It is about time ERHE comes back to life.
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dest, although that is a possibility, I feel the it is more likely not the case. I would bet if SNP wanted to walk, the JDA would be able to re-auction the block(s). Given that Total just purchased the rights to move into block 1 with proven oil discoveries, the JDA could get additional signing bonuses by the next player to come along (Total included). Granted it would be lower than the $120 million paid the first time, but it certainly would be worth something and the JDA would have a better chance of forcing a new player to proceed with drilling quicker (you got to pay to play…). IMHO
Keep in mind, all current players (ERHE, SNP, ADDAX) have been saying for several years that they are more interested in doing an area wide development. It makes perfect sense to me for Total to work with SNP/Addax in block 1 first (they already know they found oil). They will learn more from each hole punched in Block 1. Every bit of positive news that comes out of Block 1 will only increase the desire by someone to look for similar results in blocks 2 - 4. The further delays in blocks 2 - 4 will probably make the smaller paying partners, give up their percentages which will all be availble to encourage Total to join. Just my guess.....
It will happen. It is just a matter of time. Unfortunately, it sucks for the current ERHE share price but there really isn't anything we can do about it. ERHE needs to concentrate on finding an eager partner for their 2 100% blocks of the EEZ.
Patrice already posts here... handle of "oilphant"...lol
Sneak,
Here is how I consider the current price/share as it equates to the value of ERHE.
Using $118 million in market cap:
$18 million cash on hand
$100 million dollar speculative bet on whether ERHE eventually hits a commercial amount of oil in any of their blocks.
That's it.
The company is probably worth a LOT more than the current market cap but we (investors) are sitting in an unknown time table for when ERHE and it's partners will take the next step towards finding commercial oil. The uncertainty right now is absolutely killing the stock price. Until a definative plan is announced (such as new partners for the EEZ or Phase 2 of the JDZ), the uncertainty of the situation will weigh heavily on the share price.
Did we all get rich by Easter? Oh wait, that must be another year.... lol.
Happy Easter all
Krom,
or
d) combination of things…..
The JDZ is looking good but the process will take much longer than anticipated (Total/SNP joint development of the zone starting in Block 1 IMHO) but ERHE is fine and safe given the carry till profit oil for blocks 2,3, & 4. Not much to do but wait for the JDZ. New hire with good industry experience will help communicate with the non-industry people just what they have and how the process will go.
New hire will also have more of a key role for the EEZ process (maybe they learned from their mistakes on the JDZ with the SNP operator’s closed lips). New hire will get better partnership agreements with the EEZ development. Not necessarily more upfront cash, as I don’t expect any this time, but putting ERHE in a better position at the table as a joint partner for planning and decision making and the controlling of the info. The new hire is the first step on having a capable team of oil people to evaluate the drilling results for the EEZ as we get them.
Possibility of using the EEZ 100% assets to team up with a partner to participate in some already existing (albeit smaller) producing properties in exchange for operator status of the EEZ blocks. Then they can jointly work both properties. I think this is a real possibility given the still capable political pull for Offor and friends in the general region.
All in all, I feel this new hire was a very good start and it tells me that something is close. I also think it is an extremely good sign being his EEL experience. I would bet he knows way more than anyone on this message board and with 30 years of oil experience, why take a job with ERHE if it didn’t look VERY promising.
like I said, even in bankruptcy, why not get credit for the value of the assets you do have? It is not hard to register and both the remaining entity and those recieving the assets risk fines and lockups of those assets for NO beneficial gain. In other words, it is in both the dispersing party and recieving party's best interest to follow the rules.
Please keep in mind, I really don't care as I don't believe those shares affect the true value or potential value of ERHE. It all boils down to oil/gas and commercial/not commercial. If it was 20% - 50% of the shares and they were being potentially distributed to an entity trying to gain control, I might have more interest.
Why are people arguing over spilt milk that may have never been spilt in the first place?????
Quick review of the basics on “Beneficial Ownership” and how and when to file what:
If a sole person/entity acquires more than 5% interest of a class of equity, they must file a Schedule 13D within 10 days after the acquisition. I won’t get into the boring details of the “item 4” which is the “intent” of that ownership…..
