Sunday, February 19, 2006

Fat Tuesday? Maybe Not

There's an awful lot of enthusiasm on the message boards for a strong performance of ERHC Energy (OTC BB symbol: ERHE) shares on Tuesday, at the close of this three-day weekend.

As I have told people for a couple of years - and few listened until awards were made over thew Memorial Day weekend last year - most of the earthshaking days in terms of share price occur on such weekends. It may be that they allow others to play ERHC on the Frankfurt (and formerly the Berlin) exchange, or just a very persistent coincidence.

Nonethless, the phenomenon has been consistent since the end of May 2003, when the great 2,400-word Los Angeles Times article came out on Friday, May 24, and blew the cap off ERHC trades on the following Tuesday morning. You could also say Memorial Day weekends have been great for us, too, since both of our greatest days - in terms of either news or price - came on two of those.

What I haven't noted quite as often, given my longtime enthusiasm for this stock, is that bad news sometimes comes on these three-day weekends. Prices sometimes fall sharply after them. Big changes sometimes occur that the markets don't like.

In the spirit of doom and gloom, here are some of the things that could happen:

  • Chevron could officially deny both a strike in Block 1 and any interest in ERHC;
  • Sinopec could withdraw due to inability to get timely approval from Beijing;
  • Nigeria's internal problems could sour investors on all Nigerian-related stocks.

Of those, the third appears to be the most likely to actually happen. I can't see the market making all the wonderful distinctions that we might, or even trying to explain the history of the Nigeria-Sao Tome and Principe Joint Development Zone to itself.

What is more likely to happen is that while oil producers see a great day of $1 - $5 gains on the shut-in of hundreds of thousands of barrels of crude by Royal Dutch Shell, ERHC Energy - as it always does on such days - will run to lower ground, giving up $0.05 or more of the huge $0.115 gain on Friday.

I reserve the right to change my mind - especially if Chevron announces a strike in Block 1 or acknowledges chatting with ERHC. Right now, though, the UpstreamOnline article we all celebrated on Friday is far too speculative to generate much trans-weekend buying interest, and for all the noise that people like myself, the I-Hub and Raging Bull posters make, we are voices in a deep and cacophonous wilderness. Until Dow Jones or Reuters reports some of these developments, we will have to satisfy ourselves with those hated buying opportunities.

There's also the question of the Production Sharing Contracts, whose signing by the Joint Ministerial Council is set for its Tuesday, Feb. 28 meeting, just five trading days from now.

I don't think Blocks 2 and 3 are going to get signed next Friday. Nor will Blocks 5 and 6 get signed, I believe. Block 4, however, will. I hasten to point out that there is nothing wrong with those contracts: they just won't be ready.

But how could a contract get signed for Block 2 when ERHC is supposedly involved in talks with ChevronTexaco about a possible huge strike that runs under their Block 1 and our Block 2? What could there possibly be to sign at this point?

Even assuming that behind the scenes Sinopec has swiftly obtained the necessary approval from the Chinese Politburo - which I don't believe for a second - why would ERHC sign anything with them while they are negotiating with Chevron? That's a no-brainer.

And if Sinopec has not yet gotten approval from Beijing, how will Block 3 get signed? Simple: it won't, not now. In April, maybe, as I've said all along.

I wrote here a couple of weeks ago that I thought the pre-PSC high would be $0.73. We are there now.

Tuesday, we'll be a few cents lower; Wednesday, even; Thursday, a modest $0.2 - $0.04 gain on PSC expectations; Friday, another $0.03- $0.04 gain; Monday, restrained trading and a static price; next Tuesday, a lot of wait-and-see because Abuja and Sao Tome will be dark (like a Broadway theater) until the meeting is over, and by that time the market will probably have closed. If not, there could be big action - $06 - $0.12 gains - in the final hour. But Wednesday, the wiseguys will take profits again - count on it.

What you'll get on the boards over this three-day weekend is a lot of relentless pumping as crafty traders try to fool newbies into buying in so that they can close out their recent gains. They'll wait through the first 15 or 20 minutes to see if they've managed to ignite a minor buying frenzy, and then sell straight into it and take us down.

It's not a time to buy or sell, unless you're a day trader. If you're a new investor, wait for the end of Tuesday trading, or early Wednesday to buy.

Smarter folk will be patient, I think, and let things unfold as they may, awaiting official word from Chevron, the JDA, Dow Jones or Reuters (and yours truly, too).

Disclosure: I hold 72,000 shares purchased at $0.2922, and did not trade last week. I plan to sell 2,000 shares this week.

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