Member Info for Welloiled

Arsenal, I note that Zaza said "It is difficult to calculate this because if we subtract cities, mountains, villages, rivers and reserves, it could be half the area where we work now" and when he later says that "we continue to work on 99%" it doesn’t appear that he is referring to 99% of B12, rather referring to the development areas that FRR has established under the PSA. On FRR's website it lists Taribani, Mtsarekhevi (MGC), Mirzaani, Shallow Fields and Basin Edge and the fields identified by GOGC are Taribani, Mtsarekhevi, Mirzaani, Baida, Patara Shirak and Nazarlebi (these latter two are in the Shallow Fields). Baida is not mentioned on the FRR website but it is a field that was evaluated by Ryder Scott together with Mirzani, Nazarlebi and Taribani and in the 2010 NSA report, the contingent resources estimates were for Mirzaani, Mtsarekhevi, Nazarlebi and Patara Shirak fields. Unfortunately, we do not know whether or not Zaza is referring to the fields as indicated on the FRR website or by some other measure calculated under the T&Cs of the PSA which I assume is still in force. I’d certainly be happy if we retain Taribani, MGC and Mirzaani; any other fields are a bonus.

I’m intrigued how GOGC has identified Mirzaani 17.2 km2, Taribani 17.66 km2, Patara Shirak 1.96 km2, Baida 3.71 km, Nazarlebi 0.49 km2 and Mtsarekhevi 1.59 km2 as the fields and the field areas which FRR are being allowed to keep and develop under the PSA. The field areas bear no relationship to the areas given on the FRR website, i.e. Mirzaani 100 km2, Taribani 80 km2, Mtsarekhevi 950 km2; Nazarlebi and Patara Shirak are most eastern of the shallow fields but appear to have a combined area similar to Mirzaani. Baida is a puzzle because I have not seen it referenced by FRR before and it was not identified in the Netherland, Sewell & Associates report of 01/07/2010 which did identify Mirzaani, Mtsarekhevi, Nazarlebi and Patara Shirak. From https://works.bepress.com/kakhaber-koiava/20/download/, Baida is located near the Azerbaijan border to the west of Taribani. However, I’ve found that Ryder Scott Petroleum Consultants have evaluated it together with the Mirzani ,Nazarlebi and Taribani fields (https://www.ryderscott.com/international-experience/asia-australia/georgia/); they list FRR as clients https://www.ryderscott.com/f/and have an office in Houston.

Looed, the Dedoplistskaro district will refer to Taribani and Sagarejo must be the Mtsarekhevi Gas Complex (MGC) as I mentioned in my posts on 6th and 23th July because these areas have established oil and gas production and, under the PSA, are identified as “Development Areas”. We know FRR has been selling oil from Taribani and gas from MGC into Georgia's natural gas distribution grid via the 14-km natural gas pipeline which connects the FRR's natural gas processing facility at MGC. On 14/11/2017, the Ministry of Energy's State Agency of Oil and Gas extended the FRR's natural gas transportation licence until 14/11/2022 which coincides with the end of the Study Period as I mentioned yesterday. It would be interesting to know if FRR has continued to sell gas from MGC but more importantly whether or not the Study Period is valid. If it is valid, then under the terms and provisions of the PSA, FRR do not have to relinquish any part of Block 12 for the duration of the Study Program.

If the Study Period is invalid, Taribani covers 80 km2 (155 MMbbl oil and 3.2 TCF gas is recoverable) and MGC covers an area of 950 km2 (5.8 TCF gas is recoverable). Obviously Taribani and MGC combined are much larger than 1% of B12 making up 1.58% and 18.77% respectively. If FRR have retained these fields, has it retained all of them or only those areas where they have produced oil and gas and, if so, how is this to be determined and by who?

