Wednesday, June 24, 2009

BIG News: Sinopec Makes A Bid For Addax, ERHC Says

Without addressing the issue of its concessions under the joint venture with Addax, ERHC Energy released a statement this morning confirming that an agreement has been reached for the Swiss player to be acquired for $52.80 a share, a 47% premium over the June 9 share price, by Sinopec, the sixth-largest oil company in the world and the second-largest in China. The price is protected by a $300 million termination fee, Addax said.

ERHC Energy has a 22% interest in Block 2 of the Nigeria-Sao Tome & Principe Joint Development Zone (JDZ), where Sinopec is the operator, and a 19.5% interest in Block 4, where Addax is the operator. ERHC Energy helped arrange the relationship that now prevails, it said in the 9:38AM EDT press release, forwarded to us by Mark St. Amour.

The move by Sinopec brings into sharp focus the Chinese demand for oil and its perspicacity in seeking a deal at a time when oil prices and share price are depressed.

A Dow Jones/Wall Street Journal report on June 19 noted the probable acquisition and said the company will begin drilling Block
2 very early in July:

The TransOcean SEDCO-702 deepwater rig is due to arrive at Block 2 around July 1 and drilling will start immediately afterwards, said an official with the JDZ.

ERHE rose just $0.01 on today's news, to $0.66, still $0.03 below its recent high of $0.69 but far ahead of its January price of $0.11.

The company said with a muted sense of jubilation that the Blocks 2 and 4 drilling schedules set for the third quarter of this year could begin as early as July, although we doubt it. The company says the offer/buyout would have no impact on the schedule.

ERHC Energy Inc. Responds to Announcement of Planned Acquisition of Addax Petroleum by Sinopec Corp.

HOUSTON, June 24, 2009 – ERHC Energy Inc. (OTCBB: ERHE), a publicly traded American company with oil and gas assets in the highly prospective Gulf of Guinea off the coast of West Africa, today responded to the announcement of an agreement for Sinopec Corp. to acquire Addax Petroleum.

Sinopec and Addax are longtime technical partners of ERHC Energy. ERHC was instrumental in helping both companies establish a presence in the JDZ and has worked closely with them on issues related to oil and gas exploration. Sinopec is the operator of Joint Development Zone (JDZ) Block 2, in which ERHC has a 22 percent interest. Addax is the operator of JDZ Block 4, in which ERHC has a 19.5 percent interest.

“Today’s announcement is the start of an intensive process, which we expect will be beneficial for all parties involved,” said Peter Ntephe, chief operating officer with ERHC. “Most important for ERHC is that we have been assured that today’s announcement will have no impact on the commencement of exploratory drilling in JDZ Blocks 2 and 4.”

According to the operators, drilling in JDZ Blocks 2 and 4 is scheduled for the third quarter and could begin as early as July.

Here is the Addax press release:

Calgary, June 24, 2009 /CNW/ - Addax Petroleum Corporation ("Addax Petroleum" or the "Corporation") (TSX: AXC and LSE: AXC) announced today that it has entered into a definitive agreement (the "Support Agreement") with Sinopec International Petroleum Exploration and Production Corporation ("SIPC") pursuant to which SIPC has agreed, subject to the terms of the Support Agreement, to make an offer to acquire all of the outstanding common shares of Addax Petroleum by way of a negotiated take-over bid (the "Offer") for C$52.80 per common share in cash.

The Offer represents a 47% premium to the closing market price on the TSX of the Addax Petroleum common shares on June 5, 2009, the day prior to Addax Petroleum's public announcement that it was in preliminary discussions with parties regarding a potential transaction. SIPC is a wholly owned subsidiary of China Petrochemical Corporation ("Sinopec Group") and undertakes overseas investments and operations in the upstream oil and gas sector. Sinopec Group is China's largest producer and supplier of oil products and major petrochemical products.

