ZaZa Energy Corp - FORM 10-Q - November 12, 2014

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EXCEL - IDEA: XBRL DOCUMENT - ZaZa Energy Corp	Financial_Report.xls
EX-31.1 - EX-31.1 - ZaZa Energy Corp	a14-19896_1ex31d1.htm
EX-31.2 - EX-31.2 - ZaZa Energy Corp	a14-19896_1ex31d2.htm
EX-32.1 - EX-32.1 - ZaZa Energy Corp	a14-19896_1ex32d1.htm
EX-32.2 - EX-32.2 - ZaZa Energy Corp	a14-19896_1ex32d2.htm

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended: September 30, 2014

o 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		45-2986089
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification Number)

ZaZa Energy Corporation
1301 McKinney St Suite 2800
Houston, Texas 77010

(Address of principal executive office)

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

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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. (check one):

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

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

As of October 31, 2014, there were 12,141,106 shares of common stock, par value $0.01 per share, outstanding.

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ZAZA ENERGY CORPORATION

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)
	Consolidated Balance Sheets - September 30, 2014 and December 31, 2013	2
	Consolidated Statements of Operations and Comprehensive Income (Loss) - three and nine months ended September 30, 2014 and 2013	3
	Consolidated Statements of Changes in Stockholders’ Deficit - nine months ended September 30, 2014	4
	Consolidated Statements of Cash Flows - nine months ended September 30, 2014 and 2013	5
	Notes to Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4	Controls and Procedures	28

PART II - OTHER INFORMATION

Item 1	Legal Proceedings	29
Item 1A	Risk Factors	29
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3	Default Upon Senior Securities	29
Item 4	Mine Safety Disclosures	29
Item 5	Other Information	29
Item 6	Exhibits	29

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

ZAZA ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited) - (In thousands, except share data)

	September 30, 2014			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	11,811		$	15,186
Restricted cash	—			11,500
Accounts receivable	1,635			1,822
Income taxes receivable	183			—
Prepayments and other current assets	380			1,606
Total current assets	14,009			30,114

Property and equipment:
Oil and gas properties, successful efforts method	59,256			51,387
Furniture and fixtures	1,848			1,843
Total property and equipment	61,104			53,230
Accumulated depletion, depreciation and amortization	(12,455		)	(6,757		)
Property and equipment, net	48,649			46,473

Other assets	3,691			8,089
Deferred taxes	3,108			2,866

Total assets	$	69,457		$	87,542

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable - trade	$	278		$	755
Accrued liabilities	4,197			5,918
Deferred income taxes	3,108			2,866
Senior Secured Notes, net of discount	13,272			10,177
Income taxes payable	—			855
Total current liabilities	20,855			20,571

Long-term accrued liabilities	4,957			14,740
Asset retirement obligations	374			306
Long-term payable - related parties	4,128			4,128
Senior Secured Notes, net of discount	—			12,969
Convertible Senior Notes, net of discount	30,134			27,957
Subordinated Notes	47,330			47,330
Warrants	5,741			15,540
Embedded conversion options associated with Convertible Senior Notes	630			4,995
Quantum put option	11,000			—
Total liabilities	125,149			148,536
Commitments and contingencies (Note 12)

Stockholders’ deficit:
Common stock, $0.01 par value, 250,000,000 shares authorized; 12,141,106 and 10,760,295 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively	121			1,076
Additional paid-in capital	116,323			109,636
Accumulated deficit	(172,063		)	(171,613		)
Accumulated other comprehensive loss	(73		)	(93		)
Total stockholders’ deficit	(55,692		)	(60,994		)

Total liabilities and stockholders’ deficit	$	69,457		$	87,542

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

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ZAZA ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues:
Oil and gas revenues	$	2,689		$	1,102		$	9,454		$	6,266
Total revenues	2,689			1,102			9,454			6,266

Operating costs and expenses:
Lease operating expense	1,240			688			2,417			1,627
Depreciation, depletion, amortization, and accretion	2,028			259			5,739			2,550
Impairment of oil and gas properties	—			9,204			3,104			102,349
General and administrative	2,983			4,230			15,969			23,642
Loss (gain) on asset divestitures	—			829			(4,076		)	829
Total operating costs and expenses	6,251			15,210			23,153			130,997

Operating loss	(3,562		)	(14,108		)	(13,699		)	(124,731		)

Other expenses (income):
Foreign currency exchange (gain) loss	(49		)	15			(58		)	30
Loss on extinguishment of debt	51			405			2,033			16,568
Interest expense, net	3,504			3,491			10,579			10,378
Gain on fair value of warrants	(9,820		)	(1,350		)	(11,109		)	(19,772		)
Gain on fair value of embedded conversion options associated with Convertible Senior Notes	(3,535		)	(1,408		)	(4,365		)	(14,783		)
Total other expenses (income)	(9,849		)	1,153			(2,920		)	(7,579		)

Income (loss) from continuing operations before income taxes	6,287			(15,261		)	(10,779		)	(117,152		)
Income tax expense (benefit)	(3,835		)	5,387			(10,329		)	(35,445		)
Income (loss) from continuing operations	10,122			(20,648		)	(450		)	(81,707		)
Income from discontinued operations, net of taxes	—			17			—			50
Net income (loss)	$	10,122		$	(20,631	)	$	(450	)	$	(81,657	)

Basic income (loss) per share:
Continuing operations	$	0.91		$	(2.01	)	$	(0.04	)	$	(7.93	)
Discontinued operations	—			—			—			0.01
Total basic income (loss) per share	$	0.91		$	(2.01	)	$	(0.04	)	$	(7.92	)

Diluted income (loss) per share:
Continuing operations	$	0.83		$	(2.01	)	$	(0.04	)	$	(7.93	)
Discontinued operations	—			—			—			0.01
Total diluted income (loss) per share	$	0.83		$	(2.01	)	$	(0.04	)	$	(7.92	)

Weighted average shares outstanding:
Basic	11,114			10,272			10,756			10,307
Diluted	13,613			10,272			10,756			10,307

Consolidated Statement of Comprehensive Income (Loss)
Net income (loss)	$	10,122		$	(20,631	)	$	(450	)	$	(81,657	)
Foreign currency translation, net of taxes	(44		)	47			20			(110		)
Comprehensive income (loss)	$	10,078		$	(20,584	)	$	(430	)	$	(81,767	)

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

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ZAZA ENERGY CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

(In thousands)

										Accumulated
	Common				Additional					Other			Total
	Stock	Common			Paid-in		Accumulated			Comprehensive			Stockholders’
	(Shares)	Stock ($)			Capital		Deficit			Income (Loss)			Deficit

Balance at December 31, 2013	10,761	$	1,076		$	109,636	$	(171,613	)	$	(93	)	$	(60,994	)
Common stock issuance	602	60			3,122		—			—			3,182
Stock-based compensation	778	78			2,472		—			—			2,550
Reverse stock split adjustment	—	(1,093		)	1,093		—			—			—
Comprehensive income (loss)	—	—			—		(450		)	20			(430		)
Balance at September 30, 2014	12,141	$	121		$	116,323	$	(172,063	)	$	(73	)	$	(55,692	)

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

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ZAZA ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(450	)	$	(81,657	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion, amortization, and accretion	5,739			2,550
(Gain) loss on asset divestitures	(4,076		)	779
Loss on impairment of oil and gas properties	3,104			102,349
Deferred income taxes	(10,154		)	(35,636		)
Amortization of deferred debt issuance costs and discount	3,862			3,389
Loss on extinguishment of debt	1,644			16,247
Unrealized gain on value of warrants	(11,109		)	(19,772		)
Unrealized gain on value of embedded conversion option	(4,365		)	(14,783		)
Stock-based compensation expense	2,550			2,573
Changes in operating assets and liabilities:
Restricted cash	—			6,375
Accounts receivable	188			1,184
Prepayments and other assets	(510		)	(45		)
Accounts payable and accrued liabilities	(2,958		)	(9,515		)
Cash used in operating activities - continuing operations	(16,535		)	(25,962		)
Cash provided by operating activities - discontinued operations	—			50
Net cash used in operating activities	(16,535		)	(25,912		)

Cash flows from investing activities:
Release of restricted cash	11,500			—
Proceeds from divestitures	4,701			50,168
Additions to oil and gas properties	(5,684		)	(47,099		)
Cash provided by investing activities - continuing operations	10,517			3,069

Cash flows from financing activities:
Issuance of common stock and warrants	4,493			1,380
Payment of Senior Secured Notes	(12,870		)	(6,430		)
Quantum put option	11,000			—
Cash provided by (used in) financing activities - continuing operations	2,623			(5,050		)

Effects of foreign currency translation on cash and cash equivalents	20			(110		)
Net decrease in cash and cash equivalents	(3,375		)	(28,003		)
Cash and cash equivalents, beginning of period	15,186			34,649
Cash and cash equivalents, end of period	$	11,811		$	6,646

Supplemental disclosures:
Cash paid during the period for interest	$	7,845		$	7,289
Cash paid during the period for income taxes	$	855		$	2,363

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

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ZAZA ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

ZaZa Energy Corporation is an independent oil and gas company focused on the exploration and production of unconventional oil and gas assets. In this Quarterly Report on Form 10-Q, unless the context provides otherwise, the “Company”, “we”, “our”, “us” and like references refer to ZaZa Energy Corporation and its subsidiaries. We currently operate primarily through joint ventures in the Eaglebine trend in East Texas and the Eagle Ford trend in South Texas. Our common stock is traded on the NASDAQ Capital Market under the trading symbol ZAZA.

During interim periods, ZaZa follows the same accounting policies disclosed in its Annual Report on Form 10-K for the year ended December 31, 2013 (“Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”). The interim financial statements should be read in conjunction with the notes to the consolidated financial statements and information presented in the Form 10-K. In management’s opinion, the accompanying interim consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The results for any interim period are not necessarily indicative of the expected results for the entire year. All material intercompany accounts and transactions have been eliminated in consolidation.

On August 19, 2014, we completed a 1-for-10 reverse stock split of our outstanding common stock. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented. In addition, we filed a Certificate of Amendment to the Company’s Restated Certificate of Incorporation, which provides that our authorized capital stock remains 250 million shares of common stock, $0.01 par value per share following the reverse stock split.

East Texas Joint Venture with EOG

On March 21, 2013, we entered into a Joint Exploration and Development Agreement (the “JEDA”) with EOG Resources, Inc. (“our counterparty”) for the joint development of certain of our East Texas properties located in Walker, Grimes, Madison, Trinity, and Montgomery Counties, Texas. As of September 30, 2014, approximately 144,000 net JV acres in East Texas were subject to this agreement and its subsequent amendments. Our counterparty acts as the operator, has paid us certain cash amounts, bears 100% of the drilling and completion costs of certain specified wells, and pays a portion of our share of any additional seismic or well costs in order to earn its interest in these properties. Generally, ZaZa has retained a 25% working interest and our counterparty has earned a 75% working interest in the acreage. This joint development was divided into three phases.

