Big Developments within ERHC Energy

Also, see Updated Technical Analysis Charts by Roy Martens

The long anticipated Production Sharing Contracts will be signed by the end of the month according to multiple sources.

For those unfamiliar with ERHC Energy, it may be helpful to read my previous report on the company:

ERHC Energy Special Report

On Monday of this week, ERHC Energy opened at $.50/share. On Tuesday it was announced that Pioneer abandoned its partnership with ERHC Energy, and the stock gapped down, hitting a low of $.32/share. But within hours, ERHC stock amazingly filled the gap to close even for the day at $.47/share.

The primary reason for this stunning rebound was that later in the day news was released naming Sinopec, a Chinese oil giant, as ERHC’s new partner in place of Pioneer.

Shortly thereafter, Pioneer (PXD) was downgraded and the stock has fallen about 20% since the news hit the wires that they walked out on ERHC Energy.

Sinopec as ERHC’s new partner is huge news. Sinopec is China’s largest oil refiner and second largest oil producer, with a market cap of over $50 billion and a P/E under 9. It is the world’s 7th largest oil company, with 2004 revenues of over $74 billion and a net profit of almost $5 billion. It has about 400,000 full-time employees! This is definitely an upgrade from Pioneer, which had revenues of under $2 billion and a net profit of about $300 million for 2004.

http://finance.yahoo.com/q?s=SNP (Stock Quote and related Info)
http://www.chinadaily.com.cn/english/doc/2006-02/09/content_518505.htm

Nigeria – China Eyes Gas and E&P

China, running low on oil resources and the world's fastest growing energy importer, is making a great effort to seek overseas supply sources. The country's three state-owned giants - China National Petroleum Corp. (CNPC), China Petroleum & Chemical Corp. (Sinopec), and China National Offshore Oil Corp. (CNOOC) - have all entered Nigeria's oil sector.

In addition, Addax, ERHC’s partner in blocks 2, 3, and 4, is currently conducting its IPO which will raise over $400 million.

What follow are news releases updating the current situation. Important developments are highlighted in red.

ERHC Energy Inc. Announces Replacements of Pioneer Natural Resources

Wednesday February 8, 12:30 pm ET

HOUSTON--(BUSINESS WIRE)--Feb. 8, 2006--ERHC Energy Inc. (OTCBB:ERHE - News) is pleased to announce that it has entered into a Memorandum of Understanding relating to Block 2 of the JDZ. A Consortium with Sinopec International Petroleum and Addax Petroleum has been formed under the terms of the MOU.

An additional MOU was entered into by ERHC Energy Inc. and Addax Petroleum in Block 3 of the JDZ.

ERHC anticipates that there will be no delay in meeting the JDA timeline for the execution of the JOA and PSC for Blocks 2 & 3 of the JDZ.

JMC Demands Speedy Award Of PSCs Licenses

By Bssey Udo, Energy Editor

The Joint Ministerial Council (JMC) has directed the Joint Development Authority (JDA) of the Nigeria-Sao Tome Joint Development Zone (JDZ) to speed up negotiations on all Production Sharing Contracts (PSCs) to ensure that all agreements in respect of oil blocs awarded in the 2004 licensing round are signed before the end of the month.

Rising from its 11th meeting held in Abuja, the JMC, which supervises the JDA, reiterated its commitment and determination to pursue the rapid development of the petroleum and other natural resources in the JDZ.

The JMC is made up of the Ministers of Petroleum Resources and other representatives of the two countries involved in the management and development of natural resources at the JDZ, while the JDA is responsible for the administration of the affairs of the JDZ.

It considered other technical and administrative issues crucial to the development of the JDZ and rejected the report of investigation on JDZ second bid round conducted by an American-based law firm on behalf of the Attorney General of Sao Tome and Principe and expressed reservations over insinuations of impropriety leveled against Nigeria and Federal Government officials.

The Office of the Sao Tome and Principe Attorney General in an independent inquiry report had condemned the process of award of the oil blocs and called for the United States probe of the 2004 licensing round alleging "serious flaws" in the awards, particularly improper payments to officials and their families in contravention of country’s law.

In the report released late last year, the Attorney-General also observed that several of the companies chosen to explore the JDZ blocs lacked the requisite technical know-how and financial capacity to carry out the development of the acreages, while the procedures adopted in selecting the companies that won concessions did not meet the minimum standards required for the award of such licenses.

Noting the various stages of progress achieved in the negotiations on the Production Sharing Contracts (PSCs) for Blocs 2-6, the JMC ratified Addax Petroleum as operator for Bloc-4 as well as for it to replace Pioneer in Bloc-3.

Expressing satisfaction over the progress on the drilling of the first exploratory well OBO-1 in Block One without pollution incident or accident, the council acknowledged the urgent need for the Non-Hydrocarbon Resources Department of the JDA to commission a survey with a view to determining the inventory and commercial value of the non-hydrocarbon resources in the JDZ.

