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EX-32.2 - EXHIBIT 32.2 - ERHC Energy Incex32_2.htm


U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-K


x
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended September 30, 2009

OR

¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period ended: __________________

Commission file number: 000-17325
 
(Exact name of registrant as specified in its charter)

Colorado
 
88-0218499
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
     
5444 Westheimer Road, Suite 1440, Houston, Texas
 
77056
(Address of Principal Executive Office)
 
(Zip Code)

713-626-4700
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:  None

Securities registered pursuant to Section 12(g) of the Exchange Act: common stock

Check if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ¨ No x

Check if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ¨ No x

Check if the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Check if the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.
Large Accelerated Filer ¨ Accelerated Filer x Non-Accelerated Filer ¨

Check if the registrant is a shell company.  Yes ¨ No x

The aggregate market value of the voting stock held by non-affiliates of the registrant on March 31, 2009 was $128,313,100.

On November 30, 2009, the registrant had 722,688,569 shares of common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held in 2010 are incorporated by reference into Part III. 
 


 
 

 

TABLE OF CONTENTS


   
PART I
 
PAGE
         
Item 1.
   
5
Item 1A.
   
13
Item 1B.
   
17
Item 2.
   
18
Item 3.
   
19
Item 4.
   
20
         
   
PART II
   
         
Item 5.
   
21
Item 6.
   
22
Item 7.
   
23
Item 7A.
   
30
Item 8.
   
31
Item 9.
   
56
Item 9A.
   
56
Item 9B.
   
56
         
   
PART III
   
         
Item 10.
   
57
Item 11.
   
57
Item 12.
   
57
Item 13.
   
57
Item 14.
   
57
         
   
PART IV
   
         
Item 15.
   
58
     
59


Forward-Looking Statements

ERHC Energy Inc. (the “Company”) or its representatives may, from time to time, make or incorporate by reference certain written or oral statements  which include, but are not limited to, information concerning the Company’s possible or assumed future business activities and results of operations and statements about the following subjects:

 
·
business strategy;

 
·
growth opportunities;

 
·
future development of concessions, exploitation of assets and other business operations;

 
·
future market conditions and the effect of such conditions on the Company’s future activities or results of operations;

 
·
future uses of and requirements for financial resources;

 
·
interest rate and foreign exchange risk;

 
·
future contractual obligations;

 
·
outcomes of legal proceedings including, without limitation, the ongoing investigations of the Company;

 
·
future operations outside the United States;

 
·
competitive position;

 
·
expected financial position;

 
·
future cash flows;

 
·
future liquidity and sufficiency of capital resources;

 
·
future dividends;

 
·
financing plans;

 
·
tax planning;

 
·
budgets for capital and other expenditures;

 
·
plans and objectives of management;

 
·
compliance with applicable laws; and

 
·
adequacy of insurance or indemnification.


These types of statements and other forward-looking statements inherently are subject to a variety of assumptions, risks and uncertainties that could cause actual results, levels of activity, performance or achievements to differ materially from those expected, projected or expressed in forward-looking statements.  These risks and uncertainties include, among others, the following:

 
·
general economic and business conditions;

 
·
worldwide demand for oil and natural gas;

 
·
changes in foreign and domestic oil and gas exploration, development and production activity;

 
·
oil and natural gas price fluctuations and related market expectations;

 
·
termination, renegotiation or modification of existing contracts;

 
·
the ability of the Organization of Petroleum Exporting Countries, commonly called OPEC, to set and maintain production levels and pricing, and the level of production in non-OPEC countries;

 
·
policies of the various governments regarding exploration and development of oil and gas reserves;

 
·
advances in exploration and development technology;

 
·
the political environment of oil-producing regions;

 
·
political instability in the Democratic Republic of Sao Tome and Principe and the Federal Republic of Nigeria;

casualty losses;

 
·
competition;

 
·
changes in foreign, political, social and economic conditions;

 
·
risks of international operations, compliance with foreign laws and taxation policies and expropriation or nationalization of equipment and assets;

 
·
risks of potential contractual liabilities;

 
·
foreign exchange and currency fluctuations and regulations, and the inability to repatriate income or capital;

 
·
risks of war, military operations, other armed hostilities, terrorist acts and embargoes;

 
·
regulatory initiatives and compliance with governmental regulations;

 
·
compliance with environmental laws and regulations;

 
·
compliance with tax laws and regulations;

 
·
customer preferences;

 
·
effects of litigation and governmental proceedings;


 
·
cost, availability and adequacy of insurance;

 
·
adequacy of the Company’s sources of liquidity;

 
·
labor conditions and the availability of qualified personnel; and

 
·
various other matters, many of which are beyond the Company’s control.
 
The risks and uncertainties included here are not exhaustive.  Other sections of this report and the Company’s other filings with the U.S. Securities and Exchange Commission (“SEC”) include additional factors that could adversely affect the Company’s business, results of operations and financial performance.  Given these risks and uncertainties, investors should not place undue reliance on our statements concerning future intent.   Our statements included in this report speak only as of the date of this report.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any of our statements to reflect any change in its expectations with regard to the statement or any change in events, conditions or circumstances on which any forward-looking statement is based.


PART I

Item 1 – Business

Overview

ERHC Energy Inc., a Colorado corporation, (“ERHC” or the “Company”) was incorporated in 1986 and was engaged in a variety of businesses until 1996, when it began its current operations.  The Company’s goal is to maximize its value through exploration and exploitation of oil and gas reserves in the Gulf of Guinea offshore of central West Africa including its rights to working interests in exploration acreage in the Joint Development Zone (“JDZ”) between the Democratic Republic of Sao Tome and Principe (“DRSTP or “Tome”) and the Federal Republic of Nigeria (“FRN or “Nigeria”) and in the exclusive territorial waters of Sao Tome (the “Exclusive Economic Zone” or “EEZ”). ERHC does not directly carry out the exploration and production operations in the JDZ  but is relying on reputable technical operators with whom the Company has entered into partnership relationships, such as Addax Petroleum Inc. and Sinopec Corporation to carry out those operations. The Company has formed relationships with these upstream oil and gas companies to assist the Company in exploiting its assets in the JDZ. The Company currently has no other operations but is exploring opportunities in other areas of the Oil and Gas industry, including supply and trading.

Our business strategy is to farm out our rights to working interests in the JDZ and EEZ to entities which we believe are established, well capitalized Oil and Gas  operators for upfront cash payments and negotiate contracts with them to carry our share of the capital costs.  This has been done successfully on Blocks 2, 3 and 4 and resulted in cash proceeds of $45.9 million.  We will continue this approach for JDZ Blocks 5, 6 and 9 as well as the EEZ. We are also pursuing other business development activities in the broad petroleum and related industries.

General Development of the Business

In April 2003, the Company and the DRSTP entered into an Option Agreement (the “2003 Option Agreement”) in which the Company relinquished certain financial interests in the JDZ in exchange for exploration rights in the JDZ.  The Company additionally entered into an Administration Agreement with the Nigeria-Sao Tome and Principe Joint Development Authority (“JDA”).  The Administration Agreement is the formal agreement by the JDA that it will fully implement ERHC’s preferential rights to working interests in the JDZ acreage as set forth in the 2003 Option Agreement and describes certain procedures regarding the exercising of these rights.  However, ERHC retained the following rights to participate in exploration and production activities in the EEZ subject to certain restrictions:  (a) the right to receive up to two blocks of ERHC’s choice and (b) the option to acquire up to a 15% paid working interest in up to two blocks of ERHC’s choice in the EEZ.  The Company would be responsible for its proportionate share of exploration and exploitation costs in the EEZ blocks.

This exercise of ERHC’s rights was subject to the condition that if no license is awarded or a license is awarded and subsequently withdrawn by the JDA prior to the commencement of operations, ERHC shall be entitled to receive its working interest in that block in a future license awarded for that block.

On April 28, 2005, ERHC and its then consortium partner Noble Energy International, Ltd. (“Noble”) entered into a Memorandum of Understanding with Godsonic Oil Company Limited (“Godsonic”), an independent bidder for interest in Block 4. The Memorandum of Understanding stated that if ERHC and Noble (“ERHC/Noble”) received less than a 26% bid-interest award in Block 4 in the JDZ, Godsonic would transfer its entire bid interest award in Block 4 to ERHC/Noble; on the other hand, if ERHC/Noble received more than a 26% bid-interest award in Block 4 from the JDA, ERHC/Noble would transfer the excess over 26% to Godsonic. In June 2005, the JDA awarded ERHC and its then consortium partner Noble a 35% bid interest in Block 4 of the JDZ, in addition to the option interest of 25% which ERHC had exercised in the Block.  In October 2005, Noble withdrew from participation in Block 4 and Addax Petroleum (Nigeria Offshore 2) Limited (“Addax”) replaced Noble as ERHC’s consortium partner. By a Letter Agreement dated October 24, 2005 (the “Letter Agreement”), ERHC and Addax undertook to transfer a 9% interest of the 35% bid interest to Godsonic subject to Godsonic meeting financial and other conditions.

ERHC and Addax entered into a Participation Agreement dated November 17, 2005 (the “Participation Agreement”) whereby ERHC undertook to assign a 42.3% interest (the “Assigned Interest”) in Block 4 to Addax and retained an interest of 17.7%   (the “Retained Interest”) .  The Participation Agreement stated Addax’s cash payment obligations to ERHC would be $18 million, which was paid in February and March 2006.  Pursuant to the Participation Agreement between ERHC and Addax, as amended, Addax will serve as operator and pay all of ERHC’s future costs in respect of all petroleum operations in Block 4 subject to reimbursement upon production. Addax is entitled to 100% of ERHC’s allocation of cost plus up to 50% of ERHC’s allocation of profit until Addax recovers all costs advanced on behalf of ERHC.

In an amendment to the Participation Agreement dated February 23, 2006, Addax’s amended interest in Block 4 was changed to 33.3% while ERHC’s retained interest remained at 17.7%. On March 24, 2006, the Participation Agreement was further amended to change ERHC’s interest to 26.7%.


On March 15, 2006, Godsonic and ERHC (on behalf of the ERHC/Addax consortium) entered into an agreement wherein ERHC agreed to assign 9% of its interest in Block 4 to Godsonic subject to certain stipulated financial and other conditions to be fulfilled by Godsonic. On April 11, 2006, ERHC and Addax entered by an amendment  to the Participation Agreement, agreed that Addax would acquire 7.2% of the 9% interest in the event that Godsonic failed to meet agreed upon conditions and foreclosed from the claims to the 9% interest. This would give Addax a total of 40.5% interest and ERHC 19% in Block 4.

In July 2007, Godsonic failed to meet the stipulated conditions and ERHC reclaimed the 9% interest. Addax claimed entitlement under the existing agreements to 7.2% out of the recovered 9%, without payment of any further consideration to ERHC.  In July 2008, the London Court of International Arbitration (LCIA) confirmed that under the Participation Agreement between the parties no further consideration was payable by Addax Petroleum to ERHC for Addax Petroleum’s 7.2% share of the 9%.

In February 2006, ERHC sold 15% of its 25% participating interest in Block 3 of the JDZ to Addax Petroleum Resources Nigeria Limited (“Addax Sub”) for $7.5 million which was paid in the second quarter of fiscal 2006. Under the participation agreement between ERHC and Addax Sub, Addax Sub agreed to “carry” all of ERHC’s future costs in respect of petroleum operations in Block 3. Upon production Addax Sub is entitled to 100% of ERHC’s allocation of cost plus up to 50% of ERHC’s allocation of profit until Addax Sub recovers 100% of the costs advanced on behalf of ERHC.

