2012 First Quarter ERHC Energy Conference CallManagement Presentation Script
(Dan Keeney)Good morning and thank you for joining us for the ERHC Energy First Quarter 2012 Conference Call.
Statements during this conference call may concern ERHC Energy Inc.’s future operating milestones, future drilling operations, the planned exploration and appraisal program, future prospects, future investment opportunities and financing plans, future shareholders’ meetings as well as other matters that are not historical facts or information. Such statements are inherently subject to a variety of risks, assumptions and uncertainties that could cause actual results to differ materially from those anticipated, projected, expressed or implied. A discussion of the risk factors that could impact these areas and the Company’s overall business and financial performance can be found in the Company’s reports and other filings with the Securities and Exchange Commission. These factors include, among others, those relating to the Company’s ability to exploit its commercial interests in Chad, the JDZ and the exclusive economic zone of São Tomé and Príncipe, general economic and business conditions, changes in foreign and domestic oil and gas exploration and production activity, competition, changes in foreign, political, social and economic conditions, regulatory initiatives and compliance with governmental regulations and various other matters, many of which are beyond the Company’s control. Given these concerns, investors and analysts should not place undue reliance on these statements. Each of the above statements speaks only as of the date of this conference call. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any of the above statements is based.
For additional information on ERHC, please visit our Web site at www.erhc.com.
On the call today, representing ERHC’s management are:
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Peter Ntephe, Chief Executive Officer
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David Bovell, ERHC’s vice president in charge of corporate development.
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Sylvan Odobulu, ERHC’s vice president in charge of operations and financial matters.
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Dr. Ken Seymour, ERHC’s senior petroleum engineer and technical adviser
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And Mike Shafie, ERHC’s senior geoscientist and technical adviser.
I am now pleased to turn the call over to Mr. Peter Ntephe, Chief Executive Officer of ERHC Energy….
Good morning! I appreciate your interest in ERHC. This morning we will provide an update on the Company’s operations and financial position.
Let’s begin by reviewing the first quarter 2012 financial highlights released this week. I’ll ask Mr. Sylvan Odobulu, our Vice President and principal accounting officer, to provide those highlights. Sylvan?
Thank you, Peter.
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As of December 31st, 2011, which is the end of ERHC’s fiscal first quarter, the Company had cash and cash equivalents and treasury bills totaling about $11.9 million.
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Management believes that these cash assets are sufficient to keep the company going for more than 12 months.
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During the first quarter, ERHC's general and administrative expenses totaled slightly over one million dollars, which represented a decrease compared to the first quarter of 2011. The decrease was primarily due to ongoing cost control measures.
The detailed financial results are contained in our quarterly report, form 10Q, which was filed on Wednesday, February 8th, 2012. The report is accessible through the investor center on our website. Back to you, Peter.
First Quarter Operational Highlights
Let’s now turn to our portfolio of oil and gas exploration assets:
Republic of Chad
ERHC has three oil and gas Blocks in the Republic of Chad: 100 percent of the BDS 2008 and Manga Blocks and 50 percent of the Chari-Ouest 3 Block. Both BDS 2008 and Chari-Ouest 3 are situated adjacent to the prolific Doba and Doseo Basin oil fields which had an average daily production of over 122,500 barrels of crude oil in 2010. The Manga Block is north of the Lake Chad basin.
Since our last investor call, there have been a number of notable developments related to Chad’s oil and gas industry, including the appointment of a new Minister of Petroleum for Chad. We have had a positive working relationship with Chadian authorities to date and we look forward to continuing to work productively with Minister of Petroleum Brahim Al Khallil and his staff.
In advance of the issuance of an Exclusive Exploration Authorization (EEA), expected within the first half of 2012, we have completed the first run of a proposed work program for the Chad Blocks. I will call on Mike Shafie to give an overview of that work program. Mike?
Thank you, Peter.
We have evaluated the data available and on that basis, designed a work program that takes us through the first five years from the grant of an Exclusive Exploration Authorization. We expect to complement available data with Gravity/Magnetic studies and a seep study. We are thereafter looking at further 2D seismic acquisition and reprocessing within the first two years. This will enable us determine interesting leads and prospects upon which we will focus 3D seismic. These will be followed by AVO/Inversion studies. The essence of all this activity is to determine prospects which we can constitute into specific drilling targets for our wells. The entire technical work will be preceded by an Environmental Impact Assessment (EIA) as mandated by the PSC. On this, we will also build on EIAs performed previously in the vicinity of our blocks.
Considering the respective proximities of the Blocks to producing basins and the previous work done on them, we are planning the initial focus of our work to be the Chari Ouest III Block and the BDS 2008 in that order. Both Blocks are adjunct to each other and overlying aspects of the Doba and Doseo basins which host Chad’s major discoveries.
