PART I. FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED
BALANCE SHEETS
|
|
|
December
31, 2013
|
|
|
September
30, 2013
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,619,402
|
|
|
$
|
1,184,204
|
|
Investment in Oando Energy Resources
|
|
|
482,519
|
|
|
|
563,525
|
|
Prepaid expenses and other
|
|
|
264,108
|
|
|
|
228,881
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,366,029
|
|
|
|
1,976,610
|
|
|
|
|
|
|
|
|
|
|
Oil and gas concession fees
|
|
|
6,037,803
|
|
|
|
6,037,803
|
|
Furniture and equipment, net of accumulated depreciation of $323,760 and $300,303 at December 31, 2013 and September 30, 2013, respectively
|
|
|
178,907
|
|
|
|
202,364
|
|
Restricted certificate of deposit
|
|
|
2,186,729
|
|
|
|
2,186,182
|
|
Income tax receivable
|
|
|
2,018,533
|
|
|
|
2,018,533
|
|
Other assets
|
|
|
121,482
|
|
|
|
51,108
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
13,909,483
|
|
|
$
|
12,472,600
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
932,131
|
|
|
$
|
983,293
|
|
Deferred farm out fees
|
|
|
2,731,558
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,663,689
|
|
|
|
983,293
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.0001; authorized 10,000,000 shares; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, par value $0.0001; authorized 950,000,000 shares; issued and outstanding 764,849,260 shares
|
|
|
76,485
|
|
|
|
76,485
|
|
Additional paid-in capital
|
|
|
101,073,927
|
|
|
|
101,067,084
|
|
Accumulated other comprehensive loss
|
|
|
(867,481
|
)
|
|
|
(786,475
|
)
|
Losses accumulated in the development stage
|
|
|
(90,037,137
|
)
|
|
|
(88,867,787
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
10,245,794
|
|
|
|
11,489,307
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
13,909,483
|
|
|
$
|
12,472,600
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED
STA
TEMENTS OF OPERATIONS
|
|
|
Three Months Ended December 31,
|
|
|
September 5, 1995
(Inception) to
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
973,578
|
|
|
$
|
1,017,592
|
|
|
$
|
91,196,364
|
|
Exploration expenses
|
|
|
173,819
|
|
|
|
-
|
|
|
|
1,396,218
|
|
Depreciation
|
|
|
23,457
|
|
|
|
25,033
|
|
|
|
1,672,071
|
|
Gain on sale of partial interest in DRSTP concession
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,102,250
|
)
|
Write-offs and abandonments
|
|
|
-
|
|
|
|
-
|
|
|
|
7,742,128
|
|
Total costs and expenses
|
|
|
(1,170,854
|
)
|
|
|
(1,042,625
|
)
|
|
|
(71,904,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,504
|
|
|
|
435
|
|
|
|
4,855,592
|
|
Gain (loss) from settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
130,178
|
|
Other income
|
|
|
-
|
|
|
|
-
|
|
|
|
439,827
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,145,372
|
)
|
Provision for loss on deposits
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,292,896
|
)
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,749,575
|
)
|
Total other income and (expense)
|
|
|
1,504
|
|
|
|
435
|
|
|
|
(17,762,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit (provision) for income taxes
|
|
|
(1,169,350
|
)
|
|
|
(1,042,190
|
)
|
|
|
(89,666,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,330,360
|
)
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
960,000
|
|
Total benefit (provision)for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(370,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,169,350
|
)
|
|
$
|
(1,042,190
|
)
|
|
$
|
(90,037,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share -basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted
|
|
|
764,849,260
|
|
|
|
739,458,854
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED STATEMENTS OF OTHER
COMPREHENSIVE LOSS
|
|
|
Three Months Ended December 31,
|
|
|
(Unaudited)
Inception to
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,169,350
|
)
|
|
$
|
(1,042,190
|
)
|
|
$
|
(90,037,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income – unrealized gain (loss) on available for sale securities
|
|
|
(81,006
|
)
|
|
|
309,505
|
|
|
|
(867,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
$
|
(1,250,356
|
)
|
|
$
|
(732,685
|
)
|
|
$
|
(90,904,618
|
)
|
The accompanying notes are an integral part of these unaudited consolidated financial statements
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
|
Three Months Ended December 31,
|
|
|
September 5, 1995
(Inception) to
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,169,350
|
)
|
|
$
|
(1,042,190
|
)
|
|
$
|
(90,037,137
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and depletion expense
|
|
|
23,457
|
|
|
|
25,033
|
|
|
|
1,672,070
|
|
Provision for loss on deposits
|
|
|
-
|
|
|
|
-
|
|
|
|
5,292,896
|
|
Write-offs and abandonments
|
|
|
-
|
|
|
|
-
|
|
|
|
7,742,128
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,018,398
|
)
|
Compensatory stock options
|
|
|
6,843
|
|
|
|
-
|
|
|
|
1,363,788
|
|
Gain from settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
(617,310
|
)
|
Gain on sale of partial interest in DRSTP concession
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,102,250
|
)
|
Amortization of beneficial conversion feature associated with convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
2,793,929
|
|
Amortization of deferred compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,257,863
|
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
5,669,500
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
20,897,077
|
|
Stock issued for settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
225,989
|
|
Stock issued for officer bonuses
|
|
|
-
|
|
|
|
7,964
|
|
|
|
5,221,638
|
|
Stock issued for interest and penalties on convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
10,631,768
|
|