Once you become a filed 13D beneficial owner you are always a registered beneficial owner until you file an amendment to that filing. The amendment must be filed promptly IF you either acquire more OR have a disposition of 1% (in other words you can go up to 5.99% or down to 4.01 percent ownership without filing an amendment).
With this as the underlying basics, it is my opinion that no large block of shares were “dispersed” from any 13D registered entity to date.
Ask yourself this, why would an entity risk NOT filing the appropriate documents period? 1) They don’t have to until the transaction is done so it doesn’t affect AT ALL the amount they received for the transaction. 2) Why risk potential fines or accounts being locked up or assets being frozen?
BOO! not stop the squabbling, lol
Interesting Day:
Midtier posts a positive post (kudos for your balanced approach when something positive does arise and also thank you for taking action to find out valuable info. Sorry, it couldn’t have come from the company instead…)
Oily pops back on to reference .13 being good?????? Whatever that means. (he/she is reloading….???)
Nice bounce off the bottom to put in a double bottom (or is that a triple going back a little time?). Also nice close.
What the heck, I am ready for this stock to close the gap at .44 ....LOL.
Let's see what tomorrow will bring.
Thanks to all for a little more positive posting today.
Very wise words exceo. I feel the same pain. I too think the only good "action" for this stock would be more forward progress towards phase II, or partnerships announced for EEZ. Both of which could shoot the PPS back up and stop the bulk of whining around here.
Good luck all
LOL... spot on DG. That pretty much sums it up.
Krom,
You are making this “hypothetical deal” out to be more complicated to shareholders than the reality that we live in. There will be no need for small shareholders to hire lawyers as this scenario simply can’t happen. Here is why:
To simplify it, think of it this way -
ERHE is a SEC regulated company. The SEC has FULL control over a SEC regulated companies stock that trades on the exchanges. There are basic rules in place for ALL companies traded on US based exchanges that companies must follow or the SEC will halt the trading of that offending company’s security. There are very good rules in place to prevent shady changes of control, especially by insiders or people/companies with insider knowledge. EVERY change of control has to be approved or the security is halted.
In a nut shell, 1) Chrome can not buy out ERHE without the full transaction being approved by the SEC including an INDEPENDENT audit of the true value of the corporation. 2) the whole point of having a publically traded security for a company is for LIQUIDITY. This liquidity is for both the investors in the security and for the corporation (a good example of corporate liquidity is the shelf registration). 3) Being that CHROME and SEO are the largest shareholders, and the company’s proven desire for legitimate liquidity of their security, it is in no one’s best interest to do anything to jeopardize the liquidity of this security. This hypothetical deal is not logical, nor feasible.
Don’t get me wrong, there are many risks inherent in the ERHE security. I just feel you are wasting energy and stress on this unfeasible possibility.
Hey, don't laugh. ERHE is up .0001 and we don't have 1/10,000th of the oil reserves that CVX has....lol
No PP buyer would sell into a panic sell as we experienced today. The PP company that I know of was flat this position for months now and they very slowly bled their position out over time as not to show selling. I have watched our company’s trader work large sell orders and there is quite the art to moving a large position. They will manage the floor and pull the order rather than create a perceived panic sell as we have seen today in ERHE. This is just my experience and IMHO.
Ah! Panic selling at it’s finest. No, I am not happy about the share price but given there has been NO developments one way or the other since the stock was above .20, I attribute 100% of this selling to panic and fear.
This comment won’t sit well with the big complainers on the board but I, for one, am glad the company is not saying a word. The next word out of ERHE that I would like to hear is actual movement. This can come from a “the JDA and SNP have come to an agreement on phase II” type PR; a “ERHE has signed partnership agreements with ##### on Block # of the EEZ” type PR; or even a “New NSAI numbers now estimate ERHE reserves at ####” type of PR.
It amazes me how some people can get an exact answer out of ERHE and yet they ignore it completely and then work themselves into a frenzy. PN and/or Dan said that there would be no immediate news release on the 3/14 date. They said it will take time for the JDA and SNP to finalize negotiations on Phase II (if in fact SNP submitted a proposal for phase II). Sure enough nothing has come out of SNP, the JDA or ERHE on this front just as they stated. I quietly watched this board work themselves into a doom and gloom scenario as the only outcome and then watched the basher (with several brand new ones) come in for the final bludgeoning. Congratulations, you got exactly what you asked for (doom and gloom according to the share price) in the short term. In the long term, this will have no effect on the price as it will correct to a value based pricing once real news is released.