The first phase commenced on April 2, 2013 and has been completed. In this phase, we transferred approximately 20,000 net acres to our counterparty in exchange for a cash payment by our counterparty to us of $10 million and an obligation of our counterparty to drill and pay 100% of the drilling and completion costs of three wells, the last of which was completed on December 20, 2013.

On September 25, 2013, ZaZa and its counterparty amended and restated the JEDA, which resulted in the following transactions being closed on October 15, 2013:

· Phase II Acceleration. Our counterparty accelerated Phase II of the joint venture, and we assigned approximately 20,000 net acres to our counterparty in exchange for (i) cash consideration of $17 million and (ii) approximately $3 million of interests (based on an independent reserves report) in 15 producing wells of our counterparty located outside of the Area of Mutual Interest or “AMI” (established by the JEDA). Also, during Phase II, our counterparty agreed to drill two horizontal wells and one vertical well in the parties’ AMI, carry ZaZa’s interests in those wells and provide a miscellaneous work and land carry of up to $1.25 million. On August 7, 2014, we announced that our counterparty had completed drilling the second well that was required to be drilled as part of Phase II of the joint development program. The third and final Phase II well has reached target depth and is in the process of being recompleted.

· Phase III Acceleration. ZaZa assigned approximately 7,800 net acres from the former Phase III acreage for which ZaZa received approximately $11 million of interests (based on an independent reserves report) in the 15 producing wells of our counterparty (part of Phase II and referenced above). In addition, our counterparty was given the option, until January 31, 2014, to acquire an interest in the remaining approximately 12,300 former Phase III net acres from ZaZa. As described below, our counterparty elected to acquire an interest in all of the remaining Phase III net acres.

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· Exchange of Leases and Wells. Our counterparty acquired approximately 19,000 additional net acres and interests in related wells in the parties’ Area of Mutual Interest, and assigned to ZaZa a 25% interest in the interests acquired by the counterparty in these leases and wells. In consideration for ZaZa’s participation in our counterparty’s leases and producing wells, ZaZa assigned to our counterparty approximately 13,875 additional net acres and paid approximately $700,000 in cash.

On March 7, 2014, ZaZa entered into a further amendment to the JEDA pursuant to which we agreed to assign to the counterparty approximately 9,600 net acres, which represents a 75% working interest in our remaining Phase III acreage, in exchange for cash consideration of approximately $4.7 million and the carry by the counterparty of our share of future drilling and completion costs in an aggregate amount up to approximately $9.2 million. Additionally, the counterparty committed to drill two additional test wells, the first of which was spud in September 2014.

Also pursuant to the amendment and effective March 7, 2014, we and our counterparty agreed to terminate that certain Participation Agreement, effective as of March 1, 2012, by and between the Company and Range Texas Production, LLC (“Range”) (such agreement, as amended, the “Range Agreement”). Range’s rights and obligations under the Range Agreement were assigned to, and assumed by, the counterparty pursuant to that certain Quitclaim Assignment and Bill of Sale, effective as of December 1, 2013, by and between Range and the counterparty. The Range Agreement provided for the joint development by Range and the Company of oil and gas leases in the Eaglebine trend. The joint development of such leases will now be governed by the JEDA.

East Texas Joint Venture with Quantum

On September 18, 2014, ZaZa and an affiliate of Quantum Energy Partners (“Quantum”) closed the Purchase and Sale Agreement originally entered into on August 21, 2014 (the “Quantum Purchase and Sale Agreement”). The Quantum Purchase and Sale Agreement was amended by Amendment No. 1 to Quantum Purchase and Sale Agreement, dated September 16, 2014 (“Quantum Amendment No.1”), to allow Quantum to assign its rights under the Purchase and Sale Agreement to a different affiliate and to address other technical matters. The Company also entered into an East Texas Development Agreement, dated September 18, 2014, by and between ZaZa and Quantum (the “Quantum Development Agreement”). The Quantum Development Agreement establishes an area of mutual interest for future acreage acquisitions in Walker, Grimes, Madison, Trinity and Houston counties in Texas. The Quantum Purchase and Sale Agreement, Quantum Amendment No.1 and the Quantum Development Agreement are collectively referred to as the “Quantum Agreements”. Pursuant to the terms of the Quantum Agreements:

· ZaZa assigned to Quantum an approximately 4 percent working interest (6,000 of ZaZa’s net acres) in undeveloped leases within ZaZa’s East Texas JV. ZaZa retained its interest in all existing wells in the East Texas JV and is reserving the right to participate with respect to Quantum’s working interest in the next 15 East Texas JV wells that are spudded, drilled and completed after the closing of the Quantum transaction, as long as those wells are spudded, drilled and completed on or before the second anniversary of the closing of the transaction (the “Reserved Wells”).

· ZaZa received $11 million in cash as initial consideration.

· ZaZa will receive ongoing G&A and cost reimbursements from Quantum for providing services related to their jointly owned assets in Walker, Grimes, Madison, Trinity, and Houston counties.

· Quantum has the right to cause ZaZa to purchase Quantum’s interest in the jointly owned assets on an all or nothing basis for a cash price based on Quantum’s initial consideration paid of $11 million plus any out-of-pocket cost of acquiring and renewing leases under the Quantum Agreements on September 17, 2016 (the “Quantum Put Option”).

Following the closing of these Quantum Agreements, ZaZa’s East Texas acreage holdings comprise two separate development areas, each with different operators and ownership structures:

· Southern Development Area (Madison, Walker, and Grimes counties). The Southern Development Area comprises approximately 144,000 acres and is operated by EOG Resources, Inc. ZaZa holds a 20.8% working interest, or approximately 30,000 net acres and Quantum holds a 4.2% working interest, or 6,000 net acres in this area. During the next two years, ZaZa has the option to participate for both its and Quantum’s working interest—for a total of a 25% working interest to ZaZa—in the next 15 wells drilled within the Southern Development Area. ZaZa also retained its full 25% working interest in all wells spudded prior to the closing of the Quantum Agreements.

· Northern Development Areas (Houston, Trinity, and Leon counties). The Northern Development Areas comprise over 10,000 net acres and is operated and owned 100% by ZaZa. This acreage is not subject to the Quantum Agreements. Through the remainder of 2014 ZaZa will be preparing the acreage block in Houston and Trinity counties to be drill ready from a unit formation perspective, and the Company’s leasing is now focused on contiguous acreage additions.

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Working interests in 6,000 net acres were sold and assigned to Quantum on September 18, 2014. US Generally Accepted Accounting Principles (“GAAP”) prevents sale accounting due to the Quantum put option. Accordingly, the related oil and gas properties continue to be included on ZaZa’s consolidated balance sheet, and we created a liability, the Quantum put option, equal to Quantum’s initial cash payment of $11 million. Quantum’s out of pocket costs that are incurred subsequent to the initial $11 million will be disclosed as contingent liabilities and recorded as additional liability when and if payment becomes probable. The Quantum transaction did not have any impact on revenue, income from continuing operations, net income, or income per share.

South Texas Joint Venture with Sabine

On September 17, 2013, ZaZa entered into an agreement with Sabine South Texas LLC (“Sabine”), a subsidiary of Sabine Oil & Gas LLC, for the joint development of a prospect in the Eagle Ford shale formation located in Lavaca and DeWitt Counties, Texas. Under this agreement, Sabine agreed to jointly develop with us up to approximately 7,600 net acres that we owned and that comprised a portion of our interest in South Texas. Sabine agreed to bear 100% of the drilling and completion costs of two commitment wells and up to $750,000 of construction costs related to gathering and infrastructure in order to earn a 75% working interest in 7,600 acres in the “Sweet Home Prospect,” which is in DeWitt and Lavaca Counties, and a well that we refer to as the “Boening well.” Sabine also agreed to carry up to $300,000 of ZaZa’s expenses related to the extension and renewal of certain leases in the Sweet Home Prospect.

Sabine completed the first commitment well on February 14, 2014 and ZaZa transferred to Sabine a 75% working interest in approximately 3,200 net acres and the Boening well. Sabine completed the second commitment well on March 11, 2014, and ZaZa transferred to Sabine a 75% working interest in the remaining net acres. Participating interests in any additional wells drilled or lease acreage acquired in the Sweet Home prospect will be shared 75% by Sabine and 25% by ZaZa under an area of mutual interest that will expire on September 15, 2015 (assuming affirmative elections to participate in such lease acreage acquisition(s)).

Sale of Moulton Properties

On April 5, 2013 the Company closed a purchase and sale agreement and sold certain of its properties in the Eagle Ford trend located in Fayette, Gonzalez and Lavaca Counties, Texas, which we refer to as our Moulton properties, for approximately $9.2 million. Net proceeds from the sale, after closing purchase price adjustments and expenses were approximately $8.8 million. We used approximately $4.6 million of the proceeds to pay down our 10.00% Senior Secured Notes due 2017 (the “Senior Secured Notes”).

We also entered into an agreement on June 27, 2013 to sell approximately 10,000 net acres of our properties in the Eagle Ford trend located in Fayette, Gonzalez and Lavaca Counties, Texas, including seven producing wells located on the Moulton properties, for approximately $28.8 million. We closed this transaction on July 26, 2013 and received cash proceeds of $29.3 million. We used approximately $1.8 million of the proceeds to pay down our Senior Secured Notes.

Crede Securities Purchase Agreement

On July 21, 2014, we entered into a Securities Purchase Agreement (the “Crede Securities Purchase Agreement”) with Crede CG III, Ltd. (“Crede”). Under the terms of the Crede Securities Purchase Agreement, the Company sold and issued to Crede 602,410 shares of common stock, at $8.30 per share, and warrants to purchase 361,493 shares of Common Stock with an exercise price of $11.2036 for no additional consideration (the “2019 Warrants”). Net proceeds of the offering, after expenses, were approximately $4.5 million.

We estimated the 2019 Warrants’ fair value at issuance was approximately $1.3 million and in accordance with US GAAP allocated the remaining residual amount of $3.2 million, calculated as the difference between the $4.5 million net proceeds and the $1.3 million fair value attributed to the 2019 Warrants, to common stock and additional paid-in capital.

