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Africa oil explorer Afren sees profit in 2008
Tue 4 Dec 2007, 11:19 GMT
[-] Text [+] SINGAPORE (Reuters) - Africa-focused oil and gas explorer Afren Plc said on Tuesday that its Nigerian oil well is expected to start producing in the first quarter 2008, leading to its first profits next year.
The Nigerian well will keep it on track to meet an output target of between 15,000-20,000 barrels per day (bpd) of crude by the middle of next year, its chief said.
"We are expecting revenues of $200 million or closer to $300 million for 2008, mostly from the second half of the year," said Afren's Chief Executive Officer Osman Shahenshah told Reuters on the sidelines of a shipping event in Singapore.
This is below a Merrill Lynch forecast for 2008 revenue of 183.6 million pounds, which the bank sees leading to full year profits of 52.5 million pounds.
Shahenshah said based on a price of $50 per barrel for crude oil, Afren's profit will work out to be about $20 per barrel.
Actual profits per barrel are likely to be higher, given benchmark London Brent crude -- off which West African crudes are priced -- is trading at near $90 a barrel, and analysts see Brent averaging nearly $73 next year.
Afren, which listed on London's AIM in 2005 and has a market cap of $505 million, made net losses of $8.9 million in the full-year to Dec 2005, and $16.9 million losses in 2006. It made another $10.2 million loss in the first six months of this year.
The company is currently also developing two other oil wells in Nigeria, and is engaged in oil exploration in Ghana, Congo, Gabon, and Angola, Shahensha said.
Akpo:
http://www.nigeriasaotomejda.com/PDFs/JDZ%20Brochure.pdf
It would appear that Akpo is also subject to 50% uniform tax.
Then I found this about Afren aka Akpo...
http://www.oil-barrel.com/conference/july/afren.pdf
interestingly it has royalties too. Last page conclusion says no more than 20,000 bpd.
But the brochure is beautiful, and really highlights Erhc's potential which is phenomenal.
Go Erhc!
Krombacher
Tryoty, AKPO did really great, and it has no profits. You are absolutely right.
Good comparison. It really highlights the potential of this stock.
People should study AKPO closely to understand.
Krombacher
Thanks Tryoty,
the "asset play" theory really makes a lot of sense. This stock is all about the assets that it can extract economically (i.e. profitably)
I agree with you entirely. Asset play. Got it thanks.
Erhc is going to fly!
Krombacher
DG, horrendous is too strong a word. Erhc is a great investment. I was just supplying you with what Erhc would have to pay on royalties.
Sure the oil companies have to pay half of their profits from the oil they got from the JDZ to Nigeria and Sao Tome for the taxes, but I'm sure they'll have enough profits left over to pay Erhe's obligation for the royalties plus enough left over for Erhe.
AXC (that's the ticker for Addax) showed a profit of $243 million in 2006.
To get the profit that AXC would make from the oil at 70,000 barrels a day would be difficult to ascertain because I don't really know how much AXC makes on a barrel of oil extracted from the JDZ.
Maybe someone here knows?
Of course you would have to halve the profit for the tax, and then see if you have enough for the royalty payment of $127.75 million in royalties if drilling 70,000 bpd.
Anything over that would go to Erhc.
Krombacher
Well DG,
Here's the royalty Structure that Erhc would have to pay to Nigeria and Sao Tome:
P<20 R= 0
20 <=P<=70 R= 5%{1-[(70-P)/(70-20)]}
P>70 R= 5
where:
P=production in thousands of barrels/day
R=royalty rate
So you have three tiers. Producing under 20,000 barrels a day.
Producing between 20 and 70 thousand barrels a day. Producing over 70,000 barrels a day.
I'll go with the optimistic scenario. 70,000 barrels a day.
Mutliply 70 thousand x 365 days = 25.5 million barrels a year.
For Erhc to pay the royalties it would have to get that from the profits of the oil companies doing the drilling.
