23 May 2013

Liberia: Doubts Over Oil Discovery - Did African Petroleum Stretch the Truth?

Shares in Frank Timis' African Petroleum (AP) have fallen 90 percent over the past 12 months and reports of an alleged investigation by the National Stock Exchange of Australiaamidst claims of stocks dumping by senior AP executives have made international headlines.

In February 2012, AP announced a major discovery in its Naria-1 Well offshore Liberia, causing a significant jump in its stocks from 0.70 cents AUD ($0.68USD) to 1.55AUD ($1.51USD) at the time of its closing. By June of 2012, the attractiveness of the Liberian discovery fueled a buy-out offer to PetroChina by AP at $1.35 per share for all of its petroleumassets in Africa. The oil industry gave a collective gasp at the sheer brazenness of the Timis offer to PetroChina considering that none of his petroleum assets had proven oil and gas reserves let alone any production.

As the AP/PetroChina negotiations dragged on unsuccessfully, AP fueled the flames of "oil fever" in Liberia with a company press release in January announcing that the mean recoverable un-risked prospective resources for the Bee Eater/Narina fan system, which extends over an area of 300 sq. km,were estimated at 840 MMstb with2396 MMstb for the additional prospects identified on Blocks LB-08 &LB-09 (3236 MMstb in total).

Doubts amid discovery

NOCAL, the industry's regulatory body, promptly issued a statement following the AP release that further testing was needed to verify if the Bee Eater Well was commercially viable. Shortly after, a joint press release was issued by NOCAL and AP stating that although the results of the Bee Eater well were encouraging, further testing would be needed before determining the well's viability.

Liberians began speculating if NOCAL was trying to hide oil and secretly planning to develop it unbeknownst to the Liberian people. The press began speculating a riff between NOCAL and AP caused by the un-authorized AP announcement. FrontPageAfrica, quoted a petroleum expert who explained the definition of "mean un-risked prospective resources" and stating that it did not mean AP had discovered 840MMstb proven, but that if they continue to explore, they MAY find oil and it MAYBE 840MMstb. What FPA understood as meaning, "smoke and mirrors".

Karl Thomas, CEO of AP, bragged in theFebruary2013 press release,"2012 has been a very successful year for the company with the Narina-1discovery in Liberia and the expansion of the exploration portfolio with the addition of 5 more exploration blocks in Senegal, Sierra Leone and Cote d'Ivoire. In 2013 starting with the drilling of the high potential Bee Eater prospect in Liberia LB-09 and follow on drilling in Liberia plus Cote d'Ivoire and The Gambia/Senegal coast."We are finalizing negotiations with PetroChina for an investment up to 20% equity in Block LB-09 in Liberia and are confident we will reach agreement shortly."

Three months after the company's much hyped Bee-Eater 1 discovery off Liberia's shores, skepticisms is heightening and concerns are mounting that the firm's millionaire chairman, Frank Timis, who is the largest shareholder in AP and his company, may have inflated their discovery in hopes of profiting on the stock market and pushing a successful PetroChina sale.

Regal Redux? Timis Again

Frank Timis is not new to the "smoke and mirror" game and has had previous associations of inflating finds for profit with his old company, Regal Petroleum paying the highest penalty on London's Alternative Investment Market (AIM) for such practices.

Regal, which was listed on AIM and owned some oil and gas resources in Romania and Ukraine became famous after the September 2003 acquisition of 60% of an oilfield located in Kavala, Greece. The Regal team promoted the oilfield as one of the largest oil deposits in Europe: up to a billion barrels and that the oil was allegedly under so much pressure that it almost destroyed the drilling platform.

The hype drove Regal's share price up to a peak of 509p, with the company's market value reaching £500m, companies like Merrill Lynch, Commerzbank, Artemis and Schroders were investing more than £45m into the company. Days later, Timis secretly agreed to sell the company's assets and quietly resign as chief executive of the company.

