ERHC Energy Inc. (ticker: ERHE) is a publicly traded American company with oil and gas assets in Sub-Saharan Africa. Over the last year, ERHC has acquired additional exploration blocks in Chad and Kenya to complement its existing offshore blocks in the Joint Development Zone offshore São Tome and Principé. During October 2012, ERHC received formal shareholder approval to increase the company’s authorized share capital to raise funds for exploration programs in the company’s highly prospective acreage in East, Central and West Africa.
UPDATE – The Rights Offering
ERHC reports a formal rights offering was set in motion. Stockholders will receive, at no charge, one subscription right for every three shares of common stock held of record on December 17, 2012. The subscription right allows ERHC shareholders to purchase one share at $0.075. Fully subscribed shareholders (a shareholder that purchases one share for every three shares it owns as of December 17 from this rights offering) may make a request to purchase additional shares that remain unsubscribed at the expiration of the rights offering. ERHC will offer up to 246,486,285 shares of its common stock. This represents approximately 33% of its current outstanding shares of common stock, if fully subscribed. Click here for additional information on time and date deadlines for the offering.
OAG360 notes that this type of offering does not attract new shareholders; it provides current shareholders the opportunity to purchase additional shares of ERHC stock.
Use of Proceeds
ERHC’s core focus during 2012 has been its projects in Kenya and Chad. The market likely questions how the company will fund these projects. Although ERHC has not disclosed what it expects the proceeds from the rights offering to be, it did reveal its primary targets for the Republics of Kenya and Chad in November 2012. ERHC plans to pursue rift margin plays similar to those that led to recent major discoveries in East Africa. ERHC expects to begin exploration operations in Kenya’s Block 11A by the end of 2012 and exploration operations to commence in Chad by early 2013.
ERHC signed a production sharing contract (PSC) with the Government of the Republic of Kenya that covers 2.95 million acres on Block 11A in northwestern Kenya. ERHC is targeting what’s called the Lotikipi plain which is a broad depression measuring approximately 110 km from east to west. What attracts ERHC to the Lotikipi plain is its proximity and in-trend relationship to the Abu Gabra Rift basins of southern Sudan. Over the next two years, ERHC will perform an Environmental Impact Assessment, full tensor gravity survey, 2D seismic, field studies, as well as 3D seismic if necessary to further delineate leads/prospects.
Location is key. Kenya sits at an interesting position at the intersection of two major rift systems – the Cretaceous Central African rift system and the Tertiary East Africa rift system. The company will basically pursue the same kind of rift margin play that has yielded major discoveries in neighboring Uganda as well as recent large discoveries in Kenya to the east of its Block 11A. OAG360 notes that Tullow, which is an industry leader in terms of Kenyan exploration programs and discoveries, has farmed into blocks 10A, 10BA, 10BB, 12A, 12B & 13T, which surround ERHC’s Block 11A. TLW says its acreage covers the Turkana Rift Basin, which has similar characteristics to the Lake Albert Rift Basin (near Uganda Block EA-1), and includes a south-east extension of the geologically older Sudan rift basin trend. The Sudan rift also extends through ERHC’s Block 11A. Effectively this places ERHC’s Kenyan Block 11A in between Tullow’s existing Kenyan and Ugandan exploration plays, bearing in mind TLW’s Uganda exploration program is approximately 300 miles further west.
Due to the flurry of activity and discovers in Kenya, the Kenyan government is moving to amend the Petroleum Exploration Production Act. Some of the suggested amendments include the National Oil Corporation (NOC) receiving a 25% interest in foreign firms operating locally. We believe Kenya wishes to develop its resources in the quickest and most efficient way as possible. Dissuading foreign investment will not likely resonate well for a government interested in profiting from additional oil and gas discoveries.
ERHC was awarded the production sharing contract (PSC) with the Republic of Chad in June 2011 on three oil blocks, including: Chari-Ouest III (50% interest in 1,111,974 acres), Manga (100% interest in 1,600,501 acres), and BDS 2008 (100% interest in 4,042,644 acres). In Chad, ERHC will focus initially on the BDS 2008 which is on trend with the Doba Basin oilfield, which in 2010 had an average daily production of 122,500 BOPD. ERHC’s focus area is located directly north of numerous major discoveries on a rift margin along the Central African Shear Zone. Based on technical assessments and projections, ERHC believes at least three prospects have a reasonable chance of success on ERHC’s blocks. The company’s preliminary projections of the prospects suggest the combined mean potential may be up to 63 MMBOE, with upside potential of more than 332 MMBOE. ERHC’s planned work program in 2013 and 2014 include performing an Environmental Impact Assessment, full tensor gravity survey, 2D seismic, field studies, as well as 3D seismic if necessary to further delineate leads/prospects.
OAG360 notes that in 2000, Chevron (ticker: CVX) entered in two major projects in Chad. The first being development of the Doba oil fields in the south, and the second being involved in the construction and operation of a pipeline to transport oil from those fields to an export terminal facility in Cameroon. In BP’s 2011 Statistical Review of World Energy, the report estimates Chad’s 2010 proved reserves at 1.5 billion barrels, 2010 production at 122,000 BOEPD, and a 2010 R/P ratio of 33.7 years.
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