ERHC Energy Inc (ERHE)

[spp119]

Guys & Girls,

I really do not want to see petty bickering again this weekend over here. And I do not think I am alone. We are in the unique position for a tiny company of having two wells in promising prospects being drilled simultaneously. Our share price value will reflect sooner or later what discoveries are announced. Imminently. Every thing else is just trading noise and bravado.

So to encourage a bit more constructive dialogue and discussion relative to ERHE, I want to submit two very recent items which in their separate ways, shed light on various facets of the possibilites before our company.

1) - First something that became available yesterday evening in London. It is a broker's note (Fox Davies) on Gulf Keystone (GKP), the company which has essentially "stumbled" upon upwards of 1.5Bbls on acreage in Kurdistan and has seen its fortunes explode north thereupon. And its first drilling has not yet even reached Total Depth!!!!

http://www.fox-davies.com/media/68404/gkp%20initiating%20coverage.pdf

I submit this partly to qualify the Dr Drill/Mrs Flow continuum, that I described in an answer to Strass yesterday. This well discovery will of course be tested and analyzed in full, once it reaches the targeted depth......But conclusions by the market (and hence sp value), as this case demonstrates, can and will be drawn much sooner.

But I submit it also for another reason. To enhance our understanding of the relativity of P2 barrel value (ie discovered proven/probable but undeveloped oil). On pg 10 there is a rather unique table which attempts a $/barrel valuation of comparable companies operating onshore in the MENA area.

These companies are valued around $9.00 per barrel, whereas the AIM oil index trades at about $5.00 per barrel.
Deepwater GoG oil would, IMO, be at a discount to this nine dollar figure, because of much higher development costs. But given its midstream/transport benefits, the much less risky political and stabler regulatory enviroments....not by much.

I remember a discussion with YankeMike and others on this, and I think $5.00-$9.00 was the range we could both agree with. So look upon this GKP note as a contribution to that debate as well.


2)- BB somewhere in a post of his yesterday spoke of the high probability of FPSO being utilized on the JDZ acreage to store and forward crude lifted on to tankers (this would greatly reduce costs). Art in the post I am replying to, quotes remarks by JS and others, about smaller reservoirs whose production can be tied together co-operatively.

Personally, I think using even a fleet of FPSO is not on the cards should the 4 JDZ Blocks achieve even NSAI numbers. They are huge and FPSO have never being used, to the best of my knowledge, for extracting such volumes.

Also, it may or may not be the case that a "grandiose" cluster of platforms may be decided upon by the powers that be on the JDZ. The higher-ups will make those deciscions, not lower level engineers, however sensible their proposals may be. And this is because senior management makes investment choices not just on the basis of business rationality, but a host of other resons as well, politics in relation to the host country, employment offered, relations with manufacturers back home, etc. etc.
Indeed, even for production needs isolated per the smaller numbers of individual block reservoirs, what will eventually come to be is these fixed, huge mammoth towers that serve as platforms where crude is pumped to from a maze of subsea wells, processed and delivered to tankers....as well as living quarters for hundreds of all manner of personnel.

And all this edifice, both with the ties-ins from close by underwater wells to the multistory platform does not come cheap. .......And here is the current "proof" in the pudding.

http://www.reuters.com/article/pressRelease/idUS167642+09-Sep-2009+BW20090909

A broadly similar situation to (say) JDZ/Block 2 in terms of total production potential, acrage size, water depth, etc.....with a price tag of $3.8 billion.

So even real close tie-ins don't come cheap...... In fact, barrel per barrel produced, they may even be more expensive that those "grandiose" interlinked clusters, some people used to think were so appealing.

lol,

regards,
spp119