Oh, and by the way, it makes no sense pleading for the company to “say something” just because the share price is going through a panic selling period. When there is a solid development (negative or positive) it will come out and get reflected accordingly in the share price.
Good luck to all and congratulations to the clever traders feeding on the panic emotions of the relative few (share count wise).
If anyone has the energy and inclination, why doesn't someone get in touch with the JDA and ask a simple question: Has Sinopec given the JDA a proposal for Phase II? You don't need to get the details or ask to what extent the negotiations are in (although feel free to ask) but I would bet the JDA would answer that question. They seem to be more "loose lipped" than a SEC controlled PR person/company.
Now, who here has called the JDA direct before and who wants to step to the plate to try again?
Vineseeker2,
Good points on PN. SEO was CEO at that time. But, PN I believe has been with ERHE during this time, just not with the official CEO title.
I will give him partial credit...lol
Krom,
I definitely agree that there is risk and uncertainty. That is why we are sitting in the teens. We are in a very similar cycle of unknown times and extended waiting. Nothing new there. We also know what can happen with just a little positive news and all I am saying is there are multiple opportunities for positive news at any moment.
And although I usually agree with most of your positions, I completely disagree that there was any risk of potentially loosing rights due to the phase 1 deadline approaching without a Rig. Look how easily the JDA extended the deadline TWICE so far just to decide on phase II after the drilling.
When the AA fiasco was going on, the entire industry was scrambling for ROO's due to demand and the price of oil going through the roof along with other factors like Brazil locking up as many RIGs as it could. I personally believe it would not have taken much negotiating savy with the JDA to extend the phase I drilling timetable simply due to the rig availability issue.
Yes, there are sooo many factors and what if's but I see the probability of the potential positive outcomes outweighing the negatives by far. It is just a matter of time.
Good luck
mz157, another point of view for that same board reality check:
we are at 16 cents (well actually up from there today) and a spring rally from this point is actually more likely given the current price and board sentiment. It just hasn’t started yet. Yes, in the past there were varying stages of excitement for multiple reasons (contract signings, partner signings, speculation of drill ships, drill ship contracting, psc signings, buyout rumor after rumor, etc.) and there have been multiple stages similar to the one we are in now… (SEC raid, partners dropping out, rig AA falling through, missed Rig of Opportunity, silent periods time and time again, fortnights not expiring soon enough, price dropping to below .10, etc.). We have seen this type of doom and gloom many times in the past. It is the same ol’ volatile, speculative stock it has always been.
Let me ask you a simple question, in hindsight, would you rather have purchased your shares when the price was low and the board sentiment was doom and gloom OR would you rather have purchased your shares when the rumors were hot and exciting and the share price reflected that? What stage are we in now?
At any point and without notice, the following is possible:
SNP/JDA announce results from phase 1 (more encouraging than not knowing anything) and PR’ing that phase 2 plans have been negotiated and accepted by both parties.
NSAI report release reflecting positive news/better prospects of commerciality from real data obtained from the first 5 well program. This might not be the multiple elephant fields we all hoped from from the first well but any reassuring news that there is potential commercial oil or gas in the JDZ will be very well received.
TOTAL announcing plans or a Rig PR for drilling in block 1.
EEZ partner contract signing PR – think of what one or even two different partners (not Addax or SNP) being contracted for the two 100% blocks would do for sentiment around here? Even if they don’t get a huge cash up front deal like the JDZ, if Tullow signs with ERHE, we are off to the races (IMHO).
These are all very valid possibilities that could happen anytime and change the share price rapidly and without warning. We long term shareholders have experienced the ups just as much as the downs, many times but we are currently focused on the negatives.
As much as I feel the negativity of the current share price, I disagree with the argument “There is absolutely no reason to buy this stock right now”. I would say the opposite if you had speculative cash and could ride this out more than a month or two.
Good luck
Krom,
It is my opinion that we will hear option 1) Phase II is a go. I think it may take 2 weeks to another month before we get the details. I think they are negotiating an extension to the length of time of phase 2 from what they experienced in phase 1. It may take 6 months to a year to get another rig in each of the 3 blocks to drill another hole in each and they have now experienced that it takes more time to "interpret" the data discovered to make a decision about phase III.
