ERHC Energy: Bringing Our Vision to Life
Review the 2007 Annual Report
As those who have been following the Company for any length of time can attest, getting to this point has required vision to see the potential for hydrocarbons in previously unexplored territory and patience to allow favorable events to unfold. I believe we are now on the threshold of bringing our vision to life.
ERHC’s assets in the Gulf of Guinea include interests in the deepwater Joint Development Zone (JDZ) as well as interests in the territorial waters of São Tomé and Príncipe known as the Exclusive Economic Zone (EEZ).
The JDZ is a 34,548 square km area approximately 200 km off the coastlines of Nigeria and the Democratic Republic of São Tomé & Príncipe. The São Tomé and Príncipe EEZ is an area encompassing approximately 160,000 square km.
Close proximity to the proven hydro carbon systems in the adjacent territorial waters of Nigeria, Cameroon, Equatorial Guinea and Gabon suggests the potential for hydrocarbons in the JDZ and São Tomé and Príncipe’s offshore waters. In addition, seismic data indicates widespread prospectivity throughout the region.
Despite the substantial production successes to date, especially in Nigeria, the prospectivity of West Africa, in general, and its offshore sector, in particular, is still growing rapidly. Evidence suggests that major discoveries will continue to be made in the Gulf of Guinea’s deep waters, which positively contributes to the region’s enviable oil-reserve renewal rate.
During the past year, ERHC Energy’s management has taken significant steps, including the following, to strengthen the Company’s fundamentals.
• Reaffirmation of Our Rights – We have re-affirmed the rights to our assets in the JDZ. ERHC’s originating rights in the JDZ, as well as those granted to other companies, were ratified by treaty by the governments of Nigeria and Sao Tome & Príncipe and duly recognized by the Joint Development Authority, which was set up by both governments to administer the territory. ERHC’s rights in the JDZ have repeatedly been upheld.
• Strengthening of Relationships in West Africa – Our relationships with the governments and people in the region remain positive and productive.We have worked during the past year to strengthen those relationships.
• Achievement ofOperational Excellence – ERHC Energy is in better shape financially and operationally than in the past. At the end of our 2007 fiscal year, ERHC reported cash assets totaling $34.7 million. During the past year, we have restructured operations and implemented strict cost controls. As a result, general and administrative expenses during the fiscal year were 17 percent lower than in the previous year.
• Pursuit of Diversification Strategy – ERHC Energy has a strategy for the orderly growth of the Company by diversifying our holdings and building upon our assets in the Gulf of Guinea. The Company is carefully charting an acquisition strategy aimed at viable revenue producing properties.
• Improvement of Communication – We are committed to accelerating our public and community outreach activities in order to protect and advance ERHC’s public image. Our objective is to strengthen our reputation as a company that offers vision, in-depth understanding of the regions in which we operate and innovative management approaches.
• Implementation of Community Outreach – In 2007, ERHC representatives visited an orphanage in Nigeria and the Company plans to build momentum for the initiative with a trip to São Tomé & Príncipe in 2008. Connecting with our host communities helps to showcase ERHC Energy’s commitment to contributing positively to the quality of life in the communities in which we operate.
ERHC Energy is building on a heritage of visionary leadership to realize the value of its assets. During the past two years, ERHC has formed strong alliances with Addax Petroleum and Sinopec Corp., both of which are experienced exploration and production companies.
ERHC has signed participation agreements with Addax and Sinopec subsidiaries, which jointly plan to bring the deepwater drillship Aban Abraham to the JDZ later this year. Sinopec is the operator of JDZ Block 2 and Addax is the operator of JDZ Block 4. Exploratory drilling may begin in JDZ Block 4 before the end of 2008. Anadarko, the operator of JDZ Block 3, has not yet indicated a possible timeline for exploration to commence.
The engineering teams are making progress in pinpointing where and how to drill in each of the JDZ Blocks to achieve the greatest likelihood of success. Addax and Sinopec have announced that they have five firm well slots in JDZ Blocks 2 and 4.
Drilling at water depths found in the Gulf of Guinea – 6,000 feet or more – requires leading edge technologies. Instead of conventional platforms that rest on the ocean floor, operators will use specially designed and outfitted deepwater drillships that require custom-built equipment.
As a Company with interests in several blocks in the JDZ, we are helping to share knowledge among the operators of all the Blocks to minimize mistakes and maximize success.We are happy to report that the consortium has brought a collaborative mindset to their activities regarding exploration in the JDZ.
The path toward exploration has neither been quick nor easy but the Company remains strengthened by the patience, conviction and commitment of the ERHC family.
On behalf of the Board, management and employees of ERHC Energy, I thank you for your continued support.
Acting Chief Executive Officer
Safe Harbor Statement
This document contains statements concerning 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 forward-looking statements. Each of the above statement speaks only as of the date of this document. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such 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.