Monday, March 10, 2008

Update On Aban Abraham; Kosmos Drilling Funder 'Staring Into Jaws Of Hell'

A poster on IHub has updated us with a graf from the Aban Abraham Website describing the activities of the ship, and suggesting an earlier drilling date than we have seen before, but the big news is the financial condition of the two venture capitalists that have offered a "provisional commitment" to Kosmos to fund their drilling offshore Ghana in West Africa. Spokesman for both companies have not returned calls about the funding commitment.

06/03/2007 - Aban Offshore Ltd’s subsidiary, Aban Abraham Pte Ltd has entered into a drilling contract with affiliates of Addax Petroleum Corporation of Canada and Sinopec for deployment of the Drillship Aban Abraham offshore West Africa. The contract will be performed in direct continuation of the contract announced earlier with Pioneer / Kosmos and is likely to commence after May 15, 2008.The contract is for 5 firm wells and 5 optional wells. The estimated duration of the contract is 300 days for the firm wells, which could go up to 600 days if the optional wells are declared. The revenue expected from the above contract would be USD 123 million which could increase to USD 246 million if all the optional wells are declared.

However, the same poster tells us the ship has a date with Kosmos Energy for six months - three solid, three conditional - offshore Ghana before our own contract is fulfilled. Of course, Kosmos has to show it has the money to pay for the ship, an issue which may become problematic. The company has been promised a $300 million private equity infusion from Warburg Pincus and Blackstone Capital Partners, both of which are subject to the vagaries of Wall Street - which is producing a lot of vagrants these days.

Kosmos has received provisional commitments of up to $300 million from management, Warburg Pincus, the global private equity firm, and Blackstone Capital Partners, an affiliate of The Blackstone Group, an international private investment bank, to pursue exploration ventures in West Africa.

Warburg has lost $33 million on its $300 million investment in MBIA, the troubled bond insurer, since it purchased the stock in mid-February, and at the time, declined to complete another $300-million in convertibles from MBIA. It still has lots of money, however. A company spokeswoman promised to return our call, but hasn't done so - never a good sign.

On Warburg's Website, Warburg does have a writeup about Kosmos, but there's no mention of the commitment:

Kosmos Energy, based in Dallas, Texas, is a privately-held international oil exploration and production company focused on emerging and frontier basins offshore West Africa. Kosmos is led by a seasoned management and technical team formerly with Triton Energy. This team has a proven track record of discovering and developing significant oil and gas reserves offshore West Africa and in other international basins. Warburg Pincus led the company’s initial equity financing in 2004. Since formation, Kosmos has secured deepwater licenses in Ghana, Benin, Morocco and Nigeria, as well as onshore licenses in Cameroon. Kosmos is currently prospecting in its initial core areas while evaluating additional opportunities.

Meanwhilwe, according to the Wall Street Journal, Blackstone is actually in the red after a fourth-quarter loss:

Private-equity firm Blackstone Group LP swung to a fourth-quarter loss on stock-compensation costs as the company cited "significant challenges" tied to declining equity and fixed-income markets and the credit crunch.

Chairman and Chief Executive Stephen A. Schwarzman offered little light in a gloomy forecast, saying that "difficult market conditions in the U.S. and Europe continue in 2008 and there is little visibility on when these conditions might improve."

And the New York Times reports today:

The private equity firm reported $128 million in net income excluding expenses tied to its initial public offering, an 86 percent decline from a year ago...

The Times also wrote:

Celebrated buyout firms like the Blackstone Group and Kohlberg Kravis Roberts & Company, hailed only a year ago for their deal-making prowess, are seeing their profits collapse as the credit crisis spreads through the financial markets.

Investors fear that some of the companies that these firms bought on credit could, like millions of American homeowners, begin to buckle under their heavy debts now that a recession seems almost certain. The buyout lords themselves suddenly confront gaping multibillion-dollar losses on their investments.

On a day in which the stock market tumbled to its lowest point in two years and rumors flew that a major Wall Street firm might be in trouble, Blackstone said Monday that its profit had plunged. The firm said earnings tumbled 89 percent in the final three months of 2007 and warned that the deep freeze in the credit markets — and, by extension, in the private equity industry — was unlikely to thaw soon.

“They see the handwriting on the wall,” said Martin S. Fridson, a leading expert on junk bonds, said of buyout firms. “They’re staring into the jaws of hell.”

It is a major turn of events for Blackstone and its chief executive, Stephen A. Schwarzman, who took the firm public last year at the height of the buyout binge. On paper, Mr. Schwarzman has personally lost $3.9 billion as the price of Blackstone’s stock sank.

Even so, Mr. Schwarzman is still worth billions, more than rich enough to pledge $100 million to the New York Public Library, as he plans to do Tuesday.

There remains the possibility that Kosmos could undwerwite the drilling itself after discovering a new well offshore Ghana, announced on February 25. It is partnered with Pioneer Natural Resources, George Soros' former pet project and our former partner, and presumably Pioneer could advance the money to Kosmos in excchange for rights, stock or a promissory note.

While we await word from either company on the status of the Kosmos commitment, we note parenthetically that Blackstone, like Warburg, has a longstanding relationship with Kosmos as an equity holder. However, the company Website does not list Kosmos among its "strategic" allies in the energy business. A Blackstone spokesman said he would investigate our qury about the commitment and get back to us in about an hour, but no word has come from him, either. Silence is often one way of breaking bad news.

Meanwhile, Warburg has already established a $300 million stake just 20 days ago in Cambrian Energy, a Canadian explorer:

CALGARY, Alberta, February 21, 2008 – Canbriam Energy, Inc. announced today that it entered into an equity financing arrangement of up to US$300 million from company management, Warburg Pincus, and ARC Financial Corp. to pursue the acquisition, exploration and development of oil and gas interests in certain onshore regions of Canada and the United States.

Canbriam Energy will explore for and develop oil and gas resources in selected hydrocarbon basins in North America. Initially, Canbriam Energy will concentrate on unconventional oil and gas opportunities in Western Alberta and Eastern British Columbia. Over time, the company will draw on the previous experience of its management team to target other unconventional opportunities where it believes significant value can be created through advanced drilling and production technologies.

Little about that situation suggests the venture money is anxious to take a flyer on offshore oil, but you never know. Blackstone stock, for instance, is trading at $14.04, just $0.22 off its 52-week low and way off its $38 52-week high.

What we can surmise fairly freely, however, is that if tight credit conditions continue to prevail, it may be that the two will take a pass on their "provisional" commitment and let the Aban Abraham come straight to papa - oops, I mean ERHC Energy, Addax and Sinopec. Let's just hope the cards fall our way.

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