Focus on oil arena
Interview: Troika Dialog USA---Seymour, Tim---President
>> welcome back. when we had our next guest on past april, yukos oil was in talks to buy sid nap oil. that would have made them one of the top 10 largest oil companies in the world. investors speculated this could have changed the landscape for the oil industry but would have attracted a great deal of capital into russia. now that deal could be in jeopardy and there could be more trouble in the oil arena. tim seymour here to join us with this story. welcome once again, tim.
>> nice to be here.
>> a lots changed in this particular deal as we last spoke. give us a sense of what has changed between us.
>> immediately some―russia has shown that political risk is still a large ingredient to investing in the region. so in the last 10 days we’ve had yukos attacked by, hard to know which voice within the government. putin has been relatively silent and very ambiguous on where he stands on this. but the reality is there is a political attack on this country and―this company, and there is concern this deal could potentially come under fire if the political fours forces or the power base want to see it unwound. they would maintain this is not a deal in jeopardy of unwinding here. i think there are others invest nothing russia who are wondering if this is the beginning of a political witch hunt that will go into other ollie garkz. we say this is contained to yukos.
>> the prosecutor general is alleging tax violations. the original issue here was the arrest of the chairman of the menitep group, yukos’s parent holding company for fraud relatedding back to 1994 privatization. while yukos has had a checkered background and their rise to power has been one like a lot of other companies in russia where privatizations were questioned, there will be no turnover of privatizations. i think the government has been clear on that over the last couple of days. it’s very positive for the market.
>> what’s the chance of it getting done at this point?
>> we would put it at 90%.
>> still going to get done even with the controversy.
>> yes. i don’t think it’s in russia’s best interest here. as pragmatic as putin has been despite his silence, its no sense for russia’s political elite to intrude here, where this company which has been the catalyst for investors in russia for many investors to unwind this deal would be catastrophic.
>> there are many people who had great pause before they put their money to work in russia. concerns about organized crime, also it’s so young. when westerners hear about problems like this deal is facing that pushes them even further away from invest nothing russia, how does that lead to challenges for you?
>> the oil sector which had become the darling for not only international investors but international distruction like shell and mobile and bp, suddenly need to reassess the political risk. so russian oil companies which trade very cheap to international majors, still on an asset valuation though they’ve moved up on an earnings valuation, maybe they should for reasons, and we would at least caution that those people that is pekted to see the operating environment in russia be on a par with that which you see in the western oil regions is -- it’s too soon for that. and that will at least i think put some caution or put some clarity to valuations which have gotten high.
>> it’s not going to change the importance of oil reserves in russia.
>> no, that’s why everyone is paying such close attention, and that’s why it’s such a big deal since the merger was brought up. it put a russian oil company at the forefront of the global oil majors. russia will be still seen as a secure energy source for the west and will still be a vital exporter to western markets. but i think suddenly it does show that there could be, you know, volitility in russia as there is volitility in venezuela and nigeria and other oil regions in the world, despite the fact it had been such a stable place politically.
>> tim see more, president of troika dialogue u.s.a. oil and natural gas producer houston exploration escaped a serious slowdown this week when hurricane claudette struck the gulf coast. the chief executive told bloomberg television the storm had a minimal impact on production. they are adding up the numbers to see if it will have an impact on earnings. aside from the storm the oil and natural gas explorer is expected to increase earnings more than 109% over the quarter. the company has been generating a lot of cash and has very little debt on the books. we asked the c.e.o. what the future for drilling holes for houston exploration is.
>> well, actually a we’ll build a war chest of cash between now and the year end and we expect at some time to use that potential financial capacity to buy gas wells from majors. what we’ve been doing is drilling those and exploring nearby and increasing the rate of return for our company and shareholders.
>> shares of houston exploration are higher but the stock ended the day up 1%, though it’s up 19% over the past 12 months. u.s. treasuries are on track for their worst week since the invasion of iraq. when we return we’ll react to what one investor called a drastic seat change.
