COMMITMENTS AND CONTINGENCIES

3 Months Ended

Dec. 31, 2013

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 5 – COMMITMENTS AND CONTINGENCIES

COMMITMENTS UNDER PRODUCTION SHARE CONTRACTS

Republic of Kenya Concession Fees and Other Financial Commitments

On June 28, 2012, ERHC entered into a production sharing contract ("PSC") with the Government of the Republic of Kenya for certain land based hydrocarbon exploration and production of Block 11A located in northwestern Kenya.

ERHC is committed under terms of the PSC to:

a. pay surface fees of $60,000 per year and annual training fees of $175,000 per year during the initial exploration term of two years that started in the first quarter of 2013,

b. spend at least $10,250,000 over the first two years on a minimum work program and an additional $30,000,000 in each of the following two periods of two years each,

c. provide a bank guarantee of 50% of the expenditures under the minimum work program, which ERHC acquired in May 2013 in the amount of up to $5,000,000 in favor of the Ministry of Energy of Kenya.

The following is an analysis of the costs paid or incurred at December 31, 2013:

a. $310,000 as the entire signature bonus

b. $561,080 as costs of airborne geophysical survey and quality control associated with it

c. $229,569 as training and surface fees, as provided in the PSC

d. $68,611 in advisers' and ancillary costs related to the PSC

In October, 2013, the Company entered into a farm-out agreement with CEPSA Kenya Limited, a subsidiary of Compañía Española de Petróleos, S.A.U., an international oil and gas company (“CEPSA”).  Under the terms of this agreement, and contingent upon the consent of the Government of Kenya and other conditions, the Company will assign and transfer 55% of its participating interest in Kenya Block 11A to the Kenya farm-out partner for an initial consideration of $2,000,000.  In exchange for the transferred rights, Kenya farm-out partner will carry the Company’s proportionate share of obligations and financial costs under the terms outlined in the farm-out agreement.  The agreement is contingent upon the Kenyan Government’s approval.  At December 31, 2013, ERHC classified the $2,731,558 received under the terms of the farm-out agreement under Deferred farm out fees in the consolidated balance sheets , until an approval is received from the Government of Kenya.  The approval was granted by the Government of Kenya in January 2014.

Republic of Chad Concession Fees and Other Financial Commitments

On June 30, 2011, ERHC entered into a production sharing contract ("PSC") with Chad for certain onshore hydrocarbon exploration and development.  During the 4^th quarter of 2013, the Ministry of Energy and Petroleum of Chad approved ERHC’s application to voluntarily relinquish two of the three Blocks covered by the PSC.  The voluntary relinquishment proportionately reduces ERHC’s total signature-bonus obligations of $6,000,000 under the initial PSC to $2,000,000.

As of December 31, 2013, ERHC has paid or incurred:

a.$2,000,000 as the entire signature bonus

b.$658,128 in advisers' and ancillary costs related to the PSC

c.$480,000 as legal fees and costs for the drafting and negotiation of the PSC, as provided for in the PSC

e. $190,872 as costs of Environmental Impact Study, as provided for in the PSC

ERHC is also committed under the PSC to:

a. spend at least $15,000,000 over the first five years on a minimum work program and at least an additional $1,000,000 over a further period of up to three years

b. surface fees of $16,360 per calendar year during the first validity period, and lasting for up to eight years.  Surface fees for subsequent periods will depend on the exploration progress as well as on the acreage retained by ERHC.