The Oil Story According To Pescod

After what we saw today in the oil markets, we just won-
der if everything going on in the stock markets and com-
modity markets of late just isn’t one incredibly bad acid trip
gone wrong.

There are a lot of things that don’t always
seem to make sense. For instance today, we get the weekly
inventory report out of the United States which shows an
absolutely enormous increase of 7.2 million barrels of oil to
320 million barrels, according to the Energy Department.

That made it the ninth straight increase and while the inven-
tory was expected to increase, it was only by one million,
not seven.

On that kind of news, you would have usually expected
the price of crude oil to get swacked badly, but instead it’s
up. There was other news out there though that had people
for the first time in ages, a little bit hopeful. Out of China
comes the news (and in China, fuel demand has dropped
significantly) that China has lowered their interest rates for
the forth time in ten weeks, but this time they’ve done it in a
huge way...dropping their lending rate 108 basis points to
5.58%.

Yes, that’s dramatic and it doesn’t mean people will
actually go out and borrow money and buy things, but it’s
certainly an aggressive move.

If you are looking for good news though, it was another
report showing that energy demand is actually coming back
as last week they noted an increase of 510,000 barrels a day
being used by consumers. Maybe the lower prices will get
the consumer back to the pump.

We spent much of the last two days asking CEO’s of
companies, analysts, former analysts, and oil watchers one
question…“Where do they think the price of oil will be over
the next quarter, by July 1st of next year and by Christmas
of next year?” Because with so many oil and gas stocks so
beaten up, if there is a future…

One has to remember that of the dozen or so people we
talked to, many are in the oil business and would probably
hope to think their business would still be around, so they
are optimistic.

None of them had a crystal ball that pre-
dicted this credit crisis and many of them are in situations
where they admit they haven’t a clue what to predict and
some of them are in positions where they may have to
hedge their production and the like and imagine trying to
predict that at a time like this.

One thing many talked about, was the new President
Obama and while many of the oil guys have concerns about
what his alternative energy strategies might be, his tax poli-
cies and the like, they are huge admirers of the team he’s
put together to get the economy going again and big believ-
ers that if there was a team that could accomplish it, this is
the group


As far as predicting what next in the short run, there
were guesses anywhere from $45 and $60 with the argu-
ment being made that if OPEC this weekend does cut
production a little further, maybe we have seen the bot-
tom for a while.

As far as looking forward though, there was an amaz-
ing consistency to the group suggesting that by July 1st
they would expect to see $60 oil which isn’t that much
higher than today’s prices, but for the economics for
most oil companies, it would be significantly better.

As for Christmas next year, the group ranged between
$70 and $80 with a large chunk of the group settling on
the higher number and the reason for everyone to be
optimistic was “supply destruction.” Supply destruction
is getting a lot of talk these days because with the huge
drop in oil prices, oil companies around the world from
GazProm to PEMEX to particularly the North Sea, are
having projects delayed due to the credit crisis and
budgets slashed for exploration and if you don’t go look,
you don’t find.

While decline rates in the Mideast may only be 2% or
3% a year which helps make OPEC such as significant
force, many areas of the world such as the North Sea
have decline rates of as much as 20%.

With Mexico dropping 10% over the last year and Russian Oil ex-
pected to be peaking, the suggestion by many is that if
Obama’s team is able to encourage the economy and talk
consumers into believing there is a future and that they
will go out and spend on a bed, car or whatever to revive
the economy, it wouldn’t take much of an uptick in the
economy (provided of course it’s around the world) to
suck up what oil production did exist, even if OPEC did
start to turn on taps again a year down the road.

That was our terribly unscientific look down the road,
but needless to say there are a lot of different view points
out there. Tristone Capital came out with a 33-page re-
port today taking an in-depth look at what they see for oil
over the next year and are big believers that the reces-
sion is going to be deep and harmful and will cut Ameri-
can demands more than expected and hence they come
up with a really scary scenario...that oil will average $45 a
barrel in the first half of next year and $55 in the second.
There are a million different ideas out there, one of
which might be correct!

Talisman News :Arakis Energy loses finder's fee suit

Therefore, as a simple shareholder, it was not obliged to pay Arakis's debts. (The decision was undoubtedly a relief for Talisman, which had already suffered much grief over its Sudan project.) This means that Ms. Shabazz has a $1-million judgment against Arakis Energy, which delisted from the Vancouver Stock Exchange in 1995, and does not appear to have any assets.

Arakis Energy loses finder's fee suit

2008-11-26 12:00 ET - Street Wire

See Street Wire (C-AKS) Arakis Energy Corp

by Mike Caswell

Imam Daud Malik, a Cleveland resident who claimed he was the finder for State Petroleum Corp.'s Sudan oil concession, has won a $1-million posthumous judgment against the company. A judge has found that he helped broker a deal for the property in 1992.

Mr. Malik sued State Petroleum and its better-known successor, Arakis Energy Corp., on Oct. 11, 2001, in the Supreme Court of British Columbia. He claimed that he helped State acquire oil concessions in Sudan that had been abandoned by Chevron Corp. because of civil unrest in the country.

Mr. Malik said he had an oral finder's fee agreement with State's president, Lutfur Khan. It specified that he would receive 10 per cent of the value of any assets he helped the company acquire. The company did not pay the fee, and Mr. Malik filed the suit.

