Bankers Pet : BNK: Time To Buy?

In Albania, shadowy memo haunts Calgary energy firm

Wednesday, July 07, 2010

Eric Reguly

Rome — One of Canada’s fastest-growing energy companies is grappling with a murky set of unsubstantiated allegations of environmental damage in Albania, the tiny Mediterranean country blessed with Europe’s biggest onshore oil field.

Bankers Petroleum Ltd. is a Calgary high flier that is developing a major oil property in Albania, a frontier for energy companies on the prowl for lucrative reserves. Bankers has so far spent $400-million (U.S.) in Albania, with another $1-billion to come, making it one of Canada’s biggest overseas oil investors. The company sports a market value of $1.6-billion (Canadian).

Bankers Petroleum late last month asked Albania’s government to investigate allegations that it set off subterranean well explosions that triggered an “environmental catastrophe.”

In a June 24 letter to the Albanian National Agency of Natural Resources, known as AKBN, Bankers’ chief financial officer Douglas Urch said the allegations “not only misrepresent the facts, but also makes accusations of illegal activities by Bankers, Albpetrol [Albania’s state oil company], AKBN and the Ministry.”

The letter requests of ABKN executive director Taulant Musabelliu “that this matter be investigated and addressed immediately for the benefit of all parties slandered therein.”

The allegations, reported in part by the Albanian press in recent days, come at a sensitive time for Bankers, which is listed on the Toronto and London AIM stock exchanges. It is in the middle of a raising $100-million in a bought-deal equity financing led by underwriters Raymond James and GMP Securities.

The deal, at $7.75 a share, is expected to close on July 14, and will be used to finance the next stage of its development of Albania’s massive Patso-Marinza heavy oil field and the smaller Kucova field.

Bankers entered Albania in 2004 and currently produces 10,000 barrels of oil a day from the Patos Marinza field, which was discovered in 1928 and worked haphazardly for decades by Albanian, Russian and Chinese oil companies. Bankers estimated the total resource at 5.7 billion barrels, making it Europe’s top onshore field.

Bankers officials believe the company is the victim of a bizarre series of allegations from IEC Visoka, a company with an oil field development venture in Albania. IEC Visoka was and may still be connected to former British Columbia businessman Frank Hertel, according to officials of a British company that claims ownership of the Albanian venture. Mr. Hertel (sometimes referred to as Wolfgang Hertel) is a former Victoria resident and technology entrepreneur who fled Canada 25 years ago after being hit with tax evasion charges. He went to Venezuela, was arrested 14 months ago at London’s Heathrow airport and reportedly awaits extradition to Canada. There is no suggestion that Mr. Hertel is involved in the allegations against Bankers.

Bankers officials say IEC Visoka is behind the allegations, contained in an anonymous memo, that the Canadian company is responsible for the well explosions and subsequent pollution. Mr. Urch’s letter to AKBN said “the wording within [the memo] does suggest that it may have originated from IEC Visoka Inc. or associates thereof.”

Abdel Badwi, the Bankers CEO, said in a phone interview that he is convinced IEC Visoka made the allegations because the company has made legal threats against Bankers, though has not launched a lawsuit. Mr. Badwi says the legal threat is apparently based on IEC Visoka’s belief “that we have caused damage to the [Visoka oil field] reservoir” whose drilling rights, he said, are essentially shared by the two companies; IEC has the rights to the “deeper” part of the field.

The allegations are contained in a seven-page memo, dated Oct. 12, 2009, called “Summary of events surrounding environmental damage to Visoka oil field.” The author is not named, though IEC Visoka is mentioned several times. The memo became public two months later, when it surfaced on the Wikileaks whistle blower site. Mark Hodgson, Bankers’ investor relations officer, said Bankers became aware of the memo only recently.

The memo centres on “Well 646” in the Visoka field, which Bankers acknowledges it was operating. The memo says “Apparently Bankers determined that they could increase well 646’s ability to receive injected water by setting off explosives in IEC Visoka’s reservoir within the IEC Contract Area.”