The Support Agreement provides for, among other things, customary provisions relating to support of Addax Petroleum's board of directors, non-solicitation and right to match covenants in favour of SIPC and the payment to SIPC of a termination fee of C$300 million if the acquisition is not completed in certain specified circumstances.

The obligation of SIPC to take up and pay for Addax Petroleum common shares pursuant to the Offer is also subject to the receipt of certain approvals from the Government of The People's Republic of China. SIPC has agreed to pay a break-up fee of C$300 million in the event that all approvals required to be obtained by SIPC from the Government of The People's Republic of China have not been obtained by August 24, 2009 and Addax Petroleum elects to terminate the Support Agreement. The acquisition of the Addax Petroleum common shares is not conditional on financing.

In connection with the Offer, AOG Holdings BV, a wholly owned subsidiary of the Addax & Oryx Group Ltd, and Jean Claude Gandur, President and Chief Executive Officer of Addax Petroleum, have each entered into lock-up agreements with SIPC pursuant to which they have agreed to, among other things, tender their Addax Petroleum common shares to the Offer. Addax Petroleum's other senior officers and directors will also enter into lock-up agreements. The total lock-up agreements represent approximately 38% of outstanding Addax Petroleum common shares (calculated on a fully-diluted basis).

The Support Agreement also provides that if SIPC acquires not less than 66⅔% of the outstanding Addax Petroleum common shares under the Offer, SIPC will comply, or cause Addax Petroleum to comply, with the terms of the 3.75% convertible notes of Addax Petroleum due May 31, 2012.

Addax Petroleum's board of directors, after consulting with its financial and legal advisors, has unanimously determined that the Offer is fair to the holders of Addax Petroleum common shares and is in the best interests of Addax Petroleum and has recommended acceptance of the Offer by holders of Addax Petroleum common shares. RBC Capital Markets, the financial advisor to Addax Petroleum's board of directors, has provided an opinion that the consideration to be received by the holders of Addax Petroleum common shares under the Offer is fair, from a financial point of view, to such holders.

Commenting, Addax Petroleum's President and Chief Executive Officer, Jean Claude Gandur, said: "We are pleased that Sinopec has recognised the highly attractive asset portfolio and exceptional team that we have assembled at Addax Petroleum. The efforts and accomplishments that Addax Petroleum has achieved thus far will be built on through increased investment in the business and acceleration of development and exploration plans. While Addax Petroleum will cease to be a publicly traded company, we look forward to continuing our business in the countries in which we operate for the benefit of all stakeholders."

Formal documentation relating to the take-over bid is expected to be mailed by SIPC in early July 2009. The Offer will be open for acceptance for a period of not less than 35 days and will be conditional upon, among other things, valid acceptance of the Offer by Addax Petroleum shareholders owning not less than 66 2/3% of the outstanding Addax Petroleum common shares (calculated on a fully-diluted basis).

In addition, the Offer will be subject to certain customary conditions, relevant regulatory approvals including the receipt of approval from the Government of The People's Republic of China and the absence of any material adverse change with respect to Addax Petroleum. SIPC may waive certain conditions of the Offer in certain circumstances. If the Offer is successful, SIPC has agreed to take steps available to it under relevant securities laws to acquire any remaining outstanding Addax Petroleum common shares.

RBC Capital Markets is acting as financial advisor and Fasken Martineau DuMoulin LLP is acting as legal counsel to Addax Petroleum and Osler, Hoskin & Harcourt LLP is acting as legal counsel to the Board of Directors of Addax Petroleum.

Sunday, June 14, 2009

No Bid From CNOOC On Addax, But It's A Complex Game

Despite an enormous amount of published specualtion, Sinopec to date has made no offer for Addax, according to late reports Sunday night from Bloomberg News. That development will probably trigger a sell-off Monday morning, following a 10% share-price decline on Friday. The backtracking should not go very deep, hpowever, and we would tend to believe that with drilling just months away, it may not drop below $0.50 on this latest retrenchment.