Stock issued for board compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
2,751,149
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(105,602
|
)
|
|
|
2,176
|
|
|
|
(385,725
|
)
|
Accounts payable and other accrued liabilities
|
|
|
(70,829
|
)
|
|
|
(61,187
|
)
|
|
|
(2,179,668
|
)
|
Accounts payable and accrued liabilities, related party
|
|
|
19,667
|
|
|
|
-
|
|
|
|
19,667
|
|
Accrued retirement obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
365,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,295,814
|
)
|
|
|
(1,068,204
|
)
|
|
|
(59,436,026
|
)
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Three Months Ended December 31,
|
|
|
September 5,
1995
(Inception) to
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
Purchase of long-term investment
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,292,896
|
)
|
Purchase of oil and gas concessions
|
|
|
-
|
|
|
|
(1,008,600
|
)
|
|
|
(8,772,303
|
)
|
Proceeds from sale of partial interest In DRSTP concession
|
|
|
-
|
|
|
|
-
|
|
|
|
45,900,000
|
|
Proceeds from U.S. Treasury bills
|
|
|
-
|
|
|
|
-
|
|
|
|
5,011,000
|
|
Purchase of U.S. Treasury bills and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,011,000
|
)
|
Purchase of marketable equity securities
|
|
|
|
|
|
|
-
|
|
|
|
(1,350,000
|
)
|
Purchase of restricted certificate of
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit, and accrued interest
|
|
|
(546
|
)
|
|
|
-
|
|
|
|
(2,317,728
|
)
|
Proceeds from sale of restricted certificate of deposit
|
|
|
-
|
|
|
|
-
|
|
|
|
131,000
|
|
Purchase of furniture and equipment
|
|
|
-
|
|
|
|
(167,941
|
)
|
|
|
(1,277,754
|
)
|
Proceeds from deferred farm-out fees
|
|
|
2,731,558
|
|
|
|
-
|
|
|
|
2,731,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)investing activities
|
|
|
2,731,012
|
|
|
|
(1,176,541
|
)
|
|
|
29,751,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
160,000
|
|
Proceeds from common stock, net of expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
10,316,727
|
|
Proceeds from line of credit, related party
|
|
|
-
|
|
|
|
-
|
|
|
|
2,750,000
|
|
Proceeds from non-convertible debt related party
|
|
|
-
|
|
|
|
-
|
|
|
|
158,700
|
|
Proceeds from convertible debt, related party
|
|
|
-
|
|
|
|
-
|
|
|
|
8,207,706
|
|
Proceeds from sale of convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
9,019,937
|
|
Proceeds from bank borrowing
|
|
|
-
|
|
|
|
-
|
|
|
|
175,000
|
|
Proceeds from stockholder loans
|
|
|
-
|
|
|
|
-
|
|
|
|
1,845,809
|
|
Proceeds from stock subscription receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
913,300
|
|
Repayment of shareholder loans
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,020,607
|
)
|
Repayment of long-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(223,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
32,303,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,435,198
|
|
|
|
(2,244,745
|
)
|
|
|
2,619,402
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,184,204
|
|
|
|
7,665,990
|
|
|
|
-
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,619,402
|
|
|
$
|
5,421,245
|
|
|
$
|
2,619,402
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on investment in Exile Resources
|
|
$
|
(81,006
|
)
|
|
$
|
309,505
|
|
|
$
|
(867,482
|
)
|
Reclass of prepaid expenses to furniture and equipment
|
|
$
|
-
|
|
|
$
|
131,000
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND BUSINESS ORGANIZATION
The consolidated financial statements included herein, which have not been audited pursuant to the rules and regulations of the Securities and Exchange Commission, reflect all adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the interim periods on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results to be expected for an entire year. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to such rules and regulations, although ERHC Energy Inc. ("ERHC" or the "Company") believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company's audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2013.
Recent accounting pronouncements
There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on the Company's consolidated financial statements.
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted new guidance as of October 1, 2008, related to the measurement of the fair value of certain of its financial assets required to be measured on a recurring basis. Under the new guidance, based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
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●
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Level 1 — Quoted prices in active markets for identical assets or liabilities.
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●
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Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or, other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
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●
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Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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Interest income on cash and cash equivalents is recognized as earned on the accrual basis.
Investments are accounted for as available for sale securities and reported at fair value, determined based on the quoted prices in an active market for identical assets and classified as Level 1 under the ASC 820.
During the three months ended December 31, 2013, the Company's investment in the common stock and warrants of OER, a Canadian oil and gas company that trades on the Toronto Stock Exchange (TSX) decreased in value by $81,006. This decrease in value is included as a decrease in stockholders' equity in accumulated other comprehensive income.
