Here's the editorial, or at least the free part of it:
In imperfect markets, minnows’ role in frontier plays in question
Small companies raising capital on junior markets remain the lifeblood of frontier oil exploration, but critics say that London’s AIM must make more rigorous checks on companies that list. Guinea and Liberia are among those that have found that a minnow’s interest, industry contacts and ability to raise funds are not alone sufficient to launch an industry in their fragile economies, write Thalia Griffiths and Jon Marks.
The controversy surrounding Regal Petroleum, until recently a London Alternative Investment Market darling, disquiet over former cricketer Phil Edmonds’ AIM-listed White Nile play with the inexperienced leadership of South Sudan, and doubts over the Algerian gas reserves quoted by First Calgary Petroleums (FCP) have highlighted the risks of ill-informed investors and, in some cases, the authorities in some of Africa’s poorest countries dealing with ambitious minnow companies.
Regal’s founder Frank Timis resigned in May after its flagship Greek well came up dry and following reams of revealing newsflow about his past in the illegal drugs trade. Timis has been replaced as chief executive by Rex Gaisford, who is trying to turn the firm round, not helped by the revelation that Timis had struck a secret deal to sell the company’s Ukrainian gas assets.
Never has the need for companies, investors and host governments to do serious due diligence when entering into deals been so apparent – and this, spurred on by the United States’ Sarbanes-Oxley Act and other post-9/11 measures is reflected in the huge growth of the due diligence industry on both sides of the Atlantic.
Critics of exchanges like AIM – who now range from the growing number of resources-focused advocacy groups to veteran US wildcatter Jack Grynberg, himself involved in an ongoing listing plan (AE 88/20) – are calling for action.
Following the Regal debacle and FCP’s failure to find a buyer after Repsol YPF pulled out questioning its reserves estimates, it was widely thought that the number of resources-related listings would drop. However, executives believe the market has stabilised and another round of listings is expected this autumn.
After the market has taken stock and the resources boom seems to have peaked without a too dramatic ‘bust’ cycle, African Energy understands that, contrary to market speculation, Vanco Energy Company will come to the AIM, possibly as early as September. The Houston-based, Delaware-incorporated independent has brought in John Bentley as non-executive vice chairman to oversee this process (AE 88/30).
Among others identified by African Energy as lining up for an AIM listing are several whose ultimate owners are Gulf-based (many of them preferring to operate as very silent partners).
One of the most high-profile of these, active in an increasing number of countries in Africa, is the UAE-based Al Thani Investment Group, owned by a senior Qatari who was close to the UAE’s founding president Sheikh Zayed Bin Sultan Al-Nahayan, Sheikh Abdallah Bin Saeed Al-Thani.
Shot out in wild west
Most attention in the case of Regal and associated companies has focused on its operations in Greece, Ukraine and Romania. However, its Liberian contract for Blocks 8 and 9 is also now under review by National Oil Company of Liberia, whose president and CEO Frank Musah Dean told African Energy that “Nocal is investigating the impact these developments will have on Regal’s ability to perform the contracts.”
Regal’s agreements under the 2004 licensing round were finalised by Nocal only in June, after the company had formed a consortium with European Hydrocarbons Ltd – one of several firms in which Timis was a substantial or majority shareholder, also including European Goldfields and Sierra Leone Diamond Company. The awards are still awaiting the signature of Interim President Charles Gyude Bryant and ratification by parliament
Dean told African Energy that proper due diligence had been carried out, well before Regal’s problems came to light. “When we were doing the bid round Regal had raised so much money on the London Stock Exchange for their project in Greece,” he said (see Oil).
Meanwhile, some of the Gulf of Guinea’s last substantial open acreage may be up for grabs after the Guinea government threw out the licence-holder of its entire offshore, HyperDynamics (AE 88/18).
The Houston-based firm – which has morphed from being a specialist software company into a frontier explorationist focused on Guinea, Louisiana and Mississippi – had yet to attract a farm-in partner, but nevertheless requested a drilling permit on 27 June for four separate offshore locations: one month later, the government cancelled its production-sharing agreement.
Ever quick with a statement to investors, HyperDynamics responded: “We were confounded to hear of a termination letter in response to our request to drill four wells. Over the last three years, with complete support of the Guinea government, we have spent millions of dollars and have complied with the requirements of the PSA. We feel our work has elevated offshore Guinea from an unknown, unexplored frontier, to a world class prospect.”
Hyperdynamics said it had received no notice of termination, and so as far as it was concerned the PSA remained in force. It raised the possibility of arbitration in London.
African Energy hears that IOCs and geophysical companies are already looking into the prospects for offshore Guinea, including established US independents.
Seismic firm WesternGeco – which was an earlier partner of Conakry’s until Hyperdynamics moved in on the back of an obscure minnow with a big name, US Oil Corporation – told African Energy it would accelerate its plans to try to resume exploration activity (see Oil).
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