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Our Business Today
Pure Exploration in a Time of
Cheap Oil
1
Part 1.
The
Exploration Business
Model
2
Exploration Company
Business Model
• Step 1: Acquire
– Acquire early stage exploration assets – low entry costs
• Step 2a: Build
– Develop prospectivity of assets – G&G work, reserve
estimate, drilling
• Step 2b: Build
– Gain increased valuation of assets and company with
Step 2a
• Step 3: Sell
– Sell assets or sell company at tremendous profit (just
before drilling or on discovery)
3
Exploration Value Proposition
4
4 to 10 years 5 to 12 years 5 to 20+ years
MarketCapAssetValue
Exploration Development Production
Usual Point of Sale
Salient Points on Model
• No cash flow
• Until discovery of oil and/or sale of asset or company
(“Payout”)
• Equity is sole source of capital
• Working capital before Payout is from sale of equity in
(a) asset and/or (b) company
• Process-driven value
• Value accretions of asset and company predictable
through asset prospectivity development
• High risk
• But high reward when successfully executed
5
Successful Example
• Pre-drilling of
Rovuma Field,
Mozambique: $18m
valuation
• 12 months later, after
drilling and huge discovery
in Rovuma: $2bn valuation
6
Part 2.
The Cheap Oil Factor
7
8
Brent: June 19, 2014 – April
21, 2015
$40
$50
$60
$70
$80
$90
$100
$110
$120
9
Reasons for Price Decline
• Increased Supply
– North American shale turning U.S. to net
exporter of oil
– OPEC and producers such as Russia refusing to
cut production
• Diminished Demand
– Slowdown of growth from BRICS
10
Impact on Finance for
Pure Exploration
• Slide in market capitalizations of oil
companies
• Sharp decline in equity investor appetite for
oil stocks
• Cut in exploration budgets by majors and
big independents = sharp decline in
appetite for farm-ins
Part 3.
ERHC Energy:
Then and Now
11
Introducing ERHC
• U.S. Public Company
– Founded 1986
– Registered in Colorado
– Pure exploration company with Africa focus
– Regulated by U.S. SEC
– Based in Houston
– Publicly traded stock (Ticker: ERHE)
12
ERHC Exploration Assets
• Kenya
• Block 11A
• Chad
• Block BDS 2008
• Sao Tome & Principe EEZ
• Block 4
• Nigeria-Sao Tome & Principe JDZ
• Blocks 2, 3, 4, 5, 6 and 9 (working interests)
• Small Equity Stake
• In Toronto-listed Oando Energy Resources (TSX: OER)
13
The Original ERHC Plan
Remember the Exploration Business Model and E&P
Value Proposition in Part 1:
• Step 1. Acquire frontier E&P rights for low entry
costs
• Step 2a. Build asset value through greenfield G&G
work, attract partners and drill wells
• Step 2b. Build company value by doing 2a, driving
ERHC rapidly up the value curve
• Step 3. Sell ERHC or E&P rights for tremendous
profit prior to drilling or upon discovery (within 5
years)
14
15
Oil Frontier: Sao Tome &
Principe
Original Plan Execution:
Step 1. Acquire
• 1997: Exclusive Agreement with STP
• 1999-2003: ERHC and STP renegotiate
Agreement
• 2004: ERHC exercises preferential minority
rights in the JDZ
• 2005-2006: ERHC teams up with
International Operators to acquire
additional rights in JDZ Blocks 2, 3 and 4
16
Original Plan Execution:
Step 2a. Build
• 2009-2010: Five deepwater wells drilled
17
Well Block Total Depth
Kina-1 JDZ Block 4 3,750m
Bomu-1 JDZ Block 2 3,580m
Lemba–1 JDZ Block 3 3,758m
Malanza-1 JDZ Block 4 4,196m
Oki East-1 JDZ Block 4 3,873m
Original Plan Execution:
Step 2b. Build (Value)
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
$/Share
18
February 2009
Sinopec-ERHC
announce
plans to drill
exploration
well
June 2009
Addax-ERHC announce
4 exploration well
program
~$80 MM
~$160 MM
August 2009
Drilling begins on
Lemba – 1
in Block 3 of JDZ
March 2009
Sinopec-ERHC prepare
for Bomu– 1 well
on Block 2 of JDZ
~$310 MM
~$535 MM
~$340 MM
~$672 MM
~$540 MM
11x price increase over 8 month period Jan – Sept 2009
Month 1 Month 8
Milestones
Market Cap
Original Plan Execution:
Step 3. Sell?