NOTE 3 – OIL AND GAS CONCESSIONS
The following is an analysis of the cost of oil and gas concessions at December 31, 2013 and September 30, 2013:
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December 31, 2013
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September 30, 2013
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DRSTP concession
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$
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2,839,500
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$
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2,839,500
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Chad concession
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2,800,600
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2,800,600
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Kenya concession
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326,073
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326,073
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Pending concessions in other African countries
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71,630
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71,630
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$
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6,037,803
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$
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6,037,803
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NOTE 4 - STOCKHOLDERS' EQUITY
During the three months ended December 31, 2013, the Company recognized compensation expense of $6,843 related to options granted to the Board of Directors in fiscal year 2012. As of December 31, 2013, there are 4,150,000 options outstanding; none of which are exercisable. These options have a weighted average remaining term of six days and an intrinsic value of zero. Unamortized compensation cost related to these options amounted to $114 which is expected to be recognized during the second quarter of fiscal 2014.
During the three months ended December 31, 2013, there were no new warrants granted and none were exercised, cancelled or expired. As of December 31, 2013, the Company has 13,777,729 outstanding and exercisable warrants with a weighted average exercise price and remaining term of $0.32 per share and 1.21 years, respectively. As of December 31, 2013, these warrants have an intrinsic value of zero.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
COMMITMENTS UNDER PRODUCTION SHARE CONTRACTS
Republic of Kenya Concession Fees and Other Financial Commitments
On June 28, 2012, ERHC entered into a production sharing contract ("PSC") with the Government of the Republic of Kenya for certain land based hydrocarbon exploration and production of Block 11A located in northwestern Kenya.
ERHC is committed under terms of the PSC to:
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a.
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pay surface fees of $60,000 per year and annual training fees of $175,000 per year during the initial exploration term of two years that started in the first quarter of 2013,
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b.
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spend at least $10,250,000 over the first two years on a minimum work program and an additional $30,000,000 in each of the following two periods of two years each,
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c.
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provide a bank guarantee of 50% of the expenditures under the minimum work program, which ERHC acquired in May 2013 in the amount of up to $5,000,000 in favor of the Ministry of Energy of Kenya.
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The following is an analysis of the costs paid or incurred at December 31, 2013:
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a.
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$310,000 as the entire signature bonus
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b.
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$561,080 as costs of airborne geophysical survey and quality control associated with it
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c.
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$229,569 as training and surface fees, as provided in the PSC
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d.
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$68,611 in advisers' and ancillary costs related to the PSC
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In October, 2013, the Company entered into a farm-out agreement with CEPSA Kenya Limited, a subsidiary of Compañía Española de Petróleos, S.A.U., an international oil and gas company ("CEPSA"). Under the terms of this agreement, and contingent upon the consent of the Government of Kenya and other conditions, the Company will assign and transfer 55% of its participating interest in Kenya Block 11A to the Kenya farm-out partner for an initial consideration of $2,000,000. In exchange for the transferred rights, Kenya farm-out partner will carry the Company's proportionate share of obligations and financial costs under the terms outlined in the farm-out agreement. The agreement is contingent upon the Kenyan Government's approval. At December 31, 2013, ERHC classified the $2,731,558 received under the terms of the farm-out agreement under Deferred farm out fees in the consolidated balance sheets , until an approval is received from the Government of Kenya. The approval was granted by the Government of Kenya in January 2014.
Republic of Chad Concession Fees and Other Financial Commitments
On June 30, 2011, ERHC entered into a production sharing contract ("PSC") with Chad for certain onshore hydrocarbon exploration and development. During the 4
th
quarter of 2013, the Ministry of Energy and Petroleum of Chad approved ERHC's application to voluntarily relinquish two of the three Blocks covered by the PSC. The voluntary relinquishment proportionately reduces ERHC's total signature-bonus obligations of $6,000,000 under the initial PSC to $2,000,000.
As of December 31, 2013, ERHC has paid or incurred:
a.
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$2,000,000 as the entire signature bonus
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b.
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$658,128 in advisers' and ancillary costs related to the PSC
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c.
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$480,000 as legal fees and costs for the drafting and negotiation of the PSC, as provided for in the PSC
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e.
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$190,872 as costs of Environmental Impact Study, as provided for in the PSC
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ERHC is also committed under the PSC to:
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a.
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spend at least $15,000,000 over the first five years on a minimum work program and at least an additional $1,000,000 over a further period of up to three years
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b.
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surface fees of $16,360 per calendar year during the first validity period, and lasting for up to eight years. Surface fees for subsequent periods will depend on the exploration progress as well as on the acreage retained by ERHC.
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NOTE 6 – SUBSEQUENT EVENT
On February 7, 2014, ERHC has completed its farm-out agreement with CEPSA, following the receipt of final regulatory approvals from the Kenyan Government.
LEGAL PROCEEDINGS
JDZ BLOCKS 5 AND 6
Arbitration and Lawsuit
In November 2008, the Company dispatched notices of arbitration for service on the JDA and the Governments of Nigeria and Săo Tomé &
Príncipe to commence arbitration in London. ERHC wants the London Court of International Arbitration to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain intact.
Suspension of Proceedings on the Arbitration and Lawsuit
Proceedings on the suit and the arbitration are currently suspended while the Company pursues amicable settlement with the Governments of Nigeria and Săo Tomé Príncipe.