Over to you, Peter.
At this stage, it is important to emphasize that our work program is merely a proposal until the requisite Exclusive Exploration Authorization is awarded and a management committee mutually constituted with the Chadians to review and approve the work program. That award of the EEA will be a significant event. It will trigger the clock on ERHC’s work commitments on the PSC and enable us to convene the supervisory management committee for that work program.
In the meantime, we are continuing to focus on seeking farm-in partners. We are in talks with prospective partners for the Chad Blocks, several of which have visited the data room where to review the technical information available on our assets. Our speed of operation will depend on the availability of funding and the capacity of the partners that we can attract. If we attract the kind of partner that merely shares risk, then the speed of rollout might be different from that where we can attract the kind of partner that brings such technical and financial capacity as to not just share risk but to lead the entire operations and possibly even carry our costs. As we described in December, the best-case scenario is to replicate the farm-in cash payment and carry arrangements of the JDZ as much as is possible in both Chad and the São Tomé and Príncipe EEZ. However, we recognize that the JDZ was a unique case that held special expectations of prospectivity that might not always occur in another time and place.
Our goal always is to ensure that our exploration programs will be funded and operated by the best available arrangement, in terms of reduction of risk and cost efficiency, in the interest of enhancement of shareholder value.
São Tomé and Príncipe EEZ
I will call on Dr. Ken Seymour, ERHC’s senior petroleum engineer and technical adviser to update us on activities related to our rights in the EEZ. Ken?
In the coming weeks, an ERHC delegation will return to São Tomé and Príncipe for the next round of PSC negotiations for Blocks 4 and 11 of the Exclusive Economic Zone. Since our last in-person conference with the ANP-STP in November, negotiations have been actively continuing via correspondence and telecommunication. The talks have been professional and determined but cordial. We expect that they will take several rounds to complete.
Also, we have continued talks with prospective partners for the EEZ Blocks. Several credible deepwater operators have visited the data room established jointly by the National Petroleum Agency of São Tomé and Príncipe and Petroleum Geo-Services (PGS) as a repository for the existing seismic and related technical data on the EEZ. When we have an agreement in place, we will notify shareholders.
Back over to you, Peter.
Joint Development Zone
Technical and financial committee meetings of the interest holders of JDZ Blocks 3 and 4 were to hold this week in Abuja but have been postponed for at the instance of the Joint Development Authority. The JDA, under whose auspices the meetings are held, deferred the meetings to allow the PSC signing ceremonies for JDZ Block 5 take place in Sao Tome. Our shareholders will recall of course that our rights in Blocks 5 and 6 - 15 percent in each Block - are in arbitration. It is our understanding that the PSC is signed with those rights held in suspense pending the determination of the arbitration.
In spring 2006, ERHC strongly stated its concerns about the original operatorships granted in Blocks 5 and 6. The terms of communication of those concerns ultimately led to the controversy, now in arbitration, of whether ERHC thereby relinquished its rights. Without prejudice to the matters that are subject to legal proceedings, it would appear that the concerns expressed by ERHC at the time were legitimate, since it has taken all of seven years for a PSC to be signed in Block 5 with no PSC yet in sight for Block 6. In that time, by contrast, the three blocks in which ERHC had significant interests and in which it introduced capable operators have seen a completion of Exploration Phase I with five wells drilled at a cost of over $300 million and all contractual work-program commitments met.
The first exploration phase in our JDZ Blocks 2, 3 and 4 ends in the middle of next month. While it is possible that the intentions of the operators are released publicly by the deadline, it has been typical in past years for negotiations to continue beyond the deadlines in order to reach mutually acceptable and workable resolutions.
As we have said in the past, the 5-well drilling campaign in late 2009 and early 2010 was an impressive accomplishment, but there is no getting around the fact that the discovery of only biogenic gas was different from what everyone involved expected. During the two years since drilling, the contracting parties have been involved in an exhaustive analytical effort to better understand the prospectivity of our JDZ Blocks in general and pinpoint potential future drilling locations.
What happens next is the operators are expected to propose a plan for how they intend to proceed. Fundamentally, there are three potential courses of action:
1. The operators and the JDA could agree upon a plan for future exploration of one or more of the JDZ Blocks with specific proposed work plans, timelines and budgets.
2. The operators and the JDA could agree upon a further extension of Exploration Phase 1. Similarly, they could agree to proceed with exploration, but subject to further studies and with no specific work plan or timeline of when such exploration would commence.
3. The operators could decide not to pursue future exploration of the JDZ Blocks. If this were to occur, ERHC would be able to seek new operating partners for the JDZ Blocks. It would be similar to what occurred in 2005 when our technical partners at the time, Devon Energy Corp., Noble Energy Corp. and Pioneer Natural Resources relinquished their JDZ rights and ERHC replaced them with Addax and Sinopec.
