Sunday, September 30, 2007

Addax Revealed: A Terrific Profile Of Gandur, Addax's Chief and ERHC's Key Partner

This is an absolutely terrific profile of Jean-Claude Gandur, the Swiss businessman whose partnership with ERHC Energy has taken us in so many interesting directions.

Trouble Is My Business
by Christopher Helman
10.15.07, 12:00 AM ET

Billionaire Jean-Claude Gandur has braved war and corruption to build an oil empire on the cheap.

Recently a huge explosion shook northern Iraq. Not the usual kind. This blazing fire and billowing black smoke came from a test drill at Taq Taq, an oilfield 30 miles southwest of Irbil in the Kurdish region. With no pipeline or storage tanks in place, Addax Petroleum had little choice but to burn off the oil rather than let it soak into the rocky ground. Opening the well for a few minutes revealed a true gusher: a flow rate of 37,500 barrels per day. Considering the results from three other wells already completed, engineers figure that Taq Taq holds more than 2.7 billion barrels of high-quality crude and could produce as much as 200,000 bpd for ten years.

One small problem: Iraq's parliament still hasn't signed off on a federal oil law, putting the entire $500 million gamble in jeopardy. Jean-Claude Gandur, Addax's chief executive, is pushing ahead anyway. "It is absolutely unbelievable the quality of oilfields untapped in Iraq," he says. Gandur would prefer to have a law and an export license in place. But in a pinch he figures he can sell oil--up to 20,000 barrels a day--to a refinery he'll help build for the Kurds, or hawk it straight out of the ground. "Peace has no value to our assets."

Gandur knows his way around trouble. Most of his business is in restive Nigeria, where Addax produces 100,000 bpd--overshadowed by only Shell, ExxonMobil (nyse: XOM - news - people ), Chevron (nyse: CVX - news - people ), Total and Agip. The company is also pursuing prospects in Cameroon and Gabon. Wherever it ventures, Addax does very well. Over the last 12 months it netted $300 million on revenue of $2.5 billion. Run out of Geneva, Switzerland, Addax is listed on the Toronto and London exchanges; Gandur's 24% stake is worth $1.5 billion. His m.o. has long been buying assets on the cheap--and making nice with strongmen. "Jean-Claude is able to open the doors and negotiate on his feet," says Martin Molyneaux, an analyst at FirstEnergy (nyse: FE - news - people ) Capital, a Canadian investment bank in Calgary, Alta. and an Addax underwriter. "He is very good at interacting with people." People close to Sani Abacha, the late dictator of Nigeria, for example. Gandur has also been dubbed Commander of the National Order in Benin, has a diplomatic passport from Senegal, and for ten years was the honorary consul in Geneva for the civil-war-riven Republic of Congo.

The son of a Swiss pediatrician, Gandur, now 58, grew up in Alexandria, Egypt, where he learned Arabic, fell in love with history and began a lifelong devotion to Egyptian antiquities. He studied law and political science at the University of Lausanne. In 1976 he went to work at the Philipp Brothers trading house in Zug, Switzerland: "the best school in the world," he says. There he became a successor to infamous trader Marc Rich, who had left the company in 1973. Early on Gandur gravitated to francophone Africa and became manager of Philbros' African oil trading operations. After stints at rival trading houses, in 1987 he and three partners set up their own west African trading operation, Addax & Oryx Group, named after two members of the African antelope family.

Soon AOG began acquiring physical assets to backstop trading positions, picking up oil storage tanks, petroleum depots, liquefied petroleum gas and oilfields. The company even branched out into gold mines (Gandur is chairman of Toronto-listed Axmin). In 1996 Gandur made the salmon leap from the downstream activities of oil trading and marketing, which provide thin margins by moving huge volumes of other people's oil, into the upstream, which entails more risk and upfront investment but offers fatter returns. AOG inked its first production-sharing contract with the oil minister of Ivory Coast to overhaul the abandoned offshore Espoir oilfield. That was followed up in 1997 with concessions in offshore Benin.

