
subsequent regulations may have on its activities. We do not believe that it will be affected by any such new or different regulations materially differently than any other seller of natural gas with
which it competes.

In
the past, Congress has been very active in the area of gas regulation. However, as discussed above, the more recent trend has been in favor of deregulation, or "lighter handed"
regulation, and the promotion of competition in the gas industry. There are other legislative proposals regularly pending in the federal and state legislatures that, if enacted, would significantly
affect the petroleum industry. At the present time, it is impossible to predict which proposals, if any, might actually be enacted by Congress or the various state legislatures and what effect, if
any, such proposals might have on us. Similarly, and despite the trend toward federal deregulation of the natural gas industry, we cannot predict whether or to what extent that trend will continue, or
what the ultimate effect will be on its sales of gas.

Oil Price Controls and Transportation Rates.Sales prices of crude oil, condensate and gas liquids by ZaZa LLC are not currently
regulated and
are made at market prices. Our sales of these commodities are, however, subject to laws and to regulations issued by the Federal Trade Commission, or the "FTC," prohibiting manipulative or fraudulent
conduct in the wholesale petroleum market. The FTC holds substantial enforcement authority under these regulations, including the ability to assess civil penalties of up to $1 million per day
per violation. Our sales of these commodities and any related hedging activities it may undertake from time to time are also subject to CFTC oversight as discussed above.

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The
price we receive from the sale of these products may be affected by the cost of transporting the products to market. Much of the transportation is through interstate common carrier
pipelines.
Effective as of January 1, 1995, the FERC implemented regulations generally grandfathering all previously approved interstate transportation rates and establishing an indexing system for those
rates by which adjustments are made annually based on the rate of inflation, subject to certain conditions and limitations. The FERC's regulation of crude oil transportation rates may tend to increase
the cost of transporting oil and natural gas liquids by interstate pipelines, although the annual adjustments may result in decreased rates in a given year. Every five years, the FERC must examine the
relationship between the annual change in the applicable index and the actual cost changes experienced in the oil pipeline industry. We are not able at this time to predict the effects of these
regulations or FERC proceedings, if any, on the transportation costs associated with crude oil production from its crude oil producing operations.

United States Environmental Regulation

The Comprehensive Environmental Response, Compensation and Liability Act, also known as "CERCLA" or the "Superfund" law, and similar
state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of potentially responsible persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These potentially responsible persons include the owner or operator of the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to strict,
joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health
studies, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the
environment. Even though the so called "petroleum exclusion" under CERCLA covers much of the waste by ZaZa LLC, some materials generated in the course of its operations may be regulated as
hazardous substances.

ZaZa LLC
generates wastes that may be subject to the federal Resource Conservation and Recovery Act, or "RCRA," and comparable state statutes. The United States Environmental
Protection Agency, or the "EPA," and various state agencies have limited the approved methods of disposal for certain hazardous and nonhazardous wastes. Furthermore, certain wastes generated by ZaZa's
oil and gas operations that are currently exempt from regulation as "hazardous wastes" may in the future be designated as "hazardous wastes," and therefore be subject to more rigorous and costly
operating and disposal requirements.

We
currently own or lease numerous properties that for many years have been used for the exploration and production of oil and gas. Although we believe that we have used good operating
and waste disposal practices that were standard in the industry at the time, petroleum hydrocarbons or wastes may have been disposed of or released on or under the properties owned or leased by us or
on or under locations where such wastes have been taken for recycling or disposal. In addition, many of these properties have been operated by third parties whose treatment and disposal or release of
petroleum hydrocarbons or wastes was not under our control. These properties and the wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws as well as state laws governing the
management of crude oil and natural gas wastes. Under such laws, which may impose strict, joint and several liability, we could be required to remove or remediate previously disposed wastes (including
wastes disposed of or released by prior owners or operators) or property contamination (including groundwater contamination) or to perform remedial plugging operations to prevent future contamination.

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ZaZa LLC's
operations may be subject to the Clean Air Act, or the "CAA," and comparable state and local requirements. Amendments to the CAA adopted in 1990 contain provisions that
have resulted in the gradual imposition of pollution control requirements with respect to air emissions from ZaZa LLC's operations. The EPA and states have developed, and continue to develop,
regulations to implement these requirements. On April 17, 2012, the EPA issued new emissions standards that will reduce VOC emissions from oil and gas exploration and production operations. The
rules specifically cover air emissions from hydraulic fracturing operations and require a 95% reduction in VOCs emitted during construction or modification of hydraulically-fractured wells.
Hydraulically fractured gas wells must comply with reduced emission completion (REC) techniques by January 1, 2015. The Texas Commission on Environmental Quality recently passed rules that
tighten requirements associated with air emissions from oil and gas operations in the Barnett Shale. These requirements may be extended to other areas of the state sometime in the future. While we may
be required to incur capital expenditures in the next several years for air pollution control equipment in connection with maintaining or obtaining operating permits and approvals addressing air
emission-related issues, it does not believe that its operations will be materially adversely affected by any such requirements.

The
Federal Water Pollution Control Act, or the "Clean Water Act," the Oil Pollution Act, or the "OPA," and analogous state laws impose restrictions and strict controls regarding the
discharge of pollutants into navigable waters. Pursuant to the Clean Water Act and analogous state laws, permits must be obtained to discharge pollutants into state waters or waters of the United
States. Any such discharge of pollutants into regulated waters must be performed in accordance with the terms of the permit issued by the EPA or the analogous state agency. Spill prevention, control
and countermeasure plan requirements under federal law require appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum
hydrocarbon tank spill, rupture or leak. In addition, the Clean Water Act and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff
from certain types of facilities.

The
OPA subjects owners of facilities to strict, joint and several liability for all containment and cleanup costs and certain other damages arising from a spill, including, but not
limited to, the costs of responding to a release of oil to surface waters. Noncompliance with the CAA and the OPA may result in varying civil and criminal penalties and liabilities.

We
are also subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act, or the "OSHA," and comparable state statutes, whose
purpose is to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the
federal Superfund Amendment and Reauthorization Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in ZaZa LLC's operations
and that this information be provided to employees, state and local government authorities and citizens. We believe that we are in substantial compliance with all applicable laws and regulations
relating to worker health and safety.

Climate Change.Some scientists have concluded that increasing concentrations of greenhouse gases, or "GHG," in the Earth's atmosphere
may produce
climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events. If any such effects were to occur, they
could have in adverse effect on our assets and operations.

In
addition, current and future regulatory initiatives directed at climate change may increase our operating costs and may, in the future, reduce the demand for some of its produced
materials. The United States Congress has considered, and may in the future consider, legislation on climate change. In substance, most legislative proposals contain a "cap and trade" approach to GHG
regulation. Under such an approach, companies would be required to hold sufficient emission allowances to cover their GHG emissions. Over time, the total number of allowances would be reduced or
expire, thereby relying

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on
market-based incentives to allocate investment in emission reductions across the economy. As the number of available allowances declines, the cost would presumably increase. In addition to the
prospect of federal legislation, several states have adopted or are in the process of adopting GHG reporting or cap-and-trade programs. Therefore, while the outcome of the
federal and state legislative processes is currently uncertain, if such an approach were adopted (either by domestic legislation, international treaty obligation or domestic regulation), we would
expect our operating costs to significantly increase as it buys additional allowances or embarks on emission reduction programs.

Even
without further federal legislation, the EPA has begun to regulate GHG emissions. In December 2009, the EPA released an Endangerment and Cause or Contribute Findings for Greenhouse
Gases, which became effective in January 2010. This regulatory finding sets the foundation for EPA GHG regulation under the CAA. The EPA promulgated a new GHG reporting rule, which became effective in
December 2009, and which requires facilities that emit more than 25,000 tons per year of carbon dioxide-equivalent emissions to prepare and file certain emission reports. On November 8, 2010,
the EPA adopted rules expanding the industries subject to GHG reporting to include certain petroleum and
gas facilities. These rules require data collection beginning in 2011 and reporting beginning in 2012. Some of ZaZa LLC's facilities are subject to these rules.

In
addition to the GHG reporting requirements, the EPA recently adopted regulations under existing provisions of the CAA that require a reduction in emissions of GHGs from motor vehicles
and that regulate emissions of GHGs from certain large stationary sources, effective January 2, 2011. The EPA has published its final rule to address the permitting of GHG emissions from
stationary sources under the Prevention of Significant Deterioration, or "PSD," and Title V permitting programs, pursuant to which these permitting programs have been "tailored" to apply to certain
stationary sources of GHG emissions in a multi-step process, with the largest sources subject to permitting first. Facilities required to obtain PSD permits for their GHG emissions also
will be required to meet "best available control technology" standards, which will be established by the states or, in some instances, by the EPA on a case-by-case basis. The
EPA's rules relating to emissions of GHGs from large stationary sources of emissions are currently subject to a number of legal challenges, but the federal courts have thus far declined to issue any
injunctions to prevent the EPA from implementing or requiring state environmental agencies to implement the rules. Our current operations do not require PSD or Title V air permits and are not affected
by the tailoring rule, but the rule may affect ZaZa in the future as its operations grow. Finally, the EPA is considering additional rulemaking to apply these requirements to broader classes of
emission sources by 2012, which may apply to some of our facilities. These EPA rulemakings could materially adversely affect our operations and restrict or delay its ability to obtain air permits for
new or modified facilities. As a result of these regulatory initiatives, our operating costs may increase in compliance with these programs, although it is not situated differently in this respect
from its competitors in the industry.

Hydraulic Fracturing.Federal and state legislation and regulatory initiatives relating to hydraulic fracturing are expected to result
in increased
costs and additional operating restrictions for oil and gas explorers and producers. ZaZa LLC engages third parties to provide hydraulic fracturing or other well stimulation services to us in
connection with several wells or proposed wells for which we are the operator. Hydraulic fracturing involves the injection of water, sand and additives under pressure into rock formations to stimulate
hydrocarbon (oil and gas) production. The process is typically regulated by state oil and gas commissions. The 112th session of Congress is currently considering two companion bills in
connection with the proposed FRAC Act. If enacted, the bills would repeal an exemption in the SDWA for the underground injection of hydraulic fracturing fluids near drinking water sources and require
the disclosure of chemicals used by the oil and gas industry in the hydraulic fracturing process. Recently, the EPA asserted federal regulatory authority over hydraulic fracturing involving diesel
additives under the SDWA's Underground Injection Control, or "UIC," Program and is currently developing UIC permitting guidance for hydraulic fracturing activities that use diesel fuel in fracturing

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fluids.
In addition, the EPA has announced plans to propose pretreatment standards for wastewater generated during the hydraulic fracturing process. Even without such federal legislation or
regulation,
hydraulic fracturing has come under increased regulatory scrutiny in several states. For example, Texas passed a law in June 2011 requiring public disclosure of certain information about chemicals
used in the hydraulic fracturing process, and the Texas Railroad Commission has issued a rule setting forth requirements for such public disclosure. Local ordinances have also been passed restricting
hydraulic fracturing in some areas. In addition, the EPA is conducting an investigation of hydraulic fracturing practices. On November 3, 2011, the EPA released its study plan on the effects of
hydraulic fracturing on human health and the environment to the EPA's Science Advisory Board for comment. An interim report is expected at the end of 2012 and the final report is due in 2014. The U.S.
House of Representatives Committee on Energy and Commerce is conducting an ongoing investigation of hydraulic fracturing impacts and practices and the Secretary of Energy Advisory Board Subcommittee
on Shale Gas Production recently released two reports that present recommendations to reduce potential environmental impacts from shale gas production. Further, certain members of Congress have asked
for further investigation through the U.S. Government Accountability Office, the SEC and the U.S. Energy Information Administration. These ongoing and proposed studies could lead to initiatives to
further regulate hydraulic fracturing. Additional requirements could be imposed, including permitting requirements, financial assurances, public disclosure obligations, monitoring and reporting
requirements. New requirements could significantly increase operating costs and any disclosure requirements could increase the possibility of third-party or governmental legal challenges to hydraulic
fracturing.

General.Various federal, state and local authorities regulate our operations with regard to air and water quality, release of
substances and other
environmental matters. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of various substances that can be
released into the environment in connection with drilling and production activities, regulate water use and disposal of water used in drilling and completion, limit or prohibit drilling activities on
certain lands within wilderness, wetlands and other protected areas, require remedial measures to mitigate pollution from current or former operations, such as pit closure and plugging abandoned
wells, and impose substantial liabilities for pollution resulting from production and drilling operations. In addition, various laws and regulations require that inactive well, pipeline, and facility
sites be abandoned and reclaimed. Public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stringent environmental legislation
and regulations applied to the oil and gas industry could continue, resulting in increased costs of doing business and consequently affecting profitability. To the extent laws are enacted or other
governmental action is taken that further restricts drilling or imposes more stringent and costly operating, waste handling, disposal and cleanup requirements, our business and prospects could be
materially adversely affected. Failure to comply with applicable laws, permits or regulations can result in project or operational delays, civil or in some cases criminal fines and penalties and
remedial obligations.

French Regulation

Toreador currently operates solely in France. The oil industry is subject to extensive and continually changing regulations on
environmental, drilling, production, transportation
and sale matters, which can increase the cost of doing business, and consequently, may affect profitability. These laws and regulations may, among other
things:



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Failure
to comply with these laws and regulations or to obtain or comply with permits may result in the assessment of administrative, civil and criminal penalties, imposition of remedial
requirements and the imposition of injunctions to force future compliance. See also "Fiscal Terms and Infrastructure."

Our
activities are affected by political stability and government regulations relating to foreign investment and the oil industry. Changes in these regulations or shifts in political
attitudes are beyond our control and may adversely affect our business. Our operations may be affected by government regulations with respect to restrictions on production, price controls, income
taxes, expropriation of property, environmental legislation and mine safety.

Our
current or future operations, including exploration and development activities on our acreage, require permits from various governmental authorities, and such operations are and will
be governed by laws and regulations governing prospecting, development, production, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection
and other matters. Compliance with these requirements may prove to be difficult and expensive. See "Risk Factors" for further information regarding government regulation.

French Environmental

The oil industry is subject to extensive and varying environmental regulations in each of the jurisdictions in which we have
historically operated or in which we currently, or may in the future, operate. Environmental regulations establish standards respecting health, safety and environmental matters and place restrictions
and prohibitions on emissions of various substances produced concurrently with oil and natural gas. These regulations can have an impact on the selection of drilling locations and facilities,
potentially resulting in increased capital expenditures. In addition, environmental legislation may require those wells and production facilities to be abandoned and sites reclaimed to the
satisfaction of local authorities.

Our
operations are subject to various laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment. Such
laws and regulations not only expose us to liability for our own negligence, but also may expose us to liability for the conduct of others or for our actions that were in compliance with all
applicable laws at the time those actions were taken. We may incur significant costs as a result of environmental accidents, such as oil spills, natural gas leaks, ruptures, or discharges of hazardous
materials into the environment, including clean-up costs and fines or penalties. Additionally, we may incur significant costs in order to comply with environmental laws and regulations and
may be forced to pay fines or penalties if we do not comply. In addition, future climate change regulation, a subject of discussion in many jurisdictions currently, could require us to incur increased
operating costs and could adversely affect the price or market demand for the oil that we produce. See "Risk Factors" for further information regarding environmental regulation.

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Insurance Matters

As is common in the oil and gas industry, we do not insure fully against all risks associated with its business either because such
insurance is unavailable or because premium costs are considered prohibitive. A material loss not fully covered by insurance could have material adverse effect on its financial position, results of
operations or cash flows. We maintains insurance at levels it believes to be customary in the industry to limit our financial exposure in the event of a substantial environmental claim resulting from
sudden, unanticipated and accidental discharges of certain prohibited substances into the environment. Such insurance might not cover the complete amount of such a claim and would not cover fines or
penalties for a violation of an environmental law.

Office Leases

We occupy 46,121 square feet of office space at 1301 McKinney St, Houston, Texas 77010. The lease for this space became effective on
various dates beginning on September 22, 2010 and is for 4 years, and the average monthly rental is $143,173 per month for the term of the lease. We also occupy 3,603 square feet of
office space at 600 Leopard St., Corpus Christi, Texas 78401. This lease became effective on July 8, 2010 and is for 21/2 years, and the average monthly rental is $3,487 per
month for the term of the lease. Total rental expense for 2011 was approximately $668,024.

Toreador
occupies 23,297 square feet of office space at 13760 Noel Rd., Suite 1100, Dallas, Texas 75240. The lease for this space became effective on October 1, 2007 and is
for seven years, and the average monthly rental is $33,050 per month for the term of the lease. In July 2009, Toreador subleased approximately 18,525 square feet of our Dallas office due to the
relocation of corporate headquarters to Paris, France. Toreador received approximately $271,659 and $214,656 from the sublease in 2011 and 2010, respectively. Toreador also leases 5,511 square feet of
office space in Paris, France. The lease expires on January 16, 2020 and rent is approximately $92,514 per quarter. Total net rental expense for 2011 was approximately $445,980.

Employees

ZaZa LLC has no full time employees, but has entered into a management agreement (the "Management Agreement") with Sequent
Petroleum Management, LLC ("SPM") pursuant to which SPM provides ZaZa LLC with approximately 46 contractors and consultants and their related benefits programs in exchange for a monthly
fee for managing such personnel. In addition, ZaZa LLC directly engages an additional approximately 77 independent contractors. Pursuant to the terms of the Hess Exploration and Development
Agreement, Hess reimburses ZaZa LLC for the costs of these full-time contractors to the extent that they perform services relating to the Hess joint venture. ZaZa LLC
reimburses SPM for the costs of the personnel under the Management Agreement, including for the costs of their insurance and other benefits. SPM handles all payroll, tax, accounting and benefit
services for the contractors and consultants provided under the Management Agreement.

As
of March 16, 2012, Toreador employed 35 full-time employees. None of the employees are represented by unions or covered by collective bargaining agreements. To
date, Toreador has not experienced any strikes or work stoppages due to labor problems, and Toreador believes that it has good relations with its employees. As needed, Toreador also utilizes the
services of independent consultants on a contract basis.

Seasonal Nature of Business

Generally, but not always, the demand for gas decreases during the summer months and increases during the winter months. Seasonal
anomalies such as mild winters or abnormally hot summers sometimes lessen this fluctuation. In addition, certain gas users utilize natural gas storage facilities and purchase some of their anticipated
winter requirements during the summer. This can also lessen

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seasonal
demand fluctuations. Seasonal weather conditions and lease stipulations can limit drilling and production activities and other oil and gas operations in certain areas. These seasonal
anomalies can increase competition for equipment, supplies and personnel.

Internet Address/Availability of Reports

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
made available free of charge on our website athttp://www.zazaenergy.comas soon as reasonably practicable after we electronically file such material
with, or otherwise furnish it to, the SEC.

GLOSSARY OF OIL AND GAS TERMS

The terms defined in this section are used throughout this annual report on Form 10-K:

"3D" or "3D SEISMIC"An exploration method of sending energy waves or sound waves into the earth and recording the wave reflections to indicate the
type, size, shape, and depth of subsurface rock formations. 3D seismic lines are shot very close together. This allows for the ability for computers to generate seismic profiles in any direction and
form 3D surfaces. 3D surveys are measured in square kilometers or square miles.

"Basin"A large natural depression on the earth's surface in which sediments generally brought by water accumulate.

"Bbl"One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate or natural gas liquids.

"Bcf"One billion cubic feet of natural gas.

"BOE"Barrel of oil equivalent. Oil equivalents are determined herein using the relative energy content method, with a ratio of 1.0 Bbl of oil or
natural gas liquid to 6.0 Mcf of gas.

"Btu"British thermal unit.

"Completion"The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas, or
in the case of a dry hole, the reporting of abandonment to the appropriate agency.

"DD&A"Depreciation, depletion, amortization and accretion.

"Developed acreage"The number of acres that are allocated or assignable to productive wells or wells capable of production.

"Development well"A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.

"Exploratory well"A well drilled to find and produce oil or natural gas reserves not classified as proved, to find a new reservoir in a field
previously found to be productive of oil or natural gas in another reservoir or to extend a known reservoir.

"Field"An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural
feature or stratigraphic condition. The field name
refers to the surface area, although it may refer to both the surface and the underground productive formations.

"Formation"A layer of rock which has distinct characteristics that differs from nearby rock.

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"Gross acres"or"gross wells"The total acres or
wells, as the case may be, in which a working interest is owned.

"Horizontal drilling"A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a
right angle within a specified interval.

"Horizontal well"A well drilled using horizontal drilling techniques.

"Hydraulic fracturing"A stimulation treatment routinely performed on oil and gas wells in low-permeability reservoirs. Specially
engineered fluids are pumped at high pressure and rate into the reservoir interval to be treated, causing a vertical fracture to open. Commonly referred to as "fracking."

"Identified drilling locations"Locations specifically identified by management as an estimation of our multi-year drilling activities
based on evaluation of applicable geologic, seismic, engineering, production and reserves data on contiguous acreage and geologic formations. The availability of local infrastructure, drilling support
assets and other factors as management may deem relevant, such as spacing requirements, easement restrictions and state and local regulations, are considered in determining such locations. The
drilling locations on which we actually drill wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual
drilling results and other factors.

"Liquids"Describes oil, condensate and natural gas liquids.

"KM"One kilometer.

"MBbls"One thousand barrels of crude oil, condensate or natural gas liquids.

"MBOE"One thousand barrels of oil equivalent.

"Mcf"One thousand cubic feet of natural gas.

"MMBbl"One million barrels of crude oil, condensate or natural gas liquids.

"MMBOE"One million barrels of oil equivalent.

"MMBtu"One million British thermal units.

"MMcf"One million cubic feet of natural gas.

"Natural gas liquid"Components of natural gas that are separated from the gas state in the form of liquids, which include propane, butanes and
ethane, among others.

"Net acres"The percentage of total acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100
acres owns 50 net acres.

"NYMEX"The New York Mercantile Exchange.

"Productive well"A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the
production exceed production expenses and taxes.

"Proved developed reserves ("PDP")"Reserves that can be expected to be recovered through existing wells with existing equipment and operating
methods.

"Proved reserves"The estimated quantities of oil, gas and natural gas liquids which geological and engineering data demonstrate with reasonable
certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.

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"Proved undeveloped reserves ("PUD")"Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells
where a relatively major expenditure is required for recompletion.

"Reservoir"A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by
impermeable rock or water barriers and is separate from other reservoirs.

"Spacing"The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres, e.g., 40-acre
spacing, and is often established by regulatory agencies.

"Standardized measure"Discounted future net cash flows estimated by applying year-end prices to the estimated future production of
year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period end costs to determine pre-tax cash inflows.
Future income taxes, if applicable, are computed by applying the statutory tax rate to the excess of pre-tax cash inflows over our tax basis in the oil and gas properties. Future net cash
inflows after income taxes are discounted using a 10% annual discount rate.

"Undeveloped acreage"Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether such acreage contains proved reserves.

"Unit"The joining of all or substantially all interests in a reservoir or field, rather than a single tract, to provide for development and operation
without regard to separate property interests. Also, the area covered by a unitization agreement.

"Working interest"The right granted to the lessee of a property to explore for and to produce and own natural gas or other minerals. The working
interest owners bear the exploration, development, and operating costs on either a cash, penalty, or carried basis.

Item 1A    Risk Factors

The risk factors listed herein under the heading "Risks Related to Our Company" similarly apply to our subsidiaries after the
Combination.

Risks Related to Our Company

Our independent registered public accounting firm has expressed substantial doubt regarding our ability to continue as a going concern.

Our audited financial statements for the years ended December 31, 2011, December 31, 2010, and December 31, 2009
have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued their report dated June 14, 2012, in connection
with the audit of our financial statements for the year ended December 31, 2011 and December 31, 2010 that included an explanatory paragraph describing the existence of conditions that
raise substantial doubt about our ability to continue as a going concern due to our disagreement with our joint venture partner and overall impact on our liquidity. This situation and the fact that we
have received this "going concern qualification" from our independent registered public accounting firm will likely make it more difficult for us to raise capital on favorable terms and could hinder,
to some extent, our operations. Additionally, if we are not able to continue as a going
concern, it is possible stockholders may lose part or all of their investment. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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We have entered into a Heads of Agreement with Hess to divide our joint venture assets and resolve our disagreements with Hess relating to our joint venture. Failure to
consummate the transactions outlined in the Hess Heads of Agreement by July 31, 2012 will constitute an event of default under our $100 million senior secured notes.

In order to resolve our disagreements with Hess relating to our joint venture, we have entered into a Heads of Agreement with Hess that
will divide our joint venture assets and provide for cash payments totaling $70 million from Hess to the Company. Upon consummation of the transactions contemplated by the HoA, we will receive
$70 million from Hess in addition to the $15 million received from Hess on June 8, 2012 for the amended EDA that eliminated Hess's well carry obligations in the Cotulla Prospect
Area. Consummation of the transactions outlined in the Hess Heads of Agreement is subject to execution of definitive documentation providing for such division of assets. Consummation of the
transactions under the Hess Heads of Agreement will require the consent of the holders of our $100 million senior secured notes, which consent we have obtained. We will apply approximately
$36.5 million of the funds we will obtain upon consummation of the transactions outlined in the Hess Heads of Agreement towards prepayment (including an associated fee) of a portion of our
$100 million senior secured notes. Our failure to consummate the transactions outlined in the Hess Heads of Agreement and make such prepayment by July 31, 2012, will constitute an event
of default under our $100 million senior secured notes, giving the holders of these notes the right to accelerate payment of these notes.

Our development and exploration operations require substantial capital and we may be unable to obtain needed capital or financing on satisfactory terms or at all, which
could lead to a loss of properties and a decline in our oil and gas reserves.

The oil and gas exploration and development industry is capital intensive. We through our subsidiaries ZaZa LLC and Toreador,
expect to continue making substantial capital expenditures in our business and operations for the purpose of exploration, development, production and acquisition of, oil and gas reserves. Prior to the
Combination, ZaZa LLC financed capital expenditures primarily with cash generated by operations, loans and capital contributions from its current members and contributions, bonus payments and
cost reimbursements by Hess pursuant to the Exploration and Development Agreement between Hess and ZaZa LLC, which we refer to as the EDA. Toreador has also depended on financing from Hess
pursuant to the Hess Investment Agreement. As a result of our disagreements with Hess, we expect that we will need to find additional sources of capital
to carry out our business plans. Our cash flow from operations and access to capital are subject to a number of variables that may or may not be within our control,
including:



We
may need to raise capital to finance our drilling operations. If financing and joint venture partnerships are not available on acceptable terms or at all, we may have limited ability
to obtain the capital necessary to sustain our operations at current levels or to implement our strategy, including executing on our portfolio of drilling opportunities or expanding our existing
portfolio. We may, from

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time
to time, need to seek additional financing. There can be no assurance as to the availability or terms of any additional or alternative financing.

The
failure to obtain additional financing on acceptable terms could result in an inability to implement our strategy to purchase additional oil and gas properties and a curtailment of
our operations relating to exploration and development of its prospects, which in turn could lead to possible write-downs in the carrying value of its properties, a material decline in our oil and gas
reserves as well as its revenues and results of operations.

If, as expected, we consummate the transactions outlined in the Hess Heads of Agreement, we may need to find alternative sources of capital to fund property acquisitions,
which may not be available on favorable terms, or at all.

Pursuant to the EDAs, Hess has been required to fund all of the acquisition costs for acquiring new properties in the Eagle Ford shale.
Hess has previously provided financing for the acquisition of approximately 121,000 gross acres. Upon consummation of the transactions outlined in the Hess Heads of Agreement, Hess will no longer fund
any portion of our property acquisitions. As a result, the Company may need to find alternative sources of capital to carry out our business plan, which may be on less favorable terms. The failure to
identify acceptable alternative financing could prevent us from acquiring new properties in the Eagle Ford shale and materially adversely affect our operations and prospects.

If, as expected, we consummate the transactions outlined in the Hess Heads of Agreement, we may need to find alternative sources of capital to fund drilling operations,
which may not be available on favorable terms, or at all.

Pursuant to the EDA, Hess has been required to fund all of the costs associated with wells drilled in the Eagle Ford shale, subject to
a cap on such number of "carried" wells in each Eagle Ford shale prospect area. If the funds we expect to receive upon consummation of the transactions outlined in the Hess Heads of Agreement are not
sufficient to fund our anticipated drilling operations, we may need to find alternative sources of capital to fund these wells. The failure to identify acceptable alternative financing to fund these
wells could materially adversely affect our operations and prospects, including potentially resulting in the reversion of certain portions of our acreage to the lessors.

If we are unable to find a joint venture partner or partners in the Eaglebine to finance acquisition and development, we may need to find alternative sources of capital,
which may not be available on favorable terms, or at all.

We are currently planning to have discussions with potential joint venture partners to acquire and develop properties in the Eaglebine
trend. ZaZa LLC currently holds approximately 98,500 net acres in the Eaglebine, but hopes to expand to 100,000 net acres in the aggregate over time. There can be no assurances that we will
identify a joint venture partner, that such partner will provide funding on acceptable terms to develop the existing properties or acquire new properties, or that we will be able to increase our net
acreage in the Eaglebine. If we cannot identify a joint venture partner, we will need to utilize cash flow from other operations or will need to find alternative sources of capital to finance
operations in the Eaglebine, which may slow the acquisition and development of the Eaglebine properties and have a material adverse effect on our operations and prospects.

Joint venture agreements that we may enter into could present a number of challenges that could have a material adverse effect on our business, financial condition and
results of operations.

We are seeking a joint venture partner in the Eaglebine, and assuming we are successful in consummating the transactions outlined in
the Hess Heads of Agreement, we expect to seek a joint venture partner or partners for our Eagle Ford properties. Joint venture arrangements typically present

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financial,
managerial and operational challenges, including potential disputes, liabilities or contingencies and may involve risks not otherwise present when exploring and developing properties
directly, including, for example:



The
risks described above or the failure to continue any joint venture or to resolve disagreements with the joint venture partners could materially adversely affect our ability to
transact the business that is the subject of such joint venture, which would in turn negatively affect our financial condition and results of operations.

If we are unable to resolve our disagreements with Hess by consummating the transactions outlined in the Hess Heads of Agreement, we may proceed to arbitration which could
result in our owing additional amounts to Hess.

Hess and ZaZa have recently had disagreements with each other relating to our joint venture. The joint venture agreements provide that
disagreements are resolved through arbitration rather than litigation. The parties have entered into the Hess Heads of Agreement to resolve these disagreements. If we are unable to consummate the
transactions outlined in the Hess Heads of Agreement and, as a result, we proceed to arbitration and an adverse finding is issued, we may be required to make certain payments to Hess, which would
adversely affect our liquidity and results of operations.

Our indebtedness and near term obligations could materially adversely affect our financial health, limit our ability to finance capital expenditures and future acquisitions
and prevent us from executing our business plan.

We have $100 million outstanding in aggregate principal under our Senior Notes and we expect to incur additional indebtedness in
the future. Our level of indebtedness has, or could have, important consequences to our business, because:



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In
addition, the terms of our Senior Notes restrict, and the terms of any future indebtedness, including any future credit facility, may restrict our ability to incur additional
indebtedness because of debt or financial covenants we are, or may be, required to meet. Under the terms of our Senior Notes, we may not incur debt in excess of 3.5 times our EBITDA (earnings before
interest, taxes, depreciation and amortization), except for $50 million in reserve-based lending and other permitted debt. Thus, we may
not be able to obtain sufficient capital to grow our business or implement our business strategy and may lose opportunities to acquire interests in oil properties or related businesses because of our
inability to fund such growth.

Our
ability to comply with restrictions and covenants, including those in our Senior Notes or in any future debt agreement, is uncertain and will be affected by the levels of cash flow
from our operations and events or circumstances beyond our control. Our Senior Notes also contain restrictions on the operation of our business, such as the sale and acquisition of assets, which may
limit our business plan. Our failure to comply with any of the restrictions and covenants could result in a default, which could permit the holders of our Senior Notes to accelerate repayments and
foreclose on the collateral securing the indebtedness.

Toreador may not be able to maintain or renew its existing exploration permits or exploitation concessions or obtain new ones, which could reduce its proved reserves.

Toreador does not hold title to its properties in France but holds exploration permits and exploitation concessions granted by the
French government. Under French law, each exploration permit is an exclusive right to explore for liquid and/or gaseous hydrocarbons and requires Toreador to commit expenditures of a certain amount
and is subject to renewal being granted after the initial term of between three to five years. Renewal can be granted twice, each time for a similar duration as the initial term and based on a similar
financial commitment. Under French law, each exploitation concession is subject to renewal after an initial term of up to 50 years. Renewal is subject to having the requisite operational
capabilities to continue operations in accordance with French regulations.

Toreador
currently holds ten exploration permits and has filed renewal applications for four exploration permits that expired in 2010 or 2011 (Aufferville, Mairy, Rigny le Ferron and
Joigny). These renewal applications are currently pending with the French government. However, the revised French regulations are unclear as to whether such exploration will still be possible after
15 months following the date of filing of the renewal application. Under previous regulations, which were not repealed in their entirety, the lack of answer to a renewal application for more
than 15 months following the date of filing of the renewal application was construed as an implicit refusal to grant the renewal of an exploration permit. For all four expired permits (other
than the Mairy permit), 15 months have elapsed since the submission of a renewal application (and, in the case of the Mairy permit, the 15 month period will elapse in May 2012). Although
we believe that, under revised French regulations, we are permitted to operate under expired permits until an express decision is issued with respect to their renewal, this position is not entirely
free from doubt.

Toreador
currently holds three exploitation concessions covering two producing oil areas in the Paris Basinthe Neocomian Complex (the Chateaurenard and St. Firmin Des
Bois concession) and Charmottes fields (the Charmottes concession, producing from the Dogger and Trias horizons). The production from these oil fields currently represents substantially all of
Toreador's sales and other operating revenue. Toreador obtained a renewal of the Chateaurenard and St. Firmin Des Bois
concessions in February 2011, extending the expiration date of each to January 1, 2036. Toreador filed a renewal application in February 2011 for the Charmottes concession, which concession
expires in October 2013. Toreador has not yet received a response as to whether its Charmottes concession will be renewed.

There
can be no assurance that Toreador will be able to renew any of its ten exploration permits or concessions when they expire, convert exploration permits into exploitation
concessions or obtain additional permits or concessions in the future. If Toreador does not satisfy the French government that

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Toreador
has the financial and technical capacities necessary to operate under such permits or concessions, such permits or concessions may be withdrawn and/or not renewed. If Toreador cannot renew
some or all of these permits or concessions when they expire or convert exploration permits into exploitation concessions, Toreador will not be able to include the proved reserves associated with the
permit or concession and Toreador will be unable to engage in production to recover reserves, which production currently represents substantially all of its revenue. Any such negative developments
with respect to Toreador's permits would have a material adverse effect on our ability to conduct its business.

Although
Toreador has historically reported its proved reserves assuming that the permits will be extended in due course, the SEC may take the view that Toreador's ability to renew and
extend its permits past their current expiration dates is not sufficiently certain for us to include the reserves that may be produced post-expiration in our total proved reserves.
Although Toreador has previously been able to provide support to the SEC regarding the likelihood of extension, no assurance can be given that the SEC will allow us to continue to include these
additional reserves in Toreador's proved reserves.

Our operations are subject to currency fluctuation risks.

We currently have operations involving the U.S. dollar and Euro, and we are subject to fluctuations in the value of the U.S. dollar as
compared to the Euro. While our oil sales are calculated on a U.S. dollar basis, our expenditures are in Euro and we are exposed to the risk that the values of our French assets will decrease and that
the amounts of our French liabilities will increase. These currency fluctuations, including the recent fluctuations, may adversely affect our results of operations. We do not currently hedge our
exposure to currency fluctuations.

Toreador's operations are in France and Toreador has previously operated in other international jurisdictions, and we are subject to political, economic and legal risks and
other uncertainties.

Toreador's operations are in France and Toreador has previously operated in other international jurisdictions, including through joint
venture arrangements with parties in various international jurisdictions. We are, and have been, subject to the following risks and uncertainties that can affect our international operations
adversely:



Further,
our non-U.S. operations and international business relationships are subject to laws and regulations that may restrict activities involving restricted countries,
organizations, entities and persons that have been identified as unlawful actors or that are subject to U.S. economic sanctions. If we are not in compliance with any such applicable laws and
regulations or U.S. economic sanctions, we may be subject to civil or criminal penalties and other remedial measures.

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Title to the properties in which ZaZa LLC has an interest may be impaired by title defects.

ZaZa LLC generally obtains title opinions on significant properties that it drills or acquires. Additionally, undeveloped
acreage has greater risk of title defects than developed acreage. Generally, under the terms of the operating agreements affecting its properties, any monetary loss is to be borne by all parties to
any such agreement in proportion to their interests in such property. If there are any title defects or defects in assignment of leasehold rights in properties in which ZaZa LLC holds an
interest, we could suffer a material financial loss.

The unavailability or high cost of drilling rigs, equipment, raw materials, supplies, personnel and oil field services could materially adversely affect our ability to
execute our exploration and development plans on a timely basis and within its budget.

Our industry is cyclical and, from time to time, there is a shortage of drilling rigs, equipment, raw materials (particularly sand,
cement and other proppants), supplies or qualified personnel. During these periods, the costs and delivery times of rigs, equipment, raw materials
and supplies are substantially greater. In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases. If oil and gas prices
increase in the future, increasing levels of exploration, development and production could result in response to these stronger prices, and as a result, the demand and the costs of oilfield services,
drilling rigs, raw materials, supplies and equipment could increase, while the quality of these services and supplies may suffer. In addition, our exploration, development and production operations
also require local access to large quantities of water supplies and disposal services for produced water in connection with our hydraulic fracture stimulations due to prohibitive transportation costs.
Existing shortages of drilling rig service providers for pressure pumping and other services required for well completion in the Eagle Ford shale have delayed our development and production operations
and caused us to incur additional expenditures that were in excess of those provided for in its capital budget. We cannot determine the magnitude or length of these shortages or future shortages or
price increases, which could have a material adverse effect on its business, cash flows, financial condition or results of operations. In addition, shortages and price increases could restrict our
ability to drill wells and conduct ordinary operations.

Drilling for and producing oil and gas are high-risk activities with many uncertainties that could materially adversely affect our financial condition and
results of operations.

Our success will depend on the results of its exploration, development and production activities. Oil and gas exploration, development
and production activities are subject to numerous risks beyond our control, including the risk that drilling will not result in commercially viable oil or gas production. Decisions to purchase,
explore, develop or otherwise exploit prospects or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data, and engineering
studies, the results of which are often inconclusive or inaccurate or subject to varying interpretations or uncertainty. Costs of drilling, completing and operating wells are often uncertain before
drilling commences. Overruns in budgeted expenditures are common risks that can make a particular project uneconomical. Furthermore, many factors may curtail, delay or cancel drilling, and such work
stoppage may not be covered by our insurance, including:



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The
risks described above or the failure to continue any joint venture or to resolve disagreements with the joint venture partners could materially adversely affect our ability to
transact the business that is the subject of such joint venture, which would in turn negatively affect our financial condition and results of operations.

Numerous uncertainties will be inherent in our estimates of oil and gas reserves and estimated reserve quantities, and the present value calculations presented in the future
relating to such reserves may not be accurate. Any material inaccuracies in reserve estimates or underlying assumptions will affect materially the estimated quantities and present value of our
reserves.

There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and cash flows attributable to such
reserves, including factors beyond our engineers' control (or the third party preparing the reserve report). Reserve engineering is a subjective process of estimating underground accumulations of oil
and gas that cannot be measured in an exact manner. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to such reserves, is a function of the available data,
assumptions regarding future oil and gas prices, expenditures for future development and exploration activities, engineering and geological interpretation and judgment. In addition, accurately
estimating reserves in shale formations such as ours can be even more difficult than estimating reserves in more traditional hydrocarbon bearing formations given the complexities of the projected
decline curves and economics of shale gas wells. Reserves and future cash flows may be subject to material downward or upward revisions, based upon production history, development and exploration
activities and prices of oil and gas. In addition, different reserve engineers may make different estimates of reserves and cash flows based on the same available data.

The
present value of future net revenues from our proved reserves referred to in any reserve report will not necessarily be the actual current market value of our estimated oil and gas
reserves at such time. In accordance with SEC requirements, we base the estimated discounted future net cash flows from its proved reserves using the un-weighted arithmetic average of the
first day of the month for each month within a twelve month period.

Unless we replace our reserves, our reserves and production will decline, which would adversely affect our financial condition, results of operations and cash flows.

Producing oil and gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir
characteristics and other factors. Decline rates are typically greatest early in the productive life of a well. Estimates of the decline rate of an oil or gas wells, and those in shale formations, in
particular are inherently imprecise, and are less precise with respect to new or emerging oil and gas formations with limited production histories than for more developed formations with established
production histories. Our production levels and the reserves that we may recover from our wells will change if production from our existing wells declines in a different manner than we have estimated.
Thus, our future oil and gas reserves and production and, therefore, our future cash flow and results of operations are highly dependent upon our success in efficiently developing and exploiting our
current properties and economically finding or acquiring additional recoverable reserves. We may not be able to develop, find or acquire additional reserves or future production at acceptable costs.
If we are

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unable
to replace our current or future production, our cash flows and the value of our reserves may decrease, and have a material adverse effect on our business, financial condition and results of
operations.

We are concentrated in two geographic areas, which increases our exposure to many of the risks enumerated herein.

Currently, ZaZa LLC's operations are highly concentrated in the Eagle Ford shale and the Eaglebine and Toreador's operations are
highly concentrated in the Paris Basin. This concentration increases the potential impact that many of the risks stated herein may have upon our ability to perform. For example, we have greater
exposure to regulatory actions impacting Texas and France, natural disasters in the geographic area, competition for equipment, services and materials available in the area and access to
infrastructure and markets.

All of Toreador's revenues are currently attributable to its properties in the Paris Basin in France. Any disruption in production, development or its ability to sell oil in
France would have a material adverse effect on our results of operations and financial condition.

All of Toreador's sales revenues are currently attributable to its properties in the Paris Basin in France. Toreador depends on third
parties in France for the transportation and refining of our oil production. Any disruption in production, development or its ability to produce and sell oil in France would have a material adverse
effect on our results of operations and financial condition. If production of oil in the Paris Basin were disrupted or curtailed, or in the case of labor or other disruptions affecting French
refineries, transportation or other infrastructure, our cash flows and revenues would be significantly reduced.

We have historically depended on a few customers and a loss of any customer or a decrease in demand would adversely affect our business and operating results.

Our customer base is highly concentrated. Since ZaZa LLC began producing crude oil in commercial quantities in 2011, Hess has
sold the crude oil produced by the joint venture to two major purchasers, Shell Oil and Superior Oil Company, pursuant to an oral agreement between Hess and ZaZa LLC. Under this oral agreement,
Hess markets all of the crude oil produced by the Hess joint venture and remits payment to ZaZa LLC for its share of such sales, but does not provide
detail of what percentage is sold to each of these producers. After the expected consummation of the transactions outlined in the Hess Heads of Agreement, we expect that revenue from a small number of
customers will continue to account for a high percentage of ZaZa LLC's revenue for the foreseeable future. For the year ended December 31, 2011, Total accounted for all of Toreador's
revenues from oil production in France. The contract with Total in 1996 (then Elf Antar) automatically renews for one-year periods unless, notice of termination is given at least six
months in advance. The loss of any of these customers or a decrease in demand, and the related impact on our future anticipated revenue, would materially and adversely affect our business, financial
condition or results of operations, and there can be no assurance that we will be able to replace the business from these customers. In addition, this type of loss could cause significant fluctuations
in our results of operations because our expenses are fixed in the short term and its sales and development cycle to obtain new customers is long.

Hedging activities may require us to make significant payments that are not offset by sales of production and may prevent us from benefiting from increases in oil prices.

ZaZa LLC has not historically entered into hedging transactions. Toreador has, and we may in the future, enter into various
hedging transactions for a portion of our production in an attempt to reduce our exposure to the volatility of oil prices. In a typical hedge transaction, we will have the right to receive from the
counterparty to the hedge the excess of the fixed price specified in the hedge over a

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floating
price based on a market index, multiplied by the quantity hedged. If the floating price exceeds the fixed price, we will be required to pay the counterparty this difference multiplied by the
quantity hedged. In such case, we will be required to pay the difference regardless of whether we have sufficient production to cover the quantities specified in the hedge. Significant reductions in
production at times when the floating price exceeds the fixed price could require us to make payments under the hedge agreements even though such payments are not offset by sales of production.
Hedging also could prevent us from receiving the full advantage of increases in oil prices above the fixed amount specified in the hedge.

We may not be able to obtain access to pipelines, gas gathering, transmission, storage and processing facilities to market our oil and gas production and our ability to sell
our production and/or receive market prices for our production may be materially adversely affected by transportation capacity constraints and interruptions.

The marketing of oil and gas production depends in large part on the availability, proximity and capacity of pipelines and storage
facilities, gas gathering systems and other transportation, processing and refining facilities, as well as the existence of adequate markets. If there were insufficient capacity available on these
systems, or if these systems were unavailable to us, the price offered for our production could be significantly depressed, or we could be forced to shut-in some production or delay or
discontinue drilling plans and commercial production following a discovery of hydrocarbons while it constructs its own facility. We also rely (and expect to rely in the future) on facilities developed
and owned by third parties in order to store, process, transmit and sell our oil and gas production. Our plans to develop our oil and gas reserves could be materially and adversely affected by the
inability or unwillingness of third parties to provide sufficient transmission, storage or processing facilities to us, especially in areas of planned expansion where such facilities do not currently
exist.

If
the amount of oil, gas or condensate being produced by us and others exceeds the capacity of the various transportation pipelines and gathering systems currently available in our
operating areas, it will be necessary for new transportation pipelines and gathering systems to be built. Or, in the case of oil and condensate, it will be necessary for us to rely more heavily on
trucks to transport our production, which is more expensive and less efficient than transportation by pipeline. Currently, we anticipate that additional pipeline capacity will be required in the Eagle
Ford shale to transport oil and condensate production, which increased substantially during 2011. The construction of new pipelines and gathering systems is capital intensive and construction may be
postponed, interrupted or cancelled in response to changing economic conditions and the availability and cost of capital. In addition, capital constraints could limit our ability to build gathering
systems to transport our production to transportation pipelines. In such event, costs to transport our production may increase materially or we might have to shut-in its wells awaiting a
pipeline connection or capacity and/or sell its production at much lower prices than market or than we currently project, which would materially adversely affect our results of operation.

A
portion of our production may also be interrupted, or shut-in, from time to time for numerous other reasons, including as a result of weather conditions, loss of pipeline
or gathering system access, field labor issues or strikes, or we might voluntarily curtail production in response to market conditions. If a substantial amount of our production is interrupted at the
same time, it could materially adversely affect our cash flow.

Our identified drilling location inventories are scheduled out over several years, making them susceptible to uncertainties that could materially alter the occurrence or
timing of their drilling.

Our management has specifically identified and scheduled drilling locations as an estimation of its future multi-year
drilling activities on its existing acreage. These identified drilling locations represent a significant part of our growth strategy. Our ability to drill and develop these locations depends on a
number of factors, including the availability of capital, seasonal conditions, regulatory approvals, oil and

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gas
prices, negotiation of agreements with third parties, costs, access to and availability of equipment, services and personnel and drilling results. Because of these uncertainties, we cannot give
any assurance as to the timing of these activities, if the potential drilling locations we have identified will ever be drilled or if it will be able to economically produce oil or gas from these or
any other potential drilling locations. As such, our actual drilling activities may materially differ from our current expectations, which could materially adversely affect our business, results of
operations and financial condition.

Competition in the oil and gas industry is intense, and many of our competitors have resources that are greater than ours.

We operate in a highly competitive environment for acquiring prospects and productive properties, marketing oil and gas and securing
equipment and trained personnel. Our competitors include major and large independent oil and gas companies that possess financial, technical and personnel resources substantially greater than our
resources. Those companies may be able to develop and acquire more prospects and productive properties at a lower cost and more quickly than our financial or personnel resources permit. Our ability to
acquire additional prospects and discover reserves in the future will depend on our ability to evaluate and select suitable properties and consummate transactions in a highly competitive environment.
Larger competitors may be better able to withstand sustained periods of unsuccessful drilling and absorb the burden of changes in laws and regulations more easily than we can, which could materially
adversely affect our competitive position. We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and
retaining quality personnel and raising additional capital.

A failure to attract and retain qualified personnel could have a material adverse effect on our business, financial position, results of operations, cash flows and future
growth.

Our success is largely dependent upon our ability to attract and retain personnel with the technical expertise, specialized knowledge
and training, skills and experience required for our business. An inability to sufficiently staff our operations or the loss of the services of one or more members of its senior management or of
numerous employees with technical skills could have a material adverse effect on its business, financial position, results of operations, cash flows and future growth. We are currently reviewing
employment arrangements with certain of our senior executives. While we may come to terms with them, and while a number of consultants have consulting agreements with us, there can be no assurances
that any of them will remain with us.

Shortage and competition in hydraulic fracturing services could impede our ability to develop our shale plays.

The unavailability or high cost of high pressure pumping services (or hydraulic fracturing services), chemicals, proppant, water, and
related services and equipment could limit our ability to execute our exploration and development plans on a timely basis and within its budget. Our industry is experiencing a growing emphasis on the
exploitation and development of shale gas and shale oil resource plays, which are dependent on hydraulic fracturing for economically successful development. Hydraulic fracturing in shale plays
requires high pressure pumping service crews. A shortage of service crews or proppant, chemical, or water, especially if this shortage occurred in South Texas, could materially and adversely affect
our operations and the timeliness of executing its development plans within its budget.

ZaZa LLC does not own all of the land on which its transportation pipelines and gathering and treating systems are located, which could materially disrupt its
operations.

ZaZa LLC does not own all of the land on which its gathering and treating systems have been constructed, and ZaZa LLC is
therefore subject to the possibility of increased costs to retain necessary land use. ZaZa LLC obtains the rights to construct and operate its gathering and treating systems on land owned by
third parties and governmental agencies for a specific period of time. ZaZa LLC's loss of these rights, through its inability to renew right-of-way contracts or
otherwise, could have a material adverse effect on our business, results of operations and financial condition.

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Our property acquisition strategy could fail or present unanticipated problems for our business in the future, which could materially adversely affect our ability to make
property acquisitions or realize anticipated benefits of those acquisitions.

Our growth strategy includes acquiring oil and gas properties. We may not be able to identify suitable acquisition opportunities or
finance and complete any particular acquisition successfully. Furthermore, acquisitions involve a number of risks and challenges, including:



Our
decision to acquire a property will depend in part on the evaluation of data obtained from production reports and engineering studies, geophysical and geological analyses, and
seismic and other information, the results of which are often inconclusive and subject to various interpretations.

Also,
our reviews of acquired properties are inherently incomplete because it generally is not feasible to perform an in-depth review of the individual properties involved in
each acquisition given time constraints imposed by sellers. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to
become sufficiently familiar with the properties to fully access their deficiencies and potential. Inspections may not always be performed on every well, and environmental problems, such as
groundwater contamination, are not necessarily observable even when an inspection is undertaken.

We face risks associated with hurricanes and other natural disasters in connection with our operations near coastal areas in Texas.

A portion of our oil and gas properties are located near coastal areas of the Texas Gulf Coast. As a result, in the event of damage due
to hurricanes, tropical storms, flooding or similar natural disasters, we could be subject to production curtailments in the future resulting from hurricane damage to certain fields or, even in the
event that producing fields are not damaged, production could be curtailed due to damage to facilities and equipment owned by oil and gas purchasers, or vendors and suppliers.

Access to water to conduct hydraulic fracturing may not be available if water sources become scarce.

The availability of sources of water is crucial to conduct hydraulic fracturing. Approximately 80,000-100,000 gallons of
water are necessary for drilling and completing one well in the Eagle Ford shale and in the Eaglebine. Texas is currently experiencing a severe drought that has limited the water supplies that are
necessary to conduct hydraulic fracturing. We have been sourcing our water from deeper aquifers that have not yet been impacted by the drought. We can make no assurances that

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sufficient
water resources will be available in the short or long term to carry out our current business plan.

Risks Related to Our Industry

Volatile oil and gas prices could materially adversely affect our financial condition and results of operations.

Our most significant market risk is the pricing of oil and gas. Management expects energy prices to remain volatile and unpredictable.
Moreover, oil and gas prices depend on factors that are outside of our control, including:



Further,
oil and gas prices do not necessarily fluctuate in direct relation to each other. Lower oil and gas prices not only decrease revenues on a per unit basis, but also may reduce
the amount of oil and gas that we can economically produce. Lower prices could also negatively impact estimates of our proved reserves. Our revenues, profitability and cash flow depend upon the price
of and demand for oil and gas, and a drop in prices can significantly affect our financial results and impede our growth.

If oil and gas prices decrease or exploration efforts are unsuccessful, we may be required to write-down the capitalized cost of individual oil and gas
properties.

A write-down of the capitalized cost of individual oil and gas properties could occur when oil and gas prices are low or if
we have substantial downward adjustments to our estimated proved oil and gas reserves, if operating costs or development costs increase over prior estimates, or if exploratory drilling is
unsuccessful.

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We
use the successful efforts accounting method. All property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending the determination of
whether proved reserves are discovered. If proved reserves are not discovered with an exploratory well, the costs of drilling the well are expensed. All geological and geophysical costs on exploratory
prospects are expensed as incurred.

The
capitalized costs of our proved oil and gas properties, on a field-by-field basis, may exceed the estimated undiscounted future cash flows of that field. If
so, we will adjust the carrying value of the field to its fair value in the current period. The factors used to determine fair value include, but are not limited to, estimates of reserves, future
commodity prices, future production estimates, anticipated capital expenditures, and a discount rate commensurate with the risk associated with realizing the expected cash flows projected. Unproved
properties are reviewed to determine if there has been an impairment of the carrying value, with any such impairment charged to expense. Given the complexities associated with oil and gas reserves
estimates and the history of price volatility in the oil and gas market, events may arise that will require us to record an impairment of our oil and gas properties and there can be no assurance that
such impairments will not be required in the future nor that they will not be material.

We may incur substantial losses and be subject to substantial liability claims as a result of our oil and gas operations.

Oil and gas exploration, drilling and production activities are subject to numerous operating risks, including the possibility
of:



Any
of these operating hazards could cause damage to properties, serious injuries, fatalities, oil spills, discharge of hazardous materials, remediation and clean-up costs,
and other environmental damages, which could expose us to liabilities. The payment of any of these liabilities could reduce, or even eliminate, the funds available for exploration, development, and
acquisition or could result in a loss of our properties. We are not fully insured against all risks, including development and completion risks that are generally not recoverable from third parties or
insurance. In addition, our insurance policies provide limited coverage for losses or liabilities relating to sudden and accidental pollution, but not for other types of pollution. Our insurance might
be inadequate to cover our liabilities. Our energy package is written on reasonably standard terms and conditions that are generally available to the exploration and production industry. The insurance
market in general and the energy insurance market in particular have been difficult markets over the past several years. Insurance costs could increase in the future as the insurance industry adjusts
to difficult exposures and we may decrease coverage and retain more risk to mitigate future cost increases. If we incur substantial liability and the damages are not covered by insurance or are in
excess of policy limits, or if we incur a liability for a risk at a time when we do not have liability insurance, then our business, financial position, results of operations and cash flows could be
materially adversely affected.

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We are subject to regulations that are evolving and may cause it to incur substantial costs.

Our activities are subject to federal, state, regional and local laws and regulations. Extensive laws, regulations and rules regulate
activities and operations in the oil and gas industry. For example, matters subject to regulation and the types of permits required include:



Under
these laws and regulations, we could be liable for:



Environmental
and other governmental laws and regulations also increase the costs to plan, permit, design, drill, install, operate and abandon oil and gas wells. A major risk inherent in
our drilling plans is the need to obtain drilling permits from applicable federal, state and local authorities. Delays in obtaining regulatory approvals or drilling permits for producing and water
injection wells, the failure to obtain a drilling permit for a well, or the receipt of a permit with excessive conditions or costs could have a material adverse effect on our ability to explore or
develop its properties. Additionally, the oil and gas regulatory environment could change in ways that might substantially increase the financial and

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managerial
costs to comply with the requirements of these laws and regulations and, consequently, adversely affect our profitability. Furthermore, we may be put at a competitive disadvantage to larger
companies in its industry that can spread these additional costs over a greater number of wells and larger operating area. Any or all of these contingencies could delay or halt our drilling activities
or the construction of ancillary facilities necessary for production, which would prevent us from developing its property interests as planned. Conditions, delays or restrictions imposed on the
management of groundwater produced during drilling could severely limit its operations or make them uneconomic.

