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Gold/Mining/Energy : Harken Energy Corporation (HEC) -- Ignore unavailable to you. Want to Upgrade?

To: Arktic who wrote (3522)	9/4/1998 10:22:00 PM
From: jackie	Read Replies (3) \| Respond to of 5504

To Paul and all, Just reading my latest copy of the Economist, dated Aug 29, 1998. I was going to log on to the online version of what they refer to as their newspaper and just copy down the stories of interest, but I had to agree to a document forbidding that. Normally I don't pay any attention to those types of things, but the English believe words have meaning and the meaning is in the words. So, you will have to suffer through a summary of the articles I thought were of interest. First of all, on Russia and her oil. As we all know, there have been some disturbing changes in the power structure over there. Basically, Russia has no legal government. The gentleman greeting our President, was the 'acting Prime Minister', not the Prime Minister at all. You would think such turmoil in the government of Russia would make potential business partners nervous. And you would be exactly right. In an article entitled "A dangerous bear-dance" the author explains one can liken the entire relationship to a dance between Russian energy firms, their western counterparts and the Russian government. Russia has 50 billion barrels of proven reserves. You would think it would be logical for oil companies to work out something with the owners of this bonanza. They tried. The government has failed to pass laws protecting the interests of foreign investors. For some reason, people do not like investing money in ventures subject to arbitrary and unpredictable taxes. As a result, foreign firms are backing off from deals with the Russians. This means no investments in the infrastructure of Russia's oil industry. Which means, even though the oil is there, it can't be moved anywhere. I recall reading of the Russian's refusal to remove the sulfur from oil before it is placed in pipelines. Too expensive. The sulfur combines with water, forming sulfuric acid, ruining the pipelines. Local managers of oil pumps didn't care. They were paid for what came out of the ground, not what was delivered. In a related matter, the famous Trans Siberian railroad has been shut down because the workers haven't been paid. The point? Problems in Russia mean less production and it is less reliable at that. The article in the Economist has a chart depicting the steady decline in oil production in Russia of the last 8 years. A drop from 500 to 300 million tons per year. Another article in the same magazine talks of the "Better news in East Asia." Of course 'everyone' 'knows' the world has ended in East Asia. That's why the markets are so beaten up. The low prices of oil are due to 'everyone' 'knowing' demands for energy are bound to drop in Asia, because things are bad there and will never get better. The article shows how the devaluations of local currencies in Thailand and South Korea are having the effects one would expect. Exports, in volume terms, are up 20 to 30% in the last year. Even Indonesia has seen similar growth rates. The article does not imply everything is rosy there, its just we can see some recovery in the future. The central banks of Korea and Thailand have lowered interest rates from 25% to 11% and 26% to 14% respectively. Obviously, if the economies of these countries improve faster than is currently discounted in the markets, there will be an unexpected rise in the demand for oil. But just as the initial collapse of those economies was not anticipated until it became conventional wisdom, the eventual recovery will be ignored for some time after the event. Couple these with reports of a strong La Ni¤a following the abnormally high temperatures of last year, and perhaps we are seeing the cause of the steady rise in oil prices and futures over the last couple of weeks. I would like to say 'this is the truth', oil is going up. But I can't say that. What I will say is 'So it seems to me to be as I now see the things I think I see." That is a great quote from the book "Annals of The Former World" by John McPhee, a book everyone with an interest in geology should read. The whole quote is "Say not "This is the truth' but 'So it seems to me to be as I now see the things I think I see." It is the guiding principle of David Love, the grand old man of Rocky Mountain geology. It is an inscription over a doorway of the German Naval Officers School, Kiel, Germany. It is good advice for all of us when we start thinking we have figured something out. Just some thoughts. Jack Simmons