The Wall Street Urinal gives AIPN the "Kiss of Death"
Pint-Sized Oil Company's Claim Sparks Black-Gold Rush on Web
By TERRI CULLEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
Is it black gold or fool's gold?
That's the question
plaguing dozens of
American International
Petroleum Corp.
shareholders, who have been debating heatedly on-line
in recent weeks trying to decide whether they've
stumbled upon the next Exxon, or the next Bre-X.
The tiny oil-exploration company with few tangible
assets and a troubled past touched off a gusher of
on-line speculation in recent weeks after the company
reported in early July that its new oil concession in
western Kazakhstan could contain more than 1.1 billion
barrels of "potentially recoverable reserves."
But troublesome
questions remain
about the ability of
struggling,
cash-strapped
American to
eventually make
money on the
claim, even if the
oil actually exists
and can be
extracted.
The report --
coming just three months after Canadian gold-mining
company Bre-X took investors on a wild ride with its
empty claim of potential gold in Indonesia -- sparked a
whirlwind of fretful discussion in Internet chat rooms
about American, whose headquarters in New York.
Long-suffering shareholders rushed on-line to crow
about the news and the stock's sudden lift-off. Mired in
a narrow trading range near 50 cents a share for more
than a year, its shares closed at 62.5 cents the day
before American's announcement. After the
announcement, the stock jumped to $1 and a week later
its shares surged to $3 on heavy volume of 13.4 million
shares. Since then, the stock has settled a bit, and
closed Friday at $2.59375.
"Right now I'm in a state of shock," sputtered one recent
posting on the Silicon Investor site. "Last week there
were just a few of us talking about our little dog and
here we have the price of the stock multiply ... in just a
few days. I guess this qualifies us as lucky."
In the month of July alone, more than 1,000 messages
were posted about American's stock on the Silicon
Investor site. And of the site's 350 folders for stocks
trading under $5, the so-called penny stocks, only 32
saw more activity than American's during that period.
On AOL's stock message boards, which tend to be
dominated by discussions of larger, more
well-established stocks, upward of 500 messages have
been exchanged regarding the pint-sized company.
The atmosphere around American is so superheated that
inquiries from the Interactive Journal about the company
set off a wave of speculation on-line about this story.
Keith Bossey, an analyst with Robert Cohen & Co. in
Great Neck, N.Y., says there are similarities between
American's recent stock movement on its claim and that
of Bre-X's shares following the release of the Canadian
company's research report touting a multibillion-dollar
gold discovery. "Small exploration company finds
world-class resource property. Stock volume balloons,
price explodes. Sounds a lot like a few recent gold
mining companies," he says.
The uproar on-line about
American began after it
announced in early July
that its independent
petroleum engineering firm
had more than doubled
previous estimates of the
amount of oil underlying a
tract of land in the Usturt
Basin of western
Kazakhstan that was
recently licensed for
exploration and
development to MED
Shipping Usturt Petroleum
Co. Ltd. The joint-venture
company, which is
70%-owned by American,
was formed to manage the
Usturt Basin license
operations.
After analyzing data on the
site, the independent
petroleum engineers,
based on parameters
which American says have
been derived from sources
in Kazakhstan, estimated
there may be as much as
1.1 billion barrels of oil, an
upward revision of a
previous projection of 458
million barrels.
Denis Fitzpatrick, American's chief financial officer, is
careful to point out, however, that MED Shipping Usturt
Petroleum has not actually discovered oil in the
concession. Instead, he says, the independent engineers'
estimates of the reserves rely upon data from tests
conducted by Russian engineers before the breakup of
the former Soviet Union. The Soviet engineers drilled 16
exploratory structures, and data generated from seven
structures were analyzed by the engineers.
But the finding of the company's independent engineers
were immediately followed by a report published in
Platt's Oilgram, a respected energy newsletter published
by the commodities division of Standard & Poor's
Corp., that quoted an unnamed Kazakh oil-ministry
source as saying there could be more than three billion
barrels of oil at the site.