Changes
in laws and regulations could affect our costs of operations, production levels, royalty obligations, price levels, environmental requirements, and other aspects of our business,
including our general profitability. We are unable to predict changes to existing laws and regulations. For example, in response to the April 2010 fire and explosion onboard the semisubmersible
drilling rig Deepwater Horizon, and the resulting oil spill in the Gulf of Mexico, the federal government has limited certain drilling activities in the U.S. Gulf of Mexico. While we do not conduct
any offshore activities, the U.S.
Environmental Protection Agency, or the "EPA," has recently focused on public concerns about the risk of water contamination and public health problems from drilling and hydraulic fracturing
activities. This renewed focus could lead to additional federal and state regulations affecting the oil and gas industry. There can be no assurance that present or future regulations will not
materially adversely affect our business and operations, including that we may be required to suspend drilling operations or shut-in production pending compliance. Additional regulations
or other changes to or reinterpretations of existing laws and regulations could significantly impact our business, results of operations, cash flows, financial position and future growth.

Environmental matters and costs can be significant.

Our oil and gas exploration and production operations are subject to stringent and complex federal, state and local laws and
regulations governing health and safety aspects of our operations, the discharge of materials into the environment, the generation, storage, transportation and handling of hazardous materials or
otherwise relating to environmental protection. These laws and regulations may impose numerous obligations that are applicable to our operations including the acquisition of a permit before conducting
drilling or underground injection activities; the restriction of types, quantities and concentration of materials that can be released into the environment; the limitation or prohibition of drilling
activities on certain lands lying within wilderness, wetlands and other protected areas; the application of specific health and safety criteria addressing worker protection; and the imposition of
substantial liabilities for pollution resulting from operations. Numerous governmental authorities, such as the EPA and analogous state agencies, have the power to enforce compliance with these laws
and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Failure to comply with these laws and regulations may result in the assessment of sanctions,
including administrative, civil or criminal penalties, the imposition of investigatory or remedial obligations, and the issuance of orders limiting or prohibiting some or all of our operations.

There
is inherent risk of incurring significant environmental costs and liabilities in the performance of our operations due to our handling of petroleum hydrocarbons and wastes, because
of air emissions and wastewater discharges related to its operations, and as a result of historical industry operations and waste disposal practices. The exploration and production of oil and gas
involves many risks concerning equipment and human operational problems that could lead to leaks or spills of petroleum products. Under certain environmental laws and regulations, we could be subject
to strict, joint and several liability for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release or
contamination or whether the operations were in compliance with all applicable laws at the time those actions were taken. Private parties, including the owners of properties upon which our wells are
drilled and facilities where ZaZa's petroleum hydrocarbons or wastes are taken for reclamation or disposal, also may have the right to pursue legal actions to enforce compliance as well as to seek
damages for non-compliance with

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environmental
laws and regulations or for personal injury or property or natural resource damages. Contamination of groundwater by oil and gas drilling, production and related operations may result in
fines, penalties, and remediation costs. In addition, the risk of accidental spills or releases could expose us to significant liabilities that could have a material adverse effect on its business,
financial condition or results of operations. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste control, handling, storage,
transport, disposal or cleanup requirements could require us to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on its own results of
operations, competitive position or financial condition.

Possible legislation and regulations related to global warming and climate change could have a material adverse effect on our operations and the demand for oil and gas.

In December 2009, the EPA determined that emissions of carbon dioxide, methane, and other greenhouse gases, or "GHGs," present an
endangerment to public health and the environment because emissions of such gasses are contributing to the warming of the earth's atmosphere and other climatic changes. Based on these findings, the
EPA recently adopted regulations under existing provisions of the Clean Air Act that require a reduction in emissions of GHGs from motor vehicles and that regulate emissions of GHGs from certain large
stationary sources, effective January 2, 2011. The EPA has published its final rule to address the permitting of GHG emissions from stationary sources under the Prevention of Significant
Deterioration, or "PSD," and Title V permitting programs, pursuant to which these permitting programs have been "tailored" to apply to certain stationary sources of GHG emissions in a
multi-step process, with the largest sources subject to permitting first. Facilities required to obtain PSD permits for their GHG emissions also will be required to meet "best available
control technology" standards, which will be established by the states or, in some instances, by the EPA on a case-by-case basis. The EPA's rules relating to emissions of GHGs
from large stationary sources of emissions are currently subject to a number of legal challenges, but the federal courts have thus far declined to issue any injunctions to prevent the EPA from
implementing or requiring state environmental agencies to implement the rules. Although our current operations do not require PSD or Title V air permits and are not affected by the tailoring rule, the
rule may affect us in the future as its operations grow. Finally, the EPA is considering additional rulemaking to apply these requirements to broader classes of emission sources by 2012, which may
apply to some of our facilities. These EPA rulemakings could materially adversely affect our operations and restrict or delay our ability to obtain air permits for new or modified facilities. As a
result of these regulatory initiatives, our operating costs may increase in compliance with these programs. The EPA has also adopted regulations requiring the reporting of GHG emissions from specified
large GHG emission sources in the United States including certain onshore and offshore oil and gas production facilities, which may include certain of our operations, beginning in 2012 for emissions
occurring in 2011.

In
addition, Congress has from time to time considered adopting legislation to reduce emissions of GHGs and almost one-half of the states have already taken legal measures to
reduce
emissions of GHGs primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs. Most of these cap and trade programs work by requiring either major
sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall GHG emission
reduction goal is achieved. These allowances would be expected to escalate significantly in cost over time. The adoption of legislation or regulatory programs to reduce emissions of GHGs could require
us to incur increased operating costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances or to comply with new regulatory or reporting requirements. Any
such legislation or regulatory programs could also increase the cost of consuming, and thereby reduce demand for, the oil and gas we produce. Consequently, legislation and regulatory programs to
reduce emissions of GHGs could have a material adverse effect on our business, financial condition and results

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of
operations. Finally, some scientists have concluded that increasing concentrations of GHGs in the Earth's atmosphere may produce climate changes that have significant physical effects, such as
increased frequency and severity of storms, floods and other climatic events. If any such effects were to occur, they could have a material adverse effect on our financial condition and results of
operations.

Recent legislative proposals could materially lessen the economic viability of domestic exploration and production companies, including us.

The budgetary proposals of the Obama Administration, if enacted into law by Congress, could have a material adverse impact on the
domestic oil and gas industry and on exploration and production companies in particular. The proposals would eliminate the so called "oil and gas company preferences" and raise other taxes on the
industry. The proposed budget would eliminate tax mechanisms critical to capital formation for drilling, such as expensing of intangible drilling costs and eliminating the percentage depletion
allowance. This, or similar legislation, if enacted, would have a significant adverse impact on domestic drilling for oil and gas. The proposals also seek to eliminate the deduction for certain U.S.
production activities and extend the amortization period for certain geological and geophysical expenditures. The proposed budget would also charge producers user fees for processing permits to drill
on federal lands and increase royalty rates of minerals produced from federal lands. While the budget as proposed will not be adopted by the current congress, some of the proposals will likely be
discussed by the new bipartisan committee recently authorized to make proposals to reduce the federal debt. We cannot predict the outcome of the deliberations by this committee or new budgets or other
legislation that will be proposed in the coming years, but the enactment of any of these proposals or similar proposals or changes to U.S. federal income tax law would likely adversely affect the
domestic oil and gas exploration and production business and affect our results of operations and financial condition.

Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays and
inability to book future reserves.

Hydraulic fracturing involves the injection of water, sand and additives under pressure into rock formations to stimulate hydrocarbon
(oil and gas) production. We engage third parties to provide hydraulic fracturing or other well stimulation services to us in connection with several wells or proposed wells for which we are the
operator. We find that the use of hydraulic fracturing is necessary to produce commercial quantities of oil and gas from many reservoirs where we have significant acreage. The process is typically
regulated by state oil and gas commissions. However, Congress is currently considering two companion bills in connection with the proposed "Fracturing Responsibility and Awareness of Chemicals Act,"
or the "FRAC Act." If enacted, the bills would repeal an exemption in the federal SDWA for the underground injection of hydraulic fracturing fluids near drinking water sources and require the
disclosure of chemicals used by the oil and gas industry in the hydraulic fracturing process. Sponsors of the FRAC Act have asserted that chemicals used in the fracturing process may be adversely
impacting drinking water supplies. If enacted, the legislation would result in additional regulatory burdens, including requiring the reporting and public disclosure of chemicals used in the
fracturing process to state and federal regulatory authorities, who would then make this information publicly available. The availability of this information could make it easier for third parties
opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. Further, if
enacted, the FRAC Act could result in additional regulatory burdens such as permitting, construction, financial assurance, monitoring, recordkeeping, and plugging and abandonment requirements.

Hydraulic
fracturing impacts and practices have also been the subject of a number of governmental and private studies. The Secretary of Energy Advisory Board Subcommittee on Shale Gas
Production recently issued two reports, which contain a number of recommendations for producers and regulatory agencies that would create additional regulatory burdens. These include the disclosure of
water flow

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and
fracturing fluid used in the fracturing and well completion process and the adoption of best practices in well development and construction, requirements for background water quality measurements,
and air emission limits for sources of GHGs, air toxics, ozone precursors and other air pollutants. In addition, the Energy and Commerce Committee of the United States House of Representatives is
conducting an investigation of hydraulic fracturing practices. Similarly, the EPA is conducting an investigation of hydraulic fracturing practices. On November 3, 2011, the EPA released its
study plan on the effects of hydraulic fracturing on human health and the environment to the EPA's Science Advisory Board for comment. The EPA expects to make public its initial findings by the end of
2012 and an additional report with further research in 2014. Further, certain members of Congress have asked for further investigation through the U.S. Government Accountability Office, the SEC and
the U.S. Energy Information Administration. These ongoing and proposed studies could lead to initiatives to further regulate hydraulic fracturing. Additional requirements could be imposed, including
permitting
requirements, financial assurances, public disclosure obligations, monitoring and reporting requirements. New requirements could increase operating costs and any disclosure requirements could increase
the possibility of third-party or governmental legal challenges to hydraulic fracturing.

The
EPA has also begun to assert regulatory authority over certain aspects of hydraulic fracturing. Recently, the EPA asserted federal regulatory authority over hydraulic fracturing
involving diesel additives under the SDWA's Underground Injection Control Program, or the "UIC," and is currently developing UIC permitting guidance for hydraulic fracturing activities that use diesel
fuel in fracturing fluids. In addition, the EPA has issued new emission standards to reduce VOC emissions from oil and gas exploration and production operations including specific limitations for
emissions associated with hydraulic fracturing. In particular, hydraulically fractured gas wells must comply with reduced emission (REC) techniques by January 1, 2015. Further, the agency has
announced that one of its enforcement initiatives for its 2011 to 2013 fiscal years would be to focus on environmental compliance by the energy extraction sector. Finally, on October 20, 2011,
the EPA announced its plan to propose pretreatment standards for wastewater generated during the hydraulic fracturing process. These governmental studies of hydraulic fracturing impacts and practices
and the EPA's regulatory and enforcement initiatives could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business. If hydraulic fracturing
becomes regulated at the federal level as a result of federal legislation or regulatory initiatives by the EPA, our fracturing activities could become subject to additional permitting requirements and
also to attendant permitting delays and potential increases in costs. If such permitting requirements delay our drilling activity, our ability to present reserves, and once presented, book reserves,
will be delayed as well.

In
addition, some states have adopted, and other states are considering adopting, regulations that could impose more stringent permitting, disclosure and well construction requirements
on hydraulic fracturing operations. For example, Pennsylvania, Colorado, and Wyoming have each adopted a variety of well construction, set back, and disclosure regulations limiting how fracturing can
be performed and requiring various degrees of chemical disclosure. Texas recently passed a law requiring public disclosure of certain information about chemicals used in the hydraulic fracturing
process, and the Texas Railroad Commission has adopted rules setting forth requirements for such public disclosure. In addition, the Texas Commission on Environmental Quality recently adopted more
stringent air emission and permitting requirements for oil and gas exploration operations in the Barnett Shale. More stringent air emissions and permitting requirements may be imposed on the areas in
which we operate sometime in the future. These regulations, if adopted, would affect our operations, increase our costs of exploration and production and limit the quantity of oil and gas that we can
economically produce. A major risk inherent in our drilling plans is the need to obtain drilling permits from state and local authorities on a timely basis following leasing. In addition to the
imposition of more stringent regulations at the state and federal level, certain local authorities have passed or are considering moratoria on oil and gas drilling and restrictions on hydraulic
fracturing. Delays in obtaining regulatory approvals, drilling permits, the failure to obtain a drilling permit for a well or the receipt of a permit with unreasonable

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conditions
or costs could have a material adverse effect on our ability to explore or develop its properties. Additionally, the oil and gas regulatory environment could change in ways that might
substantially increase our financial and managerial costs to comply with the requirements of these laws and regulations and, consequently, materially adversely affect our profitability. Furthermore,
these additional costs may put us at a competitive disadvantage compared to larger companies in the industry which can spread such additional costs over a greater number of wells and larger operating
staff.

Any
increased costs for fracturing or restrictions on the use of fracturing could result in we being unable to economically produce hydrocarbons that we discover, resulting in our
inability to book reserves, and materially adversely affecting its future results of operations.

Global financial and economic circumstances may have impacts on our business and financial condition that we currently cannot predict.

Global financial markets may have a material adverse impact on our business and its financial condition, and it may face challenges if
conditions in the financial markets are inadequate to finance our activities at a reasonable cost of capital. While the current economic situation has improved since 2008, continuing concerns over the
worldwide economic outlook, geopolitical issues, the availability and costs of credit, and the sovereign debt crisis have contributed to increased volatility in the global financial markets and
commodity prices and diminished expectations for the global economy and these conditions could make it more difficult for us to access capital. In addition, adverse economic circumstances could cause
customers, joint owners or other parties with whom we transact business to fail to meet their obligations to us. Also, worldwide economic conditions could lead to reduced demand for oil and gas, or
lower prices for oil and gas, or both, which could have a material negative impact on our revenues, results of operations and financial conditions.

Certain federal income tax deductions currently available with respect to oil and gas exploration and development may be eliminated as a result of future legislation.

Among the changes contained in the President's Fiscal Year 2013 budget proposal, released by the White House on February 13,
2012, is the elimination of certain U.S. federal income tax deductions and credits currently available to oil and gas exploration and production companies. Such proposed changes include, but are not
limited to, (i) the repeal of the percentage depletion allowance for oil and gas properties; (ii) the elimination of current deductions for intangible drilling and development costs;
(iii) the elimination of the deduction for certain U.S. production activities; and (iv) an extension of the amortization period for certain geological and geophysical expenditures.
Recently, members of the U.S. Congress have considered similar changes to the existing
federal income tax laws that affect oil and gas exploration and production companies. It is unclear, however, whether any such changes will be enacted or, if enacted, how soon such changes would be
effective. The passage of any legislation as a result of the budget proposal or any other similar change in U.S. federal income tax law could eliminate or defer certain tax deductions that are
currently available with respect to oil and gas exploration and development, and any such change could negatively affect our financial condition, results of operations and cash flows.

Laws regulating derivatives established under the Dodd-Frank Act and the regulations being promulgated thereunder could adversely affect our ability to manage
business and financial risks by reducing the availability of, and increasing our cost of using, derivative instruments as hedges against fluctuating commodity prices and interest rates.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, establishes a new
regulatory framework for derivative instruments, including a requirement that certain hedging transactions be cleared on a derivatives clearing organization and traded on an exchange or a swap
execution facility, and a requirement to post cash collateral (commonly referred to as "margin")

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for
such transactions. The Dodd-Frank Act requires the Commodity Futures Trading Commission, or CFTC, federal regulators of banks and other financial institutions, or the prudential
regulators, and the SEC to promulgate the rules implementing the new law, which are expected to be finally adopted by June 30, 2012. Until these regulations are adopted, effective and
implemented in practice, we cannot determine what impact the new regulatory framework will have on our business.

ZaZa LLC
has not historically entered into hedging transactions, and Toreador's historical and future hedges may not be subject to those rules due to its foreign operations.
Depending on the final regulations adopted by the CFTC, the prudential regulators and the SEC, we may be subject to a margin requirement that will cause us to post collateral for our hedging
transactions in excess our current expectations. Such a requirement may increase our costs and decrease our profitability. Moreover, our counterparties may also be required to post margin on our
transactions and comply with minimum capital requirements, which could result in additional costs being passed on to us, thereby negatively affecting our business, results of operations and financial
condition.

The
Dodd-Frank Act permits the CFTC to set position limits in derivative instruments. Our counterparties may be subject to these position limits, which may reduce our ability
to enter into hedging transactions with these counterparties. In addition, the Dodd-Frank Act may also require the counterparties to our derivative instruments to spin off some of their
derivative
activities to a separate entity, which may not be as creditworthy as the current counterparty. These changes might not only increase costs, but could also reduce the availability of some derivatives
to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts and potentially increase our exposure to less creditworthy counterparties. If our
use of derivatives is reduced, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital
expenditures.

Risks Related to the Ownership of Our Common Stock

We do not intend to pay cash dividends on its common stock in the foreseeable future.

We do not anticipate paying dividends in the foreseeable future, but expects to retain earnings to finance the growth of its business.
Therefore, any return on investments will only occur if the market price of our common stock appreciates. In addition, the terms of our Senior Notes and Warrants prohibit the payment of dividends from
paying dividends pursuant to the terms of our Senior Notes and Warrants.

There has been no prior public market for our common stock.

Prior to the completion of the combination, no public market had existed for the shares of ZaZa Energy Corporation common stock.
Although our shares of common stock have recently been listed on the Nasdaq Capital Market, an active public market for our common stock may not develop or be sustained, which could affect the ability
to sell, or depress the market price of, our common stock. We are unable to predict whether an active trading market for our common stock will develop or will be sustained.

The public price and trading volume of our common stock may be volatile.

The price and volume of our common stock may be volatile and subject to fluctuations. Some of the factors that could cause fluctuations
in the stock price or trading volume of our common stock include:



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There
can be no assurance that the price of our common stock will not fluctuate or decline significantly. The stock market in recent years has experienced considerable price and volume
fluctuations that has often been unrelated or disproportionate to the operating performance of
individual companies and that could materially adversely affect the price of our common stock, regardless of our operating performance. The market prices of stock in exploration stage companies have
been especially volatile. In addition, Price volatility might be worse if the trading volume of shares of the common stock is low. Furthermore, stockholders may initiate securities class action
lawsuits if the market price of ZaZa Energy Corporation's stock declines significantly, which may cause our to incur substantial costs and could divert the time and attention of our management.

We have the ability to issue "blank check" preferred stock, which could affect the rights of holders of our common stock.

Our certificate of incorporation allows the board of directors to issue 25 million shares of preferred stock and to set the
terms of such preferred stock. The terms of such preferred stock may materially adversely impact the dividend and liquidation rights of holders of our common stock.

The requirements of being a public company, including the requirements of the Sarbanes-Oxley Act of 2002, may strain our resources, increase our costs and distract
management; and we may be unable to comply with these requirements in a timely or cost-effective manner.

We have limited history operating as a publicly-traded company. We need to comply with certain laws and regulations and public
reporting requirements, including the reporting obligations of the Securities Exchange Act of 1934, as amended, or the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act
of 2002, laws, and regulations and rules of the SEC and the Nasdaq, all of which ZaZa and ZaZa LLC were not required to comply with as a private company. Complying with these statutes,
regulations and requirements will increase our general and administrative costs as a result of higher expenses associated with director and officer liability insurance, audit work, regulatory
requirements and the establishment and maintenance of heightened

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corporate
governance measures and management oversight. Compliance will occupy a significant portion of our board of directors' and management's time.

We
are currently:



If
we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with our public reporting requirements and other rules that apply to public
companies could be impaired, and we may be subject to sanction or investigation by the SEC or the Nasdaq.

Our failure to achieve and maintain effective internal control in accordance with Section 404 of the Sarbanes-Oxley Act could result in a restatement of our financial
statements, cause investors to lose confidence in our financial statements and us and have a material adverse effect on our business and stock price.

Prior to the Combination, neither ZaZa nor ZaZa LLC was required to evaluate its internal control over financial reporting in
the manner that is currently required of certain public companies in the United States. As a public company, we are required to document and test our internal control procedures in order to satisfy
the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC, the Public Company Accounting Oversight Board, including annual management
assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm that addresses
our internal control over financial reporting. The requirement for such auditor report will apply starting with the annual report for the year ended December 31, 2013 if we have
$75 million or more in public float as of June 30, 2013.

If,
as a result of deficiencies in our financial or other internal controls, including material weaknesses, we have not or cannot provide reliable financial reports or internal
recordkeeping or compliance procedures, our business decisions or compliance processes may be adversely affected, our business and operating results could be harmed, we may be subject to legal
penalties or other claims, investors could lose confidence in our reported financial information and the price of our stock could decrease.

The majority of our common stock is owned by the founders, whose interests may not be aligned with the interests of other stockholders.

Under our stockholders' agreement with the entities controlled by the ZaZa founders, the significant ZaZa owners, during the three
years following the closing of the Combination will be entitled to designate a proportional number of directors to the Board (but not more than seven) based upon the significant ZaZa owners' (and
their permitted transferees') percentage ownership of ZaZa. The remaining directors of ZaZa will be nominated by a nominating committee consisting of two directors selected by the designees on the
Board that were selected by Toreador prior to the closing of the combination (and their successors) and one independent director selected by the significant ZaZa owners. The three individuals that
founded ZaZa LLC, the ZaZa founders collectively own

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approximately
66% of the common stock. During the three years after closing, the ZaZa founders will be required to vote their shares in favor of the nominees of the nominating committee. However,
after the third anniversary of the closing, there will be no limitation on the number of directors of ZaZa that the significant ZaZa owners may nominate and elect and, as such, they may be able to
nominate and elect the entire Board and remove any directors, including directors who were Toreador designees or nominated by the Board's nominating committee. In addition, as a result of their share
ownership in ZaZa, the significant ZaZa owners will be able to control all matters requiring approval by ZaZa stockholders, including, but not limited to: mergers, consolidations or acquisitions; the
sale of all or substantially all of ZaZa's assets and other decisions affecting ZaZa's capital structure; the amendment of ZaZa's certificate of incorporation and bylaws, and ZaZa's liquidation,
winding up and dissolution. Finally, under the stockholders' agreement, the significant ZaZa owners are subject to a three-year standstill period starting on the date of the consummation
of the transactions. However, once the stand-still period ends, there will be no contractual restriction on the significant ZaZa owners' ability to purchase additional shares of our common stock or
take us private on terms that may not be favorable to the other stockholders of ZaZa. The interests of the significant ZaZa owners may not be aligned with the interests of the other stockholders. This
concentration of share
ownership may have a material adverse effect on the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders.

The ZaZa founders have economic interests in our properties and their interests may not be aligned with the interests of us.

The ZaZa founders are board members and these individuals will be our board members, collectively beneficially own approximately 66% of
our common stock. In addition to their interests as equity owners, each of these individuals also has a direct or indirect overriding royalty interest relating to certain of our properties. These
overriding royalty interests generally entitle them to three percent of the net revenue interest associated with sales of oil and gas produced from these properties, without any corresponding
responsibility for payment of any expenses, as described in "ZaZa Related-Party Transactions." The overriding royalty interests may present a potential conflict of interest with our interests. In
addition, our joint venture agreement with Hess requires that the joint venture have at least a 72% net revenue interest in all leases included in the joint venture. To the extent that an acquired
lease includes less than a 72% net revenue interest, we may be required to satisfy the overriding royalty interests held directly or indirectly by our managing partners out of our own 10% interest in
the joint venture.

There is a potential market overhang that could depress the value of our common stock, and future sales of our common stock could put a downward pressure on the price of our
shares and could have a material adverse effect on the price of our shares.

In connection with the issuance of our Senior Notes and our Warrants, we agreed to register the resale of the shares of common stock
issuable upon exercise or conversion of our Warrants. In addition, we have also agreed to register the sale of shares of common stock that were sold privately by the significant ZaZa owners after the
closing of the Combination. We are obligated to file a registration statement with respect to all such shares (approximately 35 million in the aggregate) within 90 days of the
closing and use our commercially reasonable efforts to cause such registration statement to become effective within 180 days of the closing. The possibility that substantial amounts of our
outstanding common stock may be sold by such holders, or the perception that such sales could occur, could materially adversely affect the market price of our common stock and impair our ability to
raise additional capital through the sale of equity securities in the future. In addition, this selling activity could decrease the level of public interest in our common stock, inhibit buying
activity that might otherwise help support the market price of our common stock, and prevent possible upward price movements in our common stock.

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In
addition, the significant ZaZa owners have demand and piggyback registration rights pursuant to our stockholders' agreement commencing on the six month anniversary of the closing.
Pursuant to the Lock-Up agreement entered into with the holders of our Warrants, the significant ZaZa owners have significant limitations on their ability to sell any shares for five
years, subject to certain exceptions. The possibility that the significant ZaZa owners could sell under those exceptions could add to the effect of such overhang.

The integration of Toreador and ZaZa LLC will present significant challenges that may reduce the anticipated potential benefits of the transactions.

We face significant challenges in consolidating functions and integrating their organizations, procedures and operations in a timely
and efficient manner, as well as retaining key personnel. The integration of Toreador and ZaZa LLC is complex and time-consuming due to the locations of their corporate headquarters
and the size and complexity of each organization. The principal challenges include the following:



Management
is dedicating and will have to dedicate substantial effort to integrating the businesses. These efforts could divert management's focus and resources from the company's
business, corporate initiatives or strategic opportunities during the integration process.

Upon the expiration of the non-competition agreements and under certain other circumstances, the three ZaZa founders will be able to directly compete with New
ZaZa.

On August 9, 2011, each of the three ZaZa founders (referred to as a "restricted person") entered into a separate
non-competition agreement with ZaZa. The non-competition agreements provide that each of the restricted persons and his controlled affiliates may not engage in, carry on or
assist any oil or gas business in specified areas in the Eagle Ford and Eagle Ford/Woodbine resource plays in Texas and the Paris Basin in France or acquire oil and gas interests in, or acquire
interests in any businesses with oil and gas interests in, those specified areas, subject to certain exceptions. The restricted persons also agreed not to advise, request, induce, attempt to induce or
otherwise divert any customer, supplier, licensee or other business relation of ZaZa, ZaZa LLC and Toreador and their present and future subsidiaries, and further agreed not to materially
curtail, limit or cease doing business with any such entities or materially interfere with the customer, supplier and other business relationships of, or oil and gas interests or the businesses of,
ZaZa, and its present and future subsidiaries. The non-competition agreement with each restricted person lasts only until the later of the termination of the restricted person's employment
with ZaZa or three years after the consummation of the transaction.

In
addition, the non-competition agreements do not apply to any opportunity in which the restricted persons would be prohibited from participating, if such opportunity is
first offered to ZaZa and a majority of the full board of directors of ZaZa, including a majority of the disinterested directors, declines to pursue such opportunity, or a majority of the
disinterested directors fails to make a determination as to whether ZaZa will pursue such opportunity within ten business days following such offer. Upon the expiration of the
non-competition agreements, or during the term of the non-competition agreements if the ZaZa board of directors declines or fails to determine whether to pursue a corporate
opportunity within ten business days, the ZaZa founders will be free to pursue competitive activities or such corporate opportunities, which could create conflicts of interest and limit ZaZa's ability
to acquire additional assets or pursue its businesses and could have a material adverse effect on us.

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We are a "controlled company" within the meaning of the Nasdaq rules and qualify for, and rely on, exemptions from certain corporate governance standards, which may limit
the presence of independent directors on the board of directors or board committees of ZaZa.

The ZaZa founders will beneficially own shares of our stock which represents approximately 66% of the outstanding voting power of our
capital stock. Accordingly, the ZaZa founders will have the ability to elect our board of directors and thereby control the management and affairs of ZaZa. Therefore, we are deemed to be a "controlled
company" for purposes of Nasdaq Rule 5615(c)(2). Under this rule, a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another
company is a "controlled company" and may elect to be exempt from certain corporate governance requirements, including requirements that (1) a majority of the board of directors consist of
independent directors, (2) compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation.

Item 1B.    Unresolved Staff Comments

None

Item 2.    Properties (see Items 1 and 2. Business and Properties)

Item 3.    Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.
Other than as set forth below, at December 31, 2011, we were not engaged in any legal proceedings that were expected, individually or in the aggregate, to have a material adverse effect on us.

ZaZa LLC

Former Officer

ZaZa LLC's former chief financial officer, who joined ZaZa LLC in April 2011, departed from the company in September
2011. His departure did not result from any disagreement regarding ZaZa LLC's financial accounting practices or policies or its financial statements. This former employee alleges that, under
the terms of his offer letter with ZaZa LLC, he is entitled to certain amounts as severance and certain net profits interests in ZaZa LLC. We believe that this former employee is not
entitled to any severance or net profits interest, and intends to vigorously defend any claims for such amounts or interests that may be brought by this former employee. On September 23, 2011,
ZaZa LLC initiated proceedings in the District Court of Harris County, Texas seeking a temporary restraining order against this former employee to enjoin him from contacting our financing
sources and from disclosing any of our confidential information. In lieu of this temporary restraining order, ZaZa LLC obtained a court-sanctioned agreement of the former employee not to
disclose any of our confidential information, which period was recently extended until the earlier of (i) the execution of a new agreement, (ii) the entry of a court order or
(iii) the conclusion of the trial of this matter. We also are seeking in the same action a declaratory judgment that the former employee is not entitled to any net profits or equity interest of
ZaZa LLC.

Hess Joint Venture

ZaZa LLC and Hess Corporation ("Hess") are parties to two Exploration and Development Agreements and Joint Operating Agreements
entered into in 2010, one set of which relates to the Hackberry Creek prospect and the other of which relates to the Eagle Ford prospect. Hess and ZaZa have recently had disagreements with each other
under these agreements relating primarily to drilling, payment and other obligations and to leasing matters. The agreements provide that disputes are

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resolved
through arbitration rather than litigation. On June 8, 2012, we executed the HoA with Hess. The HoA is subject to completion of definitive documentation. If the definitive
documentation is not completed or the parties elect to terminate the HoA, we may be forced to arbitrate. If we proceed to arbitration and an adverse finding is issued, ZaZa LLC may be required
to pay certain damages to Hess. If alternative financing and joint venture partnerships are not available on acceptable terms or at all, we may have limited ability to obtain the capital necessary to
sustain our operations at current levels.

Toreador Resources Corporation

Tiway Arbitration

Toreador entered into a Share Purchase Agreement between Tiway Oil BV ("Tiway"), Tiway Oil AS and the Company on
30 September 2009 for the purchase by Tiway of the entire issued share capital of Tiway Turkey Limited, f/k/a Toreador Turkey Limited ("TTL"). On 12 December 2011, Tiway
Oil BV ("Tiway") commenced an arbitration against Toreador by submitting a formal Request for Arbitration to the London Court of International Arbitration ("the LCIA") pursuant to the SPA.
Tiway alleges in its request for arbitration that Toreador breached representations and warranties in the SPA as to five matters:

1.Petrol Ofisi.Tiway alleges that Toreador breached its representations and warranties under the SPA in
respect of a third-party claim asserted by Petrol Ofisi against Toreador Turkey Ltd. in the amount of TRY 7.6 million ($5.1 million), for which Tiway alleges we are liable for an
estimated TRY 2.22 million (approximately $1.25 million), plus interest (currently unquantified), together with a fine of 40% of the amount claimed (i.e. an estimated further
$0.5 million). Several hearings were held on this matter throughout 2010 and 2011 regarding expert testimony. The next hearing is scheduled for June 28, 2012 as the court awaits the
experts' revised report.

2.TPAO.Tiway alleges that Toreador breached its representations and warranties under the SPA in respect of
arbitration proceedings commenced by TurkiyePetrolleriAnonimOrtakligi ("TPAO") against TTL before the International Court of Arbitration. Two claims were heard within the same arbitration in late 2011
relating to alleged damages and losses suffered by TPAO of approximately $3.7 million plus TRY 1,167,246 (approximately $0.65 million), plus interest (currently unquantified) in
connection with certain construction efforts in the South Akcakoca Sub-Basin ("SASB") gas project that were undertaken while TTL was the official operator of the SASB project. The SASB
project was governed by a joint operating agreement (the "JOA") between TPAO and TTL. In both the first and the second claims, TPAO alleges that TTL breached its obligations under the JOA. Tiway is
asserting its right to indemnification as to any amounts awarded to TPAO with respect to the arbitration.

Tiway
assumed the defense of this matter and its legal representatives in Turkey provided a detailed defense in which Tiway rejected each of the damages and losses alleged by the TPAO.
Toreador does not accept liability for the arbitration under the indemnity provided to Tiway in the SPA. Toreador is informed the results of arbitration should be received by September 30,
2012.

3.Momentum.In 2006, TTL entered into an agreement with Momentum Engineering LLC ("Momentum"). The
agreement was an EPIC contract relating to the SASB project. Momentum completed and delivered major installation works, leaving some work outstanding, namely the removal of several flotation tanks
from the Ayazli tripod. The Settlement and Release Agreement for the works, signed by Momentum, TTL and Toreador on August 13, 2008 specifically included a statement that Momentum would
undertake to remove the fallen tanks by September 30, 2008; however it did not do so. In September 2009, TPAO, the current operator for the SASB project, sought the removal of the flotation
tanks. Tiway contends that since TTL had been the operator in 2006, TTL was responsible for asking Momentum to remove the tanks, failing which TPAO would arrange for an independent contractor to do
so, whereupon TTL would be responsible for claiming the cost from Momentum. In Momentum's operation to remove the tanks in October 2009, one of the tanks fell to the seabed.

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Momentum
stated it had no intention of removing the fallen tank and TPAO thus arranged for a third party contractor to remove the tank and invoiced $118,000 to TTL for its share of the costs in
removing the tank. Tiway alleges that Toreador breached its representations and warranties under the SPA with respect to the Momentum matter and has demanded indemnification for any losses or costs
suffered by it in connection with such matter.

4.GDPA Training Obligations.Tiway alleges that Toreador breached its representations and warranties under the
SPA in respect of an alleged liability to the General Directorate of Petroleum Affairs and the Ministry of Energy of Republic of Turkey relating to the payment of training costs pursuant to the
petroleum laws of Turkey. Tiway alleges that these training costs were incurred prior to the sale of TTL to Tiway. TTL has made an estimate of its potential liability if required to meet these
training obligations of approximately $0.5 million.

5.Insurance Premiums.Tiway alleges that Toreador breached its representations and warranties under the SPA in
connection with the partial rebates of two insurance premiums. Two policies were issued in the name of TTL, but when the policies were cancelled (as agreed upon the conclusion of the SPA), the rebates
were paid to Toreador. While Tiway claims estimated damages of approximately $158,000, Toreador only received credits and rebates for approximately $108,000. In addition, the credits and rebates may
at least in part have related to policies that were not included in the scheduled policies of the SPA.

In
addition, Tiway seeks to recover the "significant" costs it has incurred in defending the above claims as damages under the SPA.

We
believe that the underlying risk associated with this arbitration is remote as it has factual and procedural defenses against the underlying claims. Toreador has recorded $150,000,
however, as the estimated cost to defend itself in connection with the arbitration.

Fallen Structures

In 2005, two separate incidents occurred offshore Turkey in the Black Sea, which resulted in the sinking of two caissons (the "Fallen
Structures") and the loss of three natural gas wells. Toreador has not been requested to or ordered by any governmental or regulatory body to remove the caissons. Therefore, Toreador believes that the
likelihood of receiving such a request or order is remote and no liability has been recorded. In connection with Toreador's sale of its 26.75% interest in the SASB project to Petrol Ofisi in March
2009 and its sale of TTL to Tiway in October 2009, Toreador agreed to indemnify Petrol Ofisi and Tiway, respectively, against and in respect of any claims, liabilities and losses arising from the
Fallen Structures. Toreador has also agreed to indemnify a third-party vendor for any claims made related to these incidents.

Lundin Indemnification

ZEF executed on August 6, 2010, an indemnification and guarantee agreement ("IGA") for a maximum aggregate amount of
€50 million to cover Lundin International ("Lundin") against any claim by a third party arising from drilling works executed by ZEF as operator on the Mairy permit. The title to
the Mairy permit was awarded to Lundin, ZEF and EnCore (E&P) Ltd jointly in August 2007. In March 2010, Lundin communicated its desire to withdraw from the permit on which no drilling works had
been performed and consequently assigned its working interest of 40% in equal parts to ZEF and EnCore (E&P) Ltd. ZEF subsequently assigned half of its now 50% working interest to Hess by virtue
of the Hess Investment Agreement. Under French mining law, all titleholders are held jointly and severally responsible for all damages and claims relating to works on a permit. Therefore, under the
IGA, ZEF agreed to indemnify Lundin upon notice of any liability or claim for damages by a third party against Lundin in connection with works performed by ZEF on the Mairy permit from
February 15, 2010 until the transfer of title of such permit is formally accepted by the French government, which is expected to occur over the next six months. No drilling works are expected
to

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begin
on the permit, if at all, until the second half of 2012, therefore no claims have been made or are currently anticipated under the IGA.

Shale Hydrocarbons and French Government

By way of an accelerated legislative procedure, the French General Assembly passed a bill on May 11, 2011 to ban hydraulic
fracturing of oil and gas wells in France. The French Senate passed an amended bill on June 9, 2011 that allowed hydraulic fracturing under a regulated framework of scientific experimentation.
A committee of representatives from both the Senate and General Assembly recommended text for the bill on June 17, 2011 that excluded the ability to undertake hydraulic fracturing in the
context of scientific experimentation. A special purpose scientific commission will present an annual report to the French legislature on whether experimental hydraulic fracturing should be allowed.
This bill was passed by the Senate on June 30, 2011 and became law on July 14th, 2011.

This
law required all operators of the 64 currently awarded exploration licenses in France to submit, by September 13, 2011, a report on the exploration methods they intend to use
in these licenses. Failure to submit would result in immediate cancellation of the relevant license. ZEF submitted all required reports in a timely fashion, stressing it will not use the now banned
practice of hydraulic fracturing.

On
October 13, 2011, the French authorities published a list of cancelled exploration licenses, which did not contain any of the exploration licenses in which Toreador has a
working interest.

We
now intend to commence our proof of concept drilling program as soon as possible. This proof of concept phase, for which the drilling has been delegated to Hess Oil France, does not
require hydraulic fracturing. Please refer to the executive overview section of "Item 7Management's Discussion and Analysis of Financial Condition and Results of Operation", for
further detail on the French legislation.

Letters of Credit

Under the terms of Toreador's derivative agreement, on any day when the current market value of the underlying contract as determined
by Vitol is greater than $103.00 per barrel, upon Vitol's first demand Toreador shall provide to Vitol margin in the form of cash and/or a standby letter of credit issued by a bank.

On
March 28, 2011, Bred, Toreador's bank, issued a Standby Letter of Credit ("SBLC") for an amount of $1.6 million in favor of Vitol SA in order to secure margin
calls under the collar contract. Toreador has pledged the same amount of financial instruments in favor of Bred as counter guarantee for the commitments of the bank under the SBLC. The amount of the
SBLC has been amended to $750,000 on September 27, 2011. The full amount of the SBLC has been classified as restricted cash in Toreador's consolidated balance sheet for the period ended
December 31, 2011.

Item 4.    Mine Safety Disclosure

None

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PART II

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

Our common stock is listed on the NASDAQ Capital Market and commenced trading on February 22, 2012 under the ticker symbol
"ZAZA." Prior to that date, there was no public market for our common stock.

As
of May 31, 2012, there were approximately 61 holders of record of our common stock and approximately 8,000 beneficial holders of our common stock.

The
following table sets forth the high and low sale prices per share of our common stock as reported by the NASDAQ Capital Market based upon quotations that reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:

2012

High

LowFirst quarter(1)

$
5.07

$
3.51Second quarter (through May 31, 2012)

$
5.18

$
2.96


(1)First
quarter figures for 2012 are given for the period from February 22, 2012 (the date our common stock commenced trading on NASDAQ) to
March 31, 2012.


No
dividends have ever been paid on our common stock. Our dividend policy is to retain earnings to finance the operations and expansion of our businesses. We do not anticipate paying any
cash dividends on our common stock at this time.

As
of December 31, 2011, there were no outstanding options, warrants, or rights on our common stock.

Item 6.    Selected Financial Data

We were formed for the purpose of being a holding company of both Toreador and ZaZa LLC from and after the completion of the
Combination. At and as of December 31, 2011, we had no cash flow, no operations and no assets or liabilities other than those incidental to our formation. From and after the Combination, which
closed on February 21, 2012, we became the parent company of ZaZa LLC and Toreador. Because the Combination was not consummated on or before December 31, 2011, the following
selected historical financial data reflect ZaZa Energy LLC and Toreador Resources Corporation separately as of and at the dates below. The historical financial data does not include any pro
forma adjustments for the HoA.

ZaZa Energy LLC

The following selected financial information is summarized from ZaZa LLC's results of operations for the period from
March 4, 2009 (inception) to December 31, 2009 and for the years ended December 31, 2010 and December 31, 2011 as well as selected balance sheet data of ZaZa LLC as
of

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December 31,
2011, 2010, 2009 and should be read in conjunction with the related financial statements and the notes thereto included herewith.

For the Year Ended
December 31,2011

2010

2009Restated**(Amounts in thousands)Operating Results:Revenues

$
17,574

$
10,495

$
100Operating costs and expenses


(20,042
)

(3,977
)

Operating income (loss)


(2,468
)

6,518


100Other income (expense)


(264
)

(2
)

Income tax expense


(123
)

(74
)

Net income (loss)

$
(2,855
)
$
6,442

$
100Balance Sheet Data:Working capital (deficit)*

$
(15,878
)
$
368

$
103Oil and natural gas properties, net


16,856


6,200


Total assets


70,007


31,727


118Debt, including current portion


8,000


3,000


15Members' equity


2,940


7,295


103Cash Flow Data:Net cash provided by (used in) operating activities

$
2,976

$
20,316

$
(15
)Capital expenditures for oil and natural gas property and equipment, including acquisitions


10,667


7,267





*A
working capital deficit is when current liabilities exceed current assets.**The
balance sheet at December 31, 2010 and the statement of operations and cash flows for the year ended December 31, 2010 are being restated
as a result of incorrect calculation of the net profits interest resulting in an additional $95,900 in general and administrative costs and corresponding accrued liability; and
non-recognition of 10 days of interest on the $3 million in partner notes resulting in an additional $6,600 in interest expense and corresponding accrued liability. The
Company previously believed these amounts to be immaterial to its 2010 financial statements, but the cumulative effect on the 2011 net loss of the corresponding out of period expenses was material to
the 2011 financial statements.


Toreador Resources Corporation

The following selected financial information is summarized from Toreador's results of operations for the five-year period
ended December 31, 2011 as well as selected consolidated balance sheet data as of December 31, 2011, 2010, 2009, 2008 and 2007 and should be read in conjunction with the consolidated
financial statements and the notes thereto included herewith.

On
June 14, 2007, the Board of Directors of Toreador authorized management to sell all our oil and natural gas properties in the United States. The sale of these properties
completed the divestiture of the Toreador's non-core U.S. assets and allowed Toreador to focus exclusively on its non-U.S. operations. The sale was closed on
September 1, 2007 for $19.1 million, which resulted in a pre-tax gain of $9.2 million.

In
the fourth quarter of 2008 and during the first quarter of 2009, Toreador farmed out or sold all of its working interests in Romania to three different companies and closed its
office; thus, Toreador was no longer have any operational involvement in Romania. This resulted in a gain of $5.8 million, which was recorded in the first quarter of 2009.

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On
March 3, 2009 Toreador completed the sale of a 26.75% interest in the South Akcakoca Sub-Basin (SASB) project associated licenses located in the Black Sea offshore
Turkey, to Petrol Ofisi for $55 million. In accordance with the revised assignment announced on February 3, 2009, $50 million of the proceeds was paid by Petrol Ofisi on
March 3, 2009, and the remaining $5 million was paid on September 1, 2009. There was no gain or loss resulting from this sale.

On
September 30, 2009, Toreador entered into a Share Purchase Agreement (the "Share Purchase Agreement") with Tiway Oil BV, a company organized under the laws of the
Netherlands ("Tiway"), and Tiway Oil AS, a company organized under the laws of Norway, pursuant to which the Company agreed to sell 100% of the outstanding shares of Toreador Turkey Ltd.
("Toreador Turkey") to Tiway for total consideration consisting of: (1) a cash payment of $10.5 million to be paid at closing, (2) exploration success payments dependent upon
certain future commercial discoveries as provided in the Share Purchase Agreement, up to a maximum aggregate consideration of $40 million, and (3) future quarterly 10%
pre-tax net profit interest payments if a field goes into production that was discovered by an exploration well drilled within four years of closing on certain of the licenses then still
held by Tiway. The sale of Toreador Turkey was completed on October 7, 2009 and resulted in a gain of $1.8 million.

On
September 30, 2009, Toreador entered into a Quota Purchase Agreement (the "Quota Purchase Agreement") with RAG (Rohöl-Aufsuchungs Aktiengesellschaft), a
corporation organized under the laws of Austria ("RAG"), pursuant to which Toreador agreed to sell 100% of its equity interests in Toreador Hungary Limited ("Toreador Hungary") to RAG for total
consideration consisting of (1) a cash payment of US$5.4 million (€3.7 million) paid at closing, (2) US$435,000 (€300,000), which was held
back subject to a post-closing adjustment and was paid to us on November 5, 2009 and (3) a contingent payment of US$2.9 million (€2 million) to
be paid upon post-transaction completion of agreements relating to certain assets of Toreador Hungary. The sale of Toreador Hungary was completed on September 30, 2009 and resulted
in a loss of $4.1 million.

The
results of operations of assets in the United States, Turkey, Hungary and Romania for 2006 to 2009 have been presented as discontinued operations in the accompanying consolidated
statements of operations.

On
May 10, 2010, ZaZa Energy France S.C.S. (formerly known as Toreador Energy France) ("ZEF."), a company organized under the laws of France and an indirect subsidiary of the
Company, entered into an Hess Investment Agreement (the "Hess Investment Agreement") with Hess Oil France S.A.S.("Hess"), a company organized under the laws of France and a wholly owned
subsidiary of Hess Corporation, a Delaware corporation, pursuant to which (x) Hess becomes a 50% holder of ZEF's
working interests in its awarded and pending exploration permits in the Paris Basin, France (the "Permits") subject to fulfillment of Work Program (as described in (y) (2) hereafter) and
(y) (1) Hess must make a $15 million upfront payment to ZEF, (2) Hess will have the right to invest up to $120 million in fulfillment of a two-phase work
program (the "Work Program") and (3) ZEF would be entitled to receive up to a maximum of $130 million of success fees based on reserves and upon the achievement of an oil production
threshold, each as described more fully below.

Pursuant
to the Hess Investment Agreement, ZEF has transferred 50% of its working interest in each Permit to Hess (collectively, the "Transfer Working Interests") and, on June 10,
2010, Hess paid ZEF $15 million plus VAT, i.e., an aggregate amount of $17.9 million (such payment having been recorded as other income for the year ended December 31, 2010
as this revenue is not subject to any further obligation or performance by the Company nor is it dependent upon any approval).

On
June 8, 2012, Hess and ZaZa executed the HoA (seeBusinessTermination of EDAs). Upon completion of the definitive
documentation contemplated by the HoA, the Investment Agreement and related agreements will be cancelled and the remainder of ZEF's working interest in its exploration permits will be transferred to
Hess in exchange for a 5% overriding revenue interest in the exploration permits.

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Under
the terms of the Hess Investment Agreement, ZEF was entitled to invoice Hess for all personal general and administrative costs associated with its activities as operator of the
Permits and such amounts are recorded as "Other operating income."

For The Year Ended December 31,2011

2010

2009

2008

2007(Amounts in thousands, except per share amounts)Operating Results:Revenues

$
35,975

$
40,764

$
19,236

$
34,150

$
25,907Operating costs and expenses


(44,037
)

(33,496
)

(35,415
)

(32,586
)

(29,473
)Operating income (loss)


(8,062
)

7,268


(16,179
)

1,564


(3,566
)Other income (expense)


(3,081
)

(9,888
)

397


(3,082
)

(2,384
)Income (loss) from continuing operations, before income tax


(11,143
)

(2,620
)

(15,782
)

(1,518
)

(5,950
)Income tax benefit (provision)


(2,431
)

(6,130
)

450


(5,502
)

1,402Income (loss) from continuing operations, net of tax


(13,574
)

(8,750
)

(15,332
)

(7,020
)

(4,548
)Income (loss) from discontinued operations, net of tax


(4,158
)

(740
)

(10,080
)

(101,585
)

(69,873
)Dividends on preferred shares














(162
)Income (loss) available to common shares

$
(17,732
)
$
(9,490
)
$
(25,412
)
$
(108,605
)
$
(74,583
)Basic income (loss) available to common shares per share

$
(0.68
)
$
(0.35
)
$
(1.24
)
$
(5.48
)
$
(4.07
)Diluted income (loss) available to common shares per share

$
(0.68
)
$
(0.35
)
$
(1.24
)
$
(5.48
)
$
(4.07
)Weighted average shares outstandingBasic


26,003


25,153


20,564


19,831


18,358Diluted


26,003


25,165


20,564


19,831


18,358Balance Sheet Data:Working capital (deficit)*

$
(230
)
$
9,326

$
(30,193
)
$
73,286

$
203,591Oil and natural gas properties, net


58,891


65,778


74,621


72,753


80,983Oil and natural gas properties held for sale, net











91,959


190,968Total assets


76,806


100,299


97,155


207,156


323,111Debt, including current portion


33,473


34,394


54,616


110,275


116,250Stockholders' equity


4,885


24,068


6,137


52,560


163,825Cash Flow Data:Net cash provided by (used in) operating activities

$
(11,347
)
$
10,535

$
(7,345
)
$
16,766

$
(12,434
)Capital expenditures for oil and natural gas property and equipment, including acquisitions


1,491


1,503


3,386


(770
)

3,824Capital expenditures for oil and natural gas property and equipment held for sale








4,528


11,472


86,820


*A
working capital deficit is when current liabilities exceed current assets.


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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain of the matters discussed under the captions "Business and Properties," "Legal Proceedings," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in this annual report may constitute "forward-looking" statements for purposes of the Securities Act of 1933, and the
Securities Exchange Act of 1934 and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements to be materially
different from future results, performance or
achievements expressed or implied by such forward-looking statements. When used in this report, the words "anticipates," "estimates," "plans," "believes," "continues," "expects," "projections,"
"forecasts," "intends," "may," "might," "could," "should," and similar expressions are intended to be among the statements that identify forward-looking statements. Various factors that could cause
the actual results, performance or achievements to differ materially from our expectations are disclosed in this report ("Cautionary Statements"), including, without limitation, those statements made
in conjunction with the forward-looking statements included under the captions identified above and otherwise herein. All written and oral forward-looking statements attributable to us are expressly
qualified in their entirety by the Cautionary Statements. Certain prior-year amounts have been reclassified and adjusted to present the operations of Turkey, Hungary and Romania as
discontinued operations.

ZaZa
Energy Corporation ("ZaZa") is a Delaware corporation formed for the purpose of being a holding company of both Toreador Resources Corporation, a Delaware corporation ("Toreador"),
and ZaZa Energy, LLC, a Texas limited liability company ("ZaZa LLC"), from and after completion of the Combination, as described below. Prior to the Combination on February 21,
2012, ZaZa had no assets and had not conducted any material activities other than those incident to its formation. However, upon the consummation of the Combination, ZaZa became the parent company of
ZaZa LLC and Toreador. In this annual report on Form 10-K, unless the context provides otherwise, "we", "our", "us" and like references refer to ZaZa, its two subsidiaries
(ZaZa LLC and Toreador) and each of their respective subsidiaries.

ZaZa's
principal executive office is located at 1301 McKinney Street, Suite 3000, Houston, Texas 77010 (telephone number: (713) 595-1900).

On
February 22, 2012 our common stock began trading on the NASDAQ Capital Market under the trading symbol "ZAZA".

Combination with ZaZa LLC Toreador Resources Corporation

On February 21, 2012, we consummated the combination (the "Combination") of ZaZa LLC and Toreador, on the terms set forth
in the Agreement and Plan of Merger and Contribution, dated August 9, 2011 and as subsequently amended by Amendment No. 1 thereto on November 10, 2011 and Amendment No. 2
thereto on February 21, 2012 (as amended, the "Merger Agreement"), by and among us, ZaZa LLC, Toreador, and Thor Merger Sub Corporation, our wholly owned subsidiary ("Merger Sub"), as
previously described in our Current Report on Form 8-K filed on February 22, 2012.

Pursuant
to the Merger Agreement, (i) Merger Sub merged with and into Toreador (the "Merger"), with Toreador continuing as the surviving entity, (ii) the three former
members of ZaZa LLC (the "ZaZa LLC Members"), holding 100% of the limited liability company interests in ZaZa LLC, directly
and indirectly contributed all of such interests to us (the "Contribution"), and (iii) the holders of certain profits interests in ZaZa LLC contributed 100% of such interests to us (the
"Profits Interests Contribution"). Upon the consummation of the Combination, Toreador and ZaZa LLC became our wholly owned subsidiaries.

The
Merger has been treated as a reverse merger under the purchase method of accounting in accordance with GAAP. For accounting purposes, ZaZa LLC is considered to have acquired
Toreador

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in
the Combination. Under the purchase method of accounting, the assets and liabilities of Toreador have been recorded at their respective fair values and added to those of ZaZa LLC in our
financial statements.

At
the effective time of the Merger, each share of common stock, par value $0.15625 per share, of Toreador issued and outstanding immediately prior to the effective time of the Merger
was converted into the right to receive one share of ZaZa common stock, par value $0.01 per share (the "Common Stock"), which in the aggregate represented 25% of the issued and outstanding shares of
Common Stock immediately after the consummation of the Combination (but without giving effect to the shares of Common Stock issuable upon exercise of the Warrants as discussed below).

Simultaneously
with the consummation of the Merger, and pursuant to the Contribution Agreement dated August 9, 2011 among the ZaZa LLC Members and ZaZa (the "Contribution
Agreement"), the ZaZa LLC Members contributed all of the direct or indirect limited liability company interests in ZaZa LLC to us in exchange for (i) a number of shares of Common
Stock that, in the aggregate, represented 75% of the issued and outstanding shares of Common Stock immediately after the consummation of the Combination (but without giving effect to the shares of
Common Stock issuable upon exercise of the Warrants as discussed below), and (ii) subordinated notes in an aggregate amount of $38.25 million issued to the ZaZa LLC Members as
partial consideration for the Combination (the "Seller Notes"). In addition, as required under the terms of the Merger Agreement and the Contribution Agreement, we issued subordinated notes in an
aggregate amount of $9.08 million to the individuals that own and control the ZaZa LLC Members, Todd Alan Brooks, Gaston L. Kearby and John E. Hearn Jr. (together, the "ZaZa Founders"),
in respect of certain unpaid compensation amounts owing to the ZaZa Founders by ZaZa LLC (the "Compensation Notes") for back salary, bonuses, incentive compensation or other compensation
payable to them by ZaZa LLC in connection with or in respect of periods prior to the consummation of the Combination. The Seller Notes and Compensation Notes accrue interest at a rate of 8% per
annum, are payable monthly in cash, and mature on August 17, 2017. Subject to certain conditions, we may make regularly scheduled interest payments to the ZaZa LLC Members and the ZaZa
Founders on these notes and may prepay these notes at any time. We are required to repay these notes, pro rata, with 20% of the proceeds of any subordinated debt financing and 20% of the proceeds of
any equity financing completed on or after the third anniversary of the issuance of the Secured Notes, which are described below.

Immediately
after the consummation of the Merger and Contribution, and pursuant to the Net Profits Interest Contribution Agreement, dated August 9, 2011, among ZaZa,
ZaZa LLC and the holders of net profits interests in ZaZa LLC, the holders of certain profits interests in ZaZa LLC completed the Profits Interests Contribution in exchange for
$4.8 million in cash.

