During his recent participation in the Nigerian Oil and Gas Conference in Abuja, Nigeria, ERHC Energy Inc. CEO Peter Ntephe spoke with Charles Okonji, Assistant Editor at Nigerian Compass Newspaper. The following article was published online.
‘We are strategically positioned for next bidding round in Nigeria’
Monday, 28 March 2011 00:00 Charles Okonji
The President and Chief Executive Officer of ERHC Inc, a publicly traded American company with valuable oil and gas assets in the Gulf of Guinea, Mr. Peter Ntephe, told journalists, during the recent Nigerian Oil and Gas (NOG) Conference in Abuja about local content and commitment of his company to acquisition of more assets in the upstream sub-sector in the Gulf of Guinea, among other issues. CHARLES OKONJI, was there.
Last year, you said that your company was looking forward to being quoted at the London Stock Exchange and South African Stock Exchange. How far have you gone with it?
We have gone very far with the London Stock Exchange. We are a company that has been in operation for 25 year and so, we have to do due diligence, which will cover 25 years. That is why that one is taking a little longer. Our target date was December, but our due diligence is not yet complete because they are looking at our records and we have a very large amount of records. They are looking at our records over 25 years. So, we expect that before the end of this year, we would have been listed at London Stock Exchange. The South African plan follows up immediately after that because we will use substantially the documentation that is prepared for London.
With the passage of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act, what type of opportunity does it present to an investment company like your?
The first thing is to understand our business model. It is very important to understand it. As an energy investment company, we run what we called the non-operator model. When we say local content, there is a lot of it that does not apply to us because we do not operate fields directly. What we do is to take interest, non operated interest in existing blocks. It is either we bring in the operators or there are operators already handling the field.
It is the operator that engages in field activities. Our role always as far as our business model till today is concerned is to meet up with our cash calls. So, we are a good example of passive portfolio partner. For instance, if we hold 20 per cent and the cost of the well is $10 million, then it means we have to release our own $2 million to execute the job. That is centrally our business model.
It is a model that a lot of people don’t know it exists but it is a company like us with majority equity that determines the direction of the operation. In the oil industry, most of the operators hold minority interest.
When we talk of local content, if you check the staff strength of ERHC even though it is an American company, you find out that at least half of them are Africans because the company’s focus is Africa, unlike many companies operating in Africa.
We have the orientation that as an American company, we need to have Africans to operate in Africa. So, local content in terms of sourcing materials locally does not apply to ERHC because we are not operational. We can actually run what we do in the oil industry from our office any where in the world. We contribute technical expertise because we have a technical team that talks with operators. We attend all the meetings and make contribution.
It is really the operators that drive the operation; they come up with a plan and once there is agreement with the plan, the operator will interpret it. What our people do is to say: ‘Well, we look at it. Why don’t you go and consider this other option and they give us advice?’ So, the operators lead and we follow and pay our contribution.
Since you started your operation in the coast of West Africa, have you actually got commercial find?
We have concentrated so far on Sao Tome and Principe and Joint Development Zone (JDZ). Our first drilling operation was JDZ Blocks 2, 3 and 4, which we discovered natural gas. So, our studies, based on what we found now, will determine what we go forward.
With the Petroleum Industry Bill (PIB) being expected to be passed very soon and the industry to pick up in Nigeria with the Federal Government’s assurance of eminence of the next bidding round, how strategically are you positioned for the next bidding round?
We are strategically positioned, of course, for the next bidding round, even as we are today. But we an American public company and so, we operate on specific guidelines. Once the guidelines come out and we assess what they are, we will operate within that legitimate framework.
Last year, you said that you are assessing some of the assets in Nigeria and see where you can conveniently plug in. have you actually identified any marginal field where you can explore?
There are so many attractive fields. Of course, we are bound by confidentiality, but there are many fields that we are in advanced talk with. However, there are other challenges. The fact that the PIB is still not passed is having a real impact on us. So, when you are doing an appraisal of an investment and you are uncertain about the tax regime that is going to apply, it will affect your economics. So, we are in an advanced talk, but we have to wait till the PIB is passed so that we can go on with what we are doing.
What are your strategies to boost upstream assets in the Gulf of Guinea?
