Enormous Changes At The Last Minute*
Shortly after the market closed, ERHC Energy reported to the SEC in an S-8 filing that the company's $12.6-million debt had been cancelled by issuance of $38 million in shares (valued at Wednesday's last extended-hours price, $0.53) and final payment of a $2.5 million credit line to the company's account to fund current operations.
When we issued a caveat yesterday noting that "The unanticipated happens often in Africa," we did not anticipate today's big move. Here's what happened:
Sir Emeka Offor, K.C., chairman of ERHC Energy and of Chrome Energy Services, its sole lender, issued himself $38,743,509.86 worth of unregistered - meaning they cannot be sold for a year because they were not purchased in a public offering - ERHC Energy shares, surrendering whatever was still available on a $2.5-million credit line for company operations, and in so doing wiped out all of our $12.646-million debt to his Chrome Energy Services, a Bahamas-based company which is controlled solely by him, while diluting the value of our stock by about 11.5 percent, or $0.061 cents at the current price.
The short-term consequence, barring news tomorrow morning of a new Joint Ministerial Council meeting to make awards, will be - at a minimum - a $0.061 cent drop in share price to account for dilution.
Then, and only then, will investors start to ask themselves, "What does it mean that this company has rights to a minimum of about 560 million barrels of oil and is debt-free, while selling at only $0.469 cents?" My answer to that would be, "What kind of a rate can you give me for a third note on my house?"
Regardless of how the stock is priced tomorrow, the dilution downer will be instantly erased in the warm glow of block awards.
I did some interesting math last evening, and like all my math someone should double-check it. But I figure that the dilution is going to cost us about $0.50 of the new high we expect to reach upon awards.
I had originally said in early January that I had expected $1.28. Then I bumped that after some good news to $1.78. The irony is that Mr. Offor would have seen greater actual cash appreciation from his 225-odd million shares at $1.78 than he will from 306 million at $1.28, by about $24 million.
A year from now, no one will ask, as one poster on the frantic Raging Bull ERHE message board did Tuesday when 2 million shares were sold into the surge, "Where are all the shares coming from?" At the current average daily volume, if each day only these shares were sold, it would take 146 consecutive trading days to sell all the sharas Offor acquired on Jan. 28.
Several posters on Raging Bull noted that the move was signalled clearly in the Dec. 10-K; none of them, however, posted about it at the time.
The dilution means that in effect we gave back all the gains since last Saturday's notification to ExxonMobil by the Nigeria-Sao Tome and Principe Joint Development Authority, some $0.061 cents. For the ERHC On The Move of 123,040 shares, those 6.1 cents mean a paper loss of $7,505.44, which is likely to be topped by another $7,200 actual loss in share price this morning. Mr. Offor essentially relieved me of $14,700 before supper. I will, of course, get it back.
The new shares, giving Offor a total of 306,091,433, or 42.97 percent, helps solidify Offor's voting control of the company but leaves him about 7.04 percent of majority control. We will talk more about that soon.
Here is the press release:
Go to http://www.sec.gov/edgar to read the S-8 filing.
*Thanks to the late novelist Grace Paley for this headline.
When we issued a caveat yesterday noting that "The unanticipated happens often in Africa," we did not anticipate today's big move. Here's what happened:
Sir Emeka Offor, K.C., chairman of ERHC Energy and of Chrome Energy Services, its sole lender, issued himself $38,743,509.86 worth of unregistered - meaning they cannot be sold for a year because they were not purchased in a public offering - ERHC Energy shares, surrendering whatever was still available on a $2.5-million credit line for company operations, and in so doing wiped out all of our $12.646-million debt to his Chrome Energy Services, a Bahamas-based company which is controlled solely by him, while diluting the value of our stock by about 11.5 percent, or $0.061 cents at the current price.
The short-term consequence, barring news tomorrow morning of a new Joint Ministerial Council meeting to make awards, will be - at a minimum - a $0.061 cent drop in share price to account for dilution.
Then, and only then, will investors start to ask themselves, "What does it mean that this company has rights to a minimum of about 560 million barrels of oil and is debt-free, while selling at only $0.469 cents?" My answer to that would be, "What kind of a rate can you give me for a third note on my house?"
Regardless of how the stock is priced tomorrow, the dilution downer will be instantly erased in the warm glow of block awards.
I did some interesting math last evening, and like all my math someone should double-check it. But I figure that the dilution is going to cost us about $0.50 of the new high we expect to reach upon awards.
I had originally said in early January that I had expected $1.28. Then I bumped that after some good news to $1.78. The irony is that Mr. Offor would have seen greater actual cash appreciation from his 225-odd million shares at $1.78 than he will from 306 million at $1.28, by about $24 million.
A year from now, no one will ask, as one poster on the frantic Raging Bull ERHE message board did Tuesday when 2 million shares were sold into the surge, "Where are all the shares coming from?" At the current average daily volume, if each day only these shares were sold, it would take 146 consecutive trading days to sell all the sharas Offor acquired on Jan. 28.
Several posters on Raging Bull noted that the move was signalled clearly in the Dec. 10-K; none of them, however, posted about it at the time.
The dilution means that in effect we gave back all the gains since last Saturday's notification to ExxonMobil by the Nigeria-Sao Tome and Principe Joint Development Authority, some $0.061 cents. For the ERHC On The Move of 123,040 shares, those 6.1 cents mean a paper loss of $7,505.44, which is likely to be topped by another $7,200 actual loss in share price this morning. Mr. Offor essentially relieved me of $14,700 before supper. I will, of course, get it back.
The new shares, giving Offor a total of 306,091,433, or 42.97 percent, helps solidify Offor's voting control of the company but leaves him about 7.04 percent of majority control. We will talk more about that soon.
Here is the press release:
ERHE: Agrees to Cancel Conv Note -
Issues 73.1M Cmn Shrs [delayed]
Ridgeland, MS, Feb. 23, 2005
ERHC Energy Inc (OTCBB : ERHE) reported that as January 28, 2005, ERHC Energy Inc. agreed to cancel that certain Consolidated Convertible Note, dated as of December 15, 2004, in favor of Chrome Energy, LLC, an affiliated entity, with a principal balance of $10,134,084.42 and accrued interest as of January 28, 2005 of $146,597.17 and that certain Promissory Note, dated as of December 15, 2004, in favor of Chrome with an original principal amount of $2,500,000 and accrued interest as of January 28, 2005 of $11,986.30. As of February 14, 2005, ERHC has received the entire $2,500,000 principal balance of the Promissory note and is therefore, canceling the Consolidated Note and the Promissory Note by converting the total outstanding principal and accrued interest as of January 28, 2005.
On January 28, 2005, ERHC agreed, upon the funding of the entire $2,500,000 of the Promissory Note, to issue to Chrome 73,100,962 of unregistered shares of ERHC common stock in conversion of the entire outstanding principal and accrued interest of the Consolidated Note and the Promissory Note. The Consolidated Note was converted at $0.175 per share pursuant to the terms of such note and cancelled in its entirety. The Promissory Note was converted at $0.175 per share pursuant to the terms of such note and cancelled in its entirety.
Go to http://www.sec.gov/edgar to read the S-8 filing.
*Thanks to the late novelist Grace Paley for this headline.
posted by ...Joe Shea at 2:38 PM
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