On Nov. 21, 2008, B.C. Supreme Court Justice Grant Burnyeat issued a ruling in Mr. Malik's favour. He found that as a result of introductions that Mr. Malik made, State acquired Chevron's former concessions on Aug. 29, 1993.

The judge noted that State was later acquired by Arakis Energy for $18-million in stock, and Arakis was itself acquired by Talisman Energy Inc. for $278-million in stock, primarily for the Sudan concession.

The decision is a victory for Mr. Malik's widow, Hasina Shabazz. She continued the case after Mr. Malik died in the fall of 2006.

Justice Burnyeat's decision

Justice Burnyeat's 32-page decision comes over a year after the case went to trial. It was heard over 15 days in August and September, 2007.

The decision explains that Mr. Malik was not a businessman, rather he was a community activist from Cleveland who found himself with the contacts to arrange the deal for State Petroleum. Before that, he organized counselling and drug abstinence programs. He had converted to Islam in 1968 and was the leader of a mosque by 1991.

He first learned of the oil concessions in April, 1991, when he was attending an Islamic conference in Sudan. He heard that Chevron had invested over $1-billion (U.S.) in the concessions before abandoning them in 1984.

Upon his return to North America, Mr. Malik set about finding businesses interested in investing in Sudan. He prepared brochures that stipulated he would seek a 10-per-cent finder's fee on any opportunities that he generated for North American businesses.

He met State's president, Mr. Khan, in May, 1991, through an acquaintance, and the men discussed placing the concessions into State Petroleum. Later that year, the company paid for Mr. Malik to go to Sudan along with two representatives of State.

Once there, he secured a meeting for the company with Abdul Wahab, the Minister of Energy. As a result of the meeting, State eventually received access to technical data on the concessions.

Justice Burnyeat found that Mr. Malik later helped negotiate State's acquisition of the claims, when he was living in Khartoum for a month to set up an exchange school for American students.

The decision went in Mr. Malik's favour even though his agreement with Mr. Khan was an oral one. The judge found that in December, 1992, Mr. Malik had asked for a written finder's fee agreement. He travelled to Vancouver at the invitation of Mr. Khan, and met him for dinner on Dec. 26. During that dinner, Mr. Malik asked for a finder's fee agreement, but relented when Mr. Khan said he could rely on his word as a Muslim.

State eventually acquired the concessions, and held a dinner on May 16, 1994, at the Khartoum Hilton to celebrate the opening of field operations at the concessions. Mr. Khan and Mr. Malik both attended.

Six weeks later, Mr. Malik received a $25,000 cheque from State's lawyer, and a letter referring to it as "the first instalment and payment of fees to you by the shareholders of State." He received another cheque on Oct. 13, 1994, as "a further advance on the finder's fee due to you by the shareholders of State Petroleum Corporation." Both letters were entered as evidence at trial.

The problems ensued after the company sent no further payments. On July 23, 1995, Mr. Malik sent a letter to Mr. Khan, demanding payment. It read: "Lutfur, your breach of our Islamic agreement is regrettable. As of this date you have failed to meet the deadline for the three commitments you made. I do, however, expect you to honor two of them ... otherwise, it would appear that you did not intend to respect our Islamic agreement, and, unfortunately, that leaves me with only a couple of options."

Mr. Malik received an additional $10,000 payment on Oct. 16, 1995, accompanied by another letter, stating the money was a further advance on the finder's fee.

Justice Burnyeat ruled that the letters, combined with the other evidence, showed that Mr. Malik was entitled to a finder's fee. He set the fee at $900,000, noting that State was acquired by Arakis for stock worth $18-million.

"But for the introduction by Mr. Malik, there is no doubt that State would not have entered the picture regarding the possibility of acquiring the Concessions," the judgment reads.

Justice Burnyeat also found that Mr. Malik provided consulting services for the company for 12 months outside of his work as a finder. This included a trip to Sudan on very short notice and participating in negotiations on the company's behalf. The judge valued his services at $12,500 per month, based on similar services provided by another consultant to State, for a total of $102,500.

The action had originally named Mr. Khan as a defendant, but one month before trial he agreed to pay $55,000 to settle the case. He also agreed to testify for the plaintiffs.

Who will pay?

While the decision is a victory for Ms. Shabazz, it is less than clear who will pay the judgment. The complaint had originally named Talisman Energy as a defendant, because it had acquired Arakis.

The problem is, on May 30, 2007, Justice Burnyeat ruled that Talisman was not responsible for the finder's fee, because it had simply acquired Arakis's shares. It had never amalgamated with Arakis or done anything to make itself the legal successor to Arakis. Therefore, as a simple shareholder, it was not obliged to pay Arakis's debts. (The decision was undoubtedly a relief for Talisman, which had already suffered much grief over its Sudan project.)

This means that Ms. Shabazz has a $1-million judgment against Arakis Energy, which delisted from the Vancouver Stock Exchange in 1995, and does not appear to have any assets.

Lawyers for neither side would explain which company will pay the judgment. Bruce McLeod, who represented Ms. Shabazz, said that was a question for Arakis's lawyers to answer. Andrew Nathanson, one of the lawyers who represented Arakis Energy, said his client has given him no instructions to talk to the media.