Right now, we have a diversification strategy for the life of this company. Since the mid 90s, our concentration has been Sao Tome, the Nigeria-Sao Tome Joint Development Zone (JDZ) and the Sao Tome Exclusive Economic Zone. I will not be blowing our trumpet to say it was because of ERHC that JDZ zone was set up.
We played prominent role in the setting up of the zone. The activities going on right now on JDZ block 2, 3 and 4 are directly traceable to ERHC activities. We brought in the operators that drill the wells in other blocks apart from block 1, which we do not have interest in. This block was awarded at the same time like ours in the licensing round and has commenced activities since 2005 when the licensing round was completed.
Only these three blocks in which ERHC has interest are witnessing activities. We drilled five wells at almost 4,000 meters which cost almost $300 million, a proportionate share of that, even though we have carried it to $600 million. This has been our concentration for the past 10 years and that is how we got the JDZ to where it is. Our focus now is to try to diversify. The focus of ERHC has always been West Africa. When I say West Africa I mean the western coast of Africa right down to Namibia.
What are the countries you are looking at when you are diversifying?
We look at Nigeria, Gabon, Angola; these are the first country we look. We don’t just come to Nigerian Oil and Gas (NOG), we attended similar conference in Sao Tome recently, and we will be in South Africa at the end of the year.
We are working in Angola. Examining our reasons for attending this conference is the fact that Nigeria as the biggest producer in West Africa, there is no way we can’t appear here. Indeed, a lot of ERHC staff have Nigerian root, either they work here or they are born here or they have an affiliate in Nigeria. The second one, we have plans but not a major focus to diversify into other sectors. Our concentration so far has been in upstream. So, what we are trying to do is to diversify into other countries, move beyond the Sao Tome area and diversify our holdings so that we can have holdings in Gabon, Angola, Nigeria and Sierra Leone.
What is the prospect of your assets in Sao Tome?
We drilled five wells between September 2009 and January 2010. In three of our blocks; blocks 2, 3 and 4, we partnered Addax and Sinopec in that drilling, they were the operators.
As I said earlier, we joined them, they took majority of the share and they actually conducted the drilling. In block 2, one well was drilled, block 3, one well was drilled, block 4, three wells were drilled. Out of these wells, we found gas. So far they haven’t declared commercialism; those are the commitment for exploration phase one in these blocks, and those commitments were completely met in time with budget and this is taking place in deep offshore.
Each of the wells on water surface- total well depth was nearly 4000 metres for each one of them, approximately 3,850 for each one of them. The raw cost of each of those well is $60 million. The operators are analysing the results of gas discovered because we are supposed to commence phase 2 in March.
This implies that we need more exploration work. So, we have not had the kind of result we would have wanted this time around but what happened is not unusual in the industry at all, they were the first people to drill there.
We are the first people that drilled. We can do all sorts of analyses and all sorts of geological correlations on the result that we have seen and use it to interpret our analysis much better for future exploratory work. So, work is still ongoing in the JDZ
What benefits have you derived?
It is not just benefit but our own contribution; I want to make this clear. NOG is really about showcasing the Nigerian industry and our own participation is about contributing to showcasing an industry that we will want to participate.
As far as benefit is concerned, it is just the same we are doing here- the more you show yourself, the more people know about you, the more you develop business. A lot of the time when you do all these things, you can’t really measure it in terms of tangible quantity. It is goodwill that the company is developing.
We are not talking about how much that is being generated. We are talking about visibility, industry perception, credibility that’s the first thing we do, any other thing that comes directly as far as business development is concerned is a bonus.
The case of a marginal field just like what Shell is selling now, the entire marginal fields have discoveries in them, and you know what you are going into. It is not an exploration field where it is really a gamble.
The wells are there but they have been capped for some reasons or they were never developed. We are negotiating currently with at least three owners of marginal fields even though that is still being done in confidence.
We didn’t bid for Shell oil blocks because we think the time was not right for us for a lot of strategic reasons- may be, in future asset sale, if opportunities present themselves from people who will get them. Yes, we might get involved commercially and take non-operating interest. But for us to put things together as consortium, it came too soon for us with all other things we are doing.