Routine Claims
From time to time, ERHC may be subject to routine litigation, claims, or disputes in the ordinary course of business. ERHC intends to defend these matters vigorously. The Company cannot predict with certainty, however, the outcome or effect of any of the arbitration or litigation specifically described above or any other pending litigation or claims.
Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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The following discussion should be read in conjunction with the Company's unaudited consolidated financial statements (including the notes thereto) and Item 1A of Part II; "Risk Factors," included elsewhere in this report and the Company's audited consolidated financial statements and the notes thereto, Item 7; and "Management's Discussion and Analysis of Financial Condition and Plan of Operations" and Item 1A, "Risk Factors" included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2013. The Company's historical results are not necessarily an indication of trends in operating results for any future period. References to "ERHC" or the "Company" mean ERHC Energy Inc., a Colorado corporation, and, unless expressly stated or the context otherwise requires, its wholly owned subsidiary.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
We are including the following cautionary statement to make applicable and take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by us, or on our behalf. This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including without limitations, management's examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors and matters discussed elsewhere herein, the following are important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements: geopolitical instability where we operate; our ability to meet our capital needs; our ability to raise sufficient capital and/or enter into one or more strategic relationships with one or more industry partners to execute our business plan; our ability and success in finding, developing and acquiring oil and gas reserves; our ability to respond to changes in the oil exploration and production environment, competition, and the availability of personnel in the future to support our activities.
Overview
ERHC Energy Inc., a Colorado corporation, ("ERHC" or the "Company") was incorporated in 1986. The Company is in the business of exploration for oil and gas resources in Africa. The Company's business includes working interests in exploration acreage in the Republic of Keny
a ("Kenya"), the Republic of Chad ("Chad"), the Joint Development Zone ("JDZ") between the Democratic Republic of Săo Tomé and Príncipe ("STP"), the Federal Republic of Nigeria ("FRN" or "Nigeria"), and the exclusive economic zone of Săo Tomé and Príncipe
(the "Exclusive Economic Zone" or "EEZ").
ERHC's strategy in Kenya and Chad is to perform exploration work and further establish the prospectivity of assets acquired through Production Sharing Contracts (PSCs) with the governments of both countries. ERHC found a farm-out partner for its interests in Kenya, and is currently seeking for a partner for its interests in Chad. ERHC expects that such farm-in arrangements, if entered into, might lower the risk and cost of the exploration programs to ERHC.
The Company's strategy in the JDZ and EEZ is to farm out its working interests to well established oil and gas operators for valuable consideration including upfront cash payments and being carried for ERHC's share of the exploration costs. This has already been done successfully on Blocks 2, 3 and 4 of the JDZ where ERHC has benefited from partnerships with Addax Petroleum and Sinopec Corporation, which have operated some of the license areas on behalf of ERHC.
Apart from its oil and gas exploration activities in Kenya, Chad, the JDZ and the EEZ, ERHC continues to pursue other oil and gas opportunities on the African continent. These opportunities also include the possible acquisition of significant equity stakes in other oil and gas exploration and production companies and the resulting indirect interest in the underlying exploration and production assets of such other companies.
REPUBLIC OF KENYA
ERHC Kenya Acreage
In June 2012, after months of negotiations between ERHC and the Government of Kenya, the Government awarded Block 11A for oil and gas exploration and development in Kenya to the Company. On June 28, 2012, the Company announced that it had signed a Production Sharing Contract (PSC) on Block 11A with the Government of Kenya. A PSC is an agreement that governs the relationship between ERHC (and any future joint-venture partners) and the Government of Kenya in respect of exploration and production in the Block awarded to the Company. The PSC details, among other things, the work commitments (including acquisition of data, drilling of wells, social projects, etc.), the time frame for completion of the work commitments, production sharing between the parties and the Government, and how the costs of exploration, development and production will be recovered.
By virtue of the PSC, the Company holds a 90% interest in Block 11A, which encompasses 11,950.06 square kilometers or 2.95 million square acres. The Government of Kenya has a 10% carried participating interest up to the declaration of commerciality and may thereafter acquire an additional 10% interest in the PSC in which case the total Government participation would rise to 20%.
Circle Oil Limited (www.circleoilandgas.com) ("Circle") acted as finder in ERHC's acquisition of the Block by facilitating ERHC's entry into Kenya, including the introduction of Dr. Peter Thuo, ERHC's Kenya-based geoscientist and technical adviser who provided liaison services in the pursuit of ERHC's application. Circle's involvement provided significant efficiencies, including substantial cost savings, in ERHC's application process. By virtue of the terms of the business finder's agreement reached between Circle and ERHC, Circle is entitled to receive a 5% payment on the value of the acquisition accruing resulting to ERHC from the application. Circle has opted to receive this fee in the form of a carried 5% of ERHC's total interest in Block 11A.
In September 2013, ERHC concluded a farm-out agreement with CEPSA. The farm-out agreement is subject to the consent of the Government of the Republic of Kenya, which was granted during the month of January 2014. Under terms of the agreement, ERHC would transfer a portion of its interest in Kenya Block 11A as well as operatorship. The entered farm-out agreement includes a carry and other considerations.
