ERHC Energy Inc (ERHE)

[Nightdaytrader]

Reason Wade Cherwayko and SEO are close? Well, there are different opinions on that. Take for instance, the article below...... It says:

"ERHC made several large unexplained payments, including one of $550,000 to Procura Finance Corporation and
another to ST Energy, a British Virgin Islands registered Company headed by Wade Cherwayko.
Cherwayko controls Equator Exploration which received an interest in Block 2."

I'm not saying I know what to believe........ just that there are different opinions on why they are close.

ND9
********************************
Why Sao Tome Refused To Deal With Nigeria And Emeka Offor.
BY Sunny Ofili
DATE : Tuesday, 24 January 2006
The existing contract if enforced, will result in the possible loss of nearly $60 million in signature bonus revenue which would otherwise flow to the government of São Tomé and Príncipe.


The actual cost to São Tomé and Príncipe may be even significantly higher. The possibility of ERHC participation may have discouraged other more substantial companies from participating in the Second Bid Round, thus reducing competition for the blocks with the likely diminishment of the high bids.

In the First Bid Round, Exxon/Mobil refused to participate in any block in which ERHC took an interest, and the Second Bid Round in which ERHC bid on all blocks was notable for the lack of participation by major international companies. Two of the large independents – Noble and Devon – that initially had agreed to partner with ERHC withdrew.

Further, there remains the possibility of ERHC’s presence causing the entire Bid Round to fail or having the blocks let to companies which will be unable or unwilling to meet their drilling commitments if the market does not later support their valuations. Finally, ERHC retains extensive rights in the Exclusive Economic Zone of São Tomé and Príncipe. All of these factors work to the detriment of São Tomé and Príncipe.


This astonishing situation results from a series of agreements first executed in 1997, renegotiated once in 2001, and renegotiated then again in 2003. These agreements have repeatedly been characterized by knowledgeable industry observers as outside the range of industry norms and extraordinarily unfavorable to São Tomé and Príncipe.


Although the agreements were terminated in 1999 by Prime Minister Guilherme Posser da Costa, a new agreement was entered into in 2001 under pressure from Nigeria after control of ERHC passed to the Nigerian company Chrome.


Chrome is owned by Sir Emeka Offor, a well-connected Nigerian businessman and known confidante and campaign supporter of President Obasanjo. After wide criticism of the new agreement, President de Menezes declared it unenforceable, but once again, under pressure from Nigeria and other forces, a revised agreement was entered into in 2003. This agreement still is in effect. It is pursuant to the 2003 agreement that ERHC is claiming extensive rights to blocks in the JDZ at the expense of São Tomé and Principe.


Enforcement of the ERHC contract.

The 1997 Agreements

The first agreement with ERHC was a Letter of Understanding signed in May 1997 between São Tomé and Príncipe, ERHC, and a South African firm, Procura Financial Consultant (“PFC”). It was negotiated directly with President Miguel Trovoada’s office without outside consultation or assistance, and it was executed on behalf of São Tomé and Príncipe by the Prime Minister, Raúl Bragança Neto. At the time of the agreement, ERHC had no international oil or gas experience whatsoever. Its sole business line was servicing marginally producing oil and gas wells in the United States, including the provision of plug and abandonment services. Its total revenues in 1996 were $60,477, and the company had a net loss for the year of $728,248.2 This first agreement was followed closely by a Memorandum of Agreement (“MOA”) dated May 27, 1997 and a memorandum of Understanding, modifying the MOA, dated September 30, 1997. Key terms of the agreement were:




• Both parties would receive 40% of production (or the profits of production, the contract language was ambiguous) 3


• 20% would be allocated to recovery of costs

• Duration of the agreement was for twenty-five (25) years


• ERHC was to have “available” US$5,000,000 for Feasibility Studies, Offices and Staff, otherwise undefined


• ERHC was to deliver another US$5,000,000 to STP “upon the funding of ERHC/PFC

• ERHC was to “have up to one hundred million USD (USD$100,000,000) available for the development of the oil.” In effect, for the promise of $5million, the agreement made ERHC an equal
partner with the government of Sao Tome and Principe and gave the company nearly
plenary rights to explore and exploit the nation’s petroleum, gas, and mineral reserves for
25 years.


The initial agreements were followed by a joint venture agreement signed in Washington, DC in November 1997 during the course of a visit to the United States by the Prime Minister and a 10 person delegation sponsored by ERHC. The joint venture agreement provided for the formation of an oil and gas company, STPetro, to be jointly owned by the government and ERHC. The purpose of this company was to develop a deep water port and an offshore logistics center for the oil industry. The joint venture was realized in July 1998. São Tomé and Principe held 51% of the stock, all of which
was capitalized with only $100,000. The deep water port and the offshore logistics center
project has yet to be developed.

Carlos Bragança Gomes, Prime Minister Bragança’s nephew and government
advisor, was appointed president of the new company, and Mateus ‘Nando’ Meira Rita, a
former São Toméan Secretary of State became its general manager. Although, as
officers of the new joint venture, Gomes and Rita were responsible to all of the joint
venture partners, including the government, the two men were also hired by ERHC as
consultants for $5,000 a month, a not insignificant sum in São Tomé and Príncipe at the
time. In August 1998, the South African company, PFC, dropped out of the picture
entirely, assigning all its rights and obligations to ERHC.

