UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2010


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

For the transition period from to

Commission File Number 001-08521

Oceanic Exploration Company

(Exact name of registrant as specified in its charter)


Delaware		84-0591071
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

7800 East Dorado Place, Suite 250
Englewood, CO 80111
(Address of principal executive offices)

Registrant’s telephone number, including area code: (303) 220-8330

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

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


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller Reporting Company þ

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

The total number of shares of the registrant’s common stock outstanding as of May 13, 2010 was 59,688,881 shares.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION		3

Item 1 FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets		3

Condensed Consolidated Statements of Operations		4

Condensed Consolidated Statements of Cash Flows		5

Notes to Condensed Consolidated Financial Statements		6

Item 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		9

Critical Accounting Policies		9

Liquidity and Capital Resources		10

Results of Operations		11

Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		12

Item 4T CONTROLS AND PROCEDURES — SMALLER REPORTING COMPANY		12

PART II — OTHER INFORMATION		12

Item 1 LEGAL PROCEEDINGS		12

Item 1A RISK FACTORS		13

Item 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		13

Item 3 DEFAULTS OF SENIOR SECURITIES		13

Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		13

Item 5 OTHER INFORMATION

Item 6 EXHIBITS AND REPORTS ON FORM 8-K		13

SIGNATURES		14

31.1 Certification of Principal Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350

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PART 1 — FINANCIAL INFORMATION

OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	March 31,			December 31,
	2010			2009
ASSETS
Cash	$	123,416		$	69,651
Due from affiliates		7,540			16,693
Prepaid expenses and other		8,485			32,236

Total current assets		139,441			118,580

Oil and gas property interests (note 6)		—			—

Furniture, fixtures and equipment		73,390			73,390
Less accumulated depreciation		(57,571	)		(56,195	)

		15,819			17,195


Total assets	$	155,260		$	135,775


LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Accounts payable	$	52,743		$	240,693
Accrued expenses		160,721			197,935
Note payable, related party — NWO Resources, Inc., including accrued interest (note 4)		4,276,500			3,719,684

Total current liabilities		4,489,964			4,158,312

United Kingdom taxes payable, including accrued interest (note 7)		674,360			707,573
Other non-current liabilities		2,787			3,669

Total non-current liabilities		677,147			711,242

Commitments and contingencies (notes 2, 3, 5 and 7)		—			—


Total liabilities		5,167,111			4,869,554


Stockholders’ deficit
Preferred stock, $10 par value. Authorized 600,000 shares; no shares issued		—			—
Common stock, $.0625 par value. Authorized 100,000,000 shares; 59,688,881 shares issued and outstanding		3,730,555			3,730,555
Capital in excess of par value		8,165,609			8,165,609
Accumulated deficit		(16,908,015	)		(16,629,943	)

Total stockholders’ deficit		(5,011,851	)		(4,733,779	)

Total liabilities and stockholders’ deficit	$	155,260		$	135,775

See accompanying notes to the condensed consolidated financial statements.

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OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES

Condensed Consolidated Statements of Operations


	Three Months Ended
	March 31,
	2010			2009

Revenue:
Management revenue — related parties	$	217,500		$	301,500


Costs and expenses:
Exploration expenses (note 2)		66,377			216,858
Amortization and depreciation		1,376			1,451
General and administrative		399,086			428,505


		466,839			646,814


Operating loss		(249,339	)		(345,314	)

Other income (expense):
Interest income and realized gains (losses)		(499	)		5,214
Interest expense and financing costs (note 4)		(61,902	)		(39,923	)
Foreign currency gains		33,668			4,306


		(28,733	)		(30,403	)


Loss before income taxes		(278,072	)		(375,717	)

Income tax expense (note 5)		—			—


Net loss	$	(278,072	)	$	(375,717	)


Basic and diluted loss per common share		(0.01	)	$	(0.01	)

Weighted average number of common shares outstanding		59,688,881			59,688,881

See accompanying notes to the condensed consolidated financial statements.