Kenya Operations Update
During the month of January 2014, ERHC completed its airborne Full Tensor Gravity Gradiometry (FTG) survey of Block 11A in northwestern Kenya. Additionally, ERHC has awarded the contract for a 2D seismic survey of at least 1,000 kilometers in the Block in compliance with the work program to BGP Kenya Ltd. ERHC intends the seismic survey to commence in early Spring of 2014, in compliance with the Company's work program. The seismic survey layout will be premised on structural mapping of prospective basins enabled by the FTG survey. Upon successfully meeting all conditions precedent, the farm-out agreement between ERHC and CEPSA went into effect on February 7, 2014.
Key Provisions of the ERHC's PSC on Block 11A
Exploration Term
The initial exploration period is two years from the effective date of the PSC. The effective date falls ninety days after the execution of the PSC. The Company is expected to begin exploration operations within three months of the effective date. The initial exploration period is extendable for two additional two-year exploration periods contingent upon fulfillment of the Company's work program and expenditure obligations under the PSC.
If not renewed, the PSC expires automatically at the end of the initial exploration period or at the end of any additional exploration period unless a commercial discovery is made before the exploration period expires. In the case of a commercial discovery of crude oil in a relevant development area, the PSC will run for a development period term of 25 years. In the case of a commercial discovery of natural gas in a relevant development area, the PSC will run for a development period term of 35 years.
Relinquishment and Surrender
The PSC provides for a mandatory surrender of 25% of the original contract area by the end of the initial exploration period to the Government of Kenya and 25% of the remaining contract area by the end of the first additional exploration period. . In the case of a commercial discovery of crude oil in a relevant development area, such development area is excluded from the original contract area for the purpose of surrender calculation. Furthermore, ERHC may surrender an additional part of the contract area and such voluntary surrender shall be credited against the next surrender obligation. The PSC will terminate in case of a surrender of the entire contract area.
Signature Bonus and Guarantees
The PSC requires a signature bonus of $310,000 which the Company paid in full as of September 30, 2012. The PSC also requires the Company, upon entry into each exploration period, to provide a bank guarantee of 50% and a parent company guarantee of 50% of its full minimum work and expenditure obligations under the work program for each exploration period.
Proposed Exploration Work Program
The PSC with the Government of Kenya obliges ERHC to carry out the following minimum work program:
(A)
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During the Initial Exploration Period of Two (2) Contract Years – Minimum Work and Expenditure Obligations:
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·
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Acquire and interpret 1,000 km2 of gravity and magnetic data (at a minimum cost of US $ 250,000) and
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·
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Acquire and interpret 1,000 Km/line of 2D seismic data (at a minimum cost of US $ 10,000,000)
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(B)
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During the First Additional Exploration Period of Two (2) Contract Years: Minimum Work and Expenditure Obligations to:
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·
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Acquire 750 km2 high density of 3D seismic data (at a minimum cost of US $ 30,000,000), or
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·
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Drill one (1) well to a minimum depth of 3,000 m (at a minimum cost of US $30,000,000)
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(C)
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During the Second Additional Exploration Period of Two (2) Contract Years: Minimum Work and Expenditure Obligation to drill one (1) well to a minimum depth of 3,000m (with minimum expenditure of US $ 30,000,000).
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However, if the Company satisfactorily completes the minimum work obligations without having spent up to the minimum expenditure, the Company will be deemed to have satisfied its obligations under the PSC.
REPUBLIC OF CHAD
ERHC's Chad Acreage
On July 6, 2011, the Company announced that it had signed a Production Sharing Contract (PSC) on the three oil blocks with the Government of Chad. A PSC is an agreement that governs the relationship between ERHC (and any future joint-venture partners) and the Government of Chad in respect of exploration and production in the Blocks awarded to the Company. The initial period of exploration commenced on July 12, 2012 with the publication, in Chadian Government's Gazette Principal, of the Exclusive Exploration Authorization, granted to ERHC by the Government of Chad.
Recently, ERHC offered to novate the PSC by retaining only the BDS2008 Block and relinquishing the Manga and Chari Ouest III Blocks to the Chadian Government for efficiency and for greater ease in carrying out an accelerated work program. The novation of the PSC has been approved by the Chadian Ministry of Energy and Petroleum.
Chad Operations Update
As in Kenya, the Company plans to pursue rift margin plays in Chad similar to those that led to recent major discoveries in East Africa. ERHC's current plans are to conduct a Full Tensor Gravity Gradiometry (FTG) survey or a more conventional airborne magnetics/gravity survey over these focus areas.
Focus Areas
ERHC's exploration focus is on Block BDS 2008 which measures 41,800 square kilometers or 10,329,000 acres. Within this block, two focus areas have been identified where ERHC intends to initially acquire airborne gravity and magnetics data followed by a 2D seismic survey.
During the three months ended December 31, 2013, ERHC completed the Environmental Impact Assessment ("EIA")
as a mandatory pre-condition to commencing data acquisition and the rest of the work program.
During the three months ended December 31, 2013, ERHC completed the Environmental Impact Study ("EIS") and submitted the results of EIS to the Government of Chad for review, as required under the PSC. The EIA has been completed and approved, and ERHC is advancing to the next step in its oil and gas exploration work program: an aero gravity/magnetic survey of BDS 2008. The Company anticipates sending Invitations to Tender for this survey during the second quarter of 2014.
