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ERHC Energy Inc. Presentation at SeeThruEquity Microcap Investor Conference


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On Tuesday, November 12, 2013, ERHC Exploration Manager Gertjan van Mechelen presented at the SeeThruEquity Microcap Investor Conference in New York City. The presentation introduced the audience to ERHC, with an overview of its oil and gas exploration assets that stretch from the offshore Gulf of Guinea in West Africa to onshore assets in Chad in Central Africa and Kenya in East Africa. Attending the conference were numerous institutional investors, investment bankers, analysts and representatives from media companies.

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ERHC Energy Inc. Presentation at SeeThruEquity Microcap Investor Conference

  1. 1. Exploration: Prospects and Challenges for a Small Independent 1
  2. 2. 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. 2
  3. 3. Part 1. The Exploration Model 3
  4. 4. 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) 4
  5. 5. Market Cap Asset Value Exploration Value Proposition Usual Point of Sale Exploration 4 to 10 years Development 5 to 12 years Production 5 to 20+ years 5
  6. 6. 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 6
  7. 7. Part 2. Case Study: ERHC Energy 7
  8. 8. Introducing ERHC • U.S. Public Company – – – – Regulated by U.S. SEC; based in Houston Shares trade on the OTCQB marketplace (OTCQB:ERHE) Market Capitalization: $34.4 m (November 7, 2013) Issued Shares: 764m • 100% of two blocks and other rights in the Sao Tome & Principe Exclusive Economic Zone • Rights in six of the nine blocks of the Joint Development Zone 8 • One oil block in Republic of Chad • One oil block in northwest Kenya
  9. 9. ERHC Exploration Assets • Kenya • Block 11A • Chad • Blocks BDS 2008 • Nigeria-Sao Tome & Principe JDZ • Blocks 2, 3, 4, 5, 6 and 9 (working interests) • Sao Tome & Principe EEZ • Blocks 4 and 11 • Small Equity Stake • In Toronto-listed Oando Energy Resources (TSX: OER) 9
  10. 10. 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 large profit prior to drilling or upon discovery (within 5 years) 10
  11. 11. Oil Frontier: Sao Tome & Principe 11
  12. 12. Original Plan Execution: Step 1. Acquire • 1997: Exclusive Agreement with STP – – 25 year term Over 50% of net revenues from all STP oil production in return for • • • • 1997-1999: ERHC does the following: – – – – • Pays $5 million Maps maritime boundaries and delineates EEZ Establishes national oil company (JV with government) Contracts for seismic acquisition 1999-2003: ERHC and STP renegotiate Agreement until: – ERHC gives up all previous rights and entitlements in return for preferential minority rights in • • • • Mapping STP maritime boundaries and delineating Exclusive Economic Zone Developing STP oil industry, including establishing national oil company and licensing oil rights One-time payment of $5million 6 offshore blocks in the Nigeria-STP Joint Development Zone (JDZ) 4 offshore blocks in the STP EEZ 2004: ERHC exercises preferential minority rights in the JDZ 2005-2006: ERHC teams up with International Operators to acquire additional rights (by competitive bidding) in JDZ Blocks 2, 3 and 4 12
  13. 13. Original Plan Execution: Step 2a. Build • 2006 -2009: Pre-drilling Activities – Geological and Geophysical Work – Preparation for drilling and contracting of drillship and rig • 2009-2010: Drilling 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 13
  14. 14. Original Plan Execution: Step 2b. Build (Value) $0.90 $0.80 March 2009 Sinopec-ERHC prepare for Bomu– 1 well on Block 2 of JDZ $0.70 $/ Share $0.60 $0.50 $0.40 $0.30 ~$672 MM February 2009 Sinopec-ERHC announce plans to drill exploration well ~$540 MM ~$535 MM ~$340 MM $0.20 $0.10 August 2009 Drilling begins on Lemba – 1 in Block 3 of JDZ June 2009 Addax-ERHC announce 4 exploration well program ~$310 MM ~$160 MM Milestones ~$80 MM Market Cap $0.00 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Month 1 Aug-09 Sep-09 Month 8 11x price increase over 8 month period Jan – Sept 2009 14
  15. 15. 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? Sell at diminished value? Renew plan and start again? 15
  16. 16. Renewing the Plan • 2010-2011 – Acquire • Sao Tome & Principe EEZ – Blocks 4 and 11 • Chad – BDS 2008, Chari Ouest III and Manga Blocks (onshore) • Kenya – Block 11A (onshore) • 2011-2013 – Build (Exploration) • G&G work (ongoing) • Formation of partnerships (ongoing) – Build (Value) • At inception of value curve again 16
