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BUILDING GREEN ASIA 18 WEDNESDAY, SEPTEMBER 23, 2009 THE WALL STREET JOURNAL.

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Page 1: THE WALL STREET JOURNAL. B G A CORPORATENEWS...Hafidh contributed to this article. GLOBAL BUSINESS BRIEFS Reuters THE WALL STREET JOURNAL. WEDNESDAY, SEPTEMBER 23, 20097 BUILDINGGREENASIA

Major Uganda oil discoveries by Tullow Oil and Heritage Oil have recently stokedinvestor interest. Above, an oil rig prepares to drill in western Uganda in 2007.

Small oil’s upturn patchyUneven recoveryfor sector leavesbehind many losers

DNO’s oil production in Iraq at risk over aid disclosure

By James Herron

LONDON—The independent oiland gas sector is rebounding after adevastating year of bankruptcies andshare-price slumps. But the recoveryhas been uneven, resulting in a grow-ing disparity between a few compa-nies that are striding ahead with theirplans after topping up cash reservesand a larger number that lack the cashto do anything but basic operations.

Summer 2008 was the start of arough patch for small oil and gas com-panies. After several boom years,when investment flowed into the sec-tor as the oil price soared, funds driedup as the financial crisis took hold.

Now, funding has started flowingagain.OilandgascompanieslistedonLondon’s Alternative InvestmentMarket, or AIM, raised £281 million($456 million) in the second quarter,an increase of 12% from a year earlierand the highest level of fundraisingsince the fourth quarter of 2007, ac-cording to a report from consultancyErnst & Young.

But almost 90% of the moneyraised went to just seven of 115 oil andgas companies listed on the AIM.

“Thereislightattheendofthetun-nel for some, but by no means all,”Ernst &Young said.

The disparity results from “flightto quality and liquidity,” said Andrew

Foster, head of energy and resourcescorporate broking at the HoareGovett unit of Royal Bank of ScotlandGroup PLC. RBS Hoare Govett hasplaced hundreds of millions ofpounds of new stock for oil and gascompanies this year, but the cash hasgone to a select few.

Companies with good asset bases,strong management teams and a bal-ance between resources coming intoproductionandexplorationopportuni-ties are finding demand for new shareplacings, Mr. Foster said. But pure ex-ploration companies, which are al-ways higher risk, are increasingly outof favor.

The companies that have riddenout the past year with relative ease ei-therhadsufficientcashflowfrompro-duction or big enough financial re-serves to sustain them.

“We were so well funded goingin…we didn’t need to look over ourshoulders,”saidDavidHough,chiefex-ecutive of North African-focused oiland gas producer Circle OilPLC.

When Circle started to run low oncash a few months ago, its recent suc-cess persuaded investors to providean extra £16.5 million to “get more ofour gas into production, lay the newtrunk line [in Morocco] and increaseproduction in Egypt,” Mr. Hough said.By the middle of next year Circleshould be generating enough cash tocover its spending, he said.

Others suffered a financingcrunch. “We had seen our stock pricecollapsefrom a high of £3 in July 2008to a low of 25 pence by the end of theyear,”saidDavidGreer,chiefexecutiveof Regal Petroleum PLC.

“Convertible debt dried up, nobanks were lending,” and Regal had to“applyawholerangeofausteritymea-sures in order to guarantee survivalthroughtherecession,”Mr.Greersaid.

As financial markets graduallythawed through the first half of theyear,Regalraised£63.4millioninfreshequity in June. Regal and BowlevenPLC are among “a limited number ofcompanies that are of a quality thatwould be backed by a major institu-tion,” Mr. Foster said. Bowleven wasableto raise £71 million in June.

Siberian oil field developerPetroneft Resources PLC, Falklandsexplorer Rockhopper ExplorationPLC, Kurdistan driller Gulf KeystonePetroleum Ltd. and East Africa ex-plorer Dominion Petroleum Ltd. willallprobably needto raise moremoneyto fund their plans, said Oriel Securi-

ties analyst Richard Rose.“Weareouttalkingto[financial]in-

stitutions to gauge sentiment,” for afundraising, said Dominion’s financedirector, Rob Shepherd. Mr. ShepherdisoptimisticbecausemajorUgandaoildiscoveriesbyTullowOilPLCandHer-

itage Oil Ltd. have recently stoked in-vestor interest.

Gulf Keystone and Petroneftcouldn’t be reached for comment. ARockhopperspokesmansaid the com-pany will require additional funds fordrilling.

—Compiled from staffand wire service reports.

Sichuan Tengzhong

Hummer LLC plans to create aglobal headquarters in Michigan fol-lowing the likely closing of GeneralMotors Co.’s sale of the sport-utilityvehicle maker to China-based Si-chuan Tengzhong Heavy IndustrialMachinery, according to a companyspokesman. Hummer plans to investup to $9.4 million over five years in anew headquarters located in south-east Michigan. Hummer will likelyrefurbish an existing facility andhouse employees working on engi-neering, product planning, purchas-ing, sales, service, marketing and fi-nancing. Michigan committed to atax credit valued at $20.6 millionover 10 years to persuade Hummerto remain in Michigan.

GM Daewoo Auto

GM Daewoo Auto & TechnologyCo. said it filed a petition in a Seoulcourt seeking to prevent its prod-ucts from being copied by Tagaz Ko-rea, a South Korean unit of Russiancar maker Tagaz. GM Daewoo, theSouth Korean unit of General Mo-tors Co., said two of its former em-ployees, who also recently workedfor Tagaz Korea, were arrested andindicted this month for alleged tech-nology theft. The first hearing willbe held Wednesday in the Seoul Cen-tral District Court to decide on GMDaewoo petition, a company spokes-man said. Judge Kim Seung-soo saidit may take several weeks for thecourt to decide on the matter.

