Item 405 of Regulation  S-K  is  not  contained  in  herein, and  will not be contained, to the best of the registrant’s knowledge , in  definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or  any  amendment  to  this  Form  10-K.  [____]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated  filer, or a smaller reporting company.
Large accelerated filer  ¨
Accelerated filer  x
Non-accelerated filer  ¨

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act)
 
¨ Yes           
  x  No
As of December 31, 2007, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $81,531,392 based on the closing sale price as reported on the American Stock Exchange.  We had 62,276,091 shares of common stock outstanding on September 30, 2008.
 
 
 
 

   
   
   
   
   
   
   
Part II
   
   
   
   
   
   
   
   
   
Part III
   
   
   
   
   
   
   


 
AVAILABLE INFORMATION
 
 
We are currently subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We file periodic reports, proxy materials and other information with the Securities and Exchange Commission (the “Commission”). In addition, we will furnish stockholders with annual reports containing audited financial statements certified by our independent registered public accounting firm and interim reports containing unaudited financial information as may be necessary or desirable. We will provide without charge to each person who receives a copy of this report, upon written or oral request, a copy of any information that is incorporated by reference in this report (not including exhibits to the information that is incorporated by reference unless the exhibits are themselves specifically incorporated by reference). Such request should be directed to: Sarah Berel-Harrop, Hyperdynamics Corporation, One Sugar Creek Center Blvd., #125, Sugar Land, Texas 77478, voice: (713) 353-9400, fax: (713) 353-9421. Our Web site is www.hyperdynamics.com.

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

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

INFORMATION ABOUT
FORWARD-LOOKING STATEMENTS
 
Some of the statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,” “expects,” and other words of similar import, are “forward-looking statements.” Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on forward-looking statements.


Part I

Item 1.  Business

Hyperdynamics Corporation, a Delaware corporation formed in 1996, is an emerging independent oil and gas exploration and production company.  We own exclusive rights for exploration and exploitation of oil and gas in an approximately 31,000 square mile concession off the coast of the Republic of Guinea (“Guinea”) in West Africa.    We believe this is the largest offshore acreage position of any company involved in exploration and production in West Africa.   

In addition to our Guinea concession, we hold working interests in several oil and gas properties in Northeast Louisiana.  At June 30, 2008, we had 150,435 barrels of oil equivalent (BOE) of proved reserves related to these Louisiana properties.   We plan to continue acquiring and developing proved reserves on a global basis.
 
We operate two business segments, domestic and international, under the structure of five separate corporations as follows:
 
HDY
“Hyperdynamics Corporation” is the parent company listed on the American Stock Exchange under the stock symbol “HDY”.

HYDR
“HYD Resources Corporation” is a subsidiary that handles all of our oil and gas operations in Louisiana. HYDR owns a work-over rig and oil field maintenance equipment. HDY owns 100% of HYDR.  HYDR is also the name of our business segment that explores for and produces oil domestically in Louisiana.

TPC
“Trendsetter Production Company” is an authorized oil and gas operator in Louisiana. TPC is owned 100% by HYDR and is in our HYDR business segment.

SCS
“SCS Corporation” is a subsidiary engaged in oil and gas exploration activities located offshore Guinea, West Africa. HDY owns 100% of SCS. “SCS” is the name of a business segment of HDY that is composed of our oil and gas exploration activity in Guinea.

SCSG 
“SCS Corporation Guinee SARL” is a Guinea limited liability company located in Conakry, Guinea. We own 100% of SCSG, which was formed to manage the business associated with SCS's farmed out 2002 Oil and Gas Production and Sharing Contract and the 2006 PSC discussed below with the government of Guinea.  SCSG is owned 100% by SCS and is part of our SCS business segment operating in Guinea.

Financial information pertaining to our operating segments is provided in Note 12 to our Consolidated Financial Statements.
 
