Sunday, February 24, 2008

What would Addax Buy From ERHC? A Sad Scenario

The news that Addax, our operating partner in several blocks of the Nigeria-Sao Tome and Principe Joint Development Zone (JDZ) has squirre;ed away $1.5 billion for acquisitions has stirred anticipation that a $2 per share offer may be forthcoming from the Swiss drillers whose fortunes, for better or worse, have been allied with ours for more than a year.

That amount - $2 per share x 722,239,000 shares outstanding, conveniently adds up to $1,444,478,000, and leaves $55 million on the table for legal bills, accounting and ERHC debts.

And it seems a reasonable amount for a stock that is currently selling at $0.22, or $158,889,580 of market cap (although the last sale of 1,000 shares at $0.235 x $0.22 was a valiant effort to shore up prices that had fallen all day).

But as usual, I see things a little differently. My guess is that the reason we have no employees to speak of, even a permanent CEO, is that the company is meant to be sold and easily transferable to the buyer.

A buyer won't have a lot of pensions, salaries and severance obligations with a three-person staff, one of whom is part-time. Of course, the company doesn't have any physical operations, either - just signatures of the Joint Ministerial Council on a sheaf of paperwork granting us rights to billions of barrels of oil 10,000 feet under the sea. You could carry the whole company on a CD in a briefcase, because at the end of the day, that's all there is.

But the company is the end-product of the vision of just one man, Sir Emeka Offor, who is no longer controlling the company directly and is no longer on its board. He has transferred 303,000,000 of his shares, or 42% of our outstanding stock, to Chrome Energy LLC, a Cayman Islands bank account which, like the company, amounts to no more than a sheaf of stock and incorporation certificates in a safe deposit box.

If I were Sir Emeka Offor, though, being the one who has been pilloried, sued, accused, smeared, shamed, scarred, castigated, condemned and cheated - and congratulated, at least once - ad infinitum for the past 5 years, I might have other ideas for that $1.5 billion.

I might say to myself, well, let Addax pay me an approximation of what my shares are worth - $5 a share for the entire Chrome Energy LLC holding - and let the shareholders hope it floats their boat, too.

And to some degree it would. While Offor's shares would not give Addax control of the company, it's been able to pick up 50,000 or so a day at $0.20 - $$0.25 a share for some time now without tipping the SEC threshold for an 8-K report. At that rate, it would need 144 trading days (28 weeks) for each 7.22 million shares, or each 1% of the company. A separate deal for 3% or so with the First Atlantic Bank of Nigeria, which holds another 8%, is probably doable, and would yield for majority control.

Now, let's see:

$1.5 billion for 303,000,000 shares amounts to $4.95 a share; maybe, as a sweetener, Offor would keep 3 million (or 1%) to make it a nice round $5 per share. The shareholders will have gotten their $0.20 - $0.25 per share when they sold in the past year. And Addax would be the majority owner of a company that will probably be worth about $14 a share two years from now. Sounds good to me!

Who would deal with the SEC indictments, if they ever come? Well, to the best of my knowledge, it would be the shareholders of ERHC Energy, not Addax or Sir Emeka Offor. If they ever come.

That's why you should sell your shares today. The sooner Addax gets all they need, the sooner you will get screwed. Of course, if you wanted to make them wait closer to drilling, they might sweeten the pot a few cents, but they don't really need you. They need Offor's shares, some of the bank's shares, and the shares you've already sold them.

Congratulations - they're rich!

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