Gandur came into the money a year later, in Nigeria, where U.S. oil company Ashland (nyse: ASH - news - people ) and the French major Total were in a 50/50 venture developing four offshore oil blocks. Ashland, in the process of refocusing its business on mining, made a deal to sell its interest to a small French operator. But the Nigerians, insisting change in ownership required government approval, threatened to repossess the assets. Ashland should have known better, jokes Gandur: "I think it was sabotage by some of the executives of Ashland because they wanted to keep it. Otherwise I don't understand why they messed up so much."

Their screwup; his payday. Addax explained to Dan Etete, then Nigeria's oil minister, that killing a contract with a U.S. company would be lousy p.r. and persuaded him to let Gandur negotiate with Ashland for the assets. Events played into his hands. OPEC had boosted output just months before the Asian financial crisis eroded demand for fuel; oil prices plunged from $20 to $12 a barrel. Gandur convinced Ashland and Total to sell the four blocks, with 8,000 bpd of production and 30 million barrels of reserves, for less than $50 million. After investing $1 billion, Addax now produces 100,000 bpd there.

Did charm alone win the day? In 2000 two former Addax & Oryx Group employees were convicted in Switzerland and fined for money laundering of embezzled funds tied to President Abacha. (Abacha, who died in office in 1998, is suspected of stealing more than $3 billion from Nigeria.) Etete is on trial in France on charges of money laundering and receiving kickbacks from Elf Aquitaine (now part of Total). A French trader and former Addax executive, Richard Granier-Deferre, is being tried as an accessory. Etete reportedly bought $19.5 million of luxury properties in France.

Nigeria continues to be a contentious but profitable play for Gandur. In March 2006 Addax signed production-sharing contracts on three blocks in an offshore area shared by Nigeria and tiny São Tome. Its partner is ERHC Energy, a publicly traded company headquartered in Houston but controlled by Nigerian businessman Emeka Offor, a close associate of former Nigerian president Olusegun Obasanjo (Offor says otherwise). Offor and ERHC reportedly got a sweetheart deal on its blocks, despite limited operating experience and insufficient access to the necessary capital. "We are good friends," Gandur says of Offor. "We have checked him out through several channels." The pals cut another deal last November, Addax partnering with Offor's little-known company called Starcrest to develop Nigerian offshore block 291, a very promising prospect in the same geologic trend as Chevron's giant Agbami field and Shell's Bonga. Addax paid Starcrest $35 million for a 72.5% stake, forking over $55 million to Nigeria as a signature bonus and pledging another $75 million in development costs.

When the deal was announced, the Nigerian media exploded with allegations of corruption. The block had been previously awarded to Transcorp, which, according to Addax Chief Financial Officer Michael Ebsary, hadn't come up with either the money or the required international partner within 90 days, as stipulated by Nigerian authorities. Critics claimed Starcrest got the block only through cronyism. The Nigerian feds have been investigating, and in August the press reported that new President Umar Musa Yar'Adua was considering the revocation of some recently granted licenses. Gandur says his request to meet the president in person was recently turned down.

Shareholders of ERHC, meanwhile, are wondering why Offor didn't steer the block 291 deal their way. In August Offor resigned his ERHC chairmanship. "Nigeria has not in the past been particularly good at enforcing rules on oil companies with political ties," says Ebsary. "Now they are really trying to apply the rules." Still, he adds, "In these parts of the world you are invariably going to be dealing with people connected to someone powerful in the ruling elite. That's just the way it is."

In that respect Addax shareholders have little to worry about. Gandur is buddies with powerful Nigerian Oil Minister Edmund Dakouru, having negotiated deals with him for 20 years. Also helping to smooth things out is Addax board member Afolabi Oladele, who handled relations with oil majors for the Nigerian National Petroleum Co. in the 1990s and receives $9,000 a month from Addax for consulting work. Gandur has also recruited Brian Anderson, formerly Shell's leading guy in Nigeria, and James Pearce, who ran Chevron's deepwater operations there.

Gandur is making friends lower down the social scale, as well. Addax hires community representatives from regional tribes and has spent $10 million in the past decade building roads, schools and water projects. The rule in Nigeria, Iraq or anywhere Addax goes is to "make sure the chief of the village knows what you do next," Gandur explains. "Don't move the rig without him knowing." The strategy has worked pretty well, so far. In contrast with Shell--Nigerian civil unrest has disrupted one-quarter of its output for the past 18 months--Addax has had no outages, but several contractors have been taken hostage, and last February one was killed trying to escape.

