Addax Deal Would Bring Big Gains And $18 Million Payment

The details of the the agreement between Addax Petroleum and ERHC Energy (OTC BB symbol: ERHE), made public in a prospectus filed by Addax last week in association with an IPO of $400 million on Canada's Toronto exchange, lifted ERHE's share price $0.045 this morning while blocks as large as 290,000 shares changed hands. After lunch, at 1:11pm, volume stood at 2,457,643 and Buys were running ahead of Sells by 1,672,700 to 534,065, with 250,000 shares undetermined.

You can read about the deal for yourself at The Addax Website.

The deal is certainly spectacular, including an $18 million cash payment to ERHC and a much larger share of the coveted Block 4 acreage than Noble Energy had afforded us. With Noble Energy ERHE had a 21.25 percent interest in Block 4, and now has a 26.67 percent interest - a 25.5 percent gain in acreage - plus full carry to first oil.

What is surprising is that the salient details of the participation agreement signed with ERHC in November did not get publicized by our company in a filing or press release. A statement on the Addax prospectus says that publication of the document in the United States may violate SEC regulations.

Here is the deal as outlined in the Addax prospectus from pages 60 to 62 of the prospectus:

Joint Development Zone
Overview

In 2001, Nigeria and the Democratic Republic of Sao Tome and Principe signed a formal treaty for the joint development of petroleum and other resources in the overlapping area of their respective maritime boundary claims. The treaty established the Joint Development Zone and an administrative body, the Joint Development Authority, to oversee the implementation of the treaty and underlying development plan.

The JDZ covers an area of 34,548 km2 with water depths ranging from approximately 1,500 m in the northern part of the JDZ to over 3,500 m at its south western sector.

The first licensing round for the JDZ was announced in April 2003 from which the first Production Sharing Contract was signed in February 2005 for Block 1. The successful consortium to develop Block 1, which paid a signature bonus of $123 million, included Chevron (51 per cent and operator), ExxonMobil (40 per cent) and Dangote-Energy Equity Resources (nine per cent). A second licensing round for the JDZ was announced in November 2004 which made an additional 5 blocks available to potential investors.

The results of the second licensing round were announced in May 2005, with the successful bidders including such companies as Anadarko Petroleum (awarded 51 per cent of Block 3), Noble Energy Inc. and ERHC Energy (jointly awarded 60 per cent of Block 4) and Devon Energy and Pioneer Natural Resources (jointly awarded 65 per cent of Block 2). In addition to the Block 4 Property, the Corporation is in preliminary discussions with some of the successful bidders on other blocks with a view to farming-in to one or more of these blocks.

Geological Description

The JDZ lies in the Gulf of Guinea which is one of the most prolific hydrocarbon regions in the world. Intensive exploration efforts over the last 35 years in and around the Niger Delta, in particular, have led to a succession of large discoveries, notably the Bonga, Agbami/Ekoli and Akpo discoveries in Nigeria and Zafiro and Alba in Equatorial Guinea.

Modern seismic data and improved models of sand distribution indicate that in places prospective acreage can extend up to 300 km from the coastline of Nigeria. Extensive regional 2D and 3D seismic data shot by a number of seismic contractors provide a high quality regional dataset that has provided insight into the region’s geological character.

Block 4 Property

Overview

The Block 4 Property is located in the northern end of the JDZ, approximately 170 km south of the Nigerian coastline and approximately 300 km north of the city of Sao Tome. Block 4 covers an area of 211,700 acres (857 km2) in water depths ranging from approximately 1,800 m to 2,200 m.

JDZ Agreements

In June 2005, the Joint Development Authority announced that Block 4 would be awarded to ERHC Energy/Noble Energy JDZ (60 per cent), Conoil p.l.c. (20 per cent), Hercules Oil Ltd./Centurion Energy (10 per cent), Godsonic Oil Co. (5 per cent) and Overt Ventures Ltd. (5 per cent).

The winning bid provided for a signing bonus of $90 million and a minimum work program of three exploration wells or a minimum expenditure of $53 million. In late October 2005, Noble Energy announced that they were withdrawing from the ERHC Energy/Noble Energy JDZ consortium. ERHC Energy entered into a memorandum of understanding with Addax Petroleum in October 2005 pursuant to which Addax Petroleum replaced Noble Energy JDZ as operator for the consortium.

In November 2005, Addax Petroleum entered into a participation agreement with ERHC Energy pursuant to which it may acquire up to a 33.3 per cent interest in, and become operator of, the Block 4 Property in return for a payment of up to $18 million and a full carry in respect of ERHC Energy’s retained interest. Addax Petroleum would also be required to pay a signature bonus of up to $23.4 million to the Joint Development Authority.

A joint operating agreement and Production Sharing Contract would also have to be negotiated with the other participating parties and, in the case of the Production Sharing Contract, the Joint Development Authority before Block 4 is awarded.

Meanwhile, the Reuters news agency has covered the Addax IPO, which is big news in itself - Canada's largest of 2005. Here's the latest Reuters report:

UPDATE 1-Nigeria's top oil independent plans Canadian IPO
Thu Dec 8, 2005 2:01 PM ET

http://today.reuters.com/investing/financeArticle.aspx?type=newIssuesNews&storyID=2005-12-08T190...

(Page 1 of 2)
(Adds details, background)
CALGARY, Alberta, Dec 8 (Reuters) - Addax Petroleum Corp., Nigeria's largest independent oil producer, has filed for an initial public offering in Canada that one report said will be the country's biggest common stock IPO in more than a year.

Addax, based in Netherlands Antilles, produces 74,450 barrels of oil a day in Nigeria, up from 8,000 in 1998, according to the firm's preliminary prospectus.

The document did not spell out the expected proceeds of the offering of shares that will be listed on the Toronto Stock Exchange, but the Globe and Mail newspaper pegged the figure at C$400 million ($350 million).

Addax Petroleum's chief financial officer, Michael Ebsary, was not available for comment on Thursday.

Common stock offerings in Canada have been dwarfed in recent years by major offerings of income trust units.

Addax is owned by Swiss-based Addax and Oryx Group Ltd., which has several businesses, mainly in Africa, including petroleum and refined products trading, oil storage and mining. It will own a majority of the Addax Petroleum shares once the offering closes, it said.

The oil company is led by Chief Executive Jean Claude Gandur, a Swiss oil man and former diplomat who was one of the founders of Addax and Oryx.

Its chairman is Peter Dey, who is also chairman of Paradigm Capital Inc. and a former partner at major Toronto-based law firm Osler, Hoskin & Harcourt LLP.

The board includes well-known names in Canada's oil patch, including Gerry Macey and Wesley Twiss, who were senior executives at PanCanadian Energy, one of the predecessors of EnCana Corp. (ECA.TO: Quote, Profile, Research).

James Davie, a director of such Canadian oil and gas concerns as Profico Energy Management, Navigo Energy and Taylor Gas Management, is also on the Addax board.

Addax has a 100 percent interest in two production-sharing contracts covering four properties in OPEC-member Nigeria: OML123, OML124, OPL90 and OPL225.