Battling Uphill:

Finding Money for Pure

Exploration in Africa in a

Time of Cheap Oil

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Peter Ntephe, PhD

• President and CEO of ERHC Energy Inc.• Career spanning 27 years, in the public and private

sectors. • Involved in ERHC’s executive management since 2001. • Key roles in the negotiation, securing and maintenance

of ERHC’s oil and gas interests in sub-Saharan Africa• Member of the Association of International Petroleum

Negotiators (AIPN) and the Committee on Oil and Gas Law of the International Bar Association.

Part 1.

The

Exploration Business

Model

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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)

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Exploration Value Proposition

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4 to 10 years 5 to 12 years 5 to 20+ years

Ma

rke

t C

ap

A

sse

t V

alu

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Exploration Development Production

Usual Point of Sale

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

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Successful Example

• Pre-drilling ofRovuma Field, Mozambique: $18m valuation

• 12 months later, after drilling and huge discovery in Rovuma: $2bn valuation

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Part 2.

Complicating Factors:

Cheap Oil

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Brent: June 19, 2014 – April

21, 2015

$40

$50

$60

$70

$80

$90

$100

$110

$120

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Reasons for Price Decline

• Increased Supply

– North American shale turning U.S. to net exporter of oil

– OPEC and producers such as Russia refusing to cut production

• Diminished Demand

– Slowdown of growth from BRICS

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Impact on Finance for

Pure Exploration

• Slide in market capitalizations of oil companies

• Sharp decline in equity investor appetite for oil stocks

• Cut in exploration budgets by majors and big independents = sharp decline in appetite for farm-ins

Part 3.

Case Study: ERHC Energy

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Introducing ERHC

• U.S. Public Company

– Founded 1986

– Registered in Colorado

– Pure exploration company with Africa focus

– Regulated by U.S. SEC

– Based in Houston

– Publicly traded stock (Ticker: ERHE)

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ERHC Exploration Assets

• Kenya • Block 11A

• Chad• Block BDS 2008

• Sao Tome & Principe EEZ • Blocks 4 and 11

• Nigeria-Sao Tome & Principe JDZ • Blocks 2, 3, 4, 5, 6 and 9 (working interests)

• Small Equity Stake • In Toronto-listed Oando Energy Resources (TSX: OER)

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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 tremendous

profit prior to drilling or upon discovery (within 5 years)

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Oil Frontier: Sao Tome &

Principe

Original Plan Execution:

Step 1. Acquire

• 1997: Exclusive Agreement with STP

• 1999-2003: ERHC and STP renegotiate Agreement

• 2004: ERHC exercises preferential minority rights in the JDZ

• 2005-2006: ERHC teams up with International Operators to acquire additional rights in JDZ Blocks 2, 3 and 4

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Original Plan Execution:

Step 2a. Build

• 2009-2010: Five deepwater wells drilled

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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

Original Plan Execution:

Step 2b. Build (Value)

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

$/

Sh

are

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February 2009Sinopec-ERHCannounceplans to drillexploration well

June 2009Addax-ERHC announce4 exploration wellprogram

~$80 MM~$160 MM

August 2009Drilling begins onLemba – 1 in Block 3 of JDZ

March 2009Sinopec-ERHC prepare for Bomu– 1 wellon Block 2 of JDZ

~$310 MM

~$535 MM

~$340 MM

~$672 MM

~$540 MM

11x price increase over 8 month period Jan – Sept 2009

Month 1 Month 8

Milestones

Market Cap

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?

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Wind up the Company?

Renew plan and start

again?

Renewing the Plan with

Onshore Focus

• 2010-2011– Acquire

• Chad – BDS 2008 (onshore)

• Kenya – Block 11A (onshore)

• 2011-2014– Build (Exploration)

• Secured CEPSA as farm-in partner in Kenya

• Formation of partnerships in Chad (ongoing)

– Build (Value)• At inception of value curve again

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Financing Before

the Oil Crash

• Premised on usual upward trajectory of share price as drilling approached

– Existing equity shareholders – Rights Issue (2012)

– Farmout – Kenya (2013/14)

– New equity financing – Convertible Debt (2014)

– More farmout – (2015?)

– Drilling in Kenya – (2016):If success, put up for sale (e.g: Cove)

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Financing After

the Oil Crash

• Crash in global oil prices

– Largely unforeseen

– Industry-wide repercussions

– Crash in pure exploration companies’ equity

• Convertibles pose challenge

– Conversion now favors creditors unduly

• Farmouts now more challenging

– Drastic cuts in exploration budgets

– Marked withdrawals from exploration projects

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Options

• Farmouts

– MOU on EEZ

– Definitive interest in Chad after release of FTG results

– Kenya estimates on 2D released last week to more farmoutinterest

• Investment by high net-worth investor(s)

– Preliminary expressions of interest

– Reverse split to make investment easier

• Merger– With well-funded E&P company

• Onshore-asset subsidiary listing and IPO– On emerging market stock exchange (with continuing appetite for E&P)

– On traditional market (subject to oil price upswing)

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Cycles

• Historically, oil price cycles

• Upward swing should come

• Companies like ERHC present great investment opportunity now $0.00

$25.00

$50.00

$75.00

$100.00

$125.00

$150.00

1990 2015

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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.

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