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Gold/Mining/Energy : International Rochester Energy Corp. (V. ROH)
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To: R F B, Jr. who wrote (26)2/19/1997 6:08:00 PM
From: Greg Burton   of 188
 
Dear Professor Ball:

I now think I understand you and can say that you have convinced me in all respects except the part about the seminar.

Let me move the topic forward a bit. I am a little perplexed about the decision by HEC to proceed on the Palo Blanco well. I am told that Harken has the best marketing team since Carvel and Begala and they are committed to pushing HEC to $7 by May when the new European Convertible Bonds will be issued. Everybody expects them to use the re-evaluated results of Torcaz #2 and an announcement of a J/v with a major, to push the stock up to that price. Many expect them to exploit a potential favorable find at Palo Blanco to the same end. While you and I, now that I have been educated, might not buy on the come into Palo Blanco, surely HEC must believe that there are enough souls out there who will.

But look at the downside, which these marketeers must have considered, of a dry hole. We agree that the mathmatical consequences of a dry hole- or a wet one for that matter- would be trivial but the psychological damage and the effect on momentum of the stock's price could be devastating coming as it will at a critical time before Harken has hit on the big one. Why would they drill when the statistical probability of a dry hole is 45%? Call it a toss-up chance for a real set back.

Are my assumptions wrong? Does Harken believe that the market will reward the stock by more than $3 a barrel? Do they think there is more oil there than 50 mm barrels? Do they have seizmology that tells them that the odds are better than we have been led to believe? Do these questions suggest that there might be something going on here that could change our understanding?

Greg
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