ERHC Energy Inc (ERHE)

[Krombacher]

What if, shortly after the gag order, ERHC and Starcrest consummated their merger allowing ERHE to produce revenues; we know ERHC had revenues as was confirmed by the PPP funds it received for COVID?

I don't think the asset is encumbered as a result.

But I do think that it makes sense for Total to move forward.

It is no coincidence that Total picked up the JDZ blocks that are adjacent to ERHC's JDZ blocks.

Total always spoke about area wide developments and so did ERHC.

The JDZ blocks that Total picked up were Blocks 7, 8 and 11 in 2019 and in 2021, according to TTE's annual report, they also ran two separate 3D Seismic Studies on those blocks.

Compare that to the blocks owned by ERHC, per the IHUB IBOX:

JDZ Block 2: 22.0%
JDZ Block 3: 10.0%
JDZ Block 4: 19.5%
JDZ Block 5: 15.0%
JDZ Block 6: 15.0%
JDZ Block 9: 20.0%

But the percentages are higher since Sinopec reverted back its percentages.

And I find it to be of no coincidence that the gag order was initiated by Total Energies shortly around this time too.

They want secrecy for good reason. And that reason is that anyone else could come and buy out ERHC for peanuts but Total didn't want that to happen while it couldn't do a buy out while the litigation with Kosmos was underway.

Hence the need for a gag order to protect its interest in ERHC.

But as soon as outside forces know about what's there, they'd buy out ERHC in a heartbeat circumventing Total because Total was hamstrung due to the litigation.

With the lawsuits over with now... only a matter of time for that buy out to occur and it must occur prior to the licensing expiration of Nov 2024.

So backing out the timing... any day now there should be a buy out announcement in order to also secure drill ships and what have you before Nov 2024, to give them reason to pay for the costs of further extending the license past Nov 2024.

You might argue that TTE would simply wait out the expiration of the license...

... But by waiting for the license to expire, Total's betting on the following:

1) without a promise to buy ERHE, why would ERHE keep to a gag order? It would eventually disclose findings in one way or another... enticing another suitor like Shell to buy ERHC.

2) There's no guarantee that Total would be the entity to pick up a new license from Sao Tome upon expiration of the old. Remember that these licenses were granted back when no one had any interest in the EEZ let alone finding promising results in Block 6 by Shell. Sao Tome could exact quite a price on new grants for licenses which everyone would presumably want if the gag order were not adhered to.

Total has the opportunity for a "sure thing" in acquiring the block by acquiring ERHC in a deal already agreed to per the 400+ pages of the court documents.

Versus

The uncertainty of losing it all and STILL paying a hefty price to re-acquire it.

I don't think TTE wants to pay that price or have that uncertainty.

Plus, if Total acquired ERHC, it would not only get EEZ block 4, but also ERHC's JDZ assets, which aligns well with Total's strategy given its JDZ assets.

It's just too convenient to purchase ERHC as opposed to the trickier and more inconvenient strategy of allowing licenses to expire.

I think the Valaris DS-7 contract is massive and yet there's all this secrecy behind who signed that contract. It's 12 wells over 800 days all in one vicinity of a location in the gulf of Guinea. I don't know of any oil major about to pick up so many blocks to have to drill 12 wells....unless we say that it is TTE picking up all of ERHC's EEZ and JDZ blocks in a buy out.

Here's the Valaris press release:

AMILTON, Bermuda--(BUSINESS WIRE)-- Valaris Limited (NYSE: VAL) (“Valaris” or the “Company”) announced today that it has been awarded a 12-well contract offshore West Africa for drillship VALARIS DS-7, which will be reactivated for this contract.
The contract is expected to commence in second quarter 2024 and has an estimated duration of 850 days. The total contract value is estimated to be $364 million. The contract requires minimal customer-specific upgrades to the rig and does not include the provision of any additional services

Krombacher