NEO – The Wrong Sort of Customers for Georgia’s Gas?

NEO – The Wrong Sort of Customers for Georgia’s Gas?

By GPD on February 15, 2016

Georgian Energy Minister Scoffs at Frontera’s (latest) huge Gas reserves claim

How will the gas wheels turn?

by Henry Kamens,  … with New Eastern Outlook,  Moscow

First published February 11, 2016

The Frontera Company, based in Houston, Texas, has been hanging round the Caucasus for years. Every so often, it tries to justify its presence there by claiming to have discovered new gas reserves.

To begin with, Georgians in particular jumped at these stories, because Georgia wants to be the regional energy hub but has no gas of its own. Consequently Frontera was able to prey on the sensibilities of the population to make ever greater demands on the Georgian government. But now even the most desperate Georgians have begun to conclude that Frontera has cried wolf once too often.

Frontera’s latest claims make it clear that, once again, Georgia is being used for purposes which have nothing to do with the welfare of the people of Georgia and everything to do with the internal interests of people who have harmed it again and again.

When even Kakha Kaladze, Georgia’s Energy Minister, and member of the present government who has expressed the greatest respect for the “work” of the previous one, starts publicly doubting the latest Frontera claims, it is time for the company to put up or shut up – or rather go away, and let companies actually interested in finding oil and gas do the job.

_________

Too good to be true

Frontera Resources Chairman and CEO Steve Nicandros surveys gas well #35 in the Mstarekhevi gas field with Ambassador Norland (File photo, 2014)

The claim which sparked the minister’s comments was made by Frontera’s CEO Steve Nicandros. Back in October he claimed that “Our ongoing investments in Georgia have continued to reveal the emergence of what we believe to be a world a world class gas play…”.

He has since sought further funding to explore these world class reserves in addition to the millions already spent, which have left Georgia still importing its gas.

On what basis is this claim being made? Frontera says it has been producing gas in Georgia for over a year now, and is exploiting reserves it discovered itself and [these reserves] were subsequently independently assessed.

It now maintains there are considerably more reserves than it previously thought, allegedly 3.8 trillion cubic metres of them, which will consequently give an even greater return for its investors.

The trouble is, this new claim has yet to be independently assessed. It is also a very convenient one. Despite Frontera’s apparent success so far, seemingly creating a Georgian gas industry on its own, its share price has fallen. The investors who were attracted by its previous claims don’t seem to be too impressed now, despite the independent assessment.

Nor is the Georgian government impressed, as is it controversially discussing a new supply deal with Gazprom, based in the Russian enemy, rather than supporting this new domestic industry created by a company based in a friendly country.

To keep the Frontera operation going, new investment is needed, whether through the stock market or otherwise. So some new claim has to be made to improve share performance and make it seem that Georgia will make a mistake by getting into bed with Gazprom, an action which also harms that performance.

Five years ago, the man who conducted due diligence in this company in Georgia had this to say about it. “It’s [share price is] currently skulking around just 5% of what it was in mid-2008. The recent rise took it up to about 15% of the 2008 price, but anyone who bought in back then is sitting on a big loss. Probably worth a small punt at the current price – or put it on a horse.”

This is further evidence of what has long been suspected – that the Frontera operation in Georgia, which produces results no one sees or believes in, is what Americans call a “pump and dump” scheme. The US government itself describes how these work on one of its own websites.

“Pump and dump schemes have two parts. In the first, promoters try to boost the price of a stock with false or misleading statements about the company … once the stock price has been pumped up, fraudsters move on to the second part, whereby they seek to profit by selling their own holdings of the stock, dumping shares into the market.”

_________

More qualified than stupid

Energy Minister and former footballer Kakha Kaladze

Georgia’s energy minister is Kakha Kaladze, who made his name as a footballer before entering politics and business. Initially, Kaladze teamed up with Zurab Noghaideli, the former Georgian Prime Minister who allegedly went into opposition to the Saakashvili government but was widely believed to be doing his bidding by proxy.

However, despite being business partners they never seemed to actually speak, as witnesses who saw them on planes have testified.

Kaladze is now getting all kinds of flak from Saakashvili’s old party, despite his professed admiration for some of the energy schemes it promoted, because he is discussing a supply deal with Gazprom. He is also distrusted, even though simultaneously admired, by a large section of the Georgian public.

Georgians do not think that a footballer, someone remote from the still all-pervasive Cult of the Expert, is qualified to be a government minister, and raise objection when he is touted for higher office, which has happened on several occasions.

Therefore Kaladze should be jumping at the opportunity to announce that, thanks to Frontera, Georgia has its own gas industry and is becoming energy independent. He could then claim success as a minister, and that the prospective deal with Gazprom is one small aspect of the energy mix and does not compromise the country, particularly when Tbilisi is already powered by Russian electricity, and the water system and much of the financial sector is Russian-owned.

But Kaladze insists on looking a gift horse in the mouth because he is not as dumb as some make him out to be. He both doesn’t believe Frontera’s claims and knows that, in an election year, few of his electors will either.

_________

Too many forked tongues

One further reason for doubting Frontera’s unsubstantiated claims is who is puffing them. The Georgian Journal, a neocon and Saakashvili mouthpiece run by an American, is giving them the coverage other papers stopped giving long ago, despite the small fortunes in backhanders traditionally on offer to business papers in this part of the world.

One Ariel Cohen, a pundit paid by the US State Department and the Soros Foundation, has written a report for the Atlantic Council entitled ‘Developing a Western Energy Strategy for the Black Sea Region and Beyond,’ which is basically the strapline of Frontera’s website. Cohen thinks that Georgia has the potential to minimise its dependence on Russian energy resources.

This may be true, but as Kaladze pointed out, if Frontera’s claims are true Georgia would have a volume of gas even Turkmenistan does not have, and if so, a lot more people than Frontera, such as people who have analysed local energy resources all their lives, would know about it.

In accordance with Georgian tradition, I put the footballer’s position to the test by contacting two recognised local experts, both highly respected PhDs who are part of the circle called upon to comment on such questions.

They first had this to say about Frontera’s “discovery”:

“There is nothing to these claims I guess, as the press is too much exaggerated—it is nonsense, look at the language … “probable geological reserves” are expected – not proven reserves or industrial ones.”

The second said, “This news is perhaps a very good motive for new international aggression but I don’t have that much information – as to the situation with Frontera, one thing is certain, they have a serious phobia – and this is part of their disinformation policy.”

As Kaladze himself pointed out on public TV, Frontera has been operating in Georgia for 20 years under a licence which is renewed annually. The latest application for renewal does not mention any exploration work in this field or 3.8 trillion cubic metres of reserves.

So even if the reserves exist Frontera has no permission to exploit them, and knows that. Even if it did, it would have to spend millions before a decision was made as to whether gas extraction is economically viable.

Any investor is, once again, being sold a pup, the hoped-for stock price manipulation seemingly being worth a possible jail sentence for Frontera employees.

_________

The wrong sort of customers

Ukraine’s national energy company, