And now for something completely different: How did a guy who lives in a tenement with his parents win a bid to get 10 million barrels of SPR oil? How did a Jesse Jackson spin-off with no oil business expertise win a similar amount?
October 11, 2000
Bidding on the Reserve
My goodness but it seemed like such a cute, harmless story. Until we looked a bit closer. The great big U.S. Department of Energy said it was going to release 30 million barrels of oil from its great big Strategic Petroleum Reserve. Some of the great big oil companies made bids -- companies like BP Amoco and Marathon Ashland Petroleum and Conoco Inc. But among the winners were three tiny oil companies: Lance Stroud Enterprises Inc., Euell Energy Resources and Burhany Enterprises Inc.
What do these Davids all have in common? Well, nobody in the oil industry has ever heard of them, none of them seem to have refining capacity (or even tankers) and they seem to have borrowed, from the U.S. government, a total of 10 million barrels of oil whose value on the market is millions of times greater than than the net worth of their firms.
According to Platt's Oilgram, Lance Stroud Enterprises has one employee, Lance himself, is located in Harlem and has never done an oil deal. Burhany Enterprises has one employee, Ronald Peek, is located in Tallahassee, Fla., and, as far as Platt's could determine, has never done an oil deal. Euell Energy Resources has about a dozen employees, is located in Aurora, Colorado, says it is "an integrated energy services company," and lists that great oilman, the Reverend Jesse Jackson, as a guiding light.
Come again?
But look even closer. The deal itself is not a purchase but a swap. The Energy Department will release the oil to the successful bidders, who must promise to replace it by November 2001. Payment is at that time and made in barrels of oil. This obviates the need for the three Davids to come up with cash -- only letters of credit, which must be presented to the Energy Department today. This financing was, presumably, what allowed the Davids to get in the arena with the Goliaths.
This is one sweet deal. Who wouldn't want to own 10 million barrels of oil with no money down, 12 months to pay? In fact, it's amazing that the Energy Department wasn't swamped with bids. Which has traders wondering why these three Davids and not others. Perhaps these three have a Very Good Friend in the Energy Department? Perhaps they are fronts for some low-down types? Perhaps they are just shills to prop up the prices when it looked as though the auction might not command a lot of interest from the standard suspects?
Of course, this deal involves a speculation: The price of oil could spike by next November and the three Davids could lose their slingshots.
Meanwhile, we are left to scratch our heads and wonder. . .
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