I simply think there is too much evidence pointing towards some kind of valuable discovery otherwise they would have given back the rights a long time ago and there would be nothing to hide nor negotiate an extension on. At a minimum, I see Sinopec trying to get Total to buy out their rights rather than give them back and if they did so (which I doubt, by the way), we would see an immediate share price correction to be equivalent to what Sinopec got for their percentage of the blocks. It might not be the hoped for $10+ but it might be a current value of blocks 2, 3 & 4 maybe at a buck or more. Who knows.
Krom,
I wouldn't try to read too much into this "new" development today. If it is true, which there is no reason to disbelieve it at this point, we really don't know the details of who is doing what or why.
Keep in mind that the JDA had representatives on the drilling rigs and were privy to the data as it became available. The only thing they don't have is Sinopec's interpretation or analysis of that data and I don't know how much of that "interpretation" is legally required to be disclosed, afterall, it boils down to Sinopec’s opinion on what the “facts” mean. The JDA has the same “facts” as Sinopec. Maybe Sinopec created an "executive summary" version to provide with their proposed plan for phase II and the JDA would like more details. I really think that is like crying over spilt milk. If Sinopec would have found very specific feet of oil (pay) in the drilling, the JDA would have had that info and they wouldn’t care about Sinopec’s opinion.
All in all, I am still waiting until I hear an official word from an official source whether Phase II is a go, another postponement, or Sinopec gives up their rights. It really boils down to that.
I will offer up one other reason why SEO would want to utilize the ERHE security vs chrome. ERHE is a liquid, international vehicle which is outside the Nigerian financial world.
What does this mean? SEO and/or "friends" can purchase and sell shares of EHRE through any main brokerage house in the world (also under various "trust" names etc.) at any time or divert some of their Nigerian currency into a more stable and internationally accepted currency.
Once any asset within the ERHE stable of properties (JDZ, EEZ or something yet to be acquired) has proven commercial quantities of oil or gas, this security becomes a very useful vehicle for SEO and company, to utilize within Nigeria. The shelf listing is a great example. SEO and company, can raise large amounts of capital outside of Nigeria to be used to fund development of Nigerian assets and they keep 43% of the profits plus any bonuses and perks filtered to them through the company, etc.
Yes, I will be the first to admit that using the shelf listing shares at this point is a complete disaster but that is also why I seriously doubt they will use it again until ERHE has some major positive news. They will not publically say this as this would put limitations on when they can tap into this resource if needed. Keep in mind that this shelf listing is probably causing some short term negative pressure on the share price but this negative pressure immediately goes away on any major positive news release as it opens the door to faster expansion or development of what they do own. All IMHO
Good luck all
Same ol bickering. You missed nothing.
I wouldn't agree with your opinion of a "strong" possibility of another 6 month extension. I seem to rememeber back in March of 2010, Sinopec originally asked for a one year extension for which the JDA gave them 6 months. Then they came back in 6 months and it sounded like they wanted to negotiate a phase II but it also sounded like the JDA didn't like the terms so they gave them another 6 months instead to "study" the data. That also had a lot to do with Total just coming on in block 1. I think they have had plenty of time to study the current data from the original 5 wells. They need more data now.....
It wouldn't suprise me to see another extension but I think there is a better chance of some renegotiated phase II developement plan like 2 years to drill more wells instead of one. That is just my opinion.
Nothing new but a nice summary piece that is about to come out. Who knows, some day ERHE may get another surge upward in share price like it did back when the "LA Times" (if I recall correctly) did their story back in the early part of the decade. ERHE went up several hundred percent and there was no new information in that report either.
Although, nothing should compare to th increase that ERHE should experience from phase II commencement announcement and/or EEZ partnership announcements.
Good luck to all.
Midtieroil,
Your second statement "... managements compensation almost all cash. They need to start being paid in stock so they give a damn about the share price..." could not be more SPOT ON. Here is an example where we agree 100%. As much as I appreciate SEO's Nigerian connections for ERHE's Nigerian assets, they could make quite a statement if they started paying ALL officers 50% of their compensation in stock and 50% in cash. Right now, the stock that the officers own have all essentially been given to them as a gift (IMHO). They are paid way too much in cash for the progress they have made over time.