Additionally,
in connection with the Combination, we issued senior secured notes with a principal amount of $100 million maturing in 2017 (the "Senior Notes") in a private
placement to a group of investors led by MSD Energy Partners, L.P. and Senator Investment Group LP. The Notes bear interest at a rate of 8% per annum, payable quarterly. In connection
with the issuance of the Senior Notes, ZaZa also issued to the investors warrants to purchase an aggregate of approximately 26.3 million shares of our common stock at $3.15 per share (the
"Warrants") representing 20.6% of the outstanding shares of our common stock at the Closing of the Combination, on an as-converted basis. The Warrants expire in five years and are
exercisable at any time after the six month anniversary of the issuance date.

Because
the Combination was not consummated on or before December 31, 2011, the following discussion separately reflects ZaZa LLC and Toreador as of and at such dates.

ZAZA MANAGEMENT'S DISCUSSION & ANALYSIS

The following is a discussion of the financial condition, results of continuing operations, liquidity and capital resources of ZaZa
Energy Corporation, which we refer to herein as ZaZa. This discussion should be read in conjunction with ZaZa's Financial Statements and the Notes thereto referred to in this Annual Report on
Form 10-K.

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General

ZaZa is an independent exploration and production company focused on the exploration and development of unconventional onshore oil and
gas resources in the United States
of America and Europe. ZaZa was formed for the purpose of being a holding company of both Toreador Resources Corporation ("Toreador") and ZaZa Energy LLC ("ZaZa LLC"), from and after
completion of the combination of these two companies, which was completed on February 21, 2012. Prior to this combination, ZaZa had no assets and had not conducted any material activities other
than those incident to its formation. However, upon the consummation of this combination, ZaZa became the parent company of ZaZa LLC and Toreador.

Termination of Hess EDAs

On June 8, 2012, Hess and ZaZa executed a Heads of Agreement (the "HoA") to terminate the ongoing obligations of the parties
under the EDAs (seeBusinessTermination of EDAs) and to divide the joint venture assets. Prior to the HoA's effective date of
June 1, 2012, two of ZaZa LLC's principal sources of capital were cash bonus income and reimbursable expenses from the Hess joint venture. In the future, ZaZa's principal sources of
capital are expected to be cash flow from operations, cash on hand (including the cash payment contemplated under the HoA), potential borrowings under any credit facility it may enter into and, if an
appropriate opportunity presents itself, proceeds from the sale of properties, joint ventures, and sales of debt or equity securities. Cash from operating activities is dependent upon commodity
prices, which can be extremely volatile. ZaZa's cash flow from operations will also depend upon the volume of oil and gas that ZaZa produces. Unless it otherwise expands reserves, ZaZa's production
volumes and cash flow from operations may decline as reserves are produced.

Also,
prior to the effective date of the HoA, our portion of exploration and development expenditures in the Eagle Ford was carried entirely by Hess in each of the five prospect areas
established under the terms of the Hess joint venture. Our exploration and development costs were entirely carried by Hess for each well in each prospect area, subject to a cap on the number of
carried wells in each prospect area calculated by dividing the total gross leased acreage in such prospect area by 640. For any wells drilled in a given prospect area above such number, ZaZa had the
right but not the obligation to participate in ZaZa's pro rata share of each well in that particular prospect area. ZaZa charged a portion of its G&A expenses and other related costs directly to Hess
pursuant to the terms of the EDAs. As a result of the transactions outlined in the HoA, ZaZa will no longer be able to rely on Hess to carry its exploration and development costs.

Going Concern

We have historically relied on funds from our joint venture arrangements with Hess to finance our operations, and as a result of
disagreements with Hess relating to these joint venture arrangements, as of June 1, 2012 we had a working capital deficiency of approximately $5.0 to $10.0 million. Hess and ZaZa
have executed the HoA to terminate the ongoing obligations of the parties under the EDAs, which, will provide ZaZa with $70 million in readily available funds. The HoA
is non-binding and subject to definitive documentation. In connection with the execution of the HoA, ZaZa LLC and Hess entered into an amendment to the Exploration and Development
Agreement Eagleford Shale Area dated April 28, 2010, as amended, and the applicable joint operating agreements, to eliminate Hess's obligation to carry the cost of wells under those agreements
in the Cotulla Prospect Area, in exchange for a cash payment by Hess to ZaZa LLC of $15 million. This $15 million was paid to ZaZa on June 8, 2012. The combined
$85 million will be used in offsetting amounts owed to us under the EDA of approximately $4.0 million, in settlement of third party accounts payable balance of approximately
$14.4 million, reduction of $33 million of the principal amount of our 8% senior secured notes due 2017 (the "Senior Notes"), $3.5 million in associated fees, the drilling of the
first Eaglebine well and general corporate purposes. In order to execute our long-term strategy, we will need additional debt or

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equity
financing to continue our business plan if cash flows from operations are insufficient or unavailable. In connection with obtaining a suitable waiver from the holders of our Senior Notes for
the late submission of the financial statements and going concern opinion, the Company has agreed with the lead investors of our Senior Notes to pay down $33 million of the $100 million
principal outstanding and to pay $3.5 million in associated fees at the closing of the transactions outlined under the HoA. The uncertainty surrounding the closing of the transaction with Hess
and our current lack of readily available liquidity provided by other third party sources raise doubt about our ability to continue as a going concern. Our consolidated financial statements do not
include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Senior Notes

On February 21, 2012, we entered into a securities purchase agreement (the "Purchase Agreement") with the purchasers thereunder,
including MSDC ZEC Investments, LLC and Senator Sidecar Master Fund LP (collectively, the "Purchasers"), pursuant to which we issued the Senior Notes in the aggregate principal amount of
$100,000,000 and warrants (the "Warrants") to purchase 26,315,789 shares of our Common Stock. The proceeds of the sale of the Senior Notes and the Warrants was used for the (i) repayment of the
outstanding convertible notes of Toreador and (ii) payment of fees and expenses incurred in connection with the Combination, with the balance to be used for general working capital purposes.

The
Senior Notes will mature on February 21, 2017. Subject to certain adjustments set forth in the Purchase Agreement, interest on the Secured Notes accrues at 8% per annum,
payable quarterly in cash. With respect to overdue interest payments or during periods in which an event of default under the Purchase Agreement has occurred and is continuing, the annual rate of
interest will increase to the greater of 3% per annum in excess of the non-default interest rate and 8% over the
yield to maturity for 10-Year United States treasury securities. In addition, the annual interest rate payable on the Senior Notes will increase by 0.5% per annum, beginning
181 days after the date of the Purchase Agreement, if a shelf registration statement with respect to the shares of Common Stock that are issuable upon exercise of the Warrants has not been
filed and declared effective by the SEC, and ending on the date such shelf registration statement is declared effective by the SEC, as well as for certain periods thereafter if the shelf registration
statement is no longer effective or otherwise becomes unavailable to holders of the Warrants.

The
Senior Notes are guaranteed by our domestic subsidiaries and secured by a first-priority lien on substantially all of our assets and of our domestic subsidiaries. To the extent such
assets include stock of our foreign subsidiaries, only 65% of such foreign subsidiary stock is to be pledged as security for the Secured Notes. The Secured Notes will rank senior to all of our other
debt and obligations. We are permitted to have up to $50 million in additional reserves-based secured lending (including, but not limited to, pre-paid swaps); such borrowings may be
secured by liens that come ahead of the liens securing the Senior Notes.

Beginning
on February 21, 2015, the Purchasers may require us to purchase all or a portion of the Senior Notes at a price equal to the principal amount of the Senior Notes to be
purchased, plus any accrued and unpaid interest on such notes. In addition, if a fundamental change occurs at any time prior to maturity of the Senior Notes, noteholders may require us to purchase all
or a portion of the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes to be purchased, plus any accrued and unpaid interest on such notes.

On
or prior to February 21, 2015, we may purchase at any time or from time to time any or all of the Senior Notes at 100% of the principal amount of the Senior Notes to be
purchased, plus accrued and unpaid interest on such notes, plus a make-whole premium on the principal amount of such notes. After February 21, 2015 and ending on February 21,
2016, we may purchase at any time or from time to time any or all of the Secured Notes at a price equal to 105% of the principal amount of the Senior Notes to be purchased, plus accrued and unpaid
interest on such notes. After February 21, 2016, we

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may
purchase at any time or from time to time any or all of the Secured Notes at 100% of the principal amount of the Senior Notes to be purchased, plus accrued and unpaid interest on such notes.

We
are subject to certain affirmative and negative covenants (although no financial ratio covenants) pursuant to the Senior Notes, including, without limitation, restrictions on our and
our subsidiaries' abilities to incur additional debt, pay dividends or make other distributions, redeem stock, make
investments, incur liens, enter into transactions with affiliates, merge or consolidate and transfer or sell assets, in each case subject to certain baskets and carve-outs.

Amendment and Waiver

On
June 8, 2012, we entered into an amendment and waiver (the "SPA Amendment and Waiver") to the Purchase Agreement relating to our Senior Notes. The SPA Amendment and
Waiver:



The
SPA Amendment and Waiver is subject to certain conditions, including providing December 31, 2011 annual financial statements, which are included in this Annual Report on
Form 10-K, and March 31, 2012 quarterly financial statements by June 29, 2012 and finalizing and executing definitive documentation related to the HoA by
July 31, 2012. Our failure to consummate the transactions outlined in the Hess Heads of Agreement and make such prepayment by July 31, 2012, will constitute an event of default under our
$100 million senior secured notes, giving the holders of these notes the right to accelerate payment of these notes.

The
holders of the Senior Notes also have agreed to consent to the transactions contemplated by the HoA if we pay down the outstanding principal amount of the Senior Notes by
$33.0 million and pay a $3.5 million associated fee. This pay down will be offered to each note holder on a
pro-rata basis and occur simultaneous with the closing of the transactions contemplated by the HoA. The holders of the Senior Notes also are requiring the following amendments to the
Purchase Agreement as a condition of the consent, which amendments will be entered into no later than the consummation of the transactions outlined in the HOA:



Subordinated Notes

We also have issued subordinated notes to the ZaZa Founders and to the entities they control, consisting of subordinated notes in an
aggregate amount of $38.25 million issued to the ZaZa LLC Members as partial consideration for the Combination (the "Seller Notes") and subordinated notes in an aggregate amount of
$9.08 million to the individuals that own and control the ZaZa LLC Members, in respect of certain unpaid compensation amounts owing to the ZaZa Founders by ZaZa LLC (the

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"Compensation
Notes") for back salary, bonuses, incentive compensation or other compensation payable to them by ZaZa LLC in connection with or in respect of periods prior to the consummation of
the Combination. The Seller Notes and Compensation Notes accrue interest at a rate of 8% per
annum, are payable monthly in cash, and mature on August 17, 2017. Subject to certain conditions, we may make regularly scheduled interest payments to the ZaZa LLC Members on these notes
and may prepay these notes at any time. We are required to repay these notes, pro rata, with 20% of the proceeds of any subordinated debt financing and 20% of the proceeds of any equity financing
completed on or after the third anniversary of the issuance of the Senior Notes. While these notes are subordinated to up to $150 million in senior indebtedness, including the Senior Notes, the
additional leverage created as a result of these notes will increase our debt service obligations and may make it harder for us to satisfy our existing debt obligations or obtain additional financing.
The disclosure does not include any pro forma adjustments for the HoA.

In
connection with the SPA Amendment and Waiver, the Company, the holders of the Senior Notes, the ZaZa LLC Members and the ZaZa Founders entered into an Amended and Restated
Subordination Agreement (the "Amended Subordination Agreement") on June 8, 2012. The Amended Subordination Agreement specifies that payments may not be made by us under the Seller Notes or the
Compensation Notes until after the consummation of the transactions outlined in the HoA and the related $33.0 million pay down of the principal amount of the Senior Notes.

ZAZA LLC MANAGEMENT'S DISCUSSION & ANALYSIS

The following is a discussion of the financial condition, results of continuing operations, liquidity and capital resources of ZaZa
Energy, LLC, which we refer to herein as ZaZa LLC. This discussion should be read in conjunction with ZaZa LLC's Financial Statements and the Notes thereto referred to in this
Annual Report on Form 10-K.

General

ZaZa LLC is an independent exploration and production company focused on the exploration and development of unconventional
onshore oil and gas resources in the United States of America. ZaZa began leasing oil and gas properties in its core Eagle Ford shale areas in South Texas in 2010. ZaZa LLC first focused its
efforts on lease acquisitions under the Hess joint venture, leasing approximately 98,413 gross acres (approximately 9,841 net acres) by December 31, 2010, and generating lease bonus revenues
from this leasing activity under the Hess joint venture in 2010 of approximately $9.8 million.

As
of December 31, 2011, ZaZa LLC had accumulated Eagle Ford lease acreage in the Hess joint venture of approximately 121,000 gross acres (approximately 12,100 net acres).
On June 8, 2012, Hess and ZaZa executed the HoA (seeBusinessTermination of the EDAs) to terminate the ongoing obligations of the
parties under the EDAs and to divide the assets covered by these
agreements. Prior to the consummation of the transactions contemplated by the HoA, and subject to definitive documentation, ZaZa holds a 10% working interest in the Hess joint venture properties.
Under the terms of the joint venture, Hess would have paid all of the acquisition costs, up to a cap of $500 million, and all of the exploration and development costs for a specified number of
wells until production.

ZaZa LLC's
acreage position also includes approximately 82,000 gross acres (approximately 60,000 net acres) in the Eagle Ford eastern extension, known as the "Eaglebine." On
March 29, 2012, ZaZa LLC announced that it had entered into a farm-in transaction with Range to increase its position in the Eaglebine to approximately 143,400 gross acres
(98,500 net acres). These properties were not part of the joint venture with Hess.

ZaZa
had drilled 20 wells under the Hess joint venture as of December 31, 2011 with eight others in process. Subject to availability of capital, ZaZa intends to begin drilling its
first well in the Eaglebine

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in
2012.There can be no assurance that operating income and net earnings will be achieved in future periods. ZaZa's results of operations depend upon many factors including the
following:



In
addition, please seeRisk FactorsRisks Related to the Our Companyin Item 1A for additional information.

Commodity Prices.The results of ZaZa LLC's operations are highly dependent upon the prices received for its oil and gas
production. The price
ZaZa LLC receives for its production is dependent upon spot market prices and price differentials. ZaZa LLC does not currently hedge any of its production, but to the extent that
ZaZa LLC enters into hedging transactions for any of its production in the future, as we currently expect, ZaZa will realize gains or losses on those hedges. While ZaZa LLC may enter
into long term sales contracts for oil and gas in the future, to date, all of ZaZa LLC 's sales of oil have been made in the spot market, not pursuant to long-term, fixed-price
contracts, and no gas has been sold. Accordingly, the price ZaZa LLC receives for its oil and gas production is dependent upon numerous factors beyond its control. Significant declines in
prices for oil and gas could have a material adverse effect on ZaZa LLC's financial condition, results of operations, cash flows and quantities of reserves recoverable on an economic basis.

During
the year ended December 31, 2011, the price of oil increased significantly while the average price of gas decreased from the levels experienced during year ended
December 31, 2010. During the year ended December 31, 2011, the New York Mercantile (NYMEX) price for West Texas Intermediate (WTI) averaged $96.04 per Bbl compared to $79.81 per Bbl for
the same period of 2010. NYMEX Henry Hub spot prices for gas averaged $4.15 per MMBtu for the year ended December 31, 2011 compared to $4.39 for the same period of 2010. Prices closed on
December 31, 2011 at $98.83 per Bbl of oil and $2.98 per MMBtu of gas. The realized prices that ZaZa LLC receives for its production differ from NYMEX futures and spot market prices,
principally due to:



During
the year ended December 31, 2011, differentials averaged ($2.44) per Bbl of oil and $0.10 per Mcf of gas as compared to ($7.11) per Bbl of oil and ($0.43) per Mcf of gas
during the year ended December 31, 2010. Increases in the differential between the benchmark prices for oil and gas and the wellhead price ZaZa LLC receives have in the past and could in
the future significantly reduce its revenues and cash flow from operations.

Exploration and Development Activity.On June 8, 2012, Hess and ZaZa executed the HoA to terminate the ongoing obligations of the
parties
under the EDAs and to divide the assets covered by the agreements, which, subject to definitive documentation, will result in ZaZa's asset base growing to approximately 77,400 gross acres in the Eagle
Ford, supplementing its existing approximately 143,400 gross acres (98,500 net acres) in the Eaglebine. We believe that ZaZa LLC's high quality pro forma asset base, high degree of operational
control and inventory of drilling projects position it well for future growth. ZaZa LLC's properties are concentrated in locations that facilitate substantial

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economies
of scale in drilling and production operations and more efficient reservoir management practices.

ZaZa LLC's
success is highly dependent upon its future oil and gas production, which in turn is highly dependent upon its ability to find, acquire and develop additional reserves
that are profitable to produce. The rate of production from ZaZa LLC's oil and gas properties and its proved reserves will decline as reserves are produced unless ZaZa LLC acquires
additional properties containing proved reserves, conducts successful development and exploration activities or, through engineering studies, identifies additional behind-pipe zones or
secondary recovery reserves. We cannot assure
you that ZaZa LLC's exploration and development activities will result in increases in ZaZa's proved reserves. If ZaZa LLC's proved reserves decline in the future, its production may
also decline and, consequently, its cash flow from operations, and the amount that it is able to borrow under available credit facilities, will also decline. By their nature, estimates of undeveloped
reserves are less certain. Recovery of such reserves will require significant capital expenditures and successful drilling operations. ZaZa LLC may be unable to acquire additional reserves or
develop its undeveloped reserves, in which case ZaZa LLC's results of operations and financial condition could be materially adversely affected.

Comparison of Year Ended December 31, 2011 to Year Ended December 31, 2010 (Restated)

The following table sets forth certain operating data of ZaZa LLC for the year ended December 31, 2011 and 2010:

For the Year
Ended
December 31,
2011

For the Year
Ended
December 31,
2010
(Restated)Revenues:Bonus income

$
15,027,443

$
9,777,646Oil and gas revenues


2,546,523


357,721Other income





360,000Total revenues


17,573,966


10,495,367Operating expenses:Lease operating expense and production taxes


1,037,748


22,580Depletion, depreciation, and amortization


918,690


340,891Accretion expense


2,145


General and administrative expenses, net


18,083,607


3,613,840Total operating expenses


20,042,190


3,977,311Operating income


(2,468,224
)

6,518,056Interest expense


(263,877
)

(2,260
)Income tax expense


(123,289
)

(73,507
)Net income

$
(2,855,390
)
$
6,442,289Production:Oil (Bbl)


27,784


4,331Gas (Mcf)


11,646


4,247


Revenues

Total revenue increased from $10.5 million for the year ended December 31, 2010 to $17.6 million for the year
ended December 31, 2011. Revenue generated from the bonus paid to ZaZa LLC under the Hess joint venture was $15 million for the year ended December 31, 2011 versus
$9.8 million for the comparable period in 2010. The bonus is based on completed lease acquisitions during the period, represents 10% of the total lease acquisition cost and is recognized as
revenue after all leases are obtained, title is cured and transferred to Hess, and recorded with the appropriate county. During the year ended December 31, 2011, operating revenue from the sale
of oil and gas was $2.5 million, an

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increase
of $2.2 million over the comparable period in 2010. In addition, production in the Hess joint venture commenced as the wells came online in May of 2011, increasing to
20 productive wells at year end. ZaZa LLC maintains an approximate 7% net revenue interest in such wells. The oil and gas production volumes for all wells for the year ended
December 31, 2011 were 27.8 MBbls and 11.6 MMcf, respectively.

For
the year ended December 31, 2011 and 2010, the average prices received for oil were $93.94 per Bbl and $77.80 per Bbl of oil, respectively. For the year ended
December 31, 2011 and 2010, the average prices received for gas were $3.08 per mcf and $4.88 per mcf of gas, respectively.

Other
income for the year ended December 31, 2011 was $0, decreasing from $360,000 for the same period in 2010. Other income is generated from the forfeiture by counterparties of
earnest money paid to ZaZa LLC in connection with ZaZa LLC arranging leases for such counterparties, is unpredictable, and is recognized when the forfeit occurs. The earnest money is a
deposit towards the purchase price of a lease to demonstrate that the buyer is serious about wanting to complete the purchase. If the offer is rejected, the earnest money is usually returned, since no
binding contract has been entered into. If the buyer retracts the offer or does not fulfill its obligations under the contract, the earnest money is forfeited. Income is recognized when the earnest
money is forfeited. For the year ended December 31, 2010, one such forfeiture occurred.

Operating Expenses

Lease Operating Expense ("LOE") and Production Taxes

LOE and production taxes for the year ended December 31, 2011 was $1.0 million, of which approximately
$124 thousand was attributable to production taxes and the remainder to LOE primarily lifting and labor costs, and increased from the year ended December 31, 2010 from approximately
$23,000, of which approximately $5,000 was attributable to LOE primarily related to lifting and labor costs and approximately $18,000 of which was attributable to production taxes. The increase in
production taxes is directly attributable to an increase in production due to the drilling of new wells. LOE and production tax on a per BOE basis for the year ended December 31, 2011 and 2010
was $34.91 and $4.48 per BOE, respectively.

Depletion, Depreciation and Amortization ("DD&A")

DD&A expense was $918,690 for the year ended December 31, 2011 compared to $340,891 for the year ended December 31, 2010.
Expense related to oil and gas properties was $318,355 and $235,642 for the years ended December 31, 2011 and 2010, respectively. ZaZa LLC's DD&A expense per BOE for the year ended
December 31, 2011 was $10.71, compared to a DD&A expense per BOE of $46.77 in the year ended 2010, as production leveled off and no further development costs have been incurred.

General and Administrative ("G&A") Expenses

G&A expenses increased from $3.6 million for the year ended December 31, 2010 to $18.1 million for the year ended
December 31, 2011. G&A expense for the year ended December 31, 2011 included approximately $1.1 million paid to four executives of ZaZa pursuant to net profit agreements between
ZaZa LLC and each such executive. The increase in G&A expense was primarily due to increased operating activity and start-up costs associated with initial development activities in
connection with the commencement of operations, and the increase in senior management in preparation for the Combination. ZaZa LLC has also incurred expenses of approximately
$2.4 million related to Combination costs. In addition, in the year ended December 31, 2011 and 2010, G&A expense was offset by $8.7 million and $2.9 million, respectively,
for reimbursements made under the terms of the Hess joint venture for expenses related to acquisition costs.

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Interest Expense

Interest expense for the year ended December 31, 2011 was $313,000 (offset by interest income of $49,000) compared to $2,000 in
2010 and was largely attributable to accrued interest on the revolving credit line and promissory notes payable to ZaZa LLC's members.

Income Taxes

Because ZaZa LLC is a limited liability company taxed as a partnership, income for federal income tax purposes is reportable on
the tax returns of the individual partners. Accordingly, no recognition was made for federal income taxes in the financial statements of ZaZa LLC for the year ended December, 2010 or 2011,
respectively. Provision has been made for the Texas Margin Tax which, although applied like a franchise tax to limited liability companies operating in Texas, has been determined under GAAP to be
treated as an income tax.

Comparison of Year Ended December 31, 2010 (Restated) to the Period From March 4, 2009 (inception) to December 31, 2009

The following table sets forth certain operating data of ZaZa LLC for the following periods of 2010 and 2009:

For the Year
Ended
December 31,
2010
(Restated)

For the Period
from
March 4, 2009
(Inception) to
December 31,
2009Revenues:Bonus income

$
9,777,646

$
Oil and gas revenues


357,721


Other income


360,000


100,000Total revenues


10,495,367


100,000Operating expenses:Lease operating expense and production taxes


22,580


Depletion, depreciation, and amortization


340,891


General and administrative expenses, net


3,613,840


334Total operating expenses


3,977,311


334Operating income


6,518,056


99,666Interest expense


(2,260
)

Income tax expense


(73,507
)

Net income

$
6,442,289

$
99,666Production:Oil (Bbl)


4,331


Gas (Mcf)


4,247





Revenues

Total revenue increased from $100,000 for the period from March 4, 2009 (inception) to December 31, 2009 to
$10.5 million for the year ended December 31, 2010.

In
April 2010, ZaZa LLC entered into a joint venture agreement with Hess, pursuant to which ZaZa LLC identifies certain geographical areas in the Eagle Ford shale trend
that are available for leasing and subsequently conducts exploration and production activities thereon. Under the joint venture agreement, Hess pays all acquisition costs up to a cap of
$500 million, and also pays
ZaZa LLC's portion of exploration and development expenditures on a specified number of wells (based on acreage position) in the Eagle Ford until production. After production, Hess retains a
90%

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working
interest and ZaZa LLC, as the operator, retains a 10% working interest in each subject well. Hess also pays ZaZa LLC a 10% cash bonus per net acre for each lease purchased, which
is recognized as revenue after all leases are obtained, title is cured and transferred to Hess, and recorded with the appropriate county. Cash bonuses under the Hess joint venture amounted to
approximately $9.8 million of total revenue for 2010. For the year ended December 31, 2010, there was no production from the properties inside the Hess joint venture.

ZaZa LLC's
four non-operated properties outside the Hess joint venture, for which ZaZa owns an approximate 2.5% interest, began production in 2010, with two wells
coming online in each of the first and fourth quarters of 2010. During the year ended December 31, 2010, operating revenue from the sale of oil and gas production from these four
non-operated properties was $357,721. The oil and gas production volumes for these wells over the period were 4.3 MBbls and 4.2 MMcf, respectively.

For
the year ended December 31, 2010, the average prices received for oil were $77.80 per Bbl of oil and $4.88 per Mcf of gas. In 2009, ZaZa LLC did not have oil and gas
sales.

Other
income increased by $260,000 for the year ended December 31, 2010 over 2009, from $100,000 for the period from March 4, 2009 (inception) to December 31, 2009
to $360,000 for the year ended December 31, 2010. Other income is generated from the forfeiture by counterparties of earnest money paid to ZaZa in connection with ZaZa LLC arranging
leases for such counterparties and does not occur according to a predictable schedule. For each of 2010 and 2009, one forfeiture occurred.

Operating Expenses

LOE and Production Taxes

There was no LOE or production taxes for the period from March 4, 2009 (inception) to December 31, 2009. For the year
ended December 31, 2010, LOE and production taxes were approximately $23,000, of which approximately $5,000 was attributable to LOE primarily related to lifting and labor costs and
approximately $18,000 of which was attributable to production taxes. LOE and production taxes on a per barrel of oil equivalent ("BOE") basis for the year ended December 31, 2010 was $4.48 per
BOE.

DD&A

There was no DD&A expense for the period from March 4, 2009 (inception) to December 31, 2009. DD&A expense was $340,891
for the year ended December 31, 2010, $235,642 of which was related to ZaZa LLC's oil and gas properties outside of the Hess joint venture. ZaZa LLC's DD&A expense per BOE for the
year ended December 31, 2010 was $46.77 due to the steep production declines in ZaZa's four non-operated properties outside the Hess joint venture.

G&A Expenses

G&A expense increased from $334 for the period from March 4, 2009 (inception) to December 31, 2009 to $3.6 million
for the year ended December 31, 2010. G&A expense for 2010 included $888,828 related to four executives of ZaZa LLC pursuant to net profit agreements between ZaZa and each such
executive. The increase in G&A expense was primarily due to increased operating activity and start up costs associated with initial development activities in connection with the commencement of
operations. In addition, for the year ended December 31, 2010, G&A expense was offset by $2.9 million for reimbursements made under the terms of the Hess joint venture for expenses
related to acquisition costs.

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Interest Expense

Interest expense for the year ended December 31, 2010 was $6,600 on partners' notes offset by $4,430 attributable to interest
earned on its cash sweep account. There was no interest income or expense for the comparable period ended December 31, 2009.

Income Taxes

Because ZaZa LLC is a limited liability company that has elected to be taxed as a partnership for federal income tax purposes,
income for federal income tax purposes is reportable on the tax returns of the individual partners. Accordingly, no recognition has been made for federal income taxes in the financial statements of
ZaZa. Provision of approximately $74,000 has been made for the Texas Margin Tax, which has been determined to be an income tax applicable to limited liability companies operating in Texas.

Liquidity and Capital Resources

At December 31, 2011, ZaZa LLC's current assets of approximately $50.9 million were less than current liabilities
of $66.8 million, resulting in a working capital deficit of $15.9 million. This compares to working capital of approximately $369,000 at December 31, 2010. Current liabilities at
December 31, 2011 primarily consisted of notes payable to founding members of $3 million, current debt of $5 million and trade payables and other accrued liabilities of
$58.6 million. Current assets primarily consist of cash and accounts receivable, primarily due from Hess. At December 31, 2011, cash was $10.6 million, of which $0 was related to
cash prepaid by Hess. At December 31, 2010, cash was $16.8 million, of which $9.9 million was related to cash prepaid by Hess.

The
net funds provided by and/or used in each of the operating, investing and financing activities are summarized in the following table and discussed in further detail below:

For the Period from
March 4, 2009
(Inception) to
December 31,
2009

Year Ended
December 31,
2010
(Restated)

Year Ended
December 31,
2011Net cash provided by (used in) operating activities

$
(15,838
)
$
20,315,578

$
2,975,706Net cash used in investing activities





(7,267,044
)

(12,642,034
)Net cash provided by financing activities


18,000


3,735,000


3,500,000Total

$
2,162

$
16,783,534

$
(6,166,328
)


Operating
activities for the period from March 4, 2009 (inception) to December 31, 2009 used $15,838 of cash, but provided $20.3 million of cash for the year ended
December 31, 2010. The increase in cash provided by operating activities in 2010 was attributable to net income and changes in operating assets and liabilities due to an increase in accounts
receivable, primarily from Hess. ZaZa LLC's cash flows from operating activities for the year ended December 31, 2010 includes a net increase in advances from Hess related to exploration
and development activities of $9.9 million. For the year ended December 31, 2011, operating activities provided $3.0 million of cash, reflecting net changes in operating assets
and liabilities also due to an increase in accounts receivable, primarily from Hess. ZaZa LLC's cash flows from operating activities for the period ended December 31, 2011 includes a net
decrease of $9.9 million in advances from Hess related to exploration and development activities.

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Net cash used in investing activities in 2010 was approximately $7.3 million and in 2011 increased to approximately $12.6 million, which included
$8.2 million of cash used for the acquisition of acreage in the Eaglebine area, $2.4 million in uncarried capital expenditures in the Cotulla area, and approximately $2.0 million
for furniture and fixtures as operations were established. There we no cash inflows or outflows related to investing activities in 2009.

Financing
activities in 2011 were $3.5 million, consisting of $5 million of proceeds from short term borrowings offset by $1.5 million of member distributions, while
financing activities in 2010 were $3.7 million, primarily consisting of borrowings from members and member equity contributions. Financing activities in 2009 were $18,000 consisting of $15,000
proceeds from short term borrowing and $3,000 in member contributions.

Since
ZaZa LLC was formed in March 2009, ZaZa LLC's primary sources of capital have been cash generated from cash bonuses and reimbursable expenses paid by Hess, cash
generated by operations, and short term loans from ZaZa LLC's founding members.

The
balance of the short term loans provided by ZaZa LLC's founding members was $3 million at December 31, 2011. The amounts were paid by ZaZa LLC prior to
closing of the Combination.

The
oil and gas industry is a highly capital intensive and cyclical business. ZaZa LLC's capital requirements are driven principally by its obligations to fund the
following:



ZaZa LLC's
primary cash requirements are for capital expenditures, working capital, operating expenses, and acquisitions. The amount of capital expenditures that ZaZa LLC
is able to make has a direct impact on its ability to increase cash flow from operations and, thereby, will directly affect its ability to service any debt obligations it may incur and to grow the
business through the development of existing properties and the acquisition of new properties.

To
offset the loss in production volumes resulting from natural field declines and sales of producing properties, ZaZa LLC must conduct successful exploration and development
activities, acquire additional producing properties or identify additional behind-pipe zones or secondary recovery reserves. We believe ZaZa LLC's numerous drilling opportunities
will allow it to increase production volumes; however, its drilling activities are subject to numerous risks, including the risk that no commercially productive oil and gas reservoirs will be found.
In the future, if an appropriate opportunity presents itself, ZaZa LLC may sell producing properties, which could further reduce ZaZa LLC's production volumes.

Historically,
ZaZa LLC primarily funded its operations and capital expenditures through cash bonus income from the Hess joint venture. ZaZa entered into the Hess joint venture in
April 2010. The Hess joint venture has funded the acquisition of approximately 121,000 gross acres for approximately $366 million. Through December 31, 2011, ZaZa LLC recorded
cash bonus income of $24.8 million for acquiring acreage on behalf of the Hess joint venture. The bonus income was recognized as revenue after all leases are obtained; title was cured and
transferred to Hess, and recorded with the appropriate county.

ZaZa LLC
is currently seeking a potential joint venture partner. In the event that ZaZa LLC is not able to select a suitable partner, ZaZa LLC expects to finance a
portion of its Eaglebine program with cash flow from operations. If cash flow from operations is not sufficient to fund this program, ZaZa LLC would be required to seek additional financing to
maintain and expand this program.

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The
table below sets forth the components of the capital expenditures for the period from March 4, 2009 (inception) to December 31, 2009, for the years ended
December 31, 2010 and 2011.

For the Period from
March 4, 2009
(Inception) to
December 31,
2009

For the Year
Ended
December 31,
2010

For the
For the Year
Ended
December 31,
2011Expenditure category:Exploration/Development

$


$


$
Acquisition(1)





6,435,702


10,667,126Facilities





831,342


1,974,908Total

$
0

$
7,267,044

$
12,642,034


---

Capital
expenditures for the period from March 4, 2009 (inception) to December 31, 2009 and for the year ended December 31, 2010 were $0, and $7.3 million,
respectively, and capital expenditures for the year ended December 31, 2011 were $12.6 million. During 2011 and 2010, capital expenditures were primarily related to the acquisition of
acreage in the Eaglebine. ZaZa LLC recorded no exploration or development expenditures for 2009 through 2011 in the Eagle Ford because all of ZaZa LLC's capital expenditures were carried
by Hess pursuant to the terms of the joint venture agreement. During the year ended December 31, 2011, capital expenditures were $10.7 million, primarily related to extending and
renewing leases on ZaZa's existing properties in the Eaglebine. ZaZa LLC's capital budget for 2012 includes approximately $9 million for maintaining our acreage positions. On
March 29, 2012, ZaZa LLC entered into a transaction with Range Texas Production, LLC ("Range"), a subsidiary of Range Resources Corporation, to expand ZaZa's position in the
Eaglebine to a total holding of approximately 143,400 gross acres (98,500 net acres). Under the terms of the transaction, ZaZa LLC will obtain a 75% working interest in the acquired acreage, is
the designated operator, has committed to drilling one well and has committed to making two cash payments. The amount of additional capital expenditures for the 2012 is subject to ZaZa LLC
having adequate cash flow from operations, accessing capital markets, and operating and commodity price performance. If ZaZa LLC does not have access to adequate capital, ZaZa LLC may be
required to reduce its 2012 capital budget and/or cancel projects entirely. ZaZa LLC's ability to make all of its budgeted capital expenditures will also be subject to the availability of
drilling rigs and other field equipment and services. ZaZa LLC's capital expenditures could also include expenditures for the acquisition of producing properties if such opportunities arise.
Additionally, the level of capital expenditures will vary during future periods depending on market conditions and other related economic factors. Should the prices of oil and gas decline, and if
ZaZa LLC's costs of operations increase or if its production volumes decrease, ZaZa LLC's cash flows will decrease, which may result in a reduction of its capital expenditures budget. If
ZaZa LLC decreases its capital expenditures budget, it may not be able to offset oil and gas production decreases caused by natural field declines and sales of producing properties, if any.

On
September 26, 2011, ZaZa LLC drew down on the full amount of a $5 million revolving line of credit that was recently provided by Texas Champion Bank. The line of
credit bears interest at 5.5%, matures on September 25, 2012, and is secured by a first lien on ZaZa LLC's interests in certain of its oil and gas properties. The line of credit will not
be used to finance working capital purposes. The line of credit was repaid in full at the Closing of the Combination.

Contractual Obligations

ZaZa LLC is committed to making cash payments in the future on the following types of
agreements:



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ZaZa LLC
has no off-balance sheet debt or unrecorded obligations and has not guaranteed the debt of any other party. Below is a schedule of the future payments that
ZaZa LLC is obligated to make based on agreements in place as of December 31, 2011:

Payments Due in Twelve Month Periods Ending December 31,:Contractual Obligations

Total

2012

2013

2014

2015

2016

ThereafterNotes payable(1)

$
8,000,000

$
8,000,000

$


$


$


$


$
Interest on notes payable


107,000


107,000














Operating leases


3,985,150


1,160,584


1,153,016


1,159,666


190,203


190,203


131,478Total

$
12,092,150

$
9,267,584

$
1,153,016

$
1,159,666

$
190,203

$
190,203

$
131,478


(1)Represents
ZaZa, LLC member notes payable and the revolving line of credit with Texas Champion Bank. These amounts were both paid off at the closing
of the Combination.


ZaZa LLC
maintains a reserve for costs associated with the retirement of tangible long-lived assets. At December 31, 2011, ZaZa LLC's reserve for these
obligations totaled $309,480 but was not subject to contractual commitments.

As
part of the Range transaction, effective as of March 1, 2012, ZaZa has committed to making two undisclosed cash payments and drilling one well (estimated to cost between
$4-10 million depending on whether a current wellbore may be used) in the second quarter of 2012.

Off-Balance Sheet Arrangements.At December 31, 2011, ZaZa LLC had no existing off-balance sheet arrangements
(as defined under SEC regulations) that have, or are reasonably likely to have, a current or future effect on ZaZa LLC's financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to investors.

Contingencies.From time to time, ZaZa LLC may be involved in litigation relating to claims arising out of ZaZa LLC's
operations in the
normal course of business. At December 31, 2011, ZaZa LLC was not engaged in any legal proceedings that were expected, individually or in the aggregate, to have a material adverse effect
on ZaZa LLC.

Related Party Transactions.For the year ended December 31, 2010, ZaZa LLC received revenue totaling $75,125 from
Neuhaus Brooks
Investment, LLC, which is owned by a member of ZaZa LLC, as oil and gas production revenue. No such revenue was received in 2011. ZaZa LLC also entered into $3 million
notes payable with its founding members in conjunction with the merger. These notes bear 8% interest per annum. These notes were paid off at closing of the Combination. Effective May 1, 2010,
ZaZa LLC and its members entered into a compensation agreement in which base salary, discretionary bonus and incentive compensation were defined. Incentive compensation is based on the
fulfillment of certain performance metrics and a "Company liquidity event," defined therein as an initial public offering, merger, reverse merger, financing or other availability of capital deemed
financially beneficial to ZaZa LLC. As of December 31, 2011 and 2010, ZaZa LLC had an outstanding commitment to its members in the amount of $16.2 million and
$4.6 million, respectively, related to performance metrics achieved. At the closing of the Combination, the compensation amounts were paid down and replaced with subordinated notes having an
aggregate principal amount of $9.1 million.

Each
of the three ZaZa LLC managing partners has a direct or indirect interest in an overriding royalty interest generally equal to one percent (1%) (for a total of three percent
(3%)) in:



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In
March 2010, ZaZa LLC entered into an agreement with the ZaZa LLC members and Eli Smith & Associates, which we refer to as Smith, to acquire 100% working interests
in any unproved acreage identified in a defined area of mutual interest located in the Colorado and Lavaca counties of Texas. During the year ended December 31, 2011, ZaZa LLC acquired
acreage totaling approximately $6.1 million pursuant to this agreement. During the year ended December 31, 2010, ZaZa LLC acquired acreage totaling approximately
$28.9 million pursuant to this agreement; $6.2 million of the purchase price was in the form of $3 million notes payable due to the ZaZa LLC members and $3.2 million
in accounts payable due to ZaZa LLC members, which was paid in January 2011. The ZaZa LLC managing partners and Smith retain a direct or indirect reserved overriding royalty interest
generally equal to three percent (3%) in each property sold to ZaZa LLC, which is divided pro-rata among the four sellers in the transactions. Simultaneously with each purchase,
ZaZa LLC pursuant to a separate agreement sells 90% of the acquired working interests to Hess, retaining a 10% working interest in each property. No gain or loss was recognized on the sales to
Hess.

One
of ZaZa LLC's designees to the ZaZa initial board of directors, Travis H. Burris, currently owns a 45% interest in, and serves as Chairman and President of, Texas Champion
Bank. ZaZa LLC had a $5 million revolving line of credit with Texas Champion Bank under which the full amount was drawn on December 31, 2011. The line of credit bears interest at
5.5%, matures on September 25, 2012, and is secured by a first lien on ZaZa LLC's interests in certain of its oil and gas properties. The loan was paid off at the closing of the
Combination.

ZaZa LLC
has no full time employees, but has entered into a management agreement (the "Management Agreement") with Sequent Petroleum Management, LLC ("SPM") pursuant to
which SPM provides ZaZa LLC with contractors and consultants and their related benefits programs in exchange for a monthly fee for managing such personnel. One of the principals of SPM, Scott
Gaille, was appointed our Chief Compliance Officer, effective March 2012. ZaZa LLC reimburses SPM for the
costs of the personnel under the Management Agreement, including for the costs of their insurance and other benefits. SPM handles all payroll, tax, accounting and benefit services for the contractors
and consultants provided under the Management Agreement. In 2011, ZaZa LLC paid SPM $6.3 million (including $50 thousand in management fees) under this agreement.

Lot-A-Go
5 ("LG5") is an airplane rental company in which Todd Brooks and Gaston Kearby hold partnership interests. From time to time, ZaZa LLC will rent a
plane for business travel reasons. ZaZa LLC is charged for the pilots' time, hanger fees and fuel. In addition, at December 31, 2011, ZaZa LLC had a payable to LG5 for $80,000
related to the reminder of a short term working capital loan that bears no interest. We cancelled our arrangement with LG5 in the second quarter of 2012.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires that management apply accounting policies and make estimates
and assumptions that affect results of operations and the reported amounts of assets and liabilities in the financial statements. The following represents those policies that management believes are
particularly important to the financial statements and that require the use of estimates and assumptions to describe matters that are inherently uncertain.

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Revenue Recognition and Imbalances.Oil and gas revenues are recognized when production is sold to a purchaser at a fixed or
determinable price, when
delivery has occurred and title has transferred, and if collectability of the revenue is probable. The amount of oil or gas sold may differ from the amount to which Zaza LLC is entitled based
on its working interest or net revenue interest in the properties. Revenue is recorded when title is transferred based on Zaza LLC's nominations and net revenue interests. Pipeline imbalances
occur when production delivered into the pipeline varies from the gas Zaza LLC nominated for sale. Pipeline imbalances are settled with cash approximately thirty days from date of production
and are recorded as a reduction of revenue or increase of revenue depending upon whether Zaza LLC is over-delivered or under-delivered. Settlements of oil and gas sales occur after
the month in which the product was produced. Zaza LLC estimates and accrues for the value of these sales using information available at the time financial statements are generated. Differences
are reflected in the accounting period during which payments are received from the purchaser. Zaza LLC also derives revenue from a bonus paid by Hess on leasehold amounts that Zaza LLC
leases on behalf of the Hess joint venture. The bonus amount is equal to 10% of the sum of
all direct costs associated with acquiring the net mineral acres as defined in the Hess joint venture agreement and is recognized as revenue after the leases are obtained, title is cured and
transferred to Hess, and recorded with the appropriate county.

Successful Efforts Method of Accounting for Oil and Gas Activities.ZaZa LLC accounts for its gas and crude oil exploration
and production
activities under the successful efforts method of accounting. Oil and gas lease acquisition costs are capitalized when incurred. Lease rentals are expensed as incurred. Oil and gas exploration costs,
other than the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether they have discovered
proved commercial reserves. Exploratory drilling costs are capitalized when drilling is complete if it is determined that there is economic producibility supported by either actual production or a
conclusive formation test. If proved commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved commercial reserves have been
found when drilling has been completed. Such exploratory well drilling costs may continue to be capitalized if the reserves quantity is sufficient to justify its completion as a producing well and
sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. Costs to develop proved reserves, including the costs of all development wells and
related equipment used in the production of oil and gas, are capitalized. Unproved properties with individually significant acquisition costs are amortized over the lease term for such properties and
analyzed on a property-by-property basis for any impairment in value. Unproved properties with acquisition costs that are not individually significant are aggregated, and the
portion of such costs estimated to be nonproductive is amortized over the remaining lease term. If the unproved properties are determined to be productive, the appropriate related costs are
transferred to proved oil and gas properties.

ZaZa LLC's
engineers estimate proved oil and gas reserves, which directly impact financial accounting estimates, including depreciation, depletion, and amortization. Proved
reserves represent estimated quantities of oil and condensate, natural gas liquids and gas that geological and engineering data demonstrate, with reasonable certainly, to be recovered in future years
from known reservoirs under economic and operating conditions existing at the time the estimates were made. The process of estimating quantities of proved oil and gas reserves is very complex,
requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially
over time as a result of numerous factors including, but not limited to, additional development activity, evolving producing history and continual reassessment of the viability of production under
varying economic conditions. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time.

Depreciation,
depletion and amortization of the cost of proved oil and gas properties are calculated using the unit-of-production method. The reserves base used
to calculate depreciation,

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depletion
and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. With respect to lease and
well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. Estimated future dismantlement, restoration
and abandonment costs, net of salvage values, are taken into account. Certain other assets, including gathering and processing facilities, are depreciated on a straight-line basis over the
estimated useful life of the asset.

Assets
are grouped in accordance with the Extractive Industries Oil and Gas Topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). The
basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.

Amortization
rates are updated quarterly to reflect: (i) the addition of capital costs, (ii) reserves revisions (upwards or downwards) and additions, (iii) property
acquisitions and/or property dispositions and (iv) impairments. When circumstances indicate that an asset may be impaired, ZaZa LLC compares expected undiscounted future cash flows at a
producing field level to the unamortized capitalized cost of the asset. If the future undiscounted cash flows, based on ZaZa LLC's estimate of future gas and oil prices, operating costs,
anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is calculated by
discounting the future cash flows at an appropriate risk-adjusted discount rate.

Reserves Estimate.Proved reserves are estimated quantities of oil and gas, which, by analysis of geoscience and engineering
data, can be estimated
with reasonable certainty to be economically produciblefrom a given date forward recoverable in future years from known reservoirs, and under existing economic conditions, operating
methods, and government regulationsprior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. Proved
developed reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively
minor compared to the cost of a new well and through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a
well. Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for
recompletion. Proved undeveloped reserves on undrilled acreage are limited (i) to those directly offsetting development spacing areas that are reasonably certain of production when drilled,
unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances and (ii) to other undrilled locations if a development plan
has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time.

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Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely
as not to be recovered. When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When
probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates. Probable reserves may
be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or
productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the
proved reservoir. Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.

Possible
reserves are those additional reserves that are less certain to be recovered than probable reserves. When deterministic methods are used, the total quantities ultimately
recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total
quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates. Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves
where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area
and vertical limits of commercial production from the reservoir by a defined project. Possible reserves also include incremental quantities associated with a greater percentage recovery of the
hydrocarbons in place than the recovery quantities
assumed for probable reserves. We emphasize that the volume of reserves are estimates that, by their nature are subject to revision.

The
estimates are made using geological and reservoir data, as well as production performance data. These estimates are reviewed annually and revised, either upward or downward, as
warranted by additional performance data. These reserve revisions result primarily from improved or a decline in performance from a variety of sources such as an addition to or a reduction in
recoveries below or above previously established lowest known hydrocarbon levels, improved or a decline in drainage from natural drive mechanisms, and the realization of improved or declined drainage
areas. If the estimates of proved reserves were to decline, the rate at which we record depletion expense would increase.

Impairment of Oil Properties.We review our proved oil properties for impairment on an annual basis or whenever events and
circumstances indicate a
potential decline in the recoverability of their carrying value. We estimate the expected future cash flows from our proved oil properties and compare these future cash flows to the carrying value of
the oil properties to determine if the carrying value is recoverable. If the carrying value exceeds the estimated undiscounted future cash flows, we will adjust the carrying value of the oil
properties to its fair value in the current period. The factors used to determine fair value include, but are not limited to, estimates of reserves, future commodity prices, future production
estimates, anticipated capital expenditures, and a discount rate commensurate with the risk associated with realizing the expected cash flows projected. Unproved properties are reviewed quarterly to
determine if there has been impairment of the carrying value, with any such impairment charged to expense in the period. Given the complexities associated with oil reserve estimates and the history of
price volatility in the oil market, events may arise that will require us to record an impairment of our oil properties and there can be no assurance that such impairments will not be required in the
future nor that they will not be material.

Future Development and Abandonment Costs.Future development costs include costs to be incurred to obtain access to proved
reserves, including
drilling costs and the installation of production equipment. Future abandonment costs include costs to dismantle and relocate or dispose of our production equipment, gathering systems, wells and
related structures and restoration costs of land. We

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develop
estimates of these costs for each of our properties based upon the type of production structure, depth of water, reservoir characteristics, depth of the reservoir, market demand for equipment,
currently available procedures and consultations with construction and engineering consultants. Because these costs typically extend many years into the future, estimating these future costs is
difficult and requires management to make estimates and judgments that are subject to future revisions based upon
numerous factors, including changing technology, the ultimate settlement amount, inflation factors, credit adjusted discount rates, timing of settlement and changes in the political, legal,
environmental and regulatory environment. We review our assumptions and estimates of future abandonment costs on an annual basis. The accounting for future abandonment costs changed on
January 1, 2003, with the adoption of FASB ASC 410 Asset Retirement and Environmental Obligations." ASC 410 requires that the fair value of a liability for an asset retirement obligation be
recorded in the period in which it is incurred and the corresponding cost be capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its
present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss
is recognized.

Holding
all other factors constant, if our estimate of future abandonment costs is revised upward, earnings would decrease due to higher depreciation, depletion and amortization expense.
Likewise, if these estimates were revised downward, earnings would increase due to lower depreciation, depletion and amortization expense.

TOREADOR RESOURCES CORPORATION

EXECUTIVE OVERVIEW

Toreador is an independent energy company engaged in the exploration and production of crude oil with interests in developed and
undeveloped oil properties in the Paris Basin, France. Toreador is currently focused on the development of our conventional fields and the exploration of the numerous oil plays within its Paris Basin
acreage position.

Toreador
operates solely in the Paris Basin, which covers approximately 170,000 km2 of northeastern France, centered 50 to 100 km east and south of Paris. At December 31, 2011
Toreador held interests in approximately 997,000 gross exploration acres (awarded and pending publication). According to Gaffney, Cline & Associates Ltd, an independent petroleum and
geological engineering firm, or Gaffney Cline, as of December 31, 2011, Toreador's proved reserves were 5.8MMBBLS, its proved plus probable reserves were 8.8MMBBLS and its proved plus probable
plus possible reserves were 13.8MMBBLS. Toreador's production for 2011 averaged approximately 854BBL/D from two conventional oilfield areas in the Paris Basinthe Neocomian Complex and
Charmottes fields. As of December 31, 2011, production from these oil fields represented a majority of Toreador's total revenue and substantially all of its sales and other operating revenue.
We intend to maintain production from these mature assets using suitable enhanced oil recovery techniques. The following does not include any pro forma adjustments for the HoA.

Recent Developments

Concessions Renewal

The decrees relating to the renewal of the Châteaurenard concession and of the
Saint-Firmin-des-Bois concession, which together account for 93% of Toreador's existing reserves, received final French government approvals on February 1, 2011, and
were published in the Official Journal (Journal Officiel de la République Française) on February 3, 2011. The renewals extend the expiration date of both
concessions to January 1, 2036

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Financial Summary

For the twelve months ended December 31, 2011:



At
December 31, 2011, we had:



Following
the repurchase of $32,256,000 aggregate principal amount of the 5.00% Convertible Senior Notes on October 1, 2010 and the redemption of the remaining $129,000 principal
amount outstanding of the 5.00% Convertible Senior Notes on November 24, 2010, as of December 31, 2011, Toreador's long-term debt consisted solely of the 8.00%/7.00%
Convertible Senior Notes in an aggregate principal nominal amount of $31,631,000 recorded at a fair value of $33,473,000.

On
February 22, 2012, in connection with the Combination, Toreador used part of the proceeds from the sale of the Secured Notes and Warrants to repurchase $31,631,000 in aggregate
principal amount of its 8.00%/7.00% Convertible Senior Notes at face value plus accrued interest. This represented all of its outstanding long-term debt.

Critical Accounting Policies

The discussion and analysis of Toreador's financial condition and results of operations is based upon the consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Toreador to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Toreador's significant accounting policies are described in "Note 2Significant
Accounting Policies" to its consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. We have identified below
policies that are of particular importance to the portrayal of Toreador's financial position and results of operations and which require the application of significant judgment by management. We
analyze our estimates on a periodic basis and base our estimates on experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from
these estimates using different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our
financial statements:

Successful Efforts Method of Accounting

Toreador accounts for its oil and natural gas exploration and development activities utilizing the successful efforts method of
accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Oil and natural gas lease acquisition costs are
also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and delay rentals for oil and natural gas leases, are charged to expense as incurred.
Exploratory drilling costs are initially capitalized, but such costs are charged to

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expense
if and when the well is determined not to have found reserves in commercial quantities. In most cases, a gain or loss is recognized for sales of producing properties.

As
of December 31, 2011, Toreador had $0.2 million of costs associated with exploratory costs that had been capitalized for a period of one year or less.

As
of December 31, 2011, Toreador had $3.0 million of costs associated with exploratory costs that have been capitalized for a period of greater than one year.

The
application of the successful efforts method of accounting requires management's judgment to determine the proper designation of wells as either developmental or exploratory, which
will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze, and the determination that commercial
reserves have been discovered requires both judgment and application of industry experience. Wells may be completed that are assumed to be productive and actually deliver oil and natural gas in
quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. On occasion, wells are drilled which have targeted geologic structures that are both
developmental and exploratory in nature, and in such instances an allocation of costs is required to properly account for the results. Delineation seismic costs incurred to select development
locations within a productive oil and natural gas field are typically treated as development costs and capitalized, but often these seismic programs extend beyond the proved reserve areas and
therefore management must estimate the portion of seismic costs to expense as exploratory. The evaluation of oil and natural gas leasehold acquisition costs requires management's judgment to estimate
the fair value of exploratory costs related to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.

The
successful efforts method of accounting can have a significant impact on the operational results reported when we enter a new exploratory area in hopes of finding oil and natural gas
reserves. The initial exploratory wells may be unsuccessful and the associated costs will be expensed as dry hole costs. Seismic costs can be substantial which will result in additional exploration
expenses when incurred.

Reserves Estimate

Proved reserves are estimated quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with
reasonable certainty to be economically produciblefrom a given date forward recoverable in future years from known reservoirs, and under existing economic conditions, operating methods,
and government regulationsprior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. Proved developed
reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor
compared to the cost of a new well and through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.
Proved undeveloped reserves on undrilled acreage are limited (i) to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence
using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances and (ii) to other undrilled locations if a
development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time.

Probable
reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.
When

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deterministic
methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used,
there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates. Probable reserves may be assigned to areas of a
reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet
the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir. Probable
reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.

Possible
reserves are those additional reserves that are less certain to be recovered than probable reserves. When deterministic methods are used, the total quantities ultimately
recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total
quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates. Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves
where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area
and vertical limits of commercial production from the reservoir by a defined project. Possible reserves also include incremental quantities associated with a greater percentage recovery of the
hydrocarbons in place than the recovery quantities assumed for probable reserves.

We
emphasize that the volume of reserves are estimates that, by their nature are subject to revision. The estimates are made using geological and reservoir data, as well as production
performance data. These estimates are reviewed annually and revised, either upward or downward, as warranted by additional performance data. These reserve revisions result primarily from improved or a
decline in performance from a variety of sources such as an addition to or a reduction in recoveries below or above previously established lowest known hydrocarbon levels, improved or a decline in
drainage from natural drive mechanisms, and the realization of improved or declined drainage areas. If the estimates of proved reserves were to decline, the rate at which we record depletion expense
would increase.

