Saturday, May 13, 2006

Letters Reveal Uncertainty Among Investors

I've gotten a strong response from our readers to my offer to share my outlook for ERHC Energy, and I thought I would share them for two reasons: First, most asked the same questions, and second, it was thus more practical to answer them all at once.

Here are the letters so far:

A Good Crapshoot
Long ERHE .72 up to .83. I look at the situation as a good crap shoot. But what the hell do I know? It's trading lower than my purchase prices. The Justice Department at ERHC offices also causes me some concern.

Interested in your outlook on the stock? Answer. YES.

I am dropping you the note looking for purely speculative advice & knowing that you are not a registered investment adviser.

Near-Term Insight Needed

I'm taking you up on your offer on your opinion of the near term PPS prospects.

BTW : Enjoy your Blog, have done for a while. Am a shareholder.

Appreciate The Effort

I'm a long time follower of ERHE and I sure appreciate all the effort you put into this stock. I would be interested to know your outlook on this stock. Good Luck in this stock and any others you may be invested in.
Thanks in advance.

Major Shareholder Selling?

I hold a few thousand ERHE shares and appreciate the information posted on your blog ERHC on the Move. Thanks for sharing your due diligence with a wider audience.

What are you anticipating in the near to intermediate term for ERHC? At times there seems to be hints that our major shareholder is selling into any uptick in order to keep cash in his pocket and the price at these levels. Is this your take? Or is it perhaps the political volatility that makes it impossible for this to move forward?

Very interested in hearing your outlook.

Tip From Father-In-Law

As you mentioned, I was just wanting to see what your outlook was with this stock. My father-in-law told me about the stock about a year ago. I bought in at .40, and I am just wanting to know if you think I should hold on to it or get out now?

News From Doc?

I'm interested in reading your thoughts of what is happening with ERHC.

Anything new from Doc?

I think Langenkamp's wife is involved in the search warrant somehow...

Offor Could Sell Chrome

Regarding your "ERHC on the move blog", and your offer today, yes, I would greatly appreciate your outlook on the stock. What do you think the future holds for ERHC? I keep worrying that Emeka Offor might sell Chrome Oil and the little stockholders like myself, end up with nothing. What do you think?

ERHC's outlook, in my opinion, is dependent on several things: First, will an indictment result from the search warrant and investigation? Second, will Chevron or the JDA make a significant announcement regarding Block 1? Third, given all the circumstances we know about, is there a prospect for a near-term sale of part or all of the company?

As these separate issues unfold, the share price will respond accordingly. However, given the background of the search warrant, I strongly doubt that an indictment will follow.

Ironically, even though it was the search warrant story - mishandled, as we've pointed out, by Dow Jones - that took our share price down, the lack of an indictment is not by itself going to improve the share price unless the company announces it ibn the near term.

What the Justice Dept. hoped to accomplish with this search warrant was to lend some help to Chevron and ExxonMobil to prevent ERHC from gaining momentum as word of Chevron's Block 1 find spreads. Those companies will be far better off with a hobbled ERHC Energy than with an activist, demanding one.

Given the refusal of both Sao Tome and Nigeria to cooperate with the Sao Tome Attorney's General's probe and probably with this one, too, there is little likelihood of a conviction on any charge, but the investigation itself will satisfy the political favor demanded by CVX, XOM, Anadarko and probably others. So it's most useful to think of the search warrant as a wet blanket, one that will irritate us and itch for some time, but ultimately come to naught. It is amount to no more than just another abuse of judicial authority in an Administration where such abuse is commonplace.

But don't hold out too much hope for a grand announcement, complete with bands, trumpets and pennants waving in the air. Chevron will keep the results secret, even from shareholders, for the longest possible time - and that may be many years. What is important, though, is that the Nigeria-Sao Tome and Principe Joint Development Authority will want to make the extent of the Block 1 discovery widely known in order to sell Blocks 7 through 9 for a better price. In the event that Blocks 5 and 6 are never awarded but are rebid, the same will hold true. The problem is, of course, that the flow of information coming from the JDA is at least 95 percent wrong, and sometimes just plain false. It will not meet with the same credence that a report from Chevron would have.

As for a major shareholder selling into any momentum that happens, I think that is a clearly demonstrated fact. It will not always be determinative, however, and I think that while that shareholder might like to support the price and yet not be the one who has to increase it, events will overtake him as well.