Wow, you are 29 and you have already been "near or at the top of the tax bracket since you were 25".... Really? All four years?
I am speechless. lol
Just for a play on numbers, I purchased my first share of Microsoft when you were 4 years old.
I am happy for your success though. Keep up the good work. Let's try to remember that we are all here to share our knowledge and discuss ERHE regardless of our differing opinions. You may be confident in your opinions and it is good for you to share them with us but you may also want to consider there are "degrees" of truth to what many here say. Life is not all black and white or right and wrong.
Good luck to you.
I can confirm that the one hedge fund firm I know that participated in ERHE' PIPE was:
1) not named in the article posted today.
2) Are currently not long nor short ERHE (they systematically sold all shares acquired in the private placement). Account flat by mid January with no subsequent trades of ERHE.
They still hold the warrants but currently do not place a positive or negative value on them (unlike the crooked hedge fund company in the article posted today).
Actually Midtieroil, I am a little confused why you are not all over HDY's management and calling for their incompetent heads. Ray, obviously has to go if you stick with the logic you have used for a while on the ERHE board. Look at what occurred to the share price and market cap in just a few short weeks. $7.50 down to what? Wow!
I would think that if Ray was a real good Oil man or even a good communicator and leader, he would have known the market reaction to a terminated agreement. He could have done a better job of lining up a new deal to announce at the same time…..
Now, if you really wanted to be fair, let’s do almost a perfect comparison to what ERHE did. If I recall correctly, when ERHE learned about their two partners in the JDZ bids wanting to terminate their agreement, ERHE management aggressively sought out and found replacement partners (Sinopec and Addax) and announced the new agreements in the SAME press release as the terminating partners. Now, that’s the way a real oil company would do it….
Midtier, please take this as light hearted poke at the situation. I respect a lot of what you say, even if I disagree with it. I also follow HDY and am confident in the future for both HDY and ERHE.
I stand corrected.
After multiple discussions today with people who know what they are talking about, I retract most of my long winded post yesterday regarding reasons to go short and long the same security.
My opinion now falls heavily with what TOB has stated all along. The hedge fund managers that participated in this private placement were betting on a positive outcome of the price. It didn't go in their favor and they have slowly exited their position (still holding the warrants that could pay off nicely).
Although there is some truth in theory to some of the points I brought up yesterday, most of it turned out to be not reality based. Here are a few more things I have learned: "Shorting the box" is the term used when someone goes short and long the same position. This strategy was mostly used to lock in gains and move those gains from short term to long term capital gains. The government now has rules against that to make that strategy moot.
With regards to interest on shorting, now this is turning out to be a very fascinating topic in reality. In the traditional sense, there is no interest paid on borrowed securities. Now for the non-traditional: depending on the security and its "street" availability, there is a "neg" cost for borrowing the security that is split between the custodian/broker and the original holder of the securities. This neg can be anywhere from 0% up to 100% of the principle cost on the holdings. In some cases, this neg can become ridiculous and here is why... on penny stocks the neg can be calculated by taking the number of shares being borrowed times a minimum cost of $1 or $2 per share regardless of the price of the true security, due to the "penny share" status. Therefore, if you have a .22 security trading and someone wants to borrow it to short it, they could be paying a percentage (lets say 10%) on a principal amount calculated on a minimum price (lets say 1,000,000 shares at a $1 minimum). In this case it makes NO sense to do this. A neg of 10% would be 10% based on 1,000,000 shares at $1 or $100,000 per year to short .22 X 1,000,000 shares or $220,000 value of stock.
I also discussed the possibility of hedge funds shorting the stock prior to the private placement. This is a possibility but highly unlikely and here is why. If a fund decided to try this strategy, they would have to be short before they got into negotiations on the price for the private placement. Similar insider trading rules apply and therefore, any reputable firm would not risk doing this strategy. The one firm I know of who participated is very reputable, well known, long term player and US based.
Bottom line, I no longer believe any shorting was going on in material amounts by the firms who participated in the PP.
I stand firm on my opinion that selling pressure is now reduced due to the funds successfully disseminating their long position.