On October 21, 2014, Crede attempted to exchange warrants received in the first investment for 1,422,908 shares of common stock. The Company believes the contractual provisions of the 2019 Warrants limit their exchange to a maximum of 361,493 shares of common stock. Because the Company and Crede were unable to agree upon an interpretation of the contractual provisions in the 2019 Warrants with respect to the number of shares of common stock into which the 2019 Warrants could be exchanged, the Company filed suit on November 4, 2014 in the United States District Court for the Southern District of New York requesting a declaratory judgment that the 2019 Warrants are exchangeable for a maximum of 361,493 shares of common stock.

According to the Crede Securities Purchase Agreement, a second investment of $2.5 million was scheduled to close on October 20, 2014. As a result of a dispute between ZaZa and Crede related to whether the conditions to the second closing had been satisfied, this second investment did not occur and the Company does not expect for it to occur.

NOTE 2 — GOING CONCERN

Our independent registered public accounting firm for the year ended December 31, 2013 issued their report dated March 31, 2014, 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 dependency on the success of our 2014 drilling program with our joint-venture partners to generate sufficient cash flows to maintain positive liquidity. These conditions continue to be present as of September 30, 2014.

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Beginning on February 21, 2015, the holders of the Senior Secured Notes may require us to purchase all or a portion of the 10% Senior Secured Notes due 2017 at a price equal to the principal amount of the Senior Secured Notes to be purchased, plus any accrued and unpaid interest on such notes. Accordingly, we have classified the outstanding amount of Senior Secured Notes of $13.3 million with a principal amount of $13.9 million as a current liability. Without access to additional liquidity, we will not be able to fund our commitments to the holders of the Senior Secured Notes if they require us to purchase all or a portion of the Senior Secured Notes and we will be in default under the Senior Secured Notes. If this default occurs, we will be unable to continue as a going concern.

As of September 30, 2014, we had $11.8 million in cash and cash equivalents and working capital deficit of $6.8 million. Over the next six months, we intend to fund cash general and administrative expenses, cash interest payments, and capital expenditures from cash currently on hand of $11.8 million and net cash flows from operations, if any. We do not currently generate sufficient cash flows to maintain positive liquidity to fund operating and debt service requirements throughout the next six months.

These matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s Board of Directors and management team continue to take steps to try to strengthen the Company’s balance sheet. We intend to attempt to access the capital markets by issuing equity and debt securities, among others, to fund our cash needs. Any decision regarding a financing transaction, and our ability to complete such a transaction, will depend on prevailing market conditions and other factors. No assurances can be given that such transactions can be consummated on terms that are acceptable to the Company, or at all.

NOTE 3 — 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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

The Company derives its oil and gas revenue primarily from the sale of produced oil and gas. 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, which have historically been and currently continue to be immaterial, 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 over-delivered or under-delivered. 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.

Successful Efforts Method of Accounting for Oil and Gas Activities

The Company accounts for its oil and gas 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 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 reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved 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 analyzed on a property-by-property basis for any impairment in value. If the unproved properties are determined to be productive, the appropriate related costs are transferred to proved oil and gas properties.

The Company’s third party engineers estimate proved oil and gas reserves, which directly impact financial accounting estimates, including depreciation, depletion, and amortization and impairment considerations. Our proved reserves represent estimated quantities of oil and condensate, natural gas liquids and gas that geological and engineering data demonstrate, with reasonable certainty, 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.

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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 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.

Unit-of-production rates are revised whenever there is an indication of a need, but at least annually. When circumstances indicate that an asset may be impaired, the Company compares expected undiscounted future cash flows at a producing field level to the net book value 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 net book value, 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.

Income Taxes

Deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to the differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted change.

The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. Management periodically assesses, by tax jurisdiction, the probability of recovery of recorded deferred tax assets based on its assessment of future earnings estimates. The Company considers estimates of future production, commodity prices and expenditures, and future taxable income in determining the need for a valuation allowance. Such estimates are inherently imprecise since many assumptions utilized in the assessments are subject to revision in the future. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. In the event we were to determine that it is more likely than not that we will be unable to realize all or part of our deferred tax assets in the future, we would increase the valuation allowance and recognize a corresponding charge to earnings and comprehensive income in the period in which we make such a determination. Likewise, if we later determine that we are more likely than not to realize the deferred tax assets, we would reverse the applicable portion of the previously recognized valuation allowance. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in the tax jurisdictions in which the deferred tax assets are located.

The Company is required to make judgments, including estimating reserves for potential adverse outcomes regarding tax positions that the Company has taken. The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return. Determining the income tax expense for potential assessments and recording the related effects requires management judgments and estimates. The amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows.

Income (Loss) Per Common Share

Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period.

Diluted income (loss) per share reflects the potential dilutive effect of unvested share-based payments, warrants and debt instruments that can be converted into common stock. We use the treasury stock method to compute potential common shares from unvested share-based payments and warrants and the if-converted method to compute potential common shares from convertible notes. When a net loss occurs, potential common shares have an anti-dilutive effect on loss per share and are excluded from the diluted loss per share calculations.

Recent Accounting Standards

In April 2014, the FASB issued ASU 2014-08, which raised the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other material disposal transactions that do not meet the revised definition of discontinued operations. Under the updated standard, a disposal of a component or group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component or group of components of the entity (1) has been disposed of by a sale, (2) has been disposed of other than by sale or (3) is classified as held for sale. This accounting standards update is effective for annual periods beginning on or after December 15, 2014 and is applied prospectively. Early adoption is permitted but only for disposals (or classifications that are held for sale) that have not been reported in financial statements previously issued or available for use. We adopted the new standard for our fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2014. The adoption of this had no impact on our financial position, results of operations or cash flows.

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In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective beginning in fiscal year 2017 and can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the effect that adopting this guidance will have on its financial position, results of operations or cash flows.

In June 2014, the FASB issued ASU No. 2014-12, “Compensation — Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force),” (“ASU 2014-12”), which amends current guidance for stock compensation tied to performance targets. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. ASU 2014-12 will be effective for interim and annual periods beginning after December 15, 2015 with early adoption permitted. The adoption of ASU 2014-12 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures in the financial statement footnotes. ASU 2014-15 will be effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted. We are currently evaluating the provisions of this ASU and assessing the impact, if any, it may have on our financial statement footnotes.

NOTE 4 — INCOME (LOSS) PER COMMON SHARE

The following table reconciles the numerators and denominators of the basic and diluted income (loss) per common share computation (in thousands, except per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014			2013
Basic income (loss) per share:
Numerator:
Income (loss) from continuing operations	$	10,122	$	(20,648	)	$	(450	)	$	(81,707	)
Income from discontinued operations, net of tax	—		17			—			50
Net income (loss)	$	10,122	$	(20,631	)	$	(450	)	$	(81,657	)

Denominator:
Weighted average common shares outstanding	11,114		10,272			10,756			10,307

Basic income (loss) per share:
Continuing operations	$	0.91	$	(2.01	)	$	(0.04	)	$	(7.93	)
Discontinued operations	—		—			—			0.01
Total basic income (loss) per share	$	0.91	$	(2.01	)	$	(0.04	)	$	(7.92	)

Diluted income (loss) per share:
Numerator:
Income (loss) from continuing operations	$	10,122	$	(20,648	)	$	(450	)	$	(81,707	)
Impact of conversions on interest expense, net of tax	1,144		—			—			—
	11,266		(20,648		)	(450		)	(81,707		)
Income from discontinued operations, net of tax	—		17			—			50
Net income (loss)	$	11,266	$	(20,631	)	$	(450	)	$	(81,657	)

Denominator:
Weighted average common shares outstanding	11,114		10,272			10,756			10,307
Unvested restricted stock	883		—			—			—
Net option shares issued under treasury stock method	16		—			—			—
Weighted average shares associated with convertible debt	1,600		—			—			—
Weighted average diluted common shares outstanding	13,613		10,272			10,756			10,307

Diluted income (loss) per share:
Continuing operations	$	0.83	$	(2.01	)	$	(0.04	)	$	(7.93	)
Discontinued operations	—		—			—			0.01
Total diluted income (loss) per share	$	0.83	$	(2.01	)	$	(0.04	)	$	(7.92	)

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For the three months ended September 30, 2014, the calculations of diluted income per common share included the dilutive effects attributable to the following: (a) 0.3 million options, (b) 0.9 million unvested restricted common stock outstanding, (c) 1.6 million common equivalent shares from the embedded convertible options associated with the Convertible Senior Notes. The anti-dilutive effects attributable to following were not included for the three months ended September 30, 2014: (a) 3.3 million warrants which had exercise prices exceeding the average market price for the period.

For the nine months ended September 30, 2014, the calculations of basic and diluted loss per common share were the same as we did not include the anti-dilutive effects attributable to the following: (a) 0.3 million options, (b) 0.9 million unvested restricted common stock outstanding, (c) 1.6 million common equivalent shares from the embedded convertible options associated with the Convertible Senior Notes, and (d) 3.3 million warrants.

For the three and nine months ended September 30, 2013, the calculations of basic and diluted loss per common share were the same as we did not include the anti-dilutive effects attributable to the following: (a) 2.7 million warrants, (b) 1.6 million common equivalent shares from the embedded convertible options associated with the Convertible Senior Notes, and (c) 0.3 million unvested restricted common stock outstanding.

NOTE 5 —INCOME TAXES

We are subject to income taxes primarily in the United States. The 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. We paid approximately $0.3 million in 2014 related to 2013 U.S. alternative minimum tax that had been previously accrued — though this was subsequently refunded in October 2014 with the filing of the final 2013 tax return. Additionally, we also paid approximately $0.6 million in 2014 related to 2013 Texas franchise taxes that had been previously accrued. We paid approximately $2.4 million in the second quarter of 2013 related to capital gains taxes from the wind up of our foreign subsidiaries that had been previously accrued.

We have approximately $120 million in gross net operating losses (“NOL”) that have been offset against our uncertain tax position as currently presented in our balance sheet. Furthermore as a result of the lack of positive evidence at the consolidated level, it is uncertain whether or when the Company will have enough taxable income to fully benefit from the NOL. Accordingly, we recorded a valuation allowance to offset a portion of the deferred tax assets.