For
the year ended December 31, 2011, notwithstanding the 2011 total production of approximately 312 MBOE, our proved and probable reserves remain essentially flat for the twelve
months ended December 31, 2011 as compared to the twelve months ended December 31, 2010. This stability can be correlated to a better long-term performance of our main
producing asset, the Neocomian Complex, and a higher oil price; our reserves at December 31, 2011 were priced at $108.9 per BBL, as compared to $79.35 at December 31, 2010.

Impairment of Oil Properties

Toreador reviews its proved oil properties for impairment on an annual basis or whenever events and circumstances indicate a potential
decline in the recoverability of their carrying value. We estimate the expected future cash flows from Toreador's proved oil properties and compare these future cash flows to the carrying value of the
oil properties to determine if the carrying value is recoverable. If the carrying value exceeds the estimated undiscounted future cash flows, we will adjust the carrying value of the oil properties to
its fair value in the current period. The factors used to determine fair value include, but are not limited to, estimates of reserves, future commodity prices, future production estimates, anticipated
capital expenditures, and a discount rate commensurate with the risk associated with realizing the expected cash flows projected. Unproved properties are reviewed quarterly to determine if there has
been impairment of the carrying value, with any such impairment charged to expense in the period. Given the complexities associated with oil reserves estimate and the history of price volatility in
the oil market, events may arise that will require us to record an impairment of our

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oil
properties and there can be no assurance that such impairments will not be required in the future nor that they will not be material.

Toreador
recorded no impairment for continuing operations in the twelve months ended December 31, 2011, 2010, 2009.

Future Development and Abandonment Costs

Future development costs include costs to be incurred to obtain access to proved reserves, including drilling costs and the
installation of production equipment. Future abandonment costs include costs to dismantle and relocate or dispose of our production equipment, gathering systems, wells and related structures and
restoration costs of land. We develop estimates of these costs for each of Toreador's properties based upon the type of production structure, depth of water, reservoir characteristics, depth of the
reservoir, market demand for equipment, currently available procedures and consultations with construction and engineering consultants. Because these costs typically extend many years into the future,
estimating these future costs is difficult and requires management to make estimates and judgments that are subject to future revisions based upon numerous factors, including changing technology, the
ultimate settlement amount, inflation factors, credit adjusted discount rates, timing of settlement and changes in the political, legal, environmental and regulatory environment. We review our
assumptions and estimates of future abandonment costs on an annual basis. The accounting for future abandonment costs changed on January 1, 2003, with the adoption of FASB ASC 410 "Asset
Retirement and Environmental Obligations". ASC 410 requires that the fair value of a liability for an asset retirement obligation be recorded in the period in which it is incurred and the
corresponding cost be capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. In 2005, two separate incidents occurred
offshore Turkey in the Black Sea, which resulted in the sinking of the Fallen Structures and the loss of three natural gas wells. Toreador has not been requested, or ordered by any governmental or
regulatory body, to remove the Fallen Structures. Therefore, we believe it is unlikely that Toreador will receive such a request or order, and no liability has been recorded.

Holding
all other factors constant, if our estimate of future abandonment costs is revised upward, earnings would decrease due to higher depreciation, depletion and amortization expense.
Likewise, if these estimates were revised downward, earnings would increase due to lower depreciation, depletion and amortization expense.

Income Taxes

For financial reporting purposes, we generally provide taxes at the rate applicable for the appropriate tax jurisdiction. Because our
present intention is to reinvest the unremitted earnings in our foreign operations, we do not provide U.S. income taxes on unremitted earnings of foreign subsidiaries. Management periodically assesses
the need to utilize these unremitted earnings to finance our foreign operations. This assessment is based on cash flow projections that are the result of estimates of future production, commodity
prices and expenditures by tax jurisdiction for our operations. Such estimates are inherently imprecise since many assumptions utilized in the cash flow projections are subject to revision in the
future.

Management
also periodically assesses, by tax jurisdiction, the probability of recovery of recorded deferred tax assets based on its assessment of future earnings estimates. Such
estimates are inherently imprecise since many assumptions utilized in the assessments are subject to revision in the future.

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Derivatives

Toreador periodically utilizes derivatives instruments such as futures and swaps for purposes of hedging our exposure to fluctuations
in the price of crude oil sales. In accordance with FASB ASC 815, "Derivatives and Hedging," we have elected not to designate the derivative financial instruments to which Toreador is a party as
hedges, and accordingly, we record such contracts at fair value as an asset or a liability and recognize changes in such fair value in current earnings as they occur. We determine the fair value of
futures and swap contracts based on the difference between their fixed contract price and the underlying market price at the determination date. The realized and unrealized gains and losses on
derivatives are recorded as a derivative fair value gain or loss in the income statement.

Foreign Currency Translation

The functional currency for France is the Euro. Translation gains and losses resulting from transactions in Euros are included in other
comprehensive income for the current period. We periodically review the operations of our entities to ensure the functional currency of each entity is the currency of the primary economic environment
in which Toreador operates.

Bad debt allowance

An allowance for doubtful accounts is calculated on a customer by customer basis per management's review of the collectability

New Accounting Pronouncements

On December 31, 2008 the SEC issued the final rule, "Modernization of Oil and Gas Reporting" (the "Final Reporting Rule"). The
Final Reporting Rule adopts revisions to the SEC's oil and gas reporting disclosure requirements and is effective for annual reports on Forms 10-K for years ending on or after
December 31, 2009. The revisions are intended to provide investors with a more meaningful and comprehensive understanding of oil and gas reserves to help investors evaluate their investments in
oil and gas companies. The amendments are also designed to modernize the oil and gas disclosure requirements to align them with current practices and changes in technology. Revised requirements in the
Final Reporting Rule include, but are not limited to:



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We have adopted the disclosure requirements beginning with the year ended December 31, 2009.

On
July 21, 2010, the FASB issued ASU 2010-20, Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
("ASU 2010-20"). ASU 2010-20 amends existing disclosure guidance to require entities to provide extensive new disclosures in their financial statements about
their financing receivables, including credit risk exposures and the allowance for credit losses. ASU 2010-20 is effective for fiscal and interim periods beginning after
December 15, 2010. The adoption of this standard had no impact on our disclosure requirements.

In
December 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
("ASU 2010-28"). ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. This eliminates an
entity's ability to assert that a reporting unit is not required to perform Step 2 because the carrying amount of the reporting unit is zero or negative despite the existence of qualitative factors
that indicate the goodwill is more likely than not impaired. ASU 2010-28 is effective for fiscal and interim periods beginning after December 15, 2010. We do not believe that
the adoption of this standard will have a material impact on our consolidated financial statements.

In
December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations ("ASU 2010-29").
ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the
business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 is effective
prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. We do not
believe that the adoption of this standard will have a material impact on our consolidated financial statements.

On
January 1, 2011, Toreador adopted changes issued by the FASB to revenue recognition for multiple-deliverable arrangements"ASU
2009-13Multiple-Deliverable Revenue Arrangements (EITF Issue 08-1; ASC 605)". The adoption of these changes had no impact on our condensed
consolidated financial statements, as Toreador does not currently have any such arrangements with its customers.

On
January 1, 2011, Toreador adopted changes issued by the FASB to the classification of certain employee share-based payment awards"ASU
2010-13Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (EITF Issue
09-J; ASC 718)". The adoption of these changes had no impact on the consolidated financial statements.

On
January 1, 2011, Toreador adopted changes issued by the FASB to the testing of goodwill for impairment"ASU 2010-28When
to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (EITF Issue 10-A; ASC 350)". These changes require an
entity to perform all steps in the test for a reporting unit whose carrying value is zero or negative if it is more likely than not (more than 50%) that a goodwill impairment exists based on
qualitative factors. This will result in the elimination of an entity's ability to assert that such a reporting unit's goodwill is not impaired and additional testing is not necessary despite the
existence of qualitative factors that indicate otherwise. As Toreador's reporting unit carrying value is not zero or negative, the adoption of these changes had no impact on our consolidated financial
statements.

On
January 1, 2011, Toreador adopted changes issued by the FASB to the disclosure of pro forma information for business combinations(ASU
2010-29Disclosure of Supplementary Pro Forma Information for Business Combinations (EITF Issue 10-G; ASC 805). The adoption of these
changes had no impact on our consolidated financial statements.

In
June 2011, the FASB issued "ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05)."
ASU 2011-05 will require companies to present the

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components
of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive
income as part of the statement of changes in stockholders' equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when
they must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011. Because this ASU impacts presentation only, we do not
expect this standard to have a material effect on our financial condition, results of operations or cash flows.

In
September 2011, the FASB issued ASU No. 2011-08, "Intangibles-Goodwill and Other (ASC Topic 350)," This accounting update allows entities to perform a qualitative
assessment on goodwill impairment to determine whether it is more likely than not (defined having a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance is effective for goodwill impairment tests performed in
interim and annual periods for fiscal years beginning after December 15, 2011. Toreador is currently evaluating the potential impact, if any, of the adoption of this guidance in its
consolidated financial statements; however, we do not expect the adoption of this guidance will have a material effect on our financial position, cash flows or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

This section should be read in conjunction with "Note 9Long Term Debt" in the Notes to the Consolidated Financial
Statements included in this filing.

Liquidity

Toreador's liquidity depends on cash flow from operations and existing cash resources. As of December 31, 2011, we had cash and
cash equivalents of $5.7 million, a current ratio of approximately 0.98 to 1 and a debt to equity ratio of 14.7 to 1. For the twelve months ended December 31, 2011, Toreador had an
operating loss of $8.1 million. Toreador had sales and operating revenue of $36.0 million. Toreador had no other capital expenditures apart from technical studies of La
Garenne for $189,000. Toreador does not currently have a credit facility and intends to rely on its cash balance to meet its immediate cash requirements.

Toreador's
cash flow from operations is highly dependent upon the prices received from our oil production, which are dependent on numerous factors beyond our control. Accordingly,
significant changes to oil prices are likely to have a material impact on our financial condition, results of operation, cash flows and revenue. Oil prices have been very volatile over the fiscal year
of 2011, and we expect, will continue to be, volatile in the fiscal year 2012. In order to reduce our exposure to crude oil price fluctuations, on November 2, 2010, we have entered into a
collar contract for approximately 15,208 BBL per month for the months of January 2011 through December 2011 for which the floor price is $78.00 per BBL, and the ceiling price is $91.00 per BBL. See
"Note 17Derivatives" for further information.

On
February 1, 2010, Toreador consummated an exchange transaction (the "Convertible Notes Exchange"). In the Convertible Notes Exchange, in exchange for (a) $22,231,000
principal amount of our outstanding 5.00% Convertible Senior Notes (the "Old Notes") and (b) $9.4 million cash, we issued $31,631,000 aggregate principal amount of our 8.00%/7.00%
Convertible Senior Notes due 2025 (the "New Convertible Senior Notes") and paid accrued and unpaid interest on the Old Notes.

On
February 12, 2010, Toreador completed a registered underwritten public offering of 3,450,000 shares of common stock, including 450,000 shares of common stock acquired by the
underwriters from us to cover over-allotment options. The net proceeds to Toreador from the offering were approximately $26.8 million, after deducting underwriting discounts,
commissions and estimated offering expenses.

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Toreador
used the net proceeds, together with cash on hand, to satisfy payment obligations arising from the holders' exercise of their right on October 1, 2011 to require the Company to
repurchase its 5.00% Convertible Senior Notes. Following the repurchase of $32,256,000 aggregate principal amount of the 5.00% Convertible Senior Notes on October 1, 2010 and the redemption of
the remaining $129,000 principal amount outstanding of the 5.00% Convertible Senior Notes on November 24, 2010, Toreador's long-term debt currently consists solely of the
8.00%/7.00% Convertible Senior Notes.

On
February 22, 2012, in connection with the Combination, Toreador used part of the proceeds from the sale of the Secured Notes and Warrants to repurchase $31,631,000 in aggregate
principal amount of its 8.00%/7.00% Convertible Senior Notes at face value plus accrued interest. This represented all of its outstanding long-term debt.

Toreador
currently has no mandatory capital expenditures in 2012; however, we intend to formulate a development plan for the La Garenne field. In addition, under French law, each of
Toreador's exploration permits and exploitation concessions require that Toreador commit to expenditures of a certain amount over the period of the applicable permit or concession. Though we consider
these amounts discretionary, such expenditures would be required to renew such permits.

We
believe we will have sufficient cash flow from operations and cash on hand to meet all of our 2012 obligations.

8.00%/7.00% Convertible Senior Notes Due October 1, 2025

On February 1, 2010, Toreador consummated an exchange transaction (the "Convertible Notes Exchange"). In the Convertible Notes
Exchange, in exchange for (a) $22,231,000 principal amount of our outstanding 5.00% Convertible Senior Notes (the "Old Notes") and (b) $9.4 million cash, we issued $31,631,000
aggregate principal amount of our 8.00%/7.00% Convertible Senior Notes (the "New Convertible Senior Notes") and paid accrued and unpaid interest on the Old Notes.

Toreador
incurred approximately $1.9 million of costs associated with the issuance of the New Convertible Senior Notes; these costs have been recorded in other assets on the
balance sheets and are being amortized using the Effective Interest Rate ("EIR") method to interest expense over the term of the New Convertible Senior Notes (i.e. from issuance to the earliest
date on which holders may require the Company to repurchase all or a portion of their New Convertible Senior Notes, in this case October 1, 2013).

The
New Convertible Senior Notes are senior unsecured obligations of the Company, ranking equal in right of payment with future unsubordinated indebtedness. The New Convertible Senior
Notes mature on October 1, 2025 and paid annual cash interest at 8.00% from February 1, 2010 until January 31, 2011 and at 7.00% per annum thereafter. Interest on the New
Convertible Senior Notes is payable on February 1 and August 1 of each year, beginning on August 1, 2010.

The
New Convertible Senior Notes were convertible at any time on or after February 1, 2011 and before the close of business on October 1, 2025.

The
Company reviews the estimated lives of its assets and liabilities and related amortization period on an ongoing basis.

On
February 22, 2012, in connection with the Combination, Toreador used part of the proceeds from the sale of the Senior Notes and Warrants to repurchase $31,631,000 in aggregate
principal amount of its 8.00%/7.00%New Convertible Senior Notes at face value plus accrued interest. This represented all of its outstanding long-term debt.

The
Company reviews the estimated lives of its assets and liabilities and related amortization period on an ongoing basis.

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Contractual Obligations

The following table sets forth Toreador's contractual obligations in thousands at December 31, 2011 for the periods shown:

Total

Less Than
One Year

One to
Three Years

Four to
Five Years

More Than
Five YearsLong-term debt

$
33,473

$


$
33,473

$


$
Asset retirement obligation


6,869


460


82


1,904


4,423Lease commitments


4,167


801


1,500


740


1,126Total contractual obligations

$
44,509

$
1,261

$
35,055

$
2,644

$
5,549


Contractual
obligations for long-term debt above do not include amounts for interest payments.

Contractual
obligations for long-term debt above do not include amounts for interest payments.

Results of Operations

Results of Continuing Operations

In 2009, Toreador disposed of its interest in Turkey, Hungary and Romania. The results of operations for these operations were
reclassified as discontinued operations for all periods presented and are discussed separately under the heading "Results of discontinued operations".

Comparison of Years Ended December 31, 2011 and 2010

For The Year Ended December 31,2011

2010



2011

2010Production:







Average Price:Oil (MBBL):







Oil ($/BBL):France


312


323

France

$
105.78

$
76.67


Revenue and other operating income

Sales and other operating revenue

Sales and other operating revenue for the twelve months ended December 31, 2011 was $33.0 million, as compared to sales
and other operating revenue of $24.0 million for the twelve months ended December 31, 2010. This increase is primarily due to the increase in global oil prices over the period, which led
to an increase in the prices at which we sell our oil from an average of $76.67 per barrel in 2010 to an average of $105.78 per barrel in 2011. This increase was offset by a slightly lower production,
decreasing from 323 MBBL in 2010 to 312 MBBL in 2011.

The
above table compares both volumes and prices received for oil for the twelve months ended December 31, 2011 and 2010. Oil prices have been volatile during 2011. The results of
Toreador's operations are highly dependent upon the prices received from Toreador's oil production, which are dependent on numerous factors beyond Toreador's control. Accordingly, significant changes
to oil prices are likely to have a material impact on Toreador's financial condition, results of operation, cash flows and revenue.

Other income

Other income includes all exploration, salary and general and administrative costs associated with ZEF's activities as operator of the
exploration permits in the Paris Basin, which ZEF was entitled to invoice to Hess under the Investment Agreement. For the twelve months ended December 31, 2011,

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$3.0 million
was invoiced to Hess and recorded as "Other income" compared to $ 16.8 million last year which included (i) the $15 million upfront payment received from Hess
on June 10, 2010 under the Hess Investment Agreement and (ii) $1,770,000 invoiced to Hess under the terms of the Hess Investment Agreement for all personal general and administrative
costs associated with its activities as operator of the exploration permits in the Paris basin..

Costs and expenses

Lease operating

Lease operating expense was $12.4 million, or $39.95 per BOE produced, for the twelve months ended December 31, 2011, as
compared to $11.6 million, or $35.90 per BOE produced, for the comparable period in 2010.

This
increase is mainly due to the reclassification of certain costs associated with particular properties as lease operating expenses including (i) $283,000 relating to certain
taxes associated with oil production and (ii) approximately $1.3 million relating to costs associated with production sites and additional Paris headquarter expenses (which in the three
months ended March 31, 2010 were classified as general and administrative expenses, but following the strategic partnership with Hess are now mainly incurred in connection with our existing oil
production and conventional reservoirs development and therefore have been reclassified as lease operating expenses).

Exploration expense

Exploration expense for the twelve months ended December 31, 2011 was $ 1,967,000 million, as compared to $1,977,000 for
the comparable period in 2010. Expenses recorded in exploration expenses relate to geological and technical studies the Company conducted and commissioned in connection with conventional prospects in
the Paris basin and not invoiced to Hess.

Depreciation, depletion and amortization

For the twelve months ended December 31, 2011, depreciation, depletion and amortization expense was $6.0 million, or
$19.32 per BOE produced, as compared to $4.4 million, or $13.59 per BOE produced for the twelve months ended December 31, 2010. This increase is primarily
due to the reduction at the end of 2010 of the estimated life of wells used for the depreciation, depletion and amortization to comply with the legal maturity of Toreador's production concessions.

Accretion on discounted assets and liabilities

Accretion expense for the twelve months ended December 31, 2011 was $308,000 as compared to a positive $89,000 for the twelve
months ended December 31, 2010. The accretion expense for the twelve months ended December 31, 2011 is composed of $ 559,000 as asset retirement obligation expense and $ 252,000 of
accretion impact (positive) related to the fair value of the New Convertible Senior Notes. This increase compared to last year is due to an update of our asset retirement obligations at the end of
2010 and 2011, as well as a change of presentation of the accretion on our convertible notes which was included in this account during the same period last year and has now been reclassified to
Interest Expense.

Impairment of oil and natural gas properties

We had no impairment charged in 2011 or 2010 for continuing operations.

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General and administrative before stock compensation expense

General and administrative expense excluding stock compensation expense was $20.7 million for the twelve months ended
December 31, 2011, as compared to $15.2 million for the comparable period of 2010. This increase is primarily due to fees to advisors and counsels incurred during 2011 in connection with
the merger with Zaza LLC, for an aggregate amount of $4.5 million as well as professional and legal fees in relation to the safeguarding of Toreador's exploration permits during the
public debate in France regarding the ban on hydraulic fracking in the amount of $562,000.

Stock compensation expense

Stock compensation expense was $ 3.5 million for the twelve months ended December 31, 2011 compared with $
3.2 million for the comparable period of 2010. During 2011, 196,939 shares were issued.

(Loss) Gain on oil derivative contracts

Loss on oil derivative contracts was $2.4 million for the year ended December 31, 2011, as compared to a loss of $
0.4 million for 2010. This amount consists of an unrealized gain on the commodity derivative contracts with Vitol S.A. as well as the margin calls related to this contract due to the
Dated Brent price being higher than the selling price of $91.00 per barrel under the derivative contract. The unrealized gain on the oil derivative contract for 2011 amounted to a gain of
$1.3 million compared to a loss of 400,000 for the same period last year. The margin calls for 2011 amounted to an expense of $3.7 million.

Presented
in the table below is a summary of the contract entered into:

Type

Period

Barrels

Floor

Ceiling

(Loss)Collar

January 1 - December 31, 2011


182,500

$
78

$
91

$
(1,330
)


Foreign currency exchange gain (loss)

Toreador recorded a loss on foreign currency exchange of $1.2 million for the year ended December 31, 2011 as compared
with a loss of $0.9 million for the comparable period of 2010. This increase in foreign exchange loss is mainly due to weakening of the U.S. dollar compared to the Euro over the same period.

Interest expense, net of interest capitalization

Interest expense was $1.9 million for the year ended December 31, 2011, as compared to $4.8 million for the
comparable period of 2010.

The
interest expense relates to interest payments relating to the New Convertible Senior Notes issued in February 2010 and the 5% Convertible Senior Notes. Interest expense was
$2.2 million for 2011 and related to the New Convertible Senior Notes as compared to $3.5 million during 2010 related to both the New Convertible Senior Notes and the 5% Convertible
Senior Notes.

Also
included in interest expense are expenses related to the amortization of issue premium and debt issuance costs associated to the New Convertible Senior Notes of $552,000 recorded in
2011 compared to $1.5 million in 2010. This decrease in amortization of issue premium and debt issuance costs compared to the same period of 2010 is explained by the recording in 2010 of
amortization expense of $1.2 million due to the change in estimate of the lives of the issue premium and debt issuance costs associated to 5.00% Convertible Senior Notes and to the New
Convertible Senior Notes

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These
expenses were offset by a positive accretion impact of $764,000 2011 and $593,000 in 2010, related to the fair value of the New Convertible Senior Notes (see
"Note 9Long Term Debt").

Income tax (benefit) provision

For the year ended December 31, 2011 Toreador reported an income tax provision of $2.4 million compared to
$6.1 million for the same period of 2010. The decrease in income tax is primarily due to the fact that in 2010 we reported higher French taxable income as a result of the initial payment made
by Hess under the Hess Investment Agreement.

Other comprehensive income (loss)

The most significant element of comprehensive income, other than net income, is foreign currency translation. As of December 31,
2011, Toreador had accumulated an unrealized loss of $5.0 million. For the year ended December 31, 2010, Toreador had an unrealized loss of $2.5 million.

The
functional currency of our operations in France is the Euro, and the exchange rate used to translate the financial position of the French operations at December 31, 2011 and
2010 is shown below:

December 31,2011

2010US Dollars

€
0.7729

€
0.7484


Results from discontinued operations

In 2009, Toreador completed its exit of Romania, Hungary and Turkey. Toreador has several claims outstanding relating to these
transactions. See "Note 16Commitments and Contingencies".

Toreador
recorded in discontinued operations during, 2011 and 2010 a loss of $4.2 million and a loss of $739,000 respectively. This increase is mainly due to the settlement
payment for an amount of $3.8 million on June 22, 2011, related to a settlement agreement with Mr. Hunnisett and Mr. Barker in which they agreed to release both Toreador
and Tiway Turkey Limited from all current and future claims related to the Overriding Royalty, including the Netherby Payment Amount, as discussed above and in "Note 16Commitments
and Contingencies". The $3.8 million settlement amount was partially offset by a provision release booked in prior periods for this matter in an amount of $900,000. Sales and other operating
revenue from discontinued operations during 2011 amounted to $38,000.

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The
results of operations of assets in Romania, Turkey and Hungary have been presented as discontinued operations in the accompanying consolidated statement of operations (see
"Note 15Discontinued Operations"). Results for these assets reported as discontinued operations were as follows:

For The Year Ended
December 31,2011

2010(In thousands)Revenues:Oil and natural gas sales

$
38

$
107Costs and expenses:General and administrative


(312
)

1,070Total costs and expenses


(312
)

1,070Operating loss


350


(963
)Other income (expense):Foreign currency exchange





258Interest and other income





66Other expense


(3,800
)

Loss before taxes


(3,450
)

(639
)Income tax provision


(708
)

(101
)Loss from discontinued operations

$
(4,158
)
$
(740
)


Comparison of Years Ended December 31, 2011 and 2010

For The Year Ended December 31,2011

2010



2011

2010Production:







Average Price:Oil (MBBL):







Oil ($/BBL):Turkey







Turkey





Romania







Romania





Total







Total average oil price





Gas (MMcf):







Gas ($/Mcf):Turkey







Turkey





Romania







Romania





Total







Total average gas price





MBOE:







$/ BOE:Turkey







Turkey





Romania







Romania





Total







Total average price per BOE








Revenue and other operating income

Sales and other operating revenue

Sales and other operating revenue for the twelve months ended December 31, 2011 were $38,000 resulting from Romania royalty
interest (Fauresti) as compared to
$71,000 for the comparable period in 2010. This decrease is due to the sale all of our discontinued assets in 2009.

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Total costs and expenses

Lease operating

Lease operating expense was $0 for the twelve months ended December 31, 2011, as compared to $0, for the comparable period in
2010 due to the sale of all our discontinued assets in 2009.

Exploration expense

Exploration expense for the twelve months ended December 31, 2011 was $0 as compared to $0 for the comparable period in 2010 due
to the sale of all our discontinued assets in 2009.

Dry hole and abandonment

Dry hole and abandonment cost for the twelve months ended December 31, 2011 was $0 as compared to $0 in 2010 due to the sale of
all our discontinued assets in 2009.

Depreciation depletion and amortization

For the twelve months ended December 31, 2011, depreciation, depletion and amortization expense was $0 as compared to $0 for the
twelve months ended December 31, 2010 due to the sale of all our discontinued assets in 2009.

Impairment of oil and natural gas properties and intangible assets

Impairment charged in 2011 was $0 as compared to $0 million in 2010.

For
further information, see "Note 19Discontinued Operations"

General and administrative

For the twelve months ended December 31, 2011, we recorded $312,000 as general and administrative expense compared to $943,000
for the same period last year which included legal costs related to the Netherby dispute.

Other Expense

For the twelve months ended December 31, 2011 Toreador recorded $3.8 million as other expense compared to $0 for the same
period last year. This increase is mainly due to the settlement payment for an amount of $3.8 million on June 22, 2011, related to a settlement agreement with Mr. Hunnisett and
Mr. Barker in which they agreed to release both Toreador and Tiway Turkey Limited from all current and future claims related to the Overriding Royalty, including the Netherby Payment Amount, as
discussed above and in "Note 16Commitments and Contingencies". The $3.8 million settlement amount was partially offset by a provision release booked in prior periods for
this matter in an amount of $900,000.

Gain/loss on sale of assets

For the year ended December 31, 2011, and 2010 we did not record a gain or a loss on sale of assets.

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The table below shows the gain/(loss) by country:

For The Year Ended
December 31,2011

2010(In thousands)Turkey

$


$
Romania





Hungary





United States





Gain (loss) on sale of assets

$


$



The
gains are primarily attributable to the reclassification of Accumulated Other Comprehensive Income, recorded on the balance sheet, to gain/(loss) on sale.

Loss on early extinguishment of debt

Toreador did not record any loss for early extinguishment of debt for the year ended December 31, 2011 and 2010.

Foreign currency exchange

Toreador did not record a gain on foreign currency exchange for the year ended December 31, 2011 and 2010.

Interest and other income

Interest and other income was $0 for the year ended December 31, 2011 as compared with $66,000 in the comparable period of 2010.
This decrease is due to the sale of all our discontinued assets in 2009.

Interest expense, net of interest capitalization

Interest expense was $0 for the year ended December 31, 2011, as compared to $0 for the comparable period of 2010. This decrease
is due to the sale all of our discontinued assets over 2009.

Results of continuing operations

Comparison of Years Ended December 31, 2010 and 2009

For the Years Ended December 31,2010

2009



2010

2009Production:







Average Price:Oil (MBBL):







Oil ($/BBL):France


323


328

France

$
76.67.

$
57.17


Revenue and other operating income

Sales and other operating revenue

Sales and other operating revenue for the twelve months ended December 31, 2010 were $24 million, as compared to sales
and other operating revenue of $19.2 million for the comparable period in 2009. This increase is primarily due to the global increase in oil prices. The increase in the average realized price
for oil from $57.17 in 2009 to $76.67 in 2010 resulted in an increase of revenue

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of
$6.3 million. Production remained relatively stable, decreasing from 328 MBBL in 2009 to 323 MBBL in 2010.

The
above table compares both volumes and prices received for oil for the twelve months ended December 31, 2010 and 2009. Oil prices are and probably will continue to be extremely
volatile and a significant change would have a material impact on our revenue.

Other operating income

Other operating income for the twelve months ended December 31, 2010 was $16.8 million as compared to zero for the
comparable period in 2009, which represented (i) the $15 million upfront payment received from Hess on June 10, 2010 under the Hess Investment Agreement and (ii) $1,769,697
invoiced to Hess under the terms of the Hess Investment Agreement for all personal general and administrative costs associated with its activities as operator of the exploration permits in the Paris
Basin.

Costs and expenses

Lease operating

Lease operating expense was $11.6 million, or $35.90 per BOE produced, for the twelve months ended December 31, 2010, as
compared to $8.4 million, or $25.60 per BOE produced, for the comparable period in 2009.

This
increase is mainly due to the classification of certain costs associated with particular properties as lease operating expenses in 2010 including (i) $1,090,000 relating to
certain taxes associated with oil production and (ii) approximately $7 million relating to costs associated with production sites and additional Paris headquarter expenses (which in the
year ended December 31, 2009 were classified as general and administrative expenses, but following the strategic partnership with Hess are now mainly incurred in connection with our existing
oil production and conventional reservoirs development and therefore have been classified as lease operating expenses). Lease operating expense for the twelve months ended December 31, 2010
also includes inventory turnover variation for an amount of $142,000.

Exploration expense

Exploration expense for the twelve months ended December 31, 2010 was $2.0 million, as compared to $138,000 for the
comparable period in 2009. This increase is due primarily to expenses associated with geological and technical studies the Company conducted and commissioned in connection with the shale oil
development project.

Depreciation, depletion and amortization

For the twelve months ended December 31, 2010, depreciation, depletion and amortization expense was $4.4 million, or
$13.59 per BOE produced, as compared to $5.3 million, or $17.57 per BOE produced for the twelve months ended December 31, 2009. This decrease is primarily due to the higher proved
reserves assigned to Toreador's French assets at December 31, 2009 due to increased oil prices (as depreciation, depletion and amortization is calculated for the first three quarters of the
year based on the reserves assigned to Toreador's French assets at the end of the preceding year).

Accretion on discounted assets and liabilities

Accretion expense for the twelve months ended December 31, 2010 was $89,000 (positive) as compared to $507,000 for the twelve
months ended December 31, 2009. The accretion expense for the twelve months ended December 31, 2010 is composed of $ 504,000 as asset retirement obligation

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expense
and $ 593,000 of accretion impact (positive) related to the fair value of the New Convertible Senior Notes.

Impairment of oil and natural gas properties

Toreador had no impairment charged in 2010 or 2009 for continuing operations.

General and administrative

General and administrative expense (including stock compensation) was $15.2 million for the twelve months ended
December 31, 2010, as compared to $20.4 million for the comparable period of 2009.

Excluding
stock compensation, general and administrative expense was $11.9 million for the twelve months ended December 31, 2010, compared with $16.8 million for the
comparable period of 2009. This decrease is primarily due to certain exceptional costs incurred in 2009, such as $1.5 million incurred due to resignation of former officers, $545,000 for legal
and consulting costs associated with subsidiary sales and approximately $4 million of costs associated with the Dallas office/relocation of headquarters, which was partially offset by costs
incurred in 2010 in connection with the Company's processes to identify a strategic partner and achieve its dual listing.

Stock compensation expense

Stock compensation expense was $3.2 million for the twelve months ended December 31, 2010 in connection with the grant of
287,750 of the Company's shares at a weighted average price of $10.32 per share, compared with $ 3.6 million for the comparable period of 2009 in connection with the grant of 1,304,387 of
Toreador's shares at a weighted average price of $6.40 per share.

(Loss) Gain on oil derivative contracts

Loss on oil derivative contracts was $0.4 million for the year ended December 31, 2010, as compared to a loss of $
0.9 million for 2009.

The
realized loss in 2010 represents the recognized gain (on the 2010 hedging contract) and the unrealized loss (on the 2011 hedging contract) as shown in the table below on the
commodity derivative contracts with Vitol S.A. Presented in the table below is a summary of the contracts entered into:

Type

Period

Barrels

Floor

Ceiling

GainCollar

January 1 - December 31, 2010


182,500

$
68

$
81

$
886




Type

Period

Barrels

Floor

Ceiling

(Loss)Collar

January 1 - December 31, 2011


182,500

$
78

$
91

$
(1,330
)


Foreign currency exchange gain (loss)

Toreador recorded a loss on foreign currency exchange of $0.9 million for the year ended December 31, 2010 as compared
with a gain of $0.2 million for the comparable period of 2009. This decrease is mainly due to the fact that Toreador Energy France booked a loss on foreign currency exchange in its statutory
accounts in Euro over the year ended December 31, 2010 due to the receipt on June 10, 2010 of the $15 million upfront payment from Hess under the Hess Investment Agreement
combined with the weakening of the U.S. dollar compared to the Euro over the same period (this loss having been recorded in the financial statements of the Company for the year ended
December 31, 2010 in accordance with FAS 52 "Foreign Currency Translation").

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Gain (Loss) on the early extinguishment of debt

As the debt instruments exchanged in the Convertible Notes Exchange have substantially different terms, the Company recognized the
exchange of the 5.00% Convertible Senior Notes as extinguishment of debt. As a result, for the twelve months ended December 31, 2010, the Company recognized a loss of $4.3 million
including write off of loan original fee of $822,000 for the debt extinguishment. For the year ended December 31, 2009, we repurchased $25.7 million principal amount of the Notes on the
open market and through privately negotiated transactions for $21.3 million plus accrued interest and prepaid loan fees resulting in a gain of $3.3 million on the early extinguishment of
debt.

In
accordance with the terms, procedures and conditions outlined in the indenture and the 5.00% Convertible Senior Notes, each holder of the 5.00% Convertible Senior Notes had an option
to require the Company to purchase all or a portion of its 5.00% Convertible Senior Notes on October 1, 2010. Pursuant to the exercise of this option, the Company repurchased $32,256,000
principal amount of the 5.00% Convertible Senior Notes on October 1, 2010. Interest on the repurchased 5.00% Convertible Senior Notes accrued up to, but not including, October 1, 2010
was been paid to record holders of 5.00% Convertible Senior Notes as of September 15, 2010. The repurchase on October 1, 2010 resulted in a loss of $1.1 million after writing off
all deferred debt issuance costs pertaining to the 5.00% Convertible Senior Notes.

Interest expense, net of interest capitalization

Interest expense was $4.8 million for the year ended December 31, 2010, as compared to $3.4 million for the
comparable period of 2009. The increase is mainly due to the additional interest payments relating to the New Convertible Senior Notes issued in February 2010, which was offset by decreased interest
payments relating to the 5.00% Convertible Senior Notes, of which $22.2 million of the aggregate principal amount outstanding were exchanged for a portion of the New Convertible Senior Notes in
the Convertible Notes Exchange. Interest expense for the New Convertible Senior Notes was $2,242,000 for the twelve months ended December 31, 2010 as compared to zero for the twelve months
ended December 31, 2009. Interest expense for the 5.00% Convertible Senior Notes was $1,308,000 for the twelve months ended December 31, 2010 as compared to $3,346,000 for the twelve
months ended December 31, 2009. Amortization of loan fees of $1,524,969 was recorded for the twelve months ended December 31, 2010 compared to $158,000 for the twelve months
ended December 31, 2009, due to the change in estimate of the lives of the issue premium and debt issuance costs associated to 5.00% Convertible Senior Notes and to the New Convertible Senior
Notes (See Note 9"Long Term Debt").

Income tax (benefit) provision

For the year ended December 31, 2010 Toreador reported an income tax provision of $6.1 million compared to a benefit of
$0.5 million for the same period of 2009. The increase in income tax is primarily due to a higher French taxable income as a result of higher oil prices and the initial payment made by Hess
under the Hess Investment Agreement.

Other comprehensive income (loss)

The most significant element of comprehensive income, other than net income, is foreign currency translation. As of December 31,
2010, Toreador had accumulated an unrealized loss of $2.5 million. For the year ended December 31, 2009, Toreador had an unrealized gain of $4.6 million.

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The
functional currency of our operations in France is the Euro, and the exchange rate used to translate the financial position of the French operations at December 31, 2010 and
2009 is shown below:

December 31,2010

2009US Dollars

€
0.7484

€
0.6942


Loss from discontinued operations

Toreador had no sales and other operating revenue from discontinued operations for the twelve months ended December 31, 2010 due
to the sale of all its discontinued operations in 2009. For the twelve months ended December 31, 2010, Toreador recorded $1,070,000 as general and administrative expense associated with the
payment of $657,000 made to Scowcroft under the Settlement Agreement on April 30, 2010 and associated legal costs, $254,000 for legal costs associated to the Netherby dispute and Overriding
Interest payment, and $104,000 of additional tax associated with Toreador Hungary Limited activities in 2009. Toreador thus recorded a loss of $739,000 from discontinued operations for the twelve
months ended December 31, 2010.

In
the fourth quarter of 2008 and during the first quarter of 2009, Toreador farmed out or sold all of its working interests in Romania to three different companies and closed its
office; thus, Toreador no longer has any operational involvement in Romania. This resulted in a gain of $5.8 million, which was recorded in the first quarter of 2009.

On
March 3, 2009, Toreador completed the sale of a 26.75% interest in the South Akcakoca Sub-Basin (SASB) project associated licenses located in the Black Sea offshore
Turkey, to Petrol Ofisi for $55 million. In accordance with the revised assignment announced on February 3, 2009, $50 million of the proceeds was paid by Petrol Ofisi on
March 3, 2009, and the remaining $5 million was paid on September 1, 2009. There was no gain or loss resulting from this sale.

On
September 30, 2009, Toreador entered into a Share Purchase Agreement (the "Share Purchase Agreement") with Tiway Oil BV, a company organized under the laws of the
Netherlands ("Tiway"), and Tiway Oil AS, a company organized under the laws of Norway, pursuant to which the Company agreed to sell 100% of the outstanding shares of Toreador Turkey Ltd. to
Tiway for total consideration consisting of: (1) a cash payment of $10.5 million to be paid at closing, (2) exploration success payments dependent upon certain future commercial
discoveries as provided in the Share Purchase Agreement, up to a maximum aggregate consideration of $40 million, and (3) future quarterly 10% pre-tax net profit interest
payments if a field goes into production that was discovered by an exploration well drilled within four years of closing on certain of the licenses then still held by Tiway. The sale of Toreador
Turkey Ltd. was completed on October 7, 2009 and resulted in a gain of $1.8 million for the twelve months ending December 31, 2009.

On
September 30, 2009, the Company entered into a Quota Purchase Agreement (the "Quota Purchase Agreement") with RAG (RohölAufsuchungsAktiengesellschaft), a
corporation organized under the laws of Austria ("RAG"), pursuant to which the Company agreed to sell 100% of its equity interests in Toreador Hungary Limited to RAG for total consideration consisting
of (1) a cash payment of $5.4 million (€ 3.7 million) paid at closing, (2) $435,000 (€ 300,000), which was held
back subject to a post-closing adjustment and was paid to us on November 5, 2009 and (3) a contingent payment of $2.9 million (€2 million) to be
paid upon post-transaction completion of agreements relating to certain assets of Toreador Hungary. The sale of Toreador Hungary was completed on September 30, 2009 and resulted in
a loss of $4.1 million.

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The
results of operations of assets in Romania, Turkey and Hungary have been presented as discontinued operations in the accompanying consolidated statement of operations (see
"Note 19Discontinued Operations").

Results
for these assets reported as discontinued operations were as follows:

For The Year Ended
December 31,2010

2009(In thousands)Revenues:Oil and natural gas sales

$
107

$
4,545Costs and expenses:Lease operating





886Exploration expense





868Impairment of oil and natural gas properties





10,725Depreciation, depletion and amortization





157Dry hole costs





1,318General and administrative


1,070


3,424(Gain) loss on sale of properties





(3,583
)Total costs and expenses


1,070


13,795Operating loss


(963
)

(9,250
)Other income (expense):Loss on early extinguishment of debt





(4,881
)Foreign currency exchange


258


3,822Interest and other income


66


414Interest and other expense





(185
)Loss before taxes


(639
)

(10,080
)Income tax provision


(101
)

Loss from discontinued operations

$
(740
)
$
(10,080
)


Comparison of Years Ended December 31, 2010 and 2009

For The Year Ended December 31,2010

2009



2010

2009Production:







Average Price:Oil (MBBL):







Oil ($/BBL):Turkey





39

Turkey





49.78Romania







Romania





Total





39

Total average oil price





49.78Gas (MMcf):







Gas ($/Mcf):Turkey





301

Turkey





8.64Romania







Romania





Total





301

Total average gas price





8.64MBOE:







$/ BOE:Turkey





89

Turkey





50.94Romania







Romania





Total





89

Total average price per BOE





50.94


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Table of Contents

Revenue and other operating income

Sales and other operating revenue

Sales and other operating revenue for the twelve months ended December 31, 2010 were $71,000 resulting from Romania royalty
interest (Fauresti) as compared to $4.5 million for the comparable period in 2009. This decrease is due to the sale all of our discontinued assets in 2009.

Total costs and expenses

Lease operating

Lease operating expense was zero for the twelve months ended December 31, 2010, as compared to $886,000, for the comparable
period in 2009. This decrease is due to the sale of all our discontinued assets in 2009.

Exploration expense

Exploration expense for the twelve months ended December 31, 2010 was $0 as compared to $868,000 for the comparable period in
2009. This decrease is primarily due to the sale of Toreador's 26.75% interest in the SASB to Petrol Ofisi in March 2010, followed by the sale of Toreador Turkey to Tiway in October 2009 and the
disposal of our Romanian operations in January 2009.

Dry hole and abandonment

Dry hole and abandonment cost for the twelve months ended December 31, 2010 was zero as compared to $1.3 million in 2009.
In 2009 Toreador's drilled the Durusu#1, in offshore Turkey, which was a dry hole.

Depreciation depletion and amortization

For the twelve months ended December 31, 2010, depreciation, depletion and amortization expense was zero as compared to $157,000
for the twelve months ended December 31, 2009. This decrease is due to the sale of all Toreador's discontinued assets in 2009.

Impairment of oil and natural gas properties and intangible assets

Impairment charged in 2010 was zero as compared to $10.7 million in 2009. The 2009 impairment was a result of 1) Toreador
's decision not to proceed with the Kiha pipeline in Hungary for $5.4 million and 2) the decline in the fair market value of the South Akcakoca Sub-basin assets in Turkey for
$5.3 million.

For
further information, see "Note 19Discontinued Operations"

General and administrative

For the twelve months ended December 31, 2010, Toreador's recorded $943,000 as general and administrative expense compared to
$3.4 million for the same period last year. These expenses were associated with the payment made to Scowcroft under the Settlement Agreement on April 30, 2010 and associated legal costs,
$182,000 for legal costs associated to the Netherby dispute and Overriding Interest payment, and $104,000 of additional tax associated with Toreador Hungary Limited activities in 2009.

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Gain/loss on sale of assets

For the year ended December 31, 2010, Toreador did not have a sale of assets as compared with a gain of $3.6 million for
the comparable period of 2009. The table below shows the gain/(loss) by country:

For The Year
Ended
December 31,2010

2009(In thousands)Turkey

$


$
1,811Romania





5,846Hungary





(4,074
)United States





Gain (loss) on sale of assets

$


$
3,583


The
gains are primarily attributable to the reclassification of Accumulated Other Comprehensive Income, recorded on the balance sheet, to gain/(loss) on sale.

Loss on early extinguishment of debt

Toreador did not record any loss for early extinguishment of debt for the year ended December 31, 2010 compared to a loss on the
early extinguishment of debt of $4.9 million for the same period in 2009, which was due to early repayment of the International Finance Corporation revolving credit facility with the proceeds
of the Petrol Ofisi sale for an outstanding
balance of $36.4 million (including $5.9 million of additional compensation and $500,000 for accrued interest and fees).

Foreign currency exchange

Toreador did not record a gain on foreign currency exchange for the year ended December 31, 2010 as compared with a
$3.8 million gain for the comparable period of 2009. This decrease is due to the sale of all of our discontinued assets in 2009.

Interest and other income

Interest and other income was $66,000 for the year ended December 31, 2010 as compared with $414,000 in the comparable period of
2009. This decrease is due to the sale of all Toreador's discontinued assets in 2009.

Interest expense, net of interest capitalization

Interest expense was zero for the year ended December 31, 2010, as compared to $185,000 for the comparable period of 2009. This
decrease is due to the sale all of Toreador's discontinued assets over 2009.

Selected Quarterly Financial Data

We derived the selected historical financial data in the table below from our unaudited interim consolidated financial statements. The
sum of net income per share by quarter may not equal the net income per share for the year due to variations in the weighted average shares outstanding used in computing such amounts. The historical
data presented here is only a summary and should be read in

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conjunction
with the consolidated financial statements, related notes and other financial information included elsewhere in this annual report.

Three Months EndedMarch 31,

June 30,

September 30,

December 31,(in thousands, except per share data)For the year ended December 31, 2011:Revenue/other operating income

$
9,195

$
10,353

$
8,423

$
8,005Total costs and expenses


11,416


9,372


9,803


13,446Income (loss) from continuing operations, net of tax


(5,095
)

(332
)

(1,986
)

(6,161
)Income (loss) from discontinued operations, net of tax


(163
)

(2,919
)

(121
)

(955
)Net income (loss)


(5,259
)

(3,251
)

(2,818
)

(6,404
)Income (loss) available to common shares


(5,259
)

(3,251
)

(2,818
)

(6,404
)Basic income (loss) available to common shares per share


(0.21
)

(0.12
)

(0.10
)

(0.25
)Diluted income (loss) available to common shares per share


(0.21
)

(0.12
)

(0.10
)

(0.25
)For the year ended December 31, 2010:Total revenues

$
5,511

$
20,964

$
6,563

$
7,744Total costs and expenses


7,330


6,951


5,928


13,287Income (loss) from continuing operations, net of tax


(6,904
)

6,550


(2,604
)

(5,792
)Income (loss) from discontinued operations, net of tax


(575
)

(247
)

(290
)

372Net income (loss)


(7,479
)

6,303


(2,894
)

(5,420
)Income (loss) available to common shares


(7,479
)

6,303


(2,894
)

(5,420
)Basic income (loss) available to common shares per share


(0.32
)

0.26


(0.12
)

(0.22
)Diluted income (loss) available to common shares per share


(0.32
)

0.26


(0.11
)

(0.22
)


Off-balance sheet arrangements

Toreador has no off-balance sheet arrangements that have or are reasonably likely to have a current or future material
effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk, including the effects of adverse changes in commodity prices and, potentially, interest rates as
described below.

The
primary objective of the following information is to provide quantitative and qualitative information about our potential exposure to market risks. The term "market risk" refers to
the risk of loss arising from adverse changes in oil and gas prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of
reasonably possible losses. All of our market risk sensitive agreements were entered into for purposes other than speculative trading.

Commodity Price Risk.Our major market risk exposure is in the pricing it receives for its oil and gas production. Realized
pricing is primarily
driven by the prevailing price for oil and the spot market prices applicable to natural gas production. Pricing for oil and gas has been volatile and unpredictable for several years, and this
volatility is expected to continue in the future. The prices we receive for its oil and gas production depend on many factors outside of its control, such as the strength of the global economy.

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To
reduce the impact of fluctuations in oil and gas prices on its revenues, or to protect the economics of property acquisitions, we in the future may periodically enter into derivative
contracts with respect to a portion of its projected oil and gas production through various transactions that fix or, through options, modify the future prices realized. These transactions may include
price swaps whereby we would receive a fixed price for its production and pay a variable market price to the contract counterparty. Additionally, we may enter into collars, whereby it would receive
the excess, if any, of the fixed floor over the floating rate or pay the excess, if any, of the floating rate over the fixed ceiling price. In addition, we may in the future enter into option
transactions, such as puts or put spreads, as a way to manage its exposure to fluctuating prices. Such hedging activities are intended to manage exposure to oil and gas price fluctuations.

Derivative Financial Instruments

At times Toreador utilizes commodity derivative instruments as part of our risk management program. These transactions are generally
structured as either swaps or collar contracts. A swap has the effect of an outright sale at a specific price. A collar has the effect of creating a sale only if a floor or ceiling price is exceeded.
These instruments (i) reduce the effect of the price fluctuations of the commodities we produce and sell and (ii) support our annual capital budgeting and expenditure plans. When
Toreador had its senior credit facilities that required these instruments, these instruments protected the amounts required for servicing outstanding debt and maximized the
funds available under these facilities. The trading party that represents the other side of each of these transactions is known as a "counterparty." During 2011, Toreador had the following derivative
in place:

Type

Period

Barrels

Floor

CeilingCollar

January 1, 2011 - December 31, 2011


182,500

$
78.00

$
91.00


See
Note 2 of Notes to Consolidated Financial Statements for a description of our accounting policies followed relative to derivative financial instruments and for specific
information regarding the terms of our derivative financial instruments that are sensitive to changes in crude oil commodity prices.

Interest Rate Risk.ZaZa and ZaZa LLC historically have not had any long term debt, but we have incurred long term debt
under our Senior
Notes. We may enter into interest rate derivative contracts on a portion of its then outstanding debt to mitigate the risk of fluctuating interest rates

Counterparty and Customer Credit Risk.We are subject to credit risk due to the concentration of its oil and gas receivables
with only a few
significant customers. Please read "Business, Industry & PropertiesMarketing and Customers" for further detail about our significant customers. Our inability, or the failure of its
significant customers to meet their obligations to us or their insolvency or liquidation, may materially adversely affect our financial results. In addition, any oil and gas derivative contracts that
we may enter into in the future may expose us to credit risk in the event of nonperformance by counterparties.

The
risks inherent in our market-sensitive instruments are the potential loss arising from adverse changes in oil prices and foreign currency exchange rates as discussed below. The
sensitivity analysis however, neither considers the effects that such adverse changes may have on overall economic activity nor does it consider additional actions we may take to mitigate our exposure
to such changes. Actual results may differ.

The
following quantitative and qualitative information is provided about financial instruments from which we may incur future earnings gains or losses from changes in commodity prices.
We do not designate our derivatives as hedges; however, we do not enter into derivative or other financial instruments for trading purposes.

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Foreign Currency Exchange Rates

The functional currency of our French operations is the Euro. While our oil sales are calculated on a U.S. dollar basis, we are exposed
to the risk that the values of our French assets will decrease and that the amounts of our French liabilities will increase.

Item 8.    Financial Statements and Supplementary Data.

The Reports of Independent Registered Public Accounting Firms and Consolidated Financial Statements are set forth beginning on
page F-1 of this Annual Report on Form 10-K and are incorporated herein.

The
financial statement schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes to the
Consolidated Financial Statements.

Item 9.    Changes In And Disagreements With Accountants On Accounting And Financial Disclosure.

As we disclosed in our Registration Statement on Form S-4 (File No. 333-177264) filed by the
Company on October 12, 2011 and as subsequently amended by Amendment No. 1 thereto on November 22, 2011 and Amendment No. 2 thereto on January 10, 2012 (as amended,
the "Registration Statement"), on August 29, 2011, our material subsidiary, ZaZa LLC, formally informed KPMG LLP ("KPMG"), ZaZa LLC's independent registered public
accounting firm, of its dismissal. KPMG had served as ZaZa LLC's independent registered public accounting firm since 2010. The decision to dismiss KPMG as ZaZa LLC's independent
registered public accounting firm was approved by all of ZaZa LLC's members, who together served as ZaZa LLC's management. The reports of KPMG on ZaZa LLC's financial statements
as of December 31, 2010 and 2009 and for the fiscal year ended December 31, 2010 and for the period from March 4, 2009 (inception) to December 31, 2009 did not contain an
adverse opinion or a disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principles.

During
the period from March 4, 2009 (inception) to December 31, 2009, ZaZa LLC's most recent fiscal year ended December 31, 2010, and the subsequent interim
period prior to the date of KPMG's dismissal, there were no: (a) disagreements between ZaZa LLC and KPMG on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference to the subject matter of the disagreements in
connection with its reports on the financial statements for such years; or (b) "reportable events" as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

On
August 29, 2011, ZaZa LLC engaged Ernst & Young LLP ("E&Y") to reaudit and issue opinions for the period from March 4, 2009 (inception) to
December 31, 2009 and for the fiscal year ended December 31, 2010, and to serve as its independent registered public accounting firm for ZaZa LLC's fiscal year ended
December 31, 2011. The decision to engage E&Y as ZaZa LLC's independent registered public accounting firm was approved by all of ZaZa LLC's members, who together served as
ZaZa LLC's management. During the period from March 4, 2009 (inception) to December 31, 2009, ZaZa LLC's most recent fiscal year ended December 31, 2010, and the
subsequent interim period up to the date of E&Y's engagement, ZaZa LLC did not consult with E&Y regarding matters or events set forth in Item 304(a)(2)(i) or (ii) of
Regulation S-K, although E&Y did perform due diligence into the books and records of Toreador on behalf of ZaZa LLC in anticipation of the transaction whereby ZaZa LLC
and Toreador became our subsidiaries.

As
previously disclosed in our Registration Statement on Form S-4 (File No. 333-177264), ZaZa LLC provided KPMG with a copy of the
disclosures in such Registration Statement and

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requested
that KPMG furnish a letter, pursuant to Item 304(a)(3) of Regulation S-K, addressed to the Securities and Exchange Commission and stating whether it agreed with the
disclosure in the Registration Statement. KPMG provided such letter, which we filed as Exhibit 16.1 to such Registration and is incorporated herein by reference.

Item 9A    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of
our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, which we refer to
as the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such
period, these controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. These disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by us in the report that we file or submit is accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management's Annual Report on Internal Control over Financial Reporting

This annual report does not include a report of management's assessment regarding internal control over financial reporting or an
attestation report of the company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

There
have been no changes in our internal control over financial reporting during the quarter ended December 31, 2011 that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.

Item 9B    Other Information.

Senior Notes

On June 8, 2012, we entered into an amendment and waiver (the "SPA Amendment and Waiver") to the Securities Purchase Agreement
dated February 21, 2012 (the "SPA"), relating to our 8% senior secured notes due 2017 (the "Senior Notes"). The SPA Amendment and Waiver:



The
SPA Amendment and Waiver is subject to certain conditions, including providing December 31, 2011 annual financial statements, which are included in this Annual Report on
Form 10-K, and March 31, 2012 quarterly financial statements by June 29, 2012 and finalizing and executing definitive documentation related to the HoA by
July 31, 2012.

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The
holders of the Senior Notes also have agreed to consent to the transactions contemplated by the HoA if we pay down the outstanding principal amount of the Senior Notes by
$33.0 million and pay a $3.5 million associated fee. This pay down will be offered to each note holder on a pro-rata basis and occur simultaneous with the closing of the
transactions contemplated by the HoA. The holders of the Senior Notes also are requiring the following amendments to the SPA as a condition of the consent, which amendments will be entered into no
later than the consummation of the transactions outlined in the HOA:



The
parties also entered into an Amended and Restated Subordination Agreement with Todd Brooks, a director and President of the Company, John Hearn, a director and Executive
DirectorGeoscience of the Company, Gaston Kearby, a director of the Company, Omega Energy, LLC, Blackstone Oil & Gas, LLC, and Lara Energy, Inc., entities
controlled by Messrs. Brooks, Hearn and Kearby, specifying that payments may not be made by us under the relevant subordinated promissory notes until after the consummation of the transactions
outlined in the HoA and the related $33.0 million pay down of the principal amount of the Senior Notes.

