28 May 2013

Liberia: Smoking Gun - NOCAL Did Not Have Independent Eye On AP Oil Drill

An investigation by FrontPageAfrica has unearthed what points to a smoking gun clearly suggesting that the National Oil Company of Liberia did not have an independent team on the drill rig which the petroleum minnows African Petroleum based its conclusion that it had discovered oil off the Liberian coast.

A source familiar with the situation explained to FrontPageAfrica that all the data presented to NOCAL and independent assessors have not been verified and NOCAL executives took AP's word that it had discovered oil and did not appoint an independent assessor to validate AP's claims.

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.

According to a confidential internal memo shared between AP's executives obtained by FrontPageAfrica, the company which undertook the review of oil blocks 8 and 9, the British firm, ERC Equipoise Ltd ("ERCE") to ascertain the prospectivity of oil, revealed that NOCAL did not make any site visit during the review.

ERCE is an independent consultancy specialising in geoscience evaluation and engineering and economics assessment. Except for the provision of professional services on a time‐based fee basis, ERCE has no commercial arrangement with any other person or company involved in the interests which are the subject of this report. ERCE confirms that it is independent of APC, its directors, senior management and advisers. ERCE has the relevant and appropriate qualifications, experience and technical knowledge to appraise professionally and independently the assets.

The work, according to the company was supervised by Dr Adam Law, Geoscience Director of ERCE, a post‐graduate in Geology, a Fellow of the Geological Society and a member of the Society of Petroleum Evaluation Engineers. Law, according to ERCE, has 18 years relevant experience in the evaluation of oil and gas fields and exploration acreage, preparation of development plans and assessment of reserves and resources.

The report which FPA has gathered was written in January 2013 to raise funds for AP in its quest to sell off interests in two blocks. A former senior executive at AP who leaked the document to FrontPageAfrica noted that AP's venture is much too speculative as of now. "AP needs to do more work and collect more data in order to increase the probability of a find. As of yet, they don't have a "discovery". Everything is purely speculative," the source noted.

In the document, AP estimates reserves in the two blocks but fell short of confirming their drilling, raising more questions than answers as to who confirmed data of their drilling for the Narina? The report even suggested that that the oil shows could have been some other gaseous liquid. "How was Narina and Bee eater confirmed and by whom. ERC certainly did not confirm Bee Eater or Narina. This "S" smells, said the source.

The revelation comes on the heels of a FrontPageAfrica investigative report last week that shares in AP's majoritiy holder, Frank Timis' had 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.

The report also noted that AP was in serious negotiations for a buy-out offer with PetroChina at $1.35 per share for all of its petroleum assets in Africa.

African Petroleum Corporation Limited holds a 100 per cent contractor interest in a Production Sharing Contract ("PSC") covering Blocks 8 & 9 offshore Liberia.

Said the review: "Our independent Best Estimate (P50) of prospective oil resources for the prospects we have assessed in aggregate is 1979 MMstb unrisked, or 384 MMstb risked. Our independent Mean estimate of prospective oil resources for the prospects in aggregate is 3236 MMstb unrisked or 613 MMstb risked."

Both blocks, according to the review are in their second exploration period, which began on 12th June 2012 and lasts for two years. Commitments during the second phase are a single exploration well (to a minimum depth of 2000 meters) within Block 9, and two exploration wells (to a minimum depth of 2000 meters) in Block 8, as a well commitment from the first exploration phase has been carried into the second phase in Block 8. The minimum spend for each block in the second exploration period is US$ 10 MM.

Ironically, the company noted that in carrying out its evaluation of the interests, it relied upon information provided by APC which comprised details of APC's license interests, offset well data and associated analysis, seismic data including interpretation, basic exploration data, technical reports and volumetric estimates, where appropriate.

While the company said it commenced its investigations with the most recent technical reports and interpreted data, it had been able to identify items of basic data which require reassessment. "Where only basic data have been available or where previous interpretations of data have been considered incomplete, we have undertaken our own interpretation. A site visit was not undertaken," the review noted.

The company further explained that in estimating petroleum in place and recoverable, it used the standard techniques of prospect analysis which combined geophysical and geological knowledge with assessments of porosity and permeability distributions, fluid characteristics and reservoir pressure.

The review noted: "There is uncertainty in the measurement and interpretation of basic data. We have estimated the degree of this uncertainty and have used statistical methods to calculate the range of petroleum initially in place and recoverable. We have estimated the chance of success for drilling the identified exploration prospects, using the industry standard approach of assessing the likelihood of source rock, charge, reservoir trap and seal. The result is the chance or probability of discovering hydrocarbons in sufficient quantity and which test at a sufficient rate to permit consideration for subsequent appraisal and development."

Following a 25% relinquishment at the end of the first exploration phase, Block 8 comprises an area of 2717 km2, and Block 9 comprises 2634 km2. Water depths range from less than 100 m to over 3000 m. Most of the block areas lie in water depths greater than 500 m.

The deeper water area of both blocks is covered by regional 2D seismic data and a recent 3D seismic

survey. The 3D seismic survey covers approximately 5,170 km2. Two wells have been drilled in Block 9 by APC as part of the first exploration phase: Wells Apalis‐1 and Narina‐1. In addition, two wells have been drilled on the shelfal areas: Wells Cestos‐1 and S/3‐1.

Well Apalis‐1 was drilled in 2011, targeting a four‐way dip‐closed structure with possible AvO support. The well found traces of hydrocarbons, plus potential source rock intervals, but the prognosed reservoir

sands were absent at target depth, and the well was plugged and abandoned. Well Narina‐1 was drilled by APC in 2012, and found 16 m to 21 m of net pay (light oil) within sandstones of Turonian (Cretaceous) age. Hydrocarbons were also discovered in the underlying Albian. Oil samples were collected, but no drill‐stem testing was undertaken. Analysis of the oil samples indicates an API gravity for the Turonian oil of about 38 degrees, and about 45 degrees for the Albian hydrocarbons. Mobilities from formation pressure measurements and permeability from side‐wall core measurements show the reservoir to be of relatively low permeability at this location. Well Apalis‐1 and in particular Well Narina‐1 help de‐risk seal and hydrocarbon charge from the Cretaceous play on‐block.

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.

African Petroleum and NOCAL have been mute on these latest development, raising more questions than answers about the direction and impact of AP's overly optimistic report which raised the hopes of Liberians but so far appears to be a smoke screen.

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