ERHE Letter to Shareholders
Dear Shareholders:
It is my pleasure to update you on the progress of our company since the announcement in May 2005 of the award of five blocks to ERHC Energy in the 2004 JDZ Licensing Round. This was a very significant event for ERHC Energy since it became an independent oil and gas company. The work demands have been at an all-time high as we participate in the ensuing production sharing contract and joint operating agreement negotiations, and work towards growing our business.
Over the last few months the company has made great strides to prepare itself to participate in oil and gas exploration in the Gulf of Guinea, a very promising oil and gas producing region. As I highlight the achievements for you below, I am increasingly enthused about our future; though, of course, our work has truly only just begun.
In late August 2004, we secured an agreement with Pioneer Natural Resources to jointly apply for rights in the production sharing contract for Block 2 of the JDZ, and in December 2004 for similar rights for Block 3 – because they shared our enthusiasm.
A month later, in September 2004 Noble joined us for Block 4.
On December 15, 2004, we submitted joint bids for Blocks 2, 3, and 4 with our partners Pioneer, Noble and Devon. Devon had also joined our consortium for Blocks 2 and 3.
Two weeks later, we were successful in having the going concern qualification removed from the audit opinion because we restructured our debt and injected new working capital into the company. We have virtually eliminated our debt and strengthened the balance sheet to set the company on a path to future growth.
Additionally, our management team this past year worked diligently to resolve legal issues and settle historic claims against the company to allow us to focus on our mission to enhance shareholder value.
In light of this significant progress within just a year, we changed our name from Environmental Remediation Holding Company to ERHC Energy Inc. to better reflect our activities and goal to establish the company as a responsible member of the international oil and gas business community.
Corporate Governance
At ERHC Energy we strongly believe in maintaining absolute integrity and transparency in our disclosures to the public. Our Code of Ethics is designed to promote honest and ethical conduct, full, fair, accurate, timely and understandable disclosure of financial information in our periodic reports filed with the SEC, and compliance with applicable laws, rules, and regulations.
The Board of Directors has approved and adopted a policy on compliance with the Foreign Corrupt Practices Act, a Policy on Whistleblower Procedures, a Policy on Insider Trading, a Compensation Committee Charter, and a Governance and Nominating Committee Charter.
We have also started documenting our internal control procedures and are working towards compliance with the requirements of Sarbanes-Oxley Act.
In April 2005, Ambassador Howard Jeter and Dr. Andrew Uzoigwe joined us as independent non-executive directors.
Our current focus
In the past several weeks, we’ve developed a new corporate identity and website; begun to build a solid base of media relationships; initiated a planning process for proactive shareholder communication; as well as begun to divide the communications roles and responsibilities among our team members.
Over the next few months, we will be negotiating production sharing contracts and joint operating agreements. As the only company with an interest in every block awarded in 2004 JDZ Licensing Round, we have the task of negotiating and meeting with all the operators and participants who received an award in the licensing round. Fortunately, we have a very strong, focused and highly-experienced negotiating team working (around the clock on many occasions) to represent our shareholders’ interest in these negotiations. Our team is making every effort to work to the time line set by the Nigeria-Sao Tome and Principe Joint Development Authority which envisages the signing of production sharing contracts in November of this year.
Once production sharing contracts are signed, each operator will begin implementing the exploration work program as defined in the production sharing contract. The operators will carry out studies to identify the most suitable prospects for drilling. Simultaneously, the operators will begin reviewing rigs, equipment and support services required for the drilling program. This process will likely take many months, and will vary from block to block. The commencement of drilling will depend on many factors, including rig availability.
What’s next
Now that we have achieved our first major goal as an emerging exploration company, we must also consider where we go beyond the JDZ. Our aim is to add new assets to our portfolio which will set the foundation for long-term growth for the company. We have developed a growth strategy to build a balanced portfolio which will mitigate technical and commercial risks on a longer term basis and have started evaluating exploration, development and production assets. And to that end, we intend to leverage our relationships in West Africa where opportunities exist to add to our portfolio. We will play to our strength in that we know both the industry and the West Africa region extraordinarily well.
We also anxiously await the Sao Tome & Principe’s decisions regarding the conduct of a licensing round in its Exclusive Economic Zone (EEZ). If and when the government announces a bid round, we intend to exercise our rights and proceed according to how the government outlines its process for granting awards in the area.
We are also evaluating other proven oil and gas provinces, beyond West Africa, to identify focus areas that would provide us with growth opportunities. We have assembled a sufficient team of competent industry experts to help us pursue the opportunities before us.
Our stock price
Despite all our progress and potential, we’ve naturally been disappointed by the performance of our stock price immediately following the JDZ awards. Realistic that we have no control over the strategies and actions of investors or macro factors that cause our stock to fluctuate, we are nonetheless committed to doing our best to fully and fairly communicate factual information to keep our shareholders apprised and to continue to steer the company on a path which we hope the market will respond positively to. We appreciate the long-term commitment of our shareholders during these ebbs and flows.
As we move forward, be assured, our vision for the future is to establish ourselves as a credible player in what is believed to be a very resource-rich Gulf of Guinea, and beyond it, and to return value to the shareholders who’ve entrusted us.
My special thanks to all our stakeholders, and especially our Board of Directors, for their continued support.
Sincerely,
Ali Memon
President & CEO
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