Aurelian Oil and Gas

Source: Energy Digital

Date :05/12/2007 16:46:50

History and contemporary development are meeting in the Carpathian oilfield and Aurelian Oil & Gas are at the forefront, as Ruari McCallion learned from Frank Jackson

Written by Ruari McCallion and produced by Alex Smith

As the world’s traditional sources of oil and gas run out and prices rocket skywards, energy exploration, development and production companies are looking further afield for new reserves.

That hunt tends to take them into increasingly hostile environments – deep waters in the Gulf of Mexico and off the coast of India, to name but two. But one area isn’t too far removed from its markets and accidents of history mean that accessible reserves are still in plentiful supply – and they’re right on the doorstep of the major markets of Western Europe.

“The Carpathian region, extending to Romania, Poland and other countries in Central Europe, is the oldest oil and gas field in the world,” said Frank Jackson, group commercial director for Aurelian Oil & Gas PLC. “At the beginning of the First World War, Romania was the second biggest oil producer in the world. The world’s first commercial oil well was established in Poland, in 1853, but records indicate that oil was taken from surface seeps as far back as the 12th and 13th Centuries.”

When the Romanian oilfields were in their ‘Phase one’ heyday, if that’s an appropriate description, exploration technology was pretty primitive. “Exploration in the 1940s and 50s was by serendipity. Oil and gas seeped to the surface and companies drilled outwards round those seeps until they stopped.” One would have expected an oilfield so rich that it reached the surface would have been exhausted years ago but a stroke of perverse luck meant that didn’t happen.

Industry developments

“When seismic technology was developed and became significantly more sophisticated as a result of developments in the North Sea and the Gulf, the USSR’s economy was on the wane and it was making limited investment in that sort of expertise,” Jackson said. It was known – or, at least, strongly suspected – that there were reserves deeper than the surface seeps but there was little exploration below 2000-3000 metres during the Soviet era. When the Wall came down and the former Soviet Bloc countries opened up, a number of companies were founded with a view to re-establishing and expanding the Carpathian oilfields.

“Michael Seymour, our managing director and founder, set up a company named Medusa in 1990, which was sold to another company in 1997. He went with the company and stayed with the new owner until 2002, when it had a change of strategy that didn’t focus on the Carpathian region, where his expertise is focused,” he explained. “He decided to leave and took with him two licenses – one in Romania and the other in Poland.

They were the seed corn, if you like, and he was fortunate to bring several of the original investors and his team with him.” But the first three years were pretty much hand to mouth. Seymour was the only full-time employee and a lot of energy was going into raising capital. By 2005, the company had raised $10 million and the view was taken that the market was becoming more risk-averse, especially towards micro-companies that were raising small amounts.

“In our view it was a waste of time to chase small investments. We wanted to raise a sensible amount of money and get on with things. We went to the market to raise £20 million and we got a number of offers from private equity funds but the terms were unacceptable,” said Jackson.

Then came a stroke of brilliant timing or amazing good fortune. “We decided to approach the hedge fund market in New York. The night before we arrived, Putin turned off Russia’s supply of oil and gas to the Ukraine. We went to the market the morning after and all they wanted to know was: which side of the Urals were we on? We told them where we were and, by the end of the day, we’d raised $50 million.” That was in January 2006.

The only condition was that Aurelian should seek an IPO within twelve months. “In the event, we made the decision to go as soon as possible and did so on 23 August and raised a further $20-odd million. Through 2006 we raised a total of $80 million and our hedge fund backers have become long-term investors.”

Exploiting opportunities

With a market capitalisation of around £65 million, Aurelian was able to get rolling and to start exploiting its licences properly. It has been drilling five exploration wells during 2007 and expects to expand exploratory operations during 2008. In July 2007, it announced that it had been provisionally awarded three new concession blocks, in Cybinka, Torzym and Kalisz in central western Poland.

They are in the Zechstein/Rotliegendes Basin, which extends westwards through Germany and Holland, which has the same geological structure as the gas producing areas of The Netherlands and the North Sea. On 19 November the company announced that it had discovered potentially commercial gas reserves at its Trzek-1well in central Poland and intended to begin long term test production in 2009.

“If the tests are successful, it will take two to three years to achieve full commercial production from this field, which was originally a Shell/Exxon joint venture, which they relinquished when the Russian oil field’s opportunities became available,” said Jackson. “We contract out drilling and associated work on our sites to specialists.” The gas will be sold to the Polish state company, which controls 99 percent of its market. A western-owned utility company is its main customer from the Romanian fields. While its main activity is currently exploration, the dynamics of its business will take it naturally into development and production.

Future Plans

“We have a five-year business model and we expect to grow quite quickly in the current market,” he said. “We are actively looking for opportunities and will exploit them as they come along. You have to have a critical size to take best advantage and we aren’t there yet. However, there may be chances of acquisitions and with new licences coming up; we can grow both organically and by acquisition.”

Aurelian specialises in land-based hydrocarbons. Seismic is more expensive to acquire on shore than off-shore, but drilling is less costly and whilkst discoveries can be developed more quickly. With oil prices forecast to rise to between $100 and $150 a barrel, Aurelian Oil & Gas is positioning itself as a company for the future.