Indemnity Agreements

Effective June 12, 2012, we entered into an indemnity agreement with each of our directors and executive officers. The indemnity
agreements will supplement existing indemnification provisions in our certificate of incorporation and bylaws, and generally provide for the indemnification of all liabilities, costs and expenses
incurred by our directors and executive officers in connection with the performance of their duties for ZaZa, subject to certain customary exclusions. The indemnity agreements also provide for the
reimbursement of expenses any such person incurs as a witness in connection with a proceeding involving ZaZa and the advancement of expenses during any proceeding prior to a final resolution as long
as such person agrees to return such funds if it is determined that they were not entitled to indemnification under the indemnity agreements. The indemnity agreements also establish customary
procedures to determine whether a person is entitled to indemnification, including by the appointment of an independent counsel to evaluate such person's claim to indemnification. The foregoing
summary is qualified in its entirety by reference to the complete text of the indemnity agreements, a form of which is filed as an exhibit to this Annual Report on Form 10-K.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

Board of Directors

Prior to the Combination, ZaZa had two directors: Todd Alan Brooks, as the designee of ZaZa LLC, and Adam Kroloff, as the
designee of Toreador. Pursuant to the stockholders' agreement entered into as part of the Combination and the amended and restated bylaws of ZaZa, for the three years following the closing of the
Combination, the ZaZa board of directors will consist of nine members and the ZaZa LLC Members will be entitled to designate a proportional number of directors to the board of directors (but
not more than seven) based upon the ZaZa LLC Members' (and their permitted transferees') percentage ownership of ZaZa. Pursuant to the stockholders' agreement, for three years after closing, in
connection with each annual meeting of the stockholders of ZaZa, or special meeting calling for the election of directors, the ZaZa LLC Members and their permitted transferees will have the
right to nominate a number of directors of ZaZa in proportion to their percentage ownership of ZaZa common stock, and a three member nominating committee, two of the members of which will be the
initial Toreador designees or their successors, will nominate the remaining number of directors for election at the annual meeting. The ZaZa LLC Members agreed to vote their shares in favor of
the individuals nominated and not to vote in favor of the removal of any such individuals in accordance with the foregoing. If, prior to the third anniversary of the closing, there is a death,
resignation, retirement or removal of a director or other vacancy on the board of directors of ZaZa, the ZaZa LLC Members will have the right to fill the vacancy if such appointment is
necessary to maintain a proportional number of directors based on the ZaZa LLC Members and their permitted transferees ownership of the outstanding shares of ZaZa common stock, and the
nominating committee will have the right to fill any other vacancy where a replacement is not necessary to maintain such proportional ownership.

ZaZa's
board of directors currently consists of eight directors, with six designated by the previous ZaZa LLC Members and two designated by Toreador. Toreador designated Adam
Kroloff, the former Chairman of the Board of Toreador, and Bernard de Combret, a former independent director of Toreador. ZaZa LLC designated Todd Alan Brooks, John E. Hearn Jr. and Gaston L.
Kearby, the three former managing members of ZaZa LLC; Craig M. McKenzie, the former President and Chief Executive Officer of Toreador; Travis H. Burris; and Herbert C. Williamson III, a former
independent director of Toreador. Based on the current stock ownership of the ZaZa LLC Members, the Nominating and Corporate Governance Committee has the right to appoint the ninth and final member of
the Board of Directors. The Nominating and Corporate Governance Committee is considering candidates for potential appointment to our board of directors.

Independent Directors

Our board of directors have determined that the following directors are independent under Listing Rule 5605(a)(2) of the NASDAQ
Stock Market LLC ("Nasdaq") and applicable rules of the SEC:

Travis H. Burris,age 50. Mr. Burris has served as a director of ZaZa since the Combination. From April 2008 to the present,
Mr. Burris has been a director of Forbes Energy Services, an oilfield services company, where he has served as a member of the Audit Committee and as the Chairman of the Compensation Committee
of the board of directors. Mr. Burris also serves as the Chairman of the Board for several private companies, including: Agrow Credit Corporation, Inc., where he has been a director
since 1995; Cash Box Pawn, Inc., where he has been a director since 2000; Producers Ag Finance, where he has been a director since 2001; and Resonant Finance, where he has been a director since
2007. Mr. Burris' past service on boards of director includes service as the Chairman of the Board of Falfurrias State Bank from 2001 to 2010, as a director of Mesquite Helicopter
Service, Inc. from 1994 to 2008, as a director of Mesquite Aviation from 1998 to 2008, as a director of Resonant

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Technology
since 2006, and, from 1990 to 2007, as the founder and Chairman of the Board of Alice Loan Company, a real estate development company. In addition, as a serial entrepreneur,
Mr. Burris has been President, Chief Executive Officer and a director of Texas Champion Bank since 1987, Founder, and President of G. and G. Loan Company since 1991, and has significant
ownership stakes in various ranching and real estate investment businesses. Mr. Burris received a Bachelor of Business Administration degree in Finance from Texas A&M University in 1983.
Mr. Burris' experience as a director at numerous businesses including those in the oilfield services and banking industries provides him with valuable expertise as a director of ZaZa.
Mr. Burris has been appointed by the board of directors to serve as the chairman of the Audit Committee and as the chairman of the Compensation Committee of our board of directors.

Bernard de Combret, age 69. Mr. de Combret has served as a director of ZaZa since the Combination and previously served as a
director of Toreador from September 2009 until the Combination. Mr. de Combret, a French citizen, is the former Deputy Chairman of the Executive Committee of Total. Mr. de Combret is
currently non-executive director of Winstar Resources Ltd. and of Calvalley Petroleum Inc. He is also a member of the International Advisory Board of Banco Santander.
Mr. de Combret spent 24 years from 1978 to 2002 (until he retired) with Elf and then Total S.A. where he held several executive positions, including but not limited to, Chief
Executive for Refining/Marketing, Chief Executive for Gas, Power, and New Energy, and Chief Executive for Trading and Transportation. Mr. de Combret has also served as a member of the board of
directors for various public companies including, among others, CEPSA, Intercontinental Exchange, Banco Central Hispano, Maurel & Prom, Petrofac Ltd. and Coastal Energy Company, and for
subsidiaries of public companies, including Atochem, Axa Re, Renault VI. Prior to joining the oil industry, Mr. de Combret was a high civil servant in France, holding senior positions in the
Ministry of Finance and in the Ministry of Foreign Affairs. Mr. de Combret graduated from Ecole Polytechnique and Ecole Nationale d'Administration. Mr. de Combret brings to the board of
directors a wealth of multi-national leadership and corporate governance experience, as well as strong financial and public policy track records. Mr. de Combret has been appointed by the board
of directors to serve on the Nominating and Corporate Governance Committee and Audit Committee of our board of directors.

Bernard
de Combret has been involved with an inquiry concerning Total S.A.'s conduct in the "Oil-for-Food" program. This matter dates back to before
Mr. de Combret retired from Total S.A. Notwithstanding the Public Prosecutor's two previous recommendations that charges not be filed, the Investigating Magistrate has decided that
Mr. de Combret, together with Total S.A. and other current and former employees of Total S.A., will face charges related to this matter.

Adam Kroloff, age 50. Mr. Kroloff has served as a director of ZaZa and a member of the Nominating and Corporate Governance and
Compensation Committees since its merger with Toreador in February 2012. Prior to the merger, Mr. Kroloff was the Chairman of the Board as well as the Chairman of the Nominating and Corporate
Governance and Compensation Committees of Toreador where he was a director since June 2009.

Until
2012 Mr. Kroloff was also a Vice President of BP PLC where his roles focused on matters of governance, strategy and risk management. He worked for BP for
20 years in corporate and international roles and across every business division.

Prior
to joining BP, Mr. Kroloff was a litigator. He holds a Juris Doctorate from the University of California, Hastings College of the Law and a Bachelor of Arts degree from
Claremont McKenna College, and is a member of the California (inactive) and Alaska (active) bars.

Mr. Kroloff
brings to the Board of Directors extensive global industry experience in governance, strategy and risk management, as well as a background in law.

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Herbert C. Williamson III, age 63. Mr. Williamson has served as a director of ZaZa since the Combination and previously served as a
director of Toreador from January 2006 until the Combination. He is a private investor and has significant oil and gas experience with a strong focus on international activities. From July 2001 to
June 2002, he was a part-time consultant to Petrie Parkman and Company for new business development. From April 1999 through July 2001 he was a Director and Interim Chief Financial Officer
of Merlon Petroleum Company. From October 1998 through April 1999 he was a Director and Chief Financial Officer of Seven Seas Petroleum. From 1995 through 1998 he was a Director in the Energy Group of
Credit Suisse. From 1985 until 1995, he was Vice Chairman and Executive Vice President at Parker & Parsley Petroleum Company. Mr. Williamson holds an MBA degree from Harvard Business
School in 1977 and a BA degree from Ohio Wesleyan University in 1970. He also serves as a director of Merlon International, a private oil and gas exploration company with primary operations in onshore
Egypt, and as a director of Eagle Rock Energy Partners, LLC, a domestic U.S. midstream and upstream oil and gas company. Mr. Williamson brings to the Board of Directors extensive
industry experience as an executive and a consultant with a focus on finance,
investment banking and general management. Mr. Williamson has been elected as non-executive chairman of our board of directors and appointed by the board of directors to serve as the chairman
of the Nominating and Corporate Governance Committee and as a member of the Audit Committee of our board of directors.

Non-Independent Directors

The following directors also serve as executive officers of ZaZa:

Todd Alan Brooks, age 37. Mr. Brooks has served as a director of ZaZa since the Combination. Mr. Brooks graduated from
Vanderbilt University in 1997 with a degree in Economics. Immediately thereafter, he earned a Doctor of Jurisprudence from South Texas College of Law in 2000. Mr. Brooks worked as a production
analyst for L.J. Melody & Co, one of the largest real estate investment banking firms in the U.S., from 2000 to 2003. Mr. Brooks worked in the field as a land man for OGM Land, based in
Houston, from 2004 until 2006, where he delivered title work and negotiated oil & gas leases on behalf of OGM's clients in East Texas, Arkansas, and the Gulf Coast. In 2006, Mr. Brooks
became trustee for his family's mineral trusts. Mr. Brooks is also the principal of Neuhaus Brooks Investments, LLC, a company focused on making energy investments in multiple geographic
regions. Mr. Brooks formed ZaZa LLC in 2009 with Messrs. Kearby and Hearn. Mr. Brooks now serves as Treasurer and Executive DirectorPresident for ZaZa.
Mr. Brooks brings to the board of directors of ZaZa his experience in asset evaluation, capital markets, and acquiring oil and gas leases in the Eagle Ford shale on behalf of ZaZa, and other
leases on behalf of previous employers.

John E. Hearn, Jr., age 54. Mr. Hearn has served as a director of ZaZa since the Combination. From 1984 until 1990,
Mr. Hearn was a staff geologist and then a member of the Major Play Exploration Team with Texas Oil & Gas in Corpus Christi. Mr. Hearn founded Lara Energy Inc. in 1991.
Mr. Hearn formed ZaZa LLC in 2009 with Messrs. Brooks and Kearby. Mr. Hearn managed ZaZa LLC's technical team and evaluated drilling during development for
ZaZa LLC in the Eagle Ford shale. Mr. Hearn now serves as Executive Director, Geoscience for ZaZa. Mr. Hearn received a Bachelor of Science Degree in Geology in 1980 from the
University of Houston. Mr. Hearn brings to the board of directors more than 30 years of technical background and experience in the oil and gas industry.

Craig M. McKenzie, age 49. Mr. McKenzie has served as a director of ZaZa since the Combination and previously served as the
President and Chief Executive Officer of Toreador from March 2009 until the Combination and served as Toreador's interim President and Chief Executive Officer and a director beginning in January 2009.
From October 2007 to December 2008, he was the Chief Executive Officer and Director of Canadian Superior Energy, Inc., a Canadian oil and gas exploration and production company. From May 2004
to September 2007, he was the President of BG Trinidad & Tobago of BG

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Group plc,
an integrated natural gas company. He was a member of the Atlantic LNG stockholders' board from September 2004 to September 2007. From 1986 to May 2004, he was at BP plc
(Amoco Corporation prior to the merger) where he held various senior level positions, including unit leader of North Sea Projects and Exploration, Executive Assistant in the office of the Group Chief
Executive Officer and Negotiator within the Mergers and Acquisitions Group. He holds a BS degree in Petroleum Engineering from Louisiana State University and a Masters in Management from the Kellogg
School of Management, Northwestern University. Mr. McKenzie's industry experience includes working in over 20 countries in both operations and commercial positions. Mr. McKenzie brings
to the board of directors a strong history of global operational, commercial and mergers and acquisition leadership experience.

On
March 5, 2009, Canadian Superior Energy, Inc. filed a voluntary petition for bankruptcy protection under the Company's Creditors Arrangement Act (Canada) in the Court of
Queen's Bench of Alberta; the company emerged from bankruptcy protection in September 2009. Mr. McKenzie was the Chief Executive Officer of Canadian Superior Energy, Inc. from October
2007 to December 2008.

The
following director ceased to be an executive officer of ZaZa as of May 3, 2012, but owns over 20% of its common stock:

Gaston L. Kearby, age 51. Mr. Kearby has served as a director of ZaZa since the Combination. Mr. Kearby founded Omega Energy
Corp. in 1988 (currently named Omega Energy, LLC) and today serves as its President and Chief Executive Officer. Omega is a privately held, Corpus Christi-based oil and gas company that owns a
portfolio of interests in operated and non-operated oil and gas properties in Texas and adjoining states. Mr. Kearby began his career in the oil and gas industry in 1984, buying and
selling drilling pipe to oil well operators in south Texas. Over time, his business expanded to include capping, salvaging and reselling drilling pipe reclaimed from unproductive wells, as well as
purchasing and operating existing wells. In 2009, Mr. Kearby founded ZaZa with Messrs. Brooks and Hearn to pursue opportunities in the emerging Eagle Ford shale and elsewhere. While
Mr. Kearby's experience has been primarily focused in oil and gas operations in south Texas, his experience includes overseeing production operations spanning a large part of North America.
Mr. Kearby's depth of experience in evaluating, acquiring, enhancing and operating existing production wells is valuable to the board of directors of ZaZa.

Involvement in Legal Proceedings

None of our officers or directors has been involved in any legal proceedings that would be required to be disclosed under
Item 401(f) of Regulation S-K,
except for the matters related to Messrs. de Combret and McKenzie described above and as otherwise described herein.

Committees

ZaZa's board of directors has the following standing committees: Nominating and Corporate Governance Committee, Audit Committee and
Compensation Committee. Each of these committees has a written charter approved by our Board.

Independent Director

Audit Committee

Compensation Committee

Nominating and Corporate Governance CommitteeBernard de Combret

X



XTravis Burris

Chairman

ChairmanAdam Kroloff



X

XHerb Williamson

X

X

Chairman


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Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee is currently composed of Messrs. Kroloff, de Combret and Williamson
(Chairman). The Nominating and Corporate Governance Committee held its inaugural meeting in March 2012.

A
copy of the Nominating and Corporate Governance Committee Charter is available on our website at www.zazaenergy.com.

The
functions of the Nominating and Corporate Governance Committee include: (i) identifying and assessing persons qualified to become members of the board of directors;
(ii) recommending to the board of directors a slate of director nominees for election or reelection at the annual meeting of stockholders, subject to the provisions of our stockholders'
agreement; (iii) recommending to the board of directors persons to fill board of directors and committee vacancies; and (iv) developing and recommending to the board of directors a set
of corporate governance principles and making other recommendations to the board of directors relative to corporate governance issues.

Audit Committee

The Audit Committee is currently composed of Messrs. Burris (Chairman), de Combret and Williamson. The Audit Committee held its
inaugural meeting in March 2012. The Board has determined that each of Messrs. Burris and Williamson is an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of
Regulation S-K. Please see the biographies for Messrs. Burris and Williamson in Item 10 of this Form 10-K for information on their experience and education which qualifies them as
"audit committee financial experts."

A
copy of the Audit Committee Charter is available on our website at www.zazaenergy.com.

The
purpose of the Audit Committee is to (i) oversee our accounting and financial reporting processes, (ii) oversee the audit of our financial statements,
(iii) review our compliance with legal and regulatory requirements, (iv) review our independent auditor's qualifications and independence, and (v) review the performance of our
independent auditors.



The Audit Committee Charter sets forth the responsibilities of the Audit Committee which include: (i) selecting, evaluating and
reviewing the independence of and approving services provided by our independent registered public accounting firm, (ii) reviewing the conduct of the audit, (iii) resolving disagreements
between our management and our independent registered public accounting firm, (iv) reviewing critical accounting policies and practices and any proposed changes thereto, (v) reviewing
Form 10-K and Form 10-Q prior to filing, and overseeing ZaZa's procedures with respect to press releases containing information regarding financial performance,
(vi) overseeing ZaZa's internal audit function, (vii) reviewing and assessing the adequacy of ZaZa's internal control systems, (viii) reviewing and approving (if appropriate)
related-party transactions, and (ix) preparing the annual Audit Committee Report.

In
fulfilling its responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements in our Annual Report on Form 10-K for
the year ended December 31, 2011, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity
of disclosures in the financial statements.

The
Audit Committee reviewed and discussed with Ernst and Young Audit ("E&Y"), the Company's independent registered public accounting firm which is responsible for expressing an opinion
on the conformity of those audited financial statements with accounting principles generally accepted in the United States, its judgments as to the quality, not just the acceptability, of ZaZa's

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accounting
principles. The Audit Committee also discussed with E&Y the matters required to be discussed by Statement of Auditing Standards No. 61 (Communication with Audit Committees), as
amended by Statement on Auditing Standards No. 90 (Audit Committee Communications), and applicable SEC rules and regulations. In addition, the Audit Committee has discussed with E&Y its
independence from management and ZaZa, including the matters in the written disclosures and the letter provided to ZaZa (and received and reviewed by the Audit Committee) by E&Y, as required by
applicable requirements of the Public Company Accounting Oversight Board regarding E&Y's communications with the Audit Committee, and considered the compatibility of non-audit services
with E&Y's independence.

The
Audit Committee discussed with E&Y the overall scope and plans for its audits. The Audit Committee met with E&Y, with and without management present, to discuss the results of its
examinations, and the overall quality of ZaZa's financial reporting.

The
Audit Committee also reviewed management's report on its assessment of the effectiveness of the Company's internal control over financial reporting. The Audit Committee discussed
with management significant deficiencies and material weaknesses identified during the course of the assessment and the audit and management's plan to remediate those control deficiencies.

In
reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board of Directors approved) that the audited financial
statements be included in our Annual Report on Form 10-K for the year ending December 31, 2011 for filing with the SEC.

By the Audit Committee:Travis Burris, Chairman
Bernard de Combret
Herbert Williamson III


Compensation Committee

The Compensation Committee is currently composed of Messrs. Burris (Chairman), Kroloff and Williamson. The Compensation
Committee held its inaugural meeting in March 2012.

A
copy of the Compensation Committee Charter is available on our website at www.zazaenergy.com.

The
purpose of the Compensation Committee is to assist the board of directors in discharging its responsibilities relating to executive compensation. Pursuant to its charter, the
specific functions of the Compensation Committee include: (i) overseeing the compensation of our executive officers; and (ii) overseeing the administration of our compensation and
benefit plans with respect to all eligible participants, including stock incentive plans and predecessor and related plans, pension, retirement and profit sharing plans, and any other plans that
require or provide for approval or administration by the board of directors.

Code of Ethics

Our code of ethics, entitled the ZaZa Energy Corporation Code of Conduct, applies to all of our directors, officers and employees,
including our Chief Executive Officer and Chief Financial Officer. The Code of Conduct is publicly available on our website atwww.zazaenergy.com. If we
make any amendment to our Code of Conduct, other than a technical, administrative or non-substantive amendment, or if we grant any waiver, including any implicit waiver, from a provision
of the Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting

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officer
or controller, we will disclose the nature of the amendment or waiver on our website at the same location. Also, we may elect to disclose the amendment or waiver in a current report on
Form 8-K filed with the SEC.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the directors, executive officers and persons who own
more than 10% of our common stock (collectively "Section 16 Persons") to file initial reports of ownership (Forms 3) and reports of changes in ownership of common stock (Forms 4
and Forms 5) with the SEC as well as provide copies of the reports to the Company. As no Section 16(a) reports were required in 2011, to the Company's knowledge, based solely on a review
of the copies of such reports furnished to the Company and representations from each Section 16 Person, during the fiscal year ended December 31, 2011, all Section 16(a) filing
requirements applicable to its Section 16 Persons were met.

Management of ZaZa

The following table sets forth the name, age and title of each of the persons who are executive officers of ZaZa:

Name, Age

PositionCraig M. McKenzie, 49

Chief Executive OfficerCharles J. Campise, 61

Chief Financial OfficerTodd Alan Brooks, 37

Executive DirectorPresidentJohn E. Hearn, Jr., 54

Executive Director, Geoscience


Charles Campise,age 61. Mr. Campise joined ZaZa LLC in September 2011 as interim Chief Financial Officer.
Mr. Campise was previously employed by Toreador from 2005 until his retirement in 2009. At Toreador, he served as Senior Vice President and Chief Financial Officer from June 2007 to August
2009, when the Company relocated its headquarters to Paris, France, and from May 2005 to June 2007 he served as Vice President and Chief Accounting Officer. Prior to his time with Toreador,
Mr. Campise served as the Corporate Controller of Transmeridian Exploration from December 2003 until May 2005 and, from July 2002 until December 2003, he performed independent accounting and
financial consulting. From April 2001 to June 2002, he served as the Finance Director and as a member of the board of directors of an Apache Corporation joint venture company located in Cairo, Egypt.
From January 1998 to December 2001, he served as a Vice President of Finance and Administration for Ocean Energy Cote d'Ivoire. Mr. Campise received a Bachelor of Arts degree from the
University of St. ThomasHouston in 1973 and is a certified public accountant licensed in the State of Texas. Mr. Campise's many years of experience in the oil and gas
industry in accounting and finance positions and, specifically, his prior years of service to Toreador as its Chief Financial Officer and his previous service as ZaZa LLC's interim Chief
Financial Officer, make Mr. Campise uniquely qualified to serve as the Chief Financial Officer of ZaZa.

Item 11.    Executive Compensation.



Prior to the Combination, our executive officers were also officers of either Toreador or ZaZa LLC and received all of their
compensation from those companies. Since ZaZa LLC is our accounting predecessor, we are reporting the compensation for our executive officers that were also executive officers and managers of
ZaZa LLC prior to the Combination as well the compensation for our chief financial officer, who was the interim chief financial officer for ZaZa LLC commencing in September, 2011. In
addition, we are reporting the compensation paid to our chief executive officer by

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Toreador,
who was the chief executive officer of Toreador prior to the Combination. In total, we will be reporting the executive compensation for our principal executive officer, principal financial
officer and our remaining two executive officers.



We were a newly formed company in 2011 and did not have any operations or compensation policies in place prior to the Combination.
Prior to the Combination, our accounting predecessor was a private company that was managed by its three partners. ZaZa LLC paid its three managing partners amounts deemed appropriate by the
partners based on negotiations with the managing partners and the liquidity of ZaZa LLC. The arrangements were documented pursuant to compensation agreements described below, which arrangements
were terminated at the closing of the Combination.

Our
board of directors have directed the Compensation Committee to determine the compensation of our executive officers. The Compensation Committee has engaged the Hay Group to advise
the committee on market trends and other factors appropriate for the compensation of our executive officers. The Compensation Committee intends to negotiate compensation arrangements with our
executive officers in the next few months. Until final arrangements are made, we are currently paying our executive officers (other than Charles Campise) $525,000 in base salary and are continuing to
pay Charles Campise at the same rate described below.

On
May 16, 2012, our board of directors approved an annual compensation plan for the non-executive directors: our non-executive chairman of the board of directors will receive an annual
retainer of $160,000 in cash and restricted stock valued at $90,000 at the time of grant and all other non-executive directors will receive an annual retainer of $62,000 in cash and restricted stock
valued at $56,000 at the time of grant. The restricted stock vests one-third at the time of grant and one-third on each of the first and second anniversaries of the date of grant. In addition, the
chairman of the Audit Committee receives an annual cash retainer of $15,000, the chairman of the Compensation Committee receives an annual cash retainer of $10,000, and the chairman of the Nominating
and Corporate Governance Committee receives an annual cash retainer of $7,500. As initial grants to the non-executive members of the board of directors, the board of directors all made a one-time
award of 119,000 shares to the chairman of the board and 71,400 shares to the other independent directors. These shares vest one-third immediately, one-third on May 16, 2013, and one-third on
May 16, 2014. No shares are to be issued until an equity plan has been approved by the Company's stockholders.

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The following table illustrates the compensation for the executive officers of ZaZa LLC in the years indicated:

Name and Principal Position

Year

Salary ($)

Bonus ($)

Stock
Awards ($)

Option
Awards ($)

Non-Equity Incentive Plan Compensation ($)

Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)

Any Other Compensation ($)

Total ($)Todd Alan Brooks,Managing Partner


2011

$
350,000

$
700,000
















$
1,050,0002010

$
272,273

$
110,000
















$
382,273John E. Hearn, Jr.,Managing Partner


2011

$
350,000

$
700,000













$
18,575.45
(2)
$
1,068,575.452010

$
272,273

$
110,000
















$
382,273Gaston L. Kearby,Managing Partner


2011

$
350,000

$
700,000













$
19,694.67
(3)
$
1,069,694.672010

$
272,273

$
110,000
















$
382,273Charles Campise,Chief Financial Officer


2011

$
85,200
(1)


















$
85,200


(1)Reflects
compensation paid on an hourly basis for the period of employment for the last four months of 2011.(2)Reflects
reimbursement of living expenses for working in our Houston office from time to time while residing near and otherwise working in our Corpus
Christi office.(3)Reflects
reimbursement of living expenses for working in our Houston office from time to time while residing near and otherwise working in our Corpus
Christi office.




ZaZa LLC entered into compensation and bonus agreements with each of the executive officers (other than Charles Campise)
described above. While each executive officer received the amounts listed above, the compensation and bonus agreements provide that each executive officer was entitled to an annual base salary of
$350,000 as of May 1, 2010 and total annual compensation of $850,000 (including the discretionary bonus). Under the terms of the compensation and bonus agreements, ZaZa LLC was required
to pay the full amount of the discretionary bonus less any base salary actually paid, when ZaZa LLC had the liquidity to make such payment.

As
part of the compensation arrangements described above, ZaZa LLC had also agreed to pay these executive officers the following performance bonuses, if the executive officer is
with ZaZa LLC at the
time the performance set forth below is achieved, and such performance bonus shall be paid upon specified events, which included the consummation of the
Combination:



On
August 9, 2011, in connection with the execution of the merger agreement, each of the executive officers (other than Charles Campise, who did not and does not have any similar
compensation and bonus agreement) entered into a separate letter agreement. The letter agreements provided that, upon the consummation of the Combination, ZaZa will assume ZaZa LLC's obligation

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to
pay to each of the executive officers any compensation, including back salary, bonuses, incentive compensation and other compensation payable in respect of periods prior to the closing or in
connection with the transactions contemplated by the closing (other than base salary and benefits in the ordinary course of business consistent with past practice), less any amounts previously paid.
At the closing of the Combination, ZaZa paid approximately $8 million in the aggregate to the three executive
officers in respect of such unpaid compensation, and issued a subordinated promissory note to the three members for approximately $9 million in the aggregate, which represented the unpaid
balance of the compensation at the closing of the Combination. Pursuant to the letter agreements, the compensation agreements were terminated at the closing of the Combination and ZaZa has no further
obligation with respect to such obligations (other than those arising under the subordinated promissory notes issued at the closing of the Combination).

Toreador Summary Compensation Table

Prior to becoming the President and Chief Executive Officer of ZaZa on February 21, 2012, Mr. McKenzie was the President
and Chief Executive Officer of Toreador, now one of ZaZa's wholly owned subsidiary. The following table sets forth information regarding the total compensation received by or earned by
Mr. McKenzie during 2011, 2010 and 2009.

Name and Principal Position

Year

Salary ($)

Stock
Award ($)(1)

Option
Awards ($)(1)

Non-Equity Incentive Plan Compensation ($)

All Other Compensation ($)

Total($)Craig McKenzie, President and CEO


2011


420,000








1,050,000


127,630
(2)

1,597,6302010


420,000








1,512,000


126,234


2,058,2342009


396,307


3,224,722





630,000


395,611


4,646,640


---

Grants of Plan-Based Awards Table

The following table summarizes the 2011 grants of equity and non-equity plan-based awards.

Name

Grant

Estimated Possible
Payouts under Non-
Equity Incentive Plan
Awards: Target(1)

Estimated Possible
Payouts under Non-
Equity Incentive Plan
Awards: Maximum(1)

All Other Stock
Awards: Number of
Shares of Stock(#)

Grant Date Fair
Value of Stock
Awards($)Craig McKenzie


NA
(2)










3/15/2011

$
420,000

$
1,260,000








---

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Narrative Disclosure Regarding Toreador Summary Compensation Table and Grants of Plan-Based Awards Table

Total compensation as represented in the Summary Compensation Table includes certain reimbursements made to Mr. McKenzie during
2010 as well as short-term incentive compensation and a one-time cash award made in lieu of restricted stock under the 2005 LTIP for Mr. McKenzie. Base salary paid
represented 20.4% of Mr. McKenzie's total compensation as represented in the Summary Compensation Table.

Employment Agreement

Toreador has a formal employment agreement with Mr. McKenzie to serve as Toreador's President and Chief Executive Officer. The
initial agreement, which was effective March 27, 2009, had a two-year term. As discussed above, in December 2010, however, an extension to Mr. McKenzie's employment agreement
was negotiated for an additional one-year term until March 27, 2012.

Under
the agreement, Mr. McKenzie is eligible for (i) a base salary of at least $420,000 per year, (ii) an annual performance-based bonus with a target amount of
100% of base salary, (iii) participation in all health insurance and retirement programs maintained by Toreador in which senior executives are entitled to participate, and
(iv) reimbursement for reasonable business and travel expenses. The agreement also provides for the grant of an annual long-term incentive award payable in shares of Toreador's
common stock that vest in three equal installments on the subsequent first, second, and third anniversaries of the effective date of Mr. McKenzie's contract . For each fiscal year, the size of
the long-term incentive award will depend on Toreador's stock price performance relative to its competitors, as described above. As discussed above, however, Mr. McKenzie negotiated
with the Compensation Committee of Toreador as part of the extension of his employment agreement a
one-time amendment to grant him the option to receive all or a portion of his long-term incentive compensation for 2010 in cash rather than restricted stock.

If
Mr. McKenzie's employment is terminated due to his death or disability, he will be entitled to (i) accrued but unpaid base salary and expense reimbursements ("accrued
obligations"), (ii) any earned but unpaid short-term incentive award, (iii) a pro rata portion of his short-term incentive award for the year in which termination
occurs, and (iv) pro rata vesting of any unvested shares of common stock held by Mr. McKenzie. If Mr. McKenzie dies or becomes disabled while traveling on official company
business, in lieu of the foregoing benefits, he (or his estate) will be entitled to the severance benefits payable upon a termination without cause or resignation for good reason, discussed below.

In
the event Mr. McKenzie is terminated by Toreador without cause (as defined in the agreement) or as a result of Toreador's decision not to renew the term of the agreement, or he
resigns for good reason (as defined in the agreement), he will be entitled to (i) accrued obligations, (ii) any earned but unpaid short-term incentive award, (iii) a
pro rata portion of his target short-term incentive award (or, in the event of Toreador's non-renewal, the short-term incentive award for the year in which
termination occurs), (iv) immediate vesting of any unvested shares of common stock held by Mr. McKenzie, (v) continuation of base salary and target short-term
incentive award payments (or, in the event of Toreador's non-renewal, just base salary) for two years following termination, and (vi) continuation of health benefits for two years
following termination. If Mr. McKenzie's termination without cause or resignation for good reason occurs within the year following a change of control of Toreador (as defined in the agreement),
Mr. McKenzie will be entitled to the same payments and benefits set forth in the preceding sentence, except that the base salary and short-term incentive award portion of his
severance will be paid in a lump sum (as opposed to over a two-year period).

Mr. McKenzie's
employment agreement contains a tax equalization provision which provides that in the event that the compensation received by Mr. McKenzie pursuant to the
agreement becomes subject to taxation in France, Mr. McKenzie will be paid an additional amount so that Mr. McKenzie

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will
be left in the same after-tax position as if his compensation had only been subject to any applicable U.S. federal, state and local taxes. The agreement also subjects
Mr. McKenzie to standard prohibitions against disclosure of confidential information, as well as non-competition and non-solicitation covenants during the term of his
employment and for one year thereafter.

Equity Awards

As discussed above, restricted stock granted to Mr. McKenzie pursuant to Toreador's 2005 LTIP vests ratably over three years. In
addition, any dividends that are paid on Toreador's common stock are also payable on the restricted stock, and Mr. McKenzie has the right to vote all shares of restricted stock held by him.

ZaZa
has not granted any equity awards to Mr. McKenzie. All of his vested shares and options were either converted into shares of ZaZa common stock or terminated in the
Combination. The equity awards to be granted to Mr. McKenzie in ZaZa will be determined by the Compensation Committee.

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the total outstanding equity awards as of December 31, 2011 for Mr. McKenzie. The market
value of the stock awards was based on the closing price of $            of Toreador's common stock on December 31, 2011, the last trading day of 2011. The unvested stock awards include
those grants of equity awards made in 2009 which were outstanding and unvested on December 31, 2011.

Number of Shares
of Stock That Have
Not Vested (#)(1)

Value of Number of
Shares of Stock that
have Not Vested ($)(2)Craig McKenzie


104,869


---

Option Exercises and Stock Vested in 2011

The following table summarizes for Mr. McKenzie in 2011 the number of shares acquired upon the vesting of restricted stock and
the value realized, each before payout of any applicable withholding tax.

Number of Shares
Acquired on Vesting(#)

Value Realized
on Vesting($)Craig McKenzie


104,869



(1)


---

Potential Payments Upon Change in Control

Mr. McKenzie was entitled to the payment set forth in the table below as a result of the Combination, which calculations were
made assuming the triggering event occurred on February 15, 2012. Accordingly, all payments set forth below, other than those resulting from the effect of the transactions on restricted stock,
are considered double trigger benefits meaning that in order for Mr. McKenzie to receive such payment, he would have to be terminated or he would have to resign.

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The
equity awards are single-trigger, meaning the unvested restricted stock awards will immediately vest upon the consummation of the transactions.

Name

Cash ($)(1)

Equity ($)(2)

Pension/ NDQC ($)

Perquisites/ Benefits ($)(3)

Tax Reimbursement ($)

Total ($)Craig McKenzie

$
1,732,920

$
361,798




$
35,736




$
2,130,454


---

Because
we felt it was in the best interest of ZaZa, Toreador and Mr. McKenzie not to trigger the various payments, Toreador paid Mr. McKenzie $2,184,051 at the closing,
which was substantially similar to the payment he would have been entitled to had the triggering event occurred, in exchange for a release of existing claims against Toreador and a waiver of any
further claims in respect of the Combination. Mr. McKenzie retains the right to receive certain payments in any subsequent change of control. We intend to negotiate a new employment agreement
with Mr. McKenzie in the coming months that will replace his existing employment agreement with Toreador, the terms of which will be agreed to by Mr. McKenzie and the Compensation
Committee.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee members were not appointed until February 2012. Accordingly, there were no transactions or relationships
described under Item 407(e)(4) of Regulation S-K that involved any directors who served on the Compensation Committee during all or part of 2011.

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Compensation Committee Report

The compensation committee has reviewed and discussed the Company's Compensation Discussion and Analysis with management. Based upon
such review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our Annual Report on
Form 10-K for the year ending December 31, 2011 for filing with the SEC.



Item 12.    Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters.

Long-Term Incentive Compensation

The 2012 Long-Term Incentive Plan (the "LTIP") has been approved by the Board and remains subject to stockholder approval.
As such, no issuances have been made pursuant to the LTIP. We had no equity compensation plan in effect as of December 31, 2011.

Security Ownership of Management

The following table sets forth as of May 31, 2012, the beneficial ownership of ZaZa common stock by (i) each named
executive officer, each director and each nominee for director of ZaZa and (ii) directors and executive officers of ZaZa as a group (seven persons). Except as otherwise indicated, the address
for each beneficial owner is 1301 McKinney Street, Suite 2850, Houston, Texas 77010. The applicable percentage ownership is based on 101,302,468 shares of ZaZa common stock issued and
outstanding as of May 31, 2012, and includes, on an individual basis, the number of shares of ZaZa common stock that could be acquired by options exercisable within 60 days of
May 31, 2012. All information is based upon ownership of record as reflected on the stock transfer books of ZaZa or as reported on Schedule 13G or Schedule 13D filed under
Rule 13d-1 under the Exchange Act or has been furnished by the respective officers or directors of ZaZa.

ZaZa Common Stock
Beneficially OwnedNumber of
Shares

Percent of
ClassBernard de Combret


66,342



*Adam Kroloff


88,738



*Herbert C. Williamson III


79,341



*Craig McKenzie


318,607


1.26
%Todd Alan Brooks


22,547,283
(1)

22.26
%John E. Hearn, Jr.


22,547,284
(2)

22.26
%Gaston L. Kearby


22,547,284
(3)

22.26
%All directors and executive officers as a group (7 persons)


68,194,879


67.32
%


---

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Except
as otherwise indicated above, all shares shown in the above table are owned directly, and the holder thereof has sole voting and investment power with respect to such shares.

Security Ownership of Certain Beneficial Owners

Listed in the following table and the notes thereto is certain information with respect to the beneficial ownership of our common stock
as of May 31, 2012 by the persons known to ZaZa to be the beneficial owners of 5% or more of ZaZa common stock, by virtue of the filing of Schedule 13D or Schedule 13G with the
Securities and Exchange Commission. To our knowledge, other
than as set forth in the table below, there are no persons owning more than 5% of ZaZa common stock.

ZaZa Common Stock
Beneficially OwnedNumber of
Shares

Percent of
ClassBlackstone Oil & Gas, LLC


22,547,283


22.26
%Lara Energy, Inc.


22,547,284


22.26
%Omega Energy, LLC


22,547,284


22.26
%


Except
as otherwise indicated above, all shares shown in the above table are owned directly, and the holder thereof has sole voting and investment power with respect to such shares.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

ZAZA LLC RELATED-PARTY TRANSACTIONS

Prior to the Combination, the ZaZa LLC Members had helped finance the operations of ZaZa LLC by making capital
contributions and loans to ZaZa LLC. In 2010, the ZaZa LLC Members lent ZaZa LLC $3.0 million in the aggregate, with each of ZaZa LLC Members lending
$1.0 million through notes (the "member notes"). The member notes accrued interest at 8% per annum. No payments were made on account of the member notes in 2011, and the member notes were paid
in full at the closing of the Combination.

Each
of the three ZaZa LLC Members has a direct or indirect interest in an overriding royalty interest generally equal to one percent (1%) (for a total of three percent (3%))
in:



In
March 2010, ZaZa LLC entered into an agreement with the ZaZa LLC members and Eli Smith & Associates, which we refer to as Smith, to acquire 100% working interests
in any unproved

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acreage
identified in a defined area of mutual interest located in the Colorado and Lavaca counties of Texas. During the year ended December 31, 2010, ZaZa acquired acreage totaling
approximately $28.9 million pursuant to this agreement; $6.2 million of the purchase price was in the form of the $3 million notes payable due to the ZaZa members described above
and $3.2 million in accounts payable due to ZaZa members, which was paid in January 2011. During the twelve months ended December 31, 2011, ZaZa LLC received approximately
$5.4 million pursuant to this agreement. The ZaZa LLC Members and Smith retain a direct or indirect reserved overriding royalty interest generally equal to three percent (3%) in each
property sold to ZaZa LLC, which is divided pro-rata among the four sellers in the transactions. Simultaneously with each purchase, ZaZa LLC pursuant to a separate agreement
sells 90% of the acquired working interests to Hess, retaining a 10% working interest in each property.

One
of ZaZa LLC's designees to the board of directors, Travis H. Burris, currently owns a 45% interest in, and serves as Chairman and President of, Texas Champion Bank. On
September 26, 2011, ZaZa LLC borrowed $5 million under a revolving line of credit with Texas Champion Bank. The line of credit beared interest at 5.5%, was scheduled to mature on
September 25, 2012, and was secured by a first lien on ZaZa LLC's interests in certain of its oil and gas properties. This loan was repaid in full at the closing of the Combination.

Effective
May 1, 2010, ZaZa LLC entered into compensation and bonus agreements with each of Todd Alan Brooks, John E. Hearn Jr. and Gaston L. Kearby. These compensation and
bonus agreements were terminated at the closing of the Combination. See Executive Compensation-Narrative Disclosure regarding ZaZa LLC Summary Compensation Table.

At
the closing of the Combination, ZaZa issued subordinated promissory notes in accordance with the terms of the Merger Agreement to the ZaZa LLC Members equal to approximately
$38 million in the aggregate and to Todd Alan Brooks, John E. Hearn, Jr. and Gaston L. Kearby in respect of their unpaid compensation in respect of their compensation agreements equal to
approximately $9 million in the aggregate. The subordinated promissory notes bear interest at eight percent per annum, are unsecured, mature on August 21, 2017 and are subordinated to up
to $150,000,000 in senior indebtedness, including the $100,000,000 in outstanding senior notes issued by ZaZa at the closing of the Combination.

ZaZa
has no full time employees, but has entered into a management agreement (the "Management Agreement") with Sequent Petroleum Management, LLC ("SPM") pursuant to which SPM
provides ZaZa with contractors and consultants and their related benefits programs in exchange for a monthly fee for managing such personnel in March 2011. One of the principals of SPM, Scott Gaille,
was appointed ZaZa Energy Corporation's Chief Compliance Officer as of March 2012. ZaZa reimburses SPM for the costs of the personnel under the Management Agreement, including for the costs of their
insurance and other benefits. SPM handles all payroll, tax, accounting and benefit services for the contractors and consultants provided under the Management Agreement. In 2011, ZaZa paid SPM
$6.3 million (including $50 thousand in management fees) under this agreement. At December 31, 2011, ZaZa had a receivable from SPM for $84 thousand related to an
estimation of year end payroll as well as a deposit for SPM working capital in the amount of $25,000.

Lot-A-Go
5 ("LG5") is an airplane rental company in which Todd Brooks and Gaston Kearby each hold 25% of the partnership interests. From time to time,
ZaZa LLC will rent a plane for business travel reasons. ZaZa LLC is charged for the pilots' time, hanger fees and fuel. ZaZa LLC paid LG approximately $700,00 for such expenses
for the period ended December 31, 2011. In addition, LG5 provided a short-term working capital no interest loan of $220,000, of which $80,000 remained outstanding at
December 31, 2011.

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The board of directors affirmatively determines the independence of each director and nominee for election as a director in accordance
with guidelines it has adopted, which include all elements of independence set forth in Listing Rule 5605(a)(2) of Nasdaq and applicable rules of the SEC. Based on these standards, the board of
directors has determined that each of our directors, other than Messrs. Brooks, Hearn, Kearby and McKenzie, is independent. All members of the Audit Committee are independent pursuant to
Rule 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3(b)(1) under the Exchange Act. The board of directors has determined that Mr. Williamson is an "audit
committee financial expert" as such term is defined in Item 407(d) of Regulation S-K. All members of the Compensation Committee are (i) independent pursuant to
Rule 5605(a)(2) of the Nasdaq Listing Rules and (ii) "non-employee directors," as that term is defined in Rule 16-b(3) under the Exchange Act.

Item 14.    Principal Accountant Fees and Services.

The following table presents the fees for professional services rendered to ZaZa LLC by Ernst & Young Audit for the
fiscal years ended December 31, 2011 and December 31, 2010:

2011

2010Audit fees

$
899,915

$
96,331Audit-related fees(1)


130,650


Tax fees





All other fees





Total

$
1,030,165

$
96,331


---

The
following table presents the fees for professional services rendered to Toreador by Ernst & Young Audit for the fiscal years ended December 31, 2011 and
December 31, 2010:

2011

2010Audit fees

$
891,609

$
698,311Audit-related fees





Tax fees





All other fees





Total

$
891,609

$
698,311


Audit Committee Pre-Approval Policies and Procedures

All audit and non-audit services are pre-approved by the Audit Committee, which considers, among other things,
the possible
effect of the performance of such services on the registered public accounting firm's independence. The Audit Committee pre-approves the annual engagement of the principal independent
registered public accounting firm, including the performance of the annual audit, statutory audits at foreign locations, quarterly reviews and tax services. The Chairman of the Audit Committee has
been delegated the authority to provide any necessary specific pre-approval for services that have not been previously pre-approved, but he must report the
pre-approval at the next meeting of the Audit Committee. The Audit Committee has considered the role of Ernst & Young LLP in providing services to ZaZa and has concluded that
such services are compatible with such firm's independence.

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PART IV

Item 15.    Exhibits and Financial Statement Schedules.

The following documents are filed as part of this report:

1.     Index to Consolidated Financial Statements

Index
to Financial Statements, Report of Independent Registered Public Accounting Firm, Balance Sheet as of December 31, 2011 and Notes to the Financial Statement, for ZaZa Energy
Corporation.

Index
to Financial Statements, Report of Independent Registered Public Accounting Firm, Balance Sheets as of December 31, 2011 and 2010, Statements of Income and Members' Equity
and Cash Flows for each of the two years in the period ended December 31, 2011 and for the period from March 4, 2009 (inception) to December 31, 2009 and Notes to the Financial
Statements for ZaZa Energy, LLC.

Index
to Consolidated Financial Statements, Reports of Independent Registered Public Accounting Firms, Consolidated Balance Sheets as of December 31, 2011 and 2010, Consolidated
Statements of Operations and Comprehensive Income (Loss) for each of the three years in the period ended December 31, 2011, Consolidated Statements of Changes in Stockholders' Equity for each
of the three years in the period ended December 31, 2011, Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2011, and Notes to
Consolidated Financial Statements for Toreador Resources Corporation.

2.     The
financial statement schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the
Notes to Consolidated Financial Statements.

3.     Exhibits:
The exhibits required to be filed by this Item 15 are set forth in the Index to Exhibits accompanying this report.

ZaZa Energy Corporation 2011 10-KExhibit List

2.1

Agreement and Plan of Merger and Contribution, dated August 9, 2011, by and among Toreador Resources Corporation, ZaZa Energy, LLC, ZaZa Energy Corporation and Thor Merger Sub Corporation (incorporated by
reference to Exhibit 2.1 to Toreador Resources Corporation's Current Report on Form 8-K filed August 10, 2011).2.2

Amendment No. 1 to the Agreement and Plan of Merger and Contribution, dated November 10, 2011, by and among Toreador Resources Corporation, ZaZa Energy, LLC, ZaZa Energy Corporation and Thor Merger Sub
Corporation (incorporated by reference to Exhibit 2.4 to ZaZa Energy Corporation's Form S-4/A (333-177264) filed November 21, 2011).2.3

Amendment No. 2 to the Agreement and Plan of Merger and Contribution, dated February 21, 2012, by and among Toreador Resources Corporation, ZaZa Energy, LLC, ZaZa Energy Corporation and Thor Merger Sub
Corporation (incorporated by reference to Exhibit 2.3 of ZaZa Energy Corporation's Current Report on Form 8-K filed February 22, 2012).2.4

Contribution Agreement, dated August 9, 2011, by and among Blackstone Oil & Gas, LLC, Omega Energy Corp., Lara Energy, Inc. and ZaZa Energy Corporation (incorporated by reference to
Exhibit 2.2 to Toreador Resources Corporation's Current Report on Form 8-K filed August 10, 2011).


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2.5

Amendment No. 1 to the Contribution Agreement, dated November 10, 2011, by and among Blackstone Oil & Gas, LLC, Omega Energy Corp., Lara Energy, Inc. and ZaZa Energy Corporation, and consented
to and agreed to by Toreador Resources Corporation (incorporated by reference to Exhibit 2.4 to ZaZa Energy Corporation's Form S-4/A (333-177264) filed November 21, 2011).2.6

Net Profits Interests Contribution Agreement, dated August 9, 2011, by and among the holders of net profits interests of ZaZa Energy, LLC and ZaZa Energy Corporation (incorporated by reference to
Exhibit 2.3 to Toreador Resources Corporation's Current Report on Form 8-K filed August 10, 2011).3.1

Restated Certificate of Incorporation of ZaZa Energy Corporation (incorporated by reference to Exhibit 3.1 of ZaZa Energy Corporation's Current Report on Form 8-K filed February 22, 2012).3.2

Amended and Restated Bylaws of ZaZa Energy Corporation (incorporated by reference to Exhibit 3.2 of ZaZa Energy Corporation's Current Report on Form 8-K filed February 22, 2012).4.1

Securities Purchase Agreement, dated as of February 21, 2012, by and among ZaZa Energy Corporation and purchasers thereunder, including MSDC ZEC Investments, LLC and Senator Sidecar Master Fund LP
(incorporated by reference to Exhibit 4.1 of ZaZa Energy Corporation's Current Report on Form 8-K filed February 22, 2012).4.2

Form of Secured Notes issued pursuant to the Securities Purchase Agreement, dated as of February 21, 2012, by and among ZaZa Energy Corporation and purchasers thereunder, including MSDC ZEC Investments, LLC
and Senator Sidecar Master Fund LP (incorporated by reference to Exhibit 4.2 of ZaZa Energy Corporation's Current Report on Form 8-K filed February 22, 2012).4.3

Form of Warrant to Purchase Shares of Common Stock of ZaZa Energy Corporation, dated February 21, 2012 (incorporated by reference to Exhibit 4.3 of ZaZa Energy Corporation's Current Report on Form 8-K
filed February 22, 2012).4.4

Form of Registration Rights Letter, dated February 22, 2012, by and among ZaZa Energy Corporation and certain purchasers (incorporated by reference to Exhibit 4.5 of ZaZa Energy Corporation's Current Report
on Form 8-K filed February 22, 2012).10.1

Stockholders' Agreement, dated August 9, 2011, by and among ZaZa Energy Corporation, Blackstone Oil & Gas, LLC, Omega Energy Corp. and Lara Energy, Inc. (incorporated by reference to
Exhibit 2.4 to Toreador Resources Corporation's Current Report on Form 8-K filed August 10, 2011).10.2

Non-Competition Agreement, dated August 9, 2011, between ZaZa Energy Corporation and Todd Alan Brooks (incorporated by reference to Exhibit 10.2 of ZaZa Energy Corporation's Form S-4 (333-177264) filed
October 12, 2011).10.3

Non-Competition Agreement, dated August 9, 2011, between ZaZa Energy Corporation and John E. Hearn, Jr. (incorporated by reference to Exhibit 10.3 of ZaZa Energy Corporation's Form S-4 (333-177264)
filed October 12, 2011).10.4

Non-Competition Agreement, dated August 9, 2011, between ZaZa Energy Corporation and Gaston L. Kearby (incorporated by reference to Exhibit 10.4 of ZaZa Energy Corporation's Form S-4 (333-177264) filed
October 12, 2011).


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10.5

Form of Subordinated Promissory Note, dated February 21, 2012, issued to Blackstone Oil & Gas, LLC, Omega Energy Corp., Lara Energy, Inc., Todd Alan Brooks, John E. Hearn, Jr., and Gaston L. Kearby
(incorporated by reference to Exhibit 4.4 of ZaZa Energy Corporation's Current Report on Form 8-K filed February 22, 2012).10.6

Revolving Credit Agreement and Revolving Credit Promissory Note, dated September 23, 2011 by and between Texas Champion Bank and ZaZa Energy, LLC (incorporated by reference to Exhibit 10.16 of ZaZa
Energy Corporation's Form S-4 (333-177264) filed October 12, 2011).10.7

Letter Agreement, dated August 9, 2011, by and among Todd Alan Brooks, ZaZa Energy, LLC and ZaZa Energy Corporation (incorporated by reference to Exhibit 10.7 of ZaZa Energy Corporation's Form S-4
(333-177264) filed October 12, 2011).10.8

Amendment No. 1 to Letter Agreement, dated November 10, 2011, by and among Todd Alan Brooks, ZaZa Energy, LLC and ZaZa Energy Corporation (incorporated by reference to Exhibit 10.17 of ZaZa Energy
Corporation's Form S-4 (333-177264) filed on October 12, 2011).10.9

Letter Agreement, dated August 9, 2011, by and among John E. Hearn, Jr., ZaZa Energy, LLC and ZaZa Energy Corporation (incorporated by reference to Exhibit 10.8 of ZaZa Energy Corporation's
Form S-4 (333-177264) filed October 12, 2011).10.10

Amendment No. 1 to Letter Agreement, dated November 10, 2011, by and among John E. Hearn, Jr., ZaZa Energy, LLC and ZaZa Energy Corporation (incorporated by reference to Exhibit 10.18 of ZaZa
Energy Corporation's Form S-4 (333-177264) filed on October 12, 2011).10.11

Letter Agreement, dated August 9, 2011, by and among Gaston L. Kearby, ZaZa Energy, LLC and ZaZa Energy Corporation (incorporated by reference to Exhibit 10.9 of ZaZa Energy Corporation's Form S-4
(333-177264) filed October 12, 2011).10.12

Amendment No. 1 to Letter Agreement, dated November 10, 2011, by and among Gaston L. Kearby, ZaZa Energy, LLC and ZaZa Energy Corporation (incorporated by reference to Exhibit 10.19 of ZaZa Energy
Corporation's Form S-4 (333-177264) filed on October 12, 2011).10.13

Investment Agreement, dated May 20, 2010, between Toreador Energy France S.C.S. and Hess Oil France S.A.S. (incorporated by reference to Exhibit 10.1 to Toreador Resources Corporation's Current Report
on Form 8-K filed on May 10, 2010).10.14

Amendment to the Investment Agreement, dated May 18, 2011, between Toreador Energy France S.C.S. and Hess Oil France S.A.S. (incorporated by reference to Exhibit 10.1 to Toreador Resources Corporation's
Current Report on Form 8-K filed on May 23, 2011).10.15

Exploration and Development Agreement, Eagle Ford Shale Area, dated April 28, 2010, by and between Hess Corporation and ZaZa Energy, LLC (incorporated by reference to Exhibit 10.14 of ZaZa Energy
Corporation's Form S-4 (333-177264) filed on October 12, 2011).10.16

Exploration and Development Agreement, Hackberry Creek Project Area, dated March 26, 2010, by and between Hess Corporation and ZaZa Energy, LLC (incorporated by reference to Exhibit 10.15 of ZaZa Energy
Corporation's Form S-4 (333-177264) filed on October 12, 2011).10.17

Amended and Restated Management Agreement, dated November 18, 2011, by and between Sequent Petroleum Management, LLC and ZaZa Energy, LLC (incorporated by reference to Exhibit 10.20 of ZaZa Energy
Corporation's Form S-4 (333-177264) filed on October 12, 2011).


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10.18

Guaranty Agreement, dated as of February 21, 2012, among ZaZa Holdings Inc., ZaZa Energy, LLC and Toreador Resources Corporation in favor of MSDC ZEC Investments, LLC, Senator Sidecar Master
Fund LP, the other purchasers of the secured notes and U.S. Bank National Association, as collateral agent (incorporated by reference to Exhibit 10.1 of ZaZa Energy Corporation's Current Report on Form 8-K filed on February 22,
2012).10.19
*
Collateral Agency Agreement, dated as of February 21, 2012, among U.S. Bank National Association, as collateral agent, and MSDC ZEC Investments, LLC, Senator Sidecar Master Fund LP and the other
purchasers of secured notes.10.20

Subordination Agreement, dated as of February 21, 2012, by and among Blackstone Oil & Gas, LLC, Omega Energy Corp., Lara Energy, Inc., Todd Alan Brooks, John E. Hearn, Jr., and Gaston L. Kearby,
 U.S. Bank National Association, as collateral agent, the Purchasers of the Notes and ZaZa Energy Corporation (incorporated by reference to Exhibit 10.3 of ZaZa Energy Corporation's Current Report on Form 8-K filed on February 22,
2012).10.21

Lock-Up Agreement, dated as of February 21, 2012, by and between the Restricted Stockholders (as defined therein) and ZaZa Energy Corporation (incorporated by reference to Exhibit 10.4 of ZaZa Energy
Corporation's Current Report on Form 8-K filed on February 22, 2012).10.22
*
Form of Indemnity Agreement between ZaZa Energy Corporation and each executive officer and director.16.1

Letter from KPMG LLP, to the Securities and Exchange Commission, dated October 12, 2011 (incorporated by reference to Exhibit 16.1 of ZaZa Energy Corporation's registration statement on Form S-4
(Registration No. 333-177264) filed October 12, 2011).21.1
*
Subsidiaries of ZaZa Energy Corporation.23.1
*
Consent of Gaffney, Cline & Associates Limited.23.2
*
Consent of Rex D. Morris.24.1

Power of Attorney (included as part of the signature page).31.1
*
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
*
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
+
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
*
Report of Gaffney, Cline & Associates Limited, dated March 12, 2012.99.2
*
Report of Rex D. Morris, dated March 14, 2012.