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OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows


	Three months ended
	March 31,
	2010			2009
Cash flows from operating activities:
Net loss	$	(278,072	)	$	(375,717	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation		1,376			1,451
Accrued interest payable to NWO Resources, Inc.		56,816			35,036
Changes in operating assets and liabilities:
Increase (decrease) in due from affiliates		9,153			(11,059	)
Increase in prepaid expenses and other assets		23,751			5,433
(Decrease) increase in accounts payable		(187,950	)		3,497
Decrease in accrued expenses		(37,214	)		(36,446	)
Decrease in security for legal costs		—			(6,714	)
Decrease in United Kingdom taxes payable, including accrued interest payable		(33,213	)		(6,830	)
Decrease in other non-current liabilities		(882	)		(794	)

Net cash used in operating activities		(446,235	)		(392,143	)

Cash flows from financing activities:

Proceeds from issuance of note payable, related party — NWO Resources, Inc.		500,000			500,000


Net increase in cash		53,765			107,857

Cash at beginning of period		69,651			162,858


Cash at end of period	$	123,416		$	270,715

See accompanying notes to condensed consolidated financial statements.

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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated balance sheet as of December 31, 2009 that has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements included herein, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations, although Oceanic Exploration Company (Oceanic) believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments consisting of normal recurring accruals have been made which are necessary for the fair presentation of the periods included. Interim results are not necessarily indicative of results for a full year. The information included herein should be read in conjunction with the financial statements and notes thereto included in the December 31, 2009 Form 10-K.

Oceanic operates as one business segment. All of Oceanic’s revenue is derived from management contracts with related parties. Oceanic’s oil and gas exploration activities have generally consisted of exploration of concessions through various forms of joint arrangements with unrelated companies, whereby the parties agree to share the costs of exploration, as well as the costs of, and any revenue from, a discovery. For various reasons, Oceanic has not participated in exploration and development of any of its concessions since 1994.

As of March 31, 2010 and December 31, 2009, Oceanic had accounts receivable only from related parties. Accordingly, there were no unrelated customers who were considered to be significant.

(2) EXPLORATION EXPENSES

In 1974, Petrotimor Companhia de Petróleos, S.A. (Petrotimor), a 99%-owned subsidiary of Oceanic, was granted an exclusive offshore concession by Portugal to explore for and develop oil and gas in an approximately 14.8 million-acre area between East Timor and Australia known as the ‘Timor Gap.’ At that time, Portugal had administrative control over East Timor. On January 5, 1976, following Indonesia’s unlawful invasion and occupation of East Timor, Petrotimor applied for and obtained on April 14, 1976, Portugal’s consent to a suspension of performance under the concession agreement based upon force majeure. This force majeure status remained in effect until at least October 25, 1999.

Commercial Opportunity in East Timor. Oceanic submitted an application for an Expansion of Seabed Concession to the transitional government of East Timor in October 2001 requesting that Petrotimor’s 1974 concession area be expanded to include the additional maritime areas within the properly determined seabed delimitation of East Timor. Oceanic believes that, under international law, East Timor is entitled to exercise sovereign jurisdiction over its seabed and to have an Exclusive Economic Zone as codified in the 1982 United Nations Convention on the Law of the Sea. Oceanic believes that by so doing, East Timor could acquire jurisdiction over hydrocarbon reserves containing approximately 12 trillion cubic feet of natural gas and associated condensate based upon the Petroz N.L. and Woodside information.

Neither the transitional government, nor any subsequent East Timor government, has recognized Petrotimor’s concession in East Timor. Oceanic has never received any formal response acknowledging the application for an Expansion of Seabed Concession. An article carried on the Dow Jones Newswires on September 26, 2002 quotes a ‘senior East Timor government official’ as stating that the government does not recognize this concession. Oceanic has not been officially advised of the status of the application or if the current East Timor government is even considering it. A formal response may never be issued, or Oceanic could receive an unfavorable response. Unless there is a change in the current government policy in East Timor, it is unlikely that Oceanic will pursue the application further.