INTERNATIONAL OPERATIONS

Hyperdynamics is conducting exploration work pertaining to the offshore area of Guinea. We have been conducting exploration work related to offshore Guinea since 2002. On September 22, 2006, the government of Guinea and our wholly owned subsidiary, SCS Corporation signed a 2006 Production Sharing Contract (“2006 PSC”).  The contract was filed as an exhibit attached to the company's Form 8-K filed on September 28, 2006.  We are conducting our current work under the 2006 PSC.

The 2006 PSC gives us exclusive rights to explore and develop approximately 31,000 square miles off the coast of Guinea. Certain provisions of the contract would require us to surrender 64% (approximately 20,000 square miles) of the contract area upon the passage of a “Project of Law” in the National Assembly of Guinea, a Presidential Decree, and a Supreme Court ruling (“Project of Law process”).  Hyperdynamics would select the area ultimately surrendered and we would retain a priority non-exclusive right to participate in the development of the surrendered contract area.


The minimum rights that we will maintain if the Project of Law process is completed include:

 
(a)
Exclusive rights for exploration, development, and production for approximately 11,000 square miles of our choosing from the total contract area consisting of approximately 31,000 square miles. All benefits and obligations surrounding these minimum exclusive rights are determined by the provisions of the 2006 PSC; and
 
 
(b)
Non-exclusive right to participate in any other development of the area not retained  by us in (a) above or in the area which exclusive rights are surrendered and which totals approximately 20,000 square miles from the original contract area of approximately 31,000 square miles. The ultimate benefits to us regarding these rights could be controlled by several factors. We could negotiate additional contracts on a priority basis or participate with others on an equal basis, both of which could be controlled by new agreements that we negotiate with the government of Guinea.

Although the 2006 PSC is a legally binding contract under Guinea’s 1986 Petroleum Code, the Project of Law process effectively codifies the 2006 PSC into a new Guinea law in and of itself.  Whether the Project of Law process is completed or not is entirely up to the Guinea government.  We are proceeding with our work under the 2006 PSC in any respect. Unless and until the government of Guinea completes all the steps in the Project of Law process, we retain the exclusive right to explore and exploit 100% of the approximately 31,000 square mile concession.  Our exclusive rights allow us to develop the exclusive contract area at our discretion and expense subject to the terms and conditions of the 2006 PSC.

Terms of the 2006 PSC

As of the filing of this report, we have exclusive rights to explore, develop, and produce approximately 31,000 square miles (approx. 20,000,000 acres) of Guinea's offshore territory. This concession contains shallow, medium depth, and deep water potential. All time frames to achieve our exploration work according to the 2006 PSC begin from the effective date of September 22, 2006.  We are required by the 2006 PSC to meet certain milestones on the following timeline:


 
·
The first exploration period lasts two years, until September 2008. Two one year extensions are available which would extend the first exploration period to a total of four years.  By the terms of the PSC, when we notify the government that we wish to extend an exploration period, it will be automatically granted.  We submitted our extension notification; accordingly, it has been extended to September 2009.  During the first exploration period we are required to acquire, evaluate, and analyze 2D or 3D seismic with an estimated expenditure of $10 million. Fulfilling the work obligation in all cases exempts us from fulfilling any minimum expenditure obligation.  We believe we have completed the work requirements of the first exploration period.
 
·
The second exploration period starts after the end of the first exploration period, as extended.  The second exploration period lasts four years. One four year extension is available for a total of eight years. During the second exploration period we are required to acquire additional 2D or 3D seismic, evaluate it, and analyze it with an estimated cost of $6 million.  We are also required to drill two exploration wells with minimum well depths of 2,500 meters from the surface of the water. The estimated cost of the wells is $15 million to $20 million each.  Fulfilling the work obligation in all cases exempts us from fulfilling any minimum expenditure obligation. We have the right to perform the second exploration period work, such as drilling, during the first exploration period.  Such work, even though completed during the first exploration period, will accrue to the requirements in the second exploration period. 
 
·
We can secure as many “Exploitation Areas”, in shapes defined by us, as we discover to be capable of commercial production.  Each Exploitation Area, defined as a contiguous block surrounding a discovery, shall be 500 square kilometers in size. Each Exploitation Area is held for an initial period of twenty-five (25) years.  If we show the area remains productive after the initial period, we will get two additional extensions for ten years each so the total exploitation period becomes effectively forty-five (45) years.  Each well has its own exploitation period that starts when it begins producing.   


