It seems bizarre because it would appear to actually be an Option Agreement as opposed the traditional signature bonus.
Some quick DD on Energem and its subsidiary(?) FirstAfrica Oil PLC shows that it apparently had entered into an agreement with Chad, which is referred to as the "Chad Option Agreement".
It would appear that in this agreement, Energem/First Africa Oil has to pay a sum to acquire an "option" to look for oil in the block via seismic and to bring in an operating partner.
The way most options work (for example, call option on a stock), you pay a premium, say $2, with a strike of say $10 on a stock. If the stock goes to say, $20, then you can exercise that option to buy that stock at $10, even if it is trading at $20 because you paid this premium. Of course, if the stock never goes above $10, then your option expires worthless, and your $2 is forgone.
In the same vein, I believe that the "Chad Option Agreement" was set up in a similar way.
Let's say the "real" signature bonus is actually $10 million. But Energem could not pay it up front. So instead, it buys an option for much less, say $1 million, to reserve the right to pay the signature bonus later at the strike of $10 million should there be reason enough to make the signature bonus worth it.
In the meantime, Energem can then go about doing seismic studies, enticing operating partners, etc. Basically, the option buys Energem some time, and should Energem get really great seismic results, it guarantees that Energem would pay no more than the agreed upon $10 million signature bonus, regardless of how valuable the interests become as a result of the seismic info.
Then when the time comes to move forward, Energem exercises its option and pays the $10 million signature bonus. If, however, Energem does not exercise because it cannot find a partner or meet other stipulations in the options contract, then it simply forfeits the premium of $2 million, which it paid.
In this case, it would appear that Energem went bankrupt, Chad got its premium on the option, and can now reissue that option.
I also can imagine that the 3 year installments is really just another way of saying, "renewing the option each year for 3 years, by paying another premium", or something to that effect.
Note, the above is just a guess. If the DD sleuths here, i.e. kingpindg, and others could dig up the actual "Chad Option Agreement" between Energem and Chad, (which should have been filed with the CPR to the AIM, so it should be somewhere), then we should have tremendous insight into the deal that ERHC cut with Chad.
I think that ERHC could have a problem if it is just paying a premium on an option, because if they do decide to move forward and exercise that option, then ERHC will have to cough up the entire signature bonus, which probably is *not* within its capability currently. But then it could be argued that if ERHC has all the pieces in place to move forward in Chad, then it should be able to raise that money somehow.
Krombacher - the above can be completely wrong, and it is just a pure guess.
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