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Arakis Energy: The rest of the story
2006-06-14 13:52 ET - Street Wire
By Stockwatch Business Reporter
Direct link:
http://new.stockwatch.com/swnet/newsit/newsit_newsit.aspx?bid=B-568133-C:AKS&symbol=AKS&news_region=C
Throughout the hearing at the B.C. Securities Commission into whether Terry
Alexander was acting as a de facto director of Pinewood Resources Ltd., the
subject of his securities ban has come up often, without much explanation as
to its origin. Similarly, there is scarcely any mention of the Sudanese oil
project that Mr. Alexander was promoting in the 1990s through Arakis Energy
Corp. Although he hit a wall, Mr. Alexander was onto something big.
On the edge of the Red Sea, the Sudan is now producing 401,300 barrels of
oil a day. The African nation exports nearly three-quarters of this
resource. While the Nile flows south into Egypt, much of the Sudanese oil
wealth flows east. Prolific oil fields in Sudan are now prized assets of
Chinese, Malaysian and Indian national oil companies. In the mid-1990s,
however, five of these fields were the pride of Howe Street promoter, Terry
Alexander.
In 1991, a younger Mr. Alexander was readying his shot at the big time. He
had been on the board of Arakis's predecessor companies since 1988, and was
now president and chief executive officer. Anne Eilers, a co-defendant in
the current hearing, was serving as corporate secretary. In June, 1992, Mr.
Alexander arranged for Arakis, listed on the Vancouver Stock Exchange, to
acquire State Petroleum Corp. for five million shares. The private oil
company was buying concessions in the Sudan. Arakis interlisted on the
Nasdaq Stock Market in 1993. With prodding from Mr. Alexander, investors
bought the stock as an attractive speculative play. Yet money for the
Sudanese project was always a problem.
In January, 1994, Mr. Alexander brought in Anthem International Inc., a
company incorporated in the British Virgin Islands, as an investor. Anthem
obtained one million Arakis shares. Later that year, in September, the chief
executive officer landed another financing with Hatfield Investments Ltd.
The investor agreed to buy 500,000 Arakis shares at $5.10 each for
$2.55-million. Mr. Alexander became chairman of Arakis on Nov. 1, 1994, and
soon after cut a deal with Verwaltungs-und-Privat Bank Aktiengesellschaft.
The German bank agreed to buy one million shares for $6.37-million. The VSE
would later voice its suspicion that Hatfield and Verwaltungs were late in
paying, or did not pay at all, but there was insufficient evidence to be
certain. In any case, Arakis was in need of enormous sums to finance its oil
wells and a 1,500-kilometre, 28-inch pipeline to Port Sudan on the Red Sea
coast.
On July 6, 1995, Arakis told the public that Arab Group International for
Investment and Acquisition Co. Ltd. (AGI) was willing to provide
$750-million (U.S.) in financing. Immediately, Arakis shares, which had
already levitated from $5.10 where Hatfield got in, moved from $23.25 to $26
on the VSE. War-torn Sudan is a perilous place to do business, but with
financial backing in place, it looked as though Arakis shareholders might
soon collect vast risk premiums. On Nasdaq, the company was trading huge
volume, often more than Microsoft, which was in the middle of its Windows 95
hoopla.
In fact, summer would have been a good time to sell. Investors got jarring
news on Aug. 22, 1995. In a news release, Arakis told the world what a few
already suspected -- that AGI would not be forthcoming with its $750-million
(U.S.) investment. On the VSE, the stock cratered to $15.50 on heavy volume.
On Aug. 24, 1995, Arakis voluntarily delisted. The stock resurfaced only a
month later on Nasdaq at $6.25 (U.S.). Mr. Alexander resigned from all his
positions at Arakis on Dec. 1, 1995.
The aftermath of the Arakis share calamity filled business columns in
newspapers for years, but the stock market angle received most of the
coverage. Few paid attention to the company's role in the Sudanese project.
In October, 1998, Talisman Energy Inc. was able to snatch up Arakis and its
State Petroleum subsidiary on the cheap. Talisman issued one of its roughly
$33 shares for every 10 Arakis shares. In total, this meant 8.92 million
Talisman shares in a transaction worth $295-million. Lundin Oil AB held
about 9.6 million Arakis shares, or 10.8 per cent of the total outstanding,
and agreed to vote in favour of the Talisman bid. Adolf Lundin and his
family first started buying Arakis through Sands Petroleum in the early
1990s.
Dr. James Buckee, president and chief executive officer of Talisman, said,
"This is a rare opportunity with spectacular potential."
While Talisman was congratulating itself over its acquisition, Mr. Alexander
was in trouble. In early 1999, the BCSC sent investigators to the island of
Jersey in the English Channel. Michael Watson, then executive director of
the BCSC, said "investigators spent several weeks working with the Jersey
Financial Services Commission obtaining evidence and interviewing people."
The result of the joint investigation was a litany of allegations against
Mr. Alexander. It appeared the Vancouver promoter was trading in Arakis
shares at various times through Princely Ltd., Hatfield Investments, Chatel
International Ltd. and Anthem International Inc. The BCSC claimed that Mr.
Alexander did not file insider trading reports or direct Arakis to
disseminate material information while he was buying and selling. Further,
the BCSC alleged that he violated the Company Act by, among other things,
having Arakis issue shares before the company received payment.
On Feb. 24, 1999, Mr. Alexander signed a detailed statement of facts,
admitting to the trading and disclosure violations. He agreed to an
administrative penalty of $700,000 and also paid $500,000 toward the cost of
the investigation. In addition, the BCSC saddled him with a 20-year ban on
acting as a director or promoter, the ban it now alleges he defied. In 1999,
Mr. Alexander said: "Contrary to the claims of the project's detractors, who
claimed the project was a sham and that it was impossible to build an oil
pipeline in war-torn Sudan, initial production from the oil fields is
expected before the end of this year. [...] Am I proud of its success?
Absolutely."
While Mr. Alexander was accepting his punishment, Talisman was telling
shareholders about its splendid Sudanese investment. In a March, 1999, news
release, the company said it had already added 33 million barrels of oil
through additional drilling and evaluation. On June 23, 1999, first oil
flowed into the 1,500-kilometre pipeline from central Sudan to the coastal
port.
The play, while reportedly very profitable, eventually became a public
relations burden for Talisman. After four years of enduring rebellions in
Africa and human rights protests back home, Talisman sold out. In October,
2002, Dr. Buckee commented, "Shareholders have told me they were tired of
continually having to monitor and analyze events relating to Sudan." No
doubt he was also tired of accusations that Talisman was fomenting genocide
in Africa. Talisman sold all its Sudanese oil assets to ONGC Videsh Ltd.,
the national oil company of India, for $758-million (U.S.), or roughly
$1.2-billion.
Unlike most VSE projects of the time, Arakis Energy held a huge asset. Had
the financing materialized, Mr. Alexander would have been known as a company
builder. There would have been no Arakis hearing, no fine, no 20-year ban,
and no current hearing.
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