Here are some random thoughts that I just posted on AOL..
Subj: Random Thoughts
Date: 97-09-24 23:44:36 EDT
From: Bouhafa
If the rumor that AIPN has sold half of its concession to a major oil company looking to get into or expand its activities in Kazakhstan...and I believe it is....then this is how, in my opinion, it should play out in general terms.
1. Keep in mind that the Kazak registered consortium MSUP, which is composed of Med Shipping (5%), the two Kazak companies Enterdynamics (15%) and DANK (10%), and AIPC (70%), owns the Exploration License granted by the government of Kazakhstan on or about July 14, 1997.If half of the concession has been sold to AMOCO, for example, it was sold by MSUP. Therefor, AIPN's share of that sale would be $410 million.
2. Since the Bengash structure is the only one to have been subjected to preliminary evaluation by Huddleston, I believe that the $600 million is for that structure. On the other hand, an AMOCO could be focusing on an entirely different structure. In that regard, I have been told by someone who recently returned from an investigative trip to Almaty that another 37 million tons of oil (anybody know how many barrels that is?) is about to be added to the equation. I assume that means additional potential or proved reserves will be announced for the concession.
3. AIPN will use this money to finance all the activities announced in Monday's press release including launching a major drilling program which it will now be able to undertake in a serious manner. If you read the release carefully, you will notice that the company plans in October "to begin work to lay out the initial 1250 kilometer seismic program, which is expected to begin in November, 1997." The company does not mention which structure this program relates to but my guess it is focused on everything but the already evaluated structures in Bengash.
4. There is are a great deal more structures in this License Area. Whether an AMOCO is buying Begash, or Chikaduk or some other structure, the fact remains that there will be a number of valuable structures. AIPN will begin development of some of them by itself under the direction of Wooddy. Remember an earlier post where I made the point that someone like Wooddy would never have taken this job as President of AIPC/Kazakhstan without assurances that he would have the necessary funds to get the operation off the ground? Well, I believe Wooddy was told what we are now speculating about at least 2 weeks ago. He was told of an AMOCO's offer. He was told that AIPC was going to accept it. Result: he accepted the job knowing that he would have $420 million to get his off the ground.
5.Obviously, $600 million is not enough to fully develop the area in question. Mobil recently committed $1.1 billion to a concession in Kazakhstan. Chevron has committed $20 billion to complete development of Tengiz. The fact that an AMOCO paid $600 million for the rights to develop this part of the concession does not mean they are not planning on spending more. They may very well spend another $2 billion to develop it. If, however, there are, as some suspect, 3+ million barrels of oil there which,after production costs, royalties, taxes, could net a minimum of $3/barrel, then a $2.5 billion investment looks pretty smart considering the anticipated minimum $9 billion return.
6. Now, what about the other oil companies? Are they interested in the other 50% of the concession? Yes, they are. They know the potential value of that License Area. Will they make the same kind of offer as an AMOCO? I'm sure they would love to. The only problem is that AIPC is not interested at this time. It sold cheap to an AMOCO to get sufficient seed money to further develop the remainder of its concession confidant that they will get a much better (and I mean much better) once oil is flowing and there is an accurate estimate of proved reserves. In my opinion,one of these oil companies badly wanted to work things out with AIPC/MSUP a la an AMOCO. They lost out. They still want the other half but AIPC doesn't want to sell..They know they will have to pay dearly on down the line. What would you do if you badly wanted something owned by a publicly-traded company that was setting you up for a much higher price and whose stock was trading at $4 with a market cap of only about $200 million? Need I say more? As I said before the frenzied buying today was coming neither from the US or Abu Dhabi. End of story. My read. The Abu Dhabi group owns about 10% of AIPC as we speak. A major oil company is accumulating another 15%, perhaps. They will either sit on that investment which gives them a "de facto" interest in the remaining 50% of the concession or they will use that position as a platform from which to make a public tender for the whole company at a price that will be much higher than the present but one that management may, nevertheless, urge us to reject based on the value of the concession. What we witnessed today was a game of "hardball" that has only just begun.George Faris knew "something" when he suddenly sold off his South American holdings in favor of Kazakhstan. Huddleston knew "something" when he reported 1.1 billion barrels of potential reserves after discounting his findings by 85%. The Kazaks knew "something" when they requested that the Exploration License be transferred to MSUP. Wooddy knew "something" when he accepted a job to head a "rinky-dink" little oil company after being General Manager of Chevron. The Abu Dhabi Group knew "something" when , in ten days,they poured about $14 million into a little oil company most people had never heard of. The oil company that went on a feeding frenzy today knows "something"....and, now, we, who believed in the "big picture" early on, are also beginning to understand just what that "something" is.
I apologize for the length of this post. Let me conclude by sharing a comment made by the person who just returned from an investigative trip to Kazakhstan. I can't quote him since the e-mail is on a different server but he basicly said that, after talking to people and checking out the facts "on the ground", he finds himself in full agreement with what he referred to as "your big picture". Those of you who have followed my sometimes rambling thoughts know what he was talking about.
On that note, sleep well...this promises to be an exciting trip.
Cheers..Faris |
