Streamlined exploration

Source: Stock Market Digital

Date :28/09/2007 11:38:57

Managing Director John Gary Moore speaks out on how exploration and production company Gold Oil Plc is taking advantage of Irish investment and a streamlined corporate governance structure

Written by James Hurley & Produced by Alex Smith

An independent exploration and production company, Gold Oil Plc looks for oil and gas interests in several South American and Central American countries. Its strategy involves exploring for, appraising, developing and producing oil and natural gas, and building up the capital value of its projects to a point where it can pay dividends or be sold to a new buyer. Such projects may be acquired through direct investment, or by acquiring all or part of an existing or newly-formed company or business.

Peruvian focus

An initial focus on Peru has led the AIM listed company to establish a significant entry position in the country. It currently faces limited competition, as there are few North American or European oil and gas companies operating in north western Peru.

However, in other areas, notably the basins to the east of the Andes, this is changing rapidly as companies are increasingly seeing the opportunities available and are responding to the terms offered by Peru. Yet, as an early entrant in the country, Gold Oil finds itself in an enviable position.

The Executive Management has spent the last ten years working in the region, and believes that they have the contacts and local knowledge to capture and exploit economically attractive opportunities. Gary Moore, Gold Oil’s Managing Director, first went to Peru as a consultant with Shell in 1996.

“Peru has the right atmosphere for us at the moment; it has the right Government and the economy is booming and there’s no reason for that to change. We got in early so we got our deals at just five percent royalty – the last deal that was completed in Peru was at 69 percent royalty, so that shows how well we did,” says Moore.

The company began with an initial investment of just £400,000, with which it acquired a small amount of acreage. It then went back to the AIM market and raised £3.6 million, which Moore says the company “still hasn’t spent”.

“We raised some more last year, but the governments are making it more difficult for us to qualify. This happened in Peru in three blocks that we were looking at. We were too small a company. So we asked how much we needed, which was $4 million.

"We raised exactly this amount and then the government changed, and said since we had too much in Peru, they were only prepared to give us one block. Essentially, we’ve currently got more money in the bank than we have ever raised, and we have a lot of acreage in production so we’re in a strong position,” he says.

Moore describes the company’s oil strategy in Peru as ‘high risk, high reward exploration’. “You just have to watch what’s going on and try and get ahead of the game. Of course, there are all kinds of risks involved but so far we have been very lucky. We couldn’t get the offshore in Peru that we have now because the Asian companies are after it.”

Gold Oil picked up the equivalent of 19 North Sea blocks in the region.

“There’s no doubt there’s oil there, probably in the region of five billion barrels, there must be but no one has ever drilled a well there. We were in the right place at the right time. This is West Africa all over again,” he enthuses.

With oil prices riding high, the region that Gold Oil operates in is now attracting interest from large Asian and American oil and gas interests. “When oil hit $60, a ‘land grab’ mentality was evident. Silly money is now arriving in Colombia and Brazil from the US, Yet there’s a severe lack of equipment and competent resources, despite the price paid,” says Moore.

“People are coming in and trumping my offers by five times, but they will get their fingers burnt. That’s bad news for general investment in places like Columbia. But I’ve got a lot of offers on the table and a lot of acreage picked up so I’m OK. And I’ve got enough in Peru to keep me going for 30 years – the equivalent of 35 North Sea blocks. I don’t have to pick anything up. I am looking for small appraisal type wells, cheap re-entry, and instant production stuff.”

The Irish connection

In order to explore for oil and gas prospects in non-core areas, including Cuba, the company entered into a strategic partnership with Minmet Plc, an Irish company with oil, gas and mining interests, in February 2007.

Along with Gold’s Chairman Michael Burchell, Gary Moore, an Irishman himself, joined the Minmet Board as a non-executive Director. This association with an Irish company has allowed Gold Oil to pursue prospects it would otherwise have been excluded from due to anti-American and, by association, anti-British sentiment.

“Cuba is very high risk, but it has lots of opportunities. Our strategy there is very simple. I saw a very good oil prospect there two years ago and they ignored me. I went down there to see them and they weren’t interested until one of them enquired about my accent. When they found out I was Irish there was an unbelievable change in their attitude. I told them Gold Oil is qualified as a British company but that the real investor was Irish.”

In the Gulf of Mexico, American oil fields run right up to the border with Cuba and then stop. “Geology just doesn’t work that way,” says Moore. “There’s no doubt in my mind that oil fields run into Cuban territory. The Americans can’t go in there, but I can work with the Americans to find out where I should I be looking and I can hold it for them. The idea is to get in quickly, promote the field and keep it going until the area opens up.”

Clearly a shrewd operator, the 57 year-old believes many companies investing in South America lack the nous to succeed.

“There are a quite a few companies operating down in South America that haven’t got their act together yet. They rent a building in the dearest part of Bogota employing 30 or 40 people on good salaries, but that isn’t necessary in this business. Our head office is the room I’m sitting which costs £300 a month,” he laughs.

This lean structure extends to the board. “The beauty of it is that we have a small board. The other board members have the same background and ideas that I have. This means I can go to a country, sit down with a company there and then and do a deal on the day. A big company can’t do that, but the people we’re doing deals with like people who can move really fast.”

Yet Moore is also aware of the limitations that come with a company’s modest size. “Small oil companies should not get involved in developments of anything other than the smallest scale. A 20 well development programme can kill a small company because they simply can’t control it. I’ve seen many small oil companies go to the wall because they took on bank debt, raised equity finance and took on projects that were too big. They didn’t have the procedures, manpower and backline to do it.”

Gold Oil contracts all services out. “I believe you can run a company with five people by contracting everything that you can. We contract for specific jobs and don’t have a qualification process. We go by word of mouth - essentially who has done a good job in the past. And our contracts are written to be fair to both sides. If you look at a contract from an oil giant, the contractor is liable for everything under the sun.

"The contractor puts a big bid in to cover himself, meaning a large oil company like BP or Shell is generally paying 30 to 40 percent more than they should do. We get much closer to cost because the contractor is not taking a big risk, meaning that we get the work done very cheaply.”

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