In March 2006, ERHC sold a 28.67% participating interest in Block 2 of the JDZ to Sinopec International Petroleum Exploration and Production Corporation Nigeria (“Sinopec”), and a 14.33% participating interest in Block 2 of the JDZ to Addax Energy Nigeria Limited (“Addax Ltd.”) leaving a 22% participating interest in Block 2 to the Company. In exchange, Sinopec paid ERHC $13.6 million and Addax Ltd. paid ERHC $6.8 million in the second quarter of fiscal 2006. Under the participation agreement among ERHC, Sinopec and Addax Ltd., Sinopec will serve as operator, and Sinopec and Addax Ltd. will pay all of ERHC’s future costs in respect of petroleum operations in Block 2. Sinopec and Addax Ltd. are entitled to 100% of ERHC’s allocation of cost plus up to 50% of ERHC’s allocation of profit until they recover 100% of the cost they advanced on behalf of ERHC and Sinopec is to receive 6% interest on its future costs, up to $35 million, but only to the extent that those interest costs are recoupable out of production.

Related to the sale of the participating interest in Block 2 to Sinopec, ERHC agreed to pay a $3 million cash success fee ($1.5 million was paid in March 2006 and the remaining $1.5 million was paid in March 2007) to Feltang International Inc., a British Virgin Island company (“Feltang”) that was responsible for obtaining Sinopec’s participation in Block 2. ERHC will issue to Feltang 5,250,000 shares of common stock and warrants to purchase 6,500,000 shares at a fixed exercise price of $0.355 per share. The common stock was valued at $4,803,750 based on the quoted market value of the common stock on the date Sinopec signed the production sharing agreement.

On June 24, 2009, Addax Petroleum Corporation announced that it has entered into a definitive agreement with Sinopec pursuant to which Sinopec had agreed, subject to the terms of the Support Agreement, to make an offer to acquire all of the outstanding common shares of Addax Petroleum.  On August 24, 2009, the sale of Addax Petroleum Corporation to Sinopec was finalized.

Current Business Operations

ERHC’s operations are currently focused in the Gulf of Guinea, off the coast of central West Africa. ERHC believes this region has the possibility of significant oil reserves. ERHC has worked to realize the value of the assets it has acquired in this region.  The Company’s current holdings include those below, details of which can be found at the link: http://www.erhc.com
 
 
JDZ – ERHC has interests in six of the nine Blocks in the JDZ, a 34,548 square kilometer area approximately 200 kilometers off the coastline of Nigeria and Săo Tomé & Principe that is adjacent to several large petroleum discovery areas.


EEZ – The government of Săo Tomé & Principe has awarded ERHC rights to participate in exploration and production activities in the EEZ, which encompasses an area of approximately 160,000 square kilometers. These rights were granted in a May 21, 2001 Memorandum of Agreement made between the DRSTP and the Company. The Company’s rights in the EEZ expire on October 1, 2024 or, if the company has a producing working interest in any Block(s) at October 1, 2024, the Company’s rights extend in such Block(s), as long as the Block(s) remains in production.

Operations in the JDZ

ERHC has interests in six of the nine Blocks in the JDZ, as follow

 
·
JDZ Block 2:  22.0% Working interest percentage

 
·
JDZ Block 3:  10.0% Working interest percentage

 
·
JDZ Block 4:  19.5% Working interest percentage

 
·
JDZ Block 5:  15.0% Working interest percentage

 
·
JDZ Block 6:  15.0% Working interest percentage

 
·
JDZ Block 9:  20.0% Working interest percentage

The working interest represents ERHC’s share of all the hydrocarbon production from the blocks and obligates ERHC to pay a corresponding percentage of the costs of drilling, production and operating the blocks. These costs in blocks 2, 3 and 4 are currently being carried by the operators until production, whereupon the operators will recover their costs from the production revenues.

In early 2008, Addax Petroleum, an experienced exploration and production company that has participation agreements with ERHC in JDZ Blocks 2, 3 and 4, publicly disclosed seismic images and maps showcasing the prospectivity of its JDZ interests.  This seismic was compiled by Geco-Prakla (now WesternGeco) in 1999 when WesternGeco shot a 2D seismic survey of approximately 5,900km covering the major part of the JDZ. Interpretation carried out by WesternGeco has led to the identification of 56 prospective structures within Blocks 1 to 9 in the JDZ, of which 17 were defined as prospects and 39 as leads. WesternGeco used reservoir parameters similar to those known from nearby fields in Nigeria and Equatorial Guinea. Combined recoverable reserves potential of the 17 prospects was estimated by WesternGeco. The scope of the WesternGeco report was to interpret and map seismic data, highlight prospectivity, and calculate volumetrics.
 
The estimate of “recoverable reserves potential” based on WesternGeco’s report, which interpreted and mapped seismic data, highlighted prospectivity and calculated volumetrics, was not based on any attempt to comply with the SEC definition of reserves and, accordingly the estimate of recoverable reserves potential is not presented. ERHC Energy has access to the data compiled by WesternGeco under the terms of a data use license with WesternGeco, and even when properly interpreted, seismic data and visualization techniques are not conclusive in determining if hydrocarbons are present in economically producible amounts.

Operations in JDZ Block 4

ERHC’s consortium partner Addax Petroleum is the operator of JDZ Block 4. WesternGeco’s interpretation of seismic data indicates significant recoverable reserves in JDZ Block 4; however, even when properly interpreted, seismic data and visualization techniques are not conclusive in determining if hydrocarbons are present in economically producible amounts. On August 26, 2009, the Company announced that exploratory drilling was underway in Block 4 and that Addax Petroleum Corporation had spudded  the Kina Prospect. The drilling campaign is being conducted by Addax using Transocean’s Deepwater Pathfinder, a fifth generation dynamically positioned deepwater drilling rig capable of drilling in water depths up to 3,048 meters.

On November 9, 2009 the Company announced commencement of exploratory drilling at the Malanza 1X well in Block 4. It is the second well drilled in JDZ Block 4 in the comprehensive drilling campaign that began in August.


Operations in JDZ Block 3

Anadarko Petroleum was originally the operator of JDZ Block 3. In 2009, Addax acquired Anadarko’s stake in JDZ Block 3 from Anadarko and became the operator of the Block.

Following the initial drilling operation in Block 4 of the Kina Prospect, Addax moved the Deepwater Pathfinder to the Lemba 1X well location in JDZ Block 3 in which ERHC has a 10 percent interest. Exploratory drilling at Lemba 1X commenced October 2009 and was completed in early November.  A comprehensive analysis that incorporates the drilling results into relevant geologic and fluid models is being carried out. The information from these wells is helping the exploration team understand the geology and hydrocarbon potential of the various prospects being drilled and provides valuable insight into the prospectively of the entire area.

Operations in JDZ Block 2
 
On August 19, 2009, ERHC announced that its technical partner, Sinopec Corp., was taking possession of the SEDCO 702 semi-submersible drilling rig to drill the Bomu-1 Prospect in Block 2. The Bomu-1 prospect is one of several prospects in JDZ Block 2 identified from 3-D seismic analysis and interpretation

The Bomu-1 was spudded by Sinopec at the end of August and in October 2009 the Company announced that Sinopec had completed exploratory drilling at the Bomu-1 well location. A comprehensive analysis that incorporates the drilling results into relevant geologic and fluid models is being carried out. The information from these wells is helping the exploration team understand the geology and hydrocarbon potential of the various prospects being drilled and provides valuable insight into the prospectivity of the entire area.

General Information on Current Operations in Blocks 2, 3 and 4

Exploration in the JDZ is currently being driven by our technical partners, Addax and Sinopec.  In addition, ERHC has interests in more JDZ Blocks than any other company.  Management believes that the start of exploratory drilling in the Blocks is the third step in a five step process towards realizing the Company’s assets in those Blocks.
Management understands that each step in the  process takes considerable expertise and any resulting production, if in commercial quantities, may considerably enhance shareholder value. No guarantees can be given at this stage that there will be production in commercial quantities.

Management also understands that analyzing drilling results and incorporating them into the relevant geologic and fluid models takes time. Further, moving from field appraisal and development onto production takes time. As has been the practice in the JDZ, accurate, material information on the progress in the JDZ Blocks will emanate from the operators or the JDA.  ERHC will publish such information in a timely manner in accordance with our contractual and regulatory obligations.


Background of the JDZ

In the spring of 2001, the governments of Săo Tomé & Principe and Nigeria reached an agreement over a long-standing maritime border dispute. Under the terms of the agreement, the two established the JDZ to govern commercial activities within the disputed boundaries. The JDZ is administered by the JDA which oversees all future exploration and development activities in the JDZ. The remaining claimed territorial waters of Săo Tomé & Principe are known as the EEZ. Revenues derived from the JDZ will be shared 60/40 between the governments of Nigeria and Săo Tomé & Principe, respectively.

Background of the EEZ

The government of Săo Tomé & Principe has awarded ERHC rights to participate in exploration and production activities in Săo Tomé & Principe’s EEZ. ERHC’s rights include the following:

 
·
The right to receive up to two blocks of ERHC’s choice; and

 
·
The option to acquire up to a 15 percent paid working interest in another two blocks of ERHC’s choice.

ERHC would be responsible for its proportionate share of exploration and exploitation costs in the EEZ blocks.

The EEZ describes  waters of Săo Tomé that encompasses an area of approximately 160,000 square km. It is measured from claimed archipelagic baselines — territorial sea: 12 nautical miles, exclusive economic zone: 200 nautical miles. It is the largest such area in the Gulf of Guinea. Ocean water depths around the two islands exceed 5,000 feet, depths that have only become feasible for oil production in the past few years; however, oil and gas are produced in the neighboring countries of Nigeria, Equatorial Guinea, Gabon and Angola.  The African coast is less than 400 nautical miles offshore, which means the Exclusive Economic Zones of the concerned countries overlap.

The following chart represents ERHC’s current rights in the JDZ blocks.
 
JDZ Block #
ERHC
Original
Participating
Interest (1)
ERHC
Joint Bid
Participating
Interest
Participating
Interest(s) Sold
Current ERHC
Retained
Participating
Interest
         
2
30%
35%
43% (2)
22%
3
20%
5%
15% (3)
10%
4
25%
35%
40.5% (4)
19.5%  (6)
5
15%
 (5)
 (5)
15%
6
15%
 (5)
 (5)
15%
9
20%
 (5)
 (5)
20%

(1)
Original Participating Interest granted pursuant to the Option Agreement, dated April 2, 2003, between DRSTP and ERHC (the “2003 Option Agreement”).

(2)
In March 2006, ERHC sold an aggregate 28.67% participating interest to Sinopec and an aggregate 14.33% participating interest to Addax Ltd.

(3)
In February 2006, ERHC sold a 15% participating interest to Addax Sub.

(4)
By a Participation Agreement made in November 2005 and subsequently amended, ERHC sold 40.5% participating interest to Addax. Includes 9% distributed between Addax (7.2%) and ERHC (1.8%) reclaimed from Godsonic by ERHC on behalf of the ERHC/Addax consortium following Godsonic’s inability to fulfill financial and other conditions upon which the 9% was to have been assigned to Godsonic.


(5)
No contracts have been entered into as of the date hereof.