The following table reconciles income tax expense (benefit) at the U.S. federal statutory rate to the expense (benefit) for income taxes (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013

Statutory tax at 35%	$	2,134		$	(5,358	)	$	(3,803	)	$	(41,020	)
Gain on warrants	(2,274		)	(473		)	(2,565		)	(3,109		)
Adjustments to valuation allowance	1,736			11,707			995			8,384
Return to accrual	(5,445		)	—			(5,445		)	—
Foreign rate differential and other	14			(489		)	489			300
Income tax expense (benefit)	$	(3,835	)	$	5,387		$	(10,329	)	$	(35,445	)

The Company has unrecognized tax benefits which currently exceed the net operating loss that is available for carryback and netted against the uncertain position, and as such, the Company is able to recognize this carryback amount up to the unrecognized tax benefit. As of September 30, 2014, the difference between the gross unrecognized tax benefits of $16.4 million and $5.0 million recorded on the balance sheet in long-term accrued liabilities (of which $4.2 million is related to unrecognized tax benefits) is due to $12.2 million available NOL that is netted against the uncertain tax position. As of December 31, 2013, the difference between the gross unrecognized tax benefits of $16.4 million and $14.7 million recorded on the balance sheet in long-term accrued liabilities (of which $14.3 million is related to unrecognized tax benefits) is due to $2.1 million available NOL that is netted against the uncertain tax position. The uncertain tax position is available to support recognition of a $12.2 million deferred tax asset as of September 30, 2014, an increase of $10.2 million, equal to the tax benefit for the nine months, from December 31, 2013.

The total amounts of interest and penalties recognized in the statement of operations and the total amounts of interest and penalties recognized in the statement of financial position are not material for the nine month periods ended September 30, 2014 and 2013. Amounts of income tax expense or benefit related to components of other comprehensive income, including reclassifications within other comprehensive income, are not material for the nine month periods ended September 30, 2014 and 2013.

NOTE 6 — FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The guidance requires disclosure that establishes a framework for measuring fair value expands disclosure about fair value measurements and requires that fair value measurements be classified and disclosed in one of the following categories:

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Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that we value using observable market data. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable data or supported by observable levels at which transactions are executed in the market place.

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). Our valuation models for derivative contracts are primarily industry-standard models that consider various inputs including: (a) quoted forward prices for commodities, (b) time value, (c) volatility factors, (d) counterparty credit risk and (e) current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Level 3 instruments primarily include warrants, embedded conversion options and debt. Although we utilize third-party broker quotes to assess the reasonableness of our prices and valuation techniques, we do not have sufficient corroborating market evidence to support classifying these assets and liabilities as Level 2.

The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, and accounts payable approximate fair value, due to the short-term nature or maturity of the instruments.

The Senior Secured Notes and Subordinated Notes were valued under the income approach using discounted cash flows. The Convertible Senior Notes and embedded conversion option were valued using a Binomial Lattice Model designed to capture incremental value attributed to the conversion options in addition to the value of the note. The warrants issued in association with the Senior Secured Notes (the “2020 Warrants”) were valued as written call options using a Binomial Lattice Model. The 2019 Warrants were valued using a weighted probability allocation between a Binomial Lattice Model and Black Scholes Option Pricing Model.

Cash flows were discounted utilizing the US Treasury rate and our credit spread to estimate the appropriate risk adjusted rate. A Binomial Lattice Model was used to estimate our credit spread by solving for a premium to the US Treasury rate that produces a value of the Convertible Senior Notes. The fair value measurements are considered Level 3 measurements within the fair value hierarchy.

The following tables summarize the valuation of our liabilities measured on a recurring basis at levels of fair value at September 30, 2014 and December 31, 2013 (in thousands):

	Fair Value Measurement using
	(Level 1)		(Level 2)		(Level 3)		Total
At September 30, 2014
Warrants (A)	$	—	$	—	$	5,741	$	5,741
Embedded conversion options	—		—		630		630
Total	$	—	$	—	$	6,371	$	6,371

	Fair Value Measurement using
	(Level 1)		(Level 2)		(Level 3)		Total
At December 31, 2013
Warrants	$	—	$	—	$	15,540	$	15,540
Embedded conversion options	—		—		4,995		4,995
Total	$	—	$	—	$	20,535	$	20,535

(A) Included within the warrants are the 2019 Warrants which were valued at $1.3 million as of September 30, 2014, and were based on them being exchanged for a maximum of 361,493 shares of common stock. For further information regarding the Crede matter relating to the 2019 Warrants, see Note 1 — Basis of Presentation - Crede Securities Purchase Agreement.

The following is a reconciliation of changes in fair value of our liabilities classified as Level 3 during the nine months ended September 30, 2014 and 2013 (in thousands):

	Nine Months Ended September 30,
	2014			2013
Balance at beginning of period	$	20,535		$	49,425
Issuance of warrants (A)	1,310			—
Amendment to warrant agreement	—			10,890
Unrealized gain on warrants included in earnings	(11,109		)	(19,772		)
Unrealized gain on embedded conversion option included in earnings	(4,365		)	(14,783		)
Balance at end of period	$	6,371		$	25,760

(A) For further information regarding the Crede matter relating to the 2019 Warrants, see Note 1 — Basis of Presentation - Crede Securities Purchase Agreement.

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On September 30, 2014, the Senior Secured Notes, which had a book value of $13.3 million (net of unamortized discount of $0.6 million), had a fair value of approximately $13.7 million. An increase in the credit spread by 500 basis points results in a $0.2 million decrease in the fair value of the note.

On September 30, 2014, the Convertible Senior Notes, which had a book value of $30.1 million (net of unamortized discount of $9.9 million), had a fair value of approximately $30.6 million. An increase in the credit spread by 500 basis points results in a $2.8 million decrease in the fair value of the note.

On September 30, 2014, Subordinated Notes, which had a book value of $47.3 million, had a fair value of approximately $32.1 million. An increase in the credit spread by 500 basis points results in a $3.0 million decrease in the fair value of the note.

As of September 30, 2014, an increase in the volatility by 5% results in a $0.5 million and $0.3 million increase in the fair values of the 2020 Warrants and embedded conversion option, respectively. The 2019 Warrants however were limited to a ceiling of $1.3 million at September 30, 2014 based on limitations as defined within the certificate of warrant with respect to the 2019 Warrants. Accordingly, an increase in the volatility by 5% results in no change to the 2019 Warrants fair value. However, as further described in Note 1 — Basis of Presentation - Crede Securities Purchase Agreement, Crede has requested 1,422,908 shares of common stock in exchange for the 2019 Warrants. The Company has filed suit against Crede seeking a declaratory judgment that Crede’s request exceeds the number of shares into which the 2019 Warrants can be exchanged, or 361,493 shares. If the Company is not successful in its suit against Crede and the Company must issue in excess of 361,493 shares of common stock to Crede, the fair value of the 2019 Warrants would increase with an increase in volatility.

NOTE 7 — IMPAIRMENT OF ASSETS

The Company reviews non-producing leasehold costs and proved oil and gas properties on a field-by-field basis for impairment when events or circumstances indicate a possible decline in the recoverability of the carrying value of such property. We compare the carrying value of the property to its estimated undiscounted future cash flows. If the carrying value of the property exceeds its estimated undiscounted future cash flows, the carrying value is reduced to its estimated fair value and any impairment is charged to expense in the period incurred. Fair value is estimated using comparable market data, a discounted future cash flow method, or a combination of the two. Significant Level 3 assumptions are used in the fair value determination and include management’s expectations of future production, commodity prices, operating and development costs, risk-adjusted discount rate and other relevant data.

In the first quarter of 2014, non-producing leasehold costs in South Texas with carrying values of $2.4 million were written down to their fair values of $0.8 million, resulting in pretax impairment charges of $1.6 million. The decline in fair value of these non-producing leases is driven by shorter remaining lease terms. There were no impairments in the first quarter of 2013.

In the second quarter of 2014, non-producing leasehold costs in South Texas with carrying values of $1.5 million were written down to their fair value of zero, resulting in pretax impairment charges of $1.5 million. The decline in fair value of these non-producing leases is driven by the expiration of existing leases in South Texas.

In the second quarter of 2013, non-producing leasehold costs and producing oil and gas properties with combined carrying values of $145.5 million were written down to their fair values of $52.4 million, resulting in pretax impairment charges of $93.1 million. Included in the $93.1 million non-cash impairment charge were non-producing leasehold cost impairments of $56.9 million and producing oil and gas properties impairments of $36.2 million. The impairments of producing oil and gas properties related to one well in South Texas and two wells in East Texas.

In the third quarter of 2014 there was no impairment of assets.

In the third quarter of 2013, non-producing leasehold costs with carrying values of $13.1 million were written down to their fair values of $4.1 million. Additionally, we wrote down the carrying value of our inventory by $0.2 million. This resulted in pre-tax impairment charges totaling $9.2 million. The decline in fair value of the non-producing leases was driven by the expiration of leases in South Texas.

NOTE 8 — ASSET RETIREMENT OBLIGATIONS

The following table summarizes the changes in our asset retirement liability during the nine months ended September 30, 2014 and 2013 (in thousands):

	Nine Months Ended September 30,
	2014			2013

Asset retirement obligations at beginning of period	$	306		$	130
Obligations incurred	18			197
Revisions	11			157
Accretion expense	41			19
Obligations extinguished	(2		)	(119		)
Asset retirement obligations at the end of period	$	374		$	384

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NOTE 9 — LONG-TERM DEBT

Our long-term debt includes Senior Secured Notes, Convertible Senior Notes, and Subordinated Notes. The fair market values of debt, warrants associated with the Senior Secured Notes and embedded conversion option associated with Convertible Senior Notes are disclosed in “Note 6 — Fair Value Measurement”. At September 30, 2014 and December 31, 2013, gross debt issuance costs were $2.5 million and $2.5 million, and accumulated amortization was $0.8 million and $0.5 million, respectively. The costs are being amortized over the life of the associated debt.

Our long-term debt consisted of the following (in thousands):

	September 30,			December 31,
	2014			2013

Senior Secured Notes, net of discount (1)	$	13,272		$	23,146
Convertible Senior Notes, net of discount (2)	30,134			27,957
Subordinated Notes	47,330			47,330
Total debt	90,736			98,433
Less: current portion (3)	(13,272		)	(10,177		)
Total long-term debt	$	77,464		$	88,256

(1) The Senior Secured Notes original issuance discount is amortized to the principal amount through the date of the first put right on February 21, 2015 using the effective interest rate method and a rate of 21.5%.

(2) The Convertible Senior Notes original issuance discount is amortized to the principal amount through maturity on August 1, 2017 using the effective interest rate method and a rate of 17.7%.

(3) We classified $13.3 million of our Senior Secured Notes as current as of September 30, 2014 pursuant to the Securities Purchase Agreement described below, which gives the holders of the Senior Secured Notes the right to require us to purchase all or a portion of the Senior Secured Notes beginning February 21, 2015. We classified $10.2 million of our Senior Secured Notes as current as of December 31, 2013 pursuant to Amendment No. 5 to the Securities and Purchase Agreement, which required the principal balance to be reduced to $15 million by February 28, 2014.