EkXoc, the summary of the Block 12 PSA and mineral licence (from the 2005 Admission and the Placing document issued by Morgan Stanley) stated: “The State may only terminate the Block 12 PSA on ninety days’ notice if Frontera Georgia has committed a material breach of the Block 12 PSA (being a fundamental breach tantamount to a frustration of the Block 12 PSA which may include failure to complete any work programmes approved pursuant to the Block 12 PSA) which is proved at arbitration”.

I assume that this was addressed at arbitration and the latest climbdown together with Zaza's confident statements suggest that GOGC have not established a material breech of the PSA. The announcement of the Study Program provides a reason why FRR did not hand back areas outside the established development areas in 2017 as, according to the PSA, FRR was not obliged to hand back these areas covered by the Study Program for another 5 years, i.e. until 2022.

On 03/11/2017, FRR announced it had commenced implementation of a program to study commerciality of Block 12 in order to reach conclusion regarding sustainability of commercial production. In the RNS, FRR stated “Pursuant to the terms and provisions of Frontera Resources' production sharing agreement, the Study Program has a 5-year term and it delineates the entire Block 12 as the area where the Study Program will be implemented. Pending completion of the Study Program and notification of respective results, no relinquishment of any part of Block 12 is due for the duration of the Study Program”.

In response the media speculation, FRR released an RNS on 16/04/2018, which reported FRR had received a request for arbitration from GOGC in respect to certain terms of the Product Sharing Contract (PSC). It stated “In respect of potential relinquishment, as announced on 3 November 2017, the Company has commenced implementation of a program to study commerciality of Block 12 (the "Study Program"), in order to reach conclusion regarding sustainability of commercial production. Pursuant to Article 9 of the PSC, the Study Program has a 5-year term and it delineates the entire Block 12 as the area ("Study Area") where the Study Program will be implemented. Under the same Article, pending completion of the Study Program and notification of respective results, no relinquishment of any part of Block 12 is due for the duration of the Study Program. Quoting Article 9.5 of the PSC, in part: "In the event the Contractor [i.e., Frontera] makes a declaration under Article 9.4(c) above, Contractor shall not be obligated to relinquish the relevant Study Area pending the completion of the further work committed under that Article […]."

The PSA stated it has a 25-year term which will expire on 13/11/2022 and included an exploration phase which will expire on 13/11/2012. If commercial production remains possible in relation to any part of Block 12 which is specified in a development area or areas under the PSA, FRR shall be entitled, after the expiration of the PSA, to receive an extension of the term of the PSA and the Mineral Licence regarding such Development Areas for a further period of five years (or the production life of the Development Area if this is shorter). FRR shall relinquish its rights to Block 12 in respect of any area outside of any Development Area at the end of the Exploration Phase which was extended in 2009 to 2017.

So, from the latest announcement FRR has retained “1%” of B12 which according to the PSA should relate to the established Development Areas. As FRR have been extracting and selling oil from Taribani it should be included and so should the Mtsarekhevi Gas Complex (MGC) as FRR has been selling gas into Georgia's natural gas distribution grid via the 14-km natural gas pipeline which connects the FRR's natural gas processing facility at MGC. On 14/11/2017, the Ministry of Energy's State Agency of Oil and Gas extended the FRR's natural gas transportation licence until 14/11/2022.

According to FRR, Taribani covers 80 km2 and has 1,033 MMbbl (OOIP) of oil of which 155 MMbbl is recoverable and 4.6 TCF (OGIP) of gas of which 3.2 TCF is recoverable. MGC covers an area of 950 km2 and has 8.3 TCF (OGIP) of gas which 5.8 TCF is recoverable.

This raises the question, does the established Development Area cover the whole of Taribani and MGC or just a portion and, if the latter, on what basis will it be determined? Also, is FRR still producing and selling gas from MGC?

Looed, The Zaza Mamulaishvili who is in partnership with Elizbar Kvaratskhelia is not FRR's Zaza as their personal numbers are different, 01024002412 vs 33001006621.

