Interview Regarding Rights Offering and Other Matters with ERHC Energy Inc. Vice President and Controller Sylvan Odobulu

Sylvan2012-web.jpgThis week ERHC Energy continues its series of interviews with Company management to provide insight into initiatives that are underway. Today’s interview is with Sylvan Odobulu, ERHC Vice President, Administration and Controller. Mr. Odobulu played a leadership role in executing the successful Production Sharing Contract negotiations of ERHC’s portfolio assets in the Republic of Chad. He is responsible for identifying and developing new Sub-Saharan African indigenous upstream oil and gas interests and business opportunities through mergers and acquisitions. 

Q: How confident are you that ERHC will have the financial resources needed to proceed with its exploration work programs in Kenya and Chad?

Sylvan Odobulu, Vice President, Administration and Controller: The rights offering has always been intended as an initial step – it is not the only step by any means. We have several other steps planned, including possible registered direct offerings to new investors to raise money for these two projects. We started with the rights offering so that we could give our existing shareholders the opportunity to contribute to the Company’s capital requirements and avoid dilution. How much we seek from new investors subsequently will depend on the degree of take-up of the rights offering by our existing shareholders, and nothing is definitive at this point in time. 

What other fundraising methods are you alluding to?

I have already mentioned registered direct offerings to new investors. We are also planning for convertible notes and other debt instruments, as well as continuing to work to farm-out a portion of our assets and bring in one or more partners to spread the risk. This has all been described in our filings and at our meetings with shareholders. 

You consider the efforts to secure a partner to be part of ERHC’s fund raising strategy?

Absolutely. We’re going to be receiving money through the rights offering and these other methods, but attracting a financially capable partner helps with risk and allows us to proceed with other projects. All these activities work together to advance our interests and build value.

What can you tell us about these ongoing discussions with potential farm-in partners?

We are in serious discussions related to all our assets, but especially in Kenya and the EEZ. Discussions have been going on for quite some time, but this is normal. Discussions are not always with the same companies. Sometimes, a company goes away and then comes back with renewed interest. To date, we have not entered into exclusive negotiations. When we do, we’ll disclose it to stockholders.

When you characterize the discussions as ‘serious,’ what does that really mean?

It means these companies are very interested. For instance, there is the case of a company that has shown serious interest in farming into our Block 11A in Kenya. We travelled and met with them over two days as they gathered information to make a presentation to their Board of Directors. They visited our offices in turn for further negotiations. They examined the available data from our data room and then made a field trip to Kenya to see the area, investigate potential security considerations and view the surrounding infrastructure. When companies consider farming in, they have to present an air tight case to their Board. So in this case, they liked what they saw, they talked with contractors about exploration costs and developed highly detailed economic models to project expenses. All of this was prior to presenting to their board. This is still very much in play, and it illustrates that these deals take time and can’t be rushed. 

Is ERHC being too demanding – expecting too much?

We understand that what we achieved in the JDZ in terms of a cash and carry arrangement may not  always be available for a different set of assets. That said, we will not undervalue our shareholders’ assets. We are committed to protecting the value of the Company’s assets, which is another reason the rights offering and other fund raising efforts are important – they will enable us commence exploration by ourselves if we do not get the minimum terms that we think are in the interests of our shareholders for the time being. 

Returning to the rights offering – is the money that people have sent in for the rights offering held in escrow or does it go straight into the Company’s cash holdings?

The prospectus stated very clearly: when a stockholder exercises their subscription rights, the funds go to an escrow account where the funds are held. The escrow account is maintained by Corporate Stock Transfer, our third party stock registration and transfer agents. When we close the rights offering at the end of February, Corporate Stock Transfer will tally the money they received, calculate the allocation for those who have over-subscribed, issue the new shares to those who exercised their rights and release the funds to the Company.

The prospectus indicates that the Company has the ability to cancel the rights offering. Is that a possibility?

We are very committed to the rights offering. Very committed. Whoever has put their money in will receive their shares.  The level of participation in the rights offering has been encouraging thus far.

Why doesn’t ERHC announce the intentions of its major shareholder, The Chrome Group, to exercise its rights or not?

Please recall that while the Chrome Group is ERHC’s single largest shareholder, it is an independent entity from ERHC. We don’t control their intentions or have authority to speak for them. However, the Chrome Group has already made it public that they support ERHC’s funding plans. Even before the prospectus was filed, they issued a public news release, disseminated internationally including in the U.S, that they support the rights offering. We will know their level of participation – whether they intend to exercise all their rights, or over-subscribe or exercise a portion of their rights, at the close the rights offering when Corporate Stock Transfer reports to us.

Is it a priority to get the investment community to embrace what ERHC is presenting as a value proposition?

It is a top priority for ERHC’s management and for the Company at large – the Board of Directors, management and staff. We have been working hard in the past, but we are redoubling our effort. That’s why we are getting more messages out, through news releases, participation in conferences and the like. You never know who is going to be interested tomorrow, so inevitably, there is some area of the market that has not been reached. That’s why we are constantly working to expand our reach.

What do you think is essential for people to understand about ERHC’s present situation?

I would go back and remind stockholders that in business sometimes you have to be patient. We are asking for their patience. We have done this before. In the early days of the JDZ (Nigeria – Sao Tome & Principe Joint Development Zone) there was a lot of pessimism and uncertainty. The share price was as low as two cents. Over time, we secured partners, reprocessed the seismic and other data, identified drilling locations and secured drilling rigs, all of which generated considerable excitement. The stock price reflected that excitement. Now, there is no getting around the fact that the oil exploration business is high risk and high reward. Unfortunately, the drilling to date in the JDZ has not discovered oil, but the good news is that we now have a more diverse portfolio of assets – East Africa, Central Africa and West Africa – both onshore and offshore. With the funds raised by the rights offering, we intend to pursue the same value building strategy on two fronts – in Kenya and Chad. Because they are onshore assets, exploration will be considerably more cost efficient than the deepwater JDZ. And we fully expect that the pessimism will turn to excitement as the new exploration work programs get underway.

This interview shall not constitute an offer to sell or the solicitation of an offer to buy shares of the Company’s common stock, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state.

Cautionary Statement

This interview 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 shareholders’ 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 interview. 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.

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