Security is increasingly in the fore of Gandur's mind, especially as his empire and fortune have grown large enough to make him a target. In Iraq the Taq Taq field is protected by U.S. security outfit Vance, which hires peshmerga, armed Kurdish fighters. The Kurdish Regional Government has a huge incentive to protect both Gandur and his investments. After Saddam's fall the KRG began to assert its rights to the oil in the territory under its control; in 2004 it signed a deal with Genel Enerji, a division of Turkey's Cukorova Group, to explore Taq Taq.

Addax began talks with Genel, but months passed, and any hope of a deal seemed bogged down as other suitors tried to woo the Turks. "They were aware they had a nice asset," says Ebsary. Gandur, sensing it was time to close the deal, stepped in. He went to Ankara, met with Mehmet Sepil, chairman of Genel, and poked fun at his larger oil competitors, saying they would try to sideline the Turkish energy giant and take total control of the field. In July 2005 Genel dealt Addax 30%; last year Addax paid $85 million to up it to 45%.

Addax and Genel are also underwriters of Kurdish independence--a scalding potato, politically. They are footing $90 million for drilling this year and expect to invest $1 billion to develop Taq Taq and the adjacent Kewa Chirmila prospect. Yet when Taq Taq starts producing, 90% of the oil will go to the KRG as a royalty. If Taq Taq flows 200,000 bpd and Kewa Chirmila 50,000 bpd, that's more than $15 million into KRG coffers each day.

That also assumes that the fractious parliament in Baghdad will pass a federal oil law. It doesn't help that the U.S. State Department opposes Kurdish oil deals as too much too soon, while the Iraqi oil ministry, led by Shiite Husayn al-Shahristani, condemns any deals as illegal. Until there's a law, Addax cannot build the pipeline that would probably move oil to the Turkish port of Ceyhan. Meantime, Gandur and Genel will likely start construction of a refinery near Taq Taq that would take 20,000 barrels a day and provide a vital supply of indigenous gasoline to the Kurds.

In a visit to Irbil earlier this year Gandur gave his two Serbian bodyguards the slip to visit the ancient citadel there. Built on a hill said to be inhabited continuously for 7,000 years, it houses a small museum where Gandur, an avid collector of antiquities, studied a collection of ancient Sumerian tablets. He reflected on the myriad powers that have come and gone in the Fertile Crescent. Assyrians, Babylonians, Romans, Europeans, Saddam's Baathists. Gandur intends to stay.

By the Numbers
Simply Gushing
West Africa is a black gold mine for Gandur's company. Up next: Iraq.

$1.2 billion Addax Petroleum's capital expenditure this year.

480 million Addax's total reserves in barrels.

$9 Addax's net income on every barrel of oil produced.

Source: Addax Petroleum.

Monday, September 24, 2007

Good News Boosts ERHE 9%

Good news from ERHC Energy brought a quick price boost to ERHE, which rose 9 percent in its wake this morning, giving me a $900 profit on my recent purchases.

The best part of the long shareholder letter from CEO Nicolae Luca was the news that the acquisition of Godsonic's interest due its failure to pay its bills will substantially boost ERHC's percentage of profit oil in Block 4, and may also mean additional cash due from Addax for the company's profit interest. How much that may be is uncertain, but it could be as much as $1.2 million from my observations.

Here is the latest from Dan Keeney, who was widely ciongratulated on message boards for the company's new, more open approach:

To ERHC Shareholders:

I am pleased once again to provide the September 2007 update on the recent progress of ERHC Energy Inc.

If you were not able to participate in our recent conference call, I hope you had an opportunity to listen to a replay. Corporate Secretary Peter Ntephe did an admirable job of briefly summarizing ERHC’s financial position and its ongoing operations. It was also enlightening to hear from shareholders about their interests and concerns. As Mr. Ntephe described, we intend to offer similar opportunities for investors to ask questions in the future.