10.00% Senior Secured Notes due 2017 and 2020 Warrants

The Senior Secured Notes were issued under the Securities Purchase Agreement, dated February 21, 2012 (as amended, the “Securities Purchase Agreement”) and will mature on February 21, 2017. On February 6, 2014, we received $11.5 million from an escrow account as a result of a settlement of disputes with the Hess Corporation and these proceeds, combined with approximately $1.1 million of cash on hand, were used to reduce the outstanding aggregate principal amount of our Senior Secured Notes from $26.8 million to $15.0 million. On September 17, 2014, as part of the Quantum Agreements, we received $11 million in cash and used $1.1 million to reduce the outstanding principal amount on our Senior Secured Notes from $15.0 million to $13.9 million.

Subject to certain adjustments set forth in the Securities Purchase Agreement, interest on the Senior Notes accrues at 10% per annum as of March 1, 2014, payable quarterly in cash. Amendment No. 5 to the Securities Purchase Agreement, dated March 28, 2013 (“Amendment No. 5”), stated that the interest rate would increase from 8% per annum to 10% per annum effective March 1, 2014 if the Senior Notes were not prepaid to zero by February 28, 2014. The balance outstanding on the Senior Secured Notes was $15 million as of February 28, 2014 and therefore the interest rate increased to 10% per annum.

Pursuant to the Securities Purchase Agreement, the purchasers of our Senior Secured Notes were also issued the 2020 Warrants, which were originally exercisable for 26,315,789 shares of our common stock at an exercise price of $3.15 per share. Due to various transactions in prior periods having triggered anti-dilution adjustments in the 2020 Warrants and considering the impact of the reverse stock split, as of September 30, 2014, the number of outstanding shares of Common Stock represented by the 2020 Warrants is 2,982,065 with an exercise price of $18.21 per share.

At September 30, 2014 and December 31, 2013, the unamortized issuance discount related to Senior Secured Notes was $0.6 million and $3.6 million, respectively. The outstanding principal of the Senior Secured Notes was $13.9 million and $26.8 million at September 30, 2014 and December 31, 2013, respectively.

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Amendment No.5 was considered an extinguishment of debt. Accordingly, in the first quarter of 2013, for accounting purposes we extinguished the Senior Secured Notes and associated discounts and debt issuance costs of $33.2 million, $9.1 million and $1.2 million, respectively. We recognized a loss on extinguishment of debt of $15.1 million consisting of a loss from the modification of the terms of the 2020 Warrants of $10.9 million and a difference between the fair value and book value of debt of $4.2 million. We recorded the modified debt at its fair market value of $27.1 million, consisting of a principal amount of $33.2 million and discount of $6.1 million. Additionally, we recognized losses on the extinguishment of debt associated with prepayment penalties on the prepayment of principal on our Senior Secured Notes totaling approximately $2.0 and $1.5 million respectively in 2014 and 2013.

In anticipation of our independent registered public accounting firm for the year ended December 31, 2013 including in their report an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern as described in Note 2 — Going Concern, on March 14, 2014, the Company entered into Amendment No. 6 to the Securities Purchase Agreement, which amended the Securities Purchase Agreement to obtain relief from the “going concern” requirements for the Company’s fiscal year 2013 financial statements.

9.00% Convertible Senior Notes due 2017

The Company has $40,000,000 aggregate principal amount of Convertible Senior Notes. The Convertible Senior Notes are the senior, unsecured obligations of the Company, bear interest at a fixed rate of 9.0% per year, payable semiannually in arrears and mature August 1, 2017 unless earlier converted, redeemed or repurchased. The Convertible Senior Notes are convertible, at the option of the holder, at any time prior to the third trading day immediately preceding the maturity date, into shares of the Company’s common stock, par value $0.01 per share (the “Conversion Shares”), and cash in lieu of fractional shares of common stock. The reverse stock split adjusted conversion rate is 40.0052 shares per $1,000 Convertible Senior Notes which equated to an initial conversion price of $25.00 per share.

At September 30, 2014 and December 31, 2013, the unamortized issuance discount related to Convertible Senior Notes was $9.9 million and $12.0 million, respectively.

8.00% Subordinated Notes due 2017

In February 2012, we issued the Subordinated Notes in an aggregate amount of $47.33 million to Todd A. Brooks (President and Chief Executive Officer of the Company) and Blackstone Oil & Gas, LLC (an entity controlled by Mr. Brooks) (together, the “Brooks Note Holders”), (b) John E. Hearn, Jr. (a Director of the Company) and Lara Energy, Inc. (an entity controlled by Mr. Hearn) (together, the “Hearn Note Holders”) and (c) Gaston L. Kearby (a Director of the Company) and Omega Energy Corp. (an entity controlled by Mr. Kearby) (together, the “Kearby Note Holders,” and collectively with the Brooks Note Holders and the Hearn Note Holders, the “Subordinated Note Holders”). The Subordinated Notes accrue interest at a rate of 8% per annum payable monthly in cash, and mature on August 17, 2017.

On February 24, 2014, ZaZa entered into agreements (the “Subordinated Notes Exchange Agreements”) with the Subordinated Note Holders to exchange all $47.3 million in outstanding Subordinated Notes for a combination of shares of our common stock and a new series of perpetual preferred stock. Under the terms of the Subordinated Notes Exchange Agreements, in exchange for the $15.8 million in Subordinated Notes held collectively by each individual and the entity that he controls, the Company will issue (i) approximately 0.3 million shares of ZaZa common stock valued at $9.495 per share based on the volume weighted average split adjusted price per share for the ten trading days prior to February 24, 2014 and (ii) a new series of perpetual preferred stock with a liquidation preference of $12.8 million. If the conditions to the exchange are satisfied, the new series of perpetual preferred stock will be issued in the form of Series A Cumulative Redeemable Preferred Stock with a cash dividend rate of 13% per annum based on a liquidation preference of $25 per share. The exchange of the Subordinated Notes is conditional on extinguishing our Senior Secured Notes as the Senior Secured Notes prevent us from executing the exchange. We are currently uncertain as to when and if we are able to extinguish our Senior Secured Notes.

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Interest expense

For the three and nine months ended September 30, 2014 and 2013, interest expense consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014			2013

Interest expense on Senior Secured Notes	$	382	$	582	$	1,181		$	1,829
Interest expense on Convertible Senior Notes	900		900		2,700			2,700
Interest expense on Subordinated Notes	947		946		2,840			2,840
Amortization original issuance discount on Senior Secured Notes	415		295		1,351			1,091
Amortization of issuance costs on Senior Secured Notes	—		—		—			58
Amortization original issuance discount on Convertible Senior Notes	744		673		2,176			1,969
Amortization of issuance costs on Convertible Senior Notes	116		95		335			271
Other interest (income) expense, net	—		—		(4		)	(34		)
Capitalized interest	—		—		—			(346		)
Total interest expense, net	$	3,504	$	3,491	$	10,579		$	10,378

NOTE 10 — STOCK-BASED COMPENSATION

Long Term Incentive Plan (the “Plan”)

We currently have 2.3 million shares authorized for issuance under the Plan adopted in March 2012. On September 30, 2014, approximately 0.6 million shares were available for future grants under the Plan.

Stock-based compensation costs for the three and nine months ended September 30, 2014 were $0.8 million and $2.6 million, respectively. Stock-based compensation costs for the three and nine months ended September 30, 2013 were $0.6 million and $2.4 million, respectively.

The following table presents the changes in restricted stock awards pursuant to the Plan (in thousands except per share data):

			Weighted average
	Number		grant date		Intrinsic
	of shares		fair value per share		value
Unvested balance at December 31, 2013	231		$	16.90	$	3,898
Granted	843		6.98		5,880
Forfeited	(23	)	16.10		(361		)
Vested	(168	)	16.33		(2,745		)
Unvested balance at September 30, 2014	883		$	7.55	$	6,672

On September 30, 2014 and 2013, we had $6.1 million and $3.2 million, respectively, of total unrecognized compensation costs related to unvested awards which are expected to be recognized over a weighted average period of 2.5 years and 2.0 years, respectively.

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NOTE 11 — SEVERANCE COSTS

In May 2014, ZaZa announced the resignation of Ian H. Fay as Chief Financial Officer of the Company. In connection with Mr. Fay’s resignation, the Company recognized severance costs totaling approximately $2.8 million which are included in general and administrative expenses.

In April 2013, ZaZa announced a significant reduction in workforce and terminated approximately 37 employees and contractors, and closed offices in Corpus Christi and Dallas. In the second quarter of 2013, we recognized $3.9 million in severance expense and $0.7 million in onerous contracts for a total expense of $4.6 million included in general and administrative expenses.

As of September 30, 2014, we have reduced the accrual by a total of $4.9 million for severance payments made in 2013 and 2014. The remaining liability as of September 30, 2014 is $2.5 million of which $1.7 million is recorded in current accrued liabilities and $0.8 million is recorded in non-current accrued liabilities.

NOTE 12 — COMMITMENTS AND CONTINGENCIES

From time to time, we are named as a defendant in 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 such suit or claim would not have a material adverse effect on our financial position, results of operations or cash flows.

For information regarding the dispute with Crede surrounding the 2019 Warrants and the Crede Securities Purchase Agreement, see Note 1 — Basis of Presentation - Crede Securities Purchase Agreement.

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

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

Certain matters discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q may contain “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, including without limitation, statements and projections regarding the Company’s future financial position, operations, performance, business strategy, returns, budgets, reserves, levels of production and costs, statements regarding future commodity prices and statements regarding the plans and objectives of the Company’s management for future operations, are forward-looking statements. The Company’s forward looking statements are typically preceded by, followed by or include words such as “will,” “may,” “could,” “would,” “should,” “likely,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “goal,” “project,” “plan,” “intend” and similar words or expressions. The Company’s forward-looking statements are not guarantees of future performance and are only predictions and statements of the Company’s beliefs based on assumptions that may prove to be inaccurate. Forward-looking statements involve known, unknown or currently unforeseen risks and uncertainties that may be outside of the Company’s control and may cause the Company’s actual results and future developments to differ materially from those projected in, and contemplated by, such forward-looking statements. Risks, uncertainties and other factors that could cause the Company’s actual results to materially differ from the expectations reflected in the Company’s forward-looking statements include, without limitation, the following:

· our registered public accounting firm for the year ended December 31, 2013 expressing doubt about our ability to continue as a going concern;

· our ability to maintain sufficient liquidity and continue as a going concern;

· requirements to repurchase our 10.00% Senior Secured Notes due 2017 or our 9.00% Convertible Senior Notes due 2017;

· fluctuations in the prices for, and demand for, oil, natural gas and natural gas liquids;

· our substantial level of indebtedness;

· problems with our joint ventures or joint venture partners;

· our ability to raise necessary capital in the future;

· exploratory risks associated with new or emerging oil and gas formations;

· risks associated with drilling and operating wells;

· inaccuracies and limitations inherent in estimates of oil and gas reserves;

· our ability to replace oil and gas reserves;

· our ability to use net operating loss carryforwards;

· unavailability or high cost of oil and gas equipment, materials, supplies, services and personnel;

· our concentration in a single geographic area;

· uninsured losses from oil and gas operating risks;

· legislation and governmental regulations, including federal or state regulation of hydraulic fracturing;

· our dependency upon third-party gathering, transportation and processing facilities;

· our size relative to our peers;

· failures in our acquisition strategy or integration of our acquisitions;

· hurricanes and natural disasters; and

· access to water to conduct hydraulic fracturing.