  17. 17. Kenya Block 11A Estimated unrisked resources based on analogues with nearby Lokichar Sub Basin (Tullow’s discoveries) range: 250-1200MMBO 9/18/2012
  18. 18. Republic of Kenya • ERHC’s Block 11A (2.9 million acres) is at the intersection of two major rift systems • The East African rift play is one of the hottest trends in global oil exploration • Recent East African rift discoveries include: – Ngamia (Kenya) 200-250 million barrels of oil – Twiga (Kenya) flowed at a cumulative rate of 5,200 barrels/day – Lake Albert (Uganda) 1.3 billion barrels of oil 18
  19. 19. Recent Exploration Success • Ngamia-1 and Twiga South-1 wells in Block 10BB nearby Northwest Kenya The proximity and in-trend relationship between the Lotikipi plane and the Abu Gabra Rift basins of southern Sudan suggest high oil and gas prospectivity Block 11 A Regional Geology The area is dominated by the Cretaceous Central Africa Rift System (CARS) and the Tertiary East Africa Rift System (EARS) with the associated basin depositional trends Recent Rift Margin Discoveries in Block 10BB Similar to Uganda Finds Operator Tullow estimates the discoveries may be similar in size to the Lake Albert Rift Basin in Uganda, which are estimated at 2,000 MMBOE Regional Geology Gravity data enabled the delineation of a sedimentary basin within the Block 11A area below the Lotikipi plain with a basin-fill believed to be in excess of 5,000 meters
  20. 20. Kenya Block 11A Exploration • Pursue East African Rift Play: – Approx. 1.5 MM acres of prospective Rifts identified – Two main rift areas; • South: – Apparent Tertiary rift basin enters the block, as identified based gravity maps derived from satellite measurements • North: – Lotikipi basin: Cretaceous?/Tertiary rift basin identified by land and airborne gravity acquired by Amoco and Camec, as well as identified on scarce seismic coverage shot by Amoco in 1985 – Estimated unrisked resources range: 250-1200mmboe (based on analogues with nearby Lokichar Sub Basin Tullow Oil’s discoveries)
  21. 21. Block 11A Tertiary Rift Basin Twiga South-1 Discovery In southern part of Block 11A Global Bouguer Gravity shows apparent presence of a similar Tertiary Rift Basin as where recent discoveries were made by Tullow Oil.
  22. 22. Elemi Lotikipi Block 11A Gatome Block 11B 100Km In northern part of Block 11A airborne gravity acquired by Amoco and CAMEC identified the Lotikipi graben , a Cretaceous? Tertiary Rift basin. Seismic shot by Amoco in 1985 points to the possibility for fault traps as seen in recent Tullow discoveries.
  23. 23. Chad BDS2008 Resource potential 250 MMBOE 9/18/2012
  24. 24. Republic of Chad • ERHC’s Block BDS2008 is located on the northern edge of the Doba and Doseo basin in southern Chad • The Republic of Chad has proven oil reserves of 1.5 billion barrels • Undeveloped discoveries estimated at 2.6 billion barrels • The Doba/Doseo area produces more than 120,000 barrels per day • Served by the 660 mile Chad/Cameroon Pipeline and the N’Djemena Refinery opened in 2012 24
  25. 25. Republic of Chad •Proven Reserves are 1.5 Billion Bbls Source International Petroleum Encyclopedia Niger CNPC largest player Current Production: ~17,000 bbl/d Unconfirmed EUR: 1.0 Blnbbl Continue to explore Ndjamena Refinery Operator: CNPC Capacity: 20,000 bbl/d expandable to 60,000 bbl/d Online Date: June 2011 Supply: Block H Area II (CNPC) Block H Area II Operator: CNPC (Former EnCana) Expected Production: ~17,000 bbl/d Reserves (remaining): 85 MMbbl OOIP: 700 mmbbl (CNPC) Continue to explore Chari Ouest - Doba Basin Operator: Exxon (Esso) Current Production: 115,000 bbl/d Peak Production: 220,000 (2004) Reserves (remaining): 462 MMbbl EUR: 795 mmbbl •Undeveloped Discoveries are 2.6 Billion Bbls, and 14.6 TCF of Gas Source USGS, World Petroleum Resources Project ERHC BLOCK BDS2008 Sudan All Fields Key Operators: CNPC & Consortiums Current Production: 465,000 bbl/d Peak Production: 538,000 bbl/d (2011) Reserves (remaining): 1.96 Bln bbls EUR: 3.0 Bln bbls Key basins: Muglad, Melut Wells Drilled: 300 Commercial & Technical Success: 60% Greater Nile Oil Project Operator: GNPOC (Formerly Arakis) Current Production: 203,000 bbl/d Peak Production: 300,000 bbl/d (2004) Reserves (remaining): 662 MMbbl EUR: 1.49 Bln bbl Chad/Cameroon Pipeline Operator: Exxon Capacity: 225,000 bbl/d Utilization: 115,000 bbl/d Distance: 1,070 km Port: Cameroon loading Expandable by adding pump stations
