Financial Times: When Gazprom is Mr Foo's only potential buyer: “In spite of rumours of interest from almost all the world's biggest oil and gas companies - from Royal Dutch Shell to CNOOC of China - no bid was forthcoming.”: Saturday 19 November 2005
By James Boxell
Published: November 19 2005
This week's mad rush to buy Victoria Oil & Gas shares will evoke painful recent memories for many British investors.
Earlier this year, First Calgary, another Aim-listed company with a large gas discovery, put itself up for sale and sparked a boom for oil and gas stocks that left shareholders nursing a heavy hangover.
In spite of rumours of interest from almost all the world's biggest oil and gas companies - from Royal Dutch Shell to CNOOC of China - no bid was forthcoming.
First Calgary, at the time Aim's biggest stock, with a£2bn market value, has been forced to go it alone in the development of its Algerian fields and is now worth a more modest £680m.
Victoria is hardly on the same scale but the overheated market reaction bears similarities.
As in all oil and gas exploration stories there is the seductive chance of success, but at this stage in the development there is also a real chance of failure.
Bruce Evers, oil and gas analyst at Investec, says: "You can have the biggest gas resource in the world but if they can only get it to flow out in a dribble then it is worth nothing."
There are also concerns about how Victoria will be able to sell the gas if it does get it out of the ground.
Mr Evers says: "If you had 10,000bn cubic feet of gas in the ground, that gas has no value until you sell it to somebody.
"There is only one buyer in Russia [Gazprom] and they are not going to give you the best price because they are the only player."
Even BP, the world's biggest listed energy group after ExxonMobil, has difficulties negotiating with Gazprom.
A key difficulty for Victoria could be that its 500bn cubic feet of gas proves inconsequential to Gazprom.
Kevin Foo, Victoria's chairman, says his company has an excellent relationship with the Russian gas giant and that Victoria's western Siberia field is ideally placed to plug into Gazprom's Russian gas infrastructure.
"We have an intensive technical exchange. Gazprom pipelines are only half full. They need to fill them and I believe we will be part of that equation."
The Victoria gas block is also next to large producing fields owned by Gazprom, which the company hopes will demonstrate similar gas-bearing geological structures.
Mr Foo is managing director at Celtic Resources, an Aim-listed Russian mining specialist with 16 years' experience working in the country.
The remainder of the Victoria management team has a wealth of Russian experience, including a number of ex-executives and engineers from Yukos, the oil company that was removed from the ownership of Mikhail Khodorkovsky.
Few doubt the ability of the Victoria executives but the worry is making investors aware that carrying a business in Russia has its risks, as the imprisoned Mr Khodorkovsky can testify.
Click here to return to ShellNews.net HOME PAGE