Under the provisions of the agreement, if we take all of the extensions available to us and complete the work requirements, the first exploration period will expire in September 2010 and the second exploration period expires in September 2018.  We believe we have met the work requirements of the first exploration period, but we have nevertheless requested and received an extension of the first exploration period.  Accordingly, we are in the first exploration period.

When, if and as there is production in Guinea that falls under the terms of the 2006 PSC, we will pay a 10% royalty to Guinea.  Of the remaining 90% of the first production, we receive 75% of the revenue for cost recovery and Guinea will receive 25%.  After cost recovery, revenue will be split as outlined in the table below:
 
 
Daily production (b/d)(1)
Guinea Share
HDY Share
From 0 to 2,000
25%
75%
From 2,001 to 5,000
30%
70%
From 5,001 to 100,000
40%
60%
Over 100,001
60%
40%


1 After 75% cost recovery


Exploration Strategies and Work to Date

Our business plan incorporates a multi-channel approach to exploring and developing our extensive contract area. We will continue independently to perfect drilling targets and ultimately to implement a drilling program on one or more of our targets.  Simultaneously, we will continue to consider the possibility for exploration partners to work with us on all or parts of our concession.  

 From the inception of our involvement in Guinea beginning in 2002, we, in conjunction with certain key vendors, have accomplished critical exploration work including:

 
(1)
A 1,000 kilometer 2-D seismic data shoot, the processing of the seismic data acquired, and the evaluation of that data and data that had been acquired in the past.
 
(2)
A 4,000 kilometer 2D seismic data shoot, the processing of the seismic data acquired, and the evaluation of that data and data that had been acquired in the past.
 
(3)
Acquisition and geochemical analysis of core samples from the concession area and a satellite seeps study.
 
(4)
Third party interpretation and analysis of our seismic data, performed by Petroleum GeoServices (PGS)
 
(5)
Reconnaissance within Guinea to evaluate drilling infrastructure, support services, and the operating environment.
 
(6)
A 2,800 kilometer 2-D seismic data shoot, the processing of the seismic data acquired, and the evaluation of that data and data that had been acquired in the past.
 
(7)
Preparation for a 3D seismic shoot planned to begin in fiscal 2009.

On August 22, 2007, we announced our 2007 work program, which included the new acquisition and study of: aeromagnetic and gravity survey data; additional 2-D seismic survey data; and the acquisition and analysis of onshore oil seeps.  As of September 30, 2008, we have acquired approximately 8,000 kilometers of proprietary 2-D seismic data from previous exploration programs that occurred in 2002, 2003, and 2008.   We believe our studies comprise the largest knowledge base in existence concerning the Guinean offshore.  Our 2007 forward exploration program, including the 2008 2-D seismic data shoot, fulfilled the first period work requirements under the 2006 PSC. This work period required us to acquire, process, and interpret new seismic in a scientific process to result in exploration well targets we are ready to drill.  


Political Climate and Social Responsibility in Guinea

Our wholly-owned subsidiary SCSG was established in 2005. SCSG’s results are included in the SCS operating segment.  SCSG maintains a visible in-country presence and conducts public relations programs to educate the Guinea people and its government about the importance of their petroleum resources and our role in helping Guinea realize the benefits from exploiting these resources. As part of the public relations program, SCSG makes donations to projects which improve conditions in villages, to non-governmental organizations, to schools, and to religious organizations in order to cultivate positive public sentiment towards Hyperdynamics in Guinea.  Guinea is an emerging democracy and it has unique social, political, and economic challenges.  Public opinion strongly influences the political decision-making process.    Therefore, our public relations and social programs support a strategy to maintain a positive public opinion about us in Guinea.

There are risks associated with operating in Guinea.  See Item 1A – Risk Factors – Geopolitical Instability Item 1A – Risk Factors – Geopolitical Politics, Item 1A – Risk Factors – We Operate in Guinea.

