How much will a farmout of 10% of Kenya fetch in this market? All the noise and fighting about the current share price seems a little useless to me. It is what it is. The question is, how can ERHC get out of this downward share price spiral caused by the convertible debentures. The only way I see they can do that is to get a farmout somewhere. I could be wrong but I honestly believe that Kenya is the only place where that is possible given the current environment in the oil industry.
I picked 10% because I believe that is the least someone would take. Plus, ERHC doesn't really have 35%. Subtract out Circle's 5% and subtract out Kenya's back-in of about another 3% and ERHC actually controls about 27%. Farming out an additional 10% would leave them only about 17%. That is not a lot but is still a lot better than nothing.
The only thing we can go with to come up with an idea on a valuation is to look at past farmouts. But, we have to also keep in mind that the market is now completely different than when these other farmouts happened. Any farmout now will come at a discount to past farmouts.
The most obvious one is Taipan's farmout of 15% to Tower in April of 2014. This was in a block with about 1.6 billion in resource estimates. Tower paid $4.5 million in cash plus stock in their company which at the time was worth about $700,000. So the total compensation was about $5.2 million. But this did not include a carry. The well was about $25 million, so that particular carry would have been worth about $3.75 million. $5.2 million plus $3.75 million equates to about $8.9 million for a 15% interest. That makes a 10% interest worth about $6.0 million. So how much would they get today given oil prices and ERHC's desperate situation? I would think it would be about 60% of that. So around $3-$4 million. I'm sure some will disagree. But I would take that and run.
Get the deal done Ntephe. You are running out of time and shareholders are running out of patience with your bad management decisions, poor communication, disdain for minority shareholders, inability to control costs and lack of understanding of business, markets and the oil and gas industry. If you decide to step down, that would be fine with me.