*Filed
herewith.+Furnished
herewith.


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ZaZa Energy Corporation has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ZAZA ENERGY CORPORATION (Registrant)Date: June 14, 2012By:

/s/ CRAIG M. MCKENZIE Craig M. McKenzie Chief Executive Officer


POWER OF ATTORNEY

We, the undersigned officers and directors of ZaZa Energy Corporation do hereby constitute and appoint Craig McKenzie and Charles
Campise, and each of them, our true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments to this report, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to
be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby, ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated:

Signature

Title

Date/s/ CRAIG M. MCKENZIE Craig M. McKenzie

Chief Executive Officer
(principal executive officer)

June 14, 2012/s/ CHARLES CAMPISE Charles Campise

Chief Financial Officer
(principal financial and accounting officer)

June 14, 2012/s/ TODD ALAN BROOKS Todd Alan Brooks

Executive DirectorPresident

June 14, 2012/s/ TRAVIS H. BURRIS Travis H. Burris

Director

June 14, 2012


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Signature

Title

Date/s/ BERNARD DE COMBRET Bernard de Combret

Director

June 14, 2012/s/ JOHN E. HEARN, JR. John E. Hearn, Jr.

Executive DirectorGeoscience

June 14, 2012/s/ GASTON L. KEARBY Gaston L. Kearby

Director

June 14, 2012/s/ ADAM KROLOFF Adam Kroloff

Director

June 14, 2012/s/ HERBERT C. WILLIAMSON III Herbert C. Williamson III

Director

June 14, 2012


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Table of Contents

Index to
ZaZa Energy Corporation, ZaZa Energy LLC and
Toreador Resources Corporation

Financial Statements

Contents



Report of Independent Registered Public Accounting Firm for ZaZa Energy Corporation

F-2Balance Sheet as of December 31, 2011

F-3Notes to Financial Statement

F-4Report of Independent Registered Public Accounting Firm for ZaZa Energy LLC

F-17Balance Sheets as of December 31, 2011 and 2010

F-18Statements of Income for the Years Ended December 31, 2011, 2010 and for the period March 4, 2009 (inception)
to December 31, 2009

F-19Statements of Members' Equity for the two Years Ended December 31, 2011. 2010 and for the period March 4, 2009
(inception) to December 31, 2009

F-20Statements of Cash Flows for the two Years Ended December 31, 2011, 2010 and for the period March 4, 2009
(inception) to December 31, 2009

F-21Notes to Financial Statements

F-22Report of Independent Registered Public Accounting Firm for Toreador Resources Corporation

F-39Consolidated Balance Sheets

F-40Consolidated Statements of Operations and Comprehensive (Loss)

F-41Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 2011

F-42Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2011

F-43Notes to Consolidated Financial Statements

F-44


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Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders of
ZaZa Energy Corporation

We
have audited the accompanying balance sheet of ZaZa Energy Corporation (the Company) as of December 31, 2011. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of ZaZa Energy Corporation as of December 31, 2011, in
conformity with U.S. generally accepted accounting principles.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company has no assets and ZaZa Energy, LLC (ZaZa), the Company's accounting predecessor as of February 21, 2012, has a working capital deficiency and has relied on funds from ZaZa's
principal joint venture partner to finance its operations. On June 8, 2012, the Company, ZaZa and ZaZa's joint venture partner entered into a Heads of Agreement (HoA) to resolve various
disagreements under the joint venture agreements between the parties. The HoA calls for the termination of the obligations of the parties under the joint venture agreements and the division of the
assets covered by these agreements. The HoA is non-binding and subject to definitive documentation. The uncertainties surrounding the consummation of the HoA and the Company's and ZaZa's
lack of readily available liquidity raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/
Ernst &
Young LLP

June 14,
2012
Houston, Texas

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ZaZa Energy Corporation        Balance Sheet

December 31, 2011ASSETSCurrent assets:Cash and cash equivalents

$
Total current assets


TOTAL ASSETS

$
LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payabletrade

$
Total current liabilities


Other long-term liabilities


Total Liabilities


Preferred stock, $0.01 par value, 25,000,000 shares authorized, zero issued or outstanding


Common stock, $0.01 par value, 250,000,000 shares authorized; 100 shares issued and outstanding


1Subscription receivable


(1
)Additional paid-in capital


Retained Earnings


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$





See accompanying notes to financial statements

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ZaZa Energy Corporation        Notes to Financial Statement        December 31, 2011

1. Organization and Basis of Presentation

Organization

ZaZa Energy Corporation ("ZEC" or the "Company") was formed on August 4, 2011 for the purpose of being a holding company of both
ZaZa Energy LLC and Toreador Resources Corporation ("Toreador") upon completion of an Agreement and Plan of Merger Contribution, dated August 9, 2011, as amended. ZEC had no assets and
had not conducted any material activities other than those incidental to its formation (50 shares to each ZaZa LLC and Toreador at $.01 par redeemed at the merger which were unpaid and are
presented as "Subscription receivable" in the equity section of the balance sheet) as of December 31, 2011 and through February 20, 2012. However, on February 21, 2012, upon the
consummation of the merger discussed above of ZaZa LLC and Toreador, ZEC became the parent company of ZaZa LLC and Toreador. In this annual report on Form 10-K, unless
the context provides otherwise, "we", "our", "us" and like
references refer to ZaZa, its two subsidiaries (ZaZa LLC and Toreador) and each of their respective subsidiaries.

Basis of Presentation

The accompanying financial statement is prepared in accordance with accounting principles generally accepted in the United States of
America. Management has made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial
statement. Management believes that the estimates utilized in preparing its financial statements are reasonable. Actual results could differ from these estimates.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company has no assets, and since the merger discussed above has relied on funds from the joint venture between ZaZa LLC and Hess Corporation under the
Exploration and Development Agreements (Eagle Ford Shale Area, dated April 28, 2010, and Hackberry Creek Area, dated March 26, 2010, each an "EDA" and collectively, the "EDAs") to
finance its operations. Furthermore, since the merger, the Company and ZaZa LLC have maintained working capital deficiencies.

Based
on correspondence and communications between the parties, the differing views of the parties on the respective obligations under the EDAs became apparent and that it would be in
the best interest of both parties to dissolve the joint venture and divide the combined assets. On June 8 2012, ZaZa, ZaZa LLC, ZaZa Energy France S.A.S. (formerly known as
Toreador Energy France S.A.S.)("ZEF"), Hess and Hess Oil France S.A.S. ("Hess France") entered into a Heads of Agreement ("HoA"), that calls for the termination of the ongoing
obligations of the parties under the EDAs and the "French Agreements" between ZEF and Hess France, including that certain Investment Agreement dated May 10, 2010, as amended, and that certain
Agreement dated July 21, 2011 with Vermillion REP, S.A.S., and the division of the assets covered by the EDAs and the French Agreements. Definitive documentation effectuating the terms
of the HoA is expected to be executed on or before June 29, 2012.

The
HoA generally provides that the ongoing obligations of the parties under the EDAs and the French Agreements, including funding for additional leases, well carry or carry for
expenses, will be

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ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

1. Organization and Basis of Presentation (Continued)

terminated
upon consummation of the transactions. Under the HoA and subject to the completion of definitive documentation by June 29, 2012, or such later date as may be extended pursuant to the
HoA, ZaZa will receive:



Upon
consummation of the transactions outlined in the HoA, ZaZa's net acreage holdings in the Eagle Ford core will increase from a total of 11,500 acres to approximately 72,000 acres.
The acreage by area comprises approximately 1,970 acres in southern Frio County, 23,120 acres in the Hackberry Prospect Area (Lavaca and Colorado Counties), 10,810 acres in the Moulton Prospect Area
(Fayette, Gonzalez and Lavaca Counties) and 35,650 acres in the Sweet Home Prospect Area (DeWitt and Lavaca Counties). Per the HoA, ZaZa will have the rights to approximately 3,924 additional acres in
the Sweet Home Prospect Area that have not been timely transferred by a third-party lease broker but for which payment of approximately $10.4 million has been made under the EDAs. While ZaZa
hopes to receive all of the acreage, if ZaZa receives cash from the lease broker in lieu of the acreage, whether from a judgment, payment refund or otherwise, such cash must be split evenly with Hess.

As
part of the HoA, ZaZa also will transfer its 50% working interest in the Paris Basin exploration licenses as provided for in the French Agreements and retain a 5%
cost-free revenue interest in such licenses, in which the total proceeds relating thereto to ZaZa are capped at $130 million.

The
HoA is non-binding and subject to definitive documentation. There is no guarantee that the transactions contemplated by the HoA will be completed timely or completed at
all. If the
definitive documentation is not completed, either party may terminate the HoA and enforce its rights under the EDAs and the French Agreements including submission of claims to arbitration.

In
connection with the execution of the HoA, ZaZa LLC and Hess entered into an amendment to the Exploration and Development Agreement Eagleford Shale Area dated April 28,
2010, as amended, and the applicable joint operating agreements, to eliminate Hess's obligation to carry the cost of wells under those agreements in the Cotulla Prospect Area, in exchange for a cash
payment by Hess to ZaZa LLC of $15 million. This $15 million was paid to ZaZa on June 8, 2012. ZaZa LLC has the right under the amendment to reinstate Hess's
well-carry obligations at any time prior to September 28, 2012, so long as the Exploration and Development Agreement is still in effect, by paying Hess $15 million.

The
combined amount of $85 million will be used in offsetting amounts owed to us under the EDAs of $4.0 million, in settlement of third party accounts payable balance of
$14.4 million, reduction of $33 million of the principal amount of our 8% senior secured notes due 2017.

We
are confident our 2012 plan, which assumes the proceeds from the HOA, would result in a positive working capital of $8 million to $17 million at December 31,
2012, if we are able to provide tax shelter for all of the $85 million consideration received by Hess through use of our existing net operating losses. If we are not able to do so, we estimate
that we may have to curtail our development

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ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

1. Organization and Basis of Presentation (Continued)

program
and reevaluate our lease renewal strategy to offset approximately $14 million of tax payments in 2012.

Our
plan includes decreasing general and administrative expenses by 20% to 30% and, absent further funding, the drilling of only an exploration well in Eaglebine and/or Eagle Ford (our
2012 drilling expenditures are discretionary in nature).

In
the future, ZaZa's principal sources of capital are expected to be cash flow from operations, cash on hand (including the cash payments contemplated under the HoA), potential
borrowings under any credit facility it may enter into and, if an appropriate opportunity presents itself, proceeds from the sale of properties, joint ventures, and sales of debt or equity securities.

The
uncertainties surrounding the consummation of the transactions with Hess outlined in the HoA and our current lack of readily available liquidity provided by other third party sources
raise doubt about our ability to continue as a going concern. The Company's consolidated financial statements do not include any adjustments related to the recoverability of assets and classification
of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

2. Subsequent Events

Combination with Toreador Resources Corporation

On February 21, 2012, we consummated the combination (the "Combination") of ZaZa Energy, LLC, a Texas limited liability
company ("ZaZa LLC") and Toreador Resources Corporation, a Delaware corporation ("Toreador"), on the terms set forth in the Agreement and Plan of Merger and Contribution, dated August 9,
2011 and as subsequently amended by Amendment No. 1 thereto on November 10, 2011 and Amendment No. 2 thereto on February 21, 2012 (as amended, the "Merger Agreement"), by
and among us, ZaZa LLC, Toreador, and Thor Merger Sub Corporation, our wholly owned subsidiary ("Merger Sub"), as previously described in our Current Report on Form 8-K filed
on February 22, 2012.

Pursuant
to the Merger Agreement, (i) Merger Sub merged with and into Toreador (the "Merger"), with Toreador continuing as the surviving entity, (ii) the three former
members of ZaZa LLC (the "ZaZa LLC Members"), holding 100% of the limited liability company interests in ZaZa LLC, directly and indirectly contributed all of such interests to us
(the "Contribution"), and (iii) the holders of certain profits interests in ZaZa LLC contributed 100% of such interests to us (the "Profits Interests Contribution"). Upon the
consummation of the Combination, Toreador and ZaZa LLC became our wholly owned subsidiaries of ZEC.

The
Merger has been treated as a reverse merger under the purchase method of accounting in accordance with GAAP. For accounting purposes, ZaZa LLC is considered to be acquiring
Toreador in this transaction. Under the purchase method of accounting, the assets and liabilities of Toreador will be recorded at their respective fair values and added to those of ZaZa LLC in
our financial statements.

At
the effective time of the Merger, each share of common stock, par value $0.15625 per share, of Toreador issued and outstanding immediately prior to the effective time of the Merger
was converted into the right to receive one share of our common stock, par value $0.01 per share (the "Common

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ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

Stock"),
which in the aggregate represented 25% of the issued and outstanding shares of Common Stock immediately after the consummation of the Combination (but without giving effect to the shares of
Common Stock issuable upon exercise of the Warrants as discussed below).

Simultaneously
with the consummation of the Merger, and pursuant to the Contribution Agreement dated August 9, 2011 among the ZaZa LLC Members and the Company (the
"Contribution Agreement"), the ZaZa LLC Members contributed all of the limited liability company interests in ZaZa LLC to us in exchange for (i) a number of shares of Common Stock
that, in the aggregate, represents 75% of the issued and outstanding shares of Common Stock immediately after the consummation of the Combination, and (ii) notes in an aggregate amount of
$38.25 million issued to the ZaZa LLC Members as partial consideration for the Combination (the "Seller Notes"). In addition, as required under the terms of the Merger Agreement and the
Contribution Agreement, we issued subordinated notes in an aggregate amount of $9.08 million to the individuals that own and control the ZaZa LLC Members, Todd Alan Brooks, Gaston L.
Kearby and John E. Hearn Jr. (together, the "ZaZa Principals"), in respect of certain unpaid compensation amounts owing to the ZaZa Principals by ZaZa LLC (the "Compensation Notes") for back
salary, bonuses, incentive compensation or other compensation payable to them by ZaZa LLC in connection with or in respect of periods prior to the consummation of the Combination. The Seller
Notes and Compensation Notes accrue interest at a rate of 8% per annum, are payable monthly in cash, and mature on August 17, 2017. Subject to certain conditions, we and ZaZa LLC may
make regularly scheduled interest payments to the ZaZa LLC Members on these notes and may prepay these notes at any time. We and ZaZa LLC are required to repay these notes, pro rata,
with 20% of the proceeds of any subordinated debt financing and 20% of the proceeds of any equity financing completed on or after the third anniversary of the issuance of the Secured Notes, which are
described below.

Immediately
after the consummation of the Merger and Contribution, and pursuant to the Net Profits Interest Contribution Agreement, dated August 9, 2011, among the Company,
ZaZa LLC and the holders of net profits interests in ZaZa LLC (the "NPI Contribution Agreement"), the holders of certain profits interests in ZaZa LLC completed the Profits
Interests Contribution in exchange for $4.8 million in cash.

Sale of 8.00% Secured Notes due 2017 and Warrants

Also on February 21, 2012, we entered into a securities purchase agreement (the "Purchase Agreement") with the purchasers
thereunder, including MSDC ZEC Investments, LLC and Senator Sidecar Master Fund LP (collectively, the "Purchasers"), pursuant to which we issued senior secured notes (the "Secured
Notes") in the aggregate principal amount of $100,000,000 and warrants (the "Warrants") to purchase 26,315,789 shares of our Common Stock. The proceeds of the sale of the Secured Notes and the
Warrants was used for the (i) repayment of the outstanding convertible notes of Toreador, (ii) payment of fees and expenses incurred in connection with the Combination, with the balance
to be used for general working capital purposes.

The
Secured Notes will mature on February 21, 2017. Subject to certain adjustments set forth in the Purchase Agreement, interest on the Secured Notes accrues at 8% per annum,
payable quarterly in cash. With respect to overdue interest payments or during periods in which an event of default under the Purchase Agreement has occurred and is continuing, the annual rate of
interest will increase to the

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ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

greater
of 3% per annum in excess of the non-default interest rate and 8% over the yield to maturity for 10-Year United States treasury securities. In addition, the annual
interest rate payable on the Notes will increase by 0.5% per annum, beginning 181 days after the date of the Purchase Agreement, if a shelf registration statement with respect to the shares of
Common Stock that are issuable upon exercise of the Warrants has not been filed and declared effective by the SEC, and ending on the date such shelf registration statement is declared effective by the
SEC, as well as for certain periods thereafter if the shelf registration statement is no longer effective or otherwise becomes unavailable to holders of the Warrants.

The
Secured Notes are guaranteed by our domestic subsidiaries and secured by a first-priority lien on substantially all of our assets and of our domestic subsidiaries. To the extent such
assets include stock of our foreign subsidiaries, only 65% of such foreign subsidiary stock is to be pledged as security for the Secured Notes. The Secured Notes will rank senior to all of our other
debt and obligations. We are permitted to have up to $50 million in additional reserves-based secured lending (including, but not limited to, pre-paid swaps); such borrowings may be
secured by liens that come ahead of the liens securing the Secured Notes.

Beginning
on February 21, 2015, the Purchasers may require us to purchase all or a portion of the Secured Notes at a price equal to the principal amount of the Secured Notes to be
purchased, plus any accrued and unpaid interest on such notes. In addition, if a fundamental change (as defined in the Purchase Agreement) occurs at any time prior to maturity of the Secured Notes,
noteholders may require us to purchase all or a portion of the Secured Notes at a price equal to 101% of the principal amount of the Secured Notes to be purchased, plus any accrued and unpaid interest
on such notes.

On
or prior to February 21, 2015, we may purchase at any time or from time to time any or all of the Secured Notes at 100% of the principal amount of the Secured Notes to be
purchased, plus accrued and unpaid interest on such notes, plus a make-whole premium on the principal amount of such notes. After February 21, 2015 and ending on February 21,
2016, we may purchase at any time or from time to time any or all of the Secured Notes at a price equal to 105% of the principal amount of the Secured Notes to be purchased, plus accrued and unpaid
interest on such notes. After February 21, 2016, we may purchase at any time or from time to time any or all of the Secured Notes at 100% of the principal amount of the Secured Notes to be
purchased, plus accrued and unpaid interest on such notes.

We
are subject to certain affirmative and negative covenants pursuant to the Secured Notes, including, without limitation, restrictions on our and our subsidiaries' abilities to incur
additional debt, pay dividends or make other distributions, redeem stock, make investments, incur liens, enter into transactions with affiliates, merge or consolidate and transfer or sell assets, in
each case subject to certain baskets and carve-outs.

After
giving effect to the shares issued to the ZaZa LLC Members and the former stockholders of Toreador in the Combination, the Warrants represent approximately 20.6% of the
outstanding shares of Common Stock on an as-converted and fully-diluted basis. The Warrants contain a cashless exercise provision and become exercisable at the option of the holder at any
time beginning August 17, 2012. We can force exercise of the Warrants at any time beginning February 21, 2015 if the daily volume-weighted average price (the "VWAP") of Common Stock is,
at the time of such conversion, greater

F-8

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Table of Contents

ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

than
or equal to $10.00 per share for the prior 45 consecutive trading day period. The Warrants expire on February 21, 2017. The exercise price of the Warrants is $3.15 per share, subject to
certain anti-dilution protections, including, but not limited to, stock splits and stock dividends, and below strike price or below market price issuances. The Warrants also prohibit the
payment of cash dividends for so long as the Warrants remain outstanding.

The
Warrants contain limitations that prohibit, prior to obtaining the requisite approval of our stockholders pursuant to applicable laws and the rules and regulations of NASDAQ to
remove such restriction, the exercise of any Warrant to the extent that such exercise would result in the number of shares of Common Stock issued pursuant to the Warrants at any given time, when
combined with the aggregate number of shares of Common Stock previously issued upon conversion of the Warrants, that exceeds 19.9% of the number of shares of Common Stock issued and outstanding
immediately prior to the issuance of the Warrants. In addition, until January 21, 2017, a holder of Warrants will not be entitled to receive shares of Common Stock upon exercise of such
warrants to the extent that such receipt would result in the holder becoming a "beneficial owner" (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder) of a number of shares of Common Stock exceeding a maximum percentage of the total number of shares of Common Stock then outstanding, unless such
limitation has been terminated with 61 days' notice from the holder. The maximum percentage of Common Stock that a holder of a Warrant may beneficially own is initially 5% but may be increased
to 10% under certain circumstances. Upon the occurrence of a fundamental change as set forth in the Warrants, we must make an offer to repurchase all Warrants at the option value of the Warrant using
Black-Scholes calculation methods and making certain assumptions described in the Black-Scholes methodology as set forth in the Warrants.

The
Purchasers have entered into lock-up agreements with respect to sales (including hedging) of the Warrants for a period of 180 days from the date of the Purchase
Agreement. The ZaZa LLC Members and the ZaZa Principals have similarly entered into a lock-up agreement with us, dated February 21, 2012 (the "Lock-Up
Agreement"), pursuant to which the ZaZa LLC Members and the ZaZa Principals have agreed not to sell shares of Common Stock for a period of 180 days from the date of the Purchase
Agreement. The ZaZa LLC Members and the ZaZa Principals have also agreed, pursuant to the Lock-Up Agreement, to limit their aggregate sales of shares of Common Stock (including
hedging) until February 21, 2017 to an amount not to exceed annually a maximum percentage of the aggregate amount of Common Stock then outstanding. The maximum percentage will be determined
based on the VWAP of Common Stock for the 10 trading days prior to such determination.

Range Transaction

On March 29, 2012, ZaZa announced a farm-in transaction with Range Texas Production, LLC ("Range"), a subsidiary of Range
Resources Corporation. Under the transaction, ZaZa LLC increased its holdings in the Eaglebine trend to approximately 143,400 gross acres (98,500 net acres). Under the terms of the transaction
ZaZa LLC will obtain a 75% working interest in the acquired acreage, be the designated operator, commit to drilling one well, and make two cash payments.

F-9

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Table of Contents

ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

Secured Notes Amendment and Waiver

On June 8, 2012, ZaZa entered into an amendment and waiver (the "SPA Amendment and Waiver") to the Securities Purchase Agreement
dated February 21, 2012 (the "SPA"), relating to the 8% senior secured notes due 2017 (the "Secured Notes"). The SPA Amendment and Waiver:



The
SPA Amendment and Waiver is subject to certain conditions, including providing December 31, 2011 annual financial statements, which are included in this Annual Report on
Form 10-K, and March 31, 2012 quarterly financial statements by June 29, 2012 and finalizing and executing definitive documentation related to the Heads of Agreement
with Hess (the "HoA") by July 31, 2012. Our failure to consummate the transactions outlined in the Hess Heads of Agreement and make such prepayment by July 31, 2012, will constitute an
event of default under our $100 million senior secured notes, giving the holders of these notes the right to accelerate payment of these notes. The holders of the Secured Notes also have agreed
to consent to the transactions contemplated by the HoA if ZaZa pays down the outstanding principal amount of the Secured Notes by $33.0 million and pays a $3.5 million associated fee.
This pay down will be offered to each note holder on a pro-rata basis and occur simultaneous with the closing of the transactions contemplated by the HoA. The holders of the Secured Notes
also are requiring the following
amendments to the SPA as a condition of the consent, which amendments will be entered into no later than the consummation of the transactions outlined in the
HOA:



The
parties also entered into an Amended and Restated Subordination Agreement with Todd Brooks, a director and President of the Company, John Hearn, a director and Executive
DirectorGeoscience of the Company, Gaston Kearby, a director of the Company, Omega Energy, LLC, Blackstone Oil & Gas, LLC, and Lara Energy, Inc., entities
controlled by Messrs. Brooks, Hearn and Kearby, specifying that payments may not be made by ZaZa under the relevant subordinated

F-10

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Table of Contents

ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

promissory
notes until after the consummation of the transactions outlined in the HoA and the related $33.0 million pay down of the principal amount of the Secured Notes.

Pro Forma Financial Information

The unaudited pro forma condensed combined financial information presented below has been derived from the ZaZa and Toreador historical
financial statements included in this annual statement. The pro forma adjustments give effect to the merger of Toreador with and into Thor Merger Sub (a wholly owned subsidiary of ZaZa Corp) and the
direct or indirect contribution of limited liability company interests by the current ZaZa LLC owners to ZaZa Corp.

The
unaudited pro forma condensed combined statement of income for the year ended December 31, 2011 has been prepared as though the merger occurred as of January 1, 2011.
The unaudited pro forma condensed combined balance sheet information at December 31, 2011 has been prepared as though the merger occurred on December 31, 2011. The pro forma adjustments
are based on available information and assumptions that ZEC believes are reasonable; however, such adjustments are subject to change based on the finalization of post-closing adjustments.
In addition, such adjustments are estimates and are subject to change.

The
unaudited pro forma condensed combined financial information is provided for informational purposes only and does not purport to represent what the actual combined results of
operations or the combined financial position of ZaZa would have been had the transactions occurred on the dates assumed, nor are they necessarily indicative of future combined results of operations
or combined financial position.

The
transactions will be treated by ZaZa as a reverse merger under the purchase method of accounting in accordance with generally accepted accounting principles in the United States
("GAAP"). For accounting purposes, ZaZa will be considered to be acquiring Toreador in this transaction. Under the purchase method of accounting, the assets and liabilities of Toreador will be
recorded at their respective fair values and added to those of ZaZa.

All
unaudited pro forma financial information contained in this annual statement has been prepared using the purchase method to account for the transactions. The final allocation of the
purchase price will be determined and after completion of an analysis to determine the assigned fair values of Toreador's tangible and identifiable intangible assets and liabilities. Accordingly, the
final purchase accounting adjustments may be materially different from the unaudited pro forma adjustments, which could have a material effect on the pro forma results of operations.

The
unaudited pro forma condensed combined financial information does not reflect any cost savings or other synergies that the management of Toreador and ZaZa believe could have been
achieved had the transactions been completed on the dates indicated and are not necessarily indicative of the financial position or results of operations presented as of the dates or for the periods
indicated, or the results of operations or financial position that may be achieved in the future.

The
unaudited pro forma condensed combined statements of income information do not include adjustments for all of the costs of operating as a combined company, including possible higher
information technology, tax, accounting, treasury, investor relations, insurance and other expenses related to being a larger multinational company versus amounts historically reflected. Such possible
increased costs are not included in the unaudited pro forma condensed combined financial information as such increases are subject to change.

F-11

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Table of Contents

ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

ZaZa Energy Corporation

Pro-Forma Combined Balance Sheet

As of December 31, 2011

ZaZa, LLC

Toreador

Pro Forma
Adjustments

Pro Forma
Combined(in thousands)ASSETSCurrent assets:Cash and cash equivalents

$
10,619

$
5,695


47,778

$
64,092Restricted cash


111


750





861Accounts receivable


37,837


2,817





40,654Accounts receivablerelated party


165








165Prepayments and other current assets


2,149


3,843





5,992Total current assets


50,881


13,105


47,778


111,764Oil and gas properties


17,410


106,803


30,856


155,069Furniture and fixtures


2,806





950


3,756Less accumulated depreciation


(1,260
)

(47,912
)

47,912


(1,260
)Net property and equipment


18,956


58,891


79,718


157,565Investments





14


(14
)

Goodwill





3,568


41,261


44,829Other assets


170


1,228


2,772


4,170TOTAL ASSETS

$
70,007

$
76,806

$
176,512

$
323,325LIABILITIES AND MEMBERS' EQUITY/STOCKHOLDER'S EQUITYCurrent liabilities:Accounts payable-trade

$
38,209

$
13,006


14,947


66,162Advances from joint interest owner


112








112Accounts payablerelated parties


419








419Accrued liabilities


19,896





10,500


30,396Deferred lease payablecurrent portion





118





118Derivatives











Income taxes payable


123


211





334Notes payable to banks


5,000





(5,000
)

Notes payable to members


3,000





(3,000
)

Total current liabilities


66,759


13,335


17,447


97,541Long-term accrued liabilities





240


(240
)

Deferred lease payablenet of current portion





212


(212
)

Asset retirement obligations


309


6,869





7,178Deferred income tax





17,792


(9,528
)

8,264Long-term debt





33,473


92,361


125,834Derivatives associated with long term debt








29,494


29,494Total liabilities


67,068


71,921


129,322


268,311Members' Equity:Member contributions, net


(747
)




747


Retained earnings (Accumulated deficit)


3,686


(203,799
)

120,205


(79,908
)Common stock





4,070


(3,028
)

1,042Additional paid in capital





203,751


(69,871
)

133,880Accumulated other comprehensive income





3,397


(3,397
)

Treasury stock





(2,534
)

2,534


Total members' equity


2,939


4,885


47,190


55,014TOTAL LIABILITIES AND MEMBERS' EQUITY

$
70,007

$
76,806

$
176,512

$
323,325


F-12

---



Table of Contents

ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

ZaZa Energy Corporation

Pro-Forma Combined Statement of Income

For the Year Ended December 31, 2011

ZaZa LLC

Toreador

Pro Forma
Adjustments

Pro Forma
Combined(in thousands, except per share data)Revenues:Bonus Income

$
15,027

$


$


$
15,027Oil and gas revenues


2,547


32,956





35,503Other income (expense)





3,019


(3,019
)

Total Revenues


17,574


35,975


(3,019
)

50,530Operating expenses:Lease operating expense and production taxes


1,037


12,446





13,483Exploration expense





1,967





1,967Depletion, depreciation and amortization


919


6,019


1,322


8,260Accretion on discounted assets and liabilities


2


308





310Impairment of oil and gas properties





186





186General and administrative expense, net


18,084


20,738


(3,019
)

35,803Loss on commodity derivatives





2,373





2,373Total operating expenses


20,042


44,037


(1,697
)

62,382Operating income (loss)


(2,468
)

(8,062
)

(1,322
)

(11,852
)Interest expense, net of capitalized


264


1,928


9,858


12,050Foreign currency exchange loss





1,152





1,152Income tax expense


123


2,431


(4,993
)

(2,439
)Net income (loss)

$
(2,855
)
$
(13,574
)
$
(6,187
)
$
(22,615
)Pro forma (loss) per share(1)Basic income available to common shares per share










$
(0.22
)Diluted income available to common shares per share










$
(0.22
)Pro forma shares outstanding(2)











104,187


The
estimate of the fair value of the merger consideration was determined as follows (in thousands (except per share amounts)):

Shares of Toreador as of the date of pro formasDecember 31, 2011


26,047Close price February 21, 2012(B)

$
5.18Total estimated purchase price

$
134,922


A.Based
on 26,046,644 outstanding or deemed outstanding shares of Toreador common stock.B.Represents
the closing price of Toreador stock on February 21, 2012


F-13

---



Table of Contents

ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

Balance Sheet

The fair value of the merger consideration to be received by the Toreador stockholders is estimated to be approximately $134,922 in the
aggregate. This amount will be allocated to Toreador's tangible and intangible assets and liabilities based on an estimate of the fair value of Toreador's assets and liabilities. The following
allocation (in thousands) of the aggregate fair value is preliminary and subject to adjustment based on the final determination of the value of the merger consideration and the fair value of the
underlying assets and liabilities of Toreador.

(in thousands)Current assets

$
13,105Oil and gas properties


142,656Furniture, fixtures, and equipment


950Goodwill


44,829Current liabilities


(13,485
)Long term debt


(35,000
)Severance and other


(3,000
)Asset retirement obligation (ARO)


(6,869
)Deferred Tax liability


(8,264
)$
134,922


1.     Pro
forma adjustments to assets consist of the following (in thousands):

Cash and
cash
equivalents

Oil and
Gas
properties

Furniture,
Fixtures, &
equipment

Investments

Goodwill

Other assetsNet cash received from assumed debt financing

$
47,778














Elimination of historical intangibles and goodwill











(14
)

(3,568
)

(1,228
)Elimination of historical property and equipment, net





(58,891
)










Estimated fair value of properties





142,656


950








Recognition of goodwill














44,829


Capitalize debt issuance costs on new debt

















4,000$
47,778

$
83,765

$
950

$
(14
)
$
41,261

$
2,772


F-14

---



Table of Contents

ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

2.     Pro
forma adjustments to liabilities consist of the following (in thousands):

Accounts
payable

Accrued
liabilities

Notes
payable

Long
term
accrued
liabilities

Deferred
lease
payable

Asset
retirement
obligations

Long
term
Derivatives

Deferred
Income
taxes

Long
term
debtTo accrue for transaction and debt issuance costs

$
14,947























To accrue for net profits interests contribution and severance payments





10,800




















Repay members notes payable





(300
)

(3,000
)
















3,000Elimination of historical long term liabilities











(240
)

(212
)

(6,869
)




(17,792
)

(33,473
)Estimated fair value of ARO

















6,869








Estimated value of ZaZa Energy Corp. deferred taxes























8,264


Distributions to members as notes for $38.25mm, plus $9.08mm in members additional compensation not paid at merger


























47,328Issuance of new debt to replace convertible notes and ZaZa revolver








(5,000
)
















105,000Original issuance discount (OID) on new debt


























(29,494
)Derivatives associated with debt warrants




















29,494





$
14,947

$
10,500

$
(8,000
)
$
(240
)
$
(212
)
$


$
29,494

$
(9,528
)
$
92,361


F-15

---



Table of Contents

ZaZa Energy Corporation

Notes to Financial Statement (Continued)

December 31, 2011

2. Subsequent Events (Continued)

3.     Pro
forma adjustments to members'/stockholders' equity consist of the following (in thousands):

Members
contributions

Retained
earnings

Common
stock

Additional
paid
in capital

Other
Comprehensive
Income

Treasury
stockElimination of historical equity balancesToreador

$


$
203,799

$
(4,070
)
$
(203,751
)
$
(3,397
)
$
2,534Elimination of historical equity balancesZaZa


747














Issuance of ZaZa Energy Corp. shares








1,042


133,880





Distributions to members





(37,156
)










Nonrecurring transaction costs(a)





(46,438
)










$
747

$
120,205

$
(3,028
)
$
(69,871
)
$
(3,397
)
$
2,534


(a)Nonrecurring
transaction costs include $4.8 million for net profits interest contribution, $6.0 million for severance, $17.5 million in
incentive compensation for the members, and $18.1 million in transaction costs.


4.     Pro
forma statements of income of ZaZa have been prepared as if the acquisition had occurred as of the beginning of the period and consist of the following adjustments
(in thousands):

Year ended
December 31, 2011To eliminate other income and reclass to G&A

$
(3,019
)To reclassify G&A expenses billed to Hess as net G&A as opposed to income


3,019To adjust depletion expense for new book value of properties


1,322To adjust interest expense at 8% for new debt and notes


9,858To record combined income tax expense


(4,993
)$
6,187


(a)Assumed
rate of 8% for new convertible debt and 8% on the member notes. An increase in the average interest rate applicable to the assumed debt and member
notes of one-eighth of one percent (0.125%) would result in additional interest expense of less than $185,000 for the year ended December 31, 2011.(b)Pro
forma income taxes were calculated for ZaZa and the pro forma adjustments based on a statutory federal tax rate of 35%.


F-16

---



Table of Contents



Report of Independent Registered Public Accounting Firm

The
Managing Partners
ZaZa Energy, LLC

We
have audited the accompanying balance sheets of ZaZa Energy, LLC (the Company) as of December 31, 2011 and 2010, and the related statements of income, members' equity,
and cash flows for each of the two years in the period ended December 31, 2011 and for the period from March 4, 2009 (inception) to December 31, 2009. These financial statements
are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ZaZa Energy, LLC at December 31, 2011 and
2010, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2011 and for the period from March 4, 2009 (inception) to
December 31, 2009, in conformity with U.S. generally accepted accounting principles.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company has a working capital deficiency and has relied on funds from its principal joint venture partner, to finance its operations. On June 8, 2012, the Company, its accounting successor as
of February 21, 2012 and its joint venture partner entered into a Heads of Agreement (HoA) to resolve various disagreements under the joint venture agreements between the parties. The HoA calls
for the termination of the obligations of the parties under the joint venture agreements and the division of the assets covered by these agreements. The HoA is non-binding and subject to
definitive documentation. The uncertainties surrounding the consummation of the HoA and the Company's lack of readily available liquidity raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the
outcome of these uncertainties.

/s/
Ernst &
Young LLP

June
14, 2012
Houston, Texas

F-17

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Table of Contents



ZaZa Energy, LLC        Balance Sheets

December 31,
2011

December 31,
2010
(Restated)ASSETSCurrent assets:Cash and cash equivalents

$
10,619,368

$
16,785,696Restricted cash


110,675


4,986,666Accounts receivablejoint interest


37,303,267


2,697,190Accounts receivablerevenue receivable


533,354


103,621Accounts receivablerelated party


164,477


38,588Prepayments and other current assets


2,148,832


189,163Total current assets


50,879,973


24,800,924Property, Plant, and EquipmentOil and gas properties


17,410,163


6,435,702Furniture and fixtures


2,806,250


831,342Total property and equipment


20,216,413


7,267,044Less accumulated depreciation


(1,259,581
)

(340,891
)Net Property and equipment


18,956,832


6,926,153Other assets


170,000


TOTAL ASSETS

$
70,006,805

$
31,727,077LIABILITIES AND MEMBERS' EQUITYCurrent liabilities:Accounts payabletrade

$
38,208,684

$
2,448,678Accounts payablerelated parties


419,094


3,214,331Advances from joint interest owner


111,764


14,871,530Accrued liabilities


19,894,929


824,076Revolving line of credit


5,000,000


Notes payable to members


3,000,000


3,000,000Income taxes payable


123,289


73,507Total current liabilities


66,757,760


24,432,122Other long-term liabilities


309,480


Total liabilities


67,067,240


24,432,122Total members' equity


2,939,565


7,294,955TOTAL LIABILITIES AND MEMBERS' EQUITY

$
70,006,805

$
31,727,077




See accompanying notes to financial statements.

F-18

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Table of Contents



ZaZa Energy, LLC        Statements of Income

Year Ended
December 31,
2011

Year Ended
December 31,
2010
(Restated)

Period From
March 4, 2009
(inception) to
December 31,
2009Revenues:Bonus Income

$
15,027,443

$
9,777,646

$
Oil and gas revenues


2,546,523


357,721


Other income





360,000


100,000Total Revenues


17,573,966


10,495,367


100,000Operating expenses:Lease operating expenses


1,037,748


22,580


Accretion expense


2,145





Depletion, depreciation and amortization


918,690


340,891


General and administrative expense, net


18,083,607


3,613,840


334Total operating expense


20,042,190


3,977,311


334Operating income (loss)


(2,468,224
)

6,518,056


99,666Interest expense


(263,877
)

(2,260
)

Income tax expense


(123,289
)

(73,507
)

Net income (loss)

$
(2,855,390
)
$
6,442,289

$
99,666




See accompanying notes to financial statements

F-19

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Table of Contents



ZaZa Energy, LLC        Statement of Members' Equity

Members' EquityBeginning BalanceMarch 4, 2009 (inception)

$
Member Contributions


3,000Net Income


99,666Ending BalanceDecember 31, 2009

$
102,666Member Contributions


750,000Net Income (Restated)


6,442,289Ending BalanceDecember 31, 2010 (Restated)


7,294,955Member Distributions


(1,500,000
)Net Loss


(2,855,390
)Ending BalanceDecember 31, 2011

$
2,939,565




See accompanying notes to financial statements

F-20

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Table of Contents



ZaZa Energy, LLC        Statements of Cash Flow

Year Ended
December 31,
2011

Year Ended
December 31,
2010
(Restated)

Period From
March 4, 2009
(inceptions) to
December 31,
2009CASH FLOW FROM OPERATING ACTIVITIES:Net Income (Loss)

$
(2,855,390
)
$
6,442,289

$
99,666Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation, depletion and amortization


918,690


340,891


Accretion


2,145





Changes in operating assets and liabilities:(Increase) in accounts receivablejoint interest owners


(34,606,077
)

(2,697,190
)

(Increase) in accounts receivablerevenue receivable


(429,733
)

(103,621
)

(Increase) in accounts receivablerelated party


(125,889
)

76,916


(115,504
)(Increase) in prepaid expenses and other current assets


(1,959,669
)

(189,163
)

(Increase) in other assets


(170,000
)

(Increase) in restricted cash


4,875,991


(4,986,666
)

Increase in accounts payabletrade


35,760,006


2,448,678


Increase in accounts payablerelated parties


(2,795,237
)

3,214,331


Increase in operator prepayment liabilities


(14,759,766
)

14,871,530


Increase in accrued liabilities


19,070,853


824,076


Increase in income taxes payable


49,782


73,507


Net cash provided by (used in) operating activities


2,975,706


20,315,578


(15,838
)CASH FLOW FROM INVESTING ACTIVITIES:Payments to purchase oil and gas properties


(10,667,126
)

(6,435,702
)

Purchase of furniture and fixtures


(1,974,908
)

(831,342
)

Net cash used in investing activities


(12,642,034
)

(7,267,044
)

CASH FLOW FROM FINANCING ACTIVITIES:Member contributions





750,000


3,000Member distributions


(1,500,000
)




Proceeds/(payments) of notes payable, net


5,000,000


2,985,000


15,000Net cash provided by financing activities


3,500,000


3,735,000


18,000NET INCREASE(DECREASE) IN CASH


(6,166,328
)

16,783,534


2,162Cash and cash equivalents at beginning of the period


16,785,696


2,162


Cash and cash equivalents at end of period

$
10,619,368

$
16,785,696

$
2,162Cash paid for:Interest


45,833





Taxes


73,507










See accompanying notes to financial statements

F-21

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Table of Contents



ZaZa Energy, LLC        Notes to Financial Statements        December 31, 2011

1. Organization and Description of Business Activities

Nature of Business

ZaZa Energy, LLC (ZaZa, we, our, us, or the Company) is a Texas limited liability company focused on the exploration
development, production, and acquisition of unconventional onshore oil and gas reserves in the United States of America. Currently, ZaZa's main focus is on exploiting the newly established Eagle Ford
Shale Resource Play "ESRP" and on acquiring producing properties. The Company was formed and began operations on March 4, 2009. ZaZa Energy is headquartered in Houston, Texas with a field
office in Corpus Christi, Texas.

Company Agreement

Under the provisions of the Company Agreement, the members of ZaZa equally participate in the Company's profit and loss. In addition,
members are entitled to nonliquidating distributions consisting of first, their preferred return, second unrecovered contributions, and finally any cash flow in excess of the preferred return and
unrecovered contributions in proportion to the members' respective general sharing ratios. Preferred return is defined as 12% of the member's daily computational base, as defined in the agreement.

Exploration and Development Agreement (EDA)

In April 2010, the Company entered into an agreement with Hess Corporation (Hess) in which ZaZa will identify certain geographical
areas in the Eagle Ford Shale trend that are available for leasing and subsequently conduct exploration and production activities thereon. Hess shall pay all acquisition costs including ZaZa's
interest until production up to $500 million. As of December 31, 2011, approximately $366 million in leases had been acquired pursuant to this agreement. After production, Hess
will retain a 90% working interest and ZaZa, the operator, a 10% working interest. Hess will also pay ZaZa a 10% cash bonus per net acre for each lease purchased. The 10% cash bonus is recognized as
revenue after the leases are obtained, title is cured and transferred to Hess, and recorded with the appropriate county.

In
connection with the EDA, Hess periodically advances non-interest bearing funds to ZaZa to fund lease acquisitions, exploration and development activities, and reimburses
ZaZa for certain general and administrative expenses incurred in performing these activities. The funds received related to lease acquisitions are deemed restricted as to use pursuant to the EDA until
the lease is acquired. Hess also approves all exploration and development activities based on the underlying approved authorization for expenditures (AFE) and has agreed to advance funds to ZaZa for
such activities, usually 30 days in advance of actual expenditures being incurred. The funds, once received, are commingled with ZaZa's own cash and are not restricted as to use. The amounts
received by ZaZa for lease acquisitions and exploration and development activities in excess of the amounts incurred to date are recorded as advances from joint interest owner in the accompanying
balance sheet. Given the nature of the EDA arrangement to ZaZa's overall business activities, the cash flows from each of the above activities have been presented as operating cash flows in the
accompanying statements of cash flows. Included in our cash flows from operating activities for the year ended December 31, 2011 of $524 thousand is a net decrease in advances from Hess
related to exploration and development activities of $9.9 million. The amount of such advances received, which, as of December 31, 2011 and 2010, are expected to be used within the next
30-45 days, is $0 and $9.9 million, respectively. Reimbursements for general and administrative expenses are presented as a reduction to total general

F-22

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

1. Organization and Description of Business Activities (Continued)

and
administrative expenses in the accompanying financial statements. Amounts of general and administrative expenses reimbursed during the years ended December 31, 2011 and 2010 approximated
$8.7 million and $2.9 million, respectively.

Combination with Toreador

On August 9, 2011, ZaZa entered into a merger agreement with Toreador Resources Corporation. The merger was consummated on
February 21, 2012 and, the members of ZaZa now own three-fourths and Toreador stockholders now own one-fourth of the combined entity's outstanding public shares. See Note 14
for further information regarding the merger.

The
accompanying financial statements have been prepared assuming that ZaZa Energy, LLC will continue as a going concern. As shown in the accompanying financial statements, the
Company has a working capital deficiency and has relied on funds from its principal joint venture between ZaZa LLC and Hess Corporation under the Exploration and Development Agreements (Eagle
Ford Shale Area, dated April 28, 2010, and Hackberry Creek Area, dated March 26, 2010, each an "EDA" and collectively, the "EDAs") to finance its operations.

Going Concern

Based on correspondence and communications between the parties, the differing views of the parties on the respective obligations under
the EDAs became apparent and led to the conclusion that it would be in the best interest of both parties to dissolve the joint venture and divide the combined assets. On June 8 2012, ZaZa,
ZaZa LLC and Hess entered into a Heads of Agreement ("HoA") as reported on Form 8-K filed on June 11, 2012, that calls for the termination of the ongoing obligations of the parties under
the EDAs, and the "French Agreements" between ZEF and Hess France, including that certain Investment Agreement dated May 10, 2010, as amended, and that certain Agreement dated July 21,
2011 with Vermillion REP, S.A.S., and the division of the assets covered by these agreements. Definitive documentation effectuating the terms of the HoA is expected to be completed and executed
on or before June 29, 2012.

The
HoA generally provides that the ongoing obligations of the parties under the EDAs and the French Agreements, including funding for additional leases, well carry or carry for
expenses, will be
terminated upon consummation of the transactions. Under the HoA and subject to the completion of definitive documentation by June 30, 2012, or such later date as may be extended pursuant to the
HoA, ZaZa will receive upon consummation of the transactions outlined in the HoA:



Upon
consummation of the transactions outlined in the HoA, ZaZa's net acreage holdings in the Eagle Ford core will increase from a total of 11,500 acres to approximately 72,000 acres.
The acreage by area comprises approximately 1,970 acres in southern Frio County, 23,120 acres in the Hackberry Prospect Area (Lavaca and Colorado Counties), 10,810 acres in the Moulton Prospect Area
(Fayette, Gonzalez and Lavaca Counties) and 35,650 acres in the Sweet Home Prospect Area (DeWitt and

F-23

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

1. Organization and Description of Business Activities (Continued)

Lavaca
Counties). Per the HoA, ZaZa will have the rights to approximately 3,924 additional acres in the Sweet Home Prospect Area that have not been timely transferred by a third-party lease broker but
for which payment of approximately $10.4 million has been made under the EDAs. While ZaZa hopes to receive all of the acreage, if ZaZa receives cash from the lease broker in lieu of the
acreage, whether from a judgment, payment refund or otherwise, such cash must be split evenly with Hess.

As
part of the HoA, ZaZa also will transfer its 50% working interest in the Paris Basin exploration licenses as provided for in the French Agreements and retain a 5%
cost-free revenue interest in such licenses, in which the total proceeds relating thereto to ZaZa are capped at $130 million.

The
HoA is non-binding and subject to definitive documentation. There is no guarantee that the transactions contemplated by the HoA will be completed timely or completed at
all. If the definitive documentation is not completed, either party may terminate the HoA and enforce its rights under the EDAs and the French Agreements including submission of claims to arbitration.

In
connection with the execution of the HoA, ZaZa LLC and Hess entered into an amendment to the Exploration and Development Agreement Eagleford Shale Area dated April 28,
2010, as amended, and the applicable joint operating agreements, to eliminate Hess's obligation to carry the cost of wells under those agreements in the Cotulla Prospect Area, in exchange for a cash
payment by Hess to ZaZa LLC of $15 million. This $15 million was paid to ZaZa on June 8, 2012. ZaZa LLC has the right under the amendment to reinstate Hess's
well-carry obligations at any time prior to September 28, 2012, so long as the Exploration and Development Agreement is still in effect, by paying Hess $15 million.

The
combined amount of $85 million will be used in offsetting amounts owed to us under the EDAs of $4.0 million, in settlement of third party accounts payable balance of
$14.4 million, reduction of $33 million of the principal amount of our 8% senior secured notes due 2017.

We
are confident our 2012 plan, which assumes the proceeds from the HOA, would result in a positive working capital of $8 million to $17 million at December 31,
2012, if we are able to provide tax shelter for all of the $85 million consideration received by Hess through use of our existing net operating losses. If we are not able to do so, we estimate
that we may have to curtail our development program and reevaluate our lease renewal strategy to offset approximately $14 million of tax payments in 2012.

Our
plan includes decreasing general and administrative expenses by 20% to 30% and, absent further funding, the drilling of only an exploration well in Eaglebine and/or Eagle Ford (our
2012 drilling expenditures are discretionary in nature).

Going
forward, we will utilize cash flow from operations, alternative sources of equity or debt capital, joint venture partnerships and possible asset divestitures to finance additional
drilling operations in the Eaglebine and or Eagle Ford.

The
uncertainty surrounding the consummation of the transactions with Hess outlined in the Heads of Agreement and our current lack of readily available liquidity provided by other third
party sources raise doubt about our ability to continue as a going concern.

F-24

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

2. Basis of Presentation

Proportional Consolidation

ZaZa's interest in oil and gas exploration and production ventures and partnerships are proportionately consolidated.

3. Restatement of Financial Statements as of and for the Year Ended December 31, 2010

The balance sheet at December 31, 2010 and the statement of operations and cash flows for the year ended December 31, 2010 are being restated as a result of incorrect
calculation of the net profits interest resulting in an additional $95,900 in general and administrative costs and corresponding accrued liability; and non-recognition of 10 days of
interest on the $3 million in partner notes resulting in an additional $6,600 in interest expense and corresponding accrued liability. The Company previously believed these amounts to be
immaterial to its 2010 financial statements, but the cumulative effect on the 2011 net loss of the corresponding out of period expenses was material to the 2011 financial statements.

A
summary of the restatements included in this filing are as follows:

As Previously
Reported

Adjustments

As Restated(In thousands)Balance Sheet as of December 31, 2010Total assets


31,727

$



31,727Accrued liabilities


722


103


825Total current liabilities


24,330


103


24,433Total liabilities


24,330


103


24,433Total members' equity


7,397


(103
)

7,294




As Previously
Reported

Adjustments

As Restated(In thousands)Statement of Operations for the year ended December 31, 2010Total revenues

$
10,495

$


$
10,495General and administrative expense, net


3,518


96


3,614Total operating expenses


3,881


96


3,977Operating income


6,614


(96
)

6,518Interest income (expense)


4


(7
)

(3
)Net income


6,545


(103
)

6,442Statement of Cash Flows for the year ended December 31, 2010Net income

$
6,545

$
(103
)
$
6,442Change in operating assets and liabilities:Increase in accrued liabilities


721


103


824


F-25

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

4. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires us to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers investments in all highly liquid instruments with original maturities of three months or less at date of purchase
to be cash equivalents.

Revenue Recognition

The Company derives its oil and gas revenue primarily from the sale of produced oil and gas. As of December 31, 2011 and 2010,
substantially all of our oil and gas production had been marketed by Hess. The Company uses the sales method of accounting for the recognition of gas revenue whereby revenues, net of royalties are
recognized as the production is sold to the purchaser. The amount of gas sold may differ from the amount to which the Company is entitled based on its working interest or net revenue interest in the
properties. Revenue is recorded when title is transferred based on our nominations and net revenue interests. Pipeline imbalances occur when production delivered into the pipeline varies from the gas
we nominated for sale. Pipeline imbalances are settled with cash approximately 30 days from date of production and are recorded as a reduction of revenue or increase of revenue depending upon
whether we are overdelivered or underdelivered. Settlements of oil and gas sales occur after the month in which the product was produced. We estimate and accrue for the value of these sales using
information available at the time financial statements are generated. Differences are reflected in the accounting period during which payments are received from the purchaser.

The
Company also derives its bonus income revenue from a bonus on leasehold amounts that Hess agrees to participate in. The bonus amount is equal to 10% of the sum of all direct costs
associated with acquiring the net mineral acres as defined in the EDA and is recognized after the leases are obtained, title is cured and transferred to Hess, and recorded with the appropriate county.

Other
income represents earnest money forfeited by counterparties. The earnest money is a deposit towards the purchase price of a lease to demonstrate that the buyer is serious about
wanting to complete a purchase. If the offer is rejected, the earnest money is usually returned, since no binding contract has been entered into. If the buyer retracts the offer or does not fulfill
its obligations under the contract, the earnest money is forfeited. Income is recognized when the earnest money is forfeited.

Accounts Receivable

Accounts receivable include reimbursement amounts billed to Hess, oil and gas revenues, and related parties receivables. Management
periodically assesses the Company's accounts receivable and establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that
determination is made. No allowance was recorded as of December 31, 2011 and 2010. The Company usually does not require collateral.

F-26

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

4. Summary of Significant Accounting Policies (Continued)

Concentration of Credit Risk

The Company maintains its cash balances at several financial institutions, which are insured by the Federal Deposit Insurance
Corporation. The Company's cash balances typically are in excess of the insured limit. A significant portion of accounts receivable are from one entity. This concentration may impact the Company's
overall credit risk, either positively or negatively, in that this entity may be similarly affected by changes in economic or other conditions. The Company has incurred no losses related to these
accounts.

Oil and Gas Properties

The Company accounts for its natural gas and crude oil exploration and production activities under the successful efforts method of
accounting. Oil and gas lease acquisition costs are capitalized when incurred. Lease rentals are expensed as incurred. Oil and gas exploration
costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether they have
discovered proved commercial reserves. Exploratory drilling costs are capitalized when drilling is complete if it is determined that there is economic producibility supported by either actual
production or a conclusive formation test. If proved commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved commercial
reserves have been found when drilling has been completed. Such exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify its completion as a
producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. Costs to develop proved reserves, including the costs of all
development wells and related equipment used in the production of natural gas and crude oil, are capitalized. Unproved properties with individually significant acquisition costs are amortized over the
lease term and analyzed on a property-by-property basis for any impairment in value. Unproved properties with acquisition costs that are not individually significant are
aggregated, and the portion of such costs estimated to be nonproductive is amortized over the remaining lease term. If the unproved properties are determined to be productive, the appropriate related
costs are transferred to proved oil and gas properties.

ZaZa's
engineers estimate proved oil and gas reserves, which directly impact financial accounting estimates, including depreciation, depletion, and amortization. Proved reserves
represent estimated quantities of crude oil and condensate, natural gas liquids, and natural gas that geological and engineering data demonstrate, with reasonable certainly, to be recovered in future
years from known reservoirs under economic and operating conditions existing at the time the estimates were made. The process of estimating quantities of proved oil and gas reserves is very complex
requiring significant subjective decisions in the evaluation of all available geological, engineering, and economic data for each reservoir. The data for a given reservoir may also change
substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving producing history, and continual reassessment of the viability of
production under varying economic conditions. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time.

Depreciation,
depletion, and amortization of the cost of proved oil and gas properties are calculated using the unit-of-production method. The reserve base used
to calculate depreciation, depletion, and amortization for leasehold acquisition costs is the sum of proved developed reserves and

F-27

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

4. Summary of Significant Accounting Policies (Continued)

proved
undeveloped reserves. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed
reserves. Estimated future dismantlement, restoration, and abandonment costs, net of salvage values are taken into account. Certain other assets, including gathering and processing facilities, are
depreciated on a straight-line basis over the estimated useful life of the asset.