DOMESTIC OPERATIONS
 
In April 2004, we acquired HYD Resources Corporation.  HYD Resources Corporation engages in oil and gas exploration and production within the United States. Thus far, all of our domestic activity is in Louisiana.   In January 2005, Hyperdynamics acquired an inactive company from the former owners of HYD Resources Corporation named Trendsetter Production Company. TPC is an authorized operator in the state of Louisiana. We evaluate the performance of these two companies (HYD Resources Corporation and Trendsetter Production Company) as a single business unit through our business segment named HYDR.  HYDR operates oil and gas wells and holds non-operating working interests in oil and gas wells. Over 90% of HYDR’s revenues derive from oil production.

During July 2007, we purchased an 85% working interest in over 1,100 gross acres under lease, various oil wells, and oil and gas equipment in Louisiana, USA (“RABB properties”). In connection with the acquisition, we paid $1,867,000 in cash and common stock in Hyperdynamics and assumed an asset retirement obligation of $407,000.  Under the purchase agreement, the seller remained the operator of the properties and retained a 15% working interest therein; however, we were required to pay 100% of all working interest costs, including work-over and new development and exploration costs, up to $4,000,000 (“Promised Funds”) over the eighteen months ending December 31, 2008. After the investment of the Promised Funds, working interest costs, except the cost of new drilling, will be shared pro rata according to the working interest percentage. We will continue to pay 100% of the costs of any new drilling performed on these properties. After any new drill is completed, the working interest cost will be shared pro rate according to the working interest percentage.

The Promised Funds obligation was completed in July 2008, after we assigned a 15% working interest in wells we owned to our operator in exchange for a credit of $1,600,000 against the investment obligation. Effective July 1, 2008, HYDR retains working interest in oil and gas properties but no longer operates oil and gas wells itself.

Going forward, HYDR plans to continue to improve production on its existing leaseholds and to drill new development wells to exploit the production potential.  In addition, we continue to evaluate new leases for their potential to add to our proven reserves.  See Item 1A – Risk Factors – Investment in the Oil and Gas Industry is Risky.


DESCRIPTION OF OIL AND GAS PROPERTIES

Location of properties

Guinea

The Contract Area for our Guinea concession is represented on the attached map and consists of an area deemed equal to approximately 31,000 square miles (80,000 square kilometers).

The points indicated on this map are defined hereinafter with WGS 84 (World Geodetic System 1984) datum.

Point
Latitude
Longitude
A
10:49:55:N
15:10:33:W
B
10:39:49:N
15:20:32:W
C
10.39:49:N
15.34:16:W
D
09.23:27:N
17:35:00:W
E
08.30:00:N
17.30:00:W
F
08.10:00:N
16:30:00:W
G
08.35:00:N
15:30:00:W
H
08.10:30:N
14:21:12:W
I
09:00:50:N
13:23:54:W

The coastal boundary is the direct line between Point A and Point I.
 
 


An alternative map is below:

 
Louisiana 

As of June 30, 2008, HYDR has a working interest in approximately 1,699 gross acres of land in Louisiana, USA under lease for oil and gas development.

Reserves Reported To Other Agencies.

We did not report any estimates of total, proved net oil or gas reserves to any other federal authority or agency.
 
Production.

The following table shows our annual sales volume, average sales prices per barrel of oil, and average production costs per barrel of oil.  Production costs are costs incurred to operate and maintain our wells and related equipment.  Production costs include cost of labor, well service and repair, location maintenance, power and fuel, property taxes, and severance taxes.  Certain amounts from prior years have been reclassified to conform to the current presentation.

   
   
   
 
United States
                  
Barrels of oil sold
                  
Gross
     43,457       20,740       13,869  
Net
     28,197       14,726       9,439  
Sales price per barrel
   $ 101.72     $ 61.66     $ 65.16  
                         
Production cost per barrel
   $ 92.35     $ 44.75     $ 76.49  
                         
Republic of Guinea
                        
                         
Barrels of oil sold
                        
Gross
     -