Mr. Peter Ntephe, Chief Operating Officer of ERHC Energy:
Good morning! I appreciate you taking time out of your busy day for this update on ERHC’s operations and the Company’s financial position. With me on the call are:
- Dan Gralla, ERHC’s vice president in charge of technical matters.
- David Bovell, ERHC’s vice president in charge of corporate development.
- Sylvan Odobulu, ERHC’s controller in charge of financial matters.
- And Deon Warner of Warner & Associates, ERHC’s corporate counsel.
To begin, ERHC is now days away from the commencement of drilling in the Joint Development Zone. This is truly a historic moment for ERHC and I am sure that and we are hopeful for significant discoveries while mindful of the challenges ahead.
In JDZ Block 2, ERHC has a 22 percent interest. Sinopec is the operator and expects to take possession of the SEDCO 702 rig on or around August 20th. It will commence drilling of the Bomu Prospect shortly thereafter. Drilling is expected to take approximately 45 days, although there are many factors that can affect the pace of drilling.
In JDZ Block 4, ERHC has a 19.5 percent interest. Addax , the operator of the Block and our technical partner, expects to take possession of the Deepwater Pathfinder within the next few days. Addax has announced that it will begin with drilling with the Deepwater Pathfinder at the Kina Prospect. Our team estimates that drilling of that first well will take approximately 30 days.
From there, the Deepwater Pathfinder will sail to JDZ Block 3 where it will drill the Lemba Prospect. ERHC has a 10 percent interest. Our team estimates that drilling of that first well will take approximately 30 days, at which point the Pathfinder will return to JDZ Block 4 to drill two additional wells before the end of the year.
In the months to come, we expect a lot of developments as drilling progresses. The management of ERHC will balance our own commercial interests with the various contractual and regulatory obligations as well as SEC disclosure laws in order to keep the investment community reasonably informed about developments. Rest assured that we are committed to doing what is best for the long term benefit of ERHC and its shareholders.
I want to take a moment to acknowledge our technical partners, Addax and Sinopec. We are proud to have been the Company that facilitated their entry into the JDZ – a testament once again to ERHC’s pivotal role and far sighted efforts in the region. It is remarkable that of the Blocks awarded in 2005, it is those Blocks in which ERHC has interests and in which ERHC introduced the operators that drilling is commencing. We have worked collaboratively with Addax, Sinopec and Anadarko, the operator of Block 3, for more than three years and our faith in them continues to be justified. Drilling wells in deepwater is very technical and it takes highly competent companies of our partners’ caliber to pull it off. We wish our drilling teams well in the coming weeks.
ERHC also has rights in JDZ Blocks 5, 6 and 9. To date, no Production Sharing Contracts have been signed for these Blocks.
For detailed information concerning the Joint Development Zone, the Nigeria-São Tomé and Principe Joint Development Authority, and the company’s Participation Agreements and Partnerships, I invite you to visit our Web site at www.erhc.com.
On the Sao Tome & Principe Exclusive Economic Zone, we can also report progress. ERHC has rights to participate in exploration and production activities in the EEZ, including the right to receive up to two blocks of ERHC’s choice and the option to acquire up to a 15 percent paid working interest in another two blocks of ERHC’s choice.
The Sao Tome & Principe National Petroleum Agency has released the Block delineation for the EEZ. There are 14 Blocks varying in size from 3,600 square kilometers to over 18,000 square kilometers. The Blocks are grouped into three zones.
While officials of Sao Tome & Principe have indicated that plans for the First Licensing Round are progressing and could open as early as the fourth quarter of this year, they have not released the final list of Blocks that will be offered.
As was the case in the JDZ, ERHC is engaging highly qualified and competent technical assistance to enable us bid on Blocks of high prospectivity given the technical information available.
Now a few financial notes from our latest quarterly filing.
- As of June 30, 2009, ERHC had cash and cash equivalents totaling about $23.6 million. Management believes that these cash assets are sufficient to keep the company going for several years.
- General and administrative expenses during the quarter totaled approximately $1.3 million.
- We are pleased to report that through the first three quarters of the fiscal year, ERHC’s general and administrative expenses are down from the same period one year ago.
- During the three months ended June 30, 2009, ERHC’s net loss totaled approximately $3.4 million. A few factors contributed to the loss, including an increase in legal fees related to activity to protect the Company’s interests in JDZ Blocks 5 and 6, the Company’s establishment of a preliminary loss reserve of approximately $2.1 million, and a decrease in interest income.
In the past few months, we have concentrated on contributing our fair share of effort in the various preparations towards drilling in the JDZ, including the obtaining of numerous necessary approvals. We have nonetheless continued to examine potential revenue-generating acquisitions that are in line with our strategy to diversify the portfolio of this Company.
We believe that such diversification, if successfully implemented, would enhance shareholder value. Our investigations have however been cautious. The Company’s principal assets remain the JDZ and EEZ interests and it is not our intention to jeopardize them or the Company’s overall standing by making a cavalier investment.
And finally, a quick word about our plans for an Annual General Meeting. Due to the intense activity related to the start of exploratory drilling, plans for the meeting are currently on hold. We remain hopeful that we will be able to hold a meeting prior to the end of the calendar year.
As we revel in the excitement of impending drilling, I request our shareholders to pause for a moment to reflect on the transition during the last quarter of our director and chairman of our Audit Committee, Mr. Clement Nwizubo. Mr. Nwizubo was a committed member of the ERHC family and spared no effort to protect the shareholders’ interests. The Board is currently looking for a replacement for Mr. Nwizubo.
In conclusion, ERHC is at a momentous point in its history. We are on course to achieve our goals in the Gulf of Guinea. We are now poised to realize the full benefits of the ‘first-mover’ advantage which has accrued to us by virtue of our pioneering role in the area now delineated as the JDZ and the EEZ. Our progress thus far is also testament to the Company’s remarkable resilience over the years, its careful management strategy and an unwavering commitment to the best interests of the shareholders over the long term. ERHC has indeed come a long way. Thank you for taking time out to participate in our call today.
And now we would be happy to answer any questions you might have.
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