ERHC's strategy in Kenya and Chad is to perform exploration work and further establish the prospectivity of assets acquired through Production Sharing Contracts (PSCs) with the governments of both countries. ERHC plans to raise up to $48 million to cover the projected costs of exploration in the near future. ERHC is simultaneously entertaining discussions with other exploration and production companies which want to farm into ERHC's interests in Kenya and Chad. ERHC expects that such farm-in arrangements, if entered into, might lower the risk and cost of the exploration programs to ERHC.
The Company's strategy in the JDZ and EEZ is to farm out its working interests to well established oil and gas operators for valuable consideration including upfront cash payments and being carried for ERHC's share of the exploration costs. This has already been done successfully on Blocks 2, 3 and 4 of the JDZ where ERHC has benefited from partnerships with Addax Petroleum and Sinopec Corporation, which have operated some of the license areas on behalf of ERHC.
ERHC is now pursuing a similar approach for JDZ Blocks 5, 6 and 9 as well as for blocks in the EEZ.
Apart from its oil and gas exploration activities in Kenya, Chad, the JDZ and the EEZ, ERHC continues to pursue other oil and gas opportunities on the African continent. These opportunities also include the possible acquisition of significant equity stakes in other oil and gas exploration and production companies and the resulting indirect interest in the underlying exploration and production assets of such other companies.
The Company holds a 90% interest in Block 11A, which encompasses 11,950.06 square kilometers or 2.95 million square acres. The Government of Kenya has a 10% carried participating interest up to the declaration of commerciality and may thereafter acquire an additional 10% interest in the PSC in which case the total Government participation would rise to 20%. Circle Limited (www.circleoilandgas.com) ("Circle") acted as finder in ERHC's acquisition of the Block by facilitating ERHC's entry into Kenya, including the introduction of Dr. Peter Thuo, ERHC's Kenya-based geoscientist and technical adviser who provided liaison services in the pursuit of ERHC's application. Circle's involvement provided significant efficiencies, including substantial cost savings, in ERHC's application process. By virtue of the terms of the business finder's agreement reached between Circle and ERHC, Circle is entitled to receive a 5% payment on the value of the acquisition accruing resulting to ERHC from the application. Circle has opted to receive this fee in the form of a carried 5% of ERHC's total interest.
Kenya Oil Background and Overview
East Africa has emerged in recent years as arguably one of the most exciting, new oil provinces in the world with major discoveries of oil in Uganda's Block 1 (EA1), and Kenya's Ngamia-1, and large gas discoveries, including the Zafarani find, offshore Tanzania.
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