Looed, Elizbar Kvaratskhelia registered as an Individual Entrepreneur on 02/06/2014 with a Legal Address at Georgia Kareli, Senaki, 3339 Georgia and she has a Russian email address, nikushavar1988@mail.ru. The email address of Knowledge Ltd is zazamamulashvili14@gmail.com.

Pt2
On 03/11/2017, FRR announced it had commenced implementation of a program to study commerciality of Block 12 in order to reach conclusion regarding sustainability of commercial production. In the RNS, FRR stated “Pursuant to the terms and provisions of Frontera Resources' production sharing agreement, the Study Program has a 5-year term and it delineates the entire Block 12 as the area where the Study Program will be implemented. Pending completion of the Study Program and notification of respective results, no relinquishment of any part of Block 12 is due for the duration of the Study Program”.

In response the media speculation, FRR released an RNS on 16/04/2018, which reported FRR had received a request for arbitration from GOGC in respect to certain terms of the Product Sharing Contract (PSC). It stated “In respect of potential relinquishment, as announced on 3 November 2017, the Company has commenced implementation of a program to study commerciality of Block 12 (the "Study Program"), in order to reach conclusion regarding sustainability of commercial production. Pursuant to Article 9 of the PSC, the Study Program has a 5-year term and it delineates the entire Block 12 as the area ("Study Area") where the Study Program will be implemented. Under the same Article, pending completion of the Study Program and notification of respective results, no relinquishment of any part of Block 12 is due for the duration of the Study Program. Quoting Article 9.5 of the PSC, in part: "In the event the Contractor [i.e., Frontera] makes a declaration under Article 9.4(c) above, Contractor shall not be obligated to relinquish the relevant Study Area pending the completion of the further work committed under that Article […]."

I presume FRR cited the “Study Program” in the tribunal as the reason it hadn’t relinquished areas that had not been developed for production but this claim must have been unsuccessful. However, assuming the Termination Notice is not going to be implemented, what are the established Development Areas? As FRR have been extracting and selling oil from Taribani it should be included and so should the Mtsarekhevi Gas Complex (MGC) as FRR has been selling gas into Georgia's natural gas distribution grid via the 14-km natural gas pipeline which connects the FRR's natural gas processing facility at MGC. On 14/11/2017, the Ministry of Energy's State Agency of Oil and Gas extended the FRR's natural gas transportation licence until 14/11/2022.

According to FRR, Taribani covers 80 km2 and has 1,033 MMbbl (OOIP) of oil of which 155 MMbbl is recoverable and 4.6 TCF (OGIP) of gas of which 3.2 TCF is recoverable. MGC covers an area of 950 km2 and has 8.3 TCF (OGIP) of gas which 5.8 TCF is recoverable.

This raises the question, does the established Development Area cover the whole of Taribani and MGC or just a portion and, if the latter, on what basis will it be determined? Also, is FRR still producing and selling gas from MGC?

Pt1
In the interview on TV Kavkasia (24/06/20) Zaza said “The Oil and Gas Corporation and the state, which was represented by the Ministry of Economy’s Oil and Gas Agency, had 14 claims against us. Of these 14 requests, 12 counts were not satisfied. Only 2 were satisfied. 1 of these 2 requirements is that the territories where we do not extract oil and gas should be returned to the state”. When asked what percentage of these areas represent, he replied “They try to present it as 99%, but it is unclear how they report it or where it comes from. Anyway, all the areas where we are not doing this work, about 1 month ago, maybe more, 1.5 months ago, we have already returned to the state”. There’s been speculation that this may be more like 1.58% but does the PSA help in any way?

The summary of the Block 12 PSA and mineral licence (from the 2005 Admission and the Placing document issued by Morgan Stanley) stated: “The State may only terminate the Block 12 PSA on ninety days’ notice if Frontera Georgia has committed a material breach of the Block 12 PSA (being a fundamental breach tantamount to a frustration of the Block 12 PSA which may include failure to complete any work programmes approved pursuant to the Block 12 PSA) which is proved at arbitration”.