Key Provisions of ERHC's Production Sharing Contract (PSC) in Chad
Exploration Term and Work Program
ERHC has proposed a minimum exploration work program on the basis of the full 8-year exploration period subject to such modification as might be required following the exploration work undertaken during the initial 5-year period of the Exclusive Exploration Authorization. The minimum expenditure over the initial 5 year period is $15 million. If ERHC elects to continue for a subsequent 3
‑
year period, an additional minimum expenditure of $1 million will be required. ERHC would, however, also be obliged to drill an exploratory well.
Cost Recovery and Production Sharing
In the event of a discovery and commercial production from the Company's blocks, the Company and any partners that have participated in the exploration will be entitled to recover up to 70% of the net hydrocarbon production (less any production royalty) as cost of oil, until all the costs for exploration and development have been recovered. Production royalty is 14.25% in the case of crude oil and 5% in the case of natural gas. No guarantee can be given that there will be production in commercial quantities from the Company's exploration acreage in Chad.
NIGERIA – SAO TOME AND PRINCIPE JOINT DEVELOPMENT ZONE ("JDZ")
Background of the JDZ
In the spring of 2001, Sao Tome & Principe and Nigeria signed a treaty establishing a JDZ for the joint development of petroleum and other resources in the overlapping area of their respective maritime boundaries. The treaty also established an administrative body, the Joint Development
Authority ("JDA"), to administer the treaty and all activities in the JDZ. Revenues derived from the JDZ will be shared 60:40 between the governments of Nigeria and Săo Tomé & Príncipe, respectively. The JDZ lies approximately 180 kilometers south of Nige
ria, in the Gulf of Guinea, one of the most prolific hydrocarbon regions of the world.
ERHC's Rights in the JDZ
In April 2003, the Company and STP entered into an Option Agreement (the "2003 Option Agreement") in which the Company relinquished significant prior legal rights and financial interests in the Joint Development Zone ("JDZ") in exchange for preferential exploration rights in the JDZ. Following the exercise of ERHC's rights as set forth in the 2003 Option Agreement, the JDA confirmed the award in 2004 of participating interests ("Original Participating Interest") in each of JDZ Blocks 2, 3, 4, 5, 6 and 9 of the JDZ during the 2004/5 licensing round conducted by the JDA. ERHC also jointly bid with internationally recognized technical partners for additional participating interests in the JDZ during the 2004/5 licensing round. As a result of the joint bid, ERHC won additional participating interests ("Joint Bid Participating Interest") in Blocks 2, 3 and 4. The following is a tabulation of ERHC's participating interests in the JDZ.
JDZ Block
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ERHC Original
Participating Interest
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ERHC Joint Bid
Participating Interest
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Participating
Interest(s) Assigned
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Current ERHC
Retained Participating
Interest
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2
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30.00%
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35.00%
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43.00%
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22.00%
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3
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20.00%
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5.00%
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15.00%
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10.00%
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4
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25.00%
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35.00%
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40.50%
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19.50%
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5
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15.00%
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-
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-
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15.00% (in arbitration)
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6
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15.00%
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-
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-
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15.00% (in arbitration )
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9
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20.00%
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-
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-
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20.00%
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ERHC's Participating Agreements in the JDZ
The following are the particulars of the Participating Agreements by which ERHC assigned some of its participating interests in JDZ Blocks 2, 3 and 4 to technical partners so that the technical partners would operate the Blocks and carry ERHC's proportionate share of costs in the Blocks until production, if any, commenced from the Blocks:
Date of Participation
Agreement
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Party(ies)
to the Participation Agreement
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Participating
Interest(s)
Assigned
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Participating
Interest Assigned
Price
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JDZ Block 2 - Participation Agreement - ERHC Retained Interest of 22.00%
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March 2, 2006
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Sinopec International Petroleum Exploration Production Co. Nigeria Ltd - a subsidiary of Sinopec International Petroleum and Production Corporation
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28.67
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%
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$
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13,600,000
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Addax Energy Nigeria Limited - an Addax Petroleum Corporation subsidiary
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14.33
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%
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$
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6,800,000
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JDZ Block 3 - Participation Agreement - ERHC Retained Interest of 10.00%
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February 15, 2006
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Addax Petroleum Resources Nigeria Limited - a subsidiary of Addax Petroleum Corporation
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15.00
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%
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$
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7,500,000
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JDZ Block 4 - Participation Agreement - ERHC Retained Interest of 19.50%
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November 15, 2005
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Addax Petroleum Nigeria (Offshore 2) Limited - a subsidiary of Addax Petroleum Corporation
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|
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40.50
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%
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$
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18,000,000
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Under the terms of the Participation Agreements Sinopec and Addax agreed to pay all of ERHC's future costs for petroleum operations ("the carried costs") in respect of ERHC's retained interests in the blocks. Additionally, Sinopec and Addax are entitled to 100% of ERHC's allocation of cost oil plus up to 50% of ERHC's allocation of profit oil from the retained interests on individual blocks until Sinopec and Addax Sub recover 100% of ERHC's carried costs.
On or about October 2, 2009, Sinopec International Petroleum Exploration and Production Corporation acquired all of the outstanding shares of Addax Petroleum Corporation.