In 1999, Geoffrey Tirman became the majority shareholder in ERHC and took the
lead in negotiating a revised agreement with São Tomé and Principe. Carlos Gomes, a
paid consultant to ERHC represented São Tomé in the negotiations. The parties failed to
reach an agreement, and the São Tomean Prime Minister, Guilherme Posser da Costa,
then declared the agreement with ERHC null and void, arguing that the company had not
fulfilled its obligations, monetary and otherwise, under the MOA5. Tirman responded
with an open letter to Posser da Costa accusing Carlos Gomes of corruption. Tirman
alleged and later supporting affidavits that Carlos Gomes had demanded personal
incentives and special monthly financial compensation from ERHC. Carlos Gomes
denied the charge in a lengthy rebuttal. ERHC also filed a request for arbitration with the
International Chamber of Commerce in Paris. The arbitration continued until terminated
as part of the 2001 Agreement between São Tomé and ERHC.


Defining São Tomé and Principe’s Exclusive Economic Zone; The Joint Development
Zone Treaty

Pursuant to the MOU signed by the parties in 1997, ERHC assisted São Tomé with the filing of a claim for the recognition of a 200-mile Exclusive Economic Zone (“EEZ”) with the U.N. Law of the Sea Commission in November 1997. Recognizing that the 200 mile zone could conflict with the zones claimed by neighboring countries, the São Tomé and Príncipe legislation provided for recognition of the median or equidistance line by treaty agreements with the neighboring states. Such treaties were
entered into with Equatorial Guinea in 1999 and with Gabon in 2001. Nigeria resisted such reement and claimed territory on the São Tomé and Príncipe side of the median line between the two countries.

Further, in September 1998, STPetro signed an agreement with Mobil New
Exploration Ventures group (“Mobil”) to perform technical work in the territorial waters
of São Tomé and Príncipe, including the area disputed by Nigeria.6 The results of the
seismic surveys conducted pursuant to this agreement identified the blocks with a high
probability of oil deposits, all of which were situated within the maritime border area
which later became the JDZ.

Negotiations between the two countries finally commenced after a decision by
Nigeria to lease blocks in the disputed territory, but talks were broken off in mid 2000.
The principle issue was Nigeria’s refusal to recognize the median line, even though the
median line would have been the traditional international rule and had been agreed with
other neighboring countries. São Tomé and Príncipe eventually compromised on the
issue, and, in February 2001, a treaty was signed by the two countries creating the JDZ
and the JDA.7 Notably the territory incorporated in the JDZ was all on the São Tomé and
Principe side of the median line. São Tomé apparently reached this agreement out of a
concern that a legal conflict could indefinitely delay development, development that was
critical to São Tomé and Principe, but which was not critical to Nigeria as Nigeria had
alternative resources.

The 2001 Agreement
During this period, ERHC’s precarious financial state worsened. The U.S.
Securities and Exchange Commission (“SEC”) was investigating the company, and
ERHC had to negotiate with its creditors, paying some of them with company stock.
Ultimately, the terminated contact with São Tomé and Príncipe was ERHC’s only asset.
The company was saved from bankruptcy by the intervention of Sir Emeka Offor, a
wealthy Nigerian businessman with close links to the former dictator Sani Abacha and to
President Obasanjo. Offor, through his Nigerian company, Chrome Energy, acquired a
controlling interest in ERHC contemporaneously with Nigeria’s settlement with São
Tomé and Príncipe.

Once control of ERHC passed to Chrome, Nigeria brought serious pressure on
São Tomé and Príncipe to settle with ERHC. ERHC/Chrome threatened that Nigeria
would not ratify the JDZ treaty unless a settlement is reached, and one São Toméan
advisor claimed that Nigeria would renegotiate the 60/40 split if an agreement were

In the agreement, Mobil committed to conduct surveys for oil reserves in twenty-two (22)
deep-water blocks. In return, Mobil was granted an exclusive option on the evaluation,
exploration, and production of oil in the entire EEZ. Mobil also agreed to pay substantial
signature bonuses. The Agreement was subsequently modified. The modified agreement was the
basis for the preferential rights of Exxon/Mobil, the merged entity formed in 1998, in Block 1.

A portion of the JDZ was initially excluded from the settlement, the “Special Regime
Area,” with that portion left in the hands of Nigeria in return for certain commitments by Nigeria.
The commitments were not honored, and the area was later returned for joint development as part
of the JDZ. reached.

There were numerous allegations of payments by ERHC/Chrome to influence
the negotiations.

The results of the arbitration regarding the termination of the ERHC contract were
scheduled to be announced in May 2001. Outside counsel for São Tomé and Príncipe
advised São Tomé and Príncipe that it was likely to win the arbitration and that the 1997
agreements would be terminated, subject to return of funds advanced by ERHC with
interest or other compensation.