The PSA stated it has a 25-year term which will expire on 13/11/2022 and included an exploration phase which will expire on 13/11/2012. If commercial production remains possible in relation to any part of Block 12 which is specified in a development area or areas under the PSA, FRR shall be entitled, after the expiration of the PSA, to receive an extension of the term of the PSA and the Mineral Licence regarding such Development Areas for a further period of five years (or the production life of the Development Area if this is shorter). FRR shall relinquish its rights to Block 12 in respect of any area outside of any Development Area at the end of the Exploration Phase. On 16/07/2009, FRR announced it had received an extension to the exploration phase of its PSA from 2012 to 2017.

I think it’s worthwhile to understand why FRR didn’t hand back the B12 areas outside the Development Areas in 2017. On 11/04/2017 FRR filed a Notice of Feasibility of Commercial Production with GOGC in accordance with the terms and provisions of the PSA and FRR noted that this was an important milestone as the Notice is primarily associated with operations targeting the substantial oil bearing Eldari Formation and other related geologic targets.

Ian, have a look here: https://www.gov.uk/capital-gains-tax/allowances. With regard to rates it's either 18% or 28% depending on the amount and there's a CGT calculator here: https://www.gov.uk/guidance/hmrc-tools-and-calculators#capital-gains-tax

Rainbow, wishing you and your wife all the very best and I hope she has a speedy recovery. Stay strong, take care of yourself and be confident that the medical treatment she is receiving will return her to good health soon.

Zeron, the PSA says "Frontera Georgia may transfer all or part of its rights and obligations under the Block 12 PSA to a third party provided, firstly, that such third party has the requisite technical and financial ability and accepts the terms of the Block 12 PSA and, secondly, that Saknavtobi has given its prior written consent to such assignment (such consent not to be unreasonably withheld or delayed)". Saknavtobi is GOGC. The transfer of the PSA from FRGC to FRUS was not allowed because the registration body concluded it didn't meet the conditions, i.e. GOGC did not agreed to the transfer and FRUS did not provide proof that it had the technical and financial capability. In the leaked letter from Zaza to Mr Gotsiridze dated 14/05/20 (assuming it is genuine), Zaza requested an emergency meeting of the Coordinating Committee and, in item 2, he wanted to discuss the resubmission to GOGC of the transfer. Unfortunately, we do not know if this meeting took place and whether or not GOGC is willing to agree assuming the other conditions are met.

If the FRR website recoverable figures for the O&G in Taribani are any where near accurate, i.e. 155 MMbbl of oil and 3.2 Tcf of gas, then using an average of Brent Crude Oil and WTI Crude Oil Futures ($40.11/barrel) , the oil is worth $6.2bn and using Natural Gas (Henry Hub Futures) of $1.71/MMBtu, the gas is worth $5.47bn (a trillion cubic feet is equivalent to approximately one quadrillion British thermal units).

pophead, I noticed that ODR in a Sun 22:02 post mentioned "Zaza interviewed on multiple Georgian TV channels. The GG suggesting offering us our 1.58% back under conditions" so I found it more that a coincidence that 1.58% is exactly the area of Taribani . Dedoplistskaro is a town in Kakheti, Georgia with the population of 5,940 (https://en.wikipedia.org/wiki/Dedoplistsqaro).

ODR, I consider the 1.58% figure very significant. In my post of 1st June when I was speculating if FRR had a future, I noted that FEGL was based in Dedoplistskaro when when FRGC and GOGC are based in Tbilisi. Dedoplistskaro lies just to the north east of Taribani which covers approximately 80 km2. I approximated this to be 1.6% of B12 but when you use the exact figure of 5060 km2 for B12, 80km2 = 1.58%. Oil: 1,033 MMbbl (OOIP) of which 155 MMbbl is recoverable; Natural Gas: 4.6 TCF (OGIP) of which 3.2 TCF is recoverable (https://fronteraresources.com/operations/georgia/taribani/ ).