(6)
Includes the 9% distributed between ERHC (1.8%) and Addax (7.2%) reclaimed from Godsonic by ERHC on behalf of the ERHC/Addax consortium following Godsonic’s inability to fulfill financial and other conditions upon which the 9% was to have been assigned to Godsonic.
 
Particulars of Participating Agreements

JDZ Block 2 Participation Agreement

Date of Participation Agreement
 
Parties
 
Key Terms
         
2 March 2006
 
1. Sinopec International Petroleum Exploration and Production Co. Nigeria Ltd
 
ERHC assigns 28.67% of participating interest to Sinopec International Petroleum Exploration and Production Co Nigeria Ltd (“Sinopec”) and a 14.33% participating interest to Addax Energy Nigeria Limited (“Addax”) leaving ERHC with a 22% participating interest.
         
   
1b. Sinopec International Petroleum and Production Corporation
 
Consideration from Sinopec to ERHC for the 28.67% interest (the “SINOPEC assigned interest”) is $13.6 million.
         
   
2a. Addax Energy Nigeria Limited (Note 2)
 
Consideration from Addax to ERHC for the 14.33% interest (the “Addax assigned interest”) is $6.8 million
         
   
2b. Addax Petroleum Corporation (Note 2)
 
In addition, Sinopec and  Addax to pay all of ERHC’s future costs  for petroleum operations (“the carried costs”) in respect of the 22% interest retained by ERHC (the “retained interest”) in Block 2.
         
   
3. ERHC Energy Inc
 
Sinopec and Addax are entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of ERHC’s allocation of profit oil from the retained interest on Block 2 until Sinopec and Addax Sub recover 100% of  ERHC’s  carried costs
         
JDZ Block 3 Participation Agreement
Date of Participation Agreement
 
Parties
 
Key Terms
         
15 February 2006
1. ERHC Energy Inc
 
ERHC assigns 15% of participating interest to Addax Petroleum Resources Nigeria Limited (“Addax Sub”) leaving ERHC with a 10% participating interest.
         
   
2a.Addax Petroleum Resources Nigeria Limited (Note 2)
 
Consideration from Addax Sub to ERHC for the 15% acquired interest is $7.5 million.
         
   
2b.Addax Petroleum Corporation (Note 2)
 
In addition, Addax to pay all of ERHC’s future costs for petroleum operations as in respect of the 10% interest retained by ERHC in Block 3.
         
       
Addax Sub is entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of ERHC’s allocation of profit oil until Addax Sub recovers 100% of the carried costs


Particulars of Participating Agreements

JDZ Block 4 Participation Agreement
Date
 
Parties
 
Key Terms
         
17 November 2005 (Note1)
 
1. ERHC Energy Inc
 
ERHC shall assign 33.3% (Note) of participating interest to Addax Petroleum Nigeria (Offshore 2) Limited (“Addax”) (leaving ERHC with a 26.7% participating interest).
         
   
2a. Addax Petroleum  Nigeria (Offshore 2) Limited (Note 2)
 
Consideration from Addax Sub to ERHC for the interest to be acquired by Addax is fixed at $18 million.
         
   
2b. Addax Petroleum NV (Note 2)
 
In addition, Addax to pay all of ERHC’s future costs for petroleum operations (“the carried costs”) in respect of ERHC’s retained interest in Block 4.
         
       
Addax is entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of ERHC’s allocation of profit oil until Addax recovers 100% of ERHC’s carried costs.

Note 1 – By an Amendment to the Participation Agreement dated February 23 2006, ERHC and Addax amended the Participation Agreement so that the assigned interest to Addax would be changed to 33.3%.  By a second Amendment to the Participation Agreement, entered into on March 14 2006, ERHC and Addax amended the Participation Agreement so that the assigned interest to Addax would be 33.3% and ERHC’s participating interest would be 26.7%.  By a third Amendment to the Participation Agreement dated April 11 2006, ERHC and Addax agreed that if Godsonic, a third party, did not meet financial and other obligations for the transfer of 9% of ERHC’s participating interest to Godsonic (and was foreclosed from all claims to the 9%), ERHC would transfer 7.2% out of the 9% interest to Addax so that Addax’s participating interest would be 40.5% in aggregate and ERHC’s participating interest would be 19.5% in aggregate.  The amount of fresh consideration to accrue from Addax to ERHC for the transfer of the 7.2% is not stated in the third Amendment to the Participation Agreement.  On July 15, 2008, The London Court of International Arbitration (LCIA) confirmed that under the Participation Agreement between parties no further consideration is payable by Addax Petroleum to ERHC for Addax Petroleum’s 7.2 percent share of the 9 percent. ERHC is entitled to the remaining 1.8 percent out of the nine percent.  The combine share of JDZ Block 4 held by ERHC and Addax Petroleum under the Participation Agreement is 60 percent. Following the ruling by the LCIA, ERHC’s share of JDZ Block 4 increased from 17.7 percent to 19.5 percent and Addax Petroleum’s share increased to 40.5 percent.

Note 2 - On June 24, 2009, Addax Petroleum Corporation announced that it has entered into a definitive agreement with Sinopec pursuant to which Sinopec had agreed, subject to the terms of the Support Agreement, to make an offer to acquire all of the outstanding common shares of Addax Petroleum.  On August 24, 2009, the sale of Addax Petroleum Corporation to Sinopec was finalized.

Current Plans for Operations

The Company is currently focused on exploiting its interests in Blocks 2, 3 and 4.  It has no current sources of income from operations other than interest income from cash generated from sale of participation interests in Blocks 2, 3 and 4 to Sinopec and Addax Ltd. The Company hopes to enter into Participation Agreements in Blocks 5, 6 and 9, but the timing or likelihood of such transactions cannot be predicted.  The Company believes that the participation agreements that it has entered into will be its primary source of future cash flow; however, the Company is exploring plans to generate operating income from new sources.  The Company plans to diversify its business activity by pursuing other growth opportunities possibly including acquiring revenue-producing assets in diverse geographical areas and forging new strategic business partnerships and alliances. To expand operations, ERHC is currently in negotiations for potential investments that would increase the Company’s presence in Nigeria’s oil and gas industry.

In December 2009 ERHC signed a non-binding Memorandum of Understanding (MOU) with Circle Ltd. and Excel Exploration and Production Ltd. to negotiate investment in and acquisition of working interests in the Eremor Marginal Field (OML 46). The Eremor Field, which is located in shallow water off-shore Nigeria, was discovered in 1978. The discovery well, Eremor-1, encountered three oil and gas zones, the most prominent of which is the D-03 reservoir with 43 feet of net oil sand. It was re-entered for testing in 2005 with the D-03 reservoir testing 2,200 barrels per day of oil with API gravity of 22.0, a low gas to oil ratio and no water. Excel was awarded a 100 percent interest and operatorship of Eremor in 2003.


ERHC, through its locally incorporated subsidiary, ERHC Energy Nigeria Ltd., has also entered into a non-binding MOU with WellTest Integrated Services Ltd. to negotiate the acquisition of a controlling equity interest in WellTest. The company provides well testing, production engineering and procurement services to Nigeria’s oil and gas industry. To coordinate the Company’s business development in the Nigerian and West African oil and gas industry, ERHC has opened its Nigeria liaison office at Oguda Close, Maitama, Abuja Nigeria. The Company’s wholly owned subsidiary ERHC Energy Nigeria Ltd. operates the liaison office.

ERHC cannot currently predict the outcome of negotiations for acquisitions in Nigeria, or, if successful, the impact on the Company's operations.

Government Regulation

In the event the Company begins direct exploration and exploitation of hydrocarbons, it will be required to make necessary expenditures to comply with applicable health and safety, environmental and other regulations.

The oil and gas industry is subject to various types of regulation throughout the world. Legislation affecting the oil and gas industry has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, numerous government agencies have enacted extensive laws and regulations binding on the oil and gas industry and companies engaged in this industry, some of which carry substantial penalties for failure to comply. Such laws and regulations have a significant impact on oil and gas exploration, production and marketing and midstream activities. These laws and regulations increase the cost of doing business and, consequently, will affect results of operations. In as much as new legislation affecting the oil and gas industry is commonplace and existing laws and regulations are frequently amended or reinterpreted, the Company is unable to predict the future cost or the impact of complying with such laws and regulations. However, the Company does not expect that any of these laws and regulations will affect its operations in a manner materially different than they would affect other oil and gas companies of similar size and scope of operations.

Having interest outside the United States requires the Company to comply with United States laws and other foreign jurisdiction laws related to pursuing, owing, and exploiting foreign investments, agreements and other relationships. The Company is subject to all such laws, including, but not limited to, the Foreign Corrupt Practices Act of 1977 (“FCPA”).

Competition

Significant competition exists in all sectors of the oil and gas industry. ERHC competes with other oil and gas companies for equipment and personnel required to explore, develop and operate properties as well as marketing of oil, gas and natural gas liquids. Commodity price increases have raised the costs of potential acquisition properties and we compete with a number of companies to pursue acquisition opportunities. Many of the Company’s competitors have substantially larger financial and other resources than ours, and they have also established strategic long-term positions and maintain strong  relationships in countries in which the Company may seek entry. As a consequence, ERHC may be at a competitive disadvantage in bidding for exploration rights. In addition, many of the Company’s larger competitors have a competitive advantage when responding to factors that affect demand for oil and natural gas production, such as changing worldwide prices and levels of production, the cost and availability of alternative fuels and the application of government regulations.

Employees

As of September 30, 2009, the Company had six (6) employees.

Availability of Information

We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1934. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov

We also make available, free of charge on or through our Internet website (http://www.erhc.com), our Annual Report on Form 10-K or 10K/A, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.


Item 1A.  Risk Factors

You should carefully consider the risks described below before making any investment decision related to the Company’s securities.  The risks and uncertainties described below are not the only ones facing the Company.   Additional risks and uncertainties not presently known or that the Company currently deems immaterial also may impair its business operations.  If any of the following risks actually occur, the Company’s business could be affected.

The Company has no sources of revenue and a history of losses from operations

The Company’s business is in an early stage of development.  The Company has not generated any operating revenue since its entry into the oil and gas industry and has incurred significant operating losses.   The Company expects to incur additional operating losses for the foreseeable future.

The Company has a limited operating history in the oil and gas industry

The Company’s operations have consisted solely of acquiring rights to working interests in the JDZ and EEZ and entering into production sharing contracts.  The Company will not be the operator with respect to these contracts.  The Company’s future financial results depend primarily on (1) the ability of the Company’s venture partners to provide or obtain sufficient financing to meet their financial commitments in the production sharing contracts, (2) the ability to discover commercial quantities of oil and gas, and (3) the market price for oil and gas. Management cannot predict if or  when the production sharing contracts will result in wells being drilled or if drilled, whether oil and/or gas will be discovered in commercial quantities.

Financing may be needed to fund the financial commitments of the production sharing contracts

While the Company is not required to fund any financial commitments pursuant to current  production sharing contracts, its is likely that project financing will be required to fund exploration activities.  Failure of our venture partners to provide or obtain the necessary financing will preclude the continuation of exploration activities.

The Company may not discover commercially productive reserves in the JDZ or EEZ

The Company’s future success depends on its ability to economically discover oil and gas reserves in commercial quantities in the JDZ and EEZ. There can be no assurance that the Company’s planned projects in the JDZ or EEZ will result in significant, if any, reserves or that the Company and its partners will have future success in drilling productive wells.