In addition to these factors, important factors that could cause actual results to differ materially from our expectations, and specific risks involved with investing in our common stock, are disclosed under “Risk Factors” included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013 and Item 1A of Part II of this Quarterly Report on Form 10-Q and are incorporated by reference herein.

Any forward-looking statements made by the Company in this Quarterly Report are based only on information currently available to the Company and speak only as of the date on which they are made. The Company undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future developments or otherwise. Accordingly, you should not place any undue reliance on any of our forward-looking statements.

In an effort to provide investors with additional information regarding our results of operations, non-GAAP financial measures (adjusted general and administrative expenses) are provided. See Non-GAAP Financial Measures and Reconciliations in Results of Operations for an explanation of our use of non-GAAP financial measures and reconciliations to their corresponding measures calculated in accordance with GAAP.

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EXECUTIVE OVERVIEW

ZaZa Energy Corporation is an independent oil and gas company focused on the exploration and production of unconventional oil and gas assets. In this Quarterly Report on Form 10-Q, unless the context provides otherwise, “we”, “our”, “us” and like references refer to ZaZa Energy Corporation and its subsidiaries. We currently operate primarily through joint ventures in the Eaglebine trend in East Texas and the Eagle Ford trend in South Texas. Our common stock is traded on the NASDAQ Capital Market under the trading symbol ZAZA.

Our strategy is to enhance shareholder value through consistent growth in cash flows by focusing on the organic development of our existing assets within our core areas. We also look for opportunities to diversify and build upon our current portfolio through the acquisition of additional unconventional assets with a focus on Texas.

ZaZa owns producing and non-producing oil and gas acreage in proven or prospective basins that are located in South Texas and East Texas. Almost all of our assets are located within the United States. Except for an immaterial amount of cash held by our foreign subsidiaries, which we are in the process of dissolving, we have no assets or operations outside of the United States. In this Quarterly Report, our use of “East Texas” refers to Madison, Grimes, Walker, Trinity and Montgomery counties and the surrounding region; and our use of “South Texas” refers to DeWitt and Lavaca counties and the surrounding region.

Additionally, we have converted our natural gas reserves or production into barrel of oil equivalents in this Quarterly Report. For this purpose, six thousand cubic feet of natural gas is equal to one barrel of oil, which is based on the relative energy content of natural gas and oil.

Recent Developments

East Texas Joint Venture with EOG

On March 7, 2014, we entered into the Fourth Amendment (the “Fourth Amendment”) to our Joint Exploration and Development Agreement (as amended, the “JEDA”) with EOG Resources, Inc. (“our counterparty”) with respect to the joint development of certain of our East Texas properties. Under the Fourth Amendment, we agreed to assign to our counterparty approximately 9,600 net acres in East Texas representing a 75% working interest in the acreage remaining in the third and final phase of the joint development program under the JEDA. As consideration for this transfer, we received approximately $4.7 million in cash and the carry by our counterparty of our share of future drilling and completion costs in an aggregate amount up to approximately $9.2 million. Additionally, the counterparty committed to drill two additional test wells, the first of which was spud in September 2014.

Also pursuant to the Fourth Amendment and effective March 7, 2014, we and our counterparty agreed to terminate that certain Participation Agreement, effective as of March 1, 2012, by and between the Company and Range Texas Production, LLC (“Range”) (such agreement, as amended, the “Range Agreement”). Range’s rights and obligations under the Range Agreement were assigned to, and assumed by, our counterparty pursuant to that certain Quitclaim Assignment and Bill of Sale, effective as of December 1, 2013, by and between Range and our counterparty. The Range Agreement provided for the joint development by Range and the Company of oil and gas leases in the Eaglebine trend in East Texas. The joint development of such leases will now be governed by the JEDA.

On August 7, 2014, we announced that our counterparty had completed drilling the McAdams Cattle Company 1H horizontal well (“McAdams 1H”) in Walker County, Texas, the second well that was required to be drilled as part of Phase II of the joint development program. As previously reported, the well has achieved 24-hour peak production of approximately 1,786 boe/d (with NGLs) and 1,249 boe/d (without NGLs)—which includes 459 b/d of 49 API oil, 4,740 mcf/d of natural gas, and 569 NGL b/d)—from perforations along the lateral at 11,415-16,250 feet. The third and final Phase II well also has reached target depth and is in the process of being recompleted.

East Texas Joint Venture with Quantum

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· ZaZa received $11 million in cash and total consideration of approximately $17 million, consisting of both cash and ZaZa’s right to receive Quantum’s interest in the Reserved Wells.

· ZaZa will receive ongoing G&A and cost reimbursements from Quantum for providing services related to their jointly owned assets in Walker, Grimes, Madison, Trinity, and Houston counties.

Following the closing of these Quantum Agreements, ZaZa’s East Texas acreage holdings comprise two separate development areas, each with different operators and ownership structures:

South Texas Joint Venture with Sabine

In South Texas, our joint venture partner — Sabine South Texas LLC (“Sabine”), a subsidiary of Sabine Oil & Gas LLC completed two fully carried commitment wells during the first quarter. In exchange for Sabine fulfilling its obligations with respect to our South Texas joint venture, ZaZa transferred a 75% working interest in approximately 5,724 net acres and a well known as the Boening well. Participating interests in any additional wells drilled or lease acreage acquired under an area of mutual interest will be shared 75% by Sabine and 25% by ZaZa (assuming affirmative elections to participate in such lease acreage acquisition(s)). The area of mutual interest expires on September 15, 2015.

Balance Sheet Initiative

On September 18, 2014, ZaZa received $11 million in cash from our East Texas Joint Venture partner Quantum. We used $1.1 million to prepay the principal balance of our Senior Secured Notes from $15.0 million to $13.9 million. Approximately $2.9 million of the remaining proceeds will be used to fund our third horizontal development well in East Texas, the Colburn 3H that spud September 9, 2014.

On July 21, 2014, we entered into a $7.5 million capital markets transaction to fund future growth. The transaction includes two phases. The closing of the first phase on July 21, 2014 was for $4.5 million net proceeds in exchange for ZaZa common stock at a reverse split adjusted price of $8.30 per share. The first phase also included 0.6 warrants for every share of ZaZa common stock with a reverse split adjusted strike price of $11.2036 per share, a 35% premium to the July 17th reverse split adjusted closing price of our common stock. On October 21, 2014, Crede attempted to exchange warrants received in the first investment for 1,422,908 shares of common stock. The Company believes the contractual provisions of the 2019 Warrants limit their exchange to a maximum of 361,493 shares of common stock. Because the Company and Crede were unable to agree upon an interpretation of the contractual provisions in the 2019 Warrants with respect to the number of shares of common stock into which the 2019 Warrants could be exchanged, the Company filed suit on November 4, 2014 in the United States District Court for the Southern District of New York seeking a declaratory judgment that the 2019 Warrants are exchangeable for a maximum of 361,493 shares of common stock.

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On February 24, 2014, ZaZa entered into agreements (the “Subordinated Notes Exchange Agreements”) with Todd A. Brooks (President and Chief Executive Officer of the Company) and Blackstone Oil & Gas, LLC (an entity controlled by Mr. Brooks) (together, the “Brooks Note Holders”), (b) John E. Hearn, Jr. (a Director of the Company) and Lara Energy, Inc. (an entity controlled by Mr. Hearn) (together, the “Hearn Note Holders”) and (c) Gaston L. Kearby (a Director of the Company) and Omega Energy Corp. (an entity controlled by Mr. Kearby) (together, the “Kearby Note Holders,” and collectively with the Brooks Note Holders and the Hearn Note Holders, the “Subordinated Note Holders”). Under the terms of the Subordinated Notes Exchange Agreements, in exchange for the $15.8 million in Subordinated Notes held collectively by each individual and the entity that he controls, the Company will issue (i) approximately 0.3 million shares of ZaZa common stock valued at $9.495 per share based on the volume weighted average split adjusted price per share for the ten trading days prior to February 24, 2014 and (ii) a new series of perpetual preferred stock with a liquidation preference of $12.8 million. If the conditions to the exchange are satisfied, the new series of perpetual preferred stock will be issued in the form of Series A Cumulative Redeemable Preferred Stock with a cash dividend rate of 13% per annum based on a liquidation preference of $25 per share. The exchange of the Subordinated Notes is conditional on extinguishing our 10.00% Senior Secured Notes due 2017 (the “Senior Secured Notes”) as the Senior Secured Notes prevent us from executing the exchange. We are currently uncertain as to when and if we are able to extinguish our Senior Secured Notes as discussions are ongoing.

Financial Summary

For the three months ended September 30, 2014:

· Production was 54.8 MBOE of which 19.6 MBOE was oil production (36%).

· Revenues were $2.7 million.

· Operating losses were $3.6 million.

· Net income was $10.1 million.

For the nine months ended September 30, 2014:

· Production was 176.2 MBOE of which 69.3 MBOE was oil production (39%).

· Revenues were $9.5 million.

· Operating losses were $13.7 million, including $3.1 million of asset impairments.

· Net loss was $0.5 million.

At September 30, 2014, we had:

· Cash and cash equivalents of $11.8 million.

· Current ratio (current assets/current liabilities) of 0.67 to 1.

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RESULTS OF OPERATIONS

The following is a discussion of our consolidated results of operations, financial condition and capital resources. This discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q.