What is that amount?
Well, it would have to pay royalties equal to 5% of the
70,000 barrels at $100 per barrel of oil. That's the royalty formula above.
So 70,000 barrels a day x 365 days x $100 per barrel x 5% = $127.75 million.
So the royalties paid are $127.5 million.
This sum would have to come out of the oil companies' net profit after expenses. Then they would have to pay an additional some so that Erhc itself is profitable.
That's the example for 70,000 barrels. One can do a similar calculation for the other tiers.
Krombacher
Sure, if you go to the original link:
http://www.nigeriasaotomejda.com/
and click around, you will get this sliding scale:
The applicable Royalties payable in the Joint Development Zone for Crude Oil and Casinghead Petroleum Spirit shall be according to the following sliding scale table:
P<20 R= 0
20 <=P<=70 R= 5%{1-[(70-P)/(70-20)]}
P>70 R= 5
where:
P=production in thousands of barrels/day
R=royalty rate
Krombacher
Hi DG
There is a link in the I-box, which has useful info for you on the taxes and royalties.
if you click on it and then go a little deeper you get to here:
http://www.nigeriasaotomejda.com/pdfs/summary%20legislation%20flyer.pdf
Does that help?
Krombacher
We shouldn't worry too much about royalty calculations, taxes and such.
If you take the time to read all of the Erhc board you will see that the valuation has been discussed over and over again.
There's no limit to what erhc can do.
Krombacher
Well, like all good things, they come to those who wait I guess.
Krombacher
Once Erhc hits oil, all this wait will be worth it, imo.
Krombacher
Tryoty,
I said his legal fees + staff.
I found the answer too, see last post.
Krombacher
Found it in the SEC disclosures:
General and administrative expenses decreased from $1,725,249 in the three months ended March 31, 2006 to $1,175,366 in the three months ended March 31, 2007 primarily due to a decrease of $1,093,076 in financial consultant fees due to the
recognition of stock option expense during the three months ended March 31, 2006 and the recording of a liability due to the Company's former Chief Executive Officer in the same period, which was partially offset by an increase in legal
expenses from $167,407 in the quarter ended March 31, 2006 to $643,924 in the quarter ended March 31, 2007, an increase of $476,517, primarily related to legal fees incurred in connection with the Justice Department investigation of
the Company.
So on a per quarterly basis we are talking expenses of $643,924 in legal fees.
With the new IRS investigation, legal and CPA fees will likely be slightly higher.
Krombacher
Ledbetter = good lawyer. Wonder how much he and his staff make? It would give us an idea of the the withdrawal rate of cash, as we wait for developments to ensue.
Krombacher
As soon as oil is found, and according to the seismic, the liklihood is high, all this other stuff will go by the way side.
I'm tipping my toe here and considering seriously buying.
I'm so excited about the potential. You got to agree. Right?
Krombacher
What I really like about erhe, is that once the statute of limitations are up, then this stock will take off this summer.
ERHE's cash will last a long time, as far as I'm concerned.
The key point here is that if you take all the cash and divide by the number of shares you get 5 cents of cash per share, and plus the potential for oil, and you are talking 80 cents easy.
Krombacher
I love Erhc, as soon as drilling starts we'll go up, up and away.
Go Erhe.
Krombacher
We'll
1) get a new mgt.
2) drill some oil
3) very very soon. 19 cents is a bargain. Load up the truck, is what I say.
Krombacher
Hi DG,
I'm sure I don't know what you are talking about.
I was saying that every case is different. I think you might be confused.
Erhc is a buy at these levels.
Krombacher
ERHE has 34.72 million dollars in cash according to finance.yahoo.com
Hey DG. Did you see my post?
Walldog, I don't have PM.
But I can respond to what you send to me. You asked me why I bring this up 3 years later...look at the returns that the IRS is investigating.
The IRS investigation seems to cover the time period just after his tenure. Therefore, he should be further scrutinized, imo, don't you think?
