Analysts report from Hoare & Co. London!
Atlantic Caspian
Price as at close: 9«p (Bid) 10«p (Offer)
Recommendation: Speculative Buy
Bid/Offer Spread: 9.5%
No. Ordinary shares: 457,387,492
Market Cap: 45.7m
1999 Year High: 11¬p
Low: 4¬p
Listing: AIM
Brokers: T. Hoare Canaccord
Hoodless Brennan & Partners Plc
Market Makers: 6
Size on screen: 50,000
NMS: 1,000
(Source of information: Offer Documents from 30.6.99 and Reuters unless
otherwise stated.)
Company
Atlantic Caspian is an exciting high risk play, with a very attractive
license in Kazakhstan.
It has a 70% share of what could be a 1 billion barrel oil field. In 1998
the Company entered
into a partnership agreement with BN Consulting, a firm owned and run by
Bulat
Nazarbayev, who is the brother of Kazakhstan's president.
Atlantic Caspian's high level contacts in Kazakhstan should help it to do
business and move
forward more quickly. Since June 1998 Cedric Brown, the former chief
executive of British
Gas has held a consultancy agreement with Atlantic Caspian. In July 1999
Cedric Brown
became Chairman of Atlantic Caspian.
The Company has a 70% stake in East Caspian Oil Inc and through that, a 70%
interest in
the Akkul field which is just North of the Aral Sea. The remainder of Akkul
is largely owned
by the Kazakh government. Kazakhstan has formed many joint ventures with
Western oil
giants and established strict rules on the ownership of mineral rights. The
Republic of
Kazakhstan is a sovereign democratic republic formed upon the dissolution
of the Soviet
Union in 1991. Economic and structural reforms undertaken since 1991,
including significant
privatization, have helped to revive Kazakhstan's economy after the decline
experienced
upon the dissolution of the Soviet Union.
GDP grew 1.1% in 1996 and 2.2% in 1997. Kazakhstan has experienced
decreasing inflation,
which dropped to a year-on-year rate of 16.4% as of 31 July, 1997, from
over 30% in 1996
(Source: Proposed Acquisition of East Caspian Oil, Document, 30.6.99).
According to the
State Committee for Investments Foreign capital accounted for 25% of total
investments
in Kazakhstan in 1997. Kazakhstan recently received credit ratings from
Standard & Poors
(long term B+, short term B) and Moody's (long term B1 and short term not
prime) and
completed two Eurobond offerings.
In 1995, a new constitution was put into place establishing executive,
legislative and
judicial branches of state. Kazakhstan has large oil and gas reserves. The
British Petroleum
Statistical Review of World Energy put total oil reserves at the end of
1996 at 10bn barrels
of oil equivalent. The Economist published a reserve figure as high as 70bn
barrels of oil
equivalent. By comparison, the US has 22bn barrels of reserves,
demonstrating Kazakhstan's
potential future influence in the world oil markets. After Russia,
Kazakhstan is the largest
oil producer among the former Soviet Republics. In 1997, Kazak production
averaged over
500,000 barrels per day.
Atlantic Caspian is pursuing a policy of asset accumulation in oil and gas
properties in
Kazakhstan. Mr Salai Ozturk, a substantial shareholder in the Company as a
British and
Turkish national, has been conducting business in Central Asia for over 40
years. During this
time he has built up an extensive network of contacts in commerce and
government. Mr
Ozturk is seeking oil and gas investment opportunities in Kazakhstan and
assisting
obtaining any licenses for Atlantic Caspian. The Company's ADRs trade on
the electronic
bulletin board of NASDAQ. The Company intends as soon as practicable to
submit an
application to have its shares traded on the NASDAQ small cap market. The
Akkul field had
preliminary drilling and seismic work analysed by mining consultants Scott
Pickford, which
showed that the field could well contain 1.068m recoverable barrels of oil
or 4.4 trillion
cubic feet of gas
(Source: Proposed Acquisition of East Caspian Oil, Document, 30.6.99).
In October 1999 the Company undertook a review of the seismic and technical
data at
Akkul and were greatly encouraged by the review (announced 28.10.99). The
results of a
test drilling are expected to be known by Spring 2000 at which time, if the
results are good,
a partner will be sought to continue development of the Akkul field.
Interest in the Akkul
Field has been expressed by two large oil independents and two
multinational oil companies
(Source: Proposed Acquisition of East Caspian Oil, Document, 30.6.99).
Financials
31st March(œ)000 1998* 1999**
Turnover 156 405 Profits after tax -13,333 -541 Loss Per Share -0.075p
-0.003p * 6 months
to 30 June 1999(unaudited)
**12 months to 31 December 1998 (audited)
Source: announcement of interim results 28.10.99 Valuation The Scott
Pickford report
estimated 1068m barrels of oil. Due to the 70% interest that equates to
748m barrels. The
probability of them finding the oil is estimated as approximately a 1 in 5
chance by T. Hoare
Canaccord which gives them a net risk potential of 150m barrels. Each
barrel is given a net
present value of $1. Therefore $150m equates to œ94m for the prospect. T.
Hoare Canaccord
are assuming 25m more shares are issued to raise funds for the drilling of
the first
exploration well, and if options are exercised, we get a fully diluted
value of 18p per share.
This is a risk valuation, if the well is successful the value could be a
lot higher (source T.
Hoare Canaccord).
Risks are high and include;
There are less reserves recoverable than expected or it is not commercial
for extraction.
Price of oil or gas decreasing.
Spring test drilling produces inconclusive results.
The future of the Company is dependent on one field.
There are operating and economic risks associated with Kazakhstan.
Hooodless Brennan View
Chairman Cedric Brown's strategy for the Company is to seek oil and gas
opportunities in
Kazakhstan. In addition to this continuing with the exploration work,
proving reserves to a
certain stage in development and then finding a partner to take over. At
his time at British
Gas, Cedric Brown developed a good knowledge of the oil and gas business,
carried out
business in Kazakhstan on a certain field project and held high level
negotiations with
parties in Kazakhstan and Russia. In addition he knows most of the major
players and has
an extensive circle of contacts, which should help significantly in finding
partners. The key
strengths of Atlantic Caspian are its management team, its good technical
expertise` in
interpreting test data, its ability to oversee the drilling and
understanding of legal rules.
The Akkul field which has indicated it could contain over 1 billion barrels
of oil has been
given a risk valuation of 18p per share by T.Hoare Canaccord which could be
very
conservative if things go to plan. We therefore recommend the stock as a
SPECULATIVE
BUY. Risk Warning - *Alternative Investment Market This is a market
designed primarily for
emerging or smaller companies. The rules of this market are less demanding
than those of
the official List of the London Stock Exchange and therefore carry a
greater risk than a
company with a full listing. |
