Frontera gets big financial package for Caucasus fields

Houston-based Frontera Resources Corp. completed the largest onshore financial package for oil and gas development in the Caucasus with a $50 million loan from the European Bank for Reconstruction and Development (EBRD).

The loan received this week is the second phase of a $60 million package initiated in June for development of the Kursange and Karabagli oil fields in Azerbaijan, and Block 12 in eastern Georgia. The first $10 million was a convertible loan that the EBRD may convert into an equity investment in Frontera's stock (OGJ, June 19, 2000, p. 32).

ERBD was established in 1991 to aid the transition from central to market economies in Central and Eastern Europe, and in the former Soviet states.

Frontera is a privately held independent formed 5 years ago to develop oil and gas in emerging international markets. One of its founders was the late Constantine "Dino" Nicandros, longtime chief executive of Conoco Inc. His son, Steve Nicandros, is president and CEO of Frontera.

"Our strategy is to grow the company through land operations in the Black Sea region. That has been our primary area of focus," he told OGJ Online in a telephone interview Wednesday from London.

Frontera's "second footprint" will be in the Middle East, "around the Mediterranean and the North Africa rim and in the Gulf States," Nicandros said. "We focus on low-cost operations to produce oil and gas for regional markets."

Frontera began operating in Georgia nearly 4 years ago and moved into Azerbaijan last year, following the Kura Basin play from eastern Georgia that extends offshore Azerbaijan. In the process, it helped assemble the largest onshore acreage position in the Caucasus region, more than 1.4 million acres.

"We're the largest onshore player in the area," Nicandros said.

The company has 30% interest in 116,000 acres in Azerbaijan, which includes the giant Kursange and Karabagli fields that produce high-quality oil. Partners in that operation include the State Oil Co. of Azerbaijan (SOCAR) and Delta/Hess (K&K) Ltd., a joint venture between Amerada Hess Corp. and Delta Oil Central Asia Ltd.

Production from the Azerbaijan properties have "more than doubled" from the 2,800 b/d level when Frontera moved into that area a year ago. With the additional infusion of cash, Nicandros expects another increase of similar magnitude "in the next year or two."

Block 12 in eastern Georgia includes 1.3 million acres with seven known fields and "numerous" exploration prospects. Included among those properties is the Taribani field, the first of Frontera's development projects, which contains gross unrisked reserves estimated at 1 billion bbl of oil equivalent.

Frontera has 100% of the foreign company operating interest in a production sharing agreement, in partnership with Saknavtobi, the Georgian, state oil company. It is continuing an aggressive drilling program in that area.

The smaller, low-risk land operations by Frontera and other independents in the former Soviet states haven't drawn as much attention as the big, high-dollar offshore projects that the majors are pursuing in the Caspian area. However, some analysts say the independents exercise more control over their projects and can manage their risks more effectively (OGJ, July 24, 2000, p. 40).

While Frontera's successful performance is laudable, EBRD executives cited another reason for their "landmark" loan. "Frontera's approach has provided a strong focus on utilization of local strengths in both countries, thereby greatly contributing to the regional economic development and growth," said Peter Reiniger, director of EBRD's industry and commerce business group.

"We find the best and brightest of the national workforce and invest in them," said Nicandros. Capitalizing the talents of local workers who know the regional geology and performance history, he said, gives Frontera a competitive edge over other producers "who tell local workers, 'Step aside while we show you how we do it in Texas and Oklahoma.'"

EBRD is owned by 61 shareholders that include 60 countries, the European Investment Bank, and the European Community, officials said. It operates with 20 billion euros in authorized capital.