Hebei Iron & Steel Group

China tentatively approvesmerger of three listed units

Chinese regulators have condition-ally approved a merger to create oneof the nation’s largest steel mills, partof a push by thegovernment to consol-idate its steel industry. Hebei Iron &Steel Group’s three listed units—Tangshan Iron & Steel Co., HandanIron & Steel Co. and Chengde XinxinVanadium & Titanium Co.—said Tues-day the China Securities RegulatoryCommission has conditionally ap-proved their plan to merge. Under theplan, Tangshan Iron will take overHandan Iron and Chengde Xinxin Va-nadium & Titanium, the companiessaid earlier this year.

Huadian Power InternationalHuadian Power International

Corp. plans to spend 600 millionyuan ($88.2 million) to acquire a45% stake in Yinxing Coal Co., to se-cure fuel for its coal-fired powerprojects in northwestern China.Yinxing is responsible for develop-ing and constructing two coal minesthat have exploitable reserves total-ing more than 570 million metrictons, Huadian said, adding that its in-vestment will improve coal distribu-tion to other provinces. The HongKong-listed Chinese power pro-ducer didn’t specify when coal pro-duction at the mines will begin, butsaid its investment will give it prior-ity to buy up to 45% of Yinxing’s coaloutput.

CORPORATE NEWS

Rio Tinto Ltd.Rio Tinto Ltd. said it struck a

deal to sell its Alcan Compositesbusiness for $349 million to Switzer-land’s Schweiter Technologies AG.Rio has been seeking to divest the Al-can engineering assets since its2007 takeover of the aluminumgroup. Alcan Composites is based inSwitzerland and manufactures com-posite materials for the display, ar-chitecture, and wind energy sectors.Rio said the sale is expected to becompleted by the end of the year sub-ject to regulatory approvals and em-ployee consultation.

Drilling for cashFunds from secondary offerings for oil and gas companies listed on London's junior AIM market

1Q2008 ’09

2Q 3Q 4Q 1Q 2Q

Source: Ernst & Young

0

100

200

£300 million

By Spencer Swartz

The future of Norwegian oil ex-plorer DNO International ASA, akey player in northern Iraq’s Kurd-ish region, has been thrown intoquestion after new details surfacedof a DNO money-raising effort lastOctober that has embarrassed theKurdish government.

The autonomous governmentMonday suspended DNO’s opera-tions for up to six weeks and said itcould terminate the company’s in-volvement in Kurdistan if it doesn’ttake action to undo the “unjustifi-able and incalculable harm” to thegovernment’s reputation.

The government makes deci-sions on a range of matters indepen-dent of the Iraqi government. It has

enjoyed a clean image in its dealingswith foreign investors and has manydeals with oil companies.

But that reputation has taken ahit by revelations the governmenthelped DNO with the sale of trea-sury shares to fund its operations inthe region.

While nothing illegal is alleged inits assistance, the government’shelp fed speculation that Kurdish of-ficials may have financially bene-fited. The government denies any of-ficials benefited from the sale.

Fearing its stock price would gethammered by the government’s dis-closure, DNO asked the Oslo StockExchange to suspend its share trad-ing, and the stock is expected to re-sume trading Thursday morning.The company has been producing

around 40,000 to 50,000 barrels aday of crude in Kurdistan, roughlyhalf of the region’s production.

Marius Gaard, an analyst at Oslo-based brokerage Carnegie, esti-mates about 85% of DNO’s stockvalue is related to its Kurdistan oper-ations, meaning shareholderswould stand to potentially lose achunk of money if the company’swork in the region were canceled.

Evolution Securities, a London-based investment bank, said in a re-search note that it believed therewould be a “perception of in-creased” risk to oil and gas drillinglicenses in Kurdistan.

DNO’s predicament started in re-cent days, when the Oslo Stock Ex-change published information onlast October’s sale of DNO treasury

shares. DNO said it strongly ob-jected to the exchange’s decision topublish the information, promptedby a freedom-of-information re-quest from a Norwegian newspaper.

DNO scrambled Tuesday for a re-sponse to the situation. “Our mainpriority is now to seek dialogue withthe [Kurdish government] as soonas possible and try to bring clarityto the situation and what is neededto find a solution,” said DNO ChiefExecutive Helge Eide.

Tor Arne Olsen, a spokesman forthe Oslo Stock Exchange, said thebourse stood by its decision to re-lease the information, most ofwhich came from confidential con-versations between the companyand the bourse. “We still think wetook the right decision in releasing

that information,” he said.Analysts said it was unusual for

governments to act as a mediator ina fund-raising exercise for a privatecompany.

Khaled Salih, a senior advisor tothe Kurdish government’s primeminister, said the government de-cided to assist DNO in the capital-raising process in order to help thecompany complete its work in prepa-ration for exporting crude. “We didnot want DNO to delay because oftheir cash needs,” Mr. Salih said.

The issue could aggravate al-ready stormy relations with Bagh-dad. Iraq’s oil ministry has longedobjected to oil deals the Kurdssigned with foreign oil companies.

—Elizabeth Adams and HassanHafidh contributed to this article.

GLOBAL BUSINESS BRIEFS

Reut

ers

T H E WA L L ST R E ET JO U R NA L . WEDNESDAY, SEPTEMBER 23, 2009 7

BUILDING GREEN ASIA

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