By mid-2005, it was clear that Regal's oil field contained oil but not in commercial amounts and that Frank and Regal lied. AIM issued Regal the highest fine to date of £600,000 for making"overly optimistic" reports to the market. Due to the collapse in Regal's share price, AIM toughen its regulations for companies in the natural resources sector and hiredpetroleum experts who would prevent future bubbles followed by price fluctuations. Regal was fined but not removed from the AIM exchange and still trades on it today.

Ironically, although Timis was cited by the Toronto Stock Exchange in 2007, declared unsuitable to act as his company's director, and refused entry on the Australian Securities, Timis controls multiple companies that trade on various exchanges worldwide and is still considered to be a consummate dealmaker.

With all of its brewing issues, FrontPageAfrica has learned that five senior executives of AP have quit in the past few weeks and that NOCAL recently requested AP provide all of the "discovery data" from its Bee-Eater 1 well to conduct its own analysis for verification. AP has not returned an email inquiry from FrontPageAfrica seeking clarification on the matter.

Sources at NOCAL contacted to ascertain if the regulator was aware of the AP situation and whether it could affect the oil program negatively. One source responded in the affirmative that NOCAL is aware of the AP situation and has been since it began but dismissed suggestions that it will have a negative spillover effect on NOCAL. The source explained that it takes months to collect all of the data on a discovery and more months to interpret that data before making a determination.

NOCAL Watching Closely, Source says

The source went on to explain that it is too early to determine what the final results are on the Bee-Eater 1 well and whatever AP's new financial situation is will be dealt with if and when it affects Liberia. "Until then, NOCAL is watching the situation closely and expects AP to fulfill every aspect of its work program as stipulated by its production sharing contract".

In the meantime, Timis' personal wealth has fallen by more than $1 billion, while AP's share value has dropped to 0.15AUD per share, its market capitalization is still over $250 million dollars and it has $85 million on reserve.

But some critics say the onus is still on NOCAL to play its regulatory role and hold Timis and AP to the fire.

Some legal experts however say NOCAL may have exposed itself to lawsuits from investors for not playing its fiduciary role as economic beneficent of the oil well through the production sharing contract (PSC), which gives it slice of projected revenues, a point one NOCAL executive dismissed as unlikely to happen.

Other experts say the joint announcement of the recoverable 800 million barrels in the Bee eater by both NOCAL and AP is troubling and could the basis for several lawsuits. Other optimistic supporters of NOCAL's program say it could be cautious for Liberian to take a wait-and-see approach to see what happens in the end. But in any case, critics say it is now up to NOCAL to reel in Timis and his flagging company in order to find out the truth behind the company's unceremonious dumping of shares in a company which was vaunted to make Liberia an oil producing country. It is not too late for Liberia, but Timis's days as a oil operator may be numbered.

Regulators NOCAL on the Hot Seat

Industry watchers say, Timis and AP's actions have the propensity to destroy or slow down significantly, Liberia's budding oil program as Timis' wealth has fallen by more than $1 billion with questions arising about why shares are being dumped in the company. Industry observers say the burden is now on the National Oil Company of Liberia to enforce its regulatory might on the company before it gets out of hand.

More importantly, executives of NOCAL who have reacted off the record say they don't have the capacity to determine if the AP oil discovery is genuine or fake, raising more questions than answers.

One industry observer told FrontPageAfrica Wednesday that NOCAL could have outsourced validation of AP drilling data to experts for a small fee that could have averted what will be a major disaster if the discovery is found to be non-existent or uneconomic.

Liberia currently has three major U.S. oil companies; Chevron, Exxon Mobil and Anardarko involved in exploratory drills in Liberia, giving credence to the belief held by many internally that smaller companies like AP may lack to right mechanisms to drill and the recipe to succeed. AP's rush to announce oil discovery ahead of bigger companies and ongoing discussions with PetroChina has no doubt raised burning questions about the company's ability to deliver in the wake of mounting expectations from a post-war nation on the mends looking to restore its economic sanity.

FPA will follow this story closely and provide updates as it unfolds.

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