The blocks have been the center of a long and tempestuous series of negotiations that have embarrassed both Nigeria and Sao Tome and left the hopes of many bidders wrecked at the bottom of the Gulf's tranquil seas. The signing of the PSCs on the current schedule would no doubt go a long way to restoring the once-bright image of the Joint Developmnent Zone, a region between Nigeria and Sao Tome that is thought to contain as many as 14.5 billion barrels of oil in nine separate blocks.
So far, the only successful result of three years of negotiations and two bidding rounds has been the award of Block 1 to a conasortium of Chevron Energy, ExxonMobil and Energy Equity Resources, which has sold half its rights to a fourth firm. The two countries split a signature bonus fee of $119 million when negotiations on their PSC closed after two difficult years last Spring.
Now, with $400 million in fees at stake and elections looming in Sao Tome - and Anadarko hoping to manipulate the political process there to get rights in Block 4, which was taken away from it by ERHC and Noble Energy after the consortium offered a more attractive drilling schedule and agreed to match Anadarko's $90 million bid - the signing of the PSCs would be a major advance. Not every observer expects it to happen, but many do.
The successful signing of PSCs for Block 2 today, for Block 3 tomorrow and Block 4 Wednesday, Block 5 Thursday and Block 6 Friday would be likely to drive ERHE's share price higher if someone - as yet unknown - did not keep selling into every rally since the May 31, 2005, awards to ERHC of rights in all five of the blocks offered in the second round. The seller has managed to denude the value of the anticipated oil income and of reported buy-ins coming true, and has repeatedly felled the mighty oak before it could grow much past acorn stage.
There is no indication this phenonemon is about to change, and investors who have not yet loaded up would probably be unwise to do so now, when the stock stands at $0.40, a recent high, just two weeks after a gut-wrenching drop to $0.33.
The likelihood is that the seller(s) will strike hard in the $0.45 range when it is momentarily reached today or tomorrow, and sell down to the $0.36-$0.38 range after delays and new doubts arise toward the end of the week.
But this prognosis is susceptible to change. Should the JDA, against all odds, conclude the PSC for Block 4 on Wednesday, the share price could reach the $0.73 range, I believe. It would be a short-lived phenomenon, but a juicy and tempting one for day traders, who can be expected to drop the price again to $0.50 range.
It's our considered opinion that trying to scope out the Block 4 development via posts on Raging Bull is a fool''s game; posts are a lot more likely to be reliable when they appear on the lightly but carefully moderated Investor's Hub.
ERHC On The Move also hopes to hear again from its informants in the region prior to any signing on Block 4, so keep your eyes on this site in case we do.
The JDA was unable to respond quickly to a request for a progress on today's scheduled signing of the Block 2 PSC; it has never been able to respond quickly to any requests, so that's nothing to worry about it in itself.
In any case, we are unable to tell you anything other than that today, and every day this week, is a sensitive moment in the life of our company, and we must be vigilant on its behalf if share price gains are to be realized after so many days of despair. It's not a dark night of the soul, but it's not a bright day yet, either.
Update, 3:12am, 11/07/05EST: One key to divining the potential of ERHC Energy shares is the action on the Nigerian Stock Exchange in shares of First Atlantic Bank, which is believed to own some 63 million shares of ERHE that become eligible for sale by the bank early next week (so far as can be determined in observing an extremely murky situation).
With that many shares, each cent of improvement in share price translates into some $630,000 of income for the bank. While many believe the bank has already sold many of its shares, updates filed with the SEC have indicated no material change in its ownership.
It well may be that bank was a big seller and then a substantial buyer again after the share price fell below $0.41, its ostensible acquisition price last November 10, when it won the shares as a settlement of an outstanding loan to Chrome Energy, which like ERHC Energy is controlled by its founder, Sir Emeka Offor of Nigeria.
In either case, though, the bank couldprovide either a floor for an upward surge in share price or a drag on it in seeking to realize long-term gains made possible by share price movement.
Recalling, too, that there are only a handful of truly honest players in Nigeria, it is also possible that the signing of the PSCs was scheduled to coincide with the ability of First Atlantic Bank to sell its shares, which its U.S. transfer agent should not have made available for sale until next week. That would suggest a sharply higher price on new of the PSC signing, followed by a flood of shares being sold into the surge.