Sinopec is obviously wary about all the unknowns involved in ther Addax deal, including the largest one of all - how much oil is in Blocks 2 and 4, the principal assets of Addax in the Gulf of Guinea Joint Development Zone. However, if CNOOC-Sinopec truly wants to be well-placed in the event the most prospective Blocks are sitting on an elephant-size field, it can't delay too long without riskling a re-entry by Chevron and ExxonMobil, both of who would be likely bidders at a lower share price.

Chevron, in what may be one of the best poker bluffs of all time, has indicated it will not be drilling any longer on Block 1 because what was first reported in the Wall Street Journal as a billion-dollar findwas not "commercially viable." But it may be that Chevron hoped to bring down the price for Blocks 2 and 4, having contemplated a check-and-raise strategy all along.

In that circumstance, the American oil giant would end up with all the big pieces - the whole pot really - and then resume its work on Block 1 as well. It's unclear whether the JDZ would go along with developments like those, though.

Frankly, we would also not put it past China to have already used some advance technology to do its own independent mapping of the JDZ via a submarine stealthily introduced into the Gulf. If Sinopec has decided the Blocks were oversold by Nigeria, they may want a bargain-basement price. Of course, Chevron might have asked the U.S. Navy for the same kind of clandestine help. It could have been the secret part of the U.S. Navy visit to the region more than a year ago, during Dick Cheney's secretive reign.

Friday, June 12, 2009

ERHE Soars to $0.695 As Addax Buyout Talk Links To ERHC Energy Holdings

ERHE.OB has soared to $0.695 at the beginning of what may be a world-record run for this plucky stock that's gone to Hell and back to hang on to its rights in the highly prospective Gulf of Guinea Blocks 2, 3 and 4 of the Nigeria-Sao Tome & Principe Joint Development Zone.

The ride from @0.11, where it was mired for months until January, now holds promise to finally reach the $1 mark that for so long has been its upper limit under even the best and most exciting of circumstances.

At the same time, there's roon for concern that drilling is again faced with uncertainty. A June 9 letter from EWRHC Energy CO Peter Ntephe crystallized the doubts when he announced that the drilling rig contracted for exploring the blocks has been summarily removed from the picture due to unspecified problems that had early kept ir in a Singapore dry dock long past its anticipated departure date.

We don't think the drillship issue is going to be much of a drag on share price, and indeed, Ntephe still maintains in his letter that drilling may come in Block 2 as soon as six weeks from now, and in Block 4 by the end of July. They plan to use the drillship Deepwater Pathfinder, Peter Ntephe said.

We're looking for another $0.30 over the next week if talks confirmed by Addax stay on track.

Ntephe also addresses what apparently were several disgruntled shareholders who feared we'd let our capital dwindle with new acquisitions or devalue our stock by paying for new projects with new issues. He promised to segregate those acquisition costs to insulate our capital status but didn't indicate where the new money would come from. With the real payday still years away and the Sao Tome-controlled EEZ still in our sights, I'm not sure it's a great idea.

Here's his letter:

June 9, 2009
Chief Operating Officer Updates ERHC Energy Shareholders
4:08 PM ET | Market Wire

ERHC Energy Inc. (OTCBB: ERHE), a publicly traded American company with oil and gas assets in the highly prospective Gulf of Guinea off the coast of West Africa, today issued the following update on Company activities from Peter Ntephe, chief operating officer.

To ERHC Shareholders:

I am happy to update the ERHC Energy family on the company's recent progress.

Development of our assets in the Joint Development Zone (JDZ) remains the principal focus of this Company and we continue to concentrate our time, energies and resources on accomplishing that objective.

This spring has been a very busy period in the JDZ filled with blockbuster developments. We have been required by contract and regulation to keep a lot of the detailed information on evolving plans in the JDZ confidential. Only the operator and the Joint Development Authority (JDA) are allowed to make initial announcements on such matters. They decide when the time is right for relevant announcements.