If the East Timor government were to recognize the concession and grant the application, it would expand the 1974 Petrotimor concession to correspond with the offshore area over which East Timor is entitled to claim sovereign rights under international law. Oceanic sponsored a seminar in East Timor in 2001 for the purpose of explaining appropriate maritime boundaries under applicable international law and the resulting benefits to East Timor if such boundaries were to be enforced.

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In August 2001, Oceanic and Petrotimor commenced litigation in the Federal Court of Australia (Australian Federal Court) regarding the Timor Gap concession. On February 3, 2003, the Australian Federal Court issued decisions in which it declared that it lacked jurisdiction to hear Oceanic’s claims. As part of the Australian litigation, Oceanic was required to provide bank guarantees as security for the defendants’ litigation costs. The Australian and New Zealand Banking Group (ANZ Bank) in Sydney, Australia provided the guarantees. On March 18, 2009, Oceanic reached a settlement in the amount of AUS$800,000 that it must pay for these litigation costs. AUS$550,000 (including the deposit with the ANZ Bank of AUS$451,000), was paid on April 16, 2009. The remaining AUS$250,000 was paid on September 22, 2009 satisfying the full amount of the settlement.

During the three months ended March 31, 2010 and 2009, Oceanic incurred expenses of $66,377 and $216,858, respectively, mostly related to legal, consulting and commercial activities associated with oil and gas interests in the Timor Gap. These expenses have been recorded as exploration expenses in the accompanying statements.

Although Oceanic is not currently directly involved in any other oil and gas exploration or production activities, Oceanic continues to evaluate potential exploration and production activities elsewhere in the world. Oceanic did not receive any revenue from oil and gas properties in 2009 and it is not currently conducting any activities that would result in material oil and gas revenue in 2010.

(3) PENDING LITIGATION

On March 1, 2004, Oceanic and Petrotimor filed a complaint in the United States District Court for the District of Columbia (DC Federal Court) regarding their 14.8 million-acre Timor Gap concession. Oceanic and Petrotimor, as plaintiffs, brought this action to redress the harm caused by the defendants’ (collectively including ConocoPhillips, Inc. and designated subsidiaries, the Timor Sea Designated Authority for the Joint Petroleum Development Area, the Timor Gap Joint Authority for the Zone of Cooperation, PT Pertamina and BP Migas) theft, misappropriation and conversion of oil and gas resources within the Timor Gap.

Oceanic filed a Second Amended Complaint (the Complaint) with the DC Federal Court on March 1, 2005. The Complaint reflected claims that the misdeeds of the defendants effectively prevented Oceanic from competing for rights to explore for and produce oil and gas within the Timor Gap.

On September 21, 2006, the DC Federal Court dismissed certain defendants and certain of Oceanic’s claims and ordered that the remaining defendants file an Answer or other Responsive Pleading to the Complaint.

On February 5, 2007, the DC Federal Court granted the motion of the remaining defendants, ConocoPhillips, Inc. and ConocoPhillips Company (ConocoPhillips), to transfer the case to the United States District Court for the Southern District of Texas (Texas Federal Court).

The defendants subsequently filed a motion for judgment on the pleadings. On April 16, 2008, the Texas Federal Court issued its Opinion on Dismissal stating that Oceanic’s claims fail because “it does not plead facts that, if true, would show that its loss was proximately caused by the bribery.” The Texas Federal Court further held that “To recover, Oceanic must show what would have happened absent the bribe to a high degree of probability. It can not.” Accordingly, the Texas Federal Court entered a final judgment on April 22, 2008, granting defendants’ Rule 12(c) motion for judgment on the pleadings. On May 19, 2008, Oceanic filed a notice of appeal with the United States Court of Appeals for the Fifth Circuit (Court of Appeals). On November 6, 2009, the Court of Appeals affirmed the final judgment of the Texas Federal Court.

On March 3, 2010, Oceanic filed a Petition for a writ of Certiorari with the United States Supreme Court seeking a review of the Court of Appeals Order.