Any of these three potential outcomes could have a significant impact on ERHC and we have been working closely with all interested parties to advance the interests of the Company and shareholders. The considerations are as much commercial as technical and as much subjective as objective. The expenditure for drilling so far has practically been borne exclusively by the operators. The decision-making on their end must therefore weigh the nature of discoveries and outcome of studies in the JDZ against the further significant expenditures that will be required of them for additional drilling.
ERHC continues to be enthusiastic about our JDZ Blocks. There are more than a dozen additional prospects and we know a great deal about the various prospects from the information gathered during the initial drilling campaign along with seismic data and data from other sources. We also anticipate that the drilling in JDZ Block 1 this spring may reflect positively on the entire JDZ.
ERHC will keep shareholders updated in a timely manner as developments occur.
Exile Resources
Since our last conference call, ERHC representatives participated in a shareholders’ meeting of Exile Resources during which shareholders approved the reverse takeover of Exile by Oando Exploration and Production. I will call on David Bovell, our Vice President in charge of Corporate Development, to elaborate on the status of the Exile investment.
As Peter clearly stated at the last conference call, our ultimate objective for the Exile investment was two-fold. We wanted to obtain such control of Exile as would enable us to gain access to the production in the Akepo field and also to constitute Exile into a wholly owned listed subsidiary of ERHC available for fund-raising purposes or even a reverse takeover. It is important to emphasize that this was not a speculative equity play carried out purely for the ability to shortly thereafter liquidate the investment for profit. Rather, it was an investment based on the underlying value and subjective strategic utility of Exile to companies like us, such factors not being captured (in our view) by the market’s undervaluation.
As our shareholders will now be aware, Oando Exploration and Production, Exile’s partner in Nigeria’s Akepo field, discerned the same potential strategic benefit as we did in Exile and managed to preempt us. Over summer last year, Oando and Exile announced a proposed transaction whereby Exile would acquire certain interests of Oando and pay for the acquisition with Exile stock in what effectively would be a reverse takeover by Oando. The transaction was approved at a meeting of Exile shareholders that we attended at the end of December. We have reported the highlights of the transaction in the Form 10Q which we filed two days ago. Basically, Oando will end up with over 90% of the issued share capital of the restructured company. The restructuring includes a consolidation of the existing shares of the company and the additional issuance of warrants to existing shareholders.
The completion of the deal remains subject to a number of conditions, but we expect it to ultimately be approved. ERHC continues to hold a stake in Exile, albeit a proportionately reduced one in terms of percentage control of the company. Once the regulatory approvals are secured and the deal is completed, ERHC plans to participate in the new company’s first meeting of shareholders. We will keep shareholders updated regarding any developments pertaining to ERHC’s holdings in the new company.
Back to you, Peter
Thank you, David.
ERHC’s Annual General Meeting
The next General Meeting of the shareholders of ERHC is scheduled for April 24, 2012 in Houston. Today we are announcing the record date of March 26, 2012. All shareholders of record as of March 26th will be formally notified of the date, time, venue and business of the meeting as well as of such other matters mandated by law.
I’ll call on Mr. Sylvan Odobulu, our Vice President and Controller, to talk a bit about the plans for the meeting.
The General Meeting will hold in Houston. We are currently finalizing arrangements with the venue providers and this will be included in the notice of meeting and proxy that will be sent to all shareholders.
We look forward to seeing as many of our shareholders as possible at the meeting but we will exhort our shareholders as much as possible to take advantage of the electronic voting methods that will be indicated on the notice and proxy for the meeting. In the past, the clear majority of our shareholders have voted electronically but we will encourage the remainder to do so. It is quite easy and takes but a few moments to accomplish. Particularly those whose shares are held through brokers, we will encourage them to obtain from their brokers the requisite direct access to voting. Clear instructions will be given repeatedly once the notices and proxy forms for the meeting are out to all shareholders as to the options for voting. Voting electronically enables instant verification and instant inclusion of vote in the overall tally.
Back to you, Peter
Conclusion
In conclusion, we continue to make progress in a number of key areas, including on preparations to commence our exploration work program in Chad, negotiating PSCs in Sao Tome & Principe EEZ and participating in decision-making regarding the exploration program in the JDZ. We also have ongoing growth initiatives underway in several countries in Sub-Saharan Africa that we hope will come to fruition in the coming months.
Thank you for taking time out to participate in our call today and we hope to see as many of you as possible at our Annual Shareholders’ Meeting in April.
I’ll now turn the call back over to the operator and Dan Keeney for questions.