I know that this is old, but I think it is interesting to see where we are today and where we were when this was written,Aug of '97. We have come a long way.........or haven't we? Sorry for the crappy cut n paste job. Good Luck to us all in '98....Reb
AMERICAN INTERNATIONAL FACES MAJOR HURDLES IN KAZAKSTAN:
With its purchase of part of a Kazak offshore project completed and stock
prices up, American International Petroleum Corp is confident that
investment in the Caspian Sea will ensure a bright future. But observers
said that the small independent company, whose only tangible asset is an oil
refinery in Louisiana that can process 27,600 barrels per day, will have to
overcome many obstacles to justify its investment in Kazakstan.
American International agreed on the terms for the Kazak concession in
mid-July and finalized the purchase about two weeks later. In return for a
70% stake in a 4.7 million acre offshore field, the U.S. company will
transfer to the Western and Kazak partners that make up MED Shipping Usturt
US$300,000 plus a stock package the company said was worth less than 10% of
its issued share capital. The cash will go to the Dank company, while the
stock package will be split equally between MED Shipping and Enterdynamics.
It includes 1.5 million American International shares to be held in trust
until the sale price reaches US$5 per share for five consecutive days,
500,000 shares to be held until the sale price reaches US$2 per share,
500,000 warrants to purchase company stock at US$2 per share and 1.2 million
common shares.
The U.S. company will also pay the Kazak government US$200,000 per year over
a three-year period for seismic and geological data on the offshore block.
The first payment will be made in July of 1998. The company said that
financing for these obligations is expected to come primarily partnerships
with industry groups, anticipated cash flow from refinery operations
beginning in the third quarter of this year, and proceeds from the sale of
American International's Latin American assets.
= Need For A Partner =
The company had announced before agreeing payment terms for the concession
that the contract zone appeared to contain at least 1.1 billion barrels of
oil, news that drove American International's stock prices up from US$0.5 to
US$3 on the NASDAQ index. But observers say that the company may have a hard
time maintaining this surge. The company does not have enough capital to
carry out a comprehensive drilling program on its own, and American
International's past failures in Indonesia and elsewhere may deter potential
partners or investors. The company's market capitalization currently stands
at only US$130 million, meaning it may have a hard time hanging on to its
assets if it issues new debt, gets bank credits or brings in a partner to
finance extensive offshore drilling work.
Company officials, however, are confident that American International will
strike oil in the Caspian Sea. American International's CEO George Faris
said that the company had sufficient resources to begin drilling on its own.
"We have enough capital to drill two exploratory wells, which we could start
in the first quarter of next year," he said at a recent meeting of investors
and potential investors.
Faris also said that major oil companies had expressed interest in American
International's reportedly vast reserves but declined to name all of the
potential partners. "We have received offers. One major said that it would
provide finance in exchange for a 50% stake but that was too much, too
soon," he said. Another company, which he said was not "among the top six or
eight", approached American International after losing a Kazak license gave
it US$104 million to spend in Kazakstan.
Faris added that several bankers had also made offers, saying that Canada's
First Marathon had offered to raise US$25 million in equity for the company.
Faris said he had declined this offer because the company would have
preferred a straight debt deal.
But the promise of big oil and expressions of interest will not be enough to
ensure the success of American International's Kazak project. Energy
analysts pointed out that the U.S. company had not yet proved its reserve
claims and said that attracting investment would be difficult until American
International's numbers were verified. Reuters quoted one analyst as saying:
"Until you have the reserves proven to Western standards, until you have the
capital and the backing of a major, this remains a speculative play by a
small company in a very complicated part of the world."
Mark Redway, an analyst at the London brokerage T Hoare, which specializes
in research on resource companies, added: "It does not surprise me that
someone can say they have vast reserves; they are relatively easy to come by
and a lot of Western companies have been able to negotiate huge licenses."
Redway remarked that American International might also face problems
extracting its oil at an economic rate and finding markets.
= Development Plan =
American International says it has already hurdled the obstacles Redway
named by securing pipeline access ahead of time and planning to ship its
output north to Russia or Finland, west across the Caspian Sea or east to
Kazakstan's Atyrau refinery for sale. The company believes its wells will
yield light sweet crude that will sell at US$9.5-10.5 per barrel at the
wellhead. But it remains to be seen whether the reportedly vast reserves
will be economical to extract. Its estimates were based on Soviet-era
geological data calculated without much reference to the cost of production.
Again, Faris said that early indications were promising. The work program is
likely to start at the Begesh field, which is close to an existing pipeline
that currently carries only 25% of its 200,000 barrels-per-day capacity.
Begesh, like the other fields in American International's contract zone and
was capped after initial drilling, but it is leaking oil -- proof that there
is at least sufficient oil or sufficient pressure in the well to make some
production possible. "This well has never even been tested for oil; these
wells were just drilled and plugged," Reuters quoted Faris as saying. Faris
says American International will drill carefully and avoid the temptation
simply to remove the Soviet-era concrete caps on the wells as this could
damage the reservoir.
The Begesh field is believed to contain 350 million barrels of oil and will
be drilled to a depth of 9,000-12,000 feet (about 2,700-3,600 meters). The
company's contract for the offshore concession zone requires the company to
collect and evaluate 3,000 km worth of new seismic data, reprocess 500 km
worth of existing data and carry out 6,000 meters of drilling. If oil is
found in commercially exploitable quantities, American International will
also have to negotiate a production license from the Kazak government, which
is expected to demand a royalty of 6-28% for all oil produced. (With reports
from Reuters and Business Wire; first printed in New Europe, p. 41, Aug
10-16 '97.) |
