ERHC Energy Inc (ERHE)

[dat_51or]

Valuing ERHE's 16.7% average interest.

Now, I'm not an accountant, just a regular investor. Here's how I'm valuing ERHE: I used the ECL analysis done for Afren on their 4.41% interest in Block 1 dated March 10, 2005. (I'm working off a hard copy of the report, but I think it's posted on Afren's website)

Briefly, the end of the report values UNDEVELOPED oil at $4/barrel at $55 (my interpolated number as the study said $3 at $40 oil). I like this approach because it greatly simplifies figuirng out how much net oil we get after royalty, tax, cost oil, production oil etc are figured out. A simple $4/barrel for undeveloped makes the calcs easy and this is an industry consultant's number, not mine.

The memo's section titled "Possible Value of Future Production" went on to calculate net present value using 10% discount, 20% annual decline rate in output, production in year 5, no inflation of cost/prices, a Capex expense of $210 million for their 4.41% interest and came up with a NPV after exploration costs. Now I know we have a full carry so these numbers don't fully apply. In my thinking they establish a floor in NPV.

End result, if my math is right, at $55/barrel oil: For each 1 billion barrels in the three JDZ blocks, ERHE's 16.7% average interest has a NPV of $738 million. With 715 mm shares outstanding we're worth about $1/share per billion barrels of oil, undeveloped. Probably worth more when we move to "developed" reserves. Definitly worth more as we don't have to pay $795 mm (16.7% share) in development costs.

So, 6 billion barrels combined in B2, B3, B4 = $6/share until undeveloped moves up the scale to developed. If they have 12 mm barrels, then $12/share. Again, this is calculating the floor value of ERHE!

All MHO.

dat