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Russia of the Republics: Kazakstan oil

By James Norman, Platt's Oilgram News (McGraw-Hill), Vol.75 no.208, 27 October 1997

New York - Just about every major oil company in the world is elbowing its way into line for exploration concessions in reserve-rich Kazakstan. But perhaps the biggest winner in this scramble for Central Asia's oil wealth is none of the above. It is a little-known private US company based in Houston called, inconspicuously enough, First International Oil Corp.

Since its founding just two years ago, tiny First International has been granted control of an astounding 56,000 sq km (14-mil acres) of exploration territory in eight key Kazakstan tracts estimated to hold multiple billions of barrels of oil. It also won up to 75% of the undeveloped Chinarovshoye gas and condenstate discovery on the Russian border near Karachaganak. Chinarovskoye is believed to hold up to 3 Tcf of gas reserves and 250-mil bbl of liquids. FIOC also got 60% of the Sazankurak license on the northern shore of the Caspian, with proved and probable reserves of more than 20-mil bbl ready for immediate development. And it is now in negotiations to acquire another 100-mil bbl of reserves from government or private interests. Perhaps more importantly, FIOC has forged a close relationship with Geotex, the dominant Kazakh geophysical company.

How does a little company like this move to the head of the line in front of the Big Boys? Hard work, early risk-taking and good fortune were big factors, claims FIOC CEO Daniel Idzal. But Idzal admits deep pockets and big names in the background no doubt helped. Idzal, who was CEO of Toronto-based International Gold Resources Corp until its $100-mil sale last year to Ashanti Goldfields, is reluctant to identify them. But digging produced a list of well-heeled backers who have grubstaked FIOC.

Chief among them is Louis Marx, the multi-hundred-millionaire toy company scion, and his veteran oil industry partner Stanley Rawn. Marx and Rawn may be best known for their legendary windfall on Pan Ocean Oil Corp, founded with $16-mil in cash in 1970 and then sold to Marathon in 1976 for $260-mil. After 12 straight dry holes, that purchase eventually gave Marathon its company-maker North Brae field in the North Sea. From there, Rawn went on to run Madison Resources in the mid-1980s, selling it to Adobe Resources in 1985 and becoming Adobe's CEO until Adobe's sale to Santa Fe Energy. He's also an avid tennis player with Marx and their oft-times tennis partner O.J. Simpson. Along the way, Marx and Rawn, either directly, through various venture funds, or through their publicly traded Noel Group, have also owned and sold major stakes in Global Natural Resources (now part of Seagull Energy) and Colombian EfP operator Garnet Resources.

But there are also much bigger names buried in the various venture capital funds Marx shepherds, including Victory Ventures, co-chaired by Garnet chairman Montague Hackett. Sources say that many prominent political figures, mainly Republicans from the Reagan-Bush era, have invested alongside Marx and Rawn in these funds. Believed among the benficiaries of the profits: ex-President George Bush.

There is also some serious money behind the initial ante into FIOC. Marx and Rawn have close ties to the Rockefeller interests, with several Rockefeller advisors having moved to key positions with Noel and other Marx affiliates. Other ties are to the Oppenheimer family and Minorco interests.

Would the notoriously corrupt Kazakstan government of Nursultan Nazarbaev, eager to cement Western political ties, be aware of FIOC's ultimate beneficiaries? No doubt, Idzal allows. Could that have influenced the awards to FIOC? Possibly, but unlikely, Idzal says. The critical factors, he believes, are FIOC's financial clout and its impressive technical and professional staff capabilities.

Though only three years old, FIOC has assembled one of the largest in-country staffs of any foreign operator in Kazakstan: some 30 people, plus 10 geologists from Geotex. As president, FIOC has William Simmons, former president of Conoco Arctic and ex-head of Conoco's Russian Polar Lights project.

To develop its properties, FIOC has begun farming out exploration work to bigger oil companies, keeping a healthy "promote." Amerada Hess will begin drilling four exploration wells early next year on three of four blocks it has joint-ventured with FIOC and Geotex. Amerada can earn a 70% interest for 100% of exploration costs.

FIOC is now talking with other major oils looking for farm-ins. But Idzal says FIOC plans to develop some of the proven properties itself and is syndicating a $30-mil second-round private equity offering to its existing investors, to augment a $15-mil first round. A $100-mil public offering is eyed next spring, he said.

Marx and Rawn have long specialized in first foreign plays. Indeed, says Idzal, Kazakstan poses less political risk than the state of Virginia, which balked at granting their Marline Oil Corp a license to mine a 100-mil lb uranium deposit there after Marline sank $50-mil into the project.--James Norman in New York