Cash-strapped Fox sets sights on high-cost Alaska
Ray Tyson For Petroleum News
Alaska newcomer Fox Petroleum is a very small player in a very large oil patch inhabited by much larger, better-financed, better-equipped, and more successful exploration and production companies.
Financial reports and other disclosures required of publicly traded companies by the U.S. Securities and Exchange Commission depict an E&P hopeful with limited resources to fulfill its plans for the oil and gas properties it recently acquired, especially in the high-cost and environmentally unforgiving regions of Alaska and the North Sea.
“Yes, it is expensive,” Richard J. Moore, Fox’s chief executive officer, acknowledged in an e-mail interview with Petroleum News. “However, our team comprises over two hundred years of oil and gas experience in over 25 countries to date.”
Moore himself says he has 30 years of industry experience dating back to the 1970s with British National Oil Corp., better known today as BP, for years a major player on Alaska’s North Slope.
“In the intervening years, I have worked four continents and been in the hottest and coldest places,” Moore said, “I guess I’ve worked with just about most of the majors in one way or another. At one time, Chevron, BP, Shell, Mobil, Conoco and I’ve had good times, with a whole bunch of independents in that time, too.”
No current production At mid-November, Fox had zero production and no booked reserves from any of its properties and, therefore, no revenue stream to help support its infant exploration plans, although the company is hoping to generate some income soon from an old reworked natural gas well in Texas.
Based in London and initially incorporated in Nevada in late 2004 under the name Nova Resources, Fox initially set its sights on gold mining in Canada’s remote Northwest Territories. Assuming Nova’s SEC filings are accurate and complete, nary a shovel of dirt was turned on the prospect, due to a lack of investment capital. However, as Fox has done in Alaska and the United Kingdom, Nova sold a ton of its own shares, purportedly to raise capital to keep the mining venture afloat.
Upon changing its name in February 2007 “to better reflect” its shift from gold to hydrocarbon mining, Fox established wholly owned subsidiaries in Alaska and the UK, retained a new chief executive officer (Moore), surrounded itself with industry advisors, acquired seed money in exchange for Fox shares and, within a span of a few months, bought into exploration properties, including 37,000 acres on the North Slope and 42,000 acres in the Cook Inlet.
Startup in a hurry Fox is acting like a startup company in a hurry to enhance its image and improve its share price, no doubt hurt from a diluting six-for-one forward stock split in January. Fox’s stock price doubled between early July and mid-August but also had begun to slip. The company reportedly spent $300,000 on advertising in national publications, including Fortune and Barron’s, but failed to mention in the ads that it had no production and income and likely would need millions upon millions to finance its ambitious exploration plans, particularly in Alaska. And, as it continues to do on its website and in press releases, Fox emphasized that its oil and gas leases were located near existing production owned by big industry names, such as BP, Chevron and ExxonMobil.
“One has to wonder why Fox spent thousands on magazine and newspaper advertising for investors to check out a stock when it needs millions for drilling operations,” Stock Watch columnist Thomas A. Anderson wrote on Sept. 11, noting that Fox had only $1.7 million of cash on hand, according to its most recent quarterly report filed with the SEC.
Industry analyst Ernest C. Schlotter, in a report he wrote for Zurich, Switzerland-based SISM Research & Investment Services, maintained a 12-month share price target of $5.40 for Fox, a hefty increase from the $1.92 per share the stock was trading for on Oct. 23, the day the report was issued. Schlotter’s price target appears to be based largely on the projected value of pre-drill reserve estimates and Fox’s own ambitious business plan. Moreover, Fox is paying SISM $1,750 per month for its services over a two-year period “solely to ensure independent coverage,” the companies disclosed in a joint statement.
Started on North Slope In mid-July Fox announced that it had signed an agreement to purchase exploration rights to some 32,000 acres on the North Slope, 11 of which are east and southeast of the Prudhoe Bay unit and south of the Duck Island unit. A single tract is farther south and west of the trans-Alaska pipeline. The acreage, consisting of a dozen state oil and gas leases, is held by Samuel H. Cade (75 percent) and Daniel K. Donkel (25 percent). Fox said it would issue 20,000 restricted shares in exchange for the lease rights. Fox estimates reserves of up to 160 million barrels of oil.
In late October Fox said it signed an agreement to acquire roughly 42,000 acres in the Cook Inlet region and contracted a petroleum geologist to complete a technical report on the Catcher’s Mitt gas prospect. Fox said it hopes to define several test well targets, which could be permitted for drilling in 2008.
