Post-deal-collapse comment on Pacific Rubiales Energy Corp.

Actions speak louder than words. (As do bonos.)

 

Adding (later): At least nobody can accuse him of front-running anything. Practically pegged the bottom there.

Oil corruption in icier climes

I focus a lot on energy industry corruption in Latin America and Latinish America (Texas, California), but please don’t get the idea that oil stinks worse in southern latitudes. No, you can pretty much count on the energy industry attracting interesting characters like flies to shit.

You have drivers, power plants and other fuel-burners demanding USD2 trillion a year worth of gunk to be pulled out of the ground, refined and shipped to their far-flung machines. The companies who comply with this demand do what they can to seal the oil and its derivatives hermetically into pipes and tanks and tubes and ships. When all goes right, the stuff never sees sunlight before it’s burned. In the other direction, money is supposed to be just as well contained. Credit cards slide into gas pumps, letters of credit are transferred from power plant operators to refiners, tax collectors take their direct deposits, and money travels back up the line, retracing the route of the oil. But with so much money. So much money. So much money at stake, you just can’t stop people from trying to poke holes into the system. It’s too tempting. They can get physical oil, or much better, get virtual streams of cash, never contaminating their silk ties with the stink of sulfur and pitch.

Here in Canadialandia, land of the Canadialandians, the desire to extract a bit of money and power from the oil system is as irresistible as anywhere else. A new publication is chronicling the local money and power games: National Observer.

Subscribe to its tweets since the kids these days refuse to provide an RSS feed and since “following” something on Facebook is unreliable. Thanks to Jesse Brown of Canadaland, chronicler of happenings here in Canadialandia, land of the Canadialandians, for highlighting National Observer on his podcast. If you care about Canadian politics you can subscribe to his podcast — which wisely does have an RSS feed.

Deadlines are for little people

It being April, the ancient Roman “Tax season” that for some reason remains “tax season” in both the US and Canada, I am quite aware of deadlines right now. So it came as a bit of a shock to check out the SEDI page for NioCorp. SEDI shows insider stock, bond, option and warrant trades by insiders of Canadian listed companies. NioCorp is a junior miner trying to build a niobium mine in the US. As Otto has harped on a bit this week, Tommy Humphreys’s CEO.ca site was or maybe still is a paid promoter of Niocorp. (Not that Tommy hid that. Check out the 1,827 words of disclaimers and cautionary notes on this page, where the main article is just a video and 118 words of text.)

James “Casey” Forward (not to be confused with football player James Casey, or Louis James of Casey Research) was CFO of the company until a couple weeks ago, when there was one of those cryptic separation statements:

Otto does PREC

A few interesting Pacific Rubiales items recently, picked up by the always attentive Otto at IKN. Go over there, he’s better at this blogging stuff than I am.

For what it’s worth I watched the video he linked there, and I thought it desperately needed an edit. And I hate, hate hate documentaries with looming drama music. But if for nothing else, it’s worth watching the video to see the spectacular video of the Colombian llanos that are being exploited for both petroleum and palm oil these days. Good to know what kind of paradise you’re wrecking every time you fire up the old V-8.

Alfa’s financial investment ($PRE.to, ALFAA.mx)

ALFA, a big Mexican conglomerate, said in May it had bought 31,437,700 shares of Pacific Rubiales Energy Corp. (PRE.to), or 10% of the company. It disclosed after buying some shares for $18.43, which at the time was a low price for PRE.

Then, in August, Alfa announced it had bought 9 million shares of PRE.to at $21 a share, bringing its total holding to 17%.

We don’t know exactly how much Alfa spent on its PRE.to shares, but we know from Canadian regulatory filings that from May 20 to August 20, Alfa paid an average $21.03 per share, or $489 million.

At that point, things were looking good. Those 53,657,900 shares closed that day at $21.65 apiece, for a total value of C$1,162 million.

Price action since then:

At the current price of $17.88, that decline works out to a paper loss of $200 million on Alfa’s shares since that Aug. 20 press release. (From $1,162 million to $961 million. Feel free to check my math, I failed basic arithmetic.)

I’m no expert in trading patterns, but I have a theory here.

Proenergy fails upward

Proenergy Services had quite the adventure in Ghana a couple years ago. It, along with other US companies, left behind an inoperable power barge, at least one dead employee, and years of lawsuits.

Now Proenergy is partnering on a African power consortium, based in part on its experience in Ghana.

Proenergy, as regular readers will know, has also been building power plants in Venezuela as a contractor for Derwick Associates. I know that PDVSA records can be inaccurate, but for what it’s worth, it says here that none are yet complete, more than four years after the work was expedited under Venezuela’s electricity industry state of emergency.

