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Weathering the Kazakhstan storms Investors spooked as PetroKaz sideswiped Gary Park Petroleum News Calgary Correspondent
It used to be called Hurricane Hydrocarbons, which was amply symbolic for a company that constantly seemed to be in the eye of the storm, but even a switch to PetroKazakhstan hasn’t freed the Calgary-based firm from turmoil.
With all of its hopes tied to 145,000 barrels per day of production in the former Soviet republic, PetroKaz experienced another whirlwind Oct. 1-2 that wiped 28 percent off its share price then just as quickly reinstated 12 percent.
The turmoil began after the Interfax-Kazakhstan news service said Kazakhstan’s Agency for Regulating Natural Monopolies demanded $6.3 million as compensation for PetroKaz allegedly overpricing gasoline and other refined products, setting an Oct. 7 deadline for payment.
But PetroKaz balked, saying it will try to avoid paying any penalty, or, at most, settle for a reduced fine of $400,000.
The company, annoyed that the agency made no prior contact, called the charges baseless, insisting the agency’s complaint contained factual errors and when corrected the fine should be no more than $400,000.
“This is a tempest in a teapot that has drawn much more attention than it deserves,” said Ihor Wasylkiw, PetroKaz vice president of investor relations, as jittery investors first ran for cover than appeared reassured by the company’s statement.
Wasylkiw said the political risks are an inevitable part of doing business in Kazakhstan.
“What I hope our investors are learning is that they should take a deep breath first,” he said. “When one hurdle comes we knock it down and we start running toward the next one.” Kazakhstan can be unpredictable The wildly unpredictable nature of the country was reflected in an interview PetroKaz Chairman and Chief Executive Officer Bernard Isautier gave to The Globe and Mail, apparently unaware of the bombshell to come later that day.
He said Kazakhstan and other former Soviet republics have acquired credibility in recent years as good and reliable places for Western companies to invest.
“Anybody who is interested in the global industry has to look at Kazakhstan, with its huge resources and its open policies for foreign investors,” Isautier said in the interview.
Some observers said the trigger in the original panic selling was the word “confiscate” in the original Kazakh news story.
“When investors hear that word, they think about their assets going away without recourse,” said Bill Wheeler, president of Vancouver-based fund manager Leith Wheeler Investments.
Phil Carroll, president of Toronto-based uranium miner World Wide Minerals, said bluntly that Kazakhstan is not a country to be trusted.
His own company made a $23 million convertible loan to the Kazakh government in the mid-1990s to revive the uranium mining industry and now alleges the government unlawfully terminated the loan which it has so far been unable to recover.
Carroll said nothing of importance happens in Kazakhstan without the approval of President Nursultan Nazarbayev or a member of his family.
And it’s not just a low-profile company such as PetroKaz that is rattled by Nazarbayev.
In June, he turned the heat on a consortium that includes ExxonMobil and Royal Dutch/Shell, accusing it of moving too slowly in developing an oil field off Kazakhstan’s Caspian Sea coast. Oil and gas prize described as enormous Paul Drager, chair of the international group at the Calgary law firm of Macleod Dixon, said Kazakhstan is a difficult country to work in, “but in the oil and gas sector, the prize is quite frankly enormous.”
With reserves estimated at 12 billion barrels, Kazakhstan has pursued accelerated investment in its oilfields, promising foreign companies that they can circumvent the normal tendering process if they establish joint ventures with Kazakh firms.
Kazakh Foreign Minister Kasymzhomart Tokayev said in Ottawa in June that his country hopes to attract $70 billion in direct investment.
He said outside money is needed to meet Kazakhstan’s goal of tripling crude output from the Caspian Sea area to 3.5 million bpd by 2015.
Nazarbayev followed that announcement by telling 350 business leaders in Calgary that his country was open for business.
Contrast that with PetroKaz’s adventures and misadventures in its days as Hurricane.
Over the last three years it has survived a bizarre coup attempt at its Kazakh refinery when mercenaries from a regional detachment of Kazakhstan’s internal affairs ministry occupied the facility; fended off what it described as a “ridiculously low” attempt by Kazakh businessmen to lock up control of Hurricane; and had its bid to acquire a stake in a new export pipeline dashed by state-owned Kazmunaigaz.
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