In April 2014, ERHC President and CEO Peter Ntephe sat down for a discussion about Company activities. The following is a transcript:
What is ERHC’s back story?
ERHC Energy Inc. was formed in 1986 as an American public company focused on environmental remediation. In 1995, the Company decided to change its focus to oil exploration. It started with one asset in São Tomé and Príncipe. ERHC was the first company to have an exclusive agreement with the Government of São Tomé and Príncipe for oil exploration and hydrocarbon development. The oil exploration business that resulted from those agreements with São Tomé and Príncipe became the Company’s sole focus from 1995 to2010. The Company was completely focused on oil exploration and divested itself of all other businesses and operations.
So even though ERHC is currently known best for its Kenya asset, the origin of the company is really in the Gulf of Guinea?
If you go back a decade or more, the São Tomé and Príncipe prospects were among the most exciting in the Gulf of Guinea; the area is in what has become known as the West African Transform Margin. There were very high hopes for the São Tomé and Príncipe region. Over the course of a number of years, São Tomé and Príncipe’s assets were divided into two zones: the São Tomé and Príncipe Exclusive Economic Zone (EEZ) and the Nigeria - São Tomé and Príncipe Joint Development Zone (JDZ). ERHC later selected two Blocks in the EEZ and the Company has interests in six of the nine JDZ Blocks. We still have all those assets.
Has ERHC drilled wells there?
Between 2009 and 2010, ERHC and operating partners it had acquired along the way drilled five deep offshore wells in three of its blocks in the region. None of those wells was a commercial discovery. A bit of biogenic methane gas was discovered, but that was about it. Nothing was commercial. As a result, ERHC revisited its business strategy. We decided to tweak the business plan slightly. Deep offshore exploration requires a lot of money and a lot of technical capability. It is very complicated. For ERHC to continue exploring deep offshore exclusively, we would always rely on getting an operating partner, because we are a small company. So instead, we decided while not abandoning the deep offshore assets or the partnerships we had acquired, we would get new assets, which would be onshore.
Why onshore assets?
The advantage of new onshore assets was that we could easily raise money for those and we could operate them ourselves. So there was a strategy shift for ERHC in 2010. These would be assets that are more easily manageable and operable for a small company like ERHC.
That’s when Kenya and Chad came into the picture?
The first thing we did was to develop our in-house technical capability. We built out a formidable technical team. While we were doing that, we went out and got onshore assets – in Chad first of all and then in Kenya. We got our Kenya asset – Block 11A – in 2012.
You’ve started exploration there?
The work program is divided into three parts. The first phase, which is two years, will expire at the end of summer 2014. We have followed the work program to the letter. We have accomplished everything that was supposed to have been accomplished according to the PSC. First of all, we started operating it ourselves and then we got operators interested. And at the end of the year, we achieved a farm-out with CEPSA – the second largest integrated Spanish oil company. Before the agreement was finalized, ERHC carried out the Environmental Impact Assessment, then the Full Tensor Gravity (FTG) study, which is an airborne gravity survey that can point to areas of potential hydrocarbon accumulation, and then we selected BGP to conduct the seismic survey.
ERHC retained 35 percent of Block 11A?
Yes. CEPSA took 55 percent of the interest, and we handed the reins to CEPSA to lead the charge from now on. But as you can see, we’ve done quite a lot of the operating ourselves, which is consistent with the strategy we put in place in 2010. Ideally, even if we did not attract an operator, we would have been able to continue operating it ourselves.
Did ERHC find positive reaction when Tullow and Africa Oil made its discoveries?
We want our story to stand alone. The technical people know that geography doesn’t necessarily equate with geology. When the news first came out about those discoveries, we were negotiating entry into Kenya, so it justified why we were going into Kenya to shareholders and to the markets. But at this stage we are beyond any celebrations based on geography. We are going to have to prove up our assets.
What are you seeing so far along those lines?
The FTG confirmed our earlier assessment that the basin extends into our Block and even showed us that the extent of the basin is larger than we expected. So the FTG heightened our understanding of the specific subjective prospectivity of Block 11A without regard for what others are finding in nearby Blocks. We expect that when we are finished doing our seismic we will be able to identify specific leads and prospects, upon which we will tell the story of the asset and get the market excited based on the specificity of the geoscience of our own Block.
So Kenya becomes a proof point for ERHC’s new strategy?
The strategy going forward for ERHC is to do similar: onshore assets that ERHC can operate. We plan to continue to work with operating partners exclusively in deep offshore assets. And the deep offshore assets remain. We still have unexplored blocks in the São Tomé and Príncipe region. At the moment we are looking to tie up PSCs in the EEZ. We’ve got two blocks there – Block 11 and Block 4.
What is the cost of drilling a well in Kenya versus your offshore assets?
You are probably looking in the range of $10 million to $30 million, depending on several factors, such as location of the well, depth and so on. Offshore, such as in the EEZ, you are looking at $100 million at least per well.
So ERHC’s plan for the EEZ is to find a partner that has a specialty in offshore exploration and secure a carried interest from that partner?
We are currently talking with several reputable companies. We can’t mention names because of confidentiality agreements in place and the fact that it’s still at a negotiating level. But we are talking with several companies that are interested in the EEZ – particularly Block 11.
These companies must have seen something that interests them?
Our preliminary studies indicate that there might be a significant cretaceous play in Block 11. Basically, we’re talking about something similar to what we’ve seen in the Jubilee Field offshore Ghana. That’s what our geophysicists have concluded based on the spot seismic that currently exists. There are definitely structures that they see, which form a cretaceous exploration play. So there are several parties interested based on what the preliminary studies show in EEZ Block 11.
What’s ahead in 2014?
We have already awarded the contract to BGP for the seismic and preparations are in place to commence that work by the end of spring. Shooting seismic should be completed by the end of summer. That will bring us to the completion of the first phase of our exploration work program in Kenya. The second phase of the work program involves two things – shooting 3D seismic or we can go straight into drilling.
What are the chances that CEPSA will forgo 3D seismic and forge ahead with drilling?
It depends how well we can identify leads and prospects based on 2D seismic. If the 2D seismic highlights sufficient leads and prospects we might go onto drilling. So basically, what we are looking at for the next year is that we will finish seismic work and would be making plans for drilling or prepare to start drilling by the end of 2015. In the EEZ, we are looking at having at least one of our PSCs concluded this year and the start of G&G work. That will involve processing of existing seismic and preparations to conduct an aero gravity/magnetic survey. In Chad, we have Block BDS 2008, and we will be looking at doing an aero gravity/magnetic survey by the end of the year. We are also talking with prospective partners in Chad.
So you expect the pace of activity to pick up in Chad?
There is a lot of prospectivity in Chad. In addition to the G&G work that we’ll do, we are working to get the industry and the market excited about Chad through 2014 and the early part of 2015. The work Caracal Energy Inc. has done is impressive and we intend to build on that work as we start doing our own G&G work. Chad is actually a very prospective region for oil production because it is already a producing country. Prospectivity has been well identified, including in Block BDS 2008. There is an export route through the pipeline from Chad through Cameroon to the Port of Kribi on the Gulf of Guinea. The pipeline is underutilized. There is still a lot of capacity. The pipeline passes very near our Block so the tie up will be very easy. Caracal is lifting through the pipeline and their tie up to their Kibea discovery passes at the boundary of BDS 2008. We are very excited about it.