Partial Clarification – “removing downside risk”
I am sorry for not having the full story before disseminating information but I am balancing a fine line between what I can say or post about and what information I have direct access to. I have purposely NOT inquired directly to the hedge fund manager regarding the ERHE private placement because I don’t want to find out any information that would put any more limitations on my holdings. I am taking steps to discuss the strategy of what took place, though and have a tentative meeting scheduled in the next few business days with a different hedge fund manager that is familiar with ERHE.
I also would like to point out my intentions. I am not a trader “by any stretch of the imagination” as I am too busy with my regular day job. I was a much more active trader back in the booming late 80’s. I won some and lost some… nothing special. I am fascinated by some of the investment strategies here and I am trying to learn from others and share with others what I can with no intentions of profiting off the timing of this information.
I would like to thank both TOB and Krom for their mostly respectful, lol, dialog with their discussions on these private placement strategies. I am no expert but I feel strongly that both of these posters are wise and neither one is either 100% correct or 100% wrong (no matter how strongly they feel they are). I will provide some knowledge to educate us all on that front.
First, I would like to discuss the “interest” aspect brought up in TOB’s argument on shorting securities. There is only partial correctness in this statement. The fact of the matter is this: When a person or manager shorts a specific security (ie. 1,000 shares of IBM at $100), they do NOT pay interest on the proceeds ($100,000 in this example) they received from selling this security short no matter how long they remain short. Now, the person selling a security short and receiving proceeds from this sale may actually be on the receiving side of interest if they take those sales proceeds and invest it in an interest bearing vehicle. Whether they make money or lose money is not fully determined until they “close” out their short position or “cover short”. On the flip side, if a person or manager “borrow” securities and sells them short, they may end up paying the original holder of those securities money due to Dividends earned. In our IBM example, here is what happens: Investor A is the owner of 1,000 shares of IBM. Investor B borrows the shares of IBM and sells them short to Investor C. IBM then declares a quarterly dividend of $1 per share to the “holders of record” on a specific date (let’s say January 30th in this example). Now, January 30th comes along with Investors A, B & C still in the same holding position. Investor A is “owed” a dividend of $1,000 on January 30th for his “long” position in IBM. Investor C, actually receives the direct dividend from IBM of $1,000 on January 30th due to being the physical holder of those same 1000 shares. Investor B has to pay their custodian $1,000 for the cash dividend paid out while they were “borrowing” shares. The Custodian then takes this $1,000 and pays Investor A who is also owed $1,000 dividend for his “long” position. These transactions are all done transparently behind the scenes by the custodian of record (brokerage house). This is why when a person wants to “sell short” they have to go through a custodian that has shares available to borrow (another client with the actual holdings). In the case of ERHE, so far, there has been no dividends declared and therefore, there is no “interest” charged or received on the borrowed shares.
“Removing downside risk” – What I specifically meant with that statement is that the hedge fund manager has completed selling shares of ERHE in an equal amount to the shares purchased in the private placement. What is NOT known yet is whether this specific fund manager has sold the actual shares of record or borrowed their own shares to “sell short” to go to a neutral holding position on their balance sheet. I will say there are at least three reasons that I know of for holding both a “long” and “short” position of the same security. I just don’t know yet whether this fund manager is actively doing this strategy or not.
Reason 1) Restricted shares - I believe TOB brought this one up but it has to do with obtaining shares that hold restrictions on them. Not in this specific case but in some Private Placement transactions, there are restrictions put on the new shares issued as to a “holding” time before they can be disseminated into the general market. If this restriction is put in place, in general, nothing prevents the same manager from selling short and essentially borrowing their own securities from the custodian to do this.
Reason 2) Strictly accounting purposes for volatile stocks. Let’s go back to the IBM example but pretend there is no dividend being declared. Investor A purchases 1,000 shares of IBM in a private placement for $100 each. At the time of the transaction, the shares are trading in the open market for $105. Investor A immediately turns around and borrows their 1,000 shares and sells them short for $105 each. At that point in time, Investor A has locked in the gap difference or $5,000 in this case. On their portfolio accounting system they may show a long position of 1,000 shares and a short position of 1,000 shares and regardless of the security price, it is a neutral position on their overall portfolio valuation. In most cases, IMHO, this is a waste of time, energy, and not done for small or non-volatile securities. In this example, IBM could go to $5 per share and Investor A’s balance sheet is still showing a $5,000 gain. The exact same result is if the share price goes to $500 and neither the long nor short position has changed. Due to this strategy, an investor could plan on changing their neutral position at any point in time based on the “direction” they anticipate the security moving in. This also allows a hedge fund manager to control a rather large holding without the volatility being accounted for on their books. They have effectively “removed the downside risk” while leaving open the upside risk at a point in time they are comfortable with the direction the security is going.
