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Oil Patch Insider ‘You are rigging the market, are you?’
The Alberta power market watchdog has decided that there is, after all, reason to probe more deeply into allegations that Enron manipulated power prices in the province in 1999.
While careful to note that new evidence does not amount to conclusive proof of market meddling, the Alberta Market Surveillance Administrator has asked Canada’s Competition Bureau to reopen an investigation that the bureau closed at the end of 2000, saying there was no evidence that Enron traders conspired with British Columbia-based Powerex to inflate electricity prices in Alberta.
The administrator’s Chief Executive Officer Martin Merritt said he was taken by “surprise” by transcripts of phone conversations made public in the United States.
Although confident that Alberta had safeguards in place to assure the public was not “materially harmed” by bid-rigging, it is important to determine if there was collusion or manipulation.
Merritt said the information was not available in February when the Alberta regulator decided there was no value in reopening the earlier investigation.
What changed was the release by the U.S. Federal Energy Regulatory Commission of transcripts involving Enron traders.
Here are two excerpts:
May 27, 1999: Traders Valerie and Bill talk about manipulating the Alberta power pool.
Bill: Don’t tell anyone, we’re just like trying to screw up with the pool price.
Valerie: You are rigging the market, are you?
Bill: It’s a gong show.
Valerie: You good boy. I’m proud of you, man. You make us proud.
June 17, 1999: Traders Bill and Jeff.
Jeff: Oh my God. So finally you guys, you and Powerex (a subsidiary of B.C. Hydro), are getting together to screw Alberta, basically.
Bill: Yeah, yeah. The exponential economists Chuck Logsdon, formerly the Alaska Department of Revenue’s chief economist, retired last year. This year, the department said in the dedication to its spring revenue forecast, senior economists Brett Fried and John Larson will retire, gentlemen with more than 40 years of state service between them.
The department charted this and concluded: “If the number of dedicated economists retiring from the Department of Revenue doubles each year, we project that 2,048 economists will retire in 2015. This assumes the future supply of economists into the Department of Revenue will continue at the same exponential rate.” CEO pockets bulging from petro gusher A year of unmatched oil and natural gas prices set off a torrent of record earnings and stock values before flowing all the way to the executive suites.
For the big league chief executive officers in Canada, 2004 generated big league pay packets, including base salaries, bonuses and stock options.
With everything thrown in, Precision Drilling’s Hank Swartout, as head of Canada’s largest drilling contractor, netted more than C$14 million; EnCana boss Gwyn Morgan, who has helped build North America’s largest gas producer, made almost C$11.5 million; Talisman Energy’s Jim Buckee topped the C$10 million mark; Rick George of Suncor Energy collected C$7.5 million; and Petro-Canada’s Ron Brenneman was close to C$7 million; leaving Enbridge CEO Pat Daniel far in their wake at a modest C$1.97 million.
But you can pool the compensation of those six and they fall more than C$40 million short of the gusher showered on Bernard Isautier, the CEO of Petro Kazakhstan.
Depending on how his rewards are calculated, 2004 yielded upwards of C$93 million.
According to a management proxy circular, he collected a C$494,000 salary and C$92.6 million from cashing in 2.6 million stock options.
Just in case he falls on hard times, Isautier holds another 4 million shares in the company and additional stock options, worth about C$200 million at current trading values.
The assumption is that the French-born 62-year-old unloaded such a large block of his holdings for financial planning and tax reasons.
Isautier assumed the top post five years ago when PetroKaz was trying to fend off bankruptcy and, despite frequent volatile dealings with authorities in the former Soviet republic of Kazakhstan, he saw profits rise to a record US$500 million in 2004, although fourth-quarter production fell 3.3 percent to 152,510 barrels per day from a year earlier.
Isautier’s decision to cash in on stock options may have been well timed.
The government of Kazakhstan laid charges on April 4 against two of PetroKazakhstan’s senior executives relating to allegations that the firm overcharged for some of its products.
Word of the charges trimmed 3.8 percent off PetroKaz shares on April 4. The company said the actions were “an unfortunate and unnecessary escalation in what is essentially a civil dispute.”
Whatever else, it will likely be more work for former Canadian Prime Minister Jean Chrétien, who has been hired as a consultant by PetroKaz in an effort to smooth dealings with the government. First Calgary caught in Algerian sand storm The longer First Calgary Petroleums struggles to find a buyer the more it seems to hurt the little Calgary-based company with the big reserves in Algeria.
Since putting itself on the block last fall, First Calgary has been the object of interest from many of the world’s petroleum powers, notably Royal Dutch/Shell, France’s Total and Spain’s Repsol.
Backed by staggering claims that it sits on possible gross gas reserves of 13.57 trillion cubic feet — although more conservative estimates have put net proved and probable holdings at 770 billion cubic feet — the junior explorer has seen its market value soar as high as C$4.5 billion.
But the last six weeks have seen the shares tumble by close to 30 percent amid warnings that worse could lie ahead.
The unraveling gathered speed with an article in the Sunday Telegraph of London, quoting an unnamed oil company executive, who said First Calgary might be sold for less than half its market value.
Other players took an even tougher line.
Darius Parsi, a hedge fund manager and co-founder of FM Fund Management based on the Spanish island of Mallorca, distributed a 20-page e-mail at the end of March suggesting the stock might be worth only C$9 — almost C$16 below its 52-week high.
He said First Calgary management had been “very savvy about promoting the company,” for which he gave them “full credit.” But he insisted the company is “over-valued,” based on public disclosures.
However, J.P. Morgan Fleming Asset Management, a First Calgary shareholder, said the company has a lot of unproven value that could be a “unique opportunity” for one of the large energy companies hungry for new gas reserves.
Algeria’s Berkine Basin, where First Calgary is drilling on two locations but needs money to finance the development of its reserves, is already exporting gas to eight European countries, led by Italy, France and Spain.
Some analysts say the difficulty for gas producers in putting an accurate value on First Calgary is the cost of getting the gas to market. The answer may be known later in April when First Calgary concludes the evaluation of options to increase its share values, or perhaps the best way to stop the slide in those values.
Editor’s note: Oil Patch Insider is written by Gary Park, Kay Cashman and Kristen Nelson. If you have news that would make a good Insider item, email [email protected] or call Kay Cashman at 907 770-3505.
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