(4) NOTE PAYABLE — RELATED PARTY

On March 7, 2007, Oceanic established a new line of credit evidenced by a promissory note with NWO Resources, Inc. (NWO), in the amount of $4,000,000 at an interest rate of 2% over prime rate with repayment due on or before March 7, 2008. In addition, NWO committed to increase the line of credit to $6,000,000 under certain circumstances. On February 28, 2008, this was replaced by a new line of credit for $4,000,000 plus the additional $2,000,000 commitment for additional financing with repayment due on or before March 31, 2009. Repayment of the line of credit and the additional financing commitment was subsequently extended to March 31, 2010. On February 11, 2010, it was determined that the circumstances justifying the additional $2,000,000 commitment were met and the line of credit was increased to $6,000,000 with repayment due on or before March 31, 2011. As of March 31, 2010, $4,000,000 was outstanding under this line of credit with additional accrued interest of $276,500.

At the current level of cash expenditures, Oceanic will need sources of additional funding. Oceanic currently intends to use the funds available under its line of credit to fund current operations. Oceanic believes that the cash on hand, and the cash generated from 2010 revenues, plus draws from the line of credit will be sufficient to fund operations beyond December 31, 2010. Oceanic will need to obtain an increase in its line of credit or to obtain alternative sources of financing in order to continue operations after the maximum amount is drawn on the current line of credit.

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(5) INCOME TAXES

In evaluating the realizability of the net deferred tax assets, Oceanic takes into account a number of factors, primarily relating to the ability to generate taxable income. Where it is determined that it is likely that Oceanic will be unable to realize deferred tax assets, a valuation allowance is established against the portion of the deferred tax asset. Because it cannot be accurately determined when or if Oceanic will become profitable, a valuation allowance was provided against the entire deferred income tax asset attributable to the net operating losses incurred during the three months ended March 31, 2010 and 2009.

(6) OIL AND GAS INTERESTS

Oceanic holds various interests in concessions or leases for oil and gas exploration around the world as described in the December 31, 2009 Form 10-K. Costs for these oil and gas property interests have been charged to expense in prior years so no amounts are reflected on the balance sheet. Although Oceanic is not currently conducting any direct exploration activities, it continues to evaluate potential exploration and production activities elsewhere in the world.

(7) COMMITMENTS AND CONTINGENCIES

Oceanic may be involved from time to time in various claims and lawsuits incidental to its business. In the opinion of Oceanic’s management, no claims or lawsuits, not previously disclosed, exist at March 31, 2010 that will result in a material adverse effect on the financial position or operating results of Oceanic.

(8) TRANSACTIONS WITH RELATED PARTIES

Oceanic provides bookkeeping, administrative and day-to-day management services to San Miguel Valley Corporation (San Miguel), a real estate company. Oceanic also provides management, professional and administrative services to Cordillera Corporation (Cordillera), a holding company. Oceanic’s management is responsible for the day-to-day management of real estate and other activities of Cordillera. Oceanic’s subsidiary, Petrotimor, provides exploration and consulting services to Harvard International Resources, Ltd. (HIRL), a related company. These contracts have no contractual termination date, but management cannot be certain that some or all of these contracts will continue in the future. Most of the management contracts contain clauses requiring 60 days’ termination notice. Oceanic’s Chairman of the Board of Directors and Chief Executive Officer, James N. Blue, is affiliated with each of these corporations.

Management Fee Revenue
For the three months ended March 31,


	2010				2009
San Miguel Valley Corporation	$	96,900	45	%	$	132,000	44	%
Cordillera Corporation		113,100	52	%		162,000	54	%
Harvard International Resources, Ltd.		7,500	3	%		7,500	2	%

Total management fee revenue	$	217,500			$	301,500

Except for the contract with HIRL, all labor services are provided at payroll cost plus benefits and include a 5% markup on that total to cover the administrative expenses. This charge is calculated annually based on the prior year’s costs. All expenses are billed at cost. The contract with HIRL differs from the management contracts with the other related companies, as it is a flat charge of $2,500 per month plus expenses directly incurred in providing those consulting services. None of these expenses were incurred for each of the three months ended March 31, 2010 and 2009. The purpose for the management agreements is to avoid duplication of functions and costs for the economic benefit of all of the companies involved.