The following table presents our production, average prices obtained for our production and average production cost for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013

Production Volumes
Crude oil (Bbls)
South Texas	3,497		6,560		10,795		49,090
East Texas	16,063		1,089		58,470		2,519
Total	19,560		7,649		69,265		51,609
Natural gas (Mcf)
South Texas	39,653		34,562		142,281		109,396
East Texas	102,355		37,932		271,168		40,018
Total	142,008		72,494		413,449		149,414
Natural gas liquids (Bbls)
South Texas	4,499		2,602		9,969		10,489
East Texas	7,062		—		28,078		—
Total	11,561		2,602		38,047		10,489
Equivalents (BOE)
South Texas	14,605		14,922		44,478		77,812
East Texas	40,185		7,411		131,743		9,189
Total	54,790		22,333		176,221		87,001

Oil Average Sales Price ($/Bbl)
South Texas	$	90.06	$	101.44	$	93.59	$	105.09
East Texas	$	95.09	$	99.65	$	98.22	$	101.79
Total	$	94.19	$	101.18	$	97.50	$	104.93

Natural Gas Average Sales Price ($/Mcf)
South Texas	$	3.92	$	3.29	$	3.98	$	3.45
East Texas	$	3.62	$	3.60	$	4.03	$	3.60
Total	$	3.70	$	3.45	$	4.02	$	3.49

Natural Gas Liquids Average Sales Price ($/Bbl)
South Texas	$	27.96	$	30.20	$	30.05	$	31.39
East Texas	$	27.72	$	—	$	26.36	$	—
Total	$	27.81	$	30.20	$	27.33	$	31.39

Average Production Costs ($/BOE)
South Texas	$	18.88	$	16.19	$	11.65	$	14.75
East Texas	$	23.99	$	60.26	$	14.41	$	52.13
Total	$	22.63	$	30.81	$	13.71	$	18.70

Revenue

Oil and gas revenue

Oil and gas revenue for the three months ended September 30, 2014 and 2013 was $2.7 million and $1.1 million, respectively. This increase is primarily due to production increases from the acquisition of producing properties through the joint venture in East Texas ($1.8 million), partially offset by our divestment of non-core assets in South Texas ($0.2 million). Third quarter 2014 production of 54.8 MBOE was lower than second quarter 2014 production of 63.5 MBOE due to certain wells in East Texas that were temporarily shut-in for workovers.

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Oil and gas revenue for the nine months ended September 30, 2014 and 2013 was $9.5 million and $6.3 million, respectively. This increase is primarily due to production increases from the acquisition of producing properties through our joint venture in East Texas ($7.2 million), partially offset by production decreases from the divestment in 2013 of non-core assets in South Texas ($4.0 million).

The above table of production and average prices compares both volumes and prices received for our oil and gas production. The results of our operations are 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.

Operating costs and expenses

The following table presents our lease operating expense for the referenced geographical areas for the periods indicated (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013

South Texas	$	276	$	241	$	518	$	1,148
East Texas	964		447			1,899	479
Total	$	1,240	$	688	$	2,417	$	1,627

Lease operating expenses

Lease operating expenses were $1.2 million, or $22.63 per BOE produced, for the three months ended September 30, 2014, compared to $0.7 million, or $30.81 per BOE produced, for the three months ended September 30, 2013. This increase is primarily due to $0.5 million in operating expenses in East Texas from an increase in total wells versus prior year.

Lease operating expenses were $2.4 million, or $13.71 per BOE produced, for the nine months ended September 30, 2014, compared to $1.6 million, or $18.70 per BOE produced, for the nine months ended September 30, 2013. This increase is primarily due to the acquisition of producing properties through our joint venture in East Texas, $2.2 million, partially offset by decreases from the divestment in 2013 of non-core assets in South Texas (the Moulton properties), $0.6 million, and $0.8 million in operating expenses being paid by our joint venture partner in East Texas as part of the carries discussed above.

Depreciation, depletion, amortization, and accretion

Depreciation, depletion, amortization, and accretion for the three months ended September 30, 2014 and 2013 was $2.0 million and $0.3 million, respectively. This increase is primarily driven by higher production volumes offset partially by lower depletion rates.

Depreciation, depletion, amortization, and accretion for the nine months ended September 30, 2014 and 2013 was $5.7 million and $2.6 million, respectively. This increase is primarily driven by higher production volumes offset partially by lower depletion rates.

Impairments

In the first quarter of 2014, we recorded impairment charges of $1.6 million related to shorter remaining lease terms in South Texas. There were no impairments in the first quarter of 2013.

In the third quarter of 2014 there was no impairment of assets.

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General and administrative

General and administrative expense for the three months ended September 30, 2014 totaled $3.0 million compared to $4.2 million for the same period in 2013. This decrease of $1.2 million is primarily due to lower salaries and bonus expenses of $1.1 million.

General and administrative expense for the nine months ended September 30, 2014 totaled $16.0 million compared to $23.6 million for the same period in 2013. This decrease of $7.6 million is primarily due to lower professional fees of $3.8 million, lower salaries and bonus expenses of $1.4 million, lower severance expenses of $1.1 million, and lower office expenses of $1.0 million.

In April 2013, we initiated a cost reduction plan and set a goal to reduce G&A by 35%. We successfully completed this transition process in the second quarter of 2014 and achieved reductions in adjusted G&A (see Non-GAAP Financial Measures and Reconciliation) of 60%, in headcount of 47% and in guaranteed executive compensation of $3.5 million when comparing the third quarter of 2014 to the first quarter of 2013. Adjusted G&A for the third quarter was $2.8 million, a decrease of $1.1 million, or 28%, compared to the third quarter of 2013. The difference between adjusted G&A of $2.8 million and reported GAAP G&A of $3.0 million are non-cash compensation expenses of $0.2 million. Adjusted G&A is a non-GAAP measure — please see our reconciliation of Adjusted G&A to GAAP G&A below under “Non-GAAP Financial Measures and Reconciliation”.

Gain (loss) on asset divestitures

In the first quarter of 2014, we recorded a gain on asset divestitures totaling $4.1 million related to the Fourth Amendment to the East Texas joint venture with EOG. In the third quarter of 2013, we recorded a loss on asset divestitures totaling $0.8 million related to the sale of the Moulton properties.

Other expenses

Loss on extinguishment of debt

Loss on extinguishment of debt for the three months ended September 30, 2014 and 2013 was $51 thousand and $0.4 million, respectively. The loss for the three months ended September 30, 2014 related to a prepayment of our Senior Secured Notes from a principal amount of $15.0 million to $13.9 million resulting in a $51 thousand write-off of the original issuance discount. The loss for the three months ended September 30, 2013 related to a prepayment of our Senior Secured Notes from a principal amount of $28.6 million to $26.8 million resulting in a $0.3 million write-off of the original issuance discount and $0.1 million in prepayment fees.

Loss on extinguishment of debt for the nine months ended September 30, 2014 and 2013 was $2.0 million and $16.6 million, respectively. The loss for the nine months ended September 30, 2014 related to prepayments of our Senior Secured Notes from a principal amount of $26.8 million to $13.9 million resulting in a $1.6 million write-off of the original issuance discount and $0.4 million in prepayment fees. The loss for the nine months ended September 30, 2013 primarily related to an amendment to the Senior Secured Notes dated March 28, 2013 that triggered debt extinguishment accounting treatment. It consisted of a $10.9 million loss from the modification of the terms of our 2020 warrants and a difference between the fair value and book value of debt of $4.2 million. The remaining $1.5 million loss is related to prepayments of our Senior Secured Notes resulting in a $1.2 million write-off of the original issuance discount and $0.3 million in prepayment fees.

Interest expenses, net

For the three months ended September 30, 2014 and 2013, we recorded $3.5 million and $3.5 million, respectively, in net interest expense. Lower outstanding principal in 2014 resulted in lower interest expense but was fully offset by higher amortization expense on issuance discounts.

For the nine months ended September 30, 2014 and 2013, we recorded $10.6 million and $10.4 million, respectively, in net interest expense. Lower outstanding principal in 2014 resulted in lower interest expense but was fully offset by higher amortization expense on issuance discounts. Additionally, $0.3 million in interest was capitalized in 2013 versus zero in 2014 contributing to the difference year over year.

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Gain (loss) on valuation of warrants and embedded derivatives

We recorded a gain in fair value of the 2020 Warrants of $9.8 million for the three months ended September 30, 2014 versus a gain of $1.4 million for the three months ended September 30, 2013. Additionally, we recorded a gain in fair value of the embedded derivatives associated with our Convertible Senior Notes of $3.5 million for the three months ended September 30, 2014 versus a gain of $1.4 million for the three months ended September 30, 2013. The variances are mainly a result of decreases in our stock price and shorter remaining duration of the instruments. We initially recorded the fair value of the 2019 Warrants at issuance on July 21, 2014 as a liability of $1.3 million and subsequently recorded no change in fair value for the three months ended September 30, 2014.

For the nine months ended September 30, 2014 and 2013, we recorded gains in fair value of the 2020 Warrants of $11.1 million and $19.8 million, respectively, and gains in fair value of the embedded derivatives associated with our Convertible Senior Notes of $4.4 million and $14.8 million, respectively. The variances are mainly a result of fluctuations in our stock price and shorter remaining duration of the instruments.

Income tax benefit

We are recording income tax benefits to the extent we have unrecognized tax benefits in excess of the net operating losses that are available for carryback. As of September 30, 2014, we had gross unrecognized tax benefits of $16.4 million, $4.2 million of which is recorded on the balance sheet in long-term accrued liabilities and $12.2 million of which is netted against deferred tax assets.

Capital expenditures

For the nine months ended September 2014, we deployed $5.6 million of cash capital expenditures and $21.1 million of carried costs for a total of $26.7 million. For the nine months ended September 2013, we deployed $43.3 million of cash capital expenditures and were not carried for any costs.

Non-GAAP Financial Measures and Reconciliations

In an effort to provide investors with additional information regarding our results as determined by GAAP, we disclose certain non-GAAP financial measures in our quarterly earnings press releases and other public disclosures. The primary non-GAAP financial measure we focus on is adjusted general and administrative expenses. This financial measure excludes the impact of certain expenses and benefits and therefore has not been calculated in accordance with GAAP. A reconciliation of this non-GAAP financial measure to its most comparable GAAP financial measure is included below.

We use this non-GAAP financial measure internally to evaluate and manage the Company’s operations because we believe it provides useful supplemental information regarding the Company’s on-going economic performance which may not be comparable to similar measures used by other companies. We have chosen to provide this information to investors to enable them to perform more meaningful comparisons of operating results and as a means to emphasize the results of on-going operations.

The following table sets forth the reconciliation of this non-GAAP financial measure to its most comparable GAAP financial measures (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014			2013

Reconciliation of adjusted general and administrative expenses:
GAAP general and administrative expenses	$	2,983	$	4,230	$	15,969		$	23,642
Excluded (benefit) expenses:
Legal settlement benefit	—		100		(1,019		)	(225		)
Severance expenses	—		23		2,817			3,926
Stock-based compensation and non-cash bonuses	173		228		2,336			3,326
Adjusted general and administrative expenses	$	2,810	$	3,879	$	11,835		$	16,615

LIQUIDITY AND CAPITAL RESOURCES

Although we expect to end 2014 with a cash balance of approximately $5.0 million, excluding any potential litigation settlement proceeds, our prospects for adequate liquidity in 2015 are uncertain. Our primary cash requirements are for capital expenditures, working capital, operating expenses, acquisitions and principal and interest payments on indebtedness. Additionally, beginning February 21, 2015, the holders of the Senior Secured Notes may require us to purchase all or a portion of the Senior Secured Notes at a price equal to the principal amount of the Senior Secured Notes to be purchased, plus any accrued and unpaid interest on such notes. Noteholders can exercise the put beginning on February 21, 2015, and the Company would have up to 60 days after receiving notice of any put exercises in order to repurchase the notes. As our primary sources of liquidity are cash generated by operations, we do not currently anticipate that we will have sufficient cash to fund our primary cash requirements or a repurchase of the Senior Secured Notes. Thus, we will be required to attempt to fund our cash requirements through other means, such as through debt and equity financing activities or asset monetization, or the curtailment of capital expenditures or we will be unable to continue as a going concern.