The Company’s non-operator status limits its control over  oil and gas projects in the JDZ and EEZ

The Company will focus primarily on creating exploration opportunities and forming relationships with oil and gas companies to develop those opportunities in the JDZ and EEZ.  As a result, the Company will have only a limited ability to exercise control over a significant portion of a project’s operations or the associated costs of those operations in the JDZ or EEZ.  The success of a future project is dependent upon a number of factors that are outside the Company’s control. These factors include:

 
the availability of future capital resources to the Company and the other participants for drilling wells;

 
the approval of other participants for determining well locations and drilling time-tables ;

 
the economic conditions at the time of drilling, including the prevailing and anticipated price of  oil and gas; and

 
the availability and cost of deep water drilling rigs and the availability of  operating personnel


The Company’s reliance on its consortium partners and its limited ability to directly control future project costs could have a material adverse effect on its future expected rates of return.


The Company’s success depends on its ability to exploit its limited assets

The Company’s primary assets are rights to working interests in exploration acreage in the JDZ and EEZ under agreements with the JDA and DRSTP.  The Company’s operations have been limited to managing and sustaining its rights under these agreements.  The Company’s viability depends on its ability to exploit these assets, of which there is no assurance that it will be successful.

The Company’s competition includes oil and gas conglomerates that have significant advantages over it
 
The oil and gas industry is highly competitive. Many companies are engaged in exploring for crude oil and natural gas and acquiring crude oil and natural gas properties, resulting in a high degree of competition for desirable exploratory and producing properties.  The companies with which the Company competes are much larger and have greater financial resources than the Company.

Various factors beyond the Company’s control will affect prices of oil and gas

The availability of a ready market for the Company’s future crude oil and natural gas production depends on numerous factors beyond its control, including the level of consumer demand, the extent of worldwide crude oil and natural gas production, the costs and availability of alternative fuels, the costs and proximity of transportation facilities, regulation by authorities and the costs of complying with applicable environmental regulations.

The Company’s business interests are located outside of the United States which subjects it to risks associated with international activities beyond its control.

At September 30, 2009, the Company’s major assets are located outside the United States.  The Company’s primary assets are cash in various financial institutions and agreements with DRSTP and the JDA, which provide  ERHC with rights to participate in exploration and production activities in the Gulf of Guinea off the coast of central West Africa.  Production is subject to political risks which is inherent in all foreign operations. The Company’s ability to exploit its interests in this area pursuant to such agreements may be adversely impacted by this circumstance.

The future success of the Company’s international operations may also be adversely affected by risks associated with international activities, including economic and labor conditions, political instability, risk of war, expropriation, termination, renegotiation or modification of existing contracts, tax laws (including host-country import-export, excise and income taxes and United States taxes on  foreign  subsidiaries)  and  changes  in the value of the U.S. dollar versus the local currencies in which future oil and gas producing activities may be  denominated.  Changes in exchange rates may also adversely affect the Company’s future results of operations and financial condition.

In addition, to the extent the Company engages in operations and activities outside the United States, it is subject to the Foreign Corrupt Practices Act (the “FCPA”) which, among other restrictions, prohibits U.S. companies and their intermediaries from making payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect their financial and other transactions with foreign officials.  The FCPA applies to companies, individual directors, officers, employees and agents.  The FCPA also applies to foreign companies and persons taking any action in furtherance of such payments while in the United States.  Under the FCPA, U.S. companies may also be held liable for actions taken by strategic or local partners or representatives.

The FCPA imposes civil and criminal penalties for violations of its provisions.  Civil penalties may include fines of up to $500,000 per violation, and equitable remedies such as disgorgement of profits causally connected to the violation (including prejudgment interest on such profits) and injunctive relief.  Criminal penalties for violations of the payments provisions could range up to the greater of $2 million per violation or twice the gross pecuniary gain sought by making the payment, and/or incarceration for up to 5 years per violation.  Moreover, if a director, officer or employee of a company is found to have willfully violated the FCPA books and records provisions, the maximum penalty would be imprisonment for 20 years per violation.  Maximum fines of up to $25 million may also be imposed for willful violations of the books and records provisions by a company.

The SEC and/or the Department of Justice (“DOJ”) could assert that there have been multiple violations of the FCPA, which could lead to multiple fines.  The amount of any fines or monetary penalties which could be assessed would depend on, among other factors, findings regarding the amount, timing, nature and scope of any improper payments, whether any such payments were authorized by or made with knowledge of ERHC or its affiliates, the amount of gross pecuniary gain or loss involved, and the level of cooperation provided to the government authorities during the investigations.  Negotiated dispositions of these types of violations also frequently result in an acknowledgement of wrongdoing by the entity and the appointment of a monitor on terms agreed upon with the SEC and DOJ to review and monitor current and future business practices, including the retention of agents, with the goal of assuring future FCPA compliance.  Other potential consequences could be significant and include suspension or debarment of ERHC’s ability to contract with governmental agencies of the United States and of foreign countries.  Any determination that ERHC has violated the FCPA could result in sanctions that could have a material adverse effect on the Company’s business, prospects, operations, financial condition and cash flow.


The Company’s business interests are located in the Gulf of Guinea offshore of central West Africa and are subject to the volatility of foreign governments

All of our primary assets are located the in the Gulf of Guinea offshore of central West Africa. The governments of Nigeria and the island nation of Sao Tome and Principe granted our participation interests in various concessions in their offshore waters. The governments of Nigeria and Sao Tome and Principe exist in a volatile political and economic environment and the Company is subject to all the risks associated with those governments. These risks include, but are not limited to:

 
·
Loss of future revenue and our concessions as a result of hazards such as war, acts of terrorism, insurrection and other political risks

 
·
Increases in taxes and governmental interests

 
·
Unilateral renegotiation of contracts by government entities

 
·
Difficulties in enforcing our rights against a governmental agency because of the doctrine of sovereign immunity and foreign sovereignty over international operations

 
·
Changes in laws and policies governing operations of foreign-based companies, and

 
·
Currency restrictions and exchange rate fluctuations

Our foreign operations may also be adversely affected by laws and policies of the United States affecting foreign trade and taxation. Realization of any of these factors could materially and adversely affect our financial position, results of operations and cash flows.

The Company has filed suit to prevent tampering with its interest and any adverse ruling related to JDZ Blocks 5 and 6 could have a material adverse effect on its business, prospects, operations, financial condition and cash flow.

On November 3, 2008, the Company filed a suit in Nigeria to prevent any tampering with its rights in JDZ Blocks 5 and 6. The lawsuit comes after the JDA and the Joint Ministerial Counsel (JMC) of the Nigeria-Săo Tomé and Príncipe JDZ failed to give a satisfactory response to the Company’s letters seeking clarification of the Company’s rights in JDZ Blocks 5 and 6 following media reports stating that the JMC had approved of the Company’s removal from the Blocks. The Company was awarded a 15 percent working interest in each of the Blocks in a 2005 bid/licensing round conducted by the JDA, following the exercise by ERHC of preferential rights in the Blocks as guaranteed by contract and treaty. In November 2008, the Company dispatched notices of arbitration for service on the JDA and the governments of Nigeria and Sao Tome & Principe to commence arbitration in London. ERHC wants the London Court of International Arbitration to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain intact. If the Company fails to prevail in its lawsuit or arbitration proceedings, there could be significant adverse effects on the Company’s future planned operations in JDZ Blocks 5 & 6. These adverse effects could range from loss of potential future revenue to a threat to the Company’s other interests in Blocks 2, 3, 4 and 9.  At this time, ERHC is unable to reasonably estimate the economic impact if the Company fails to prevail in its suit.
 
The Company is under investigation by the SEC, the DOJ and a U.S. Senate Subcommittee, and the results of these investigations could have a material adverse effect on its business, prospects, operations, financial condition and cash flow.
 
On May 4, 2006, a search warrant issued by the U.S. District Court of the Southern District of Texas, Houston Division, was executed on ERHC seeking various records including, among others, documents, if any, related to correspondence with foreign governmental officials or entities in Săo Tomé and Nigeria.  The search warrant cited, among other things, possible violations of the FCPA, Section 10(b) of the Exchange Act, Rule 10b-5 under the Exchange Act and criminal conspiracy and wire fraud statutes.  ERHC filed suit in federal district court in Texas in June 2006 seeking to protect the Company’s attorney-client privileged documents and to allow its counsel to determine the factual basis for the DOJ’s search warrant affidavit, which is currently under seal.

A related SEC subpoena was issued on May 9, 2006, and a second related subpoena issued on August 29, 2006.  The subpoenas requested from ERHC a range of documents including all documents related to correspondence with foreign governmental officials or entities in Sao Tome and Nigeria, personnel records (specifically, those regarding the Company’s former Chief Financial Officer, Franklin Ihekwoaba) and other corporate records.  The Company has been actively responding to both subpoenas.


On July 5, 2007, the U.S. Senate Committee on Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations served ERHC with a subpoena, in connection with its review of matters relating to the potential abuse of payments made to foreign governments. The subpoena, as amended on July 18, 2007, seeks documents and information regarding ERHC’s activities, particularly those related to the acquisition of ERHC’s interests in the Gulf of Guinea.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are assisting ERHC in responding to the subpoena.   Please see “Legal Proceedings” for more information.

The investigations by the DOJ, SEC and Senate Subcommittee are continuing.  The Company anticipates that these investigations will be lengthy and does not expect these investigations to be concluded in the immediate future.  If violations are found, the Company may be subject to criminal, civil and/or administrative sanctions, including substantial fines, and the resolution or disposition of these matters could have a material adverse effect on ERHC’s business, prospects, operations, financial condition and cash flow.

These investigations could also result in:

 
·
third party claims against us, which may include claims for special, indirect, derivative or consequential damages;

 
·
damage to our  business, operations and reputation;

 
·
loss of, or adverse effect on, cash flow, assets, goodwill, operations and financial condition, business, prospects, profits or commercial  value;

 
·
adverse consequences on our  ability to obtain or continue financing for current or future projects; and/or

 
·
claims by directors, officers, employees, affiliates, advisors, attorneys, agents, debt holders or other interest holders or constituents of ERHC.

Continuing negative publicity arising from these investigations could also adversely affect our business and prospects in the commercial market.  In addition, these investigations have resulted in significant expenses to ERHC, including substantial legal fees and the diversion of management’s attention from its operations and other activities.  If the Company incurs costs or losses as a result of these matters, it may not have the liquidity or funds to address those costs or losses, in which case such costs or losses could have a material adverse effect on its business, prospects, operations, financial condition and cash flow.

Through September 30, 2009, ERHC has incurred substantial costs in responding to the investigations by the DOJ, SEC and Senate Subcommittee. Those costs consist primarily of legal fees paid to the Company’s legal counsel, Akin Gump Strauss Hauer & Feld LLP and document reproduction costs. These costs have had a significant negative impact on the Company’s cash flows from operations.  ERHC anticipates the use of even more of its cash reserves to address these ongoing investigations. If continued at current levels this could have a serious negative impact on the Company’s liquidity. Neither management nor its legal counsel can assess the magnitude of future cash requirements that could result from prolonged investigations or any negative findings that might arise from the investigations. In a worst case scenario, the Company’s cash resources could be exhausted and the Company’s status as a going concern could also be brought into question.
 
