SPR being sold off to day traders...story now confirmed by Dow Jones (the rumor I posted last night has been verified):
interactive.wsj.com
October 9, 2000
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DOE Awards Oil Contracts
To Tiny, Little-Known Firms
By JOHN J. FIALKA and ALEXEI BARRIONUEVO
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- In its rush to meet an expected heating oil shortage this winter, the Energy Department has awarded swaps contracts for more than 10 million barrels of crude oil from the Strategic Petroleum Reserve to three tiny brokerage companies that appear to have little or no experience in making oil deals.
The companies, whose bids were among 11 accepted by the agency last week, now have the right to borrow almost one third of the 31.5 million barrels that the department is making available, on the condition that they pay it back, plus an additional quantity as interest, next fall.
Robert S. Kripowicz, an acting assistant secretary at the Energy Department, says the awards were made after DOE checked the companies' identities with the oil industry, but many oil traders and analysts say they have never heard of the brokerage firms. The recipients: Euell Energy Resources of Aurora, Colo., Burhany Energy Enterprises Inc. of Tallahassee, Fla., and Lance Stroud Enterprises Inc. of New York.
Lance Stroud Enterprises is run by Lance Stroud, a 35-year-old former Army enlisted man who says he has never done an oil deal. He works out of a New York apartment where he lives with his mother. Burhany Energy was incorporated Aug. 21, just one month before the administration authorized the release of the crude. The firm didn't return phone calls. Renard Euell, owner of Euell Energy, says his 12-employee firm has experience mainly in running construction projects.
"This is stunning," said Philip K. Verleger, an economist with Brattle Group, a Cambridge, Mass., consulting firm. "It is utterly incomprehensible that the Strategic Petroleum office would consider accepting bids from companies that do not regularly buy and sell and distribute oil."
The DOE's Mr. Kripowicz said the agency decided not to ask for financial guarantees before accepting the companies' bids. "Speed was a factor" in making the awards, he said, because the administration wants the oil delivered to refineries next month.
Under the terms of the swap, the winning companies must give DOE irrevocable letters of credit from banks by Thursday, covering the value of the oil being borrowed. Otherwise the oil likely would be put up for bid again, he said.
Mr. Kripowicz said DOE contracting officers checked the firms' names using computer searches and with "major [oil] traders who said they were dealing seriously with these people.
Based on these assurances and the fact that the government doesn't release any oil without financial guarantees, the overall assessment was that we would go forward with these people."
The presence of three obscure traders in the first emergency release of crude oil from the government's strategic reserve since the Gulf War was noted last week by Platt's Oilgram News, an industry trade publication.
Among the 11 winning bidders were some of the biggest names in the oil market including BP Oil Supply Co., a trading unit of BP Amoco PLC, with six million barrels, and Marathon Ashland Petroleum LLC of Houston with 2.4 million barrels. Unsuccessful bidders included Conoco Inc., which bid for 1.5 million barrels but the offer fell short.
Compared with these companies the three unknowns appear to have scored a coup. "They seem awfully tiny," said Tom Jones, a crude-oil trader with Phillips Petroleum Co. "This could show that the other companies that actually have refineries don't need much physical oil."
Under the swaps process, companies bid on a quantity of oil by offering to repay the Strategic Petroleum Reserve later with a larger amount of oil, not cash. All bids are confidential.
Successful bidders could then offer the crude to refineries or professional oil traders on the spot market. The bidders will get oil at high prices today that they hopefully will repay with less-expensive oil bought on the spot market a year from now. Of course, the size of any pricing spread is uncertain.
Mr. Stroud said he has been in talks with a potential creditor, BNP Paribas of Paris, and has been called by the U.S. military and a handful of oil companies interested in buying some of his crude oil, but these conversations couldn't be independently verified with the other parties. He describes his firm as a "service company" and says he also has worked as a grain wholesaler. "Moms helps me out," he said. "She answers the phones and can work the computer slightly."
Mr. Stroud said winning the equivalent of more than $120 million in crude oil was a chance of a lifetime. After spending four years in Army intelligence, he went to college to study aeronautics. Discouraged by defense cutbacks, he dropped out of college one semester short of graduation to start his business in 1998. "I haven't sold anything in the oil markets, but I have a supplier that is willing to supply me with what I need."
Mr. Euell, an African-American, said his company has handled complex deals before, mostly in government construction projects with set-asides for small, minority-owned business.
He says he has his financing arranged, but needs to negotiate several "caveats" with DOE for help in handling the logistics of shipping the oil from government storage sites on the Gulf Coast to refineries.
While several of the winning bidders are big oil companies that control tankers and refineries, Mr. Euell says that doesn't bother him. "I don't care about the size of the other companies. We'll go heads up with any of them."
Burhany Energy lists its president and sole officer as Ronald Peek in incorporation papers filed with Florida's Department of State.
The papers describe the business' purpose as "energy marketing and personnel recruitment." Mr. Peek didn't respond to repeated attempts to contact him.
"Moms helps me out"....ROTFLMAO!!!! |
