In an effort to increase capital availability and financial flexibility, ERHC Energy (OTCBB: ERHE) announced its Board of Directors approved resolutions amending the company’s Restated Articles of Incorporation to increase the number of authorized shares and to create or issue one or more classes of preferred stock from shares of currently authorized preferred stock. This is a signal the company will likely issue equity to existing and new shareholders, possible to include debt instruments, to raise the appropriate funds for its exploration programs in Africa.
For those unfamiliar with ERHC, the company is a publicly traded American company with oil and gas assets in Sub-Saharan Africa, namely offshore West Africa, and more recently, onshore Chad and Kenya.
Fund Raising Options to be considered at a Special Meeting of Shareholders on October 9, 2012:
- Authorize an increase to the number of authorized shares of ERHC common stock from 950 million to 3 billion;
- Authorize ERHC’s board to create and issue, from shares of preferred stock currently authorized, one or more classes or series of preferred stock.
OAG360 Comments:
The oil and natural gas business is a capital intensive industry – no question about it.
Aside from pure exploration and development, financial flexibility is a positive when looking for additional strategic acquisitions, and joint development partners. Over the last year, ERHC has acquired additional exploration blocks in Chad and Kenya to complement its existing offshore blocks in the Joint Development Zone offshore São Tome and Principé. However, exploration programs in the new blocks will likely exceed existing capital resources available to the company, which has prompted ERHC management to explore funding options, two of which, were announced today. Once the company secures additional capital, ERHC should be in a position to undertake seismic and other G&G studies to better identify prospects on their recently-acquired blocks in Chad and Kenya in order to establish an initial exploratory drilling campaign and to perhaps attract a larger operating partner.
ERHC has had prior success attracting successful operational partners. OAG360 notes the company successfully attracted Addax to its JDZ projects prior to Chinese integrated major, Sinopec, taking over Addax. Sinopec remains the operator of the three Joint Development Zone blocks offshore São Tome & Principé in which ERHC Energy has significant working interests. Additionally, ERHC has again demonstrated its ability to negotiate and execute production sharing contracts with foreign governments in Chad and Kenya.
Perhaps the most immediate operational catalyst in need of additional funding lies in Chad following the signing of the Exclusive Exploration Authorization (EEA) whereby ERHC is authorized to undertake oil and gas exploration operations in the Chari-Ouest III, BDS 2008 and Manga Blocks in Chad. All of these areas are covered by its Production Sharing Contract (PSC) with Chad.
Other Upcoming Capital Intensive Projects:
ERHC recently signed a PSC with the Government of the Republic of Kenya on Block 11A in northwestern Kenya. The Company also holds working interests in six Blocks in the Nigeria-São Tomé & Príncipe Joint Development Zone (JDZ) as well as 100 percent of Blocks 4 and 11 of the São Tomé & Príncipe Exclusive Economic Zone (EEZ) with an option to acquire up to 15 percent working interests in two other EEZ Blocks. To continue exploration programs in these areas, the company will likely have to attract new capital to undertake operational programs in these areas.