However, we have authorization to update you broadly on what has been happening.

First, drilling is very close -- possibly less than six weeks away -- in JDZ Block 2 in which ERHC holds a 22 percent interest. As previously disclosed, the JDA has approved the Bomu-1 Prospect as the first drilling location in Block 2. Based on the latest schedule, Sinopec might spud the well as early as July.

Addax is the operator of JDZ Block 4 in which ERHC holds a 19.5 percent interest. Addax currently plans to use the Deepwater Pathfinder to drill three wells in Block 4, starting with the Kina-1 Prospect. The second and third drilling locations will be determined based upon the Kina-1 exploration results. Addax expects to take possession of the Deepwater Pathfinder early in the third quarter, possibly as early as July.

Also, in the past, we have highlighted the Aban Abraham deepwater drill ship, so I wanted to update you on that as well. After enduring repeated delays on the ship, Addax has announced that it has cancelled the contract for the ship and it is no longer part of our plans for the JDZ.

There are also substantial and positive developments in JDZ Block 3 in which ERHC holds a 10 percent interest. Current plans are to spud the Lemba Prospect before the end of the third quarter. We expect significant announcements from the operator of the Block shortly.

The pace of development in the three blocks justifies our strategy of aligning with highly capable and experienced technical partners, Addax and Sinopec, to whom a great deal of credit is due. We could not be happier with the outcomes of their hard work and determination to make exploration in the coming months a reality.

We are exploring possibilities for strategic alliances with our technical partners on future initiatives in the JDZ and elsewhere. These discussions are at a very early stage, but we are hopeful that we will be able to extend upon our mutually beneficial partnerships.

A year ago we described our plan to independently grow the Company through acquisitions. The credit crisis considerably constrained our ability to secure funding for the planned acquisitions. The acquisitions were to be funded mainly from sources other than the Company's current cash assets. We have resumed work on the acquisitions aspect of the growth strategy, looking at potential targets in North America and West Africa, but it is important to understand that we continue to proceed cautiously.

Several shareholders have expressed their strong objection to any acquisitions on the grounds that they will devalue the JDZ assets or weaken the Company by depleting current cash reserves. Be assured that we do not intend to jeopardize our financial position. Our approach to investment continues to be prudent rather than cavalier. It is important to ensure at all times that the Company's ability to meet operational commitments and regulatory requirements are not adversely affected.

Growth through acquisitions is well advised. We are creating the subsidiary structures necessary to keep those acquisitions separate from the JDZ assets. While this has always been the intention, we hope that specifying it clearly here will allay the fears of those shareholders who oppose acquisitions because they do not want the JDZ assets to be thereby 'diluted' or 'devalued.'

As drilling gets closer, we are making plans to re-intensify delivery of the ERHC message to the wider investment community. Vice President Corporate Development, David Bovell, is slated to present tomorrow at the Growth Company Investor Show in London. He will give an overview of the Company's assets, the NSAI estimates of our prospective resources and the revised growth strategy. We are tying revamp of market outreach to the commencement of drilling in the JDZ so that the message we deliver has greater potency and the resources committed to the effort are optimized.

These are exciting times for the ERHC Energy family, given the fast-paced developments in the JDZ where our core assets are located. We are closer than we have ever been to finally actualizing those assets after years of hard work and perseverance. I thank you all for your continued interest in the Company and your trust and support.

If you have questions, please submit them to Dan Keeney, our investor relations representative, at


Peter Ntephe
Chief Operating Officer

Thursday, June 11, 2009

ERHC Holdings Attractive Element In Addax Buyout Plan, Report Says

We got strong support for our commentary published Sunday night on the proposed buyout of Addax and the role of ERHC Energy in that possible deal. This report from Nigerian's Guardian has to be taken with a grain of salt, though, as the newspaper may well be subject to corrupt influences endemic to Nigeria.