Reason 3) “Moving the market” risk. This strategy is used in conjunction with reason 2 above. Let’s continue with a perfect world scenario of the 1,000 shares of non-dividend paying IBM obtained at $100, then borrowed and sold short at $105 for a net gain of $5,000. Now, IBM becomes this very volatile security and moves rapidly down to $50 per share. Investor A decides to start “covering short” his short position and successfully purchases 500 shares on the open market at $50 (pays $25,000). He takes these shares and closes out half his short position leaving him with 500 shares still “short” and 1000 shares long. Now let’s say that due to the volume of shares being bought greatly exceed the supply currently available on the open market (like a news announcement or short squeeze), that the price immediately spikes to $200 per share (I know, extreme..). Investor A now uses 500 of their current long shares to “cover short” their remaining short position without needing to go to the open market for those shares or taking the chance of “moving the market” further when trying to close out of their short position. Investor A sells their remaining 500 shares of their long position at $200 for a net profit of $80,000 (purchase @$100 - pay $100,000, sold short @$105 - receive $105,000, cover short 500 @ $50 – pays $25,000, sells final 500 @$200 – receives $100,000 = net $80,000 gain).
Some of these strategies do not make much sense at face value but I believe are utilized by large managers for controlling large holdings, helping companies like ERHE disseminate large amounts of new shares at minimal market impact, and capturing guaranteed profits due to market spreads between market values, private placement price and utilizing built in prices of warrants.
I can confirm that one hedge fund manager that participated in the PP of shelf securities has removed all downside risk at this point.
If the other participants of the PP followed similar strategies, there should be considerably less daily selling pressure on this security than we have experienced over the past 3 months (that is in addition to other selling pressures such as tax loss harvesting, doom and gloom scenarios, incompetent management claims, etc.).
Sidenote: thank you Krom and AC hotfries for your communications regarding Tullow. That all sounds very encouraging and believable regardless of whether they become ERHE's EEZ partner or not. This does let us know there are things going on behind the scenes.
Good luck all.
TOB
I can confirm that the PP had no restrictions what-so-ever on the .22 shares (I do not know the specific details regarding the warrants). I see with my own eyes the transactions going by daily (although one day delayed) for one of the managers who participated. I was unaware of the original participation at the time it went down. Due to my connection to this data, I now have some minor restrictions put on my own trading activity of ERHE (internal company policy which falls under SEC audits). From everything I have seen, I am estimating my restrictions will be lifted next week sometime until the fund manager exercises their warrants.
I do agree with your comments regarding the participants were expecting a bullish run with these private placements and they would have or still can make the most money when the share price increases well above the .28 strike price.
Krom... spot on!
And to go with my info, the proportionate number of shares that a specific hedge fund acquired is about to reach the point in your example (short position equal to warrants held).
Here is another interesting effect of this strategy: once the fund manager hits this “safe” equilibrium, they have a few choices which all result in either neutral buy/sell pressure or increased buying pressure beyond the retail crowd.
1) If the then current price is lower than the warrant strike price and lower than the price they sold short on the way down (and borrowed against their own holdings), they can “cover short” to lock in the pre-calculated gains between the cover price and the specific tax lot sold short on the way down. This results in a gain plus it leaves wide open, an unlimited gain with the remaining warrants. In this case, long term shareholders also benefit from the increase buying pressure to cover the short position.
2) If the then current price is lower than the warrant strike price but raises too quickly above the short sales price (which is nearly impossible because of the structured pattern in the short sales happening daily, over time at multiple prices), the manager can do nothing new. They have guaranteed the gain for all tax lots sold between the .22 obtained position and the .28 warrant strike price. The warrants can be used to cover the “fake” short position if nothing is done. Again, the long term shareholder gains as there is an increase in buying pressure while there is a difference in share price between .22 and .28. and there is no new sales pressure once above that amount because they were just “covering short” what they could lock-in in profits. They have nothing new to sell.