Just before the judgment was expected, extensive negotiations took place in Paris
in the presence of the Nigerian Ambassador. The São Toméan delegation included
Patrice Trovoada, son of President Miguel Trovoada, and Rafael Branco, then Foreign
Minister. Shortly before the ruling was to be announced, President Trovoada ordered the
São Toméan representatives to terminate the arbitration and to sign the settlement
agreement offered by ERHC.

The settlement agreement (the “2001 Agreement”) was executed for São Tomé
and Príncipe by Luis Alberto dos Prazeres, then Minister of Natural Resources. Chude
Mba and Sir Emeka Offor executed the agreement for ERHC, and, in a very unusual step,
the agreement was witnessed by Dubem Onyla, the Nigerian Minister of State for Foreign
Affairs, and Rafael Branco, then Minister of Foreign Affairs for São Tomé and Príncipe.
The 2001 Agreement terminated the arbitration with prejudice and gave ERHC
new, extensive rights that superseded the 1997 agreements. ERHC was granted a number
of special rights, including:

• ERHC was to receive 10 percent of any “profit” oil,9 5 percent of any signature
bonuses, and one and a half percent of all revenues that the São Toméan
government would receive from the JDZ;

• ERHC was granted a 15% working interest in two blocks in the JDZ of ERHC’s
choice, subject to payment of bonus;

• ERHC was granted the right to select up to two blocks of ERHC’s choice in the
EEZ (the territorial water of São Tomé and Principe outside of the JDZ) without
payment of any signature bonuses.

One source quoted Patrice Trovoada as saying that “Chrome had enormous influence
inside São Tomé & Principe. The President of São Tomé ’s National Assembly worked for, and
was paid by, Chrome. Chrome paid money to everybody in São Tomé.” ERHC made several
large unexplained payments, including one of $550,000 to Procura Finance Corporation and
another to ST Energy, a British Virgin Islands registered Company headed by Wade Cherwayko.
Cherwayko controls Equator Exploration which received an interest in Block 2.
“Profit” oil is that share of the oil production in the JDZ to which São Tomé and Principe
would be entitled under the production sharing agreements after cost recovery.


In return ERHC gave up its interest in the now defunct STPetro. In effect, ERHC
was granted very valuable rights without agreeing to perform any additional work.
Notably, the agreement was explicitly conditioned upon the ratification of the Treaty
governing the JDZ by both Nigeria and São Tomé and Príncipe.

The 2003 Agreement
Shortly after the 2001 Agreement was signed, both a highly experienced industry
consultant working without pay and a major law firm commissioned by the World Bank
reviewed the 2001 Agreement and its antecedents. Both reviews were highly critical,
finding the agreement far outside industry norms and highly disadvantageous to São
Tomé and Principe.

As a result of the legal reviews and public condemnation of 2001 Agreement, São
Tomé and Principe’s President Fradique de Menezes10 declared the 2001 Agreement
unconscionable and unenforceable, and refused to honor its terms.11 This was in spite of
the fact the ERHC/Chrome had made payments to a company controlled by President de
Menezes of at least $100,000.12

Once again, Nigeria applied economic pressure on São Tomé and Principe by
postponing the First Bid Round until São Tomé and Principe again reached agreement
with ERHC. New negotiations commenced, and, in April 2003, ERHC and São Tomé
and Principe entered into yet another agreement, the “2003 Agreement”. Participating in
the renegotiations were several São Toméans holding interests in ERHC.13


Key terms of this agreement gave ERHC extensive rights to receive working
interests in the JDZ without payment of signature bonuses. ERHC also received the right
to conduct seismic activity in any block it selected. In turn ERHC relinquished its rights
to receive the royalty and other financial rights embodied in the 2001 Agreement. ERHC
retained its rights with respect to Exclusive Economic Zone of São Tomé and Principe
outside of the JDZ. The agreement was also unusual in that it included an administrative
annex signed by officials of the JDA implementing the agreement.

The terms of this agreement were widely discussed and again broadly criticized.
While ERHC had surrendered its financial interests, it increased its JDZ participation
rights from a total of a 30% working interest in two blocks, both subject to the payment
of signature bonuses, to a total of 125% working interest spread over six blocks, ranging
from 15% to 30% each. Additionally, ERHC was exempted from paying signature
bonuses on four of the blocks. Industry analysts once again denounced the new contract,
emphasizing that its terms were far out of line with industry practices. Industry
participants also criticized the deal since it compelled them to co-operate with an
inexperienced partner.

Once São Tomé reached agreement with ERHC, the Bid Round was rescheduled.
ERHC attempted to exercise its option rights in the First Bid Round. However, because
Exxon/Mobil, which refused to participate in any block in which ERHC had an interest,
had certain preferential rights that it exercised for the only block that was awarded,
ERHC was precluded from taking any interest.

In the Second Bid Round, however, ERHC both exercised its option rights and
bid as an independent player. It was awarded interests in all five blocks that were let.
Because of ERHC’s exemption from the payment of its share of the signature bonus in
four of the five blocks, it will avoid payment of US$58,500,000, money which would

otherwise be payable to São Tomé and Principe.


Excerpts from the Attorney General’s report.

http://www.thetimesofnigeria.com/index.php?option=com_content&task=view&id=346&Itemid=81...