Friday, March 31, 2006

Upstream's Morgan Sends Mixed Message Of Opportunities, Lawsuits

In the latest from industry veteran Barry Morgan of UpstreamOnline, the petroleum industry trade paper, it appears that the beneficiaries of much of the largesse from signature bonus fees paid to Sao Tome and Principe will be that country's lawyers.

Not only is Sao Tome once again kvetching about the rights ERHC Energy gained in its Exclusive Economic Zone in Feb. 2002, but the nation's oil agency Website says we have lost our rights to Blocks 5 and 6 by failing to sign Joint Operating Agreements, Production Sharing Contracts and make a timely signature bonus payment for those orphan blocks of the 2004 licensing Round.

Moreover, the country's rumor mill is spreading the news that we are involved in a lawsuit with a South Afrcan firm, Procura, whose interests and claims were purchased and settled by ERHC parent Chrome Energy in 2001 for $500,000.

There's ample good news, too, though, if it turns out that rumors of a big Chevron find in Block 1 of the Nigeria-Sao Tome and Principe Joint Development Zone is accurate. Those rumors have gained wide currency over the past two weeks and began with a tip offered here in ERHC On The Move on Feb. 14. They have since moved to the Wall Street Journal, Forbes and other major publications.

As far as share price, however, it will take some effort to clear up the facts and distinguish the truth from the falsehoods in the Sao Tome rumors, and it remains to be seen whether investors have not already fully discounted the Chevron find.

ERHC Energy shares (OTC BB symbol: ERHE) closed Thursday at $0.84, where it traded only once.

The price weas $0.83 x $0.84 at the 4pm ET close, and closing volume was 1,998,100 shares. The low of the day was $0.82, and it appeared that ERHC might at least test that level at the opening today.

Here is the Upstream article:

Hopes grow for big catch in Sao Tome

By Upstream staff

Hopes for an oil bonanza are building in the Gulf of Guinea Joint Development Zone (JDZ) managed by Nigeria and Sao Tome&Principe as indications strengthen that Chevron has made a significant discovery in Block 1.

The find comes just after blocks 2, 3 and 4 have been signed up by respective operators Sinopec, Anadarko and Addax Petroleum, which will net the two countries more than $200 million in signature bonuses, payable within a month and split between Abuja and Sao Tome on a 60:40 basis.

Drilling on blocks 2,3 and 4 could get under way later this year.

Chevron and partners ExxonMobil and a tie-up between Dangote, Energy Equity Resources and Afren, agreed a bonus of $123 million in 2003 for Block 1, and the operator aims to post positive results for debut wildcat Obo-1, which was completed this month.

The partners have remained tight-lipped on the details, but multiple sources have suggested the so-called Hercules structure could contain more than 1 billion barrels of oil and at least 1 trillion cubic feet of gas.

A Deutsche Bank report released this week is already touting a $3.2 billion development for Obo, with a 2013 start-up.

Analyst Wood Mackenzie suggested test results may be delayed by ongoing efforts by Chevron to enter Nigerian independent Conoil's neighbouring deep-water Block OPL-257, but the parties have declined to comment.

Among those set to benefit from the Block 1 find are partners Addax and Houston-based ERHC Energy, which together hold stakes in blocks 2 and 3 and operate Block 4.

However, Sao Tome's National Petroleum Agency posted a statement this week indicating that ERHC has lost its preferential and bidding rights to the remaining second-round blocks 5 and 6 after failing to comply with the JDZ Joint Ministerial Council's demands for signing effective joint operating agreements.

Despite intense negotiations by suitors to finalise a production sharing contract for at least one of these blocks, it is understood that the Joint Development Authority (JDA) may consider offering them in a third round, possibly later this year.

Completion of the latest JDA round paves the way for Sao Tome to belatedly start licensing acreage in its own Exclusive Economic Zone (EEZ).

However, discord is again brewing over conflicting claims to preferential rights to EEZ acreage, with ERHC claiming access to two blocks of its choice, and AIM-listed Equator Exploration insisting on similar privileges.

The Sao Tome National Petroleum Agency recently declared on its website that Equator has "acquired two blocks from Petroleum Geo-Services under the option agreement (dating back to) February 2001".

However, ERHC contests the legal basis of this assertion.

Equator also holds a junior equity stake in Sinopec-operated JDZ Block 2.

However, this, along with its EEZ claim, is subject to alternative claims by former ERHC partner Procura Financial.

Upstream understands that lawsuits related to the various claims are being prepared in a move that could further delay exploration and production in both Block 2 and Sao Tome's EEZ.


30 March 2006 23:01 GMT | last updated: 30 March 2006 23:01 GMT

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