Tuesday, February 07, 2006

Daukoru: Sao Tome Ministers 'Disowned' Probe Report At JMC Meeting

OPEC President Dr. Edmund Daukoru, who is Nigeria's oil minister, told Reuters today the ministerial delegation from Sao Tome to today's Nigeria-Sao Tome and Principe Joint Ministerial Council meeting in Abuja "disowned" the report by a University of Tulsa law professor associated with major oil companies, and said that officials would adopt a detailed official statement doing so after the meeting concludes.

It was another remarkable development in what can only be called an extraordinary day of withdrawals, entries and roller-coaster trading.

The lucky traders were those who were away from their computers for most of the morning, like myself as I celebrated my birthday at a morning breakfast with my wife and daughter. Some traders said they came home to a stock that had fallen precipitously on the "bad" news of PXD's withdrawal from Blocks 2 and 3. If they came just before noon, they arrived in time to see Mark St. Amour's from Jacinta Moran of Platts Oilgram News, the authoritative Paris-based industry oil letter, saying Sinopec, the seventh-largest oil company in the world was taking Pioneer's place.

Since we had already lost our partner in Block 4 and earlier lost Devon Energy in Blocks 2 and 3, ERHC Energy, down 31 percent, seemed doomed 10 minutes after the news came out.

Jacinta's thoughtful message restored hope to the hopeless, and no matter how jaded any of us might be about the ups and downs of this stock, we all had to gape in amazement as it soared back above the opening price by the close, hitting $0.485, a gain of two cents, a few minutes before the closing bell.

Ironically, had I sold yesterday at the open as my wife urged when we hit $0.505, I could have bought back an additional 37,500 shares this morning between $0.321 and $0.33. It is the third time in a year that not following her advice has cost me serious money - probably $80,000 in all!

Be that as it may, Dr. Daukoru's statement to Reuters at the end of today's session of the JMC was icing on my borthday cake. For months I traced the relationship between R. Dobie Langenkamp and the high rollers (read house counsel) at the Energy Law Institute and the Senate Energy Committee, never receiving a single word of validation until a reporter for TheNEWS of Nigeria on Jan. 24 remarked in a long article - mostly an anti-ERHC "hit" piece - acknowledged that the investigation had occurred at the behest of "a major oil company" in the U.S.

Now, the Sao Tome government's most highly-placed officials seem set to agree. The President of OPEC has condemned it, and the President of Sao Tome has called it "incomplete" and a "whitewash" - although for the wrong reasons, we believe. And ERHC Energy's new CEO, Walter Brandhuber, branded the probe report "a political hatchet job," which is exactly what it was. Its error-ridden carcass is headed to an unmarked grave.

Here is the latest updated version of the Reuters story, with Dr. Daukoru's comment on the "disowned" report at the very end:

NEW YORK/ABUJA, Feb 7 (Reuters) - Pioneer Natural Resources Co. (PXD.N: Quote, Profile, Research) is exiting two exploration blocks in Africa's Gulf of Guinea after failing to agree to terms with its local partner, the U.S. oil independent said on Tuesday.

Pioneer's withdrawal from partnership with ERHC (ERHE.OB: Quote, Profile, Research) was the latest blow to an oil exploration licensing round conducted last May by the Joint Development Authority of Nigeria and Sao Tome, which has yet to see any contracts signed.

"It had to do with an inability to negotiate an acceptable agreement with our partner," said a Pioneer spokeswoman.

ERHC President and CEO Walter Brandhuber said Pioneer was "unable to meet the timeline set for executing the various agreements" with the Joint Development Authority (JDA).

Brandhuber, who is in Nigeria, told Reuters ERHC had a new partner lined up for block 2, in which it and Pioneer had a 65 percent stake and were the operators. He said he could not yet identify that partner.

An industry source familiar with the Joint Development Authority said China's Sinopec Corp. (0386.HK: Quote, Profile, Research) (SNP.N: Quote, Profile, Research) was aiming to replace Pioneer but this had not yet been approved.

Nigeria's Minister of State for Petroleum Edmund Daukoru declined to comment on Sinopec, but told Reuters he expected an "equally credible" partner to replace Pioneer.

The licensing round was repeatedly delayed before the blocks were finally awarded. Negotiation of the contracts has also been delayed, with companies pulling out, allegations of bribery and wrangling between partners bogging it down.

The Gulf of Guinea, where the joint development zone is located, is a prime exploration hotspot but political tensions in Sao Tome and Principe have risen as the tiny twin island nation prepares to enter the world of big oil.


Daukoru, speaking just after a meeting with his counterpart from Sao Tome and other ministers, said the JDA would sign production sharing contracts on all blocks awarded last May at the end of this month, with the possible exception of block 2.

He said it would be "a little tricky" to meet the timeline for that block in light of Pioneer's withdrawal, but he was confident ERHC and a new partner would sign a contract soon.

Pioneer is the second company to pull out of a partnership with ERHC in block 2. Devon (DEV.N: Quote, Profile, Research) ducked out last year. In block 4, ERHC also lost its initial partner when Noble Energy withdrew and was replaced by Swiss-based Addax Petroleum.

ERHC, listed in the United States but controlled by private Nigerian firm Chrome, has sparked controversy in Nigeria and Sao Tome since it emerged as the big winner of the licensing round despite having little exploration experience.

It was the only company to gain stakes in all five blocks awarded last May. It was named operator, along with other companies, in two of the blocks.

The authority says ERHC had been granted preferential rights on stakes in the blocks in return for exploration investment in Sao Tome in the 1990s, before the joint development zone was set up. Details of those investments have not been made public.

Late last year, the Sao Tome attorney-general said there were indications that ERHC made improper payments to Sao Tome officials. The company has denied any wrongdoing.

Daukoru said the Sao Tome ministers had disowned the attorney-general's report during Tuesday's meeting.

"It's internal politics. We are preparing a detailed response (to the report) which will be in the public domain. Our first inclination was to ignore it completely but we don't want our silence to be interpreted the wrong way," he said.

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