ERHC Energy Inc (ERHE)

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Houston Chronicle article on ERHE (12/9/05)

Dec. 9, 2005, 11:16PM
São Tome says it needs Nigerian OK to end flawed oil deals


By ZOE EISENSTEIN
Reuters News Service

SÃO TOME - São Tome has found irregularities in the award of oil exploration contracts in waters it manages jointly with Nigeria, but it cannot cancel the deals without Nigerian agreement, São Tome President Fradique de Menezes said.

An inquiry by the country's attorney general showed correct procedures were not followed in a second licensing round that awarded five offshore blocks in the Joint Development Zone shared by the two neighbors.

The round, which came after delays, squabbling between the two countries and allegations of corruption, awarded the blocks in May to U.S. and Nigerian companies.

The president said he did not have the power to order the cancellation of the flawed contracts despite the attorney general's findings.

"If we cancel the licensing round, we must also obtain the agreement of the Nigerian side. We cannot cancel alone," de Menezes said in an interview with Reuters.

The companies involved included U.S.-based ERHC Energy, which won the right to jointly operate in two blocks and stakes in the three others.

Controversy over the round has focused on ERHC, which de Menezes said was U.S.-listed but owned by Nigerian capital.

Attorney General Adelino Amado Pereira said Friday that procedures used to select the companies were "seriously flawed and did not meet the minimum international standards for a licensing round."

Some companies that received exploration blocks had little or no qualifications, both technically and financially, the attorney general said in a prepared statement.

De Menezes said such irregularities led to a loss of income for São Tome that he estimated at $58 million to
$59 million.

"We have a treaty with Nigeria, and everything which can be decided regarding the JDZ must be together. We cannot be alone in São Tome taking decisions. Otherwise we will have a conflict with Nigeria," de Menezes said.

The second licensing round followed a first, which was aborted after just one exploration contract was awarded for $123 million to a consortium led by U.S. energy giant Chevron.

Chevron is due to start drilling its first exploration well in its JDZ block in January, and São Tome plans to launch a first oil exploration licensing round for its own economic exclusion zone waters by the end of next year.