ERHC Energy Inc (ERHE)

[oilman57]

Funding and Financing

In DD'ing ERHE you come back to the same question again and again. How will ERHE finance the exploitation of the assets it has been awarded? If you don't follow the oil patch then your first hunch would be that ERHE will have to issue more equity, or issue some debt. (ERHE has no debt.) However, there are other, non-dilutive methods of raising funds in the oil patch. The posts below describe the awards and rights that ERHE owns and offer insight into funding issues.

Section 1: JDZ Awards and Preferential Rights in the Sao Tome EEZ

Summary of Joint Development Zone (JDZ)Awards
http://biz.yahoo.com/bw/050601/15521.html?.v=1
HOUSTON--(BUSINESS WIRE)--June 1, 2005--The Nigeria-Sao Tome and Principe Joint Development Authority (JDA) issued a press statement on May 31, 2005 announcing the award of five blocks on offer in the 2004 JDZ Licensing Round.
ERHC Energy Inc. (ERHC) (OTCBB:ERHE - News) had previously exercised its option rights in all the five Blocks on offer in the 2004 JDZ Licensing Round, and in December 2004 submitted bids as a consortium member for Blocks 2, 3 and 4.

In Block 2, the ERHC/Devon/Pioneer consortium has been awarded 65% interest, which is inclusive of ERHC's 30% signature bonus free interest. The consortium has been designated operator for Block 2.

In Block 3, the ERHC/Devon/Pioneer consortium has been awarded 25% interest, which is inclusive of ERHC's 20% signature bonus free interest.

In Block 4, the ERHC/Noble consortium has been awarded 60% interest, which is inclusive of ERHC's 25% signature bonus free interest. The consortium has been designated operator for Block 4.

In making the awards for Blocks 5 and 6, the JDA confirmed ERHC's 15% interest in each of these Blocks. ERHC's interest in Block 6 is free of signature bonus.

"The announcement of the awards is a significant milestone for ERHC. We look forward to working with the JDA and other participants towards developing the petroleum resources in the JDZ for the mutual benefit of the peoples of Nigeria and Sao Tome & Principe as well as our respective companies," commented Ali Memon, President & CEO of ERHC.
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Many potential investors are not aware that ERHE also has secured preferential rights to a second area, the Sao Tomes EEZ. This is above and beyond the JDZ (awards in the article above).

For verification see the latest 10Q, See Note 2: Sao Tome Concession page 9.
http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?FilingID=3666737&Type=HTML
Under the 2001 Agreement ERHC retained the following rights to participate in exploration and production activities in the EEZ subject to certain restrictions: (a) right to receive up to two blocks of ERHC's choice without the payment of signature bonus, and (b) the option to acquire up to a 15% paid working interest in up to two blocks of ERHC's choice in the EEZ.


Summary of rights in Sao Tome Exclusive Economic Zone (EEZ): (Yes in addition to the JDZ awards already made on June 1).
100% block--signature bonus free
100% block--signature bonus free
15% block---must pay its percentage of the signature bonus
15% block---must pay its percentage of the signature bonus

Any valuation of ERHE should inlcude both the JDZ awards already made PLUS the Sao Tome EEZ rights.
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Section 2: How does ERHE Fund exploaration and devlopment in the JDZ and the EEZ.

Excerpt from: http://www.investorshub.com/boards/read_msg.asp?message_id=6647315
Posted by: balance_builder
In reply to: None Date:6/12/2005 7:17:05 AM
Post #of 5459

...Financing: Lots and lots of conjecture/thoughts about how we go forward with financing our operations. As it should be, this is a big concern for ERHC'ers. Don't think for a split second that Offor and those in control don't have a master plan for financing our needs. This, of course, is a huge part of a business plan and not one that goes without a plan. I continue to believe that we use our STP EEZ blocks as leverage for full carry's in the blocks AS WELL AS the NEEZ. We tell DVN that if they carry us to first oil, they can operate in one of our STPEEZ blocks and/or we'll bid on block so and so in the NEEZ and win it. Yep....I believe Offor can almost tell our partners which blocks he can win for how much $$$$$ in the NEEZ. Transparent process?????? Nah.....but didn't I hear Nigeria might be facing some correuption issues???????