Effective June 30, 2007, Oceanic entered into a services agreement with General Atomics (GA), a company controlled by Oceanic’s Chairman of the Board of Directors and Chief Executive Officer. This agreement specifies that Oceanic will pay GA for the services of Stephen M. Duncan to serve as President of Oceanic at a fixed rate of $7,500 per month. The agreement has no contractual termination date, but can be terminated with 30 days’ notice by either party. Oceanic recorded expenses of $22,500 for each of the three-month periods ended March 31, 2010 and 2009, for payments made to GA for Stephen M. Duncan’s services. On March 16, 2010, Oceanic filed an 8-K announcing the resignation of Stephen M. Duncan as President of Oceanic. Mr. Duncan’s resignation was effective on May 5, 2010. Under the terms of the services agreement with GA, this agreement terminated on that date as well.

Karsten Blue, son of Oceanic’s Chairman of the Board of Directors and Chief Executive Officer, coordinates various activities relating to the Timor Gap matters. Effective August 1, 2007, Oceanic entered into a services agreement with GA. The agreement specifies a fixed amount for Karsten Blue’s services at $6,500 per month and has no contractual termination date. Oceanic expensed $19,500 for each of the three-month periods ended March 31, 2010 and 2009, for Karsten Blue’s services.

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On March 7, 2007, Oceanic established a line of credit, evidenced by a promissory note with NWO, in the amount of $4,000,000 at an interest rate of 2% over prime rate with repayment due on or before March 7, 2008. In addition, NWO committed to increase the line of credit to $6,000,000 under certain circumstances. On February 28, 2008, this was replaced by a new line of credit for $4,000,000 plus the additional $2,000,000 commitment for additional financing with repayment due on or before March 31, 2009. Repayment of the line of credit and the additional financing commitment was subsequently extended to March 31, 2010. On February 11, 2010, it was determined that the circumstances justifying the additional $2,000,000 commitment were met and the line of credit was increased to $6,000,000 with repayment due on or before March 31, 2011. As of March 31, 2010, Oceanic had borrowed $4,000,000 under this line of credit with accrued interest of $276,500.

(9) NEW ACCOUNTING PRONOUNCEMENTS

In January 2010, ASC guidance for fair value measurements and disclosure was updated by ASU 2010-06 to require additional disclosures related to transfers in and out of level 1 and 2 fair value measurements and enhanced detail in the level 3 reconciliation. The guidance was amended to clarify the level of disaggregation required for assets and liabilities and the disclosures required for inputs and valuation techniques used to measure the fair value of assets and liabilities that fall in either level 2 or level 3. The updated guidance was effective for Oceanic’s fiscal year beginning January 1, 2010, with the exception of the level 3 disaggregation, which is effective for Oceanic’s fiscal year beginning January 1, 2011. The adoption has no impact on Oceanic’s consolidated financial position, results of operations or cash flows.

Accounting Standards Updates not effective until after March 31, 2010 are not expected to have a significant effect on Oceanic’s consolidated financial position or results of operations.


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

Any statements that are contained in this Form 10-Q that are not statements of historical fact are forward-looking statements. Readers can identify these statements by words such as ‘may,’ ‘will,’ ‘expect,’ ‘anticipate,’ ‘estimate,’ ‘continue’ or other similar words. These statements discuss future expectations, contain projections of results of operations or financial condition or state other forward-looking information and are based on certain assumptions and analyses made by Oceanic in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including such factors as uncertainties in cash flow, expected costs of litigation, the outcome of litigation, the potential impact of government regulations and rulings, fluctuations in the economic environment and other such matters, many of which are beyond the control of Oceanic. Readers are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those expressed or implied in the forward-looking statements.

The following discussion and analysis should be read in conjunction with Oceanic’s condensed consolidated financial statements and notes thereto for the respective periods ended December 31, 2009 and March 31, 2010 and 2009.

