PetroKaz buzzing with deal-making

Gary Park

Petroleum News Calgary correspondent

Neither rain, nor sleet, nor big honkin’ bumps in the road seem able to slow PetroKazakhstan from its appointed rounds in the topsy-turvy world of the former Soviet Union.

The Canadian independent is now looking at several “material” acquisition prospects in Kazakhstan, in “advanced conversation” to buy a remaining interest in a joint production venture, hoping to gain pipeline access to China and so flush with cash that it plans to buy back shares.

Along with a 28 percent jump in first-quarter earnings to US$87.5 million, PetroKaz also enjoyed an 8 percent drop in transportation costs and is counting on output climbing from 143,000 barrels per day to 160,00-165,000 bpd later this year.

Buoyed by those results, the company said it just needs regulatory approval to buy the remaining 50 percent stake in the Kazgermunai venture with a German consortium and add 21,000 bpd to its portfolio.

Chief Executive Officer Bernard Isautier said at the company’s annual general meeting May 4 in Calgary that transaction and other potential acquisitions will not interfere with PetroKaz’s intention to buy back up to C$160 million in shares through a “modified Dutch auction” over the next few months.

The process fixes the number of shares to be sold, leaving investors to bid for the stock, starting at C$40 a share and moving up in increments of 10 cents. The method also eliminates the traditional underwriters’ discount. Isautier himself sold 281,000 shares in March, fetching C$11.2 million, but he still holds about 5.5 million shares.

Also dangling over the company is a proposed US$700 million, 600-mile pipeline from Kazakhstan to China, which is slated to open in 2006 and could handle ramped up PetroKaz production as well as offering an alternative outlet to a Tehran refinery in Oran.

That has triggered speculation among analysts that state-owned China National Petroleum Co. might take a position in PetroKaz, helping push shares to a record high of C$42.27 in March.

This welter of action has successfully deflected concerns over a series of tangles with Kazakhstan regulators who, among other things, have accused PetroKaz of price fixing.

Kazakhstan’s anti-monopoly agency once threatened to sue the company for US$91 million for allegedly over-charging for diesel fuel, but softened that hard-line in April when PetroKaz paid a US$3.6 million fine for abuse of its position as owner of Kazakhstan’s biggest oil refinery.