UPSTREAM NEWS

JDZ Blocks Lure Sinopec

By Upstream staff

CHINA'S Sinopec has agreed in principle to be operator of Block 2 in Nigeria and Sao Tome's Joint Development Zone (JDZ), writes Barry Morgan. Sinopec's partners in the block will be ERHC Energy and Addax petroleum.

Pioneer Natural Resources had been offered operatorship of the block, but later withdrew.

In addition to the Block 2 deal, ERHC has signed a memorandum of understanding with Addax covering Block 3, from which Pioneer also withdrew.

It is understood the Nigerian authorities knew of Pioneer's pull out late last year, but gave ERHC time to find a new partner.

Production sharing contracts for most of the JDZ blocks on offer will be signed on 28 February, sources have said.

Negotiations for Block 2 may take longer as Sinopec's plan to join forces with ERHC and Addax Petroleum will need approval from Beijing.

JDA approves Addax as operator of oil bloc

February 9th, 2006 by Olusola Bello

A Swiss oil firm, Addax Petroleum, has been appointed the operator of bloc 4 in the Gulf of Guinea by the Joint Development Authority (JDA), the body administering the hydrocarbon resources in the Joint Development Zone (JDZ).

Addax replaces US independent oil firm, Pioneer Natural Resources, which has pulled out from the consortium with ERHC Energy, the US-based company in which Nigerian indigenous oil firm Chrome Energy has a majority stake.

President and chief executive officer of ERHC Energy Walter Brandhuber told reporters yesterday that Addax would be bringing to bear on the consortium its wealth of experience in oil exploration and production, particularly in Nigeria's offshore area.

"The JDA has approved Addax as the operator for bloc 4. The approval was given last week," Brandhuber said, adding that ERHC has conveyed to the JDA its readiness to sign the Joint Operating agreement (JOA) and Production Sharing Contract (PSC) for the bloc.

A spokesman for the JDA also confirmed the approval granted Addax. "I can confirm that both parties (Nigeria and Sao Tome) represented in the Joint Ministerial Council have now approved the Addax operatorship of bloc 4," said the spokesman.

By the JDA approval, Addax has now replaced all the major American oil firms in the consortia with ERHC Energy in exercising all the rights granted it by the JDA in the five oil blocks awarded last May.

Meanwhile, the Joint Ministerial Council (JMC) of the JDA yesterday, agreed to convene a meeting on February 28, in Abuja to consider and approve the Production Sharing Contract (PSC) guiding operations in the five oil blocks awarded last year.

The JMC, which consists of representatives from Nigeria and Republic of Sao Tome and Principe which began meeting on Tuesday, also rejected the judicial report purportedly issued by the Office of the Attorney General of Sao Tome and Principe, condemning the process of award of the blocks.

The Sao Tome attorney general late last year released a report alleging "serious flaws" in the way the blocks were awarded. He said several of the companies chosen to explore the JDZ blocks lacked the technical know-how and the financial muscle to carry out the work, and that the procedures used to select the companies which received concessions contained serious flaws and did not satisfy the minimum standards required for the award of such licences.

The tiny archipelago island also picked holes in the preferential rights granted ERCH Energy in many of the blocks. ERCH Energy is a quoted company on the New York Stock Exchange in which a Nigerian indigenous oil company, Chrome, has major equity interest. The country said it would lose about $58 million in expected income if the award to ERHC was allowed to stay.

A Joint Ministerial Council meeting of the Abuja-based Joint Development Authority, set up to administer licensing of offshore exploration acreage shared by Nigeria and Sao Tome, ended Wednesday with a date set for the signing of contracts covering five blocks awarded in the recent second licensing round.

"The JMC meeting has just ended and they have agreed to meet again on the 28th (February)... The PSCs should be signed on either the 28th or the 29th (sic)," a spokesman for the JDA said.

The JDA has been under pressure to set a date for the signing of the contracts--covering blocks 2, 3, 4, 5 and 6 - awarded in bidding round plagued by allegations of corruption, delays and political wrangling in the tiny island nation of Sao Tome.

Dallas-based Pioneer Natural Resources Tuesday said it had notified the JDA that it was withdrawing from participation in blocks 2 and 3 in the latest blow to the round conducted last May.

Both Noble Energy and Devon have also pulled out of negotiations.

BRINGING IN SINOPEC

ERHC President and CEO Walter Brandhuber told Platts Tuesday that ERHC had lined up China's Sinopec for block 2, in which it and Pioneer had a 65% stake and were the operators.

"We are currently discussing and putting final touches to agreements that will see Sinopec join the ERHC/Addax consortium in block 2. We have also indicated this to the JDA, but until we sign a final agreement, then we can make presentation to the authority," Brandhuber said.

An industry source familiar with the Joint Development Authority said Wednesday said that the replacement "is under consideration." "A decision will be taken in due course," he said.