Fox did not identify the current owner(s) of the Cook Inlet acreage, but described the acreage as “high-impact gas prospects in the Kenai Peninsula region of Alaska’s Cook Inlet.” Fox said the leases are onshore “and are in close proximity to many major production sites.”
The company said two wells, “the BA Bell Island well and the Unocal Figure Eight well, drilled on the structure downdip demonstrated gas shows.”
Alaska Oil and Gas Conservation Commission records show the British American Oil Bell Island 1 was a vertical well with a total depth of 11,365 feet, drilled and plugged and abandoned in 1962. That well is on lease ADL 390752 on the Susitna River the west side of Cook Inlet in section 12, township 15 north, range 7 west, Seward Meridian. The Union Oil Company of California Figure Eight Unit 1 well was a 10,660-foot vertical hole drilled and plugged and abandoned in 1976 in section 15-T15N-R6W, SM. This lease, ADL 390750, is due east of the first lease. Five leases in this immediate area are held by various percentages by Cade and Donkel, several in partnership with Monte Allen.
More North Slope acreage In early November Fox said it signed yet another agreement with Cade and Donkel to acquire the exploration rights to about 5,000 acres on the North Slope located near the BP-operated Badami unit and ExxonMobil-operated Point Thomson unit (the State of Alaska has terminated the undeveloped Point Thomson unit, although the outcome of current court proceedings could change that determination).
Fox, in a May 25 press release, said it had signed off on a financing deal with Swiss-based investor EuroEnergy Growth Capital S.A. to provide the company with an initial $8 million in exchange for Fox shares. The agreement included an option to secure another $5 million from EuroEnergy under similar equity terms, bringing the total value of the agreement to $13 million, Fox said.
Negative cash flow However, in an Oct. 27 report filed with the SEC, Fox painted a dismal picture of the company’s future, noting that it had experienced net losses from its inception, “and expect to incur substantial losses for the foreseeable future.”
“We will not be able to generate significant revenues in the future and our management expects operating expenses to increase substantially over the next 12 months following the commencement of oil and gas exploration activities,” Fox added. “As a result, our management expects the business to continue to experience negative cash flow for the foreseeable future and cannot predict when, if ever, our business might become profitable.”
Fox said in the SEC filing that it might have to raise money beyond what EuroEnergy provided and that additional commercial financing might not be available.
“If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements,” the company added. “This may seriously harm our business, financial condition and results of operations.”
Fox’s Moore, in his interview with Petroleum News, sounded anything but defeated, touting the experience of his staff and advisory board and the reserve potential of the company’s North Slope leasehold.
“We are sure there are hydrocarbons there, and we are working up the best prospects we can for drilling as soon as we feel ready,” Moore said, adding that while Fox had not yet identified a specific prospect, “historically the slope has proven to be highly prospective.”
Smaller fields the target As to why former owners had not pursued development on its North Slope acreage, Moore answered in a way that many of the small independents working the North Slope today would have responded:
“From personal experience, there are a good few smaller fields in these regions which were considered uneconomic back in the seventies and eighties. Times and economics have changed. These so-called smaller fields are diamonds nowadays, and Fox wants to be part of their success. The expense may be high, but the rewards justify. We like that.”
There are seven oil and gas companies planning to drill exploration wells on Alaska’s North Slope this winter; an eighth company is moving forward with plans to re-enter an old exploration well on an undeveloped prospect. Five of the eight companies are small independents looking for pockets of oil left behind by major operators — Brooks Range Petroleum Corp. Group, Savant Alaska, Renaissance Umiat, UltraStar Exploration and Alaskan Crude.
Likes Alaska’s stability Moore noted that both Alaska and the UK have “super-infrastructure with some real talented people” and that both regions are “secure and stable.”
“The UK and the USA go a long way back, and we feel that by doing business in these areas that we are going some way toward securing tomorrow’s energy, and we like that,” he said.
Fox also acquired a 33.33 percent interest in the Anglesey Prospect, located on Central North Sea License P.1211, covering Blocks 14/9a and 14/14b. As part of the farm-in agreement, Fox has an option to increase its stake from 33.33 percent up to 60 percent after completion and appraisal of recently acquired seismic data. Fox estimates the acreage could hold up to 213 million barrels of oil.
Back in the United States, Fox agreed to pay $500,000 for a 22.5 percent joint venture interest in the Spears Gas Unit 2, Well No. 1 in the Gomez Field, Pecos County, Texas. The well was to be reopened for drilling on Nov. 15.
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