"The Kazahk sector of the Caspian has been a lot less
explored and hyped than other sectors in the region, so
the figures are kind of unknown," says John Kingston,
editor of the newsletter. "It'll be really interesting to see
what unfolds."
Indeed, American's license pertains to a territory
bordered by oil and gas concessions being explored by
industry giants Exxon Corp., Amoco Corp. and
France's Elf Aquitaine. More importantly, it is located
only 125 miles away from Chevron Corp.'s giant Tengiz
oil field, which is believed to hold more than 10 billion
barrels of recoverable reserves.
The news generated a blizzard of postings on-line from
micro-cap investors frantically seeking more information
about the company.
"How high do you guys think this could go?" another
Silicon Investor subscriber asked. "Do you have a
comparison in the oil sector? I got in on momentum but
now I want to know specs. [One] billion barrels is what
convinced me and the possibility of an even greater
reserve."
But for all the seemingly upbeat readings on the Kazahk
claim's potential, many fear the enthusiasm that is being
generated by the likelihood of a large oil strike is being
overshadowed by the company's patchy history.
"I have been following American International Petroleum
for about a little over four years and they've had their
ups and downs and have disappointed investors until
recently," says John Czaia, a portfolio manager at
PaineWebber. "Part of the problem is they have not
been able to generate cash flow and have had to issue
stock and debt to keep the company viable. They've
diluted a lot of its value over the years."
American, which also operates a refinery in Lake
Charles, La. -- although it remains the company's main
source of income, the refinery is shut down for upgrades
-- has indeed suffered its share of misfortune in recent
years. Numerous times since the early 1990s, according
to documents filed with the Securities and Exchange
Commission, American has issued stock, warrants and
debt to fund the exploration and development of oil
properties in Columbia, Peru and Indonesia.
Cash-starved by early 1995, the company made an
abortive attempt to sell its Lake Charles refinery, in an
effort to drum up enough money to keep its
oil-exploration business running. But just three months
later, the $17 million deal with Power West Ltd. of Salt
Lake City late collapsed.
By the end of 1995, the company's independent
auditors, Price Waterhouse Inc., questioned American's
ability to continue as a going concern. Price Waterhouse
resigned in mid-1996.
When American arranged to negotiate the Kazahk
concession deal, it moved to sell off its Colombian wells
in order to buy what it saw as a potentially more
lucrative tract, according to PaineWebber's Mr. Czaia.
In late February, American sold its Colombian and
Peruvian claims to Mercantile International Petroleum
Inc., based in the Bahamas, for $20.2 million in debt,
cash and stock.
Even if the company is capable of profitably recovering
oil at Kazahk site, many on-line wonder how much the
discovery will actually find its way to American's bottom
line.
American CFO Mr. Fitzpatrick readily admits the tract
may not hold recoverable amounts of oil. More
ominously, the independent engineering firm that initially
provided the estimate for American has refused to have
its name publicly attached to the document. While many
on-line have speculated that Huddleston & Co.,
American's long-time engineering firm, was the source of
the document, the Houston engineering firm refused to
comment.
Mr. Fitzpatrick, who says he realizes on-line investors
have inferred that Huddleston was the independent
engineers behind the estimates, says Huddleston refused
to give American the right to use its name in connection
with the claim. He would not to comment further.
Even if there is oil in American's concession, the costs
involved with drilling, extracting and transporting the oil
may be too much for a small, independent company,
with such limited financial resources, to take on alone.
PaineWebber's Mr. Czaia agrees, "There doesn't seem
to be too much disagreement that there's a substantial
amount of oil in the concession in the region. The big
questions are the cost of getting the oil out of the ground
and transporting it, and what American will have to give
away to get a partner to assist them to do it."
-- Additional reporting by Danialle Weaver |
