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American Intl's Kazak play may be even bigger than its 1-bil bbl estimate

By Sharon Behn and James Norman, Platt's Oilgram News (McGraw Hill), Vol.75 no.143, 25 July 1997

Almaty--A 4.7-mil acre oil and gas exploration concession between the Caspian Sea and Aral Sea, in which tiny New York-based American International Petroleum Corp recently aquired a 70% interest, could have two or three times the 1.1-bil bbl of recoverable reserves AIPC claims, according to a Kazakstan oil ministry source.

Reserve estimates for the tract, located on the Uzbekistan border about 125 km southeast of Chevron's huge Tengiz field, have been kept quiet since Soviet Union days to protect Kazakh interests, and possibly to cover up an environmental disaster there.

But a geologist for Kazakstan's State Commission for Mineral Reserves, who once worked on seismic tests in the area and asked to remain anonymous, told Platt's July 23, "It is an area we have long believed was rich in oil. There could be two or three billion barrels' worth there."

After Kazakstan's independence, the 1.9-mil hectare exploration licence for that region was granted last November to a new company called Scientific Industrial Firm Dank Too, headed by Almaty geophysicist Nurlan Tsatarovitch Dzhanseitov.

Dzhanseitov worked 12 years in the Ministry of Geology and another 12 years in the former Ministry of Oil. He also spent nine years in the Mangishak region where the concession now lies. "There are 15 wells there. Work started under the former Soviet Union, but they left for Aktubinsk when they found a large oil field there.(China's CNPC recently purchased 60% of Aktubinskunaigas.) Then the Soviet Union was dissolved and there was no money left to explore here," Dzhanseitov said. "Nobody knew there was oil there. But I knew."

Two of the initial wells discovered apparently large reserves of oil and gas at Bangash (or Begesh) and Chikuduk. But both wells are said to have blown out while being tested in the early 1990s, forcing them to be plugged. Indeed, the Bangash well, testing zones from 9,000 to 12,000 ft deep, is said to have flowed uncontrolled for several months, creating a huge, embarassing oil spill.

Dzhanseitov claims there are 174-mil mt of potential oil reserves in the seven structures already studied, and a possible additional 170-mil mt in the license area's remaining structures.

"We are under negotiations with large oil companies in the US to work the area," said Dzhanseitov. He declined to say which oil company was involved, but said it was "like an Exxon or an Oryx," which have adjoining concessions, as do Amoco and Elf.

Dank then sold rights to 90% of its interest to a Frankfurt-based Liberian company called MED Shipping f Trading, headed by MIT geophysicist Spiro Armenis, AIPC says.

The license calls for the shooting of at least 3,000-km of 2-D seismic analysis over five years at an investment of about $15-mil. The licensee then gets to pick up to 10% of the concession for further exploration and development. The remaining 90% is to be put up for public tender. The license holder gets to keep proprietary ownership of the new seismic and 2,000 km of existing shoots.

To fund the initial seismic work, plus $30-mil of additional seismic and exploration drilling, Armenis approached AIPC, headed by Lebanese native George Faris. Flush with $20-mil of cash from the sale of AIPC's Peru and Colombia EfP properties to Bahamas-based Mercantile International Petroleum, AIPC was eager to try for a piece of the Central Asia oil pie.

Faris persuaded Armenis to sell a 70% stake in the concession for 3.2-mil AIPC shares and warrants for 500,000 more at $2, plus $400,000 in cash. About half the new shares were to be held in trust until AIPC's price reaches $5/share.

At AIPC's price of about $0.50/share last winter, that deal amounted to a meager $2-mil of immediate value. But that would be 10% of AIPC's stock, which Faris claimed would be worth far, far more if the projected reserves could be proved, and far more than any major oil company would be willing to pay up-front to buy out the license.

The deal was cut April 22, according to AIPC filings, and AIPC made an intial downpayment. That same day, according to an SEC 144 filing, Faris bought almost 900,000 shares of AIPC stock at $0.25/share, almost doubling his holding to 2.3-mil shares.

Fellow AIPC director Donald Rynne, 74, a long-time player in the shipping business with extensive ties around the Persian Gulf, also bought almost 300,000 AIPC shares that day at the same low price, increasing his stake by 150%.

Faris told Platt's he had no idea the Kazakstan deal was about to be closed the same day he bought that stock. "We had been in negotiation," he said, "but the deal had been dead several times. I didn't know until five minutes before" that the Dank-MED license deal would be completed. "If I had know," said Faris, the stock purchase "would not be legal and the board would not have allowed it."

The stock purchase arose, Faris told Platt's, when an unidentified holder of convertible debt threatened to covert to stock and dump shares on the market. Lacking corporate funds, Faris said "The board allowed me to do it myself."

He said he is restricted from selling those shares for two years. The stock quickly doubled in value to more than $0.50 and then in early July rocketed to more than $3/share on AIPC's announcement that it was doubling its Kazakh reserve estimate to 1.1-bil bbl. The stock eased to as low as $1.50, but has since recovered to close July 24 at $2.88/share.

Faris says the license transfer involved two time-consuming steps. First, the Dank license had to be transferred to a new operating company, called MED Shipping Usturt Petroleum. Then MSUP, 70% owned by a new AIPC unit, had to be registered as a new company. The rest of MSUP now is owned 10% by Dank, 5% by MED Shipping and 15% by a German geophysical company called Entredynamics. Aside from its Kazakstan play, AIPC has little else but a small Louisiana sour-crude refinery now undergoing repairs and unlikley to be operating before fall.

The only analyst known to cover the stock is Keith Bossey of Long Island-based Robert M. Cohen & Co., who put out a "speculative buy" on the stock July 23. "Underline `speculative,'" said Bossey, who sees the stock worth a possible $10/share. "Do they have the technology or the money" to develop the Usturt prospect alone? "Absolutely not," said Bossey: "They've got to partner up."

Still, he notes, "For a little company to get a concession like this is extraordinary."--Sharon Behn, James Norman