Item 1.01 Entry into a Material Definitive Agreement.
On November 17, 2005, ERHC Energy Inc. ("Company") entered into a
participation agreement with Addax Petroleum (Nigeria Offshore 2) Limited
("Addax") as subsequently amended whereby the Company agreed to assign to Addax
a 33.3% participating interest in Block 4 of the Joint Development Zone between
Sao Tome & Principe and Nigeria ("JDZ"), leaving a 17.7% participating interest
in Block 4 to the Company. In exchange, Addax has paid the Company $1.35
million, and will pay an additional $16.65 million ten days after the execution
of a production sharing contract for Block 4. ERHC agreed to support Addax as
operator, and Addax agreed to pay all of the Company's future costs in respect
of all petroleum operations in Block 4. Addax is entitled to the Company's share
of cost oil until Addax recovers the Company's costs.
On February 16, 2006, the Company entered into a participation agreement
with Addax Petroleum Resources Nigeria Limited ("Addax Sub") whereby the Company
agreed to assign to Addax Sub a 15% participating interest in Block 3 of the
JDZ, leaving a 10% participating interest in Block 3 to the Company. In
exchange, Addax Sub has paid the Company $500,000 and will pay the Company an
additional $7 million ten days after the execution of a production sharing
contract for Block 3. Under this agreement, Addax Sub agreed to pay all of the
Company's future costs in respect of petroleum operations in Block 3. Addax Sub
is entitled to the Company's share of cost oil until Addax Sub recovers the
Company's costs.
On March 2, 2006, the Company entered into a participation agreement with
Sinopec International Petroleum Exploration and Production Corporation Nigeria
("Sinopec"), and Addax Energy Nigeria Limited ("Addax Ltd."), whereby the
Company agreed to assign a 28.67% participating interest in Block 2 of the JDZ
to Sinopec, and a 14.33% participating interest in Block 2 of the JDZ to Addax
Ltd., leaving a 22% participating interest in Block 2 to the Company. In
exchange, Sinopec agreed to pay the Company $13.6 million ten days after
execution of a production sharing contract for Block 2, and Addax Ltd. agreed to
pay the Company $6.8 million ten days after execution of a production sharing
contract for Block 2. Under this agreement, ERHC agreed to support Sinopec as
operator, and Sinopec and Addax Ltd. agreed to pay all of the Company's future
costs in respect of petroleum operations in Block 2. Sinopec and Addax Ltd. is
entitled to the Company's share of cost oil until they recover the Company's
costs.
On March 14, 2006, a subsidiary of the Company, Addax, and several other
oil and gas companies (collectively, the "Contractor") entered into an exclusive
production sharing contract with the Nigeria-Sao Tome and Principe Joint
Development Authority ("JDA") to conduct petroleum operations in Block 4 of the
JDZ, where Addax serves as operator. The term of the production sharing contract
with the JDA is twenty eight years consisting of a three-phase exploration
period and a development and production period. The contract requires minimum
work commitments to be performed during the eight year exploration period.
During the first four years, or Phase I, the Contractor is required to drill at
least two wells, with an option for a third well depending on the results of the
first two wells, to a minimum total depth of 3,500 meters subsea, process
existing 3D and 2D seismic date, conduct AVO attribute analysis, acquire
additional geochemical, structural restorations and/or sequence stratigraphic
analysis and perform geological and geophysical studies. During the next two
years, or Phase II, the Contractor is required to drill another well and acquire
additional seismic data. During the last two years, or Phase III, the Contractor
is required to drill another well. The Contractor is required to spend at least
$53 million in Phase I, $16 million in Phase II, and $16 million in Phase III.
If these minimum financial commitments are not met, the Contractor is required
to pay the JDA the difference between the commitment for the then current Phase
and the amount actually expended in petroleum operations for such Phase as
liquidated damages. The Contractor may, however, terminate this contract at the
end of any Phase provided it has fulfilled its obligations relative to that
Phase. The Contractor is required to post a performance bond in an amount equal
to its minimum financial commitment for each Phase, to insure its property and
to obtain liability insurance. The Contractor has a right to produce all
commercially viable hydrocarbons discovered and may be granted a series of
twenty year extension periods until the hydrocarbons are economically depleted.
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The Contractor is required to make several expenditures to the JDA,
including a $90 million signature bonus. Addax is required to pay on behalf of
the Company its proportionate share of the various guaranties and expenditures
pursuant to the participation agreement executed November 17, 2005, as amended.
The JDA may terminate the production sharing contract if the Contractor fails to
pay any of the expenditures or the minimum financial commitments, among other
events. The contract shall expire if no petroleum is found in Block 4 at the end
of the exploration period.
On March 14, 2006, a subsidiary of the Company, Addax Sub, and several
other parties entered into a production sharing contract with the JDA to conduct
petroleum operations in Block 3 of the of the JDZ, the terms of which are
substantially similar to the production contract in Block 4, except that the
drilling commitment is only one well and the signature bonus is $40 Million.
On March 15, 2006, a subsidiary of the Company, Sinopec, Addax Ltd, and
several other parties entered into a production sharing contract with the JDA to
conduct petroleum operations in Block 2 of the of the JDZ, the terms of which
are substantially similar to the production contract in Block 4, except that the
drilling commitment is only one well and the signature bonus is $71 Million.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ERHC Energy Inc.
By: /s/ Walter F. Brandhuber
-------------------------
Walter F. Brandhuber, President
AI
