Known as the "Silver Bug," the young prospector's site (www.silverinscripture.com) has gained a wide following since its recent debut. His first take on the prospects for ERHC Energy is optimistic but not to the point of hyperbole.
I see little to disagree with, except that I believe there are forces in the market that will keep our share price down indefinitely despite an occasional spike like the one we enjoyed briefly in 2003, again in 2004 and 2005, and are expecting around Feb. 28 this year. I am going to be pleased if we hit $0.73 around the time PSCs are signed.
That is not a comment on the value of our rights, I should warn you: I think they will be worth more than $9 a share after all the PSCs are signed, but it's hard to find investors willing who agree or would pay that much. And a strike by Chevron on Blovk 1 or a buy-out could remove those obstacles instantly.
Here's the whiz kid's first report, which we have freely updated where necessary:
A Special Report on ERHC Energy
See HERE for an excellent Technical Analysis of the
Daily and Weekly Charts by Roy Martens.
I have owned shares in ERHC Energy (ticker symbol erhe.ob) for almost 2 years now, purchasing the majority of them before I became convinced of silver’s incredible potential. That being said, it was certainly not my intention to have my first newsletter focus in on a speculative oil play, as I realize that this is a Silver Stock Newsletter, but, due to the many very positive developments that have recently taken place with regards to ERHC Energy, I feel compelled to make this information readily available to you.
Currently, ERHC Energy is the only energy stock in my portfolio, and I believe that it is a very attractive buy at the current price of $.475/share. My short term price target is $.75-$2.00/share, and these levels should be approached within weeks if the proposed PSC signings remain on schedule.
THE SITUATION AT HAND
In May of 2005, ERHC Energy was awarded substantial percentages in 5 potentially prolific oil blocks in the Gulf of Guinea waters, located off the coast of Nigeria near the islands of Sao Tome and Principe.
Block 2 —awarded 65% interest (operator, partnered with Sinopec and Addax)
Block 3 —awarded 25% interest (partnered with Addax)
Block 4 —awarded 60% interest (operator, partnered with Addax)
Block 5 ---awarded 15% interest
Block 6 ---awarded 15% interest
The nine blocks auctioned off in JDZ rounds I and II* are estimated to contain between 8-14 billion barrels of oil, and blocks 1, 2, and 4 are believed to be the richest. Notice that ERHC together with its joint-venture partners hold majority interest in blocks 2 and 4, meaning that ERHC owns potential reserves of 2-4 billion barrels of oil if the seismic and 3-D mapping reports are accurate (Note: this does not take into account the enormous amounts of natural gas believed to be located in this region, nor does it factor in the rights to 2 more blocks that ERHC wis entitled to take full ownership of when the future EEZ round is conducted).
*There will be several future rounds in the JDZ as JDZ round I and JDZ round II covered only a small percentage of the previously disputed boundary between Sao Tome and Nigeria.
Chevron and Exxon-Mobil both won rights to block 1 in the first bidding round conducted in April of 2003. Chevron is the operator, and it should be noted their $123 million was one of the largest signature bonuses ever paid for the rights to one oil block. Chevron expects to begin a drilling program in January of 2006.
In Blocks 2 and 3, ERHC Energy had partnered with Pioneer Natural Resources, a well respected drilling company listed on the NYSE which trades under the symbol PXD. with a market capitalization of 6.6 billion dollars. Now, they have replaced Pioneer with Sinopec and Addax, whose combined market caps are close to $90 billion.
In Block 4, ERHC has partnered with Addax Petroleum. Addax petroleum has just recently announced that they will be providing ERHC with a "full carry" till first oil (meaning ERHC doesn’t have to pay any expenses until production begins). In addition to this wonderful news, it has recently been announced that Addax will also pay ERHC CDN$18 million dollars and grant them a larger percent interest in Block 4 than previously anticipated (26.67% vs. 21.25%)!
On. Feb. 9, Addax began conducting an IPO on the Toronto exchange. The Prospectus reveals that ERHC Energy is due for a $18-million payment, once PSCs are signed, out of the Addax IPO. Addax saw its initial share price of CDN$19.50 rise despite falling oil prices and close at $20.51 on Friday, Feb. 10. It is estimated that this initial public offering will raise over CDN$409 million dollars (US$350 million) for the company, making it the largest common stock IPO to take place in Canada in a year. This is significant because it reveals Addax’s desire to raise large amounts of capital in order to finance their African operations*, and undoubtedly, its JV (joint-venture) with ERHC has something to do with it.
*Addax Petroleum currently produces between 70,000-80,000 barrels of oil per day in all their African operations combined.
The Gulf of Guinea is gradually gaining worldwide recognition as it is thought to contain several ‘elephant fields’ (oil fields in excess of 1 billion barrels). In addition to the multi-billion dollar companies of Chevron and Exxon-Mobil, this area has attracted the attention of several Chinese and Indian oil giants who are all desperate to satiate their energy needs. In fact, there is currently a bid-war going on in which Chrome Energy (ERHC’s parent company), Taiwan’s CPC, and India’s Essar are partnered to take over the ownership of Nigeria’s largest oil refinery.
But before drilling can begin in blocks 2-9, the signing of the PSC’s (Production Sharing Contracts) must take place. As it now stands, the PSC’s for the 5 blocks offered in round 2 are likely to be completed before March 2006, with the possible exception of block 2 due to a recent change in operatorship. If this date is met without further delay, I expect the share price of ERHC to increase dramatically in the coming weeks, similar to its precipitous price rise in April of 2004. Only this time the price will reflect the actual results of the bidding round, and not just expectations, which were not met the first time around.
Long term, I rate ERHC as a strong buy, with a potential 10-20 times price appreciation by the time of first oil well production (est. 2010). This price-projection is based upon comparative market valuations of other companies that command similar oil prospects.
Short term, I believe ERHC offers incredible upside volatility, of which it may be wise to capitalize upon.
Some excellent sites where you can conduct further due diligence:
http://www.erhc.com (ERHC Energy’s Web Site)
http://erhc.blogspot.com (Well Maintained Blog)
http://www.investorshub.com/boards (Active Investment Forum)
ERHC Energy is based in Houston, TX. It has never attempted to pump; just check their news releases for the past several years for confirmation. The Chairman of the Board is Sir Emeka Offor, a well known Nigerian millionaire involved primarily in the insurance and aviation industries. Sir Emeka Offor is currently the sole manager of Chrome, which is itself a major shareholder of ERHC Energy (303,591,433 shares as of March 9, 2005)
ERHC Energy’s Key Statistics:
Total Shares Outstanding: 711 Million
Current Market Capitalization: $337 Million
Cash: $0.85 Million
Debt: $1.2 million
I am not a licensed broker, so make sure to do their own due diligence before investing in any stock or commodity. I own shares in Erhe.ob, but ERHC Energy has not paid me in any way to write this article.