On the downside, the article quotes an Addax statement as saying it will "commence drilling later in the year," while many shareholders have been led to believe that drilling will commence this month or next, ERHC On The Move warned two weeks ago that that would not happen. When "later in the year" might be is open to speculation.

Here is the Guardian's latest:

Wednesday, June 10, 2009

Asian oil firms scramble for Addax Petroleum
By Yakubu Lawal with agency reports

THERE is strong indication that the Canadian quoted oil and gas exploration and production company, Addax Petroleum, may have attracted a buyout interest from two major Asian oil energy firms - China National Offshore Oil Corporation (CNOOC) and ONGC of India.

Already, discussion has commenced between the companies willing to buy over Addax and the management of the Toronto and London quoted oil firm.

But authorities of the Nigerian oil and gas industry including the Nigerian National Petroleum Corporation and Department of Petroleum Resources (DPR) who spoke with The Guardian over the issue said that though it had been on front burner for months now but denied any knowledge of the buyout plan as the Addax, which operate mainly Production Sharing Contracts (PSC) in Nigeria have not informed the authority of any move to divest its interest in the holding both in Nigeria and the emerging new frontier of Nigeria-Sao Tome and Principe joint development zone.

The Toronto and London-listed Addax, whose market value estimated at $2.9billion, has projects in Nigeria, Cameroon, Gabon and licenses in the Kurdistan region of Iraq where it is exploring the Taq Taq field.

"It is true that Addax will commence drilling in JDZ later in the year," a source said. "It is also true that Chinese investors are jostling to buy Addax."

According to source in NNPC, Addax had not informed the corporation or any other agencies of the government on the issue of a buyout.

"As far as government of Nigeria is concerned today, Addax's status in the country has not changed" adding, "there is no way the company will take such step without informing it officially."

According The Guardian source, what is today known as Addax used to be Ashland Petroleum, whose assets the former bought after stressing that there were several issuesm including workers welfare, that must be resolved under the existing PSC )production sharing contract) before it can actually get a nod from the authority to sell.

But in a statement pasted on its website Monday, Addax admitted that it had commenced discussion with a third party, but no details were given.

"Addax Petroleum Corporation has been made aware of press speculation involving the corporation and the interest in it by third parties with respect to a possible acquisition or business combination. In response to that press speculation, Addax Petroleum acknowledges that it has held preliminary discussions with third parties expressing an interest in a potential transaction with the corporation. While such preliminary discussions are ongoing, no assurance can be given that a transaction will be completed. Addax Petroleum does not intend to make further comment unless or until there is a transaction to announce," the company stated.

Addax and its key partner Houston-based ERHC Energy in the JDZ had acquired a deepwater Pathfinder drillship on location where four wells are to be drilled commencing with the Kina prospect in Block 4.

A source at ERHC Energy meanwhile dismissed rumours that the company planned to divest its equity in JDZ blocks to Addax or any other company.

"I can tell you that ERHC has no intention of divesting its interest in JDZ blocks to Addax or any other company," said the source. "I believe this claim might have originated from earlier rumours that our former chairman Sir. Emeka Offor was to sell his shares in ERHC."

The source explained that Offor served on the ERHC board from 2001 until he resigned in 2007.

"His (Offor) shares in ERHC arem however, intact and he is not interested in divesting; neither is he discussing with anyone whatsoever the sale of his interest in ERHC," said the source. "So we are not discussing with anyone to buy out ERHC outright from JDZ blocks."

Industry sources said that Addax was keen to build up its reserves by buying out ERHC's interests in JDZ blocks, making it more of an attractive buy for the Chinese.

ERHC holds a 19.5per cent share in Block 4, in which Addax is operator and also owns a 22 per cent participating interest in JDZ Block 2, in which China Petroleum & Chemical Corp, known as Sinopec, is the operator and Addax holds a 14.33 per cent interest.