The alleged explosions, the memo says, happened last year and caused “extremely serious environmental damage” to other wells, including one called G44. “Some 250-300 metres below well G44 the pipeline is compromised and water and gas are spewing at a rate of 400-450 cubic metres a day over the surface and into a small stream and then on to Gjanica river.”

Mr. Badwi said the seismic activity mentioned in the memo was not caused by well explosions, but by earthquakes. “During that period earthquakes occurred and caused some damage to several points in Albania,” he said.

It is not known whether AKBN has taken up the call to investigate the allegations. E-mails and phone calls to Mr. Musabelliu, the agency’s director, were not returned.

Complicating the matter is the question of IEC Visoka’s true ownership. IEC Europetrol, an enhanced oil recovery technology company based in Bristol, England, and at one point led and owned by Mr. Hertel, claims it is the legal owner of IEC Visoka, said Ian Poornan, Europetrol’s finance director. “Our argument is that IEC Europetrol PLC should be the major shareholder of IEC Visoka and not Dr. Hertel and others personally,” he said in an e-mail. “The business in Albania was introduced by IEC Europetrol PLC shareholders, not by Dr. Hertel himself, and they were alarmed when the contract was signed by Dr. Hertel in the name of IEC Visoka Inc., a [British Virgin Islands] company.”

Mr. Hertel, who was born in Germany and was 72 at the time of his arrest, is the founder and former chairman of International Electronics Corp.(IEC). He set up shop in Victoria in the early 1980s and said he used the federal government’s scientific research tax credit program to fund research into new technologies such as advanced electricity meters and a system to extract lingering oil from mature reservoirs.

In 1986, he left Canada, with Revenue Canada (now the CRA) claiming $33-million in back taxes. Mr. Hertel publicly resurfaced in Albania in late 2008. It is not known whether Mr. Hertel is still a shareholder and director of IEC Visoka.

Mr. Poornan said his company has filed a petition in a German court for €100-million ($133-million) in damages against Mr. Hertel for “the mis-assignment of the Visoka oil field contract.”

A message left at the Zurich phone number of Pauline Champ, whom Mr. Poornan said is a director of IEC Visoka, was not returned.

Mr. Urch, the Bankers’ CFO, said Bankers would not be making an official statement about the allegations contained in the memo. “We're currently in the midst of our prospectus filing for a bought-deal equity issue and we're restricted by the regulatory process as to disclosing any information on all corporate matters,” he said in an e-mail.

Black 'entitled’ to immediate bail, court filing says Read more: http://www.nationalpost.com/news/Black+entitled+immediate+bail+court+filing+says/324

Conrad Black says he is “entitled” to be released on bail from a Florida prison pending his appeal because most of his fraud convictions have been thrown into question by the U.S. Supreme Court and, thus, his time behind bars could outdistance his ultimate sentence.

In a 19-page filing with the U.S. Court of Appeals for the Seventh Circuit, Lord Black argued yesterday that the circumstances surrounding his bail request have changed dramatically since the first time he applied — and was denied — in 2007, a few months after a Chicago jury convicted him.

“At nearly 66 years of age, he has a particularly strong interest in bringing finality to these proceedings,” his lawyer, Miguel Estrada, argues in the legal brief. The Washington-based lawyer added that any “additional time he spends in prison between now and a favourable ruling can never be returned to him.”

Last month, the U.S. Supreme Court unanimously set aside Lord Black’s three honest services fraud convictions because the controversial statute is limited to bribe or kickback schemes, which were not at issue in his criminal case.

The high court decided that prosecutors erred in using the federal law to convict him, but still remanded the case to a lower appeals court to determine whether his convictions should be overturned.

In his bail brief, Lord Black argues that prosecutors hammered home to the jurors that they could, and indeed must convict on the “honest services” charge alone. The “sheer repetitiveness of the government’s argument ensured that even the most inattentive juror could not miss the point,” the filing says. “It is literally impossible on this record for the government to meet its burden of demonstrating that the verdict was not tainted beyond a reasonable doubt.”

Accordingly, Lord Black has asked the lower appeals court to also overturn what would be his single remaining conviction on obstruction of justice.

