My post on the ERHC board applies here too, here it is:
Actually, there are a lot of things I like about ERHC Energy...
...and I'm a long time long.
1) midtieroil mentioned something a while ago that made me see the Kenya outlook as positive. He pointed out that interest is accruing on the monies owed to CEPSA by ERHC.
I find that very interesting. By now, CEPSA could have declared ERHC in default and maybe the Kenyan govt would have dropped ERHC. BUt to my knowledge this hasn't happened.
Instead, by charging ERHC interest, CEPSA is in essence financing ERHC...and if CEPSA goes back into the block and drills to find oil and if it finds oil ... then I suppose CEPSA can collect its debt plus interest from the oil...that's another way of saying FREE CARRY. It's not quite free carry...but you can see that in a way the consequences are similar to free carry.
2) Shedding Chad is not a bad thing. They did it before by dropping the initial two blocks...and they were no worse for wear. There's really no way...and if there was a way it wouldn't be a good use of capital...that they could've paid $10 million or more dollars to keep their rights in Chad. Chad is a hotbed of civil unrest and all manner of govt issues there...including skirmishes of war. So they dropped Chad, that improves what they owe.
3) With regard to the IRS lien. The IRS lien is on assets. Well, I got new for you. Assets are the things listed on the balance sheet. Just because we call ERHC rights to the JDZ, EEZ, and Kenya "assets" doesn't mean they are the type of assets that the IRS has a lien on since they are not "assets" listed on the balance sheet. There isn't much listed as assets...so the IRS can have at it all it wants.
If ERHC acquires new "assets" I doubt those fall under the old lien either...at best the IRS would have to issue a new lien.
4) While we might view the producing well in Texas as an asset (but it came after the IRS lien)...and while some think the Texas asset is a joke...I think the timing wasn't all that bad to buy a well when oil prices were depressed. Oil can still go down..recently it has...but if it goes up significantly...that asset appreciates. Who knows ...maybe they get just enough juice out of the Texas property (especially if they drill a bit)...to pay for their salaries without issuing any more convertible debt.
5) Speaking of the convertible notes....here's the interesting thing I think. **IF** ERHC does NOT do a reverse split...and I can't predict they won't, but if they do NOT do a reverse split...then the remaining convertible note holders won't be able to convert their debt to shares...that's because we have probably hit the authorized limit on the shares already. I think we've hit the limit because there doesn't appear to be any more CN dumping.
So here's what may happen: the remaining unsecured convertible notes aren't converted to shares and sold on the market. ERHC would owe that money...but without any money to pay them back, ERHC defaults on the convertible notes. And that's it.
There's a reason why the CN holders make so much money...it's because they take on the very risk I just described. They were dumb enough to lend to a company for more than the company's market cap...so now they take it on the nose...but again, only IF there's no reverse split and more shares can't be printed.
6) Did you notice that part in the shareholder update about the JDA assigning a new contractor to Block 2...is that another way of saying we might have an operator coming online there? Similar developments possible in the other blocks. The last time we had an incredible run up to JDA drilling...before we discovered no commercial oil in the five drillings.
Well if this new contractor is a new operator...and they're better than Sinopec...then who knows...maybe the JDA is soon to be resurrected.
7) Activity already taking place in the EEZ with Galp and Kosmos...maybe we see some progress there.
8) ERHC is bidding on other property! That's interesting news too. ERHC has pulled rabbits out of the hat before...gaining properties with nothing really ventured in terms of capital...simply by creating alliances with producers and African govts. If that comes to fruition, then things could get interesting...and hope springs eternal.
9) And finally the potential Starcrest lifeline. ERHC has valuable "assets"...assets not on a balance sheet for the IRS to consume...but assets that Starcrest may very well be interested in, in exchange for keeping ERHC alive and some money flowing into ERHC to keep operations going and the light on.
And all of that and at $.0004 times let's say the maximum of 3 billion shares and you have a market cap of $1.2 million.
So I'm actually cautiously optimistic.
That doesn't mean I'm making any buy recommendations at this point...but only stating an opinion.
Krombacher