We are pleased to report the resolution of our negotiations with Godsonic Oil Company Limited regarding its interest in Joint Development Zone Block 4. As stated in our latest quarterly disclosure, we took action on behalf of our consortium to reclaim Godsonic’s 9.0 percent share of JDZ Block 4 because Godsonic failed to meet certain obligations. Our consortium partner in JDZ Block 4, Addax Petroleum (Nigeria Offshore 2) Limited, claims entitlement under the existing agreements to 7.2 percent out of the recovered 9 percent, leaving 1.8 percent remaining with ERHC. If finalized, this would increase ERHC’s share of JDZ Block 4 from 17.7 percent to 19.5 percent. ERHC and Addax are currently exploring mutual recourse to arbitration or mediation, under amicability, to resolve whether or not additional consideration is due to ERHC from Addax for the 7.2 percent claimed by Addax under the terms of the existing agreements. We believe that the relationship between the two companies remains as good as ever.

Progress continues toward eventual exploration in several JDZ Blocks in which ERHC has a stake. As a carried interest partner in each of JDZ Blocks 2, 3 and 4, ERHC is required to let the operator of each Block make announcements regarding when and where drilling will commence. ERHC Vice President Technical, Jim Ledbetter, is helping to evaluate initial exploration well locations in JDZ Blocks 2, 3 and 4 and we expect to reach agreement on specific locations with the Joint Development Authority and the consortium partners in each of the Blocks in approximately the next six months.

Additionally, after the operators of each JDZ Block complete their review and approval of geological and operational efficiencies, we expect their decisions about drilling schedules at specific locations. It is important to keep in mind that the timeframes for drilling at various locations in all three JDZ Blocks will be based on their evaluations of cost-efficiency and not necessarily to prioritize the highest potential exploration locations.

We are very proud that ERHC has signed on as a sponsor of Nigeria Oil & Gas 2008. The conference, scheduled from February 18-21, 2008, is the premier event on the Nigerian Oil & Gas calendar and is expected to attract more than 4,000 participants, including more than 600 senior delegates. ERHC representatives attended Nigeria Oil & Gas 2007 and were impressed with the quality of the programs and exhibitors, which contributed to our decision to sign on as a sponsor for next year’s conference. Our sponsorship of Nigeria Oil & Gas 2008 is an example of the Company’s efforts to raise awareness about our ongoing operations and the progress being made toward eventual drilling in the JDZ.

Another element of our effort to showcase ERHC Energy’s commitment to contributing positively to the quality of life in the communities in which we operate, is the implementation of a community outreach program in our host communities. Our first initiative was a visit by ERHC Corporate Secretary Peter Ntephe and the Company’s special counsel in Nigeria, Steve Ahaneku, to the Jabi Orphanage Home, in Abuja, Nigeria. ERHC made a small contribution during the visit to help support the orphanage, which takes in abandoned children. It currently is home to 35 youngsters ranging in age from a few weeks to five years old. You can view photographs from the visit at

ERHC’s community outreach program is an important part of an integrated program to be more visibly involved with the communities in which we operate and to illustrate the positive things the Company is doing. The program will continue to build momentum with a planned trip by management representatives to Sao Tome and Principe in the fall.

We have heard from a number of shareholders who are excited about attending ERHC’s annual shareholders meeting. While we do not yet have details finalized on the date and location, we can tell you that the meeting will be held in Houston, Texas. We expect to provide the formal notice and documentation to shareholders in time for those coming from out of town to make travel arrangements.

Finally, we would like to clarify that ERHC has agreed to pay its consortium partners in JDZ Blocks 2, 3 and 4 up to 100 percent of the allocation of cost oil plus up to 50 percent of the allocation of profit oil until all carried costs are recovered, subject to certain conditions. ERHC’s Web site has been updated to reflect this clarification.

ERHC Energy remains focused on building positive momentum and values your ongoing trust and support. The management and board look forward to getting together with you in due course at the shareholders meeting.

Nicolae Luca
Acting Chief Executive Officer

Wednesday, September 19, 2007

The Price Is Right - For Me

As I had predicted several weeks ago - although my time frame was a week off - the share price of ERHE came back down from $0.32 to the $0.24 x $0.25 region, and I snapped up 45,000 shares at $0.245.

Right now, oddly, on my ADVN monitor, the Bid is $0.243 but there are no shares being offered; that makes a lot of sense, since the SEC and DOJ investigations are apparently going nowhere and there's nowehere to go but up for this stock.

The purchase puts my holdings at 60,000, and while I had planned to add another 55,000, that's on hold for now as I wait for some of my other dogs to perk up.