“The Supreme Court’s rejection of the government’s fraud theory goes to the heart of the most hotly contested issues at Mr. Black’s trial – whether there was a scheme to defraud and whether Mr. Black ‘corruptly’ intended to obstruct the investigation of this non-crime...”

Lord Black was convicted on one count of obstruction of justice for removing 13 boxes from Hollinger Inc.’s Toronto head office, six days before he was due to be evicted by the company’s new management.

U.S. prosecutors successfully argued at trial that the removal of the boxes was illegal because he was the subject of an investigation.

However, in his bail application, Lord Black argued the “government’s proof of corrupt intent was desperately threadbare,” because it never produced evidence proving he knew that a request for documents had been issued.

As well, his legal filing questioned whether the jury would have convicted Lord Black on the obstruction charge “if it had been aware that the offence Mr. Black was supposedly endeavoring to obstruct was, as he maintained all along, not a crime at all.”

And, the Lord Black’s filing adds, it would be “odd” for the U.S government to now contend, much less prove beyond a reasonable doubt, “that the fraud and obstruction offences had nothing to do with each other.”

Even if the obstruction conviction remains, his lawyer argued, the amount of time Lord Black will likely be sentenced to serve under federal sentencing guidelines is shorter than the time he has already spent at the Coleman Federal Correctional Complex, which he entered in March, 2008.

“With good-time credit, Mr. Black has already served 32 months of his 78-month sentence. If the obstruction count alone remains in place ... the range would drop to 15-21 months,” Mr. Estrada said in the bail application.

National Post

Read more: http://www.nationalpost.com/news/Black+entitled+immediate+bail+court+filing+says/3243438/story.html#ixzz0t00n2DLm

Four beaten-down U.S. stocks to watch

July 06, 2010

John Dorfman

BOSTON — The deafening hiss we’ve been hearing for the past five weeks was the air going out of the U.S. stock market at the end of the second quarter.

For those who still have the nerve to buy equities, I present my quarterly Casualty List—a roster of stocks that have been banged up severely and that I think can recover and go on to new heights.

Microsoft, which I never thought I would see on this list, exemplifies the latest batch of casualties. Many of them are well-known companies with solid balance sheets and long histories of profitability.

The Standard & Poor’s 500 Index, a decent gauge of the overall U.S. stock market, lost 11.4 per cent for the last three months, even after taking dividends into account.

To me, things seem less grim than many investors think. The European debt crisis of 2010 -- and probably 2011 -- may pass without lasting damage, as did the Asian currency crisis of 1997-1998. That, too, provoked fears of a worldwide financial meltdown. The Gulf of Mexico oil spill is a tragedy for wildlife, shrimpers, fishermen and tourism. Yet its economic impact will be diluted with time.

Investors seem to forget that in the past 70 years we have gone through World War II, a cold war with the Soviet Union, radioactive fallout from nuclear testing, the Vietnam War, the 2001 terrorist attack, the AIDS crisis and numerous recessions.

And yet for the 70 years from 1940 through 2009, the U.S. stock market has provided a compound annual return of 10.8 per cent. We have always had problems, and always will—yet enterprise, innovation and economic progress somehow continue.

Investors are fixated on whether we are about to have a double-dip recession. Double-dips are rare creatures, and not the most likely outcome in my view. If you see stocks such as Microsoft and EBay on the bargain counter, the wise thing in my opinion is to buy.

Microsoft fell 21 per cent last quarter. You can now pick up the shares for 12 times earnings. Over the past 10 years, Microsoft has sold for an average of about 23 times earnings.

I think there is room for positive surprises, as Microsoft benefits from demand for its latest operating system upgrade, Windows 7.

EBay, the online auction firm, is trading for less than $20 (U.S.), down from about $27 three months ago. In recent years, it has lost market share to Amazon.com in online retailing, but still is growing strongly.

The company has become the leading retailer in mobile commerce, in which people order merchandise using Blackberry, iPhone, Droid or similar smartphones, Colin Gillis, a New York-based analyst at BGC Partners said.

The company is debt-free and the stock sells for 13 times earnings.

General Dynamics, down 23 per cent in total return for the quarter, has been slammed as more people become convinced that defense spending will have to be sliced as Congress tries to address the large federal deficit. The military contractor makes planes, ships, weapons and information systems.

