Statements during this meeting may concern ERHC Energy Inc.’s future operating milestones, future drilling operations, the planned exploration and appraisal program, future prospects, future investment opportunities and financing plans, future shareholders’ meetings, response to the Senate Subcommittee investigation, developments in the SEC investigation of the Company and related proceedings, as well as other matters that are not historical facts or information. Such statements are inherently subject to a variety of risks, assumptions and uncertainties that could cause actual results to differ materially from those anticipated, projected, expressed or implied. A discussion of the risk factors that could impact these areas and the Company’s overall business and financial performance can be found in the Company’s reports and other filings with the Securities and Exchange Commission. These factors include, among others, those relating to the Company’s ability to exploit its commercial interests in the JDZ and the exclusive territorial waters of São Tomé and Príncipe, general economic and business conditions, changes in foreign and domestic oil and gas exploration and production activity, competition, changes in foreign, political, social and economic conditions, regulatory initiatives and compliance with governmental regulations and various other matters, many of which are beyond the Company’s control. Given these concerns, investors and analysts should not place undue reliance on these statements. Each of the above statements speaks only as of the date of this press release. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any of the above statements is based.
First, I would like to address the executive leadership of the Company. Mr. Nicolae Luca, who has served as acting CEO since 2006 and has been on the board since 2001, tendered his resignation today. Mr. Luca wishes to pursue other interests and the board of directors has accepted his resignation.
Mr. Luca served as acting CEO of ERHC for nearly 21 months. Notwithstanding that it was a very challenging period for ERHC, Mr. Luca’s leadership made it possible for the Company to continue advancing the interests of shareholders. We have made great strides in that time. The Company’s operations and finances have been stabilized and now, we stand on the threshold of exploration activities in the Joint Development Zone. Mr. Luca believes that his work is done and this is an appropriate time to carefully continue the transition of leadership that began last year.
You will recall that in August last year, Emeka Offor, our Board Chairman at the time, resigned from the Board to concentrate on his other businesses. Mr. Offor’s tenure as Chairman saw the Company firm up its assets in the Gulf of Guinea and acquire important technical partners to facilitate the exploitation of those assets. The Company will remain grateful to him and to Mr. Luca for their untiring service to this Company in challenging times.
The board has created the position of Chief Operating Officer in the group structure that is being made operational for ERHC Energy. I will discuss that structure shortly. I have been appointed the Chief Operating Officer to oversee the administration and corporate governance of ERHC and its subsidiaries.
It will also be my responsibility in that position to ensure that the group’s strategic objectives are met. Pending the appointment of a Chief Executive Officer for ERHC Energy Inc. -- the parent company of the group, I will also serve as acting CEO to replace Mr. Luca.
The board has also created the position of Vice-President Corporate Development for the group.
We are in the final stages of due diligence, but are enthusiastic about the prospects of a highly qualified candidate we have identified joining us in that capacity. The new position will oversee planning and implementation of strategies for corporate growth. Responsibilities will include the identification of appropriate opportunities for corporate mergers and acquisitions by ERHC. The person will also be looking at corporate finance options, including stock-exchange listings.
Our prospective appointee has a great deal of expertise in areas that will be valuable to ERHC Energy and its subsidiaries. We anticipate having an announcement in the coming days regarding an appointment to this position.
None of this will diminish the board’s efforts to appoint a permanent CEO for the parent ERHC Energy Inc. when terms are reached with the right individual. We continue to discuss our future with qualified candidates and will make an announcement when an agreement has been reached.
As I mentioned earlier, we have carefully examined ERHC’s corporate structure and believe that the time is right to implement the operational structure we created a few years ago.
ERHC Energy Inc. has a wholly owned subsidiary – ERHC Energy Cayman Limited – which will serve as holding company for the working subsidiaries through which its activities in the Gulf of Guinea will be operated.
There are three working companies jointly owned by both ERHC Energy Inc. and ERHC Energy Cayman Limited. Each of these companies was created to manage the operations in the JDZ Block for which each is respectively named.
This flow chart offers a bit more clarity about how these entities are work together. On the right side you see our wholly-owned Cayman holding company and on the left you see the three working companies and the respective share of ownership.
The rationale for this operational structure can be broken into several parts:
1. Legal – JDZ petroleum regulations require incorporation of local subsidiaries in Nigeria or STP;
2. Operational – JDZ-related activities (especially when drilling starts) will be easier and cheaper to manage by acting through local subsidiaries;
3. Risk Diversification – Operating through asset/business-specific subsidiaries will diversify risk, protecting each subsidiary’s asset base from risks emanating from other subsidiaries’ assets;
4. Business Development – ERHC’s current business strengths (and therefore best prospects for asset acquisition) are in West Africa; a local presence in the region will augment those strengths.
