What's Ahead With The Feds?

What will happen down the road with respect to the Federal investigation now underway to determine if ERHC Energy broke the law in making certain payments to West African officials several years ago?

That's a key question, and one that has been much on my mind these days as I try to determine where I might re-enter the stock and what kind of position to seek.

My thinking is that whether innocent or not, and whether there is strong evidence or not, ERHC will get indicted, probably in or by October.

Why so long a wait?

I think that there is a cycle in which the U.S. Atty. asks Nigeria and Sao Tome for evidence, which they will then consider. They will probably respond at a speed that is helpful to their separate agendas.

Sao Tome will share whatever evidence it has to back up the unsupported suspicions in their report, and will probably take a few months to do so. Nigeria will probably respond quickly, and probably by citing the finding of the Joint Ministerial Council on the Sao Tome Attorney General's report, which the JMC deemed an insult to Nigeria.

Then the matter goes to a Federal grand jury, which will usually indict anyone the US Atty. wants to indict (the saying is, the grand jury would indict a ham sandwich if asked).

The real problem is not the indictment or the trial, but the uncertainty extended for political reasons over the longest possible time as all the detailed steps in the cycle are accomplished. I would expect that would require a minimum of six valuable months, and easily as long as a priceless year.

Right now, I am of the opinion that ERHC Energy will not be rushed or pushed into any agreement to sell the company or its rights in the Joint Development Zone.

But there is one exception: I believe ERHC would probably, in the interest of saving time and eliminating uncertainty and to restore and enhance the share price, accept a settlement without admitting guilt that would involve a fine in the $300,000 - $2 million range.

At the instant I suspect a settlement would occur, I will certainly buy if I am able.

If that kind of settlement is offered, I believe it will be accepted after some negotiation, since the uncertainty of cooperation on the side of Nigeria and Sao Tome is a great element in ERHC's favor.

However, if the months ahead end in an indictment, our share price will then be at its nadir regardless of the price of oil, as with it the rights can be compromised under the treaty and all JDZ agreements on the basis of "character" issues once guilt is found.

However, a trial and acquittal will send the share price soaring over several weeks to the appropriate levels, perhaps as much as $3 if oil prices continue to rise or stay above $0.73 - especially if more news on the Block 1 find is released by Chevron, which seems unlikely.

It is my own belief that no jury would find ERHC Energy guilty in the environment that exists and within the parameters of the knowledge we have now.

But what buying and selling in the near term?

Good question.

As I told readers a month or so ago, I think the price will hover around $0.55 with drops as low as $0.38 while things remain unsettled. That call was met at precisely those numbers.

The dramatic rise from $0.40 to $0.55 two weeks ago may re-occur several times, and I think it's generally wise to get in anywhere close to $0.40, and even as high as $0.48 if the cntemplated purchase is a large one, so that you can exit at $0.55 again and recapture your position down in the $0.43- $0.45 range a few days or weeks later.

It appears to me that much of the movement I am predicting can be laid to punters who prime the pump and take advantage of slower, weaker players, which makes it all the more likely to happen unless the SEC end of this investigation steps hard on a couple of the major players.

That would take a lot of steam out of the erratic engine that drives our share price, and probably lend it a consistency at or close to the optimum levels we can expect, after a period in which what looks like delirium tremens resolves itself as naked fear. It might take a month to sort out the sakes, and then three to four months to climb and settle well above $2 for several years to come.