When Will PSCs Be Signed? Here's My Own Opinion

In a post earlier today, I noted that part of the positive outlook for ERHC Energy is that there will be a signing ceremony for Production Sharing Contracts "in the first weeks of January" for the five blocks awarded on May 31, 2005, in the 2004 Licensing Round of the Nigeria-Sao Tome and Principe Joint Development Zone. There, ERHC Energy was the "big winner," as Dow Jones called us last June.

Does that mean I believe there will, in fact, be a signing ceremony in January? No, it doesn't. It means that there's a perception out there that such signings will occur, and there is. That perception helps keep prices up. Yet is is not my own perception, and to avoid complaints about duplicity, I want to elaborate on my own opinion about when PSCs will be signed.

First of all, Sam Dimka of the Nigeria-DRSTP Joint Development Authority has told poster Mark St. Amour that four of the PSCs are already finalized. You may feel, as I do, that Mr. Dimka's assurances lack substance, but his private message has been echoed in numerous articles and posts that have appeared in Reuters and other news agency articles and on the main ERHC message boards, Investor's Hub and Raging Bull. So there is plenty of strong belief out there that in fact the PSCs will be signed in January.

I don't believe it. Someone who has sold 270,000 shares in the past 45 minutes (with no reduction in the Bid or Ask, I might add) apparently doesn't believe it, either.

My own instinct - and it is only that - is that the PSCs will be signed all in the same week when all of them are done. I do think, using the model PSC hammered out for Block 1 over 10 months, that most or all of the other PSCs are complete, but that the Block 4 PSC is still beng negotiated. I don't think the negotiations will finish, or the PSC will be signed, until April.

There are several reasons. First, our reliable friend Mutwadadi warned us about a month ago that completing the contract for Block 4 will be a bear, with a lot of long, dragged-out bickering generated by Sao Tome.

Indications are, though, if I read the tea leaves correctly, that the government of Sao Tome and Principe is approaching a resolution of its objections to ERHC Energy's participation in Block 4 (see my commentary yesterday on Sao Tome and Principe Prime Minister Maria do Carmo Silveira's statements to the Sao Tome journal Tela Non a few posts before this one).

Does the conclusion apparently reached by Carlos Neves, the influential chairman of the Sao Tome parliament's Commision on Petroleum Affairs - that the contretemps over ERHC Energy is an "internal" matter, and should not further impede signing of the PSCs - mean the PSC can be signed in the next couple of weeks?

No, it doesn't. In all probability, it means that work on the Block 4 PSC can resume full blast when the Muslim holiday celebrations end in mid-January. At that time, the very complex issues created by the departure of Noble Energy and its replacement by Addax Petroleum - which promises a 25% greater share of the block and an $18 million payment to ERHC - can be approached with sufficient confidence that once completed, the Joint Ministerial Council of the JDZ will reach the necessary "consensus" - i.e., agreement by everyone, not just by simple majority - on the finished contract.

So, yes, there is a strong and not unjustified perception out therem as I said, that the PSCs will be signed in a few weeks. I just don't share it. You should know it exists, and to avoid complaints, you should also know my opinion. We can be thankful that we were led through this process by some awfully intelligent and dedicated people, and that it has not taken and should not take nearly the amount of time it took to complete the Block 1 model PSC.

Frankly, this is bad news for me. I own 81,110 shares at an average of $0.2922, and while I likely will see a small paper profit show up on my trading screen over the next few months, I am not expecting to be in a position to trade until the PSC is adopted - in April, I think. If it is adopted in January - well, that would be absolutely great.