The Company has limited sources of working capital

The Company believes that its working capital requirements for 2010 will be approximately $4,000,000 based on maintaining operations at their current level and the generation of interest income at levels similar to 2009. Our consortium partners will pay all of ERHC’s future costs in respect of all operations in JDZ Blocks 2,3 and 4 subject to total reimbursement upon production. Accordingly, the commencement of drilling operations is not expected to have a significant impact on our working capital requirements. Management believes that our current cash resources will be adequate to maintain our planned operations throughout the drilling and exploration phase of existing participation agreements.

The Company is currently focused on exploiting its interests in Blocks 2, 3, 4, 5, 6 and 9 but has no current source of income other than interest income from cash investments generated from the sale of participation interests in Blocks 2, 3 and 4 to Sinopec and Addax Ltd. The Company hopes to enter into participation agreements in JDZ Blocks 5, 6 and 9 and also in the EEZ, but the timing or likelihood of such transactions cannot be predicted.  The Company might be required to exercise its rights in EEZ in 2010, in that event the Company maybe required to incur significant capital cost in exercise of those rights.


The Company’s results of operations are susceptible to general economic conditions

The Company’s revenues and results of operations will be subject to fluctuations based upon the general economic conditions both in the United States and internationally.   A general economic downturn or a recession in the industry, will adversely impact the Company’s future revenues, the value of its oil and natural gas exploration concession, as well as its ability to exploit its assets.

One shareholder controls approximately 43% of the Company’s outstanding common stock

Chrome Oil Services (“Chrome”) beneficially owns approximately 43% of the Company’s outstanding common stock.  As a result, Chrome has the ability to substantially influence, and may effectively control the outcome of corporate actions that require stockholder approval, including the election of directors.  This concentration of ownership may have the effect of delaying or preventing a future change in control of the Company or a liquidity event.

The Company’s stock price is highly volatile

The Company’s common stock is currently traded on the Over-the-Counter (OTC) Bulletin Board. The market price of the Company’s common stock has experienced fluctuations that are unrelated to its operating performance.  The market price of the common stock has been highly volatile over the last several years.  The Company can provide no assurance regarding its  stock price.

The Company does not currently pay dividends on its common stock and does not anticipate doing so in the near future

 The Company has paid no cash dividends on its common stock, and there is no assurance that the Company will achieve sufficient earnings to pay cash dividends on its common stock in the foreseeable future. The Company intends to retain any earnings to fund its future operations.

The Company’s stock is considered a “penny stock”

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.”  Penny stocks generally are equity securities with a share price of less than $5.00.  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market.  These disclosure requirements may have the effect of reducing the level of trading activity in any secondary market for a stock that becomes subject to the penny stock rules.  The Company’s common stock may be subject to the penny stock rules, and accordingly, investors in the common stock may find it difficult to sell their shares in the future, if at all.

The Internal Revenue Service is currently conducting an examination of the Company’s tax returns.

The Internal Revenue Service is currently examining the tax returns for the Company’s 2005 and 2006 tax years.  The Company anticipates that this examination will conclude in the next few months.  If adjustments are required, the Company may be subject to taxes, penalties and interest and these could have a material adverse effect on ERHC’s operations, financial condition and cash flow.

Item 1B.  Unresolved Staff Comments

None


Item 2.  Properties

Substantially all of the Company’s properties are in the form of working interest which represents ERHC’s share of all the hydrocarbon production from the blocks awarded and obligates ERHC to pay a corresponding percentage of the costs of drilling, production and operating these blocks.  These costs in Blocks 2, 3 and 4 are currently being carried by the operators until production, whereupon the operators will recover their costs from production revenues. ERHC has working interests in Blocks 2, 3, 4, 5, 6, and 9 in the offshore JDZ and in addition has interests in the EEZ.

Joint Development Zone
  
 ERHC has interests in six of the nine Blocks in the Joint Development Zone (JDZ), a 34,548 sq km area approximately 200 km off the coast of Nigeria and Sao Tome and Principe that is adjacent to several large petroleum discovery areas. ERHC’s rights in the JDZ include:
 
 
 
·
JDZ Block 2:  22.0% Working interest

 
·
JDZ Block 3:  10.0% Working interest

 
·
JDZ Block 4:  19.5% Working interest

 
·
JDZ Block 5:  15.0% Working interest

 
·
JDZ Block 6:  15.0% Working interest

 
·
JDZ Block 9:  20.0% Working interest

Sao Tome and Principe Exclusive Economic Zone
 
The government of Sao Tome and Principe awarded ERHC rights to participate in exploration and production activities in Sao Tome and Principe’s EEZ. ERHC’s rights include the following:
 
 
·
The right to receive up to two blocks of ERHC’s choice; and

 
·
The option to acquire up to a 15% paid working interest in another two blocks of ERHC’s choice.

ERHC will be responsible for its proportionate share of exploration and exploitation costs in the EEZ blocks.

The EEZ describes waters of Sao Tome that encompasses an area of approximately 160,000 square km. It is measured from claimed archipelagic baselines — territorial sea: 12 nautical miles, exclusive economic zone: 200 nautical miles. It is the largest in the Gulf of Guinea.


Corporate Office

The Company’s corporate office is located at 5444 Westheimer Road, Suite 1440, Houston, Texas 77056 pursuant to a lease that expires in December 2011.

Item 3.  Legal Proceedings

Subpoenas.  On May 4, 2006, a federal court search warrant initiated by DOJ was executed on the Company.  The DOJ sought various records including, among others, documents, if any, related to correspondence with foreign governmental officials or entities in Sao Tome and Nigeria.  Related SEC subpoenas issued on May 9, 2006 and August 29, 2006 also requested a range of documents. ERHC continues to interface with both the DOJ and SEC investigators to respond to the SEC subpoenas and any additional requests for information from the DOJ or SEC.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are assisting ERHC in responding to the subpoena

On July 5, 2007, the U.S. Senate Committee on Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations served ERHC with a subpoena in connection with its review of matters relating to the potential abuse of payments made to foreign governments. The subpoena, as amended on July 18, 2007, seeks documents and information regarding ERHC’s activities, particularly those related to the acquisition of ERHC’s interests in the Gulf of Guinea.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are assisting ERHC in responding to the subpoena.

The Company anticipates that these investigations may be lengthy and does not know when they will conclude.  If violations are found, the Company may be subject to criminal, civil and/or administrative sanctions, including substantial fines, and the resolution or disposition of these matters could have a material adverse effect on ERHC business, prospects, operations, financial condition and cash flows.

Godsonic Negotiations.  In July 2007, ERHC and Godsonic commenced negotiations to have Godsonic relinquish all of its claims to a 9% interest in Block 4.  The parties reached a settlement in August 2007 which resulted in Godsonic’s relinquishment of all claims to the 9% interest in Block 4.

ERHC/Addax Arbitration.  Addax, our consortium partner in JDZ Block 4, claimed entitlement under our existing agreements to 7.2% out of the recovered 9% without the payment of any further consideration to ERHC.   In July 15, 2008, The London Court of International Arbitration (LCIA) confirmed that under the participation agreement between parties no further consideration is payable by Addax Petroleum to ERHC for Addax Petroleum’s 7.2 percent share of the 9 percent. The LCIA also confirmed that ERHC was entitled to the remaining 1.8 percent out of the nine percent.  The combine share of JDZ Block 4 held by ERHC and Addax Petroleum under the Participation Agreement is 60 percent. Following the ruling by the LCIA, ERHC’s share of JDZ Block 4 increased from 17.7 percent to 19.5 percent and Addax Petroleum’s share increased to 40.5 percent.

Lakeshore Arbitration.  In October 2006, Lakeshore Capital Limited (“Lakeshore”) filed an arbitration claim against ERHC seeking $4,400,000 for the alleged value of 4,500,000 shares of ERHC common stock and for a warrant to purchase an additional 1,500,000 shares of common stock at an exercise price of $.20 per share, including interest and costs, as compensation for financial consultancy and related services rendered under a contract with ERHC dated May 20, 2002.  The claim was resolved in mediation conducted by the American Arbitration Association by the payment by ERHC of $250,000 to Lakeshore.  Pursuant to the Settlement Agreement dated May 16, 2007, the arbitration was discontinued with prejudice.

On November 3, 2008, the Company filed a suit at the Federal High Court in Nigeria to prevent any tampering with its rights in JDZ Blocks 5 and 6. The suit comes after the JDA and Joint Ministerial Counsel (JMC) of the Nigeria-Sao Tome and Principe JDZ failed to give a satisfactory response to the Company’s letters seeking clarification on the Company’s rights in JDZ Blocks 5 and 6 following media reports stating that the JMC had approved of the Company’s removal from the Blocks. The Company was awarded a 15 percent working interest in each of the Blocks in a 2005 bid/licensing round conducted by the JDA following the exercise by ERHC of preferential rights in the Blocks as guaranteed by contract and treaty. If the Company fails to prevail in its lawsuit, there could be significant adverse affects on the Company’s future planned operations in JDZ Blocks 5 and 6.
 
In November 2008, the Company dispatched notices of arbitration for service on the JDA and the governments of Nigeria and Sao Tome & Principe to commence arbitration in London. ERHC wants the London Court of International Arbitration to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain intact.


From time to time, ERHC may be subject to routine litigation, claims, or disputes in the ordinary course of business.  ERHC intends to defend these matters vigorously; the Company cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims.  There can be no assurance as to the ultimate outcome of these lawsuits and investigations.

Item 4.  Submission of Matters to a Vote of Security Holders

None.


PART II

Item 5.  Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market and Related Information

ERHC’s common stock is currently traded on the OTC Bulletin Board under the symbol “ERHE.”  The market for the Company’s common stock is unpredictable and highly volatile.  The following table sets forth the closing sales price per share of the common stock for the past three fiscal years.  These prices reflect inter-dealer prices, without retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.

Stock Price Highs & Lows

   
High
   
Low
 
   
(per share)
 
Fiscal Year 2007
               
First Quarter
 
$
0.51
   
$
0.31
 
Second Quarter
 
$
0.48
   
$
0.33
 
Third Quarter
 
$
0.42
   
$
0.24
 
Fourth Quarter
 
$
0.34
   
$
0.20
 
                 
Fiscal Year 2008
               
First Quarter
 
$
0.30
   
$
0.19
 
Second Quarter
 
$
0.54
   
$
0.18
 
Third Quarter
 
$
0.60
   
$
0.40
 
Fourth Quarter
 
$
0.42
   
$
0.28
 
                 
Fiscal Year 2009
               
First Quarter
 
$
0.30
   
$
0.11
 
Second Quarter
 
$
0.36
   
$
0.10
 
Third Quarter
 
$
0.72
   
$
0.29
 
Fourth Quarter
 
$
0.90
   
$
0.60
 

As of November 30, 2009, there were approximately 2217 stockholders of record.  The closing price of the common stock as reported on the OTC Bulletin Board on November 30, 2009 was $0.47  The Company has not paid any dividends during the last three fiscal years and does not anticipate paying any cash dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

In November 2004, the Board of Directors adopted a 2004 Compensatory Stock Option Plan pursuant to which it reserved 20,000,000 shares for issuance.  This plan was approved at a special meeting of the stockholders of the Company in February 2005.  Under this plan, 8,026,756 shares have been issued.

