John / Black Sea
I have been following this story: the IPO (June '97) caught me on a day that I was particularly stupid, so I bought some. Started out with JV opportunities at Tura on the Kalchinskoye block, and Kuban. They later locked up the rights to an enormous piece of land adjacent to Tura called Radonezh. The crux of the story was that they would apply western technology to badly abused and under-maintained Russian oil fields. Things went along pretty well at Tura the first year or so. Black Sea spent something like 80% of the money their agreement required them to spend. Production came up nicely, to around 9,000 bbl/d, half net to BSX. Kuban and Radonezh didn't work out so well; the latter at the time appeared to be the real company-maker, so it was a disappointment.
Then things got progressively more ugly. Of course there was the decline in the price of oil. Much of the Tura production was destined for sale in the Russian market, where prices are quite a bit less than WTI. There were able to export some, though, and it would have brought their netbacks up to decent levels if world prices hadn't crashed. But they did crash -- strike one. At the time of the IPO, it looked like Russia might turn the corner. It did, but unfortunately it turned the wrong way. Strike two. Then the Russian JV partner decided to sue for operatorship of the Tura field, the litigation over which still seems to be tied up in the Russian courts. If the court decision goes against Black Sea, it will be strike three (at least) for the Russian operations.
There was some criticism of management's actions, as well. Of course they emerged cash-rich from the IPO. Some questioned whether they used that cash as effectively as they could have. For example, they spent $20 million on equipment -- trucks, rigs, etc. Of course that stuff isn't available in Russia like it is here, but there were suggestions that they could have found a western service & supply co. to do that stuff for them, that Black Sea wasn't a service company. And of course there has been management turnover.
Last I heard (three or four months ago) the company had 66 cents per share in cash and assets (taking the equipment at 50% of the purchase price). They were well ahead of their required spending at Tura, so they could do nothing for a year and not jeopardize their rights. Presumably they won't spend any more money in Russia until the court case is settled. The downside is that production is likely to decline while the field isn't being maintained.
The announcement this month that they would JV with Pangaea to drill in Peru, is consistent with the company's intent to not just sit still and wait for Russia to get better. I know nothing about the oil business in Peru, so I'm not in the least bit qualified to say whether this is a good move or not. Black Sea has brought in new talent from Big Oxy; hopefully they know what they're doing.
If you're thinking about buying in, you probably want to find out something about Peru, and to check on the track record of management to see if recent moves address those concerns. IMHO, this started out as a very high-risk venture and has turned into a speculation.
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