DJ FOCUS:US Oil Company ERHC Eyes Nigeria, Sao Tome Jackpot
By Norval Scott
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--A little-known company with no history of producing crude could be on the brink of becoming a significant player in the West African oil game.
Houston-based Environmental Remediation Holding Corp. (ERHC) holds preferential rights in a maritime enclave jointly operated by Nigeria and Sao Tome & Principe, known as the Joint Development Zone. Now the tiny company is set to gain equity in five blocks when the JDZ's second licensing round is finalized, possibly later this month or in February.
"We're due our day in the limelight," said Phil Nugent, a Houston-based oil and gas consultant and long-time ERHC shareholder. "At some time the dust will settle and ERHC will be recognised as a viable entity in one of the most prospective oil and gas regions in the world."
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For that to happen, however, ERHC first needs the licensing round process to be concluded - which it has been hoping for since April 2003, when the JDZ's first-ever round was launched. As the company's only assets are its JDZ interests, it needs the tender to be concluded, and blocks awarded, so that its preferential rights become concrete equity.
That should transform the fortunes of the company, whose rights are the legacy of a deal struck with Sao Tome in 1997.
ERHC is currently listed on NASDAQ's OTC Bulletin Board and has a market capitalization of $323.63 million. According to its last 10-k filing with the U.S. Securities and Exchange Commission, the company has no revenue and is over $9 million in debt to its parent company, Chrome Energy. ERHC chairman and owner of Chrome Energy, Nigerian Emeka Offor, controls 50.3% of ERHC. Given the tiny stature of the company, it has often been seen as little more than a real-estate holding vehicle in the JDZ.
However, the company may even grab a JDZ operatorship; it has made joint bids with established U.S. companiesDevon Energy Corp. (DVN) and Pioneer Natural Resources Co. (PXD) for Block 2 and Block 3 in the tender, and also with Noble Energy Inc. (NBL) in Block 4.
"When the awards...in the current JDZ bid round are finalized, it will be a significant step forward," ERHC Chief Executive Ali Memon told Dow Jones Newswires.
However, the conclusion of the licensing process has been continually delayed, leading to some disquiet among shareholders and keeping ERHC's stock price rangebound near the 50 cent mark.
"(We) are seeing some frustration in the lengthy process we've been through...and the slowness of awards has taken its toll," said Greg Parks, another ERHC shareholder.
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ERHC's patience may soon be rewarded. In October 2004, the Joint Development Authority, which governs the JDZ, closed the first licensing round, only awarding one block. It then reoffered five blocks in a month-long tender that closed Dec. 15, and these are expected to be awarded in January or February, although there may be further delays. ERHC has preferential rights of between 15% and 30% in all five blocks.
Edmund Daukoru, Energy Adviser to the Nigerian President, told the News Agency of Nigeria earlier this month that he believes the awards would be made by the end of January.
Some shareholders reckon that the completion of the licensing process could have a dramatic impact on the value of the company. "Once the awards are announced and our rights validated, we should see the share price multiplying," said Nugent.
Should ERHC's rights be validated through the block awards, the company's next move is unclear. Selling off its stakes to the highest bidder is one option, said Olly Owen, African analyst with U.S.-based economic consultancy Global Insight.
"Overall, the new crop of privately controlled domestic oil companies in Nigeria don't seem to be in the game for the long haul," Owen said.
"That's because slow-developing projects are seen as too high risk, due to the uncertain regional environment for investment. If making its outlay back appears too tortuous and tricky a process, ERHC will probably sell up," he added.
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And ERHC is now looking a more believable prospect as an an active petroleum company, says Antony Goldman, Africa Analyst with London-based consultancy Clearwater Research Services.
"ERHC has been trying to strengthen its oil credentials. It's been pretty smart at pulling in Noble and Pioneer as co-bidders, and it's also brought in Ali Memon, a genuine oil man, as president, which gives them more credibility," he said.
"Its position in this round looks far better than a year before, when it just appeared to be a real-estate vehicle. Now ERHC could expedite the extraction of oil in the JDZ," Goldman added.
Hurdles
However, the company must overcome some huge hurdles - namely its lack of revenue and debt load - before achieving those ambitions. But these hurdles shouldn't prevent the company from meeting its post-award obligations, shareholders say.
"It's not hard to structure a deal whereby a company's partners can carry it until first oil production," shareholder Nugent said. "I think that will happen with ERHC."
ERHC's Memon also indicated that such an avenue may be open. "It is our intention to form relationships with entities to maximize the value of our assets," he told Dow Jones Newswires. He added that the company "would be participating in each block according to our interest."
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ERHC shareholders have little doubt that they could be involved with something special.
"Our minnow is swimming with the sharks," said shareholder Parks. "It's manoeuvred itself to win (in an area where) the seismic data indicates world-class oil reserves. Current ERHC investors are in on the bottom floor of a skyscraper."
Company Web site: http://www.erhc.com
-By Norval Scott, Dow Jones Newswires; +44-20-7842-9344; norval.scott@dowjones.com
Update:The stock has already begun to move on the news. The headline itself ought to be worth quite a few pennies, we'd say. After opening very, very slowly - just 4,900 shares in the first half hour - 318,000 shares moved by 10:50 and the stock was up $0.02 at $0.50. Selling appeared shortly thereafter and the share price fell to $0.49, up one cent for the day.
Update. 1:18pm EST: Our prediction that the story would move the stock has not yet been fulfilled, probably because the story is not available from any conventional source, including E*Trade's news and Power E*Trade's Dow Jones wires, nor from Bloomberg.com, Telerate, Ameritrade, Yahoo.com or cbsmarketwatch.com. At
1:22pm EST, the volume has climbed to 884,017 and the price is still at $0.50. As usual with ERHC-related news, there is clearly a snafu - and there always seems to be. It's not even on the ERHC Website!
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