Plan Category
 
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
   
Weighted-average exercise
price of outstanding
options, warrants and
rights
   
Number of securities
remaining available for
future issuance under equity compensation plans
(excluding securities
reflected in column (a))
 
   
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by security holders
   
1,000,000
   
$
0.43
     
10,973,244
 
Equity compensation plans not approved by security holders
   
-
     
-
     
-
 

Recent Sales of Unregistered Securities

The Company has issued  the following unregistered securities:


 
·
During the second quarter of fiscal 2007, warrants issued in 2003, with an exercise price of $0.20, were exercised on a cashless basis, which exercise resulted in the issuance of an aggregate of 2,949,587 shares of common stock.

 
·
During the first quarter of fiscal 2008, we issued an aggregate of 300,000 shares of common stock to the Company’s directors for services rendered in 2007.

 
·
During the second quarter of fiscal 2009, we issued an aggregate of 450,000 shares of common stock to the Company’s directors for services rendered in 2005 and 2008.

 
·
During the fourth quarter of fiscal 2009, we approved the issuance of an aggregate of 361,875 shares of common stock to the Company’s directors and non-management staff for services rendered in 2009.

With respect to the sale of the unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.  No sales commissions were paid in connection with these transactions.

Issuer Purchases of Equity Securities

The Company has not repurchased any of its Common Stock.

Item 6. Selected Financial Data

The selected financial data of the Company presented below as of and for each of the five years in the period ended September 30, 2009, has been derived from the audited financial statements of the Company.  The financial statements as of and for the years ended September 30, 2009, 2008, 2007, 2006 and 2005 have been audited by Malone & Bailey, PC, an independent registered public accounting firm.  The data set forth below should be read in conjunction with the Company’s financial statements, related notes thereto and Management’s Discussion and Analysis of Financial Condition and Plan of Operations, contained elsewhere herein.


   
For the Years Ended September 30,
 
Statements of Operations Data
 
2009
   
2008
   
2007
   
2006
   
2005
 
                               
Operating expenses
  $ 4,239,706     $ 4,280,143     $ 4,976,765     $ (24,113,494 )   $ 4,652,459  
Interest expense
    (1,843 )     (1,843 )     1,843 )     (2,099 )     (1,147,248 )
Other Income (expense)
    (3,447,588 )     1,241,189       1,498,704       1,123,141       278,804  
Loss on extinguishment of debt
    -       -       -       -       (5,749,575 )
Provision for taxes
    -       (30,360 )     (1,723,000 )     2,063,000       -  
Net income (loss)
    (7,689,137 )     (3,071,157 )     (1,756,904 )     23,171,536       (11,270,478 )
 
                                       
Net income (loss) per share – basic and diluted
    (0.01 )     0.00       0.00       0.03       (0.02 )
Weighted average shares of common stock outstanding
    722,549,254       722,182,831       720,966,165       712,063,980       671,164,058  

   
As of September 30,
 
Balance Sheets Data
 
2009
   
2008
   
2007
   
2006
   
2005
 
                               
DRSTP Concession fee
  $ 2,839,500     $ 2,839,500     $ 2,839,500     $ 2,839,500     $ 5,679,000  
Total assets
    28,859,825       36,880,422       39,854,641       45,878,249       6,720,210  
Total liabilities
    5,470,450       5,907,960       5,947,982       10,390,126       2,799,011  
Shareholders’ equity
    23,389,375,       30,972,462       33,906,659       35,488,123       3,921,199  


Item 7.  Management’s Discussion and Analysis of Financial Condition and Plan of Operations

Introduction
 
The following discussion and analysis presents management’s perspective of ours business and, financial condition and its overall performance. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future. You must read the following discussion of the results of the operations and financial condition of the Company in conjunction with its financial statements, including the notes thereto included in this Form 10-K filing.  The Company’s historical results are not necessarily an indication of trends in operating results for any future period.

Reference is made to “Item 6. Selected Financial Data” and “Item 8. Financial Statements and Supplementary Data.”

Overview of Business

ERHC reports as a development stage enterprise as there are currently no significant operations and no revenue has been generated from business activities.  The Company was incorporated in 1986 as a Colorado corporation, and was engaged in a variety of businesses until 1996, when it began its current operations as an independent oil and gas company.  The Company’s goal is to maximize its value through exploration and exploitation of potential oil and gas reserves in the Gulf of Guinea offshore of central West Africa.  The Company’s current focus is to exploit its primary assets, which are rights to working interests in exploration acreage in the JDZ and the EEZ.  The Company has entered into production sharing contracts with upstream oil and gas companies in its JDZ Blocks to assist the Company in exploring and developing its assets in the JDZ.  The technical and operational expertise in conducting exploration and development of these JDZ Blocks will be provided by partner oil and gas companies in exchange for participating in the Company’s interest in the JDZ..  The Company is also exploring opportunities in other areas of the oil and gas industry.

State of Participation Interests

The following represents ERHC’s current rights in the JDZ blocks.
 
JDZ Block #
ERHC
Original
Participating
Interest (1)
ERHC
Joint Bid
Participating
Interest
Participating
Interest(s) Sold
Current ERHC
Retained
Participating
Interest
         
2
30%
35%
43% (2)
22%
3
20%
5%
15% (3)
10%
4
25%
35%
40.5% (4)
19.5%
5
15%
(5)
(5)
15%
6
15%
(5)
(5)
15%
9
20%
(5)
(5)
20%
 
(1)
Original Participating Interest granted pursuant to the Option Agreement, dated April 2, 2003, between DRSTP and ERHC (the “2003 Option Agreement”).

(2)
In March 2006, ERHC sold an aggregate 28.67% participating interest to Sinopec and an aggregate 14.33% participating interest to Addax Ltd.

(3)
In February 2006, ERHC sold a 15% participating interest to Addax Sub.

(4)
By a Participation Agreement made in November 2005 and subsequently amended, ERHC sold 40.5 participating interest to Addax.

(5)
No contracts have been entered into as of the date hereof.


Particulars of Participating Agreements

JDZ Block 2 Participation Agreement

Date of Participation Agreement
 
Parties
 
Key Terms
2 March 2006
 
1. Sinopec International Petroleum Exploration and Production Co. Nigeria Ltd
 
ERHC assigns 28.6% of participating interest to Sinopec International Petroleum Exploration and Production Co Nigeria Ltd (“Sinopec”) and a 14.33% participating interest to Addax Energy Nigeria Limited (“Addax”) leaving ERHC with a 22% participating interest.
         
   
1b. Sinopec International Petroleum and Production Corporation
 
Consideration from Sinopec to ERHC for the 28.67% interest is $13.6 million.
         
   
2a. Addax Energy Nigeria Limited (Note 2)
 
Consideration from Addax to ERHC for the 14.33% interest  is $6.8 million
         
   
2b. Addax Petroleum Corporation (Note 2)
 
In addition, Sinopec and Addax to pay all of ERHC’s future costs for petroleum operations in respect of the 22% interest retained by ERHC in Block 2.
         
   
3. ERHC Energy Inc
 
Sinopec and Addax are entitled to 100% of ERHC’s allocation of cost reimbursement  plus up to 50% of ERHC’s allocation of profit oil from revenue generated by the retained interest on Block 2 until Sinopec and Addax recover 100% of the carried costs
         
JDZ Block 3 Participation Agreement
Date of Participation Agreement
 
Parties
 
Key Terms
15 February 2006
 
1. ERHC Energy Inc
 
ERHC assigns 15% of participating interest to Addax Petroleum Resources Nigeria Limited (“Addax Sub”) leaving ERHC with a 10% participating interest.
       
Consideration from Addax Sub to ERHC for the 15% interest is $7.5 million.
   
2a. Addax Petroleum Resources Nigeria Limited (Note 2)
 
In addition, Addax Sub to pay all of ERHC’s future costs  for petroleum operations (“the carried costs”) in respect of the 10% interest retained by ERHC (the “retained interest”) in Block 3.
         
   
2b. Addax Petroleum Corporation(Note 2)
 
Addax Sub is entitled to 100% of ERHC’s future costs in respect of petroleum operations.
         
       
Addax is entitled to 100% of ERHC’s allocation of cost reimbursement  plus up to 50% of ERHC’s allocation of profit oil until Addax Sub recovers 100% of the carried costs


JDZ Block 4 Participation Agreement
Date
 
Parties
 
Key Terms
17 November 2005 (Note1)
 
1. ERHC Energy Inc
 
ERHC shall assign 33.3% (Note1) of participating interest to Addax Petroleum Nigeria (Offshore 2) Limited (“Addax”) (leaving ERHC with a 26.7% participating interest).
         
   
2a. Addax Petroleum  Nigeria (Offshore 2) Limited (Note 2)
 
Consideration from Addax Sub to ERHC for the interest to be acquired by Addax (the “acquired interest”) is fixed at $18 million.
         
   
2b. Addax Petroleum NV(Note 2)
 
In addition, Addax to pay all of ERHC’s future costs for petroleum operations (“the carried costs”) in respect of ERHC’s retained interest in Block 4.
         
       
Addax is entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of ERHC’s allocation of profit oil until Addax  recovers 100% of the carried costs

Note 1 – By an Amendment to the Participation Agreement dated February 23 2006, ERHC and Addax amended the Participation Agreement so that the assigned interest to Addax would be changed to 33.3%.  By a second Amendment to the Participation Agreement, entered into on March 14 2006, ERHC and Addax amended the Participation Agreement so that the assigned interest to Addax would be 33.3% and ERHC’s participating interest would be 26.7%.  By a third Amendment to the Participation Agreement dated April 11 2006, ERHC and Addax agreed that if Godsonic, a third party, did not meet financial and other obligations for the transfer of 9% of ERHC’s participating interest to Godsonic (and was foreclosed from all claims to the 9%), ERHC would transfer 7.2% out of the 9% interest to Addax so that Addax’s participating interest would be 40.5% in aggregate and ERHC’s participating interest would be 19.5% in aggregate.  The amount of fresh consideration to accrue from Addax to ERHC for the transfer of the 7.2% is not stated in the third Amendment to the Participation Agreement. On July 15, 2008, The London Court of International Arbitration (LCIA) confirmed that under the participation agreement between parties no further consideration is payable by Addax Petroleum to ERHC for Addax Petroleum’s 7.2 percent share of the 9 percent. ERHC is entitled to the remaining 1.8 percent out of the nine percent.  The combined share of JDZ Block 4 held by ERHC and Addax Petroleum under the Participation Agreement is 60 percent. Following the ruling by the LCIA, ERHC’s share of JDZ Block 4 increased from 17.7 percent to 19.5 percent and Addax Petroleum’s share increased to 40.5 percent.

Note 2 - On June 24, 2009, Addax Petroleum Corporation announced that it has entered into a definitive agreement with Sinopec pursuant to which Sinopec had agreed, subject to the terms of the Support Agreement, to make an offer to acquire all of the outstanding common shares of Addax Petroleum.  On August 24, 2009, the sale of Addax Petroleum Corporation to Sinopec was finalized.

Current Plans for Income Generation

The Company is currently focused on exploiting its interests in JDZ Blocks 2, 3, 4, 5, 6 and 9 and its interests in the EEZ. However, it has no current income other than interest income from cash investments generated from the sale of participation interests in Blocks 2, 3 and 4 to Sinopec and Addax Ltd. The Company hopes to enter into participation agreements in JDZ Blocks 5, 6 and 9 and its to be awarded EEZ blocks, but the timing or likelihood of such transactions cannot be predicted.  The Company believes that the Participation Agreements that it has entered into will be its primary source of future revenue.   However, to expand operations, ERHC is currently in negotiations for potential investments that would increase the Company’s presence in Nigeria’s oil and gas industry.  In December 2009, the Company signed a non-binding Memorandum of Understanding (MOU) with Circle Ltd. and Excel Exploration and Production Ltd. to negotiate investment in and acquisition of working interests in the Eremor Marginal Field (OML 46). The Eremor Field, which is located in shallow water off-shore Nigeria, was discovered in 1978.