Krombacher
walldog,
He wasn't just the accountant or book keeper. From the SEC filings he was (see the first bolded below):
Additionally, ERHC Energy announced that Franklin Ihekwoaba, chief financial officer, vice president and a member of the board, has resigned as an officer and director. Mr. Ihekwoaba resigned after recently informing the Audit Committee that he should not have used the designation "C.P.A." following his name and that he had initiated a personal bankruptcy proceeding in December 2005.
The company has initiated an international recruitment search for a chief financial officer."
walldog - did you catch the second bolding? He must not have been a very good Nigerian registered accountant, if he went personally bankrupt.
Next item on the agenda - the IRS.
The IRS situation needs to be discussed. It is not enough to say that the IRS is just part of the alphabet soup of DOJ/HLS/SEC etc., end of discussion. Capone was ultimately taken down for tax evasion. Back then alcohol was huge. Just like oil is today. Would you have invested in Capone?
Something happened here. It was material. It deserves discussion.
I guess EVERYONE here knows that the fromer CFO was a FRAUDULENT CPA. That means, he claimed to be a CPA, but wasn't.
I guess that's old news.
But what did this guy do that's causing an IRS audit? Can anyone guess? And then OFFOR quits.
Who quit first Fastow or Skilling? Which comes first the CFO or CEO, in a corrupt organization? Wait, are you saying that the FRAUDULENT CPA is not corrupt?
You might say that "oh no biggie, the IRS is only investigating RECENT tax returns, not the stuff that the former CFO might have done."
But aren't audits only done to returns filed three years ago. Maybe the IRS only learned recently and is grasping at the most recent returns?
Is that too many questions for one post?
Am I now a bona fide basher?
Will I be deleted for "raising doubt"?
Krombacher
Thanks instructmba,
I had a lot in this post including a bunch of questions, but I decided to remove it from this post.
I think this potential investment in Erhe is just too complicated too follow, and my experience on the Erhe board just left a bad tast in my mouth. I'll go elsewhere.
Thanks for the warm welcom though.
Krombacher
What law firm?
They left.
Krombacher
Fair enough, buddy.
Krombacher
Hi Instructa,
Half of my posts are getting deleted over by the Erhe board. The moderator there is simply a power hungry nut, imo.
I hope that I can be welcome at this board.
I don't bash or hype, just look at pros and cons, and ask what I think are relatively good questions.
I hope that I am at least welcome here.
Krombacher
All I know about Jeff Schrull thus far is that he is a drilling coordinator for Chevron. They are looking for a drill ship to handle the type of terrain, and won't likely tap the ground until late 2008.
But then I am sure you know that already.
Keep in mind this is my first day and I'm catching up fast.
Krombacher
Dadd,
No problem here. I ask questions, people can feel free to respond.
If they don't want to offer DD, that is their choice.
If my questions cause them to think for themselves, more power to them.
If they want to ignore me, that's fine too.
Krombacher
Dadd,
With all due respect,
my post is on topic.
it asks relevant questions...as some posters have already indicated.
I'm sure that many here have done their OWN DD, by also reading the messages here, or else what is the point of a message board?
If message boards are not meant for DD, then why even have an I-box.
And no, I did not become a millionaire by letting others dictate my investment decisions. But that does not exclude not listening, asking and learning from others.
So what's the problem?
Krombacher
Actually, even though I start the letter "To whom it may concern", the person I sent it to was the same person I would e-mail to learn more about Bet On Sports and the David Carruthers arrest by the DOJ. So I have a little bit of a relationship there, if you will.
They seldom gave me anything that was very usable though, but I was able to get info such as trial dates, etc. Just basic stuff.
Krombacher
I sent an e-mail to the DOJ to learn more...I doubt it will help much but here it is:
To whom it may concern:
I am seriously considering purchasing shares in ERHC Engergy Inc. (Ticker: ERHE). In my due diligence I found that there has been an almost 18 month long investigation by the DOJ and a raid by the FBI on this company. Right away, and obviously, these actions should raise a red flag for any investor interested in investing in such a company, especially a penny stock with Nigerian management. So I know that it must be crazy to even consider an investment in this company.