The industry source also said Swiss-based Addax Petroleum may take equity in block 3, where Pioneer and ERHC had a 25% stake.

The JDA recently approved Addax Petroleum's replacement of Noble Energy as ERHC's partner and operator in block 4.

Noble Energy and ERHC were awarded a stake in block 4 after Noble offered a front-end bonus of $57-mil along with a pledge to drill three wells during the first exploration phase of four years. Its rival, Anadarko, had offered a much higher bonus of $91-mil, but committed itself to drilling fewer wells over a longer period of time.

The second licensing round, which attracted signature bonuses totaling $283-mil, saw ERHC Energy, which is controlled by Emeka Offor, a wealthy Nigerian businessman, granted preferential rights to equity stakes varying in size from 15% to 30% in six offshore blocks based on the company's agreement with Sao Tome as compensation for exploratory works carried out earlier.

SAO TOME ATTORNEY-GENERAL REPORT

The JDA spokesman said Nigeria's oil minister Edmund Daukoru and Sao Tome representatives at the JMC meeting had "disowned" a report by the Sao Tome attorney-general concerning alleged irregularities in the contract awards.

"It is not the official position of the government of Nigeria or the government of Sao Tome," he said.

The report published Dec 9 by the Sao Tome attorney-general's office said several of the companies awarded blocks lacked the technical know-how and the financial muscle to carry out the work, and that the procedures used to select the companies did not satisfy minimum standards.

The attorney-general has also called for a US investigation of the award of oil blocks to ERHC, claiming the US minnow's participation in the round deterred qualified companies from the bidding.

ERHC has denied the allegations and said the company had no contact with any Sao Tome officials throughout the bidding process.

The award of second batch of blocks attracted signature bonuses totaling $283-mil. Under the terms of a treaty signed in 2002, Nigeria, which is already Africa's largest oil producer, will take 60% of all oil and gas revenues, with Sao Tome receiving 40%.

--Jacinta Moran, jacinta_moran@platts.com

For further research please see:

erhc.blogspot.com
http://erhc.blogspot.com/

Investors Hub
http://www.investorshub.com/boards/board.asp?board_id=1909

ERHC Energy
http://www.erhc.com/

The Next Elephant?

What if I were to tell you that there exists another company that believes it has an equivalent amount of oil to ERHC (3 billion barrels), is in the process of forming an alliance with a very large Chinese corporation (perhaps even larger than Sinopec), and is also planning to acquire their full 100% rights to a large (several billion pound) zinc mine capable of being brought into production later this year?!

Feel free to read that very long sentence one more time to fully digest the information.

Then consider that this ‘under the radar’ company has a market capitalization of a mere $10 million!

Perhaps it’s just too good to be true, and that’s why I am still conducting research and engaging in communications with the company’s representatives in order to make a more informed decision.

But if it turns out that this stock is ‘for real’, then you can expect an in-depth report to be released as soon as is possible on my part. I am very excited because this company could be one of the most undervalued stocks in existence today.

On that level, it seems almost unfair to compare this company to ERHC Energy, because despite its very bright prospects, ERHC has a market capitalization of over $300 million and is connected with Africa, a more politically unstable area that where the unnamed company is located (Australia). But all that aside, ERHC Energy, with the rights to 2-4 billion barrels of oil and likely much more*, still appears to be in an excellent position to multiply an investment many times over. It’s just that in relation to this unnamed company, it doesn’t pack the same potential punch because of its much larger market cap.

*ERHC has preferential rights to other lucrative areas in the Gulf of Guinea which have not yet auctioned.

To get an idea of the value contained in ERHC, let’s assume full production to be 100 million barrels of oil per year between ERHC and its partners, Addax and Sinopec. Cut this figure in half for taxes (50 million). Cut this figure in half again for the partner’s share (25 million). Cut this in half again for production and administrative expenses (12.5 million). Obviously this is a very crude guesstimate, but the leftover 12.5 million barrels of oil times at an oil price of $60/barrel is equivalent to $750 million dollars. At a P/E of 10, that equates to a $7.5 billion dollar market capitalization, or in other words, a share price of over $10 assuming no further dilution*. At yesterday’s closing price of $.475/share, this represents the potential to multiply one’s money by a factor of 22. But don’t expect this to happen overnight. It will be several years before full production occurs.

*It seems unlikely that any significant amount of new shares will need to be issued for the following reasons:

No dilution occurred within the past 12 months
ERHC Energy’s partners are expected to pay for all the rigging and drilling expenses

There is still the possibility that PSC’s could be further delayed, but I’m of the opinion that this time the JDA and JMC of Nigeria and Sao Tome and Principe mean business. Even so, anticipated PSC signings are still several weeks away, and there might not be any significant market action until then, meaning more buying opportunities at lower prices. But perhaps equally likely is the possibility that the share price rises to the $.70 trading range in anticipation of awards. Only time will tell, and I’m willing to wait.

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