ERHC Energy Inc (ERHE)

[ERHClongtimer]

Seek, ERHC's announcement about acquiring 50% interest in Chari Ouest III is truly curious.

Pre ERHC's announcement, the facts were that OPIC (CPC) had 70% of the block and SHT (Chad national oil co.) had 30%.

If ERHC truly has 50% of the entire block now, I can see only one way that would happen:

(1) There is 0% chance that CPC would give 50% interest to a company like ERHC, leaving them 20%, for any reason. CPC does not need a partner (remora) like ERHC in their block. Maybe they would farm out a portion to a partner with deep pockets to help with development costs, but there has been no indication from CPC that that is in the cards.

(2) The most-likely scenario would be that CPC is no longer in the block. That could be either because they had a falling out with the Chad government (which no longer recognizes Taiwan diplomatically), or CPC determined that their find was not as great as they thought it was initially. What we do know is that their initial exploration contract ended May 24, 2011, and that presented an opportunity for a change in circumstances in the block.

However, it is hard to believe that CPC would let go of the "most successful prospecting achievement in the company's 40-year history of overseas oil exploration" without a fight. And there has been no indication in the media of CPC losing or giving up the block. In fact, as late as July 15, the Taiwan news media was still positively reporting on CPC's Chari Ouest find.

But we do have this cautionary note from Africa Energy Intelligence:

"Feb 23, 2011 – Fanfare for CPC's First Find. Taiwan's national oil company has trumpeted its first discovery in Chad but its excitement may be premature. The chairman of Taiwan's China Petroleum Company (CPC), Chu Shao-Hua, which operates three blocks in Chad, announced that a well on the BCO II [sic] block had struck oil. The block in question lies in the Benoy region around 50 km northwest of the producer fields in the Doba basin. Paul Chen, vice president in charge of exploration for the international branch of CPC Overseas Petroleum & Investment Corp (OPIC), talked of potential output of 9800 bpd and 35000 cu.m./d of gas. However, sources at Chad's oil ministry say the announcement is highly premature. Only one well, Benoy 1, has been drilled on the block. In 2010, another well located on BCOIII proved disappointing. OPIC operates the three licenses with a 70% stake alongside the government's 30%. Production from OPIC's blocks as well as that from the China National Petroleum Corp (CNPC) could well take over eventually from the Doba basin. The operators on the latter, Exxon, Petronas and Chevron, haven't succeeded in curbing the decline of the fields which now produce only 110000 bpd after just seven years. ..."

If ERHC did end up with 50% of the entire block, then likely SHT has the other 50%, which is more favorable terms than what they (Chad) had with OPIC.

Of course, the other possibility is that ERHC has 50% of a relinquished portion of the block, as we have already discussed.

In any case, ERHC's 50% remains a conundrum until ERHC or the media provide more details. - LT