Amortization
rates are updated quarterly to reflect: (1) the addition of capital costs, (2) reserve revisions (upwards or downwards) and additions, (3) property
acquisitions and/or property dispositions, and (4) impairments. When circumstances indicate that an asset may be impaired, the Company compares expected undiscounted future cash flows at a
producing field level to the unamortized capitalized cost of the asset. If the future undiscounted cash flows, based on the Company's estimate of future natural gas and crude oil prices, operating
costs, anticipated production from proved reserves, and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is calculated by
discounting the future cash flows at an appropriate risk-adjusted discount rate.

Asset Retirement Obligations

We follow ASC 410-20 which applies to obligations associated with the retirement of tangible long-lived assets
that result from the acquisition, construction and development of the assets. ASC 410-20 requires that we record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The Company's estimated asset retirement obligation as of
December 31, 2010 for the four non-operated wells was deemed immaterial to the financial statements. For December 31, 2011 the Company recorded $309,480 in asset retirement
obligations including $2,145 in accretion.

Furniture and fixtures

Furniture and fixtures are stated at cost. Depreciation is calculated using the straight-line method over the assets'
estimated useful lives as follows:

Office furniture and fixtures


2 - 5Computing equipment


2 - 5Vehicles


5 - 7


Other Assets

Other assets consist of long term restricted deposits related to letters of credit with the Railroad Commission and other vendors.

Income Taxes

ZaZa is a limited liability company. As a result, the Company's income for federal income tax purposes is reportable on the tax returns
of the individual partners. Accordingly, no recognition has been made for federal income taxes in the accompanying financial statements of the Company. Certain states directly tax limited liability
companies and we therefore record state income tax expense in these jurisdictions.

F-28

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

5. Consulting Agreements

On May 10, 2010, the Company entered into consulting agreements with four nonemployee consultants
for a period of two years. As a portion of their compensation, they each are to receive a 3% net profits interest in the net operating income of ZaZa, as defined in the agreement. The net profits
interest is calculated and payable each fiscal quarter. During the first and second quarter of 2011, ZaZa had net income and a net profit amount was calculated. In periods of loss, the deficit builds
until the losses have been made up by profits. For the year ended December 31, 2011 and 2010, the Company recorded $1,050,478 and $888,828, respectively in general and administrative expenses
related to the net profits interest. See footnote 3 for further information regarding the expense in 2010.

6. Related Party Transactions

Each of the three ZaZa managing partners has a direct or indirect interest in an overriding royalty interest generally equal to one percent (1%) (for a total of three percent (3%))
in:



In
March 2010, ZaZa entered into an agreement with the ZaZa members and Eli Smith & Associates, which we refer to as Smith, to acquire 100% working interests in any unproved
acreage identified in a defined area of mutual interest located in the Colorado and Lavaca counties of Texas. During the year ended December 31, 2011, ZaZa acquired acreage totaling
approximately $6.1 million pursuant to this agreement. During the year ended December 31, 2010, ZaZa acquired acreage totaling approximately $28.9 million pursuant to this
agreement; $6.2 million of the purchase price was in the form of $3 million notes payable due to the ZaZa members and $3.2 million in accounts payable due to ZaZa members, which
was paid in January 2011. The ZaZa managing partners and Smith retain a direct or indirect reserved overriding royalty interest generally equal to three percent (3%) in each property sold to ZaZa,
which is divided pro-rata among the four sellers in the transactions. Simultaneously with each purchase, ZaZa pursuant to a separate agreement sells 90% of the acquired working interests
to Hess, retaining a 10% working interest in each property. No gain or loss was recognized on the sales to Hess.

Effective
May 1, 2010, ZaZa and its members entered into a compensation agreement in which base salary, discretionary bonus and incentive compensation were defined. Incentive
compensation is based on the fulfillment of certain performance metrics and the occurrence of a "Company liquidity event," defined therein as an initial public offering, merger, reverse merger,
financing or other availability of capital deemed financially beneficial to ZaZa. During the year ended December 31, 2011, no discretionary bonuses were approved by ZaZa. As of
December 31, 2011 and 2010, ZaZa had an outstanding commitment to its members in the amount of $16.2 million and $4.6 million, respectively related to performance metrics
achieved.

F-29

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

6. Related Party Transactions (Continued)

ZaZa
has no full time employees, but has entered into a management agreement (the "Management Agreement") with Sequent Petroleum Management, LLC ("SPM") pursuant to which SPM
provides ZaZa with contractors and consultants and their related benefits programs in exchange for a monthly fee for managing such personnel in March 2011. One of the principals of SPM, Scott Gaille,
was appointed ZaZa Energy Corporation's Chief Compliance Officer as of March 2012. ZaZa reimburses SPM for the costs of the personnel under the Management Agreement, including for the costs of their
insurance and other benefits. SPM handles all payroll, tax, accounting and benefit services for the contractors and consultants provided under the Management Agreement. In 2011, ZaZa paid SPM
$6.3 million (including $50 thousand in management fees) under this agreement. At December 31, 2011, ZaZa had a receivable from SPM for $84 thousand related to an
estimation of year end payroll as well as a deposit for SPM working capital in the amount of $25,000.

Lot-A-Go
5 ("LG5") is an airplane rental company in which Todd Brooks and Gaston Kearby hold partnership interests in. From time to time, ZaZa will rent the plane
for business travel reasons. ZaZa is charged for the pilots' time, hanger fees and fuel. In addition, at December 31, 2011, ZaZa had a payable to LG5 for $80 thousand related to the
remainder of a short term working capital loan that bears no interest. No such transaction occurred in 2010.

For
the year ended December 31, 2010, ZaZa received revenue totaling $75,125 from Neuhaus Brooks Investment, LLC, which is owned by a member of ZaZa, as oil and gas
production revenue. No such revenue was received in 2011.

7. Notes Payable to Members

In December 2010, the Company entered into $3 million notes payable with its members; these notes bear interest at 8% and were paid in full on February 21, 2012, the date
of the merger. As such these amounts have been classified as current liabilities in the accompanying financial statements.

8. Contingencies

The Company's operations are subject to extensive and rapidly changing federal and state environmental regulations governing air emissions, wastewater discharges, and solid and hazardous
waste management activities. Therefore, it is extremely difficult to reasonably quantify future environmental related expenditures. The Company, from time to time, may be subject to legal proceedings,
claims, or environmental matters that arise in the ordinary course of its business. Although no assurance can be given, management believes, based on its experiences to date, that the ultimate
resolution of such items will not have a material adverse impact on the Company's business, financial position, or results of operations.

9. Long Term Debt

One of ZaZa's designees to the new ZaZa initial board of directors, Travis H. Burris, currently owns a 45% interest in, and serves as Chairman and President of, Texas Champion Bank. On
September 23, 2011, ZaZa entered into a $5 million revolving line of credit with Texas Champion Bank under which the full amount was drawn on December 31, 2011. The line of credit
bears interest at 5.5%, matures on September 25, 2012, and is secured by a first lien on ZaZa's interests in certain of its oil and gas properties. The loan was paid off in conjunction with the
merger as discussed further below.

F-30

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

10. Operating Leases

The Company has noncancelable office leases in Houston and Corpus Christi, Texas with lease terms until April 30, 2019. Rent expense for the years ended December 31, 2011
and 2010 totaled $668,024 and $186,915, respectively, before reimbursements. There was no rent expense in 2009.

Future
minimum rental payments under all noncancelable operating leases as of December 31, 2011 were as follows:

2012

$
1,160,5842013


1,153,0162014


1,159,6662015


190,2032016


190,203Thereafter


131,478Total minimum lease obligations

$
3,985,150


11. Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and notes payable approximate fair value due to the short-term
nature or maturity of the instruments.

12. Income Taxes

In 2006, the Texas Governor signed into law a Texas margin tax (H.B. No. 3), which was amended in 2007. The new law restructured the state business tax by replacing the taxable
capital and earned surplus components of the former franchise tax with a new "taxable margin" component. Since the tax is derived from an income-based measure, the margin tax is deemed as an income
tax, and therefore, the provisions regarding the recognition of deferred taxes apply to the new margin tax. The Company has calculated its deferred tax assets and liabilities for Texas based on the
margin tax in effect as of December 31, 2011 and 2010.

Year Ended
December 31,
2011

Year Ended
December 31,
2010Current income tax expense

$
123,289

$
73,507Deferred income tax expense





Total

$
123,289

$
73,507


13. Oil and Gas Producing Activities (Unaudited)

SUPPLEMENTAL OIL AND NATURAL GAS RESERVES AND STANDARDIZED MEASURE INFORMATION (UNAUDITED)

Users of this information should be aware that the process of estimating quantities of proved and proved developed oil and gas reserves
is very complex, requiring significant
subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir also may change substantially over time as a result
of numerous factors, including additional development activity, evolving production history and continual reassessment of the viability

F-31

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

13. Oil and Gas Producing Activities (Unaudited) (Continued)

of
production under varying economic conditions. Consequently, material revisions to existing reserve estimates may occur from time to time.

Reserves Estimates.All reserve information in this report is based on estimates prepared by our independent engineering firm and
is the
responsibility of management. The preparation of our oil reserves estimates is completed in accordance with our prescribed internal control procedures, which include verification of data input into
reserves forecasting and economics evaluation software, as well as multi-discipline management reviews.

We
retain an independent engineering firm to provide annual year-end estimates of our future net recoverable oil and natural gas reserves. Estimated proved net recoverable
reserves we have shown below include only those quantities that we can expect to be commercially recoverable at prices and costs in effect at the balance sheet dates under existing regulatory
practices and with conventional equipment and operating methods. Proved developed reserves represent only those reserves that we may recover through existing wells. Proved undeveloped reserves include
those reserves that we may recover from new wells on undrilled acreage or from existing wells on which we must make a relatively major expenditure for recompletion or secondary recovery operations.

Discounted
future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and natural gas properties. Estimates of fair value should
also consider probable reserves, anticipated future oil and natural gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of
these and other considerations, any estimate of fair value is necessarily subjective and imprecise.

Capitalized Costs Related to Oil and Gas Producing Activities

Year Ended
December 31,
2011

Year Ended
December 31,
2010Proved properties

$
3,609,596

$
812,422Unproved properties


13,800,567


5,623,28017,410,163


6,435,702Less accumulated depreciation, depletion, and amortization


553,997


235,642Net oil and gas properties

$
16,856,166

$
6,200,060


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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

13. Oil and Gas Producing Activities (Unaudited) (Continued)

Costs Incurred

Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed, are
summarized as follows (in thousands):

Year Ended
December 31,
2011

Year Ended
December 31,
2010Property acquisition cost:Proved

$
2,797,174

$
812,422Unproved


8,177,287


5,623,280Exploration





Development costs





Total

$
10,974,461

$
6,435,702


SUPPLEMENTAL OIL AND NATURAL GAS RESERVES AND STANDARDIZED MEASURE INFORMATION (UNAUDITED)

Users of this information should be aware that the process of estimating quantities of proved and proved developed oil and gas reserves
is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir also may
change substantially over time as a result of numerous factors, including additional development activity, evolving production history and continual
reassessment of the viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates may occur from time to time.

Reserves Estimates.All reserve information in this report is based on estimates prepared by our independent engineering firm
and is the
responsibility of management. The preparation of our oil reserves estimates is completed in accordance with our prescribed internal control procedures, which include verification of data input into
reserves forecasting and economics evaluation software, as well as multi-discipline management reviews.

We
retain an independent engineering firm to provide annual year-end estimates of our future net recoverable oil and natural gas reserves. Estimated proved net recoverable
reserves we have shown below include only those quantities that we can expect to be commercially recoverable at prices and costs in effect at the balance sheet dates under existing regulatory
practices and with conventional equipment and operating methods. Proved developed reserves represent only those reserves that we may recover through existing wells. Proved undeveloped reserves include
those reserves that we may recover from new wells on undrilled acreage or from existing wells on which we must make a relatively major expenditure for recompletion or secondary recovery operations.

Discounted
future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and natural gas properties. Estimates of fair value should
also consider probable reserves, anticipated future oil and natural gas prices, interest rates, changes in development

F-33

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

13. Oil and Gas Producing Activities (Unaudited) (Continued)

and
production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.

OIL
(BBL'S)

GAS
(MCF'S)

BOE EQUIV.
(BBL'S)Proved ReservesDecember 31, 2010








Revisions of Previous Estimates








Extensions and Discoveries(1)


972,195


4,141,646


1,662,469Improved Recovery








Production


(27,784
)

(11,646
)

(29,725
)Purchases of Reserves In-Place








Sales of Reserves In-Place








Proved ReservesDecember 31, 2011(2)


944,411


4,130,000


1,632,744As of and for the year ended December 31, 2011Future cash inflows

$
116,837,094Future production costs


(25,037,440
)Future development costs


(7,936,250
)Future income tax expense


Future net cash flows


83,863,40410% annual discount for estimated timing of cash flows


(33,519,980
)Standardized measure of discounted future net cash flows related to proved reserves

$
50,343,424


(1)Consists
solely of reserves in the Eagle Ford earned pursuant to the EDA with Hess.(2)Does
not include any pro forma adjustments for the HOA with Hess.


At
December 31, 2010, the Company's only proved reserves related to nonoperated property interest and were deemed immaterial for disclosure purposes. The Company had no proved
reserves at December 31, 2009.

The
following information was developed utilizing procedures prescribed by FASB Accounting Standards Codification Topic 932,Extractive IndustriesOil
and Gas(Topic 932). The information is based on estimates prepared by our independent engineering firm. The "standardized measure of discounted future net cash flows" should
not be viewed as representative of the current value of our proved oil reserves. It and the other information contained in the following tables may be useful for certain comparative purposes, but
should not be solely relied upon in evaluating us or our performance.

In
reviewing the information that follows, we believe that the following factors should be taken into account:



F-34

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

13. Oil and Gas Producing Activities (Unaudited) (Continued)



Under
the standardized measure, future cash inflows were estimated by applying the prices used in estimating our proved oil and gas reserves to the year-end quantities of
those reserves. Future cash inflows do not reflect the impact of open hedge positions. Future cash inflows were reduced by estimated future development, abandonment and production costs based on
year-end costs in order to arrive at net cash flows before tax. The standardized measure is derived from using a discount rate of 10% a year to reflect the timing of future net cash flows
relating to proved oil and gas reserves.

In
general, management does not rely on the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates
of probable as well as proved reserves and varying price and cost assumptions considered more representative of a range of possible outcomes.

The
prices of oil and natural gas at December 31, 2011, used to estimate reserves in the table shown below, were $96.83 per Bbl of oil, and $4.014 per MMbtu of natural gas. The
price utilized at December 31, 2011 was the preceeding twelve month average price based on closing prices on the first day of each month for the year.

14. Subsequent Events

Combination with Toreador Resources Corporation

On February 21, 2012, we consummated the combination (the "Combination") of ZaZa Energy, LLC, a Texas limited liability
company ("ZaZa LLC") and Toreador Resources Corporation, a Delaware corporation ("Toreador"), on the terms set forth in the Agreement and Plan of Merger and Contribution, dated August 9,
2011 and as subsequently amended by Amendment No. 1 thereto on November 10, 2011 and Amendment No. 2 thereto on February 21, 2012 (as amended, the "Merger Agreement"), by
and among us, ZaZa LLC, Toreador, and Thor Merger Sub Corporation, our wholly owned subsidiary ("Merger Sub"), as previously described in our Current Report on Form 8-K filed
on February 22, 2012.

Pursuant
to the Merger Agreement, (i) Merger Sub merged with and into Toreador (the "Merger"), with Toreador continuing as the surviving entity, (ii) the three former
members of ZaZa LLC (the "ZaZa LLC Members"), holding 100% of the limited liability company interests in ZaZa LLC, directly and indirectly contributed all of such interests to us
(the "Contribution"), and (iii) the holders of certain profits interests in ZaZa LLC contributed 100% of such interests to us (the "Profits Interests Contribution"). Upon the
consummation of the Combination, Toreador and ZaZa LLC became our wholly owned subsidiaries.

The
Merger has been treated as a reverse merger under the purchase method of accounting in accordance with GAAP. For accounting purposes, ZaZa LLC is considered to be acquiring
Toreador in this transaction. Under the purchase method of accounting, the assets and liabilities of Toreador will be recorded at their respective fair values and added to those of ZaZa LLC in
our financial statements.

At
the effective time of the Merger, each share of common stock, par value $0.15625 per share, of Toreador issued and outstanding immediately prior to the effective time of the Merger
was converted into the right to receive one share of our common stock, par value $0.01 per share (the "Common

F-35

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

14. Subsequent Events (Continued)

Stock"),
which in the aggregate represented 25% of the issued and outstanding shares of Common Stock immediately after the consummation of the Combination (but without giving effect to the shares of
Common Stock issuable upon exercise of the Warrants as discussed below).

Simultaneously
with the consummation of the Merger, and pursuant to the Contribution Agreement dated August 9, 2011 among the ZaZa LLC Members and the Company (the
"Contribution
Agreement"), the ZaZa LLC Members contributed all of the limited liability company interests in ZaZa LLC to us in exchange for (i) a number of shares of Common Stock that, in the
aggregate, represents 75% of the issued and outstanding shares of Common Stock immediately after the consummation of the Combination, and (ii) notes in an aggregate amount of
$38.25 million issued to the ZaZa LLC Members as partial consideration for the Combination (the "Seller Notes"). In addition, as required under the terms of the Merger Agreement and the
Contribution Agreement, we issued subordinated notes in an aggregate amount of $9.08 million to the individuals that own and control the ZaZa LLC Members, Todd Alan Brooks, Gaston L.
Kearby and John E. Hearn Jr. (together, the "ZaZa Principals"), in respect of certain unpaid compensation amounts owing to the ZaZa Principals by ZaZa LLC (the "Compensation Notes") for back
salary, bonuses, incentive compensation or other compensation payable to them by ZaZa LLC in connection with or in respect of periods prior to the consummation of the Combination. The Seller
Notes and Compensation Notes accrue interest at a rate of 8% per annum, are payable monthly in cash, and mature on August 17, 2017. Subject to certain conditions, we and ZaZa LLC may
make regularly scheduled interest payments to the ZaZa LLC Members on these notes and may prepay these notes at any time. We and ZaZa LLC are required to repay these notes, pro rata,
with 20% of the proceeds of any subordinated debt financing and 20% of the proceeds of any equity financing completed on or after the third anniversary of the issuance of the Secured Notes, which are
described below.

Immediately
after the consummation of the Merger and Contribution, and pursuant to the Net Profits Interest Contribution Agreement, dated August 9, 2011, among the Company,
ZaZa LLC and the holders of net profits interests in ZaZa LLC (the "NPI Contribution Agreement"), the holders of certain profits interests in ZaZa LLC completed the Profits
Interests Contribution in exchange for $4.8 million in cash.

Sale of 8.00% Secured Notes due 2017 and Warrants

Also on February 21, 2012, we entered into a securities purchase agreement (the "Purchase Agreement") with the purchasers
thereunder, including MSDC ZEC Investments, LLC and Senator Sidecar Master Fund LP (collectively, the "Purchasers"), pursuant to which we issued senior secured notes (the "Secured
Notes") in the aggregate principal amount of $100,000,000 and warrants (the "Warrants") to purchase 26,315,789 shares of our Common Stock. The proceeds of the sale of the Secured Notes and the
Warrants was used for the (i) repayment of the outstanding convertible notes of Toreador, (ii) payment of fees and expenses incurred in connection with the Combination, with the balance
to be used for general working capital purposes.

The
Secured Notes will mature on February 21, 2017. Subject to certain adjustments set forth in the Purchase Agreement, interest on the Secured Notes accrues at 8% per annum,
payable quarterly in cash. With respect to overdue interest payments or during periods in which an event of default under the Purchase Agreement has occurred and is continuing, the annual rate of
interest will increase to the greater of 3% per annum in excess of the non-default interest rate and 8% over the yield to maturity

F-36

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

14. Subsequent Events (Continued)

for
10-Year United States treasury securities. In addition, the annual interest rate payable on the Notes will increase by 0.5% per annum, beginning 181 days after the date of the
Purchase Agreement, if a shelf registration statement with respect to the shares of Common Stock that are issuable upon exercise of the Warrants has not been filed and declared effective by the SEC,
and ending on the date such shelf registration statement is declared effective by the SEC, as well as for certain periods thereafter if the shelf registration statement is no longer effective or
otherwise becomes unavailable to holders of the Warrants.

The
Secured Notes are guaranteed by our domestic subsidiaries and secured by a first-priority lien on substantially all of our assets and of our domestic subsidiaries. To the extent such
assets include stock of our foreign subsidiaries, only 65% of such foreign subsidiary stock is to be pledged as security for the Secured Notes. The Secured Notes will rank senior to all of our other
debt and obligations. We are permitted to have up to $50 million in additional reserves-based secured lending (including, but not limited to, pre-paid swaps); such borrowings may be
secured by liens that come ahead of the liens securing the Secured Notes.

Beginning
on February 21, 2015, the Purchasers may require us to purchase all or a portion of the Secured Notes at a price equal to the principal amount of the Secured Notes to be
purchased, plus any accrued and unpaid interest on such notes. In addition, if a fundamental change (as defined in the Purchase Agreement) occurs at any time prior to maturity of the Secured Notes,
noteholders may require us to purchase all or a portion of the Secured Notes at a price equal to 101% of the principal amount of the Secured Notes to be purchased, plus any accrued and unpaid interest
on such notes.

On
or prior to February 21, 2015, we may purchase at any time or from time to time any or all of the Secured Notes at 100% of the principal amount of the Secured Notes to be
purchased, plus accrued and unpaid interest on such notes, plus a make-whole premium on the principal amount of such notes. After February 21, 2015 and ending on February 21,
2016, we may purchase at any time or from time to time any or all of the Secured Notes at a price equal to 105% of the principal amount of the Secured Notes to be purchased, plus accrued and unpaid
interest on such notes. After February 21, 2016, we may purchase at any time or from time to time any or all of the Secured Notes at 100% of the principal amount of the Secured Notes to be
purchased, plus accrued and unpaid interest on such notes.

We
are subject to certain affirmative and negative covenants pursuant to the Secured Notes, including, without limitation, restrictions on our and our subsidiaries' abilities to incur
additional debt, pay dividends or make other distributions, redeem stock, make investments, incur liens, enter into transactions with affiliates, merge or consolidate and transfer or sell assets, in
each case subject to certain baskets and carve-outs.

After
giving effect to the shares issued to the ZaZa LLC Members and the former stockholders of Toreador in the Combination, the Warrants represent approximately 20.6% of the
outstanding shares of Common Stock on an as-converted and fully-diluted basis. The Warrants contain a cashless exercise provision and become exercisable at the option of the holder at any
time beginning August 17, 2012. We can force exercise of the Warrants at any time beginning February 21, 2015 if the daily volume-weighted average price (the "VWAP") of Common Stock is,
at the time of such conversion, greater than or equal to $10.00 per share for the prior 45 consecutive trading day period. The Warrants expire on February 21, 2017. The exercise price of the
Warrants is $3.15 per share, subject to certain anti-dilution protections, including, but not limited to, stock splits and stock dividends, and below strike

F-37

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Table of Contents

ZaZa Energy, LLC

Notes to Financial Statements (Continued)

December 31, 2011

14. Subsequent Events (Continued)

price
or below market price issuances. The Warrants also prohibit the payment of cash dividends for so long as the Warrants remain outstanding.

The
Warrants contain limitations that prohibit, prior to obtaining the requisite approval of our stockholders pursuant to applicable laws and the rules and regulations of NASDAQ to
remove such restriction, the exercise of any Warrant to the extent that such exercise would result in the number of shares of Common Stock issued pursuant to the Warrants at any given time, when
combined with the aggregate number of shares of Common Stock previously issued upon conversion of the Warrants, that exceeds 19.9% of the number of shares of Common Stock issued and outstanding
immediately prior to the issuance of the Warrants. In addition, until January 21, 2017, a holder of Warrants will not be entitled to receive shares of Common Stock upon exercise of such
warrants to the extent that such receipt would result in the holder becoming a "beneficial owner" (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder) of a number of shares of Common Stock exceeding a maximum percentage of the total number of shares of Common Stock then outstanding, unless such
limitation has been terminated with 61 days' notice from the holder. The maximum percentage of Common Stock that a holder of a Warrant may beneficially own is initially 5% but may be increased
to 10% under certain circumstances. Upon the occurrence of a fundamental change as set forth in the Warrants, we must make an offer to repurchase all Warrants at the option value of the Warrant using
Black-Scholes calculation methods and making certain assumptions described in the Black-Scholes methodology as set forth in the Warrants.

The
Purchasers have entered into lock-up agreements with respect to sales (including hedging) of the Warrants for a period of 180 days from the date of the Purchase
Agreement. The ZaZa LLC Members and the ZaZa Principals have similarly entered into a lock-up agreement with us, dated February 21, 2012 (the "Lock-Up
Agreement"), pursuant to which the ZaZa LLC Members and the ZaZa Principals have agreed not to sell shares of Common Stock for a period of 180 days from the date of the Purchase
Agreement. The ZaZa LLC Members and the ZaZa Principals have also agreed, pursuant to the Lock-Up Agreement, to limit their aggregate sales of shares of Common Stock (including
hedging) until February 21, 2017 to an
amount not to exceed annually a maximum percentage of the aggregate amount of Common Stock then outstanding. The maximum percentage will be determined based on the VWAP of Common Stock for the 10
trading days prior to such determination.

As
of June 14, 2012, the Company has determined that there are no other subsequent events which require recognition or disclosure in these financial statements.

F-38

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Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The
Board of Directors and Shareholders of Toreador Resources Corporation,

We
have audited the accompanying consolidated balance sheets of Toreador Resources Corporation (the "Company") as of December 31, 2011 and 2010, and the related consolidated
statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2011. These financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Toreador Resources Corporation as of
December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2011, in conformity with U.S.
generally accepted accounting principles.

Paris-La
Défense, April 6, 2012

ERNST & YOUNG Audit/s/ Phillipe Diu


F-39

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Table of Contents



Torreador Resources Corporation        CONSOLIDATED BALANCE SHEETS

December 31,2011

2010(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents (Note 2)

$
5,695

$
21,616Restricted Cash (Note 2)


750


Accounts receivable (Notes 2 and 5)


2,817


3,988Other current assets (Note 2 and 6)


3,843


3,398Total current assets


13,105


29,002Oil properties (Note 7)Oil properties, gross


106,803


108,979Accumulated depreciation, depletion and amortization


(47,912
)

(43,201
)Oil properties, net


58,891


65,778Investments


14


200Goodwill


3,568


3,685Other assets


1,228


1,634Total assets

$
76,806

$
100,299LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable and accrued liabilities

$
13,006

$
11,890Deferred lease payablecurrent portion


118


113Derivatives (Note 17)





1330Income taxes payable (Note 12)


211


6,341Total current liabilities


13,335


19,674Long-term accrued liabilities


240


348Deferred lease payable, net of current portion


212


329Asset retirement obligations (Note 2)


6,869


6,866Deferred income tax (Note 12)


17,792


14,618Long-term debt (Notes 9 and 18)


33,473


34,394Total liabilities


71,921


76,229Stockholders' equity:Common stock, $0.15625 par value, 50,000,000 shares authorized; 26,046,644 and 25,849,705 shares issued at December 31, 2011 and 2010
respectively


4,070


4,039Additional paid-in capital


203,751


200,230Accumulated deficit


(203,799
)

(186,068
)Accumulated other comprehensive income


3,397


8,403Treasury stock at cost, 721,027 shares for 2010 and 2011


(2,534
)

(2,534
)Total stockholders' equity


4,885


24,070Total liabilities and stockholders' equity

$
76,806

$
100,299




The accompanying notes are an integral part of these financial statements

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Table of Contents



Torreador Resources Corporation        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)

For The Year Ended
December 31,2011

2010

2009(In thousands, except share
and per share data)Revenues and other income:Sales and other operating revenue (Note 2)

$
32,956

$
23,994

$
19,236Other income (Notes 2 and 15)


3,019


16,770


Total revenues and other income


35,975


40,763


19,236Operating costs and expenses:Lease operating expense


12,446


11,597


8,396Exploration expense


1,967


1,977


138Depreciation, depletion and amortization (Note 2)


6,019


4,390


5,256Accretion on discounted assets and liabilities (Note 2)


308


(89
)

507Impairment of oil and natural gas properties and intangible assets


186





General and administrative


20,738


15,177


20,360Gain on sale of properties and other assets








(121
)(Gain) Loss on oil and gas derivative contracts (Notes 17 and 18)


2,373


444


879Total operating costs and expenses


44,037


33,496


35,415Operating income (loss)


(8,062
)

7,268


(16,179
)Other (expense) income:Foreign currency exchange gain (loss)


(1,152
)

(874
)

169(Loss) gain on the early extinguishment of debt (Note 9)





(4,256
)

3,596Interest expense, net of interest capitalized


(1,929
)

(4,758
)

(3,368
)Total other (expense) income


(3,081
)

(9,888
)

397Income (loss) before taxes from continuing operations


(11,143
)

(2,620
)

(15,782
)Income tax (benefit) provision (Note 12)


2,431


6,130


(450
)Loss from continuing operations, net of income taxes


(13,574
)

(8,750
)

(15,332
)Loss from discontinued operations, net of income taxes (Note 19)


(4,158
)

(740
)

(10,080
)Net loss available to common shares

$
(17,732
)
$
(9,490
)
$
(25,412
)Basic loss available to common shares per share: (Note 4)From continuing operations, net of income taxes

$
(0.52
)
$
(0.35
)
$
(0.75
)From discontinuing operations, net of income taxes


(0.16
)

(0.03
)

(0.49
)Total basic loss available to common shares per share:

$
(0.68
)
$
(0.38
)
$
(1.24
)Diluted loss available to common shares per share: (Note 4)From continuing operations, net of income taxes

$
(0.52
)
$
(0.35
)
$
(0.75
)From discontinuing operations, net of income taxes


(0.16
)

(0.03
)

(0.49
)Total diluted loss available to common shares per share:

$
(0.68
)
$
(0.38
)
$
(1.24
)Weighted average shares outstanding:Basic


26,003


25,165


20,564Diluted


26,003


25,165


20,564Statement of Comprehensive LossNet loss

$
(17,732
)
$
(9,490
)
$
(25,412
)Foreign currency translation adjustments


(5,006
)

(2,497
)

4,561Foreign currency translation adjustments subsidiaries sold








(30,161
)Comprehensive (loss)

$
(22,738
)
$
(11,987
)
$
(51,012
)




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

F-41

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Table of Contents

Torreador Resources Corporation

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Common Stock
(in thousands)

Common Stock
($)

Additional
paid in
capital ($)

Accumulated
deficit
($)

Accumulated
Other
Comprehensive
Income (loss)
($)

Treasury Stock
(in thousands)

Treasury Stock
($)

Total
Stockholders'
EquityBalance at December 31, 2008


20,984

$
3,279


166,484

$
(151,166
)
$
36,500


721

$
(2,534
)
$
52,563Exercise of stock options


31


5


109














114Return of stock options exercised


(30
)

(5
)

(158
)













(163
)Issuance of restricted stock net of forfeitures


1,122


175


(175
)













Stock option expense








38














38Amortization of deferred stock compensation








4,618














4,618Net loss











(25,412
)










(25,412
)Foreign currency translation adjustment














4,561








4,561Foreign currency translation adjustment subsidiaries sold














(30,161
)







(30,161
)Tax effect of restricted stock








(21
)













(21
)Balance at December 31, 2009


22,107

$
3,454

$
170,895

$
(176,578
)
$
10,900


721

$
(2,534
)
$
6,137Exercise of stock options


5


1


15














16Return stock options exercised























Issuance of restricted stock, net of forfeitures


288


45


(45
)













Issuance of common stock


3,450


539


28,786














29,325Amortization of deferred stock compensation








3,214














3,214Net loss











(9,490
)










(9,490
)Foreign currency translation adjustment














(2,497
)







(2,497
)Tax effect of restricted stock








(146
)













(146
)Payment of equity issuance costs








(2,489
)













(2,489
)Balance at December 31, 2010


25,850

$
4,039

$
200,230

$
(186,068
)
$
8,403


721

$
(2,534
)
$
24,070Exercise of stock options























Return of stock options exercised























Issuance of restricted stock


197


31


(31
)













Issuance of common stock























Amortization of deferred stock compensation








3,553














3,553Net loss











(17,732
)










(17,732
)Foreign currency translation adjustment














(5,006
)







(5,006
)Tax effect of restricted stock























Payment of equity issuance costs























Balance at December 31, 2011


26,047

$
4,070

$
203,751

$
(203,799
)
$
3,397


721

$
(2,534
)
$
4,885




See accompanying notes to the consolidated financial statements.

F-42

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Table of Contents



Torreador Resources Corporation        CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Year Ended December 31,2011

2010

2009(In thousands)Cash flows from operating activities:Net loss

$
(17,732
)
$
(9,490
)
$
(25,412
)Depreciation, depletion and amortization


6,019


4,390


5,413Accretion on discounted assets and liabilities


308


(89
)

507Amortization of deferred debt issuance costs


552


1,525


158Stock based compensation


3,553


3,214


4,656Deferred income taxes (liabilities) benefit


3,174


(740
)

968Dry hole costs








1,318Impairment of oil and natural gas properties


186





10,725Gain on sale of properties and equipment








(121
)Gain on sale of discontinued operations








(3,582
)Loss (gain) on early extinguishment of debtconvertible notes





4,256


1,554Bad debt expense





(395
)Unrealized (gain) loss on commodity derivatives


(1,330
)

444


886Amortization of the fair-value of the bonds


(669
)(Increase) decrease in restricted cash


(750
)




(Increase) decrease in accounts receivable


1,171


(906
)

(2,069
)Decrease in income taxes receivable





245


(245
)Decrease (increase) in other current assets


(445
)

634


120Decrease in other assets


(145
)

651


(21
)Increase in assets and liabilities held for sale








(3,050
)(Decrease) increase in accounts payable and accrued liabilities


1,113


599


5,187Decrease in deferred lease payable


(114
)

(107
)

(114
)Increase (decrease) in income taxes payable


(6,130
)

6,341


(4,223
)Decrease in long-term accrued liabilities


(108
)

(37
)

Net cash provided by (used in) operating activities


(11,347
)

10,535


(7,345
)Cash flows from investing activities:Proceeds from sale of property and equipment








70,851Additions to property and equipment


(1,491
)

(1,503
)

(7,914
)Proceeds from sale of oil and gas properties





8


Net cash (used in) provided by investing activities


(1,491
)

(1,495
)

62,937Cash flows from financing activities:Repayment of convertible notes





(54,616
)

Tax benefit related to restricted stock





(146
)

Issuance of convertible notes





31,631


Deferred debt issuance costs





(1,947
)

Proceeds from issuance of common stock, net of equity issuance costs of $2,489





26,837


Exercise of stock options





15


(49
)Payment of long-term debt








(57,712
)Net cash provided by (used in) financing activities





1,774


(57,761
)Net increase (decrease) in cash and cash equivalents


(12,838
)

10,814


(2,169
)Effects of foreign currency translation on cash and cash equivalents


(3,083
)

2,090


(3,979
)Cash and cash equivalents, beginning of period


21,616


8,712


14,860Cash and cash equivalents, end of period

$
5,695

$
21,616

$
8,712Supplemental disclosures:Cash paid during the period for interest, net of interest capitalized

$
2,372

$
3,255

$
3,169Cash paid during the period for income taxes

$
10,067

$
14

$
4,032


F-43

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Table of Contents



Toreador Resources Corporation        Notes to Consolidated Financial Statements        December 31, 2011

NOTE 1DESCRIPTION OF BUSINESS

Toreador Resources Corporation ("Toreador") is an independent energy company engaged in the exploration and production of crude oil interests in developed and undeveloped oil properties
in the Paris Basin, France. The accompanying consolidated financial statements are presented in U.S. dollars and in accordance with accounting principles generally accepted in the United States.

We
are a Delaware corporation that was incorporated in 1951.

Our
offices in the United States are located at 13760 Noel Road, Suite 1100, Dallas, TX, 75240-1383 (telephone number: (214) 559-3933). Our
principal executive offices are located at c/o Toreador Holding SAS, 5 rue Scribe, 75009 Paris, France (telephone number: +33 1 47 03 34 24).

BASIS OF PRESENTATION

Toreador consolidates all of its majority-owned subsidiaries (collectively, "we," "us," "our," or the "Company"). All intercompany
accounts and transactions are eliminated in consolidation.

Certain
previously recorded amounts at December 31, 2010 have been reclassified to conform to this period presentation.

Unless
otherwise noted, amounts reported in tables are in thousands, except per share data.

NOTE 2SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and
assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period.

The
Company's estimates of crude oil reserves are the most significant estimates used. All of the reserve data in the consolidated financial statements for the year ended
December 31, 2011 are estimates. Reservoir engineering is a subjective process of estimating underground accumulations of crude oil. There are numerous uncertainties inherent in estimating
quantities of proved crude oil reserve. The accuracy of any reserve estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result,
reserve estimates may be different from the quantities of crude oil that are ultimately recovered.

Other
items subject to estimates and assumptions include the carrying amounts of oil properties, goodwill, asset retirement obligations, derivative financial instruments and deferred
income tax assets. Actual results could differ significantly from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and all highly liquid investments with original maturities of three months or less. We
maintain our cash in bank deposit accounts. We have not experienced any losses in such accounts.

F-44

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 2SIGNIFICANT ACCOUNTING POLICIES (Continued)

As
of December 31, 2011 and 2010 we had $6.4 million and $21.6 million, respectively, on deposit in banks.

On
March 28, 2011, Bred, the Company's bank, issued a Standby Letter of Credit ("SBLC") for an amount of $1.6 million in favor of Vitol SA in order to secure margin
calls under the collar contract. The Company has pledged the same amount of financial instruments in favor of Bred as counter guarantee for the commitments of the bank under the SBLC. The amount of
the SBLC has been amended to $750,000 on September 27, 2011. The full amount of the SBLC has been classified as restricted cash in our consolidated balance sheet at December 31, 2011.

CONCENTRATION OF CREDIT RISK AND ACCOUNTS RECEIVABLE

Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and cash equivalents,
accounts receivable, and our hedging and derivative financial instruments. We place our cash with high-credit quality financial institutions. We currently sell oil to one customer, TOTAL.
Substantially all of our accounts receivable are due from TOTAL, as purchaser of our oil production, and from our partner Hess Oil France in connection with certain personal general and administrative
costs associated with, and invoiced to Hess Oil France pursuant to the Hess Investment Agreement dated as of May 10, 2010. We place our hedging and derivative financial instruments with
financial institutions and other firms that we believe have high credit-ratings.

We
periodically review the collectability of accounts receivable and record an allowance for doubtful accounts on those amounts which are, in our judgment, unlikely to be collected. We
have not had any significant credit losses in the past and we believe our accounts receivable are fully collectable with the exception of the current allowance.

DERIVATIVES

We periodically utilize derivatives instruments such as futures and swaps for purposes of hedging our exposure to fluctuations in the
price of crude oil sales. We have elected not to designate the derivative financial instruments to which we are a party as hedges, and accordingly, we record such contracts at fair value and recognize
changes in such fair value in current earnings as they occur. We determine the fair value of futures and swap contracts based on the difference between their fixed contract price and the underlying
market price at the determination date. The realized and unrealized gains and losses on derivatives are recorded as a derivative fair value gain or loss in the income statement.

FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair value, at December 31, 2011 and 2010, due to the short-term nature or maturity of the instruments.

At
December 31, 2010, the New Convertible Senior Notes, which had a book value of $31.6 million, were trading at $166.51, which would equal a fair market value of
approximately $52.6 million.

F-45

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 2SIGNIFICANT ACCOUNTING POLICIES (Continued)

At
December 31, 2011, the New Convertible Senior Notes, which had a book value of $31.6 million, were trading at $99.00, which would equal a fair market value of
approximately $ 31.3 million.

INVENTORIES

At December 31, 2011 and 2010, other current assets included $2.5 million, and $2.7 million of inventory,
respectively. Those amounts consist of tubular goods and crude oil held in storage tanks. Inventories are stated at the lower of actual cost or market and are included in lease operating expense based
on the weighted average cost method.

OIL PROPERTIES

We follow the successful efforts method of accounting for oil exploration and development expenditures. Under this method, costs of
successful exploratory wells and all development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves are expensed. Significant costs associated with the
acquisition of oil properties are capitalized. Upon sale or abandonment of units of property or the disposition of miscellaneous equipment, the cost is removed from the asset account, net of the
accumulated depreciation or depletion, and the gain or loss is credited to or charged against operations.

Maintenance
and repairs are charged to expense; betterments of property are capitalized and depreciated as described above.

We
capitalize interest on major projects that require an extended period of time to complete. Interest capitalized in 2011, 2010 and 2009 was $0, $0, and $355,000, respectively.

We
record furniture, fixtures and equipment at cost.

LOSS FROM DISCONTINUED OPERATIONS

In the fourth quarter of 2008 and during the first quarter of 2009, Toreador farmed out or sold all of its working interests in Romania
to three different companies and closed its office; thus, we no longer have any operational involvement in Romania. This resulted in a gain of $5.8 million which was recorded in the first
quarter of 2009. We retained a royalty of 1.5% of gross proceeds from oil and gas sales from the Fauresti Field. Lotus Petrol's acquisition of Toreador's Romanian assets in 2008 obliged it to pay an
amount equal to 12.5% Gross Overriding Royalty Interest (GORRI) on all and any hydrocarbon production until the Fauresti wells have been plugged and abandoned. In order to verify such amounts, Lotus
is obliged to provide Toreador with monthly production statements. These production statements were delivered late and Toreador has not yet received the outstanding GORRI payments for the period from
1 October 2009 to December 31, 2010. These outstanding payments for an aggregate amount of $395,000 have been demanded and Toreador is currently in correspondence with Lotus on ensuring
that these overdue amounts are paid. Nevertheless the receivables have been fully off-set by a bad-debt allowance, even if the Company will use all available actions to obtain
payment from Lotus.

F-46

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 2SIGNIFICANT ACCOUNTING POLICIES (Continued)

On
March 3, 2009 we completed the sale of a 26.75% interest in the South Akcakoca Sub-Basin (SASB) project associated licenses located in the Black Sea offshore
Turkey, to Petrol Ofisi for $55 million. In accordance with the revised assignment announced on February 3, 2009, $50 million of the proceeds was paid by Petrol Ofisi on
March 3, 2009, and the remaining $5 million was paid on September 1, 2009. There was no gain or loss resulting from this sale.

On
September 30, 2009, the Company entered into a Share Purchase Agreement (the "Share Purchase Agreement") with Tiway Oil BV, a company organized under the laws of the
Netherlands ("Tiway"), and Tiway Oil AS, a company organized under the laws of Norway, pursuant to which the Company agreed to sell 100% of the outstanding shares of Toreador Turkey Ltd.
("Toreador Turkey") to Tiway for total consideration consisting of: (1) a cash payment of $10.5 million to be paid at closing, (2) exploration success payments dependent upon
certain future commercial discoveries as provided in the Share Purchase Agreement, up to a maximum aggregate consideration of $40 million, and (3) future quarterly 10%
pre-tax net profit interest payments if a field goes into production that was discovered by an exploration well drilled within four years of closing on certain of the licenses then still
held by Tiway. The sale of Toreador Turkey was completed on October 7, 2009 which resulted in a gain of $1.8 million.

On
September 30, 2009, the Company entered into a Quota Purchase Agreement (the "Quota Purchase Agreement") with RAG (Rohöl-Aufsuchungs Aktiengesellschaft), a
corporation organized under the laws of Austria ("RAG"), pursuant to which the Company agreed to sell 100% of its equity interests in Toreador Hungary Limited ("Toreador Hungary") to RAG for total
consideration consisting of (1) a cash payment of US$5.4 million (€3.7 million) paid at closing, (2) US$435,000 (€300,000), which was held
back subject to a post-closing adjustment and was paid to us on November 5, 2009, and (3) a contingent payment of US$2.9 million (€2 million) to
be paid upon post-transaction completion of agreements relating to certain assets of Toreador Hungary. The sale of Toreador Hungary was completed on September 30, 2009. The sale of
Toreador Hungary resulted in a loss of $4.1 million.

DEPRECIATION, DEPLETION AND AMORTIZATION

We provide depreciation, depletion and amortization of our investment in producing oil properties on the
units-of-production method, based upon independent reserve engineers' estimates of recoverable oil and natural gas reserves from the property. Depreciation expense for
furniture, fixtures, equipment and leasehold improvements are amortized over the shorter of their useful lives or lease term calculated on a straight-line basis based upon estimated useful
lives of three to seven years.

IMPAIRMENT OF ASSETS

We evaluate oil producing property costs for impairment by using the discounted cash flows coming from our 1P reserves until the end of
our Neocomian Concessions and reduce such costs to fair value if the sum of expected undiscounted future cash flows is less than net book value pursuant to the Financial Accounting Standards Board
(FASB) Accounting Standard Codification (ASC) 360,"Property, Plant, and Equipment".

F-47

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 2SIGNIFICANT ACCOUNTING POLICIES (Continued)

We
assess impairment of non-producing leasehold costs and undeveloped mineral and royalty interests periodically on a property-by-property basis. We
charge any impairment in value to expense in the period incurred.

BAD DEBT ALLOWANCE

An allowance for doubtful accounts is calculated on a customer by customer basis per management's review of the collectability

ASSET RETIREMENT OBLIGATIONS

We account for our asset retirement obligations in accordance with ASC 410, "Asset Retirement and Environmental Obligations", which
requires us to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by
increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, we either settle the obligation for its recorded amount or incur a gain or loss upon settlement.

As
of December 31, 2011, we updated our asset retirement obligations and assets based on the last reserve life estimates available to the Company and on higher retirement cost
estimates.

The
following table summarizes the changes in our asset retirement liability during the twelve months ended December 31, 2011 and for the year ended December 31, 2010:

2011

2010(in thousands)Asset retirement obligation at January 1

$
6,866

$
6,733Asset retirement accretion expense


560


505Foreign currency exchange loss (gain)


(363
)

(469
)Change in reserve life estimate


(194
)

97Asset retirement obligation at the end of the period

$
6,869

$
6,866


Goodwill

We account for goodwill in accordance with FASB Accounting Standards Codification No. 350 "IntangiblesGoodwill and Other"("ASC
350"). Under ASC 350, goodwill and indefinite-lived intangible assets are not amortized but are
reviewed annually (or more frequently if impairment indicators arise) for impairment. Goodwill fair value is estimated using discounted cash flow method.

We
review annually at fiscal year end the value of goodwill recorded or more frequently if impairment indicators arise. We performed an impairment test at the end of 2011 comparing the
value of the goodwill to the discounted cash flows associated with total 2P reserves attributable to France using a price of $108.09/Bbl and an 8% discount rate. We recognized no goodwill impairment
in 2011, 2010
and 2009. Goodwill was adjusted $117,000 in 2011 and $288,000 in 2010 for the foreign currency translation adjustment.

F-48

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 2SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition

Our French crude oil production accounts for substantially all of our oil sales. We sell our French crude oil to Total Raffinage
Marketing ("TOTAL"), and recognize the related revenues when the production is delivered to TOTAL's refinery, typically via truck. At the time of delivery to the plant,
title to the crude oil transfers to TOTAL. The terms of the contract with TOTAL state that the price received for oil sold will be the arithmetic mean of all average daily quotations of Dated Brent
published in Platt's Oil Market Wire for the month of production less a specified differential per barrel. The pricing of oil sales is done on the first day of the month following the month of
production. In accordance with the terms of the contract, payment is made within six working days of the date of issue of the invoice. The contract with TOTAL is automatically extended for a period of
one year unless either party cancels it in writing no later than six months prior to the beginning of the next year. We periodically review TOTAL's payment timing to ensure that
receivables from TOTAL for crude oil sales are collectible. In 2011, 2010 and 2009 sales to TOTAL represents approximately 99%, 99% and 98%, respectively, of the Company's total sales and other
operating revenue and approximately 94% and 61% of the Company's accounts receivable at December 31, 2011 and 2010, respectively.

We
recognize revenue for our remaining production when the quantities are delivered to or collected by the respective purchaser. Title to the produced quantities transfers to the
purchaser at the time the purchaser collects or receives the quantities. Prices for such production are defined in sales contracts and are readily determinable based on certain publicly available
indices. The purchasers of such production have historically made payment for crude oil and natural gas purchases within thirty and sixty days of the end of each production month, respectively. We
periodically review the difference between the dates of production and the dates we collect payment for such production to ensure that receivables from those purchasers are collectible. Taxes
associated with production are classified as lease operating expense.

Under
the Hess Investment Agreement, our subsidiary, ZaZa Energy France (f/k/a Toreador Energy France) ("ZEF"), is entitled to invoice Hess for all personal general and administrative
expenses associated with its activities as operator under the exploration permits we hold and in which we transferred to Hess 50% of our interest pursuant to the Hess Investment Agreement. We invoice
Hess Oil France for such administrative expenses based on time spent by our employees at an agreed hourly rate and we recognize other operating income as the general and administrative expense are
incurred.

STOCK-BASED COMPENSATION

We account for stock-based compensation in accordance with FASB ASC 718,"CompensationStock
Compensation"ASC 718 establishes the accounting for transactions in which an entity pays for employee services in share-based payment transactions. ASC 718 requires companies
to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of employee share options
and similar instruments is estimated using option-pricing models adjusted for the unique characteristics of those instruments. That cost is recognized over the period during which an employee is
required to provide service in exchange for the award.

F-49

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 2SIGNIFICANT ACCOUNTING POLICIES (Continued)

FOREIGN CURRENCY TRANSLATION

The functional currency of the countries in which we operate is the U.S. dollar in the United States and the Euro in France. Gains and
losses resulting from the translation of Euros into U.S. dollars are included in other comprehensive income for the current period. We periodically review the operations of our entities to ensure the
functional currency of each entity is the currency of the primary economic environment in which we operate.

INCOME TAXES

We are subject to income taxes in the United States and France. The current provision for taxes on income consists primarily of income
taxes based on the tax laws and rates of the countries in which operations were conducted during the periods presented. All interest and penalties related to income tax is charged to general and
administrative expense. We compute our provision for deferred income taxes using the liability method. Under the liability method, deferred income tax assets and liabilities are determined based on
differences between financial reporting and income tax basis of assets and liabilities and are measured using the enacted tax rates and laws. The measurement of deferred tax assets is adjusted by a
valuation allowance, if necessary, to reduce the
future tax benefits to the amount, based on available evidence it is more likely than not deferred tax assets will be realized. We made a commitment to be fully reinvested in our international
subsidiaries.

DEFERRED DEBT ISSUANCE COST

Deferred debt issue costs are amortized under the effective interest method over the term of the loan (i.e. for New Convertible
Senior Notes, from issuance to the earliest date on which holders may require the Company to repurchase all or a portion of their New Convertible Senior Notes) as a component of interest expense.
Deferred debt issuance costs, which are included in other assets, totaled approximately $1.1 million and $1.6 million net of accumulated amortization of $1,328,000 and $261,000 as of
December 31, 2011 and 2010, respectively.

TREASURY STOCK

At December 31, 2011 and 2010 we had 721,027 shares of treasury stock valued at a historical cost of approximately
$2.5 million or $3.47 a share.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued "ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU
2011-05)." ASU 2011-05 will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive
statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The standard does not change the items which must
be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This standard is effective for interim and annual periods beginning after
December 15, 2011. Because this ASU impacts presentation only, we do not expect this standard to have a material effect on our financial condition, results of operations or cash flows.

F-50

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 3MERGER WITH ZAZA ENERGY, LLC

On February 21, 2012, ZaZa Energy Corporation ("ZaZa"), a Delaware corporation formed for the purpose of being a holding company of both ZaZa Energy, LLC, a Texas limited
liability company ("ZaZa LLC") and Toreador Resources Corporation, a Delaware corporation ("Toreador"), Consummated the combination (the "Combination") of ZaZa and Toreador on the terms set
forth in the Agreement and Plan of Merger and Contribution, dated August 9, 2011 and as subsequently amended by Amendment No. 1 thereto on November 10, 2011 and Amendment
No. 2 thereto on February 21, 2012 (as amended, the "Merger Agreement"), by and among ZaZa, ZaZa LLC, Toreador, and Thor Merger Sub Corporation, ZaZa's wholly owned subsidiary
("Merger Sub"), as previously described in our Current Report on Form 8-K filed on February 22, 2012.

Pursuant
to the Merger Agreement, (i) Merger Sub merged with and into Toreador (the "Merger"), with Toreador continuing as the surviving entity, (ii) the three former
members of ZaZa LLC (the "ZaZa LLC Members"), holding 100% of the limited liability company interests in ZaZa LLC, directly and indirectly contributed all of such interests to
ZaZa (the "Contribution"), and (iii) the holders of certain profits interests in ZaZa LLC contributed 100% of such interests to ZaZa (the "Profits Interests Contribution"). Upon the
consummation of the Combination, Toreador and ZaZa LLC became ZaZa's wholly owned subsidiaries.

The
Merger has been treated as a reverse merger under the purchase method of accounting in accordance with GAAP. For accounting purposes, ZaZa LLC is considered to be acquiring
Toreador in this transaction. Under the purchase method of accounting, the assets and liabilities of Toreador will be recorded at their respective fair values and added to those of ZaZa LLC in
ZaZa's financial statements.

At
the effective time of the Merger, each share of common stock, par value $0.15625 per share, of Toreador issued and outstanding immediately prior to the effective time of the Merger
was converted into the right to receive one share of ZaZa common stock, par value $0.01 per share (the "Common Stock"), which in the aggregate represented 25% of the issued and outstanding shares of
Common Stock immediately after the consummation of the Combination (but without giving effect to the shares of Common Stock issuable upon exercise of the Warrants as discussed below).

Simultaneously
with the consummation of the Merger, and pursuant to the Contribution Agreement dated August 9, 2011 among the ZaZa LLC Members and the Company (the
"Contribution Agreement"), the ZaZa LLC Members contributed all of the limited liability company interests in ZaZa LLC to ZaZa in exchange for (i) a number of shares of Common
Stock that, in the aggregate, represents 75% of the issued and outstanding shares of Common Stock immediately after the consummation of the Combination, and (ii) notes in an aggregate amount of
$38.25 million issued to the ZaZa LLC Members as partial consideration for the Combination (the "Seller Notes"). In addition, as required under the terms of the Merger Agreement and the
Contribution Agreement, ZaZa issued subordinated notes in an aggregate amount of $9.08 million to the individuals that own and control the ZaZa LLC Members, Todd Alan Brooks, Gaston L.
Kearby and John E. Hearn Jr. (together, the "ZaZa Principals"), in respect of certain unpaid compensation amounts owing to the ZaZa Principals by ZaZa LLC (the "Compensation Notes") for back
salary, bonuses, incentive compensation or other compensation payable to them by ZaZa LLC in connection with or in respect of periods prior to the consummation of the Combination. The Seller
Notes and Compensation Notes accrue interest at a rate of 8% per annum, are payable monthly in cash, and mature on August 17, 2017. Subject to certain

F-51

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 3MERGER WITH ZAZA ENERGY, LLC (Continued)

conditions,
ZaZa and ZaZa LLC may make regularly scheduled interest payments to the ZaZa LLC Members on these notes and may prepay these notes at any time. ZaZa and ZaZa LLC are
required to repay these notes, pro rata, with 20% of the proceeds of any subordinated debt financing and 20% of the proceeds of any equity financing completed on or after the third anniversary of the
issuance of the Secured Notes, which are described below.

Immediately
after the consummation of the Merger and Contribution, and pursuant to the Net Profits Interest Contribution Agreement, dated August 9, 2011, among the Company,
ZaZa LLC and the holders of net profits interests in ZaZa LLC (the "NPI Contribution Agreement"), the holders of certain profits interests in ZaZa LLC completed the Profits
Interests Contribution in exchange for $4.8 million in cash.

F-52

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 4EARNINGS PER SHARE

In accordance with the provisions of FASB ASC 260,"Earnings per Share", basic earnings per share are computed on the basis of the
weighted-average number of common shares outstanding during the periods. Diluted earnings per share are computed based upon the weighted-average number of common shares plus the assumed issuance of
common shares for all potentially dilutive securities.

