Replies to post #231368 on ERHC Energy Inc (ERHE)

[amj23]

what most people are missing is that offor put in the free carry so he did not get screwed over, a protection. now that the free carry comes in to play going in to production, it is a must to get erhc out of the way via another supermajor or sinopec( that can then bring in a partner of their choosing via jv)and then they can pay their way through the production costs.

[Krombacher]

Very good question seek.

We know that SNP's profit after paying ERHC per year for 10 years is $8.83 billion minus $1.64 billion (to ERHC) PLUS ERHC's cost of $.25 billion per year. Or an annual profit/cash flow of $7.44 billion or an operating profit margin of 39%.

If they own ERHC then it's just the $8.83 billion, or an operating profit margin of 47%, which is a substantial increase for them.

You want to know though the present value worth to SNP. There are two factors to consider. ERHC presumably will be paying U.S. taxes. SNP won't. So, with SNP buying out ERHC, SNP instantly saves that money. (Although presumably they then have to pay taxes to China?)

Second, to get the present value of the extra $1.39 billion that SNP stands to make each year for ten years, we need SNP's WACC. I would have to calculate that, but to save time let's say it is also very similar to ERHC's, at 6.4%, which is a reasonable assumption.

Therefore, $1.39 billion a year for 10 years discounted by 6.4% is equal to $10.04 billion and that translates to an ERHC share price of $10.06, which is the share price that ERHC is worth to SNP.

Krombacher