• 2010: Results of drilling
– No commercial discoveries announced
– >$400 million exploration costs written off
– Value curve inverts
• What to do?
19
Wind up the
Company?
Renew plan
and start
again?
Renewing the Plan with
Onshore Focus
• 2010-2011
– Acquire
• Chad – BDS 2008 (onshore)
• Kenya – Block 11A (onshore)
• 2011-2014
– Build (Exploration)
• Secured CEPSA as farm-in partner in Kenya
• Formation of partnerships in Chad (ongoing)
– Build (Value)
• At inception of value curve again
20
21
Financing Before
the Oil Crash
• Premised on usual upward trajectory of
share price as drilling approached
– Existing equity shareholders – Rights Issue
(2012)
– Farmout – Kenya (2013)
– New equity financing – Convertible Debt (2014)
– More farmout – EEZ (2015)
– Drilling in Kenya – (2016):If success, put up for
sale (e.g: Cove)
22
Financing After
the Oil Crash
• Crash in global oil prices
– Largely unforeseen
– Industry-wide repercussions
– Crash in pure exploration companies’ equity
• Convertibles pose challenge
– Conversion now favors creditors unduly
• Farmouts now more challenging
– Drastic cuts in exploration budgets
– Marked withdrawals from exploration projects
23
Options
• Farmouts
– Heightened interest in Kenya on progress toward drilling
– Chad
• Investment by high net-worth investor(s)
– Reverse split to make investment easier
• Merger
– With well-funded E&P company
• Onshore-asset subsidiary listing and IPO
– On emerging market stock exchange (with continuing appetite for E&P)
– On traditional market (subject to oil price upswing)
24
Cycles
• Historically, oil
price cycles
• Upward swing
should come
• Companies like
ERHC present
great investment
opportunity now $0.00
$25.00
$50.00
$75.00
$100.00
$125.00
$150.00
1990 2015
25
Cautionary Statement
This presentation 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 stockholders’ meetings 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 Kenya, Chad, the JDZ and the
Exclusive Economic Zone 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
presentation. 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.
26

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ERHC Energy Presentation to Shareholders

  • 1. Our Business Today Pure Exploration in a Time of Cheap Oil 1
  • 3. Exploration Company Business Model • Step 1: Acquire – Acquire early stage exploration assets – low entry costs • Step 2a: Build – Develop prospectivity of assets – G&G work, reserve estimate, drilling • Step 2b: Build – Gain increased valuation of assets and company with Step 2a • Step 3: Sell – Sell assets or sell company at tremendous profit (just before drilling or on discovery) 3
  • 4. Exploration Value Proposition 4 4 to 10 years 5 to 12 years 5 to 20+ years MarketCapAssetValue Exploration Development Production Usual Point of Sale
  • 5. Salient Points on Model • No cash flow • Until discovery of oil and/or sale of asset or company (“Payout”) • Equity is sole source of capital • Working capital before Payout is from sale of equity in (a) asset and/or (b) company • Process-driven value • Value accretions of asset and company predictable through asset prospectivity development • High risk • But high reward when successfully executed 5
  • 6. Successful Example • Pre-drilling of Rovuma Field, Mozambique: $18m valuation • 12 months later, after drilling and huge discovery in Rovuma: $2bn valuation 6
  • 7. Part 2. The Cheap Oil Factor 7
  • 8. 8 Brent: June 19, 2014 – April 21, 2015 $40 $50 $60 $70 $80 $90 $100 $110 $120
  • 9. 9 Reasons for Price Decline • Increased Supply – North American shale turning U.S. to net exporter of oil – OPEC and producers such as Russia refusing to cut production • Diminished Demand – Slowdown of growth from BRICS
  • 10. 10 Impact on Finance for Pure Exploration • Slide in market capitalizations of oil companies • Sharp decline in equity investor appetite for oil stocks • Cut in exploration budgets by majors and big independents = sharp decline in appetite for farm-ins
  • 12. Introducing ERHC • U.S. Public Company – Founded 1986 – Registered in Colorado – Pure exploration company with Africa focus – Regulated by U.S. SEC – Based in Houston – Publicly traded stock (Ticker: ERHE) 12
