From oily rags to riches
On Petrolinvest's debut day in mid-July, Paweł Gricuk, the president of the company's management board, said the company was already planning a new share issue. "The new shares can be issued at the beginning of next year, but we don't rule out applying for an exemption from lock-up in order to carry it out this year," said Gricuk.
Ryszard Krauze, chairman of the supervisory board at Petrolinvest, confirmed the president's assertion. He said that if the plans worked out, the company would offer new shares, several times more than it had offered in its IPO, through which it raised zł.120 million.
A step forward
A new issue of shares is necessary, as Petrolinvest has signed a letter of intent to spend $100 million (zł.278) on a 50-percent stake in a group of companies, some of which already extract oil in Russia and some of which own concessions to extract oil there. Petrolinvest plans to acquire the other 50-percent stake in these companies through an exchange of shares from the aforementioned issue.
"The letter of intent foresees Petrolinvest signing an investment deal to purchase the assets around August 15 ... The transaction is a big step forward in the company's strategy to become an extracting company," reads the company's announcement.
Marcin Bogucki, chief analyst at IDMSA brokerage house, says the announcement of the deal is great news. "There were fears that [Petrolinvest] wouldn't be able to achieve much [in Russia]. Now we know that they have contacts there and they are able to operate," says Bogucki.
Kamil Kliszcz, an analyst at DI BRE Bank says the acquisition comes at a good stage in the company's development. "So far their only assets were oil concessions, without any experience in extracting. The company's capitalization exceeds zł.3.64 billion, so it was about time [for the firm] to do something that would show that the shares are worth it," says Kliszcz.
The group of companies that Petrolinvest is looking to take over has been extracting oil since 2000. The total expected revenues of these companies amounts to $165 (zł.458) million and the net profit about $35 (zł.97) million. Documented resources owned by the group reach 35 million barrels and its average production amounts to 12,000 barrels a day.
Question marks
Currently Petrolinvest concentrates on the trade of liquid petroleum gas (LPG) and oil. The company already co-owns four firms in Kazakhstan, which are thought to possess large oil resources and concessions to extract oil. Their joint resources are estimated at two billion barrels. Petrolinvest is also planning other investments in Russia.
According to Petrolinvest, an independent expert recently estimated that the resources in two fields covered by the company's concessions could amount to as much as 137 billion barrels, including 11.4 billion barrels categorized as "probable" resources and 7.6 billion barrels as "possible."
These estimates were made in agreement with the definition of resources accepted by the Society of Petroleum Engineers and the World Petroleum Congress in 1997. However, at the current stage the estimates are only initial, due to the fact that no prognoses of extraction or revenues have been prepared.
"There is a huge question mark as to when Petrolinvest will find oil," says Tomasz Chmal, an energy expert from the Sobieski Institute.
Asked when the first barrel will be extracted, Petrolinvest's president Gricuk replies: "In the nearest future."
Petrolinvest announced that this year it plans to spend almost zł.600 million on the search for oil in Kazakhstan and Russia, including zł.106 million from the IPO. The rest is to be covered from loans.
Dangerous business?
Chmal says in a long-term perspective the investment could be dangerous, highlighting the problems other firms have had working in the oil sector in Russia and Kazakhstan. "This is a difficult region for foreign companies, not to mention Polish firms. Exxon, BP, Shell and others have already been there and although they are big, cooperation with authorities didn't work out well," says Chmal.
DI BRE Bank's Kliszcz says that since Petrolinvest is a small company compared to the likes of Exxon or Shell, its operations are hardly a blip on the authorities' radar screen. "Large companies carry out large investments and that is why they have problems - because Russians want to control their oil fields. Only when Petrolinvest finds large oil resources might the situation change," says Kliszcz.
Chmal also thinks that striking oil will complicate the situation. "If the company finds oil, they will have to sell it well. It may turn out that they face certain restrictions as to whom they can sell the oil," he says.
The search for profit
If it operates in such uncertain markets, why doesn't the company seek capital on stable, foreign markets? "In Toronto [for example] we would be one out of a hundred companies of the same profile. In Warsaw we are the only one. Moreover, there is the boom on the Warsaw Stock Exchange [to consider]," says Gricuk.
Petrolinvest has yet to find oil from any of its concessions, so for the moment the WSE is its best source of capital. The problems it faces in in Russia and Kazakhstan may be distant, but positive financial results may be as well.
"For the moment, I don't expect Petrolinvest to post profits in 2008," says Kliszcz. "In the course of time, investors, especially speculators, might become more and more impatient," he adds, "but when they find oil, the company's shares may skyrocket."