Nevertheless, the company seems to have rights to oil in Sao Tome, and agreements with large companies like Addax Petroleum and Sinopec. If the investigation is dropped, and oil is found, then I imagine that the company can experience significant appreciation in share price.
Furthermore, after 18 months of investigations, there have been no indictments filed against the company.
While I don’t expect you to comment about the case itself, nor provide any investment advice; I figured it would not hurt to contact you to gain some insight as to what is going on, before I make an investment that could be a mistake.
I searched your website on ERHC and was not able to locate any additional information. I would appreciate any information that you can provide that is acceptable by you or is already considered to be public knowledge.
Thank you very much,
I'll let you know what I get...
Hey guys,
Thanks for the props, I promise not to let it go to my head, lol.
This is no doubt a complex company to study, and I have a lot of reading to do on it still.
After I read some more, I will post more questions to the board. Like Tryoty says, the incentive in answering these questions can only serve to inform new investors...with all the potential ERHC apparently has, one has to wonder why it sits at 20 cents. Perhaps it is because some here would prefer not to share their DD on a complex company.
Thanks,
Krombacher
That first link is pretty good...will take time to digest, thanks.
Krombacher
I don't know if this news has been posted but it appears that Addax will be investing $1.1 billion in Nigeria.
Here it is:
http://www.tribune.com.ng/03122007/news/news3.html
Krombacher
Woohoo, I'm at 15 posts now that it is past midnight. These guys work fast. Thanks for the support from the posters here.
Ok, my first major question to this board that has always bugged me and kept me from investing in this stock. It was semi-answered over on the Ghosts board, but not to my satisfaction, and it may not be answered to my satisfaction here, but then what they hey, I'll give it a shot.
Now be warned, some of you won't like this question, because it questions your investment in this company, and therefore will come across as a bash. But without playing devil's advocate we will never understand the true potential of this stock, imo.
But answering the question truthfully, might reel in other investors, so there's your incentive. Of course, if you give me just a hype answer, I'll simply ignore it...I'm looking for something substantive.
Ok, moving on to the question. The question is:
"Why does this stock even exist?"
At first glance it sounds like a facetious question, but I'm serious.
The whole reason for floating or IPOing any stock is to raise equity. You basically sell a percentage in the company so that you may grow from the capital raised, pay expenses, etc. You raise equity because the cost of capital associated with getting debt is in many cases too high for speculative stocks like this one.
So why did they do it? Why would Offor offer up a percentage of his company, when he stands to make a lot more money (if the hype turns out to be true) by hoarding the entire company to himself. Was it because of nobel reasons, or does it have more to do with the "Nigerian connection" not that I'm saying all Nigerians are scam artists, but let's face it, a large part of Nigerian GDP comes from the e-mail scam of a relative bequeathing a large estate.
If they KNEW there was oil they wouldn't need to raise equity. There would be no publicly traded shares, no assets, no liabilities, just a streaming cash flow. So why raise equity. All of this could also be handled by oil futures. You can hedge whether or not you have oil in the blocks vis. a vis. oil futures contracts...again removing the need to raise equity.
So I don't understand why this stock would even exist.
Furthermore, in the interest of transparency and disclosure, why doesn't the BOD simply make available any contracts that show that ERHE has the oil rights in the bloc and would profit from any oil discovered there.
Many here talk about "if there's oil, we'll be rich". But nothing so far has pointed me to a document, any document, which states that ERHE indeed has those rights. I would like to see something of that nature to rule out any "scam-iness" if you will, of the company.
Let investors dissect the contract, let lawyers look at it for its soundness and bullet proofyness. That way we will know once and for all, the big oil companies cannot take away a right that Erhe claims it has...assuming of course the document can be enforced, which leads me to my next request.
