At 3:17pm EST, Pioneer Natural Resources was up $1.78, Devon Energy up $0.47 and Noble Drilling up $0.46. ERHC was down $0.02 on volume of 683,431 shares. Sellers continue to control the price while ERHC is supposedly just a few days away from being awarded nearly one billion barrels of unproved crude oil reserves.
Yes, I think there are several impediments in the path to profit for ERHC investors. I'm not sure I have listed them all below, but, principally, they are:
- Shareholders are growing edgy after the market failed to respond to a very positive but largely undistributed Dow Jones Newswire article by Norval Scott. The story contained several key errors about our assets, our controlling stakeholder's holdings and our competition for blocks in the Nigeria-Sao Tome Joint Development Zone, and left out recent news about a successful lawsuit, insider sales and share dilution. Worst of all, it did not appear on important financial news sites and gave the stock no meaningful boost.
- Readers of ERHC On The Move have learned that while we are still hopeful of being awarded at least two operatorships in the five JDZ blocks on offer, the Nigerian Petroleum Development Corporation has also partnered - apparently in secret, as their name wasn't on any list of bidders announced by the JDZ on Dec. 15 - with one or more bidders in one or more blocks.
- There has been informed speculation in our Comments section that the two 25 percent preferential entitlements in each of any two of the five blocks on offer may have gone to the NPDC effort. If so, that might mitigate against any operatorship being awarded to the Pioneer/Devon Energy/ERHC partnerships in Blocks 2 and 3, and against the Noble Drilling/ERHC partnership in Block 4.
- The NPDC's parent, the Nigerian National Petroleum Coorporation, has quietly revealed that it is directing the NPDC to change the original terms of the JDZ model Production Sharing Contract (PSC) to end payments in crude oil for drillers' exploration and recovery costs. The NNPC will now reimburse such costs in cash - and possibly Nigerian cash, a highly volatile currency.
- Four multinationals in the space of two weeks have announced plans to build LNG processing plants in Nigeria valued at more than US$20 billion. Those plants will likely never be built, but they are being leveraged against recent seizures of 15 oilfields owned by ChevronTexaco, ExxonMobil, Royal Dutch/Shell and others. Those seizures - involving fields that are now pumping 63,000 barrels per day - follow similar ones in several countries, including Venezuela, that have shaken the industry's confidence in their ability to operate in nations where the politics are volatile, or in some cases, just aggressively nationalistic.
- There have been substantial LNG discoveries in Canada, where all the multinationals feel comfortable, and substantial progress under the Bush administration in recent weeks towards the opening of formerly restricted areas of the Alaskan wilderness to drilling. In addition, less complicated awards are being made in Libya on a timely and even rapid basis, and likely prospects are available in other parts of Africa. Niogeria is also planning an auction of blocks when the JDZ awards are concluded.
- The awards, and a sentinel PSC that is awaiting signature by ExxonMobil, have been repeatedly delayed - even from dates announced with great confidence and certainty by the petroleum advisor to President Olusegun Obasanjo, Dr. Edmund Daukoru. No one has managed to predict with accuracy the date on which they may be made.
Lest I be accused of "bashing" by the ignorant, I again offer this disclosure: I hold 123,040 shares long that I have been planning to sell at an exit point in the $1.50 - $2 range. In the event the price falls below $0.44 anytime soon, I may add 200,000 shares to my portfolio (and I may not).
That means I remain optimistic that the awards will happen. In fact, I made out a substantial check to my wife at Christmas that is post-dated to reflect the date on which I expect the awards will occur. That date is at least a week away.
7 comments:
Pioneer rose today because they announced a share buy back program. In addition they announced that reserves had grew 30% in 2004. Todays price action has nothing to do with the JDZ.
While Nigerian currency is volatile, and it's optimum to take oil as payment, any nation that becomes a significant oil producer will find it's currency becoming stronger, in more demand, and the oil will be a defacto hard backing for it (much like the gold/silver backing of yore). Certainly in the short term, all producers would not profit as much if they were paid in paper money. That said, if the JDZ is as large a field as it is believed, then production will be long term and after a couple of years of successful production, payment in the Nigerian currency would not be a major or negative issue for producers.
The long term success for any JDZ producers lies in Nigeria's political stability for the next couple of decades, not so much in the short term with payments being made in the local currency.
This does not mean I endorse the concept. It's just another example of how national government are the public incarnations of private criminals (aka the Mafia). In the case of Nigeria, they are less sophisticated in hiding the connection than those governments in the developed world.
Perhaps its because NBL, PXD and DVN pump oil and we don't.
That was an excellent comment on the currency issue. I am not so optimniostic that the currency would harden, if even now with a national budget surplus it swings wildly against the dollar and Euro. Nigeria has a long way to go before it achieves real stability and democratic continuity; it is only taking baby steps now.
But you have a keen insight into the nature of some governments, if not all.
Thank-you Joe,
When offering a hypothesis it helps if examples can be given or, as they say in economics, help one to see the unseen.
Currently the US is under going a currency problem that should be well known by all diligent investors. Many currencies have appriciated significantly against the greenback. Those performing the best have been commodity economies. One of the best performers relative to the dollar, if not the best performer, has been Canada. A commodity economy that's the most stable and most friendly to mining and exploration. I expsct a one to one value between the greenback and Loonie to occur by year's end. This could happen for any country that reasonably exploits it natural resources, including Nigeria. I play ERHC, but I also hold some CNR, a speculative O&G play in Eastern Europe (Georgia). Georgia could set an example for up and coming countries who have significant natural resources. A potentially bad example is Venezuela.
Lastly, if Peak Oil Theory is correct. Then the potentially significant oil fields in Nigeria will also place forces on them to get their act together, as the PoO reaches three figures a barrel by the end of the decade.
Joe, you state, "There have been substantial LNG discoveries in Canada .... "
I was unaware the LNG was naturally occurring.
"To Shea!", Anonymous. You are correct. They were natural gas discoveries.
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