Sinopec is said to be working on a bid of up to $8 billion to acquire the company. The largest refinery in China is believed to be the latest to join a list of companies said to be interested in buying out Addax.

Monday, June 08, 2009

WSJ Reports Big Jump In Addax Shares On Possible Takeover Bid From Sinopec

Apparently following up on our post the other day (see below), Addax shares are jumping today on speculation that they may be purchased by our Block 2 and 4 partner, Sinopec.

We reported that Addax, in turn, may take over Anadarko's share of the highly prospective Block 3. It's unclear whether Sinopec's interest in Addax is due or related to that development, which at this stage remains a rumor.

Such a bid would probably mean that ERHC Energy's percentages of equity in Blocks 2 and 4 would be assumed by Sinopec and that ERHE shreholders would be compensated for those. Alternatively, ERHC could go forward with Sinopec as the operator of both blocks and owner of Addax.

It's difficult to tell whether such a deal might produce upfront cash for ERHC Energy, although it should spark some interest in our shares, since if Sinopec thinks Addax is worth a good price, it stands to reason its assets - including these huge blocks in the Gulf of Guinea - are also valuable.

Nonetheless, while Addax Shares are up $3.75 at $39.75, they have been over $40.

TORONTO (Dow Jones)--Speculation about a possible takeover of oil company Addax Petroleum Corp. (AXC.T) is driving its share price higher.

Addax is up 9.4% after a story in the South China Morning Post reported that China Petroleum & Chemical Corp. (SNP), known as Sinopec, is working on a US$8 million bid for Addax, which is an oil and gas exploration company operating in the Middle East and West Africa.

Addax said in a press release that it has been in discussions with third parties, but it didn't elaborate. It also said it won't comment further unless a transaction is finalized.

Raymond James analyst Rafi Khouri told Dow Jones that he thought Addax would be a good fit for the Chinese company. Khouri said the Chinese are trying to expand their access to oil and gas, and have shown some interest in West Africa.

"My personal view is that I would not be surprised if Addax were to be acquired at some time in the next 12-24 months," Khouri said. "Whether or not that will happen now, or if there's any truth to the speculation, is hard to say."

Khouri doesn't own Addax shares and he said Raymond James doesn't have an investment-banking relationship with Addax.

Addax officials weren't immediately available for comment.

In Toronto Tuesday, the stock is up C$3.40 to C$39.40 on 2.3 million shares.

-Jennifer Walter, Dow Jones Newswires, 416-306-2028

Sunday, June 07, 2009

Will Addax Take Over Block 3 From Anadarko?

We got word from a longtime ERHE investor that Addax will take over Anadarko's present role as operator in Block 3, a development that could finally bring to an end the bitterness that has enveloped that block since it was awarded to the Oklahoma oil giant in a fierce competition several years ago. Nothing has happened there since, even after Chevron hit what the Wall Street Journal mistakenly called a billion-barrel discovery in nearby Block 1, and then hightailed it out of Dodge when the find was deemed commercially untenable.

This change in operatorship is ostensibly set for mid-July, and it could lift ERHE shares at least a little. While the current uncertainty as to when drilling will begin, apparently created by a Platt's Oil & Gas Newsletter article that said later rather than sooner, as we warned here not long before their piece came out - has hogtied the stock price for now in the $0.45-$0.48 range, the Addax-Anadarko deal could temporarily bump it up to $0.55 or $0.60.

But all of these nickel-and-dime share price improvements (admittedly, it's up 400% since January) are going to be a bad memory when drilling begins. There will be a long steady rise during the 45 days or so it will take to determine if there is an elephant field in Block 4, as folks from Exxon, Chevron and every other oil major believed when they bid and lost to ERHC Energy, et alii, in what most have been the bidding saga of the century.

I'm sure our tipster has talked to other readers, and I'm sure all our readers know better than to believe all such tips are good one, or even well-intended. It certainly sound reasonable to me. Good luck!