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Refinery trek: From Alaska to New Guinea Nikiski Investors — group who helped buy, relocate Chevron refinery — press lawsuit in Texas against InterOil CEO Phil Mulacek Wesley Loy For Petroleum News
In 1994, Chevron sold its oil refinery in the Nikiski community on Alaska’s Kenai Peninsula.
The buyer eventually disassembled the plant, packed up the components and took the refinery away to make finished petroleum products elsewhere.
And that was that.
But wait. It turns out that, 16 years later, the sale of that refinery remains a topic of great interest.
It’s at the heart of a Texas lawsuit investors are pressing against a company that got its start off the refinery deal and since has become a nearly $3 billion energy concern publicly traded on the New York Stock Exchange.
The civil suit contends that Phil Mulacek, chairman and chief executive of InterOil Corp., raised $2 million from a group known as the Nikiski Investors to buy the refinery and later watered down their stake through a complex series of transactions.
It’s a globe-trotting case that moves from Alaska to the Bahamas to Papua New Guinea, where the former Chevron refinery was relocated and where InterOil says it’s planning to export liquefied natural gas.
InterOil’s rise Mulacek and Nikiski Partners Ltd. closed on the refinery purchase on April 1, 1994, court records say.
Chevron had operated the refinery from 1963 to 1991, when the company closed it down due to a combination of potential environmental liability, marginal profits and the need for costly upgrades. It was Alaska’s first oil refinery, capable of processing about 28,000 barrels per day of crude.
Mulacek, a petroleum engineer who studied at Texas Tech, was able to swing the refinery purchase with money raised from a number of investors, mainly people living and working in Montgomery County, Texas, the civil suit says.
They invested in partnership units costing $50,000 each, and were promised a 20 percent stake in any subsequent venture formed to relocate the refinery, the suit says.
Mulacek identified Papua New Guinea as a good place for the refinery, and a federal agency, the Overseas Private Investment Corp., in 2001 agreed to lend $85 million to InterOil — formed in 1997 — to rebuild the refinery, according to court papers, the InterOil Web site and a Jan. 21, 2007, article in the New York Times.
Today, InterOil has “the only petroleum refining facility in Papua New Guinea and produces a range of products that are used to supply the entire domestic refined product needs in Papua New Guinea,” the company’s Web site says.
Headquartered in Cairns, Australia, InterOil says its assets also include petroleum licenses covering 3.9 million acres, and “gross best case contingent resources” of 8.2 trillion cubic feet of natural gas and 156 million barrels of condensate, a March 29 company press release says.
“The stock price of InterOil is driven by the discovery of gas on licenses granted by the government of Papua New Guinea,” say court papers filed in December. “But because there is no demand for gas in Papua New Guinea, InterOil is seeking outside partners to invest $4 to $5 billion in an LNG plant.”
The plant would be built on a site adjacent to the refinery at the capital city of Port Moresby, InterOil says.
Fraudulent scheme alleged In their long and involved civil suit, the investors in the Alaska refinery purchase argue Mulacek and others defrauded them by diluting their equity through a series of transactions and new company creations in Canada, the Bahamas, the Cayman Islands and Papua New Guinea.
Media coverage of InterOil Corp. has been mixed, with some observers questioning the legitimacy of the company’s gas and oil reserves estimates. Gary Dvorchak, a hedge fund manager and contributing writer for RealMoney.com, recently noted InterOil’s market surge to nearly $3 billion but also its lack of production “despite years of breathless press releases.”
InterOil, in its March 29 press release, responded to a different media report that focused on the Nikiski Investors lawsuit and a related bankruptcy filing.
“InterOil Corporation believes that allegations made in an article concerning certain litigation which has been ongoing in Texas since 2005, have been raised now in an attempt to divert attention from the successful operations of the company,” the press release says. “The article was timed to benefit recent short selling activities.”
In its annual report filed March 2 with the U.S. Securities and Exchange Commission, InterOil acknowledged the Texas civil suit, describing the plaintiffs as “members of a partnership that bought a modular oil refinery that was subsequently, through a series of transactions, sold to a subsidiary of the Company.”
If the plaintiffs win at a trial set for October, actual damages could exceed $125 million, InterOil said, adding: “The Company and other defendants are vigorously contesting the matter.”
Short-lived bankruptcy case Nikiski Partners Ltd., which had purchased the Chevron refinery in 1994 and is a defendant with Mulacek and InterOil in the Texas civil suit, on Dec. 4 filed for Chapter 11 bankruptcy reorganization in Houston.
Nikiski Partners listed assets of $10 million to $50 million, and debts of $50,000 or less.
Trey Wood, the lawyer for Nikiski Partners, filed papers attempting to move the Texas suit into the federal courts. He argued the outcome of the suit could “significantly affect Nikiski’s bankruptcy estate,” as its asset value is based on InterOil stock.
“A sizeable judgment against InterOil will cause the price of InterOil stock to sharply decline and will substantially impair InterOil’s ability to sell securities or attract outside investors,” Wood wrote.
U.S. Bankruptcy Judge Marvin Isgur, however, ruled the bankruptcy petition “was filed in subjective bad faith.” He signed a Jan. 19 order closing the Chapter 11 case.
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