  26. 26. Chad Infrastructure 60,000 bbl capacity, presently processing 20,000 bbl per day Opened 6 February 2012 60% CNPCI 40% CNO Chad Production 126,200 bbl per day in 2010 (CIA World Fact Book) 9/18/2012 660 mile long pipeline 225,000 bbl per day capacity
  27. 27. Chad Block BDS2008 Exploration Focus • Pursue Rift Margin Play: – Approx. 570,000 acres on Rift Margin of Doseo and Doba basins – Two main areas of focus: • Focus Area 1: – North of Esso’s Tega and Maku discoveries in Doseo basin » Additional 2D seismic required to firm up leads » Unrisked resource potential ≈100 MMBO • Focus Area 2: – East of and on trend with OPIC Benoy-1 Rift Margin discovery in Doba basin » Initially acquire airborne gravity/magnetics survey in Q4,2013 » Based on results of above, plan acquisition of 2D seismic » With expected analogue structuring as found to the west unrisked resource potential ≈ 150 MMBO – Resource potential 250 MMBOE
  28. 28. Focus Area 1 and Area 2 Focus Area 1 Based on seismic two lead areas A & B identified, additional seismic required Focus Area 2 No seismic available yet. Similar structuring expected as to the west where OPIC made Rift Margin discoveries 3 ERHC BDS-2008 CHARI QUEST III OPIC Benoy-1 ERHC BDS-2008 1 Rift Margin 2 5 CHARI WEST - DOBA CHARI EAST - DOSEA 7 6 DOH BOROGOP DOBA/DOSEO BASINS 4
  29. 29. Focus Area 1: Structure Map of Top Lower Cretaceous Lead areas A & B are possible traps on Rift Margin Lead A Lead B CARACAL proposed pipeline Lead A Reserve potential: 34 MMBOE (unrisked) Lead B Reserve potential: 66 MMBOE (unrisked)
  30. 30. ERHC BDS 2008 Lead “A” Trap on Rift Margin similar to Rift Margin discoveries in Kenya Tullow Ngamia #1 1 Billion BOE ERHC Lead NNW Esso Tega #1 64 MMBOE* Esso drilled late structures that developed during the waning stages of hydrocarbon charge. ERHC’s concept: Drill early structures on the basin margin (Analogs: Tullow Ngamia #1 and OPIC Benoy #1) ERHC BDS 2008 CARACAL CHARI EAST - DOSEO *As per CARACAL
  31. 31. OPIC Benoy-1 Rift Margin Discovery on trend with Focus Area 2 Benoy#1 well: • 11-40 MMBOE in Lower Cretaceous • 3,053 m (10,013’) MD; Budgeted dry hole = 17.62 MM USD • 53 days to TD, 73 days total • 62 feet net pay, Avg porosity = 17.0; Avg perm = 23.25 • Avg Sw = 49.0, Avg Vsh = 6.1 • DST #1: 2309 – 2334; 1,231 BOD, 0.15 MMCFGD, 0 BWD, 20/64” ch; API 37.4, GOR 122 • DST #2: 2229 – 2232; 1,174 BOD, 0 MMCFGD, 0 BWD, 24/62” ch; API 34, GOR 0
  32. 32. Focus on BDS2008 • Both Focus areas are close to proposed infrastructure by Caracal BDS2008 OPIC Benoy-1 BDS2008 Tega-1 Focus Area 2 Maku-1,2
  33. 33. São Tomé and Príncipe Exclusive Economic Zone ERHC Block 4 ERHC Block 11
  34. 34. São Tomé and Príncipe Exclusive Economic Zone • Virtually surrounded by proven hydrocarbon systems • ERHC has a 100 percent working interest in Blocks 4 and 11 • Free of signature bonuses • Additional rights to acquire up to a 15 percent paid working interest in two additional blocks • Cretaceous Turbidite fan deposits from offshore Gabon may have formed traps in Blocks 4 and 11 • Similar fan plays led to the Jubilee Field discovery 34
  35. 35. Regional Setting • São Tomé and Príncipe are volcanic islands approximately 200 km south of the Nigerian coast • Territorial waters are deep with water depths ranging 2500-3000m • Thick sediment cover representing distal prodeltaic sediments of the Cretaceous Ogooué delta of Gabon
  36. 36. Part 3. The Continuing Investment Rationale 36
  37. 37. Example of Successful Exploration Business Model • Pre-drilling of Rovuma Field, Mozambique: $18m valuation • 12 months later, after drilling and huge discovery in Rovuma: $2bn valuation 37
  38. 38. ERHC Investment Opportunities • ERHC is open to discuss – Farm-in and other partnerships on ERHC’s oil and gas assets – Equity participation in asset-holding subsidiaries – Other routes to participation in ERHC’s diverse asset portfolio 38
  39. 39. Summary • Early Stage Exploration – High risk – Possibility (but no guarantee) of high reward • Small Independent – Focus on early mover opportunity and low-entry cost – Revenues during execution limited to sale of: • Company equity • Equity in asset • Proven Business Model – Precedents of successful execution and large profits – Perseverance is key 39
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