For The Year Ended December 31,2011

2010

2009(in thousands, except per share data)Basic loss per share:Numerator:Loss from continuing operations, net of income tax

$
(13,574
)
$
(8,750
)
$
(15,332
)Loss from discontinued operations, net of income tax


(4,158
)

(740
)

(10,080
)Net loss available to common shareholders

$
(17,732
)
$
(9,490
)
$
(25,412
)Denominator:Weighted average common shares outstanding


26,003


25,153


20,564Basic loss available to common shareholders per share from:Continuing operations

$
(0.52
)
$
(0.35
)
$
(0.75
)Discontinued operations


(0.16
)

(0.03
)

(0.49
)$
(0.68
)
$
(0.38
)
$
(1.24
)Diluted loss per share:Numerator:Loss from continuing operations, net of income tax

$
(13,574
)
$
(8,750
)
$
(15,332
)Loss from discontinued operations, net of income tax


(4,158
)

(740
)

(10,080
)Net loss available to common shareholders

$
(17,732
)
$
(9,490
)
$
(25,412
)Denominator:Weighted average common shares outstanding


26,003


25,165


20,564Stock options, restricted stock and warrants



(1)


(1)


(1)Conversion of notes payable



(2)


(2)


(2)Diluted shares outstanding


26,003


25,165


20,564Diluted loss available to common shareholders per share from:Continuing operations

$
(0.52
)
$
(0.35
)
$
(0.75
)Discontinued operations


(0.16
)

(0.03
)

(0.49
)Diluted loss per share

$
(0.68
)
$
(0.38
)
$
(1.24
)Anti-dilutive securities not included above are as follows:Stock options, restricted stock and warrants





12


37Preferred shares








5% notes payable








1,376


(1)As
of December 31, 2011 and 2010, the computation of the dilutive effect resulted in 0 dilutive shares (as the average market price is lower than the
conversion price). However, there is no dilutive effect as the Company's performance resulted in a loss(2)The
Company's 8.00%/7.00% Convertible Senior Notes due 2025 are eligible for conversion in 2011 (subject to certain terms and conditions under the Indenture
dated as of February 1, 2010).


F-53

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 4EARNINGS PER SHARE (Continued)

However,
as of December 31, 2011, there is no dilutive effect as the Company's performance resulted in a loss.




December 31,2011

2010(in thousands)Oil and natural gas sales receivables

$
2,644

$
3,843Other accounts receivable


568


539Bad debt allowance


(395
)

(395
)$
2,817

$
3,987




December 31,
2011

December 31,
2010VAT Receivable

$
1,094

$
439Oil inventory


203


178Spare parts


2,221


2,479Prepaid expenses


299


175Other


26


127Total Other Current Assets at end of period

$
3,843

$
3,398




December 31,2011

2010(in thousands)Licenses and concessions

$
195

$
198Producing leaseholds and intangible drilling costs


104,195


107,230Furniture, fixtures and office equipment


2,412


1,551106,803


108,979Accumulated depreciation, depletion and amortization


(47,912
)

(43,201
)Total Oil properties, net

$
58,890

$
65,778


F-54

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 7OIL PROPERTIES (Continued)



December 31,2011

2010(in thousands)Capitalized exploratory well cost, beginning of the year

$
2,875

$
2,887Additions to capitalized exploratory costs pending determination of proved reserves


189


218Foreign currency exchange gain (loss)


(90
)

(229
)Impairment





Capitalized exploratory well costs, end of year

$
2,974

$
2,875




December 31,2011

2010(in thousands)Capitalized exploratory well cost that have been capitalized for a period of one year or less

$
189

$
218Capitalized exploratory well costs that have been capitalized for a period greater than one year


2,785


2,657Balance at end of year

$
2,974

$
2,875




F-55

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 8INVESTMENT IN UNCONSOLIDATED ENTITY (Continued)



Year Ended
December 31,
2011

Year Ended
December 31,
2010Gross Investment in ePsolutions

$
200

$
200Loss on Impairment


(186
)

Net Investment in ePsolutions

$
14

$
200




Year Ended December 31,2011

2010Convertible senior notes

$
33,473
(1)
$
34,394Less: current portion





Total long-term debt

$
33,473

$
34,394


(1)The
New Convertible Senior Notes are amortized to the principal amount through the date of the first put right on October 1, 2013 using the effective
interest rate method. For the year ended December 31, 2011, $1,016,000 was recorded in accretion income and $2,336,000 in interest expense.


For
the twelve months ended December 31, 2011, 2010 and 2009, interest expense consisted of the following:

Year Ended
December 31,
2011

Year Ended
December 31,
2010

Year Ended
December 31,
2009Accretion Fair Value of the 8%/7% convertible notes

$
(764
)
$
(593
)
$
Amortization Loan Fees of the 8%/7% convertible notes


552


313


Amortization Loan Fees of the 5% convertible notes





1,212


179Interest Expense on 8%/7% Convertible Notes


2,241


2,242


Interest Expense on 5% Convertible Notes





1,308


3,576Impact of Effective Interest Rate Method


95





Other interest (income) expense


(195
)

276


(387
)Interest expense at the end of the period

$
1,929

$
4,758

$
3,368


8.00%/7.00% CONVERTIBLE SENIOR NOTES DUE OCTOBER 1, 2025

On February 1, 2010, Toreador consummated an exchange transaction (the "Convertible Notes Exchange"). In the Convertible Notes
Exchange, in exchange for (i) $22,231,000 principal amount of

F-56

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 9LONG-TERM DEBT (Continued)

our
outstanding 5.00% Convertible Senior Notes (the "Old Notes") and (ii) $9.4 million cash, we issued $31,631,000 aggregate principal amount of our 8.00%/7.00% Convertible Senior Notes
(the "New Convertible Senior Notes") and paid accrued and unpaid interest on the Old Notes.

We
incurred approximately $1.9 million of costs associated with the issuance of the New Convertible Senior Notes; these costs have been recorded in other assets on the balance
sheets and are being amortized using the Effective Interest Rate ("EIR") method to interest expense over the term of the New Convertible Senior Notes (i.e. from issuance to the earliest date on
which holders may require the Company to repurchase all or a portion of their New Convertible Senior Notes, in this case October 1, 2013).

The
New Convertible Senior Notes are senior unsecured obligations of the Company, ranking equal in right of payment with future unsubordinated indebtedness. The New Convertible Senior
Notes mature on October 1, 2025 and paid annual cash interest at 8.00% from February 1, 2010 until January 31, 2011 and at 7.00% per annum thereafter. Interest on the New
Convertible Senior Notes is payable on February 1 and August 1 of each year, beginning on August 1, 2010.

The
New Convertible Senior Notes are convertible at any time on or after February 1, 2011 and before the close of business on October 1, 2025.

The
New Convertible Senior Notes were convertible into shares of our common stock at an initial conversion rate of 72.9927 shares of common stock per $1,000 principal amount of New
Convertible Senior Notes (which was equivalent to an initial conversion price of $13.70 per share), subject to adjustment upon certain events. Under the terms of the indenture governing the New
Convertible Senior Notes, if on or before October 1, 2010, we sold shares of our common stock in an equity offering or an equity-linked offering (other than for compensation), for cash
consideration per share such that 120% of the issuance price was less than the conversion price of the New Convertible Senior Notes then in effect, the conversion price was to be reduced to an amount
equal to 120% of such offering price. As a result of our February 2010 public offering, the conversion rate of the New Convertible Senior Notes adjusted to 98.0392 shares of common stock per $1,000
principal amount of New Convertible Senior Notes (which is equivalent to a conversion price of approximately $10.20 per share). Pursuant to the indenture, the conversion price of the New Convertible
Senior Notes will not be further adjusted under such provision because the proceeds from the public offering were in excess of $20 million.

The
New Convertible Senior Notes may be redeemed in whole or in part at the Company's option prior to October 1, 2013, in cash at a redemption price equal to one hundred percent
(100%) of the principal amount of the New Convertible Senior Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus a make-whole payment, if
the closing sale price of the Company's common stock has exceeded 200% of the conversion price then in effect for at least twenty (20) trading days in any consecutive thirty (30)-trading day
period ending on the trading day prior to the date of mailing of the relevant notice of redemption (a "Provisional Redemption"). In addition, upon the occurrence of certain fundamental changes, or on
each of October 1, 2013, October 1, 2015 and October 1, 2020, a holder may require the Company to repurchase all or a portion of the New Convertible Senior Notes in cash for 100%
of the principal amount of the New Convertible Senior Notes to be purchased, plus any accrued and unpaid interest to, but excluding, the purchase date. A fundamental change under the indenture
generally includes change in control transactions, sales of all

F-57

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 9LONG-TERM DEBT (Continued)

or
substantially all of the assets, exchange offers, liquidations, tender offers, consolidations, mergers, combinations, reclassifications, recapitalizations or dissolutions; however, the Indenture
specifically exempts from the definition of a fundamental change any transaction in which at least 95% of the consideration (other than cash payments for fractional shares) in such transaction
consists of common stock that will be traded or quoted on a U.S. national securities exchange when issued or exchanged in connection with such transaction

Pursuant
to the indenture, the Company and its subsidiaries may not incur debt other than Permitted Indebtedness. "Permitted Indebtedness" includes (i) the New Convertible Senior
Notes; (ii) indebtedness incurred by the Company or its subsidiaries not to exceed the sum of (1) the product of (x) $7.00 and (y) the number of barrels of proved plus
probable reserves and (2) cash equivalents less the aggregate principal amount of the New Convertible Senior Notes outstanding less the aggregate principal amount of the 5.00% Convertible
Senior Notes less any refinancing debt; (iii) indebtedness that is nonrecourse to the Company or any of its subsidiaries used to finance projects or acquisitions, joint ventures or
partnerships, including acquired indebtedness ("Nonrecourse Debt"); and (iv) certain other customary categories of permitted debt. In addition, the Company may not permit its total consolidated
net debt as of any date to exceed the product of (x) $7.00 and (y) the number of barrels of proved plus probable reserves other than for Nonrecourse Debt. The proved plus probable
reserves underlying any Nonrecourse Debt for which debt has been incurred as permitted debt pursuant to clause (iii) above will be excluded from the proved plus probable reserves calculation
for the purposes of the above debt covenants.

The
New Convertible Senior Notes have a first put option date on October 1, 2013 and will mature on October 1, 2025.

On
February 22nd, 2012, in connection with the Combination, ZaZa used part of the proceeds from the sale of the Secured Notes and Warrants to repurchase $31,631,000 in aggregate
principal amount of Toreador's 8.00%/7.00% Convertible Senior Notes at face value plus accrued interest. This represented all of Toreador's outstanding long-term debt.

NOTE 10ASSET RETIREMENT OBLIGATIONS (Oil producing facilities)

We account for our asset retirement obligations in accordance with"ASC 410Asset Retirement and Environmental Obligations",
which requires us to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and
the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, we either settle the obligation for its recorded amount or incur a gain or loss upon
settlement.

F-58

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 10ASSET RETIREMENT OBLIGATIONS (Oil producing facilities) (Continued)

The
following table summarizes the changes in our asset retirement liability during the twelve months ended December 31, 2011 and 2010:

Year Ended
December 31,
2011

Year Ended
December 31,
2010Asset retirement obligation at January 1

$
6,866

$
6,733Asset retirement accretion expense


560


505Foreign currency exchange loss (gain)


(363
)

(469
)Change in reserve life estimate(1)


(194
)

97Asset retirement obligation at the end of the period

$
6,869

$
6,866


(1)The
counterpart is included in Accumulated Depreciation


NOTE 11CAPITAL

We account for registration rights agreements containing a contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement.
Under this approach, the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement shall be recognized and measured separately in
accordance with FASB ASC 450"Contingencies".

On
February 12, 2010, we completed a registered underwritten public offering of 3,450,000 shares of common stock, including 450,000 shares of common stock acquired by the
underwriters from us to cover over-allotment options. The net proceeds to Toreador from the offering were approximately $26.8 million, after deducting underwriting discounts,
commissions and estimated offering expenses. We intended to use the net proceeds, together with cash on hand, to satisfy payment obligations arising from the holders' exercise, if any, of their right
on October 1, 2010 to require the Company to repurchase its 5.00% Convertible Senior Notes and for general corporate purposes. Pending such use, we invested the net proceeds in mutual and money
market funds and/or bank certificates of deposit. Following the repurchase of $32,256,000 aggregate principal amount of the 5.00% Convertible Senior Notes on October 1, 2010 and the redemption
of the remaining $129,000 principal amount outstanding of the 5.00% Convertible Senior Notes on November 24, 2010, our sole long-term debt currently consists of the New Convertible
Senior Notes for an aggregate principal amount of $31,631,000.

For
the twelve months ended December 31, 2011, the Company issued 196,939 shares of stock to employees and directors, of which 113,569 shares were immediately vested in accordance
with the terms of the grants and 0 stock options were exercised under the terms of the option agreements. There were 7,500 forfeitures of stock options for the twelve months ended December 31,
2011.

F-59

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 12INCOME TAXES

The Company's provision (benefit) for income taxes consists of the following at December 31:

2011

2010

2009(in thousands)Current:U.S. Federal

$
(2
)
$
(7
)
$
(388
)U.S. State





Foreign


3,203


5,982


(1,030
)Deferred:U.S. Federal





(146
)

(19
)Foreign


(62
)

402


987$
3,139

$
6,231

$
(450
)The tax provision (benefit) has been allocated between continuing operations and discontinued operations as follows:Provision (benefit) allocated to:Continuing operations

$
2,431

$
6,130

$
(450
)Discontinued operations


708


101$
3,139

$
6,231

$
(450
)


The
primary reasons for the difference between tax expense at the statutory federal income tax rate and our provision for income taxes were:

2011

2010

2009(in thousands)Statutory tax at 34%

$
(4,962
)
$
(1,108
)
$
(8,675
)Rate differences related to foreign operations


(29
)

(170
)

150Utilization of foreign net operating loss








(286
)State income tax, net








Foreign currency gain (loss) not taxable in foreign jurisdictions


490





(1,978
)Release of FIN 48 liability





(7
)

(314
)Adjustments to valuation allowance


7,434


6,688


11,133Other


206


828


(480
)$
3,139

$
6,231

$
(450
)


F-60

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 12INCOME TAXES (Continued)

The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2011 and 2010 were as
follows:

December 31,2011

2010(in thousands)Deferred tax assets:Net operating loss carryforwardUnited States

$
44,379

$
37,168Net operating loss carryforwardState





Net operating loss carryforwardForeign


8


22Restricted stock


1,117


467ImpairmentForeign





Derivative





452Other


113


114Gross deferred tax assets


45,617


38,223Valuation allowance


(45,617
)

(38,223
)Net deferred tax assets

$


$
Differences in oil and gas property capitalization and depletion methodsForeign


(17,657
)

(16,991
)Other


(135
)

2,373Deferred tax liabilities

$
(17,792
)
$
(14,618
)


At
December 31, 2011, Toreador had the following carryforwards available to reduce future taxable income (in thousands):

Jurisdiction

Expiry

Amount (in thousands)United States


2020-2031

$
130,526Hungary


unlimited

$
78


Realization
of net operating loss carryforwards depends on our ability to generate taxable income within the carryforward period. Due to uncertainty related to the Company's ability to
generate taxable income in the respective countries sufficient to realize all of our deferred tax assets we have recorded the following valuation allowances:

December 31,2011

2010(in thousands)United States

$
45,609

$
38,201Hungary


8


22France


$
45,617

$
38,223


In
accordance with FASB ASC 740, "Income Taxes", we have elected to treat our foreign earnings as permanently reinvested outside the US and are not providing US tax expense on those
earnings.

F-61

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 12INCOME TAXES (Continued)

We
adopted provisions of FASB ASC 740, "Income Taxes" relating to uncertain tax positions. We recognize potential accrued interest and penalties related to unrecognized tax benefits
within our global operations in income tax expense. For the years ended December 31, 2011 and 2010, we recognized $0 in uncertain tax positions. To the extent interest and penalties are not
assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

We
have not paid any significant interest or penalties associated with our income taxes, but classify both interest expense and penalties as part of our income tax expense.

The
Company files several state and foreign tax returns, many of which remain open for examination for five years.

NOTE 13PENSION, POST-RETIREMENT, AND POST-EMPLOYMENT OBLIGATIONS

Provisions for employee retirement obligations amounted to $221,000 and $99,000 at December 31, 2011 and December 31, 2010, respectively, and are included in Long Term
Accrued Liabilities. During 2011 and 2010 $124,000 and $78,000 were recorded in general and administrative expense respectively Pension benefits, which only consist in retirement indemnities, exist
only for the Company's French subsidiaries.

NOTE 14STOCK COMPENSATION PLANS

We have granted stock options to key employees and outside directors of Toreador as described below.

The
Board of Directors grants options under our plans periodically. Generally, option grants are exercisable in equal increments over a three-year period, and have a maximum
term of 10 years.

A
summary of stock option transactions is as follows:

2011

2010SHARES

WEIGHTED
AVERAGE
EXERCISE
PRICE

SHARES

WEIGHTED
AVERAGE
EXERCISE
PRICEOutstanding at January 1


57,950

$
8.53


67,370

$
7.78Granted











Exercised




$



(5,000
)
$
3.10Forfeited


(7,500
)
$
13.75


(4,420
)
$
3.12Outstanding at the end of the period


50,450

$
7.76


57,950

$
8.53Exercisable at the end of the period


50,450

$
7.76


57,950

$
8.53


The
intrinsic value of the options exercised at December 31, 2010 was zero. For the years ended December 31, 2011 and 2010 we received cash from stock option exercises of
$0 and $15,500, respectively. As of December 31, 2011, all outstanding options were 100% vested. As of December 31, 2011 and December 31, 2010, the total compensation cost related
to non-vested stock options not yet recognized was zero.

F-62

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 14STOCK COMPENSATION PLANS (Continued)

The
following table summarizes information about the fixed price stock options outstanding at December 31, 2011:

Number Outstanding and ExercisableExercise Price

Shares

Intrinsic Value
(in thousands)

Weighted Average Remaining
Contractual Life in Years5.50


40,450


57


2.3216.90


10,000


-100


3.3850,450

$
-43


2.73


In
May 2005, the Company's stockholders approved the Toreador Resources Corporation 2005 Long-Term Incentive Plan (the "Plan"). At the Company's 2011 Annual Meeting of
Stockholders, the stockholders of the Company approved an amendment to the Plan which increased the authorized number of shares of Company common stock available under the Plan from 1,750,000 shares
to 3,250,000 shares. Thus, the Plan, as amended, authorizes the issuance of up to 1,500,000 new shares of the Company's common stock to key employees, key consultants and outside directors of the
Company.

At
December 31, 2011, the Board of Directors has authorized a total of 196,939 shares of restricted stock to be granted to employees and non-employee directors. The
compensation cost is measured by the difference between the quoted market price of the stock at the date of grant and the price, if any, to be paid by an employee or director and is recognized as an
expense over the period the recipient performs related services. The restricted stock grants vest immediately or over up to a three-year period (depending on the grant), and the weighted
average price of the stock on the date of the grants was $11.54 for the twelve months ended December 31, 2011. Stock compensation expense of $3.6 million, $3.2 million and
$3.6 million is included in the Statement of Operations for the twelve months ended December 31, 2011, 2010 and 2009, respectively. As of
December 31, 2011, the total compensation cost related to non-vested restricted stock grants not yet recognized is approximately $1.7 million. This amount will be recognized
as compensation expense over the next 36 months maximum.

On
December 31, 2011, there were 1,121,482 remaining shares available for grant under the Plan.

The
following table summarizes the changes in outstanding restricted stock grants along with their related grant-date fair values for the year ended December 31, 2011:

Shares

Weighted Average
Grant-Date Fair ValueNon-vested at December 31, 2010


366,840

$
10.72Shares granted


196,939

$
11.54Shares vested


(285,942
)
$
9.93Non-vested at December 31, 2011


277,837

$
12.41


F-63

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 15AGREEMENT WITH HESS

On May 10, 2010, ZEF, a company organized under the laws of France and an indirect subsidiary of the Company, entered into the Hess Investment Agreement with Hess, a company
organized under the laws of France and a wholly owned subsidiary of Hess Corporation, a Delaware corporation, pursuant to which (x) Hess becomes a 50% holder of ZEF's working interests in its
awarded and pending exploration permits in the Paris Basin, France (the "Permits") subject to fulfillment of Work Program (as described in (y) (2) hereafter) and (y) (1) Hess must make a
$15 million upfront payment to ZEF, (2) Hess will have the right to invest up to $120 million in fulfillment of a two-phase work program (the "Work Program") and
(3) ZEF would be entitled to receive up to a maximum of $130 million of success fees based on reserves and upon the achievement of an oil production threshold, each as described more
fully below.

The
Ministère de l'Ecologie, de l'Energie, du Développement Durable et de la Mer (Ministry of Ecology, Energy, Sustainable Development and the Sea) in
France granted first-stage approval on June 25, 2010. An application for the grant to Hess of title (together with ZEF) on each of the pending exploration permits in the Paris Basin has also
been filed with the French Government.

Pursuant
to the Investment Agreement, ZEF has transferred 50% of its working interest in each Permit to Hess (collectively, the "Transfer Working Interests") and, on June 10,
2010, Hess paid ZEF $15 million plus VAT, i.e., an aggregate amount of $17.9 million. This revenue is not subject to any further obligation or performance by the Company nor is it
depending on any approval.

Under
the terms of the Investment Agreement, Phase 1 of the Work Program is expected to consist of an evaluation of the acreage underlying the Permits and the drilling of six
wells ("Phase 1"). If Hess does not spend $50 million in fulfillment of the Work Program within 30 months of receipt of government approval, Hess must promptly transfer back to
ZEF the Transfer Working Interests. In light of the political situation in France and our voluntary agreement with the French government to delay drilling in our permits, ZEF entered into an Amendment
Agreement to the Investment Agreement that extended the deadline to complete Phase 1 by 18 months for a total of 48 months after receipt of government approval.

Under
the terms of the Investment Agreement, if Hess spends $50 million in Phase 1, Hess will have the option to proceed to Phase 2 of the Work Program. If Hess
elects not to proceed to Phase 2 of the Work Program, Hess must promptly transfer back to ZEF a percentage of the Transfer Working Interests determined with reference to the amount of money
spent by Hess in fulfillment of the Work Program during Phase 1.

Under
the terms of the Investment Agreement, if Hess elects to proceed, Phase 2 of the Work Program is expected to consist of appraisal and development activities, depending on
the results of the work in Phase 1. If Hess does not spend $70 million (less money spent by Hess in fulfillment of the Work Program in excess of $50 million in Phase 1) in
fulfillment of the Work Program within 36 months ("Phase 2"), Hess must promptly transfer back to ZEF a percentage of the Transfer Working Interests determined with reference to the
amount of money spent by Hess in fulfillment of the Work Program during Phase 1. Following Phase 2, ZEF and Hess will bear the costs of subsequent exploration, appraisal and development
activities in accordance with individual participation agreements governing the joint operations on each Permit.

F-64

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 15AGREEMENT WITH HESS (Continued)

Under
the terms of the Investment Agreement, Hess agrees to pay ZEF: (x) a success fee based on proved developed oil reserves (as defined by Rule 4-10(a) of
Regulation S-X), up to a maximum of $80 million and (y) a success fee if oil production exceeds an agreed threshold, up to a maximum of $50 million, each of
which is subject to reduction under certain circumstances.

Under
the terms of the Investment Agreement, ZEF and Hess have designated an area of mutual interest within the Paris Basin (the "AMI"). If either party acquires or applies for a working
interest in an exploration permit or exploitation concession within the AMI, such party would be required to offer to the other party 50% of such interest on the same terms and conditions.

Under
the terms of the Investment Agreement, ZEF is entitled to invoice Hess for all exploration, salary and general and administrative expenses that are associated with its activities
as operator of the Permits. For the twelve months ended December 31, 2011, $3.0 million was invoiced to Hess and recorded as "Other income".

On
June 8, 2012, ZaZa, ZaZa LLC, ZEF, Hess and Hess Oil France S.A.S. ("Hess France") entered into a Heads of Agreement ("HoA") as reported on
Form 8-K filed on June 11, 2012, that, among other things, calls for the termination of the obligations of the parties under the Investment
Agreement and the division of the assets covered by the Investment Agreement. Definitive documentation is expected to be completed and executed on or before June 30, 2012. As part of the HoA,
ZaZa also will transfer its 50% working interest in the Paris Basin exploration licenses as provided for in the Investment Agreement and retain a 5% cost-free revenue interest in such
licenses, in which the total proceeds relating thereto to ZaZa are capped at $130 million. The HoA is non-binding and subject to definitive documentation. There is no guarantee that
the transactions contemplated by the HoA will be completed timely or completed at all. If the definitive documentation is not completed, either party may terminate the HoA and enforce its rights under
the Investment Agreement.

NOTE 16COMMITMENTS AND CONTINGENCIES

We lease our office space under non-cancellable operating leases, expiring in 2014. The following is a schedule of minimum future rentals under our non-cancelable
operating leases as of December 31, 2011 (in thousands):

Rent
Expense

Sub-lease
Income

Net Rental
Expense2012


801


(272
)

5292013


803


(272
)

5312014


698


(204
)

494$
2,302

$
(747
)
$
1,554


Net
rent expense totaled $445,980 in 2011, $278,154 in 2010 and $442,144 in 2009.

Tiway Arbitration

The Company entered into a Share Purchase Agreement between Tiway Oil BV ("Tiway"), Tiway Oil AS and the Company on
30 September 2009 for the purchase by Tiway of the entire issued share

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 16COMMITMENTS AND CONTINGENCIES (Continued)

capital
of Tiway Turkey Limited, f/k/a Toreador Turkey Limited ("TTL"). On 12 December 2011, Tiway Oil BV ("Tiway") submitted a formal Request for Arbitration to the
London Court of International Arbitration ("the LCIA") pursuant to the SPA. Tiway alleges in its request for arbitration that the Company breached representations and warranties in the SPA as to five
matters:

1.Petrol Ofisi.Tiway alleges that the Company breached its representations and warranties under the SPA in
respect of a third-party claim asserted by Petrol Ofisi against Toreador Turkey Ltd. in the amount of TRY 7.6 million ($5.1 million), for which Tiway alleges we are liable for an
estimated TRY 2.22 million (approximately $1.25 million), plus interest (currently unquantified), together with a fine of 40% of the amount claimed (i.e. an estimated further
$0.5 million). Several hearings were held on this matter throughout 2010 and 2011 regarding expert testimony. The next hearing is scheduled for June 28, 2012 as the court awaits the
experts' revised report.

2.TPAO.Tiway alleges that the Company breached its representations and warranties under the SPA in respect of
arbitration proceedings commenced by Turkiye Petrolleri Anonim Ortakligi ("TPAO") against TTL before the International Court of Arbitration. Two claims were heard within the same arbitration in late
2011 relating to alleged damages and losses suffered by TPAO of approximately $3.7 million plus TRY 1,167,246 (approximately $0.65 million), plus interest (currently unquantified) in
connection with certain construction efforts in the South Akcakoca Sub-Basin ("SASB") gas project that were undertaken while TTL was the official operator of the SASB project. The SASB
project was governed by a joint operating agreement (the "JOA") between TPAO and TTL. In both the first and the second claims, TPAO alleges that TTL breached its obligations under the JOA. Tiway is
asserting its right to indemnification as to any amounts awarded to TPAO with respect to the arbitration.

Tiway
assumed the defense of this matter and its legal representatives in Turkey provided a detailed defense in which Tiway rejected each of the damages and losses alleged by the TPAO.
The Company does not accept liability for the arbitration under the indemnity provided to Tiway in the SPA. The Company is informed the results of arbitration should be received during the first
quarter of 2012.

3.Momentum.In 2006, TTL entered into an agreement with Momentum Engineering LLC ("Momentum"). The
agreement was an EPIC contract relating to the SASB project. Momentum completed and delivered major installation works, leaving some work outstanding, namely the removal of several flotation tanks
from the Ayazli tripod. The Settlement and Release Agreement for the works, signed by Momentum, TTL and the Company on August 13, 2008 specifically included a statement that Momentum would
undertake to remove the fallen tanks by September 30, 2008; however it did not do so. In September 2009, TPAO, the current operator for the SASB project, sought the removal of the flotation
tanks. Tiway contends that since TTL had been the operator in 2006, TTL was responsible for asking Momentum to remove the tanks, failing which TPAO would arrange for an independent
contractor to do so, whereupon TTL would be responsible for claiming the cost from Momentum. In Momentum's operation to remove the tanks in October 2009, one of the tanks fell to the seabed. Momentum
stated it had no intention of removing the fallen tank and TPAO thus arranged for a third party contractor to remove the tank and invoiced $118,000 to TTL for its share of the costs in removing the
tank. Tiway alleges that the Company breached its representations and warranties under the SPA with respect to the Momentum matter and has demanded indemnification for any losses or costs suffered by
it in connection with such matter.

F-66

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 16COMMITMENTS AND CONTINGENCIES (Continued)

4.GDPA Training Obligations.Tiway alleges that the Company breached its representations and warranties under
the SPA in respect of an alleged liability to the General Directorate of Petroleum Affairs and the Ministry of Energy of Republic of Turkey relating to the payment of training costs pursuant to the
petroleum laws of Turkey. Tiway alleges that these training costs were incurred prior to the sale of TTL to Tiway. TTL has made an estimate of its potential liability if required to meet these
training obligations of approximately $0.5 million.

5.Insurance Premiums.Tiway alleges that the Company breached its representations and warranties under the SPA
in connection with the partial rebates of two insurance premiums. Two policies were issued in the name of TTL, but when the policies were cancelled (as agreed upon the conclusion of the SPA), the
rebates were paid to the Company. While Tiway claims estimated damages of approximately $158,000, the Company only received credits and rebates for approximately $108,000. In addition, the credits and
rebates may at least in part have related to policies that were not included in the scheduled policies of the SPA.

In
addition, Tiway seeks to recover the "significant" costs it has incurred in defending the above claims as damages under the SPA. The Company believes that the underlying risk
associated with this arbitration is remote as it has factual and procedural defenses against the underlying claims.

Fallen Structures

In 2005, two separate incidents occurred offshore Turkey in the Black Sea, which resulted in the sinking of two caissons (the "Fallen
Structures") and the loss of three natural gas wells. The Company has not been requested to or ordered by any governmental or regulatory body to remove the caissons. Therefore, the Company believes
that the likelihood of receiving such a request or order is remote and no liability has been recorded. In connection with the Company's sale of its 26.75% interest in the SASB project to Petrol Ofisi
in March 2009 and its sale of TTL to Tiway in
October 2009, the Company agreed to indemnify Petrol Ofisi and Tiway, respectively, against and in respect of any claims, liabilities and losses arising from the Fallen Structures. The Company has
also agreed to indemnify a third-party vendor for any claims made related to these incidents.

Lundin Indemnification

ZEF executed on August 6, 2010, an indemnification and guarantee agreement ("IGA") for a maximum aggregate amount of
€50 million to cover Lundin International ("Lundin") against any claim by a third party arising from drilling works executed by ZEF as operator on the Mairy permit. The title to
the Mairy permit was awarded to Lundin, ZEF and EnCore (E&P) Ltd jointly in August 2007. In March 2010, Lundin communicated its desire to withdraw from the permit on which no drilling works had
been performed and consequently assigned its working interest of 40% in equal parts to ZEF and EnCore (E&P) Ltd. ZEF subsequently assigned half of its now 50% working interest to Hess by virtue
of the Hess Investment Agreement. Under French mining law, all titleholders are held jointly and severally responsible for all damages and claims relating to works on a permit. Therefore, under the
IGA, ZEF agreed to indemnify Lundin upon notice of any liability or claim for damages by a third party against Lundin in connection with works performed by ZEF on the Mairy permit from
February 15, 2010 until the transfer of title of such permit is formally accepted by the French government, which is expected to occur over the next six months. No drilling works are expected
to

F-67

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 16COMMITMENTS AND CONTINGENCIES (Continued)

begin
on the permit, if at all, until the second half of 2012, therefore no claims have been made or are currently anticipated under the IGA.

Other

From time to time, we are named as a defendant in other legal proceedings arising in the normal course of business. In our opinion, the
final judgment or settlement, if any, which may be awarded with any suit or claim would not have a material adverse effect on our financial position, results of operations or cash flows.

Shale Hydrocarbons and French Government

By way of an accelerated legislative procedure, the French General Assembly passed a bill on May 11, 2011 to ban hydraulic
fracturing of oil and gas wells in France. The French Senate passed an amended bill on June 9, 2011 that allowed hydraulic fracturing under a regulated framework of scientific experimentation.
A committee of representatives from both the Senate and General Assembly recommended text for the bill on June 17, 2011 that excluded the ability to undertake hydraulic fracturing in the
context of scientific experimentation. A special purpose scientific commission will present an annual report to the French legislature on whether experimental hydraulic fracturing should be allowed.
This bill was passed by the Senate on June 30, 2011 and became law on July 14th, 2011.

This
law required all operators of the 64 currently awarded exploration licenses in France to submit, by September 13, 2011, a report on the exploration methods they intend to use
in these licenses. Failure to submit would result in immediate cancellation of the relevant license. Toreador Energy France SCS submitted all required reports in a timely fashion, stressing it will
not use the now banned practice of hydraulic fracturing.

On
October 13, 2011, the French authorities published a list of cancelled exploration licenses, which did not contain any of the exploration licenses in which Toreador has a
working interest.

We
now intend to commence our proof of concept drilling program as soon as possible. This proof of concept phase, for which the drilling has been delegated to Hess Oil France, does not
require hydraulic fracturing.

NOTE 17DERIVATIVES

We periodically utilize derivative instruments such as futures and swaps for purposes of hedging our exposure to fluctuations in the sale price of crude oil.

On
June 16, 2009, we entered into collars contracts for approximately 18,000 Bbls per month for the months of July 2009 through December 2009. This resulted in a realized gain of
$7,000 for the year ended December 31, 2009. Presented in the table below is a summary of the contracts entered into for the year ended December 31, 2009 and gain as of
December 31, 2009:

Type

Period

Barrels

Floor

Ceiling

(Gain)
LossCollar

July 1 - December 2009


110,400

$
65.00

$
77.00

$
(7
)


F-68

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 17DERIVATIVES (Continued)

In
December 2009, we entered into collars contracts for approximately 15,208 Bbls per month for the entire year of 2010. This resulted in a realized gain at December 31, 2010 of
$886,000. Presented in the table below is a summary of the contracts entered into for the year end December 31, 2010:

Type

Period

Barrels

Floor

Ceiling

Realized
(gain) loss
for the year
ended
December 31,
2010Collar

January 1, 2010 - December 31, 2010


182,500

$
68.00

$
81.00

$
(886
)


In
November 2010, we entered into collars contracts for approximately 15,208 Bbls per month for the entire year of 2011. This resulted in an unrealized gain at December 31, 2011
of $1,330,000. Presented in the table below is a summary of the contracts entered into for the year end December 31, 2011:

Type

Period

Barrels

Floor

Ceiling

Realized loss
for the year
ended,
December 31,
2011Collar

January 1, 2011 - December 31, 2011


182,500

$
78.00

$
91.00

$
3,703


As
of December 31, 2011, we had no derivative instruments in place such as futures and swaps for purposes of hedging our exposure to fluctuations in the sale price of crude oil.

NOTE 18FAIR VALUE MEASUREMENTS

ASC 820 "Fair value measurements and disclosures", formerly SFAS No. 157, establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure
fair value into three levels. The fair value hierarchy gives the highest priority to quoted market prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). Level 2 inputs are inputs, other than quoted prices included within Level 1, which are observable for the asset or liability,
either directly or indirectly.

Certain
assets and liabilities are reported at fair value on a nonrecurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair
values:

Asset ImpairmentsThe Company reviews a proved oil and gas property for impairment when events and circumstances indicate a possible decline in
the
recoverability of the carrying value of such property. We estimate the undiscounted future cash flows expected in connection with the property and compare such undiscounted future cash flows to the
carrying amount of the property to determine if the carrying amount is recoverable. If the carrying amount of the property exceeds its estimated undiscounted future cash flows, the carrying amount of
the property is reduced to its estimated fair value. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow
method, estimated future cash flows are based on management's expectations for the future and include estimates of future oil and gas production,

F-69

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 18FAIR VALUE MEASUREMENTS (Continued)

commodity
prices based on commodity futures price strips as of the date of the estimate, operating and development costs, and a credit risk-adjusted discount rate.

GoodwillWe account for goodwill in accordance with FASB Accounting Standards Codification No. 350 "Intangibles-Goodwill and Other"("ASC 350"). Under ASC 350, goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually
(or more frequently if impairment indicators arise) for impairment. Goodwill fair value is estimated using discounted cash flow method.

Asset Retirement ObligationsThe initial measurement of asset retirement obligations at fair value is calculated using cash flow techniques and
based
on internal estimates of future retirement costs associated with oil and gas properties. Significant level 3 inputs used in the calculation of asset retirement obligations include plugging
costs and reserve lives. A reconciliation of the Company's asset retirement obligation is presented in "Note 2Significant Accounting Policies".

The
following table summarizes the valuation of our investments and financial instrument assets (liabilities) measured on a recurring basis at fair value by pricing levels:

Fair Value Measurement Using(Level 1)

(Level 2)

(Level 3)

TotalAs of December 31, 2011:Oil derivative contracts

$


$


$


$
Total

$


$


$


$
As of December 31, 2010:Oil derivative contracts

$


$
1,330

$


$
1,330$


$
1,330

$


$
1,330


NOTE 19DISCONTINUED OPERATIONS

In 2009, the Company completed its exit of Romania, Hungary and Turkey. We have several claims outstanding relating to these transactions. See "Note 16Commitments and
Contingencies". Contingent liabilities relating to these claims are recorded in Discontinued Operations

On
June 22, 2011, the Company entered into a settlement agreement, the "Settlement Agreement", in which Hunnisett and Barker agreed to release both Toreador and Tiway Turkey
Limited from all current and future claims related to the Overriding Royalty, including the Netherby Payment Amount, in exchange for $3.8 million and the assignment of a certain overriding
royalty interest in the SASB licenses to Hunnisett and Barker directly. As required by the Settlement Agreement, the Company paid the settlement amount on June 24, 2011 and transferred the
royalty interest, mentioned above, to Hunnisett and Barker. As of December 31, 2011, $3.8 million has been expensed in discontinued operations consequently.

F-70

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 19DISCONTINUED OPERATIONS (Continued)

The
results of operations of assets in Romania, Turkey and Hungary have been presented as discontinued operations in the accompanying consolidated statement of operations. Results for
these assets reported as discontinued operations were as follows:

Discontinued
Operations were as follows for the year ended December 31 2011, 2010 and 2009:

For The Year Ended December 31,2011

2010

2009Revenue and other incomeSales and other operating revenue

$
38

$
107

$
4,545Operating costs and expenses:Lease operating expense








886Exploration expense








868Dry hole costs








1,318Depreciation, depletion and amortization








157Accretion on discounted assets and liabilities








Impairment of oil and natural gas properties








10,725General and administrative expense


(312
)

1,070


3,424(Gain) loss on sale of properties and other assets








(3,583
)Total operating costs and expenses


(312
)

1,070


13,795Operating gain/(loss)


350


(963
)

(9,250
)Other income (expense)Foreign currency exchange gain





258


3,822Interest and other income





66


414Loss on early extinguishment of debtrevolving credit facility








(4,881
)Other expense


(3,800
)




Interest expense, net of interest capitalized








(185
)Loss before income taxes


(3,450
)

(639
)

(10,080
)Income tax provision


(708
)

(101
)

Net loss from discontinued operations

$
(4,158
)
$
(740
)
$
(10,080
)


NOTE 20GEOGRAPHIC OPERATING SEGMENT INFORMATION

We have operations in only one industry segment, the oil exploration and production industry. We are structured along geographic operating segments or regions. As a result, we have
reportable operations in the United States and Western Europe (France). Geographic operating segment income tax expenses have been determined based on statutory rates existing in the various tax
jurisdictions where we have oil and natural gas producing activities.

During
the fourth quarter of 2010, the Company fully consolidated Toreador International Holding LLC ("TIH"), its wholly-owned subsidiary incorporated in Hungary. Consequently,
the full year 2010 results of TIH were incorporated in the Company's consolidated financial statements as of December 31, 2010, resulting in an increase in Company's equity of $202,000
consisting of $147,000 of

F-71

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 20GEOGRAPHIC OPERATING SEGMENT INFORMATION (Continued)

net
income generated by TIH during the twelve months ended December 31, 2010 and $55,000 from prior fiscal periods which is not material to the financial position of the company.

We
allocate a portion of certain United States based employees' salaries to our foreign subsidiaries. The amount allocated is based on an estimate of the time that employee has spent
working on that on that subsidiary. We periodically review these percentages to make sure that our assumptions are still valid.

United States

France

Total(In thousands)For The Year Ended December 31, 2011Revenues and other income:Sales and other operating revenue

$


$
32,956

$
32,956Other income


7


3,012


3,019Total revenues and other income


7


35,968


35,975Operating costs and expenses:Lease operating expense





12,446


12,446Exploration expense





1,967


1,967Depreciation, depletion and amortization


122


5,897


6,019Accretion on discounted assets and liabilities (Notes 2)


(252
)

560


308Impairment of oil and gas properties


186





186General and administrative


17,930


2,808


20,738Loss (gain) on oil and gas derivative contracts (Note 17)


(1,330
)

3,703


2,373Total operating costs and expenses


16,656


27,381


44,038Operating income (loss)


(16,649
)

8,587


(8,062
)Other (expense) income:Foreign currency exchange gain (loss)


(4
)

(1,148
)

(1,152
)Interest expense, net of interest capitalized (Note 9)


(1,962
)

32


(1,929
)Total other income (expense)


(1,965
)

(1,116
)

(3,081
)Income (loss) before taxes from continuing operations


(18,614
)

7,471


(11,143
)Income tax (benefit) provision (Note 12)


(2
)

2,434


2,431Loss from continuing operations, net of income taxes


(18,612
)

5,038


(13,574
)Selected assets:Properties and equipment


737


106,065


106,803Accumulated depreciation, depletion, and amortization


(463
)

(47,449
)

(47,912
)Oil and natural gas properties, net


275


58,616


58,890Goodwill





3,568


3,568Total assets for reportable segments


1,810


74,995


76,804Expenditures for additions to long-lived assets:Exploration costs





1,967


1,967Total expenditures for long-lived assets





1,967


1,967


F-72

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 20GEOGRAPHIC OPERATING SEGMENT INFORMATION (Continued)



United States

France

Total(In thousands)For The Year Ended December 31, 2010Revenues and other income:Sales and other operating revenue

$
27

$
23,967

$
23,994Other income





16,770


16,770Total revenues and other income


27


40,737


40,764Operating costs and expenses:Lease operating expense





11,597


11,597Exploration expense


17


1,960


1,977Depreciation, depletion and amortization


94


4,296


4,390Accretion on discounted assets and liabilities (Note 2)


(593
)

504


(89
)General and administrative


10,152


5,025


15,177Gain on sale of properties and other assets








Loss (gain) on oil and gas derivative contracts (Note 17)


444





444Total operating costs and expenses


10,114


23,382


33,496Operating income (loss)


(10,087
)

17,355


7,268Other (expense) income:Foreign currency exchange gain (loss)


43


(917
)

(874
)Loss on the early extinguishment of debt


(4,256
)




(4,256
)Other income


(4,860
)

102


(4,758
)Total other income (expense)


(9,073
)

(815
)

(9,888
)Loss before taxes from continuing operations


(19,160
)

16,540


(2,620
)Income tax (benefit) provision (Note 12)


(153
)

6,283


6,130Loss from continuing operations, net of income taxes


(19,007
)

10,257


(8,750
)Selected assets:Properties and equipment

$
731

$
108,248

$
108,979Accumulated depreciation, depletion, and amortization


(340
)

(42,861
)

(43,201
)Oil and natural gas properties, net

$
391

$
65,387

$
65,778Goodwill

$


$
3,685

$
3,685Total assets for reportable segments

$
49,798

$
97,331

$
147,129Expenditures for additions to long-lived assets:Exploration costs

$


$
218

$
218Development costs








Total expenditures for long-lived assets

$


$
218

$
218


F-73

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 20GEOGRAPHIC OPERATING SEGMENT INFORMATION (Continued)



United States

France

Total(In thousands)For The Year Ended December 31,2009Revenues and other income:Sales and other operating revenue

$
461

$
18,775

$
19,236Other income








Total revenues and other income


461


18,775


19,236Operating costs and expenses:Lease operating expense





8,396


8,396Exploration expense


138





138Depreciation, depletion and amortization


292


4,964


5,256Accretion on discounted assets and liabilities (Note 2)





507


507General and administrative


16,666


3,694


20,360Gain on sale of properties and other assets


(121
)




(121
)Loss (gain) on oil and gas derivative contracts (Note 17)


886


(7
)

879Total operating costs and expenses


17,861


17,554


35,415Operating income (loss)


(17,400
)

1,221


(16,179
)Other (expense) income:Other income (expense)


182


215


397Total other income (expense)


182


215


397Loss before taxes from continuing operations


(17,218
)

1,436


(15,782
)Income tax (benefit) provision (Note 12)


408


42


450Loss from continuing operations, net of income taxes


(16,810
)

1,478


(15,332
)Selected assets:Properties and equipment

$
650

$
115,785

$
116,435Accumulated depreciation, depletion, and amortization


(246
)

(41,568
)

(41,814
)Oil and natural gas properties, net

$
404

$
74,217

$
74,621Goodwill

$


$
3,973

$
3,973Total assets for reportable segments

$
42,996

$
100,989

$
143,985Expenditures for additions to long-lived assets:Exploration costs

$


$
2,887

$
2,887Development costs





499


499Total expenditures for long-lived assets

$


$
3,386

$
3,386




December 31,2011

2010(in thousands)Total assets for reportable segments

$
101,364

$
147,129Elimination of intersegment receivables and investments


(24,560
)

(46,830
)Total consolidated assets

$
76,804

$
100,299


F-74

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Table of Contents

Toreador Resources Corporation

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

NOTE 21SUBSEQUENT EVENTS

The Company evaluated its December 31, 2011 financial statements for subsequent events through April 6, 2012.

Combination with ZaZa Energy Corporation and ZaZa Energy, LLC

On February 21, 2012, we consummated the combination (the "Combination") with ZaZa Energy Corporation ("ZaZa") and ZaZa
Energy, LLC, a Texas limited liability company ("ZaZa LLC"), on the terms set forth in the Agreement and Plan of Merger and Contribution, dated August 9, 2011 and as subsequently
amended by Amendment No. 1 thereto on November 10, 2011 and Amendment No. 2 thereto on February 21, 2012 (as amended, the "Merger Agreement"), by and among us,
ZaZa LLC, ZaZa, and Thor Merger Sub Corporation, a wholly owned subsidiary ("Merger Sub") of ZaZa, as previously described in our Current Report on Form 8-K filed on
February 22, 2012.

In
connection with the Combination, ZaZa entered into a securities purchase agreement (the "Purchase Agreement") with the purchasers thereunder, including MSDC ZEC
Investments, LLC and Senator Sidecar Master Fund LP (collectively, the "Purchasers"), pursuant to which ZaZa issued senior secured notes (the "Secured Notes") in the aggregate principal
amount of $100,000,000 and warrants (the "Warrants") to purchase 26,315,789 shares of our Common Stock. On February 21, 2011, Toreador used part of the proceeds from the sale of the Secured
Notes and Warrants to repurchase $31,631,000 in aggregate principal amount of its 8.00%/7.00% Convertible Senior Notes at face value plus accrued interest. This represented all of its outstanding
long-term debt.

Financial Impact of Combination

In 2012, we expect deal, bonus and severance payment costs related to the Combination.

Concessions Renewal

The decrees relating to the renewal of the Châteaurenard concession and of the
Saint-Firmin-des-Bois concession, which together account for nearly all of Toreador's existing reserves, received final French government approvals on February 1, 2011,
and were published in the French Journal Officiel on February 3, 2011. The renewals extend the expiry date of both concessions to January 1, 2036.

F-75

---





Toreador Resources Corporation        Supplemental Oil and Natural Gas Reserves and        Standardized Measure Information (Unaudited)

SUPPLEMENTAL OIL AND NATURAL GAS RESERVES AND  STANDARDIZED MEASURE INFORMATION (UNAUDITED)

Users of this information should be aware that the process of estimating quantities of proved and proved developed oil and gas reserves
is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir also may
change substantially over time as a result of numerous factors, including additional development activity, evolving production history and continual reassessment of the viability of production under
varying economic conditions. Consequently, material revisions to existing reserve estimates may occur from time to time.

Reserves Estimates.

All reserve information in this report is based on estimates prepared by our independent engineering firm and is the responsibility of
management. The preparation of our oil reserves estimates is completed in accordance with our prescribed internal control procedures, which include verification of data input into reserves forecasting
and economics evaluation software, as well as multi-discipline management reviews.

We
retain an independent engineering firm to provide annual year-end estimates of our future net recoverable oil and natural gas reserves. Estimated proved net recoverable
reserves we have shown below include only those quantities that we can expect to be commercially recoverable at prices and costs in effect at the balance sheet dates under existing regulatory
practices and with conventional equipment and operating methods. Proved developed reserves represent only those reserves that we may recover through existing wells. Proved undeveloped reserves include
those reserves that we may recover from new wells on undrilled acreage or from existing wells on which we must make a relatively major expenditure for recompletion or secondary recovery operations.

Discounted
future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and natural gas properties. Estimates of fair value should
also consider probable reserves, anticipated future oil and natural gas prices, interest rates, changes in development

F-76

---



Toreador Resources Corporation

Supplemental Oil and Natural Gas Reserves and

Standardized Measure Information (Unaudited)

and
production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.

France

Turkey

Romania

Hungary

TotalNatural Gas (MMcf)PROVED RESERVESDecember 31, 2008





10,477


86


950


11,513Revisions of previous estimates














Extensions, discoveries and other additions














Sale of reserves














Production





(10,477
)

(86
)

(950
)

(11,513
)December 31, 2009














Revisions of previous estimates














Extensions, discoveries and other additions














Sale of reserves














Production














December 31, 2010














Revisions of previous estimates














Extensions, discoveries and other additions














Sale of reserves














Production














December 31, 2011














PROVED DEVELOPEDDecember 31, 2009














December 31, 2010














December 31, 2011

















F-77

---



Toreador Resources Corporation

Supplemental Oil and Natural Gas Reserves and

Standardized Measure Information (Unaudited)

France

Turkey

Romania

Hungary

TotalNatural Gas (MMcf)Oil (Mbbl)PROVED RESERVESDecember 31, 2008


4,914


741


1


1


5,657Revisions of previous estimates


1,217











1,217Extensions, discoveries and other additions














Sale of reserves





(741
)

(1
)

(1
)

(743
)Production


(328
)










(328
)December 31, 2009


5,803











5,803Revisions of previous estimates


43











43Extensions, discoveries and other additions














Sale of reserves














Production


(323
)










(323
)December 31, 2010


5,523











5,523Revisions of previous estimates


559











559Extensions, discoveries and other additions














Sale of reserves














Production


(312
)










(312
)December 31, 2011


5,771











5,771PROVED DEVELOPEDDecember 31, 2009


5,383











5,383December 31, 2010


5,111











5,111December 31, 2011


5,344











5,344PROVED UNDEVELOPEDDecember 31, 2009


420











420December 31, 2010


412











412December 31, 2011


427











427


The
following information was developed utilizing procedures prescribed by FASB Accounting Standards Codification Topic 932,Extractive IndustriesOil
and Gas(Topic 932). The information is based on estimates prepared by our independent engineering firm. The "standardized measure of discounted future net cash flows" should
not be viewed as representative of the current value of our proved oil reserves. It and the other information contained in the following tables may be
useful for certain comparative purposes, but should not be solely relied upon in evaluating us or our performance.

In
reviewing the information that follows, we believe that the following factors should be taken into account:



F-78

---



Toreador Resources Corporation

Supplemental Oil and Natural Gas Reserves and

Standardized Measure Information (Unaudited)



Under
the standardized measure, future cash inflows were estimated by applying the prices used in estimating our proved oil and gas reserves to the year-end quantities of
those reserves. Future cash inflows do not reflect the impact of open hedge positions. Future cash inflows were reduced by estimated future development, abandonment and production costs based on
year-end costs in order to arrive at net cash flows before tax. Future income tax expense has been computed by applying year-end statutory tax rates to aggregate future
pre-tax net cash flows reduced by the tax basis of the properties involved and tax carryforwards. The standardized measure is derived from using a discount rate of 10% a year to reflect
the timing of future net cash flows relating to proved oil and gas reserves.

In
general, management does not rely on the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates
of probable as well as proved reserves and varying price and cost assumptions considered more representative of a range of possible outcomes.

The
prices of oil and natural gas at December 31, 2011, 2010, and 2009 used to estimate reserves in the table shown below, were $108.9, $79.35 and $56.99 per Bbl of oil,
respectively, and $0, $0 and $0

F-79

---



Toreador Resources Corporation

Supplemental Oil and Natural Gas Reserves and

Standardized Measure Information (Unaudited)

per
Mcf of natural gas, respectively. The price at December 31, 2011 and 2010, were the average price for the corresponding year. 2009 is at the price as of December 31, 2009.

France

Turkey

Romania

Hungary

Total(In thousands)As of and for the year ended December 31, 2009Future cash inflows

$
301,070

$


$


$


$
301,070Future production costs


187,900











187,900Future development costs


60,160











60,160Future income tax expense


11,959











11,959Future net cash flows


41,051











41,05110% annual discount for estimated timing of cash flows


24,282











24,282Standardized measure of discounted future net cash flows related to proved reserves

$
16,769

$


$


$


$
16,769As of and for the year ended December 31, 2010Future cash inflows

$
391,860

$


$


$


$
391,860Future production costs


176,630











176,630Future development costs


33,500











33,500Future income tax expense


79,221











79,221Future net cash flows(1)


102,509











102,50910% annual discount for estimated timing of cash flows


57,114











57,114Standardized measure of discounted future net cash flows related to proved reserves(1)

$
45,395

$


$


$


$
45,395As of and for the year ended December 31, 2011Future cash inflows

$
624,003

$


$


$


$
624,003Future production costs


233,643











233,643Future development costs


33,750











33,750Future income tax expense


118,858











118,858Future net cash flows


237,752











237,75210% annual discount for estimated timing of cash flows


141,946











141,946Standardized measure of discounted future net cash flows related to proved reserves

$
95,806

$


$


$


$
95,806


(1)The
negative values are due to plugging and abandonment costs incurred in the final year.


F-80

---



Toreador Resources Corporation

Supplemental Oil and Natural Gas Reserves and

Standardized Measure Information (Unaudited)

The following are the principal sources of change in the standardized measure:

France

Turkey

Romania

Hungary

Total(In thousands)Balance at December 31, 2008


18,563


27,048


(121
)

9,278


54,768Sales of oil and natural gas, net


(10,379
)

(4,753
)

(72
)




(15,204
)Net changes in prices and production costs


18,069











18,069Net change in development costs


(22,579
)










(22,579
)Extensions and discoveries














Revisions of previous quantity estimates


11,531











11,531Previously estimated development costs incurred














Net change in income taxes


(7,774
)










(7,774
)Accretion of discount


2,511











2,511Sale of reserves





(22,295
)

193


(9,278
)

(31,380
)Other


6,827











6,827Balance at December 31, 2009


16,769

$


$


$


$
16,769Sales of oil and natural gas, net


(12,369
)










(12,369
)Net changes in prices and production costs


8,829











8,829Net change in development costs


12,061











12,061Extensions and discoveries














Revisions of previous quantity estimates


723











723Previously estimated development costs incurred














Net change in income taxes


(11,484
)










(11,484
)Accretion of discount


2,511











2,511Sale of reserves














Other


28,355











28,355Balance at December 31, 2010

$
45,395

$


$


$


$
45,395Sales of oil and natural gas, net


(20,510
)










(20,510
)Net changes in prices and production costs


80,509











80,509Net change in development costs


(103
)










(103
)Extensions and discoveries














Revisions of previous quantity estimates














Previously estimated development costs incurred














Net change in income taxes


(14,851
)










(14,851
)Accretion of discount


4,539











4,539Sale of reserves














Other


827











827Balance at December 31, 2011

$
95,806

$


$


$


$
95,806


F-81

---