ERHC, through its locally incorporated subsidiary, ERHC Energy Nigeria Ltd., has also entered into a non-binding MOU with WellTest Integrated Services Ltd. to negotiate the acquisition of a controlling equity interest in WellTest. The company provides well testing, production engineering and procurement services to Nigeria’s oil and gas industry. To coordinate the Company’s business development in the Nigerian and West African oil and gas industry, ERHC has opened its Nigeria liaison office at Oguda Close, Maitama, Abuja, Nigeria. The Company’s wholly owned subsidiary ERHC Energy Nigeria Ltd. operates the liaison office.

ERHC cannot currently predict the outcome of negotiations for acquisitions in Nigeria, or, if successful, the impact on the Company's operations.


Critical Accounting Policies

The Company has identified the policies below as critical to its business operations and the understanding of its results of operations.  The impact and any associated risks related to these policies on the Company’s business operations are discussed throughout this section where such policies affect the Company’s reported and expected financial results.  Management’s preparation of this Annual Report on Form 10-K requires it to make estimates and assumptions that affect the reported amount of assets and liabilities, and the disclosure of contingent assets and liabilities.  There is no assurance that actual results will not differ from those estimates and assumptions.

Concentration of Risks

The Company’s current focus is to exploit assets consisting of agreements with the DRSTP concerning oil and gas exploration in its EEZ and with the JDA concerning oil and gas exploration in the JDZ.  The Company has formed relationships with other oil and gas companies with the technical and financial capabilities to assist the Company in leveraging its interests in the EEZ and the JDZ.  The Company currently has no other operations.

Asset Retirement Obligation

 ERHC’s asset retirement obligation relates to the plugging and abandonment of certain oil and gas properties in Wichita Falls, Texas. The provisions of SFAS No. 143 require the fair value of a liability for an asset retirement obligation to be recorded and a corresponding increase in the carrying amount of the associated asset.  The cost of the tangible asset, including the initially recognized asset retirement cost is depleted over the useful life of the asset.  If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded to the retirement obligation and the asset retirement cost. The offsetting ARO liability is recorded at fair value, and accretion expense recognized as the discounted liability is accreted to its expected settlement value.  The fair value of the ARO asset and liability is measured using expected future cash out flows discounted at the Company’s credit adjusted risk free interestrate. These oil and gas properties were abandoned and written off during the year ended September 30, 1999 and the current liability is fully accreted and represents management’s best estimate of the fair value of the outstanding obligation.

Impairment of Long-lived Assets

ERHC evaluates the recoverability of long-lived assets when events and circumstances indicate that such assets might be impaired.  ERHC determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts.  Impairments are charged to operations in the period to which events and circumstances indicate that such assets might be impaired.  ERHC has evaluated its investment in its DRSTP concession fee in light of its 2003 Option Agreement (see Note 4) and there have been no events or circumstances that would indicate that such asset might be impaired.

Recent Accounting Pronouncements

Effective July, 1, 2009, the Company adopted the Accounting Standards Codification (ASC) issued by the Financial Accounting Standards Board (FASB). The ASC does not change generally accepted accounting principles in the United States of America (GAAP), but instead takes the numerous individual accounting pronouncements that previously constituted GAAP and reorganizes them into approximately 90 accounting topics, which are then broken down into subtopics, sections and paragraphs. The intent is to simplify user access to authoritative GAAP by providing all of the guidance related to a particular topic in one place. The ASC supersedes all previously existing non-SEC or non-grandfathered accounting and reporting standards. The adoption of the ASC did not have any impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued authoritative guidance which establishes principles and requirements for determining how an enterprise recognizes and measures the fair value of certain assets and liabilities acquired in a business combination, including non-controlling interests, contingent consideration, and certain acquired contingencies. The guidance also requires acquisition-related transaction expenses and restructuring costs be expensed as incurred rather than capitalized as a component of the business combination. The guidance will be applicable prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this guidance did not have any impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued authoritative guidance which establishes accounting and reporting standards for the non-controlling interest in a subsidiary (previously referred to as minority interests). The guidance also requires that a retained non-controlling interest upon the deconsolidation of a subsidiary be initially measured at its fair value. Upon adoption this guidance, the Company would be required to report any non-controlling interests as a separate component of stockholders’ equity. The Company would also be required to present any net income allocable to non-controlling interests and net income attributable to the stockholders of the Company separately in its consolidated statements of operations. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The guidance requires retroactive adoption of the presentation and disclosure requirements for existing minority interests, however, all other requirements shall be applied prospectively. This guidance will not have a material effect on the Company’s consolidated financial statements since the Company does not have existing minority interests.


In March 2008, the FASB issued authoritative guidance intended to provide users of employers’ financial statements with more informative disclosures about the nature and valuation of postretirement benefit plan assets. The disclosures on plan assets are effective for fiscal years ending after December 15, 2009.

In April 2008, the FASB issued authoritative guidance that amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The guidance also requires expanded disclosure regarding the determination of intangible asset useful lives. The guidance is effective for fiscal years beginning after December 15, 2008. This guidance will not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued authoritative guidance which requires additional information regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. The guidance eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. It is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and disclosures.

In June 2009, the FASB issued authoritative guidance which amends certain requirements to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The guidance will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is currently evaluating the impact, if any, that this guidance will have on its consolidated financial statements.


Former Operations – Asset Retirement Obligation

The Company has accrued $485,000 as a liability on the balance sheet relating to the estimated costs on plugging and abandonment of certain oil and gas properties in Wichita Falls, Texas.  The Company acquired a lease in oil fields located in Wichita County, Texas.    The Company uses SFAS No. 143 to account for this obligation.  These properties were abandoned and written off during the year ended September 30, 1999. During the year ended September 30, 2009, the Company reached a settlement with the state of Texas under which the Company paid $120,000 to fully satisfy its obligation for plugging and abandonment of the properties and recognized a gain of $365,000 on settlement of the obligation.

Results of Operations

Year ended September 30, 2009 Compared to Year Ended September 30, 2008

During 2009, the Company had general and administrative expenses of $4,202,809 compared with $4,249,572 in fiscal 2008.  This decrease of $46,763 reflects the fact that the Company’s operations and expenditures were tightly maintained.

During 2009, the Company had a net loss of $7,689,137, compared to a net loss of $3,071,157 for fiscal 2008.  The three primary reasons for the $4,617,980 increase in net loss for the year ended September 30, 2009 were: (i) a $4,234,317 provision for loss on certificates of deposits in a financial institution where certain restrictions were placed on the investment and a receiver was appointed to takeover the institution.  (ii) a $819,460 decline in interest income as management moved deposits to non-interest bearing accounts that provided greater security from loss; and (iii) partially offset by a $365,000 gain from settlement of an asset retirement obligation with the State of Texas.

During fiscal 2009 and 2008, the Company had no revenues from which cash flows could be generated to support operations.  In fiscal 2009, the Company continued to rely on cash generated from the 2006 sale of participation interests in the three JDZ Blocks under production sharing contracts with various joint venture partners to fund operations.

Year ended September 30, 2008 Compared to Year Ended September 30, 2007

During fiscal 2008, the Company had general and administrative expenses totaling $4,249,572 compared with $4,954,848 in fiscal 2007. The primary reason for the decrease in general and administrative expenses is a reduction in legal and professional fees due to lower legal expenses in connection with all the governmental agencies investigations of the Company. (See Item 3, Legal Proceedings).

During 2008, the Company had a net loss of $3,071,157, compared to a net loss of $1,756,904 for fiscal 2007.  The primary reason for the increase in net loss is due to the fact that the Company has no remaining tax benefits from utilization of tax losses in 2008 because the Company is in a loss carry forward position. In 2007, the Company generated tax benefits of $1,723,000 from utilization of net operating losses.

During fiscal 2008 and 2007, the Company had no revenues from which cash flows could be generated to support operations.  In fiscal 2008 and 2007, the Company relied primarily upon cash generated from the 2006 sale of interests to fund operations.

Year ended September 30, 2007 Compared to Year Ended September 30, 2006

During fiscal 2007, the Company had general and administrative expenses of $4,954,848 compared with $5,979,609 in fiscal 2006.  The decrease results primarily from the grant of stock warrants for our outside consultants valued at $1,145,000 in fiscal 2006 versus employee compensatory stock option expense of $175,440 in fiscal 2007.

During 2007, the Company had a net loss of $1,756,904, compared to a net income of $23,171,536 for fiscal 2006.  The primary reason for the $24,928,440 decrease in net income for the year ended September 30, 2007 was due to a $30,102,250 net gain in fiscal 2006 from the sale of participation interests in the three JDZ Blocks under production sharing contracts with joint venture partners.

During fiscal 2007 and 2006, the Company had no revenues from which cash flows could be generated to support operations.  In fiscal 2007 and 2006, the Company relied primarily upon cash generated from the 2006 sale of interests to fund operations.

Liquidity and Capital Resources

As of September 30, 2009, the Company had working capital of $19,424,021.  The Company believes that it has sufficient liquidity to meet working capital requirements for the next twelve months.


The Company believes that its working capital requirements for 2010 will be approximately $4,000,000 based on maintaining operations at their current level. Our consortium partners will pay all of ERHC’s future costs in respect of all petroleum operations subject to total reimbursement upon production. Accordingly, the commencement of drilling operations is not expected to have a significant impact on our working capital requirements. Management believes that our current cash resources will be adequate to maintain our planned operations throughout the drilling and exploration phase of existing participation agreements.
 
Through September 30, 2009, ERHC has incurred substantial costs in responding to the investigations by the DOJ, SEC and Senate Subcommittee. Those costs consist primarily of legal fees paid to the Company’s legal counsel, Akin Gump Strauss Hauer & Feld LLP and document reproduction costs. These costs have had a significant negative impact on the Company’s cash flows from operations. ERHC is now involved in proceedings to protect its interests in the JDZ and the EEZ.  ERHC anticipates the continued use of its cash reserves to address ongoing investigations and protect its assets in the JDZ and EEZ.. If continued at current levels this could have a serious negative impact on the Company’s liquidity. Neither management nor its legal counsel can assess the magnitude of future cash requirements that could result from prolonged investigations or any negative findings that might arise from the investigations. In a worst case scenario, the Company’s cash resources could be exhausted and the Company’s status as a going concern could be brought into question.

Off-Balance Sheet Arrangements

As of September 30, 2009, the Company does not have any off-balance sheet arrangements.

Contractual Obligations and Commercial Commitments

The following table provides information at September 30, 2009, about the Company’s contractual obligations and commercial commitments.  The table presents contractual obligation by due dates and related contractual commitments by expiration dates.

Contractual Obligations
 
Total
   
Less than
1 year
   
1 – 3 Years
   
3 – 5 Years
   
More than
5 Years
 
                               
Convertible debt (1)
 
$
33,513
   
$
33,513
   
$
-
   
$
-
   
$
-
 
Operating lease   (2)
   
240,840
     
107,040
     
133,800
     
-
     
-
 
                                         
Total
 
$
274,353
   
$
140,553
   
$
133,800
   
$
-
   
$
-
 

(1)
This represents a convertible note to Joseph Charles and Associates. However, the Company has been unable to locate the payee.