I would like to have a letter from the Nigerian govt. stating that it would back the contract with the full faith and support of the govt. Because what is to stop the Nigerian govt. from simply expropriating the rights? For a small company like Erhe, and a low share price, the Nigerian govt. can bully the company if it wants. After all, it is under USDOJ investigation, so I doubt that the U.S. govt. or the WTO would step in to stop such an action by Nigeria.
I am of course assuming that the only place that these rights can be protected are in Nigeria. This assumption may be wrong.
What if the "big oil companies" decide to put up a fight. After all, all the drilling and hard work are done by the oil companies, and Erhe is simply going to collect a royalty if you will. Does Erhe have the war chest to legally combat the big oil companies if this came to pass.
You could say that Nigeria IS Erhe. But if I were Nigeria, I would find it more expedient to simply tax the big oil companies as opposed to set up a company like Erhe, which is now under DOJ investigation.
But let's assume all of this is settled and straightened out. The next quesiton is the seismic data. Anyone have any info on the reliability of the seismic data? I'm sure oil companies do seismic data all the time. What percentage of the data is a "hit" vs. a "miss". That would help us to better value a company like Erhe, whose future hinges on whether or not there is oil down there.
Ok so there you are those are my qualms before dropping a large chunk of change in this stock.
I hope this post does not get deleted...I guess we'll see based on your perspective on whether or not this is a "bash".
I feel like they are legit questions though...and I would love to hear the responses.
Krombacher
Ok, this would be my last post for the day, until I decide whether or not to go for the premium service...so the post is therefore a little long...but then I don't know if I want the premium service because, you know me, I'm not too crazy about trigger happy censorship, after all we all know what happens when you have group think...i.e. Lemmingitis. LOL. But then I guess it's good given what some annoying posters do to a board, and you know who I am talking about.
To the moderator - Background on me. I'm an MBA and an engineer, and every once in a while I find a gem of a stock...but then many times I don't lol. Those who know me love me or hate me. That is because I tell it like I see it. I don't hype and I don't bash, but people perceive what they want to perceive. As a result of my straightforwardness, I think I can influence things in either direction, because I build up trust over time...but usually not initially. I love controversy though...which I'd like to think provides stickyness to any website...hint: money for you. Oh and I have an ego, if you couldn't tell, lol.
Anyway on to Erhe. First, let me just say Tryoty, I have been reading your posts, and you seem to have become quite the expert in oil prospecting companies, especially with regard to Erhe...you pick up info fast, like you did with I-gaming. Once you like a stock, you seem to focus on it like a laser, lol. Kudos on that. (You might want to consider putting that sharp mind of yours on a business of your own, at least that way you have some control of the outcome).
I too think that Erhe might be ripe now, given what has been happening, although I might like to wait a little, even if I'm chasing, for the investigation cloud to be lifted. The longer the DOJ focuses on this, the more money they spend; the more money they spend, the more they will be tempted to recover that money. I know that that is not how justice is supposed to work, but I'm sure you know the power of incentive...given what happened in I-gaming. Speaking of incentive, it's been discovered that Goodlatte received $40k from the horse lobby. See what I mean?
I've been reading about the FCPA, here's what I've been reading:
http://www.usdoj.gov/criminal/fraud/docs/statue.html
I'm not so sure you can rule it out...but then I haven't followed the total conversation on that.
I might throw $50k at this stock...which is not as much as RC did but then I'm cautious about this one. Or conversely...I might throw $50k at GIGM, disclosure - that was not spam, because I don't own GIGM...yet.
Krombacher
I can't believe it, my post has been deleted, not much free speech here I guess. Maybe it was the muhahaha that scared them? lol.
Hey Tryoty,
I'm here cuz I've been watching this stock, and I have some interest in it, although it hasn't been moving much.
Don't own any though. Hope you've been doing ok. How many of the old gang is here?
Krombacher