The significance of this discussion lies in the behavior of the bank's stock over the past week as tracked in the following article from today's Vanguard, a leading Nigerian daily. If investors are indeed wise to the bank's potential to gain many millions of dollars in a few days, the extraordinary demand for its stock may be no fluke. Wise readers will also question the fact that so many shares trades in just 15 deals, suggesting that a small number of insiders know something big is coming.
Here is the Guardian story:
Capital Market: First Atlantic Bank, Fidelity Bank boost market turnover
By Jide Ajia
Posted to the Web: Monday, November 07, 2005
The Banking sub-sector emerged the most active stock on the floor of the Nigeria Stock Exchange (NSE) last week.
The sector recorded a turnover of N95.3 million ordinary shares worth N5.7 billion exchanged by investors in 2,224 deals. Trading activities in the sub-sector was largely driven by activities in shares of First Atlantic Bank Plc and Fidelity Bank Plc.
Specifically trading in the shares of Fist Atlantic Bank Plc accounted for N20.4 million ordinary shares worth N69.6 million exchanged by investors in 15 deals, while Fidelity Bank boosted the market turnover during the week accounting for N17.8 million ordinary shares worth N57.9 million traded in 75 deals.
A turnover of 340.4 million shares worth N3.24 billion in 15,643 deals was recorded this week, in contrast to a total of 602.3 million shares valued at N6.55 billion exchanged last week in 26,465 deals. The market closed for two days (i.e. Wednesday and Thursday) in commemoration of the Eid eI Fitri holiday.
There were no transactions in the Federal Government Development Stocks, State Government Bonds and Industrial Loans and Preference Stocks sectors.
The Banking sub-sector was the most active during the week (measured by turnover volume), with 252.05 million shares worth N1.6 billion exchanged by investors in 6,772 deals. Volume in the Banking sub-sector was largely driven by activity in the shares of Fidelity Bank Plc and First Atlantic Bank Plc. Trading on the shares of the two banks accounted for 114.8 million shares, representing 45.5% of the sub-sector’s turnover. As in the preceding week, the Insurance sub-sector followed on the weeks activity chart with a turnover of 23.1 million shares valued at N46.3 million in 639 deals.
The All-Share Index rose by 1.2 per cent. Thirty stocks appreciated in price during the week, lower than the forty-two in the preceding week. Cadbury Nigeria Plc led on the week’s gainers’ table with a gain of N5.68 to close at N72.00 per share while Nigerian breweries Plc followed with N2.96 to close at N49.2i per share. Other price gainers in the Top 10 category include: Oando Plc N2.05, Flour Mills Nig. Plc N2.03, UACN Plc N1.49, Glaxo Smithkline, N1.49, Presco Plc, N1.41, Okomu Oil Palm Plc, N114, Mobil Oil Nigeria Plc N0.99, Julius Berger Nigeria Plc, N0.90.
Thirty—Five (35) stocks suffered price depreciation; higher than the thirty that suffered the same fate in the preceding week. Total Nigeria Plc led on the decliners’ table dropping by N7.99 to close at N192.01. Texaco (Nig) Plc followed with a loss of N3.99 to close at N126.01 per share. Other price losers in the Top 10 category include: Guinness Nigeria Plc N3.80, Conoil PlcN2.O0, Ashaka Cem Plc N0.91, Nig Bottling Company Plc NO.50, Nestle Nigeria Plc N O.45, John Holt Plc NO.38, Unilever Nigeria Plc NO.35 and United Nigeria Textiles Plc depreciated by NO.31.
You will probably have noted by now - if you got this far - that no share price was given for First Atlantic Bank, a remarkable oversight if you're an investor. If the stock dropped precipitously, the insiders may have wanted to unload in anticipation of the bank unloading its ERHE shares all at once; if they added to their holdings and drove the price up, the prospects are good for a healthy appreciation of ERHE's share price.
If the price remained essentially unchanged, they may have just been trading in shares of First Atlantic Bank for shares in the newly-created First Inland Bank following the final approval of a recent merger between First Atlantic and Indland Bank that takes effect on Dec. 1, 2005.