5. Local Perceptions – Regional perception of ERHC as truly ‘local’ in West Africa will enhance its ability to generate business in the region;
It is important to note that our technical partners in the JDZ are already operating subsidiary structures along similar lines. Other subsidiaries of ERHC Energy might be created as necessary, including for seeking stock-exchange listings, joint-ventures, etcetera.
We believe the time is right to make this structure operational as we anticipate the exploration in at least one of our Joint Development Zone Blocks could begin in as little as six to eight months. We therefore need to be ready for the logistical requirements that those activities will entail for us.
Let’s quickly review our interests in the JDZ. ERHC currently holds rights in Joint Development Zone Blocks 2, 3, 4, 5, 6, and 9.
Here you see where the JDZ fits into the region. The JDZ is nearly 35,000 square kilometers in area and is adjacent to several large petroleum discovery areas.
During the past year there has been quite a bit of activity in JDZ Block 2, 3 and 4.
Based on statements from the operators, we believe that deepwater exploration activities could begin in one or more of these Blocks as early as the fourth quarter of calendar 2008. The exact timeline could however change based on various contingencies.
We will keep you abreast of the specific schedule of activities in future conference calls, but here is a brief overview of where we are in that process:
This image provides a general sense of why we are enthusiastic about our assets in the Gulf of Guinea. The image is a 3D view of the structural elements in JDZ Blocks 1, 2, 3 and 4. From left to right, the arrows point to the following:
The Lemba Prospect, which the Joint Development Authority (JDA) has approved as the first drilling location in JDZ Block 3. Anadarko is the operator in JDZ Block 3;
The Kina Prospect, which the JDA has approved as the first drilling location in JDZ Block 4;
The Obo Discovery and Kainji Prospect in JDZ Block 1 (ERHC does not have interests in JDZ Block 1);
The Principe Prospect in JDZ Block 2 in which Sinopec is the operator. This prospect is still under consideration.
This is a view from the side of the different layers of sediment and rock beneath the Gulf of Guinea at the Kina Prospect. The JDA has approved the Kina Prospect as the first drilling location in JDZ Block 4. JDZ Block 4 is of course operated by Addax. A hump-like formation is generally recognized as a sign of oil and gas prospectivity. As indicated by the arrows, the Kina prospect has numerous target horizons.
All three operators have already ordered their drilling equipment and are looking to secure a drillship. Addax Petroleum has remained confident that they will be able to begin exploration of JDZ Block 4 as early as the 4th quarter and we share that confidence.
We also have rights in São Tomé and Principe’s Exclusive Economic Zone. Although we anticipate that exploration of the JDZ will come first, we intend to exploit our rights in São Tomé and Principe’s EEZ as well.
This is a map of Sao Tome and Principe’s EEZ. The area encompasses 160,000 square kilometers and is in a much earlier stage of development than the JDZ.
As you may know, ERHC took action to reclaim a nine percent share of JDZ Block 4 after another company did not meet its contractual obligations. Under existing agreements, Addax is entitled to 7.2 percent out of the recovered 9 percent, leaving 1.8 percent remaining with ERHC. We believe that additional consideration is due to ERHC from Addax, but Addax does not agree. We are making progress to resolve this matter. I want to emphasize that this is an amicable disagreement and we believe that the relationship between the two companies remains as good as ever.
While our full energies are currently focused on the impending exploratory activities in the Gulf of Guinea, ERHC also expects to accelerate its efforts to seek new strategic opportunities. Mr. Ledbetter continues assessing assets in oil and gas as well as in mining for investment. With the Company's new Vice President, Corporate Development on board, we are also enthusiastic about the prospects for corporate mergers and acquisitions by ERHC.
And finally, I want to restate our continued commitment to communicate ERHC Energy’s positive story to advance ERHC’s public image and market credibility.
This shareholders’ meeting is a great example of how we are providing open communications with our shareholders and the industry. Last year, we began holding quarterly conference calls to provide a report on progress and give shareholders an opportunity to ask questions.
We periodically issue updates from the chief executive of ERHC and will continue that practice under the company’s new leadership structure.
ERHC sponsored the Nigeria Oil & Gas 2008 Conference in Abuja, Nigeria. The event offered valuable exposure to thousands of participants, including many important players in the oil industry.
We also are continuing to use our Web site as a primary channel for providing shareholders and members of the community with important information and updates about the company and its progress.
Our new leadership structure will offer stability while also making it possible for the Company to accelerate growth and explore new and exciting opportunities.
By implementing the operational structure that was described earlier, we can maximize the company’s growth potential while diversifying risk.
In closing the presentation, we can say with confidence that we are closer than ever to beginning exploration in the Gulf of Guinea and expect that by this time next year exploration will be underway – possibly in two of the JDZ Blocks in which ERHC has interests.