(1) CRITICAL ACCOUNTING POLICIES

The discussion and analysis of financial condition and results of operations is based on Oceanic’s condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. On an on-going basis, management evaluates the estimates including those related to the realizability of income tax assets and the provision for loss contingencies. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of Oceanic’s condensed consolidated financial statements.

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To record income tax expense, Oceanic is required to estimate income taxes in each of the jurisdictions in which it operates. This involves estimating actual current tax exposure together with assessing temporary differences that result in deferred tax assets and liabilities and expected future tax rates. Oceanic records a valuation allowance to reduce the deferred tax assets to an amount that management believes is more likely than not to be realized. Management considers future taxable income and prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If management subsequently determines that Oceanic will realize more or less of the net deferred tax assets in the future, such adjustment would be recorded as an increase or reduction of income tax expense in the period such determination is made.

In evaluating the need to provide for contingent liabilities, Oceanic takes into account a number of factors, including the expected likelihood of an unfavorable outcome in its lawsuit, and the ability to reasonably estimate the financial impact of an unfavorable outcome and management’s intentions with respect to the contingency.

(2) LIQUIDITY AND CAPITAL RESOURCES

Oceanic has historically addressed long-term liquidity needs for oil and gas exploration and development through the use of farm-out agreements. Under such agreements, Oceanic sells a portion of its ownership interest in the concession to an outside party who is then responsible for the exploration activities. This is a strategy that management intends to continue in the event it becomes feasible to begin further exploration in any of the areas where Oceanic currently holds concessions.

Cash Flow. Cash used in operating activities was $446,235 for the first three months of 2010 compared to $392,143 in the first three months of 2009. During the three months ended March 31, 2010 and 2009, Oceanic made actual cash payments of $50,531 and $60,418, respectively, mostly related to litigation and professional activities associated with oil and gas interests in the Timor Gap. An additional $15,846 of expenses were accrued and remained unpaid as of March 31, 2010. These costs are included in exploration expense. Exploration expenses have decreased in 2010 compared to the same period in 2009, primarily because of the decrease in litigation-related expenses. Until the lawsuit is finally resolved, litigation charges recorded as exploration expenses will continue to use most of Oceanic’s cash resources. If Oceanic is permitted to pursue this lawsuit in 2010, it is expected that these expenses and cash requirements will increase. Cash flows from financing activities are the borrowings from the note payable to NWO Resources, Inc. (NWO) totaling $4,000,000 as of March 31, 2010. The first three months of 2010 ended with a net increase in total cash of $53,765, including cash received under the line of credit with NWO of $500,000.

Oceanic had $123,416 in cash and cash equivalents at March 31, 2010 compared with $69,651 at December 31, 2009. At March 31, 2010, Oceanic had accounts receivable from affiliates of $7,540, which Oceanic anticipates will be paid in full. Oceanic had a negative working capital of ($4,350,523) at March 31, 2010 compared to a negative working capital of $(4,039,732) at December 31, 2009. Negative working capital occurs when current liabilities exceed cash and current assets. This decrease of $310,791 in working capital from December 31, 2009 to March 31, 2010 was primarily the result of drawing on the NWO line of credit to pay for litigation related expenses and general and administrative expenses.

On March 7, 2007, Oceanic established a new line of credit evidenced by a promissory note with NWO in the amount of $4,000,000 at an interest rate of 2% over prime rate with repayment due on or before March 7, 2008. In addition, NWO committed to increase the line of credit to $6,000,000 under certain circumstances. On February 28, 2008, this was replaced by a new line of credit for $4,000,000 plus the additional $2,000,000 commitment for additional financing with repayment due on or before March 31, 2009. Repayment of the line of credit and the additional financing commitment was subsequently extended to March 31, 2010. On February 11, 2010, it was determined that the circumstances justifying the additional $2,000,000 commitment were met and the line of credit was increased to $6,000,000 with repayment due on or before March 31, 2011. As of March 31, 2010, $4,000,000 was outstanding under this line of credit, with additional accrued interest of $276,500.