ERHC's JDZ Acreage
ERHC has working interests in six of the nine Blocks in the JDZ, as follows:
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●
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JDZ Block 5: 15.0% (in arbitration)
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●
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JDZ Block 6: 15.0% (in arbitration)
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The working interest percentages represent ERHC's share of all the hydrocarbon production from the blocks and obligates ERHC to pay a corresponding percentage of the costs of drilling, production and operating the blocks. Through Exploration Phase 1 in blocks 2, 3 and 4, these costs have been carried by the operators. The operators can only recover their costs by carrying ERHC until production whereupon the operators will recover their costs from production revenues.
In 2009, Sinopec and Addax, ERHC's technical partners and operators in Blocks 2, 3 and 4 undertook an exploratory drilling campaign across the three blocks that was completed in January 2010.
Biogenic gas was discovered in each block and discussions continue between the Joint Development Authority and the parties, including ERHC, that hold interests in JDZ Blocks 2, 3 and 4, regarding drilling results. The meetings with the JDA are aimed at reaching a definitive agreement on how to proceed with the next stage of exploration in the Blocks following the expiration of Exploration Phase I in March 2012.
JDZ Operations Update
The JDZ partnership is currently assessing the data for possible new exploration play concepts in this area.
SAO TOME AND PRINCIPE EXCLUSIVE ECONOMIC ZONE ("EEZ")
Overview of ERHC's EEZ Blocks
The Săo Tomé and Príncipe EE
Z is delineated over an expanse of waters offshore Sao Tome and Principe that covers approximately 160,000 square kilometers. In terms of hydrocarbon exploration and exploitation, the EEZ is a frontier region that sits south of the Niger Delta and west of the Gabon salt basin, retaining similarities with each of those prolific hydrocarbon regions. The regional seismic database comprises approximately 12,000 kilometers of seismic data. Interpretation of that seismic data shows numerous structures in the EEZ that have similar characteristics to known hydrocarbon accumulations in the area.
ERHC's Rights in the EEZ
Under a 2001 agreement with the Government of Sao Tome and Principe ("STP"), ERHC was vested with the rights to participate in exploration and production activities in the EEZ. These rights included (a) the right to receive up to 100% of two blocks of ERHC's choice and (b) the option to acquire up to a 15% paid working interest in each of two additional blocks of ERHC's choice in the EEZ. In 2010, ERHC exercised its rights to receive up to 100% of two blocks of ERHC's choice in the EEZ and was duly awarded Blocks 4 and 11 of the EEZ by the Government of STP.
EEZ Block 4 is 5,808 square kilometers, situated directly east of the island of Príncipe.
EEZ Block 11 totals 8,941 square kilometers, situated directly east of the island of Săo
Tomé and abuts the territorial waters of Gabon. The southern area of the EEZ, where EEZ Block 11 is situated, contains parts of the Ascension and Fang Fracture Zones.
ERHC will decide whether to take up the option to acquire up to a 15% paid working interest in each of two additional blocks of the EEZ when called upon to exercise the option by the Government of STP in accordance with the agreements which provide for the rights and option.
PSC Negotiations for the EEZ
A PSC is an agreement that governs the relationship between the Company (and its joint venture partners) and the Government of Săo Tomé and Príncipe in respect of exploration and production in any Block awarded to the Company. The PSC spells
out, among other things, the work commitments (including acquisition of data, drilling of wells, social projects, etc.), the time frames for accomplishing the work commitments, how production will be shared between the parties and the government, and how the costs of exploration, development and production will be recovered.
Negotiations for a PSC between ERHC and the National Petroleum Agency of Săo Tomé and Príncipe (ANP-STP) opened on November 14, 2011 in Sao Tome. Good progress has been made in severa
l rounds of negotiations since then but the Company expects that it will take more rounds to conclude the PSCs. Both ERHC and the ANP-STP are currently conducting legal reviews of the draft PSCs for EEZ Blocks 4 and 11, the significant terms of which have been finalized by the parties. ERHC's management is looking to secure PSCs for the EEZ Blocks that will be attractive to potential joint venture partners.
EEZ Operations Update
ERHC's and the ANP-STP's efforts to generate interest in the EEZ as a whole have increased interest in ERHC's EEZ Blocks among International Oil Operating Companies (IOCs). ERHC's negotiations with several IOCs about possible partnerships on Block 11 are continuing.
INVESTMENT IN OANDO ENERGY RESOURCES (FORMERLY EXILE RESOURCES)
During the three months ended June 30, 2011, ERHC invested $1,350,000 in Exile Resources Inc, a company listed on the Toronto Stock Exchange (Ventures Exchange) stock in open market purchases. ERHC's intention was to gain an indirect interest in Exile's underlying oil and gas exploration and production assets as well as the ability to participate in Exile's decision making in respect of those assets. ERHC was particularly interested in Exile's carried interest in the proven Akepo field in the Niger Delta.
In July 2011, Oando Petroleum and Exploration Company ("Oando Petroleum") commenced a reverse takeover ("RTO") of Exile Resources. In July 2012, Exile announced the completion of the RTO by Oando Petroleum and the change of name of the resultant company to Oando Energy Resources Inc, ("Oando Energy"). It also announced the listing of the company's shares under the symbol "OER" on the Toronto Stock Exchange (TSX) and commencement of trading in the shares on the TSX from July 30, 2012.