Nigeria has already been at the forefront of many many articles outlining that smaller thirsty independents will walk away with the prizes in this 61 block dance.......and with that many blocks on auction.....think it's possible that even our block 5 and 6 operators could end up with addional acreage in exchange for financing the JDZ ??? Just a though, but when you have a company/man like Offor in the saddle you'll get your financing. Remember, exploration and significant finds have diminished almost totally in the last decade.....this area (GOG) is one of the final frontiers supporting beliefs of world class oil reserves. These guys/our partners are well aware of this, and just the fact that it's the desired crude adds credibility to going forward in the zones and the desireability of the properties. National security.

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By: hdotmycom
13 Jun 2005, 10:45 AM EDT
Msg. 55553 of 55591
(This msg. is a reply to 55551 by SloJon.)
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ERHE is carrying US companies to bid wins and strong connections for local content vehicle qualification - while the US partners are in return carrying (fronting) the cash for exploration - ERHE wil pay it's way with oil.

I expect very good deals for erhe on up-front costs based on ultimate cost recovery model and additional acreage wins for our partners.

One angle here is that the cost of carrying erhe financially is more than offset by the increased % sharing versus new deals being sought on other acreage.

ERHE has VERY valuable rights in good prospective territory - with the terrific 50% split which may not be available in the future on other deals.

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By: Larry030458
13 Jun 2005, 11:12 AM EDT
Msg. 55570 of 55592
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On the subject of carry-over from a logical point of view, you have to go back in time to when Offor brought the deals to our jv partners. At that time Pioneer, Noble and Devon had no chance of getting in. Remember, this was suppossed to be XOM's ballgame. Offor held all the cards and it's highly unlikely that he would have got a bad deal. When you deal from a position of strength, your damn sure gonna get the best deal that you can get. The odds are very high that our partners carry us to oil. I don't think looking at other previous deals between other companies can be helpfull, cause I don't beleive any situation like this has ever happened before. It's unique that a small company with nothing could have these kind of rights and pull off this kind of deal imho.

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By: WALLDOG
01 Feb 2005, 08:24 AM EST
Msg. 96350 of 102200
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ERHC Eyes Nigeria, Sao Tome Jackpot
FWN Select Monday, January 31, 2005

Excerpt from
http://www.rigzone.com/news/article.asp?a_id=19905

Hurdles

However, the company must overcome some huge hurdles - namely its lack of revenue and debt load - before achieving those ambitions. But these hurdles shouldn't prevent the company from meeting its post-award obligations, shareholders say.

"It's not hard to structure a deal whereby a company's partners can carry it until first oil production," shareholder Nugent said. "I think that will happen with ERHC."

ERHC's Memon also indicated that such an avenue may be open. "It is our intention to form relationships with entities to maximize the value of our assets," he told Dow Jones Newswires. He added that the company "would be participating in each block according to our interest."
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Here is an example of a commonly used practice called a farm-out or farm-in. In a farm-in/out arrangement one company agrees to cover a partner's costs associated with exploration and/or development in exchange for a portion of the partner's oil rights.

http://www.oilvoice.com/m/uploadDetail_public.asp?upload_ID=3236
Austral Carried in US$6 Million Farm-Out
Papua New Guinea
PPL 235
Austral Pacific has now entered into a formal agreement with Rift Oil PLC (a UK company) whereby Rift will contribute the first US$6M of expenditure on the Douglas-1 exploration well in Papua New Guinea (PNG). In return, Rift will earn a 65% interest in Petroleum Prospecting License 235 in PNG's Foreland Basin. Austral Pacific will continue as operator of the joint venture with a 35% interest in Douglas-1 and the PPL 235 license.
CEO Dave Bennett said "We are delighted to have finalized this agreement, which ensures the drilling of the highly prospective Douglas-1 well this year. The Douglas Prospect is situated in a lightly explored area of the foreland basin, where earlier wells have clearly demonstrated that oil and gas is generated".
The Douglas Prospect is mapped as covering an area of some 15,000 acres (60 sq km), with PPL 235 incorporating this and several other identified drilling targets within a total area of 720,000 acres (2,900sq km). Success at Douglas-1 will enhance the likelihood for further discoveries within the license area.

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More info on ERHE DD from IHUB:

http://www.investorshub.com/boards/read_msg.asp?message_id=5721853