If I were in at $0.40, I certainly would not get out. You are unlikely to see a single day when you are not in profit, unless an indictment falls our way. In that case, you might want to sell and recapture in the $0.28 range.

As for a buy-in or buy-out, I have come to the conclusion that our source Doc was talking through his hat on this topic. I think he conflated a number of well-known and a few obscure items and invented the "imminent" news of a buy-in or buyout to nurture his own trading position. His and Meridian's guidance in the future is likely to be worthless. It is my impression both these sources are graduates of the 419 advance fee scam school of business, which requires that writers know all or most of the publicly available details about their targets.

This does not mean, however, that Sir Emeka Offor might not alter his relationship with Chrome's holding entity, where he recently placed all his stock and set up in the Cayman Islands. That is a decision for him to make, and a key strategic one. In the event that only his shares were sold to a new entity or a major, however, if the price and some details of the sale became public, they would be likely to spike the price rather than instantly drop it. Since no investor will ever make money from dividends on this stock, I believe, it is incumbent on all investors to remain alert to sharp price movements and unexplained high volume events in order to maximize their returns through selling shares. Remember that the spike in such a case is likely to be quickly followed by a sharp downturn; there will only be a brief window of opportunity to take significant profits if this occurs.

So where does that leave us?

Sinking, for the time being. I have repeatedly urged readers to look at the historic patterns of trading in HYPD (now HDY) for guidance about our future share price.

That stock faced many of the same problems, underwent some of the same manipulation, and struggles today with some of the same burdens we do. Generally, that record suggests to me that our share price could fall as low as $0.44 even if an indictment is not handed down, and that it may trend that low anyway despite the Chevron Block 1 rumors.

However, a major catalyst for a share hike will be the 10-Q that shows the $45 million in payments from Addax Petroleum and Sinopec on our balance sheet. It will be that single announcement, I believe, that helps us break the $1 mark at last.

In the near term, absent an indictment, I don't think we will go lower than $0.55, but I think we will linger there a while if we have to wait for a second-quarter 10-Q to show the payments. This has historically been a stock that prefers to hang low for a long time before demonstrating explosive growth. For that reason, accumulation should occur with an eye on the 10Q, not an announcement by Chevron, and the top for that will probably be in the $1.10 range.

For what it's worth, I believe the Chevron find will eventually be identified as one of 1.6 billion barrels. While that's a lot of oil, it's only a fraction of what awaits us in Block 4, I think, and perhaps even in Block 5. For those who are accumulating for long-term growth, that kind of discovery will manifest in an improved share price in the $3 to $9 region several years from now.

No major is likely to buy us when the search warrant and the U.S, Justice Dept.'s faux investigation - the same kind done against Chevron, ExxonMobil, Anadarko, Devon Energy and Noble Energy in the Guinea investigation - is sill underway, although these giants may offer to form new entitites to partner with us on unfavorable terms.

As with TMY, FEEC, HDY and IVAN, the secret to building wealth with ERHC is to stay in it, accumulate at the best price, and wait, and wait, and wait. Your Roman Holiday will come.

Thanks for your letters, and I hope this response answers all of your questions. Remember, as our first letter-writer stated, I am not a registered investment advisor, and it is wise to do your own due diligence examination of the stock and all its complex circumstances. Good luck!

Update: I wanted to share one wonderful response to this column with our readers:

Hello Joe,

Your posting today is one of the most thoughtful writings on ERHE I have read in a long time. I congratulate you on a well balanced, well thought-out column.

Your BLOG has for many month been an interesting source of information. The ramblings on the boards are getting totally out of hand. There are too many nut cases who have to put their two cents worth of nonsense in writing. Add to that the politics of US oil companies, the Administration, and Nigeria as well as Sao Tome and it makes any soap opera pale.

Your advice to wait, and wait, and wait, and wait is sage advice. I have done this in many of my own investments. One example is INCO and it is paying off handsomely. I agree with you that a payoff can also happen with ERHE, but some of the predictions on the boards of a share price of $50 or more are just dreams in technicolor. Your comment about a $3 to $9 many years from now is the more likely scenario.

Joe, I very much appreciate today's posting in your BLOG and will save it to remind me and friends who also own some ERHE to stay sane.

Best regards from Canada,


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