  • 13. ERHC Exploration Assets • Kenya • Block 11A • Chad • Block BDS 2008 • Sao Tome & Principe EEZ • Block 4 • Nigeria-Sao Tome & Principe JDZ • Blocks 2, 3, 4, 5, 6 and 9 (working interests) • Small Equity Stake • In Toronto-listed Oando Energy Resources (TSX: OER) 13
  • 14. The Original ERHC Plan Remember the Exploration Business Model and E&P Value Proposition in Part 1: • Step 1. Acquire frontier E&P rights for low entry costs • Step 2a. Build asset value through greenfield G&G work, attract partners and drill wells • Step 2b. Build company value by doing 2a, driving ERHC rapidly up the value curve • Step 3. Sell ERHC or E&P rights for tremendous profit prior to drilling or upon discovery (within 5 years) 14
  • 15. 15 Oil Frontier: Sao Tome & Principe
  • 16. Original Plan Execution: Step 1. Acquire • 1997: Exclusive Agreement with STP • 1999-2003: ERHC and STP renegotiate Agreement • 2004: ERHC exercises preferential minority rights in the JDZ • 2005-2006: ERHC teams up with International Operators to acquire additional rights in JDZ Blocks 2, 3 and 4 16
  • 17. Original Plan Execution: Step 2a. Build • 2009-2010: Five deepwater wells drilled 17 Well Block Total Depth Kina-1 JDZ Block 4 3,750m Bomu-1 JDZ Block 2 3,580m Lemba–1 JDZ Block 3 3,758m Malanza-1 JDZ Block 4 4,196m Oki East-1 JDZ Block 4 3,873m
  • 18. Original Plan Execution: Step 2b. Build (Value) $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 $/Share 18 February 2009 Sinopec-ERHC announce plans to drill exploration well June 2009 Addax-ERHC announce 4 exploration well program ~$80 MM ~$160 MM August 2009 Drilling begins on Lemba – 1 in Block 3 of JDZ March 2009 Sinopec-ERHC prepare for Bomu– 1 well on Block 2 of JDZ ~$310 MM ~$535 MM ~$340 MM ~$672 MM ~$540 MM 11x price increase over 8 month period Jan – Sept 2009 Month 1 Month 8 Milestones Market Cap
  • 19. Original Plan Execution: Step 3. Sell? • 2010: Results of drilling – No commercial discoveries announced – >$400 million exploration costs written off – Value curve inverts • What to do? 19 Wind up the Company? Renew plan and start again?
  • 20. Renewing the Plan with Onshore Focus • 2010-2011 – Acquire • Chad – BDS 2008 (onshore) • Kenya – Block 11A (onshore) • 2011-2014 – Build (Exploration) • Secured CEPSA as farm-in partner in Kenya • Formation of partnerships in Chad (ongoing) – Build (Value) • At inception of value curve again 20
  • 21. 21 Financing Before the Oil Crash • Premised on usual upward trajectory of share price as drilling approached – Existing equity shareholders – Rights Issue (2012) – Farmout – Kenya (2013) – New equity financing – Convertible Debt (2014) – More farmout – EEZ (2015) – Drilling in Kenya – (2016):If success, put up for sale (e.g: Cove)
  • 22. 22 Financing After the Oil Crash • Crash in global oil prices – Largely unforeseen – Industry-wide repercussions – Crash in pure exploration companies’ equity • Convertibles pose challenge – Conversion now favors creditors unduly • Farmouts now more challenging – Drastic cuts in exploration budgets – Marked withdrawals from exploration projects
  • 23. 23 Options • Farmouts – Heightened interest in Kenya on progress toward drilling – Chad • Investment by high net-worth investor(s) – Reverse split to make investment easier • Merger – With well-funded E&P company • Onshore-asset subsidiary listing and IPO – On emerging market stock exchange (with continuing appetite for E&P) – On traditional market (subject to oil price upswing)
  • 24. 24 Cycles • Historically, oil price cycles • Upward swing should come • Companies like ERHC present great investment opportunity now $0.00 $25.00 $50.00 $75.00 $100.00 $125.00 $150.00 1990 2015
  • 25. 25 Cautionary Statement This presentation 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 stockholders’ meetings 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 Kenya, Chad, the JDZ and the Exclusive Economic Zone 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 presentation. 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.
  • 26. 26

Editor's Notes

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