ERHC Divests Stakes In EEZ Block to Kosmos

ERHC Divests Stakes In EEZ Block to Kosmos

Sopuruchi Onwuka

American multinational independent oil explorer with focus on Africa, ERHC Energy< has declared sale of its stake in one of its oil blocks in Sao Tome and Principe (STP) to peer explorer, Kosmos, in a strategy seen as spreading its risks at a time of price downturn.

Managing Director of the company which has strong Nigerian ownership content, Mr. Peter Ntephe, had stated in an interview that the terms of the production sharing agreements it holds in proximate joint development zone between Nigeria and STP has also come under the prevailing market realities to be reviewed.

He also said that the company was refocusing its exploration opportunities to onshore terrains where, according to him, it has the capabilities and competencies to drive operations without seeking technical and funding partnership.

Divestment from one of its offshore blocks in STP might be part of the strategies to slash its deepwater exposure and liquefy part of the assets in order to buoy up operations funds for newly acquired onshore blocks in East Africa.

ERHC Energy declared that it reached an agreement with Kosmos Energy to transfer all ERHC’s rights to Block 11 of the São Tomé and Principe (STP) Exclusive Economic Zone (EEZ) to Kosmos.

It added that the agreement has been approved by the National Petroleum Agency of Sao Tome & Principe (ANP-STP) as required in the requisite PSC for EEZ Block 11.

ERHC will however retain its 100% stake in EEZ Block 4. It also retains its option to take a 15% interest in two over EEZ blocks of its choice. The company also revealed that it and the ANP-STP have agreed in principle to the terms of a PSC for Block 4.

President and CEO, Mr. Peter Ntephe, stated, “Given the difficult global environment for doing deals, particularly for deep-offshore assets in frontier areas, we are very pleased to have concluded the agreement with Kosmos.

 “The agreement enables us to immediately monetize one of our offshore holdings while preserving a financial upside in the event that exploration in Block 11 is successful.”

In Kenya, ERHC holds a 35% interest in Block 11A, where the first exploration well is expected to be spudded toward the end of the first quarter of 2016.

The Kenyan block is part of the strategic shifts by the company from exclusively risky, cost intensive and technology driven offshore terrains where it has dominated acreages in the JDZ of Nigeria-STP and EEZ of STP.

Mr. Ntephe had stated that Kenya offered initial attraction to ERHC after fall in oil prices impacted operating terms and dampened the company’s operations outlook in deepwater Gulf of Guinea. 

“We decided that it would be too risky to continue the company to remain exclusively in the offshore. Instead of that we are going to switch the business model entirely to onshore. So, theoretically it is easier for a small company to run the show, to become operator onshore so that it controls its own destiny which was what we wanted.

“That shouldn’t rule out the fact that we might need partners at one stage. We thought that if the crunch came, theoretically we could run the whole show: do the drilling, raise the money and do it. It is not like that deep offshore.

“Therefore, we have moved from being a company with offshore focus to one with onshore focus. The next thing now was to actually start operating the blocks, and Kenya was attractive to everybody. When we sounded the industry, Kenya was very attractive. So we started working very quickly on Kenya. We carried out our full tension gravity study in 2013, and immediately we finished that CEPSA farmed in.

“That is as far as the business model is concerned. It was very successful. We have operated it well and demonstrated for the first time in history that ERHC could operate by itself. So, it was very well done for us in Kenya.”

In Chad where it has onshore assets, ERHC stated that it is accepting tender proposals for a 2D seismic acquisition program for Block BDS 2008.

Mr. Ntephe explained that the company had acquired petroleum rights in Chad in line with its new strategy of relocating to onshore operations, especially seeking fresh opportunities in regions that have proven petroleum plays.

According to him, “Chad has been a producing country since at least 2003. It has an export pipeline. It has a refinery. It has a well defined basin and a well defined oil industry.  Well defined exploration hasn’t been done. It has majors operating there. It has CNPC. It has ExxonMobil, and up to a point, even Chevron. So we focused on Chad and it became the first country we went to and we got our blocks in 2011.”

ERHC also has interests across several oil blocks in the Nigeria as well. The company has interests in Oando Energy Resources through its reverse acquisition of Exile Resources which had interest in the Akepo field in Nigeria.

Mr. Ntephe had explained, “So, what we wanted to with Exile Resources was to a large extent what Oando did. It would give us access to the Akepo Field which has proven reserves and could quickly gone on to production. However when we started making our moves, as a public company we had to disclose everything we did, and whether it was down to us or down to their own exclusive strategy, Oando now moved very quickly and completed a take-over of the company.

“Our stake in that company remains. And, of course, with Oando’s reverse take-over our proportionate control was reduced just like all the existing shareholders’ shares were diluted. In the new entity we have roughly 420, 000 shares in Oando Energy Resources. We had several million shares in Exile but when they did the reverse take over everything was compressed because they did a reverse stock split as well. So, our interest was diminished to a level where it is no longer considered significant.”