3) If the fund manager is real bullish on the outlook, they also have the choice of covering short and purchasing beyond the equilibrium. This is pretty straight forward of increasing the buying pressure beyond the retail investor sentiment to buy. Again, helps the long term investor with artificial buying pressure on the way back up (spring board effect). As the price increases beyond the warrant strike price, both their warrants and they increased position are “in the money”.
Almost makes me want to run a hedge fund……
Let's just say there was a very structured dissemination of the pp shares without emotion involved. There are complicated strategies involved and between the pp shares, the shorting involved and the warrants still being held, the hedge fund will make money over time without showing a loss position being held on the books. They would have made more money had the share price been in a rising pattern though.
These are the types of vehicles used to provide liquidity for companies like ERHE wanting to raise capital.
Unlike TOB, I don't believe ERHE will tap more of their shelf registration until the share price is a lot higher than it is now. I also think a bulk of the shelf registration will be used in conjunction with the AIM listing (agreeing with TOB that it is needed for share liquidity with the new market) but the timing has to be around a positive event or a much stronger outlook (Phase II or EEZ major developments).
Ironic as it may sound, I view this as a test to raise capital and the current long term shareholder will benefit because of it. This test run showed how much it can fail in the wrong conditions (without a near term positive newsworthy event). I feel ERHE thought they had the timing down to sell the pp shares into Sinopec announcing Phase II commitment in the fall of 2010 but it somewhat backfired with another 6 month extension. It will be MUCH harder for ERHE to raise capital like this in the future without a very positive event (I am conservatively guessing this year) to bring a substantial return to the hedge fund managers with their warrants.
Side note:
I am estimating about 2 or 3 more trading days of "selling pressure" left by at least one of the hedge funds involved in the private placement. This should have a positive effect on the share price in the coming week (in addition to the penny stock newsletters or Tullow rumors or January effect, etc.).
This is based on solid "facts" which I am not able to share more about.
Good luck all
Is there blood in the streets yet?
The emotional frenzy is worked up here pretty good. The traders are going to have a hayday with this security.
If only I had a bunch more cash on the sidelines. I do have a little but I am guessing we have 1 to 5 more weeks of worked up fear/panic to go along with tax loss selling (less than two weeks), and hedge fund shorting to drift further.
Followed by EEZ partnership news, Phase II plan announcements, NSAI new numbers, about a 500% to 800% rebound, and finally another round of buyout speculation. All IMHO.
Good luck all.
ps. don't let the fear get the best of you. If you are too worked up, take a break from following the day to day price. Come back in late January for the show to begin again.
Markgovols,
You are correct. No one should be making buying and selling decisions based on posters on a stock message board.
That being said, I do applaud your efforts to make actual contact with people in the oil industry familiar with the GOG region. Ironically as it sounds, I think the efforts you have made previously helped or pushed ERHE to disclose information before they planned on it.
If you get in contact with one of your old sources, please find out what you can about either the intentions of TOTAL (drilling rig scoops etc.) or likelihood of Sinopec going to phase II vs. waiting for TOTAL to do something first.
I have my own guesses but it would be fun to chat about the rumors on the street again.
I personally, would like to see the hedge fund managers have to cover their shorts.....
Good luck to you.
What is interesting is that I believe all these shares in the filings today (obtained on 9/30/10 fyi) are through some benefit plans or options/warrants granted in the past.
I think the only way the employees and directors can legally purchase shares during "black out periods" is by exercising these rights through these plans.
If they let these benefits ride through a merger, they may lose them so this might be why they were just exercised. Curious indeed.
If I understand these forms correctly, Oviawe purchased (or aquired) 85,000 shares of common stock AND a 10 year option (or deferred comp) for 105,000 more shares. For which he paid $51,300. This comes out to an average of .27 or pretty much between the private placement @.22 and the warrents @.28.
Anyway you cut it, this is much better news than the silence we have had for 10 years from insiders.....
Real money was put up by Oviawe.
Krom,
I just did a quick check and can confirm the shorting transactions were taking place almost every day dating back to early Oct. They have not taken place since 12/3 which seems out of the pattern. It may be that the price dropped to a certain point that the manager no longer likes to short it anymore or it could have been that the trading volume seem to show signs of capitulation. On the flip side, I do not see them "covering" these yet either.
This is priceless comedy TOB. Thanks for your level headed responses.