Arsenal, I think this is a case of realpolitik. Why aggravate relations with the US over a small O&G company? What's the upside when FRR have returned the bulk of B12? Why appear to be vindictive over 50 or so square kilometres that FRR have explored and are exploiting? It makes perfect sense both economically and politically to be magnanimous. Where's the downside? Mr Tvalabeishvili worked as the General Director of Georgian Oil and Gas Corporation from November 2012 through September 2018 and has 23 year experience of working in Energy Sector that includes his position of Strategic Planning Manager at Georgian International Oil Corporation (1996-2005). So he must be well informed about FRR and the O&G potential and as Deputy Minister of Economy and Sustainable Development he is in a good position to negotiate a new mutually beneficial relationship with FRR and GOGC.

Ideally I would like to see a new extended licence agreement (20 years or more) drawn up with FRUS as this should avoid issues with the farm-out of the existing licence which I understand ends in 2027. One of the main problems with trying to get an agreement for the farm-out was proof that FRUS has the financial resources to carry out the work required in the licence agreement. Zaza has stated "in the fourth quarter of 2019, we agreed with two other American companies (one company has a market capitalization of 23 billion and the other 20 billion) to build a consortium similar to that in the Caspian Sea, Azerbaijan, where oil and gas will be extracted and began large-scale extraction of oil and gas in Georgia". If this is correct and the deal is still on the table, then it is reasonable to assume these companies will be able to finance the consortium as FRR has the geological data and experience of drilling the fields. I see this scenario as a win-win for Georgia and FRR.

With regard to Bryce Linsnmeyer being a co-ordination committee member, he appears to have been involved in the IPO and entry onto AIM in March 2005 which raised about $88 million as this article dated 19 March 2006 indicates: https://www.bizjournals.com/houston/stories/2006/03/20/story1.html
https://www.investegate.co.uk/frontera-resources--frr-/rns/listing---offer-completion/200503140841316890J/
It is therefore possible that Bryce Linsnmeyer's involvement is longstanding and he has been on the co-ordination committee since it was established.

Zen, I posted this at 00:30 this morning:

I've looked up Tornike Gotsiridze who Zaza wrote to on May14 and he is the Commercial Director of GOGC, see https://www.gogc.ge/en/corporate-governance and https://www.gogc.ge/en/board/directors/tornike-gotsiridze/15.

Also according to this dated March 2007 (https://www.gogc.ge/en/article/changes-to-the-composition-of-coordinating-committees/419), the coordinating committee meetings are held once every quarter and in case of necessity, the meeting can be held any time.

This is the full text in the link that I omitted from the post:
Changes to the composition of coordinating committees
28 March, 2007
Georgian Oil and Gas Corporation is making changes in the composition of coordination committees established with gas production companies. For that reason changes were made in production sharing agreements concluded by the government and an investor too. The changes became necessary after the merger of Oil and Gas corporations with Saqnavtobi.

Government and investors are equally represented in the coordination committees, which will monitor the implementation of terms and conditions agreed by the parties. Georgian Oil and Gas Corporation, representing the state in investors’ relations, has already chosen the members and of the committee. From investor companies, Anadarko and Can Argo have already introduced the list of the members.

The state has concluded PSA’s with Can Argo Georgia, Anadarko and Frontera Resources Georgia. The agreements reached with these companies lay foundation for the coordination committee. The committee meetings are to be held once every quarter. In case of necessity, the meeting can be held any time.

I'm somewhat apprehensive about the authenticity of the letters as they appear too good to be true and whoever has copied them (looks like photos using a mobile) must work for FRR assuming they are legit. I've looked up Tornike Gotsiridze who Zaza wrote to on May14 and he is the Commercial Director of GOGC, see https://www.gogc.ge/en/corporate-governance and https://www.gogc.ge/en/board/directors/tornike-gotsiridze/15.

Also according to this dated March 2007 (https://www.gogc.ge/en/article/changes-to-the-composition-of-coordinating-committees/419), the coordinating committee meetings are held once every quarter and in case of necessity, the meeting can be held any time.