Revenue. Oceanic provides management services to various entities with which its Chairman of the Board of Directors and Chief Executive Officer is affiliated. Services provided are:

	•		Management, administrative and bookkeeping services to San Miguel Valley Corporation (San Miguel),

	•		Management, administrative and professional services to Cordillera Corporation (Cordillera), and

	•		Consulting services, including monitoring exploration and production activities on a worldwide basis to identify potential investment opportunities for Harvard International Resources Ltd. (HIRL).

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Together, these management services provided all of Oceanic’s total revenue for the three months ended March 31, 2010 and 2009. Except for the contract with HIRL, all labor services are provided at payroll cost plus benefits and include a 5% markup on that total to cover the administrative expenses. This charge is calculated annually based on the prior year’s costs. All expenses are billed at cost. The purpose of the management agreements is to avoid duplication of functions and costs for the economic benefit of all of the companies involved.

Management Fee Revenue
For the three months ended March 31,


	2010				2009
San Miguel Valley Corporation	$	96,900	45	%	$	132,000	44	%
Cordillera Corporation		113,100	52	%		162,000	54	%
Harvard International Resources, Ltd.		7,500	3	%		7,500	2	%

Total management fee revenue	$	217,500			$	301,500

(3) RESULTS OF OPERATIONS

Revenue. Management fee revenue for the three months ended March 31, 2010, decreased $84,000 or 28% compared to the three months ended March 31, 2009. Management fee income for the first three months of 2010 decreased for Cordillera by $48,900 and decreased for San Miguel by $35,100. Because the level of service is dependent upon the needs of the applicable corporations and available employees, it is normal to see fluctuations in management fee rates from year to year.

Although Oceanic is currently not directly involved in any other oil and gas exploration or production activities, Oceanic continues to evaluate potential exploration and production activities elsewhere in the world. Oceanic did not receive any revenue from oil and gas properties in 2009, and it is not currently conducting any activities that would result in oil and gas revenue in 2010.

Exploration Expenses. Oceanic continues to incur ongoing legal and professional fees associated with its ongoing lawsuit. During the three months ended March 31, 2010 and 2009, Oceanic incurred total litigation expenses recorded as exploration expenses of $66,376 and $216,858, respectively.

Pending Litigation. On March 1, 2004, Oceanic and Petrotimor filed a complaint in the United States District Court for the District of Columbia (DC Federal Court) regarding their 14.8 million-acre Timor Gap concession. Oceanic and Petrotimor, as plaintiffs, brought this action to redress the harm caused by the defendants’ (collectively including ConocoPhillips, Inc. and designated subsidiaries, the Timor Sea Designated Authority for the Joint Petroleum Development Area, the Timor Gap Joint Authority for the Zone of Cooperation, PT Pertamina and BP Migas) theft, misappropriation and conversion of oil and gas resources within the Timor Gap.

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On March 3, 2010, Oceanic filed a Petition for a writ of Certiorari with the United States Supreme Court seeking a review of the Court of Appeals Order.

General and Administrative Expenses. Total general and administrative costs and expenses for the three months ended March 31, 2010 decreased by $29,419 or approximately 7% from the same period in 2009. The largest changes between the two years were:

	•		Salaries and employee benefits decreased $31,822 offset by an increase in contract employee expense of $13,283. Oceanic had fewer employees in the three months ended March 31, 2010 than for the same period in 2009.

	•		Auditing and accounting fee expense has decreased by $13,218. The majority of this additional expense in 2009 was due to work performed by previous auditors to reissue their 2007 audit opinion.

	•		Directors fees decreased by $1,500 from the first three months of 2009 to the same period in 2010 due to the resignation of one of Oceanic’s directors in June 2009.