This section should be read in conjunction with Note 1 — Basis of Presentation, Note 2 — Going Concern and Note 9 — Long-Term Debt in the Notes to the consolidated financial statements included in this quarterly report on Form 10-Q and Item 1A “Risk Factors”.

Liquidity and cash flow

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Beginning on February 21, 2015, the holders of the Senior Secured Notes may require us to purchase all or a portion of the Senior Secured Notes at a price equal to the principal amount of the Senior Secured Notes to be purchased, plus any accrued and unpaid interest on such notes. Accordingly, we reclassified the outstanding amount of Senior Secured Notes of $13.3 million with a principal amount of $13.9 million (the “2015 Put”) as current liabilities. Without access to additional liquidity, we will not be able to fund our commitments to the holders of the Senior Secured Notes if they require us to purchase all or a portion of the Senior Secured Notes and we will be in default under the Senior Secured Notes. If this default occurs, we would be unable to continue as a going concern. We entered into discussions with some of the holders of the Senior Secured Notes for a modification of that debt to avoid a possible default if the 2015 Put is exercised. Although we have no assurance regarding our ability to successfully negotiate a modification of the Senior Secured Notes, any such modification may result in significant changes to the Company’s capital structure and adjustments to its balance sheet. These changes may adversely affect the holders of ZaZa common stock through dilution or loss in value.

Even without the possibility of a required prepayment of the Senior Secured Notes, we do not currently generate sufficient cash flows to maintain positive liquidity to fund operating and debt service requirements throughout the next six months. As of September 30, 2014, we had $11.8 million in cash and cash equivalents and working capital deficit of $6.8 million. Over the next six months, we anticipate monthly cash general and administrative expenses and cash interest payments to average $1.8 million per month and capital expenditures of $0.9 million per month. Without additional cash funding, and considering our current forecasts for cash generated by operations, we anticipate exhausting our cash and cash equivalents by the end of February 2015.

Our only anticipated methods of fully funding our cash requirements are through changes to our debt arrangements, debt and equity financing activities, asset monetization or the curtailment of capital expenditures. Specifically, the Company’s Board of Directors is examining the possibility of amending the Subordinated Notes to convert cash interest payments to payments-in-kind, issuing equity securities and selling certain assets. We have attempted to access the capital markets and to enter into a reserve-based debt facility, but we have been unable to do so as of the date of filing this Quarterly Report on Form 10-Q. We will continue to search for possible financing transactions, but no assurances can be given that such transactions can be consummated on terms that are acceptable to the Company, or at all. Additionally, our ability to enter into a financing transaction, or to successfully implement any of the other liquidity saving measures described in this paragraph, will be largely dependent upon factors outside of our control, such as prevailing market conditions and the actions of third parties.

Future capital requirements

Because of our limited amount of cash, in the absences of a debt or equity raise, we plan to limit our capital expenditures to $4.3 million during the fourth quarter of 2014 and $1.0 million during the first quarter of 2015. Additionally, we have fully deployed our carried costs to drill and complete wells, and carried costs that can be allocated to wells, infrastructure, lease extensions and operating costs in East Texas, and our joint venture counter parties have the ability to accelerate the pace of drilling starting in 2015. Thus, we would be required to pay cash for our portion of the costs incurred in connection with the drilling program. Depending on the timing of future drilling activity, we may not have a sufficient amount of liquidity available to us to cover those costs. If we are unable to raise a sufficient amount of cash to pay for our portion of costs associated with the drilling program, we would be subject to customary non-consent penalties on an individual well by well basis with respect to any wells in which we are unable to participate, which would result in the loss of a significant portion of any future revenue derived from such non-consent wells.

Long-term debt

As described in “Note 9 — Long-Term Debt” in more detail, we have $90.7 million in long term debt, of which $13.3 million is classified as current, consisting of the following (in thousands):

	September 30,			December 31,
	2014			2013

Senior Secured Notes - Principal	$	13,900		$	26,770
Senior Secured Notes - Discount	(628		)	(3,624		)
Senior Secured Notes - Net of discount	13,272			23,146

Convertible Senior Notes - Principal	40,000			40,000
Convertible Senior Notes - Discount	(9,866		)	(12,043		)
Convertible Senior Notes - Net of discount	30,134			27,957

Subordinated Notes	47,330			47,330
Total debt	90,736			98,433

Less: current portion	(13,272		)	(10,177		)
Total long-term debt	$	77,464		$	88,256

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Off-balance Sheet Arrangements

We have 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.

Dividends

Dividends on our common stock may be declared and paid out of funds legally available when and as determined by our Board of Directors, subject to certain loan covenants. Our policy is to hold and invest corporate funds on a conservative basis, and, thus, we do not anticipate paying cash dividends on our common stock in the foreseeable future.

Recent Accounting Standards

See “Note 3 — Summary of Significant Accounting Policies” above in the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

There have been no changes to our critical accounting policies during the nine months ended September 30, 2014.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this Item.

ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our President and Chief Executive Officer and our Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this Form 10-Q, that our disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are effective to ensure that information we are required to disclose 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, and that our disclosure controls and procedures are effective to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the three month period ended September 30, 2014, there has been no change to our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect these controls.

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PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

See “Note 12 - Commitments and Contingencies”, in the consolidated financial statements which are incorporated into this “Item 1 Legal Proceedings” by reference.

ITEM 1A - RISK FACTORS

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the SEC on March 31, 2014 under the heading “Risk Factors - Risks Relating to Our Company.”

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

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS

Exhibit Number		Description

2.1		Purchase and Sale Agreement, dated August 21, 2014, by and between ZaZa Energy Corporation and Q-Chalk VEX II (IV) Investment Partners (incorporated by reference to Exhibit 2.1 of ZaZa Energy Corporation’s Current Report on Form 8-K filed September 24, 2014).

2.2		Amendment No. 1 to Purchase and Sale Agreement, dated September 16, 2014, by and between ZaZa Energy Corporation, Q-Chalk VEX II (IV) Investment Partners and Q-Z (IV) Investment Partners, LLC (incorporated by reference to Exhibit 2.2 of ZaZa Energy Corporation’s Current Report on Form 8-K filed September 24, 2014).

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		Certificate of Amendment to the Restated Certificate of Incorporation of ZaZa Energy Corporation, effective 5:00 p.m. Eastern Time, August 19, 2014 (incorporated by reference to Exhibit 3.1 of ZaZa Energy Corporation’s Current Report on Form 8-K filed August 25, 2014).

3.3		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).

10.1		Securities Purchase Agreement, dated as of July 21, 2014, by and between ZaZa Energy Corporation and Crede CG III, Ltd. (incorporated by reference to Exhibit 10.1 of ZaZa Energy Corporation’s Current Report on Form 8-K filed July 21, 2014).

10.2		East Texas Development Agreement, dated September 18, 2014 (incorporated by reference to Exhibit 10.1 of ZaZa Energy Corporation’s Current Report on Form 8-K filed September 18, 2014)

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.

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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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		First Amendment to Employment Agreement, dated as of August 12, 2014, by and between ZaZa Energy Corporation and Paul F. Jansen (incorporated by reference to Exhibit 99.2 of ZaZa Energy Corporation’s Current Report on Form 8-K/A filed August 13, 2014).

101.INS	*	XBRL Instance Document

101.SCH	*	XBRL Schema Document

101.CAL	*	XBRL Calculation Linkbase Document

101.LAB	*	XBRL Label Linkbase Document

101.PRE	*	XBRL Presentation Linkbase Document

101.DEF	*	XBRL Definition Linkbase Document

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q report to be signed on its behalf by the undersigned thereunto duly authorized.

	ZAZA ENERGY CORPORATION


November 12, 2014	By:	/s/ Todd A. Brooks
		Todd A. Brooks
		President and Chief Executive Officer


November 12, 2014	By:	/s/ Paul F. Jansen
		Paul F. Jansen
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number		Description

2.1		Purchase and Sale Agreement, dated August 21, 2014, by and between ZaZa Energy Corporation and Q-Chalk VEX II (IV) Investment Partners (incorporated by reference to Exhibit 2.1 of ZaZa Energy Corporation’s Current Report on Form 8-K filed September 24, 2014).

2.2		Amendment No. 1 to Purchase and Sale Agreement, dated September 16, 2014, by and between ZaZa Energy Corporation, Q-Chalk VEX II (IV) Investment Partners and Q-Z (IV) Investment Partners, LLC (incorporated by reference to Exhibit 2.2 of ZaZa Energy Corporation’s Current Report on Form 8-K filed September 24, 2014).

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		Certificate of Amendment to the Restated Certificate of Incorporation of ZaZa Energy Corporation, effective 5:00 p.m. Eastern Time, August 19, 2014 (incorporated by reference to Exhibit 3.1 of ZaZa Energy Corporation’s Current Report on Form 8-K filed August 25, 2014).

3.3		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).

10.1		Securities Purchase Agreement, dated as of July 21, 2014, by and between ZaZa Energy Corporation and Crede CG III, Ltd. (incorporated by reference to Exhibit 10.1 of ZaZa Energy Corporation’s Current Report on Form 8-K filed July 21, 2014).

10.2		East Texas Development Agreement, dated September 18, 2014 (incorporated by reference to Exhibit 10.1 of ZaZa Energy Corporation’s Current Report on Form 8-K filed September 18, 2014)

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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		First Amendment to Employment Agreement, dated as of August 12, 2014, by and between ZaZa Energy Corporation and Paul F. Jansen (incorporated by reference to Exhibit 99.2 of ZaZa Energy Corporation’s Current Report on Form 8-K/A filed August 13, 2014).

101.INS	*	XBRL Instance Document

101.SCH	*	XBRL Schema Document

101.CAL	*	XBRL Calculation Linkbase Document

101.LAB	*	XBRL Label Linkbase Document

101.PRE	*	XBRL Presentation Linkbase Document

101.DEF	*	XBRL Definition Linkbase Document

* Filed herewith

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