We also noted that Mobil Oil Nigeria, an XOM subsidiary, was among the week's biggest gainers, while Conoil, a JOA partner ion Block 4, and several other oil firms lost ground.
We will appreciate any help we get in determining how the price of First Atlantic shares moved last week. Respond by clicking on the envelope icon at the bottom of this post.
Update, 3:49am EST, 11/07/05: We did find this Nov. 6 report at ThisDay Online, which indicates that the bank has substantially increased itswealth, whether through the sale of shares or the acquisition of new investors:
First Inland Shareholders’ Funds Hit N28bn
11.06.2005
Consolidation
Shareholders’ funds of First Inland Bank Plc, the merger of First Atlantic Bank and Inland Bank have increased to N28 billion, following the approval of over N8 billion of the First Atlantic Bank Public offer and N7.15 billion of the Inland Bank public offer by the Central Bank of Nigeria (CBN), a statement from the two banks have disclosed.
As part of strategic moves to enhance its competitiveness in the post consolidation era, First Atlantic Bank made an offering of 3,000,000,000 ordinary shares at N2.50 per share between February 21 and March 31, 2005. This was aimed at raising a total of N7.5 billion. Although investors staked a total of N8.7 billion in the offer, amounting to 116 per cent subscription level, the CBN affirmed a total of N8.01 billion. This according to the statement, means that the offer was over subscribed by about 7 per cent, in spite of the litany of offers in the market at that time and growing investors’ fatigue.
The approval was communicated to the bank via a letter BSD/G5.T13/FAB-SEC/BAN-CON/2005 of October 13, 2005 titled -Re: First Atlantic Bank Capitalization Through Public Offer 2005 addressed to the Managing Director, First Atlantic Bank Plc. Mr. G.A. Oladejobi, on behalf of the Director of Banking Supervision of the CBN, signed the letter. However, the bank could only absorb N7.5 billion subscriptions following a change to the rule hitherto allowing absorption of over subscription by SEC on the eve of the offer. Added to the bank’s pre-offer capital base of about N4.5 billion, First Atlantic’s shareholders’ funds, according to the statement is now in excess of N12 billion.
Inland Bank on its part offered 16,000,000,000 ordinary shares at N1.50 per share in April 2005. At the end of the exercise, investors’ subscription amounted to N8.7 billion, out of which N7.15 billion was approved by the CBN. With pre-offer shareholders’ funds of N3.8 billion, the statement noted that Inland Bank’s shareholders’ funds has risen to N10.9 billion.
The approval of the public offers of both banks lifts the capital base of First Inland Bank above the N25 billion-capitalization benchmark with a consolidated shareholders’ funds in excess of N28 billion, including the N5 billion deposits for shares of the bank by its core investors. The merger which is in its final stages has received Approvals-in-Principle from both the CBN and SEC as well as shareholders approval at Court-Ordered Meetings of both banks held simultaneously in Lagos and Abuja on Wednesday, October 26, 2005. The Group according to the statement is now awaiting the final approvals of the CBN and SEC, which are expected shortly.
“As part of the strategic focus of the new bank, it plans to increase its shareholders funds to over N40 billion before the end of the second quarter of 2006. Already, a number of banks have approached the group for possible acquisition and merger and are under serious consideration. The plan to further enhance the shareholders funds is informed by its strategic initiatives to play a leading role in the post consolidation banking industry,” the statement said.
It would be recalled that the merger bank has already inaugurated an Interim Board of Directors with Alhaji Muhammadu Danmadami as Chairman and Olorogun O’tega Emerhor as Vice Chairman. Mr. Okey Nwosu has been named Managing Director/CEO of the new First Inland Bank, while Lamba Alhaji Zannah is the Deputy Managing Director.
The new bank, according to the statement intends to begin operations on December 1, 2005 with about 103 branches, an asset base of over N105 billion and total deposits of about N65 billion. “With strong presence in both the Southern and Northern markets, it would emerge immediately as a truly national bank positioned to assume a pre-eminent position in the global financial market,” the statement added.
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