As a result of the RTO, ERHC now holds 418,889 shares in the common stock of Oando Energy. ERHC also holds warrants for 418,889 common shares exercisable within 24 months of the closing of the RTO at Cdn$2.00 per share.
CURRENT PLANS FOR OPERATIONS
ERHC's principal assets are its interests in rights for exploration for hydrocarbons in Kenya, Chad, the JDZ and the EEZ. ERHC has no current sources of income from its operations. The Company plans to develop its business by the acquisition of other assets which may include revenue-producing assets in diverse geographical areas and the forging of strategic, new business partnerships and alliances. ERHC cannot currently predict the outcome of negotiations for acquisitions, or, if successful, their impact on the Company's operations.
PLANS FOR FUNDING OF POTENTIAL ACQUISITIONS
ERHC's future plans will depend on the Company's ability to attract new funding. The company is planning to raise up to $48 million over the next 18 months to fund exploration programs in Kenya and Chad. The fund raising might include:
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Farm-outs of part of the Company'
s assets in Kenya, Chad and the Săo Tomé and Príncipe Exclusive Economic Zone
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Issue shares of common stock through a registered direct offering
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Convertible Loans and other debt instruments
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Other available financing options
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The Company is continuing discussions with several international investment advisory and financial brokerage firms to act as financial advisors and intermediaries to ERHC. While ERHC has always used expert professional assistance to formulate and execute its capital raising initiatives, it is re-focusing on the retention of such advisors and intermediaries as a strategic imperative of the increased funding requirements that arise from the rollout of the new work programs in Chad and Kenya. The new firms retained will perform such financial advisory and investment banking services for the Company as are customary and appropriate in transactions of this type, including assisting the Company in analyzing, structuring, negotiating and effecting proposed capital raises. These initiatives may include any transaction or series of transactions in which one or more capital providers (existing or otherwise) commits debt capital to the Company, purchases equity of the Company (or securities of the Company convertible into equity), or alternatively funds the Company either directly or through farm-ins, farm-outs or other arrangements in which the capital provider earns an interest in oil and gas properties of the Company.
Rights Offerings
During the second quarter of 2013, the Company offered 246,486,285 shares of its common stock in the rights offering, representing approximately 33 percent of its outstanding shares of common stock. The rights offering terminated on March 15, 2013 and resulted in net proceeds to the Company of $1.54 million from the exercise of approximately 22 million subscription rights (including certain oversubscription privileges). The Company is currently applying raised capital to fund specific exploration and development activities pursuant to work programs governing its exploration acreage in the Republics of Chad and Kenya, as well as for general corporate purposes and working capital needs.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The process of preparing financial statements requires that the Company make estimates and assumptions that affect the reported amounts of liabilities and stockholders' equity at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to realization of oil and gas concession assets and the valuation allowance related to deferred tax assets as of the date of the financial statements; accordingly, actual results may differ from estimated amounts. ERHC's estimates and assumptions are based on current facts, historical experience and various other factors we believe to be reasonable under the circumstances. The most significant estimates with regard to the financial statements included with this report relate to realization of oil and gas concession assets and the valuation allowance related to deferred tax assets.
These estimates and assumptions are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known.
RECENT ACCOUNTING PRONOUNCEMENTS
In preparing its financial statements and filings, the company considers recent guidance issued related to accounting principles generally accepted in the United States. The Company believes that there has been no new guidance since its most recent annual report on Form 10-K that have a significant impact on its financial statements.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2013 Compared with the Three Months Ended December 31, 2012
General and administrative expenses varied slightly from $1,017,592 in the three months ended December 31, 2012 to $973,578 in the three months ended December 31, 2013. Both periods reflect a normal level of expenses.
During the three months ended December 31, 2013, the Company had a net loss of $1,169,350 compared with a net loss of $1,042,190 for the three months ended December 31, 2012. The increase in loss is primarily due to the exploration expenses incurred in relation to the EIA and FTG work performed in Kenya and EIA work in Chad that began in late 2013 and continued in 2014.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2013, the Company had $2,619,402 in cash and cash equivalents, and a negative working capital of $297,660. Management believes that this cash position should be sufficient to support the Company's working capital requirements for more than 12 months.
OFF-BALANCE SHEET ARRANGEMENTS
At December 31, 2013, the Company had no off-balance sheet arrangements.
DEBT FINANCING ARRANGEMENTS
At December 31, 2013, the Company had a total of $3,663,689 in short term obligations, including:
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$2,731,558 in deferred farm out fees received under the terms of the Kenya farm-out agreement, pending an approval from the Government of Kenya (granted during the 2
nd
quarter of 2014),
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$551,816 in accrued exploration costs related to the FTG survey in Kenya,
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$116,593 of accounts payable,
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$100,500 in accrued executive bonuses related to acquisition of Chadian Blocks, deferred until the Blocks are monetized,
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$96,346 in accrued executive unused vacation,
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$33,003 in deferred office rent,
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$16,967 in accrued officer salary, and
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$16,906 in accrued compensation owed to directors for serving on the ERHC board,
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