Other Income and Expense. Interest income and realized gains (losses) for the three months ended March 31, 2010 is $(499), which is $5,713 lower than the amount for the same period last year. This is because Oceanic did not have available cash to invest in the first three months of 2010 as compared to the same period for 2009. The balance as of March 31, 2010 relates to a loss on an investment account in Portugal. Interest income for 2009 includes interest earned on the investment of the trust account with the ANZ Bank and gains on an investment account in Portugal.

Interest expense at March 31, 2010 of $61,902 compared to $39,923 for the same period in 2009, is primarily interest accrued on the line of credit payable to NWO. The outstanding principal balance of this obligation was $4,000,000 and $2,400,000 at March 31, 2010 and 2009, respectively.

Non-cash net foreign exchange gains of $33,668 at March 31, 2010 versus net foreign exchange gains of $4,306 at March 31, 2009, resulted primarily from the strengthening of the U.S. dollar against the British pound.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the Evaluation Date), the President and Chief Financial Officer carried out an evaluation, which included inquiries made to certain other Oceanic employees, of the effectiveness of Oceanic’s design and operation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the President and Chief Financial Officer concluded that, as of the Evaluation Date, Oceanic’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that Oceanic files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and (ii) accumulated and communicated to the management of Oceanic to allow timely decisions regarding disclosure.

Changes in Internal Controls

There have been no changes in Oceanic’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, its internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Legal proceeding developments in 2009 were reported in the December 31, 2009 Form 10-K. See the ‘Pending Litigation’ section in Footnotes (2) and (3) and in Management’s Discussion and Analysis (3) above for activity through May 13, 2010.

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ITEM 1A. RISK FACTORS

The Annual Report on Form 10-K listed certain risk factors which should be carefully considered in addition to the other information included in the periodic reports. The following risk factors have materially changed since the date of the Annual Report. Each of these risk factors could adversely affect Oceanic’s business, operating results and financial condition, as well as adversely affect the value of an investment in its common stock.

(1) MATERIAL NET LOSSES

Oceanic has suffered recurring material net losses and losses from operations during the most recent interim period and in recent fiscal years. Net losses for the three months ended March 31, 2010 and 2009 were ($278,072) and ($375,717), respectively. Oceanic’s stockholders’ equity decreased from a negative ($4,733,779) at December 31, 2009 to a negative ($5,011,851) as of March 31, 2010. If Oceanic continues to incur significant legal expenses related to its ongoing lawsuit, Oceanic expects significant losses to continue.

(2) NEED FOR ADDITIONAL FINANCING

Oceanic will need additional financing. During the first three months of 2010, Oceanic generated a $53,765 increase in cash from net operating and financing activities and ended the first quarter with a negative stockholders’ equity of ($5,011,851). Oceanic’s current operations are financed with a line of credit evidenced by a promissory note with NWO Resources, Inc. (NWO). Oceanic intends to use the funds available under its line of credit to fund current operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS OF SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.1 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; APPOINTMENT OF PRINCIPAL OFFICERS

Effective as of May 5, 2010, Stephen M. Duncan resigned as President and director of Oceanic. Mr. Duncan’s resignation was initially announced in an 8-K filed with the Securities and Exchange Commission on March 16, 2010.

Effective as of May 6, 2010, Nicole J. Champine has been appointed by the Board of Directors to serve as President and a director of Oceanic. Ms. Champine’s appointment was announced in an 8-K filed with the Securities and Exchange Commission on May 10, 2010.

ITEM 6. EXHIBITS

(a)

Exhibits filed herewith are listed below and attached to this report. The ‘Exhibit Number’ refers to the Exhibit Table in Item 601 of Regulation S-K.


Exhibit Number		Name of Exhibit
	31.1	Rule 13a-14(a) Certification of Principal Executive Officer
	31.2	Rule 13a-14(a) Certification of Chief Financial Officer
	32.1	Rule 13a-14(b) Certification of Officers

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Oceanic Exploration Company
Date: March 13, 2010	/s/ Nicole J. Champine
	Nicole J. Champine — President

Date: March 13, 2010	/s/ Lori A. Brundage
	Lori A. Brundage — Chief Financial Officer

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OCEANIC EXPLORATION CO 10-Q