A recommendation to increase the number of any company’s authorized shares of common stock from 950 million shares to three billion shares would make anyone read the fine print.
Back in August, ERHC Energy Inc. (ERHE), a publicly traded American company with oil and gas assets in West Africa and East Africa, submitted a plan to significantly intensify its fundraising activity for its exploration programs. The company reported on October 10, 2012 that its shareholders approved a proposal to amend ERHC’s Restated Articles of Incorporation to increase the number of shares of common stock that the company is authorized to issue by a vote of 511,885,807 (in favor) to 72,521,768 (against).
At the shareholder’s meeting, ERHC’s management also announced plans to raise up to $45 million for exploration work programs in Kenya’s Block 11A and Chad’s BDS 2008.
What’s the Strategy?
ERHC received formal shareholder approval of an increase in 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.
The Assets – Kenya
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. This represents the company’s second large PSC onshore in Africa – the first being its three blocks in Chad, and its first foray into one of the more active areas in East Africa.
In Kenya, ERHC expects to begin exploration operations in Kenya’s Block 11A by the end of calendar year 2012. 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. Read more about Kenya: “ERHC Diversifies African Exploration Assets; Adds 2.95 Million Acres in the Middle of Kenyan Activity.”
The Assets – Chad
During 2011, the company made the move onshore to The Republic of Chad, nearly doubling its corporate acreage position in Sub-Saharan Africa. 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).
ERHC plans to commence exploration operations in Chad by early 2013. The Company 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. Based on technical assessments and projections, 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. Read more about Chad: “ERHC Operating in Sub-Saharan Africa; Republic of Chad Work Program Gaining Momentum.”
The Assets – Offshore West Africa
In addition to its interests in Kenya and Chad, ERHC holds 100% WI in Blocks 4 and 11 in the Sao Tome and Principe Exclusive Economic Zone (EEZ) with an option to acquire up to 15% WI in two more Blocks. ERHC expects to complete PSC negotiations with the government of Sao Tome and Principe before the end of 2012. ERHC also holds WI in Nigeria-Sao Tome and Principe Joint Development Zone (JDZ) Blocks 2, 3, 4, 5, 6 and 9.
Final Thoughts on ERHC
Aside from pure exploration and development, financial flexibility is a positive when looking for additional strategic acquisitions, and joint development partners. 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. However, exploration programs in the new blocks will likely exceed existing capital resources available to the company, which has prompted ERHC management to explore funding options, which shareholders support based on the recent voting results. Once the company secures additional capital, ERHC should be in a position to undertake seismic and other G&G studies to better identify prospects on their recently-acquired blocks in Chad and Kenya in order to establish an initial exploratory drilling campaign and to perhaps attract a larger operating partner.
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