Now, I read that Proenergy used its Venezuelan experience to land a $100 million gig installing 100 MW of turbines in Newfoundland and Labrador, Canada. According to the local paper, 11 of 13 examples of prior work on Proenergy’s application were jobs in Venezuela.

The mysterious winners of a $644 million arbitration against PDVSA

CORRECTION 21 October 2015:

I have learned that the billion-dollar contract referred to in this report was not just for ship rental. It was also for the provision of ship crews, divers, and geotechnical engineers, and other professionals for the full project of pipeline mapping, repair and replacement.

AND AN UPDATE: Pdvsa said in its 2014 annual report that it paid this award.

========================================

PDVSA, Venezuela’s state oil company, released financial statements last month. One of the more remarkable items in there was a $644 million loss for an arbitration award in a case that I had never heard about before — and no Venezuela expert I’ve talked to had heard about, either. This is all that PDVSA has ever disclosed about the case:

In November 2013, the award related to the arbitration request filed by Gulmar Offshore Middle East LLC and Kaplan Industry Inc. was issued against PDVSA, corresponding to early unilateral termination of contract by PDVSA. The award established a compensation of $644 million.

That is a tremendous amount of money. I wrote last week in REDD Intelligence (subscription needed to read) about what this surprise means for Venezuela’s country risk. Here, I’m going to focus instead on what we know about the companies that won this money.

I had only heard of Gulmar Offshore as one of a long list of companies with assets that Venezuela expropriated back in 2009. I had never heard of Kaplan, as it was misspelled in the initial announcement (good English analysis here) as “Kapplan.”

Gulmar was, and is, a company that leases vessels for undersea projects in the oil industry. It was later purchased by Oaktree Capital Management (more on them later). Back in 2009, I had a hard time reaching them; for this article the one phone number I found didn’t even ring and Oaktree’s lawyer didn’t respond to an e-mailed request for comment.

Kaplan is more difficult to pin down. Bloomberg said that Kaplan was a gas-cylinder manufacturer from New Jersey. Oops! That’s Kaplan Industries.

Kaplan Industry website, unchanged since 2010

No, this was Kaplan Industry. At the top of its web page, it says it’s “An engineering design firm.” Then in the text, it’s “a leading independent international development consultancy.” The confusion may have come about as the website was thrown together, almost entirely plagiarized from other sites. The home page is from Adam Smith International, some of the “About” page is from Secunda Canada, and the line “Having fun inspires creativity, which rouses fresh ideas that we take to our clients” is from Zain Public Relations. Yes, having fun inspires creativity. And nothing demonstrates creativity like “copy-paste.”

No one answered at any of the three phone numbers listed on the website. Company president Vince Hulan didn’t respond to e-mails sent to the address on the website, including one e-mail asking specific questions about the plagiarism and other concerns raised in this article. Four lawyers connected to the company and its principals also failed to return calls and e-mails.

Canada pioneers new kind of oil spill — will Colombia, Venezuela keep up?

Turns out that when you inject high-pressure steam into heavy oil reservoirs underground, you can’t always predict which way the oil will go.

Oil spills at a major oil sands operation in Alberta have been ongoing for at least six weeks and have cast doubts on the safety of underground extraction methods, according to documents obtained by the Star and a government scientist who has been on site.

Canadian Natural Resources Ltd. has been unable to stop an underground oil blowout that has killed numerous animals and contaminated a lake, forest, and muskeg at its operations in Cold Lake, Alta.

The documents indicate that, since cleanup started in May, some 26,000 barrels of bitumen mixed with surface water have been removed, including more than 4,500 barrels of bitumen…

The company says it is effectively managing and cleaning up the spills.

The company’s operations use an “in situ” or underground extraction technology called “cyclic steam stimulation,” which involves injecting thousands of gallons of superhot, high-pressure steam into deep underground reservoirs. This heats and liquefies the hard bitumen and creates cracks through which the bitumen flows and is then pumped to the surface…

“We don’t understand what happened. Nobody really understands how to stop it from leaking, or if they do they haven’t put the measures into place.”

This might explain why Maracaibo has had so many mysterious oil slicks in recent years, when state oil company PDVSA has insisted that its pipelines aren’t leaking. (Here’s one from 2012.) There is a lot of steam injection into fields under the lake.

Also, heavy oil fields in the Colombian llanos (wet plains) are slated for “enhanced recovery” that may at some point include steam injection. I hope this situation in Alberta is taken as a lesson.

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