I agree that General Dynamics faces a difficult environment, but that is why its stock sells for less than 10 times earnings. The company increased its earnings in eight of the past 10 years; last year they were unchanged at $6.17 a share, a record.

Investors also punished American Eagle Outfitters in the last quarter. The clothing retailer for teen-agers and young adults declined 36 per cent, including dividends.

The stock faltered after American Eagle forecast second-quarter earnings below analysts’ expectations. Yet I would put some faith in the company’s long-term record, including positive earnings for 14 consecutive years.

I also like its international expansion push. It opened stores this year in Dubai, Kuwait and Israel. It plans to enter mainland China and Hong Kong in 2011.

Disclosure note: I own shares of General Dynamics personally and for clients. I have no long or short positions in the other stocks discussed in this week’s column.

John Dorfman is chairman of Thunderstorm Capital in Boston.

Black Box Trading Vs People = Volatility

In electronic financial markets, algorithmic trading or automated trading, also known as algo trading, black-box trading or robo trading, is the use of computer programs for entering trading orders with the computer algorithm deciding on aspects of the order such as the timing, price, or quantity of the order, or in many cases initiating the order without human intervention. Algorithmic Trading is widely used by pension funds, mutual funds, and other buy side (investor driven) institutional traders, to divide large trades into several smaller trades in order to manage market impact, and risk.^[1][2] Sell side traders, such as market makers and some hedge funds, provide liquidity to the market, generating and executing orders automatically. A special class of algorithmic trading is "high-frequency trading" (HFT), in which computers make elaborate decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe.

Algorithmic trading may be used in any investment strategy, including market making, inter-market spreading, arbitrage, or pure speculation (including trend following). The investment decision and implementation may be augmented at any stage with algorithmic support or may operate completely automatically ("on auto-pilot").

A third of all EU and US stock trades in 2006 were driven by automatic programs, or algorithms, according to Boston-based financial services industry research and consulting firm Aite Group.^[3] As of 2009, high frequency trading firms account for 73% of all US equity trading volume.^[4]

In 2006 at the London Stock Exchange, over 40% of all orders were entered by algo traders, with 60% predicted for 2007. American markets and equity markets generally have a higher proportion of algo trades than other markets, and estimates for 2008 range as high as an 80% proportion in some markets. Foreign exchange markets also have active algo trading (about 25% of orders in 2006).^[5] Futures and options markets are considered to be fairly easily integrated into algorithmic trading,^[6] with about 20% of options volume expected to be computer generated by 2010.^[7] Bond markets are moving toward more access to algorithmic traders.^[8]

One of the main issues regarding high frequency trading is the difficulty in determining just how profitable it is. A report released in August 2009 by the TABB Group, a financial services industry research firm, estimated that the 300 securities firms and hedge funds that specialize in this type of trading took in roughly $21 billion in profits in 2008^[9].

...High-frequency trading In the U.S., high-frequency trading firms represent 2% of the approximately 20,000 firms operating today, but account for 73% of all equity trading volume.^[19] As of the first quarter in 2009, total assets under management for hedge funds with high frequency trading strategies were $141 billion, down about 21% from their high.^[20] The high frequency strategy was first made successful by Renaissance Technologies.^[21] High frequency funds started to become especially popular in 2007 and 2008.^[20] Many high frequency firms say they are market makers and that the liquidity they add to the market has lowered volatility and helped narrow spreads, but unlike traditional market makers, such as specialists on the New York Stock Exchange, they have few or no regulatory requirements.

High-frequency trading is quantitative trading that is characterized by short portfolio holding periods (see Wilmott (2008), Aldridge (2009)). There are four key categories of high-frequency trading strategies: market-making based on order flow, market-making based on tick data information, event arbitrage and statistical arbitrage. All portfolio-allocation decisions are made by computerized quantitative models. The success of high-frequency trading strategies is largely driven by their ability to simultaneously process volumes of information, something ordinary human traders cannot do. Various types of high-frequency strategies are covered in Aldridge, I., "High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems" (Wiley, 2009).

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