The first and most significant item concerns the deals between Noble and ourselves in Block 4 and Pioneer and ourselves in Blocks 2 and 3. The good news is that ERHC will be carried all the way to commercial production by our partners in exchange for generous percentages of our equity.
However, even after those percentages are deducted we will have plenty of cash from oil in those blocks - assuming the deep-water structures that appear to hold billions of barrels of oil actually do - and there is no danger that we will have to dilute our stock or sell what the company holds to raise cash for mapping, drilling and production.
Here is the UpstreamOnline news from the veteran oil industry observer, Barry Morgan:
ERHC secures farm-out deal for JDZ blocks
22 July 2005
Upstream
Houston-based minnow ERHC Energy has agreed a farm-out deal with US partners Pioneer Natural Resources and Noble Energy for two blocks for which operatorship was awarded last month in the Joint Development Zone administered by Nigeria and Sao Tome & Principe, writes Barry Morgan.
Noble partners ERHC on Block 4 while, on Block 2, Devon Energy's departure from the consortium last week left Pioneer partnering ERHC.
Meanwhile, Pioneer and ERHC also enjoy a substantial stake in Block 3, operated by Anadarko Petroleum.
In the Noble and Pioneer deals covering blocks 4 and 2 respectively, ERHC will be carried to commercial production. Noble will in return pick up 15 percentage points from ERHC's original preferential stake of 25% in Block 4, while Pioneer will pick up 15 percentage points from ERHC's original preferential stake of 30% in Block 2.
Both Noble and Pioneer, in partnership with ERHC, are understood to have almost finalised joint operating agreement and production sharing contracts for blocks 4 and 2 where they were awarded operatorship with combined stakes of 60% and 65%, respectively.
The farm-out deals mean that ERHC could end up with 13.5% of Block 4 and 18.5% of Block 2.
In a parallel development, the Abuja-based Joint Development Authority (JDA) this week urged all the successful consortia awarded deep-water blocks in the just-concluded second licensing round to speed up talks on their respective joint operating agreements.
The JDA, along with the governments of both countries, is keen to cash in the signature bonuses and ensure exploration drilling starts this year.
JDA negotiations between the partners for blocks 2, 3, 4, 5 and 6, along with talks to conclude production sharing contracts, should run concurrently, according to a senior JDA official.
PSC talks were due to start this week.
ERHC Energy rose two cents to $0.42 today after having risen twice as much earlier in the afternoon, and there was substantial buying activity again with lots as large as 70,000 purchased in a single Buy.
The number of trades today, a total of 180, virtually doubled yesterday's 94, although volume rose only 385,000 shares over yesterday's 897,000 shares. The price of the last two trades probably was determined by an eager long who bought 200 shares in each of two trades at 3:58pm, lifting the price off the Bid of $0.415 to the $0.42 close.
At the end of the day, there were 795,096 shares identified as Buys and 586,649 as Sells, with 49,000 unidentified (trade definitions are based on the mid-price and are indicative only).
The second piece of news is that Dow Jones is apparently committed to covering the Nigeria-Sao Tome and Principe Joint Development Zone process. The newswire agency of the Wall Street Journal is a keen and competitive observer that will eventually challenge Upstream to become the publication that breaks the latest news from the Gulf of Guinea, where America's hopes of a trouble-free flow of sweet crude to meet 25 percent of its needs by 2010 are placed.
Aside from the fact that it is offering coverage, the Dow Jones piece on the preparation of contracts comes rather a long time after June 24, when the Nigeria-DRSTP Joint Development Authority issued a press release on the topic.
However, it quoters a JDA official on Thursday's first negotiation meeting, and he restates the news that the JDA hopes to comple Production Sharing Contracts by about October 30, 2005.
This once again raises the possibility that fast-track driller Noble Energy may get a well sunk in Block 4 - thought to be the most promising acreage in the second licensing round - in 2005, and that investors will see significant share price improvements by year's end or very soon thereafter.
Here is the Dow Jones piece, by another pro, Victor Nwanma:
21 Jul 2005 14:36 MT Dow Jones
Oil Block Winners, Nigeria-Sao Tome Authority Begin Talks
LAGOS (Dow Jones)--The Joint Development Authority (JDA) between Nigeria and the island country of Sao Tome and Principe have begun discussions on production-sharing contracts (PSCs) with winners of the five oil blocks offered in its second licensing round, an official told Dow Jones Newswires late Thursday.
The meeting ended with JDA expressing hope that negotiations would be completed and the agreements signed within 90 days.
"JDA is anxious to sign the PSCs to meet the expectations of their governments and peoples," said Samuel Obiorah, Executive Director in charge of monitoring and inspection, who presided over the meeting.
The companies are also negotiating their joint operating agreements.
JDA announced the results of its second licensing round about two months ago. The round covered blocks 2 to 6, located in the joint maritime boundary between Nigeria and Sao Tome and Principe.
The results, announced May 31, 2005, showed that block 2, considered the most prospective, was awarded to an operating consortium of Devon Energy Corp (DVN), Pioneer Natural Resources (PXD) and ERHC Energy Inc.(ERHE).
Devon announced early this month it had withdrawn from talks on operating agreements on the block.
JDA received 26 bids from 23 companies for the five blocks, which offered a total $433 million in signature bonuses.
In the first round of licensing, only one out of the nine deepwater blocks put on offer, was awarded. The consortium that won it is comprised of Chevron Corp. (CVX), as the operator; Exxon Mobil Corp. (XOM); and Dangote-EER.
Obirah confirmed Thursday that JDA had received the signature bonus of $123 million from the consortium.
Receipts from the licensing round are to be shared in 60:40 ratio between Nigeria and Sao Tome.
Obiorah said the next round of talks would be held in London in two weeks, to be followed by another in the United States.
-By Vincent Nwanma, Dow Jones Newswires;
+234-1-585-0849; vinwanma@dowjones.com
(END) Dow Jones Newswires
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