(2)
Lease obligations consist of operating lease for office space. Office lease represent non-cancelable leases for office space used in our daily operations.
 
Contingencies and Legal Matters
 
For a detailed discussion of contingencies and legal matters, see “Item 3. Legal Proceedings”.


Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

The Company’s current focus is to exploit its primary assets, which are rights to working interest in the JDZ and EEZ under agreements with the JDA and DRSTP.  The Company intends to continue to form relationships with other oil and gas companies with operational, technical and financial capabilities to assist the Company in leveraging its interests in the EEZ and the JDZ.  The Company currently has no other operations.

At September 30, 2009, all of the Company’s operations were located outside the United States.  The Company’s primary assets are agreements with DRSTP and the JDA, which provide ERHC with rights to participate in exploration and production activities in the Gulf of Guinea off the coast of central West Africa.  This geographic area of interest is controlled by foreign governments that have historically experienced volatility, which is out of management’s control. The Company’s ability to exploit its interests in the agreements in this area may be impacted by this circumstance.

The future success of the Company’s international operations may also be adversely affected by risks associated with international activities, including financial, economic and labor conditions, political instability, risk of war, expropriation, renegotiation or modification of existing contracts, tax laws (including host-country import-export, excise and income taxes and United States taxes on foreign subsidiaries) and changes in the value of the U.S. dollar versus the local currencies in which future oil and gas producing activities may be denominated.  Furthermore, changes in exchange rates may adversely affect the Company’s future results of operations and financial condition.

Market risks relating to the Company’s operations result primarily from changes in interest rates as well as credit risk concentrations.  The Company’s interest expense is generally not sensitive to changes in the general level of interest rates in the United States, particularly because a substantial majority of its indebtedness is at fixed rates.

The Company holds no derivative financial or commodity instruments.

 
Item 8.  Financial Statements and Supplementary Data

ERHC ENERGY INC.
 
 
A CORPORATION IN THE DEVELOPMENT STAGE
   
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
   
 
   
 
   
 
 
Page(s)
 
   
Reports of Independent Public Accounting Firm:
   
 
   
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting as of September 30, 2009
 
31
 
   
Report of Independent Registered Public Accounting Firm on the Financial Statements for the Years ended September 30, 2009 and 2008
 
32
 
   
Consolidated Financial Statements:
   
 
   
Consolidated Balance Sheets as of September 30, 2009 and 2008
 
33
 
   
Consolidated Statements of Operations for the Years Ended September 30, 2009, 2008 and 2007, and for the period from inception, September 5, 1995, to September 30, 2009
 
34
 
   
Consolidated Statements of Shareholders’ Equity (Deficit) for the period from inception, September 5, 1995, to September 30, 2009
 
35
 
   
Consolidated Statements of Cash Flows for the Years Ended September 30, 2009, 2008 and 2007, and for the period from inception, September 5, 1995, to September 30, 2009
 
39
 
   
Notes to Consolidated Financial Statements
 
41
 
   
Financial Statement Schedules:
   
 
   
None
   


All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under instructions or are inapplicable and therefore have been omitted.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
ERHC Energy Inc.
Houston, Texas


We have audited the internal control of ERHC Energy Inc. over its financial reporting as of September 30, 2009 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, ERHC Energy Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of ERHC Energy Inc. as of September 30, 2009 and 2008, and the related consolidated statements of operations, shareholders’ equity and cash flows for the three years ended September 30, 2009, and our reports dated December 11, 2009 expressed an unqualified opinion on those consolidated financial statements.


Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas

December 11, 2009


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
ERHC Energy Inc.
Houston, Texas


We have audited the accompanying consolidated balance sheets of ERHC Energy Inc., a corporation in the development stage, as of September 30, 2009 and 2008 and the related consolidated statements of operations, shareholders’ equity and cash flows for the three years ended September 30, 2007, 2008 and 2009.  These financial statements are the responsibility of ERHC’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ERHC as of September 30, 2009 and 2008, and the results of its operations and its cash flows for the three years ended September 30, 2007, 2008 and 2009, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ERHC’s internal control over financial reporting as of September 30, 2009, based on criteria established in Internal Control – Integrated Framework   issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 11, 2009 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.


Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas

December 11, 2009

 
ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED BALANCE SHEETS
 
September 30, 2009 and 2008
 
             
             
   
2009
   
2008
 
             
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
  $ 22,428,728     $ 31,757,012  
Prepaid expenses and other
    447,345       199,419  
                 
Total current assets
    22,876,073       33,974,829  
                 
DRSTP concession fee
    2,839,500       2,839,500  
Furniture and equipment, net
    67,275       66,093  
Certificate of deposit
    1,058,579       -  
Deferred tax asset 
    2,018,398       2,018,398  
Total assets
  $ 28,859,828     $ 36,880,422  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 5,050,590     $ 5,025,794  
Accounts payable and accrued liabilities, related party
    115,236       354,934  
Accrued interest
    10,561       8,719  
Asset retirement obligation
    -       485,000  
Current portion of convertible debt
    33,513       33,513  
                 
Total current liabilities
    5,209,900       5,907,960  
                 
Commitments and contingencies:
               
                 
Shareholders' equity:
               
Preferred stock, par value $0.0001; authorized 10,000,000; none issued and outstanding
    -       -  
Common stock, par value $0.0001; authorized 950,000,000 shares; issued and outstanding 723,030,444 and 721,938,569at September 30, 2009 and September 30, 2008, respectively
    72,308       72,224  
Additional paid-in capital
    92,330,993       91,964,474  
Accumulated deficit
    (68,753,373 )     (61,064,236
                 
Total shareholders’ equity
    23,649,925       30,972,462  
                 
Total liabilities and shareholders' equity
  $ 28,859,825     $ 36,880,422  
 
The accompanying notes are an integral part of these financial statements


ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Years Ended September 30, 2007, 2008 and 2009 and for the Period
 
From Inception, September 5, 1995, to September 30, 2009
 
                         
                         
                     
Inception to September 30,
 
   
2007
   
2008
   
2009
   
2009
 
                         
Costs and expenses:
                       
General and administrative
  $ 4,954,848     $ 4,249,572     $ 4,202,809     $ 72,545,491  
Depreciation and depletion
    21,917       30,571       36,897       1,453,398  
Gain on sale of partial interest in DRSTP concession
    -       -       -       (30,102,250 )
Write-offs and abandonments
    -       -       -       7,742,128  
                                 
Total costs and expenses
    (4,976,765 )     (4,280,143 )     (4,239,706 )     (51,638,767 )
                                 
Other income and (expenses):
                               
Interest income
    1,998,704       1,241,189       421,729       4,811,257  
Gain (loss) from settlements
    (500,000 )     -       365,000       117,310  
Other income
    -       -       -       439,827  
Interest expense
    (1,843 )     (1,843 )     (1,843 )     (12,128,748 )
Provision for loss on deposits
    -       -       (4,234,317 )     (4,234,317 )
Loss on extinguishment of debt
    -       -       -       (5,749,575 )
                                 
Total other income and (expenses), net
    1,496,861       1,239,346       (3,449,431 )     (16,744,246 )
                                 
Income (loss) before benefit (provision) for income taxes
    (3,479,904 )     (3,040,797 )     (7,689,137 )     (68,383,013 )
                                 
Benefit (provision) for income taxes:
                               
Current
    1,243,000       449,640       -       (1,330,360 )
Deferred
    480,000       (480,000 )     -       960,000  
                                 
Total benefit (provision) for income taxes
    1,723,000       (30,360 )     -       (370,360 )
                                 
Net income (loss)
  $ (1,756,904 )   $ (3,071,157 )   $ (7,689,137 )   $ (68,753,373 )
                                 
Net loss per common share -basic and diluted
  $ (0.00 )   $ (0.00 )   $ (0.01 )        
                                 
Weighted average number of shares of common shares outstanding:
                               
Basic
    720,966,165       722,182,831       722,794,828          
                                 
Diluted
    720,966,165       722,182,831       722,794,828          


The accompanying notes are an integral part of these financial statements


ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 
For the Period from Inception, September 5, 1995, to September 30, 2009, (Unaudited for the
 
Period from Inception to September 30, 1998)
 
                                           
   
Common Stock
   
Additional Paid-In
   
Accumulated
   
Subscription
   
Deferred
       
   
Shares
   
Amount
   
Capital
   
Deficit
   
Receivable
   
Compensation
   
Total
 
                                           
Balance at September 5, 1995
    -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                         
Common stock issued for cash
    884,407       88       -       -       -       -       88  
Common stock issued for services
    755,043       76       499,924       -       -       (500,000 )     -  
Net loss
    -       -       -       (3,404 )     -       -       (3,404 )
                                                         
Balance at September 30, 1995
    1,639,450       164       499,924       (3,404 )     -       (500,000 )     (3,316 )
                                                         
Common stock issued for cash, net of expenses
    361,330       36       124,851       -       -       -       124,887  
Common stock issued for services
    138,277       14       528,263       -       -       -       528,277  
Common stock issued for equipment
    744,000       74       3,719,926       -       -       -       3,720,000  
Effect of reverse merger
    1,578,470       158       (243,488 )     -       -       -       (243,330 )
Amortization of deferred compensation
    -       -       -       -       -       72,500       72,500  
Net loss
    -       -       -       (728,748 )     -       -       (728,748 )
                                                         
Balance at September 30, 1996
    4,461,527       446       4,629,476       (732,152 )     -       (427,500 )     3,470,270  
                                                         
Common stock issued for cash
    2,222,171       222       1,977,357       -       (913,300 )     -       1,064,279  
Common stock issued for services
    9,127,981       913       12,430,725       -       -       -       12,431,638  
Common stock issued for oil and gas leases and properties
    500,000       50       515,575       -       -       -       515,625  
Common stock issued for
                                                       
Chevron contract
    3,000,000       300       -       -       -       -       300  
Common stock issued for
                                                       
BAPCO acquisition
    4,000,000       400       499,600       -       -       -       500,000  
Contributed
    (100,000 )     (10 )     (99,990 )     -       -       -       (100,000 )
Amortization of deferred compensation
    -       -       -       -       -       177,500       177,500  
Net loss
    -       -       -       (16,913,052 )     -       -       (16,913,052 )
                                                         
Balance at September 30, 1997
    23,211,679       2,321       19,952,743       (17,645,204 )     (913,300 )     (250,000 )     1,146,560  
                                                         
Common stock and warrants issued for cash
    1,124,872       113       972,682       -       -       -       972,795  
Common stock issued for services
    1,020,320       102       1,526,878       -       -       -       1,526,980  
Common stock issued for Uinta acquisition
    1,000,000       100       1,999,900       -       -       -       2,000,000  
Common stock issued for
                                                       
Nueces acquisition
    50,000       5       148,745       -       -       -       148,750  
Common stock issued for accounts payable
    491,646       49       337,958       -       -       -       338,007  
Beneficial conversion feature associated with convertible debt
    -       -       1,387,500       -       -       -       1,387,500  
Receipt of subscription receivable
    -       -       -       -       913,300       -       913,300  
Option fee and penalty
    299,536       30       219,193       -       -       -       219,223  
Common stock issued for building equity
    24,000       2       69,998       -       -       -       70,000  
Amortization of deferred compensation
    -       -       -       -       -       125,000       125,000  
Net loss
    -       -       -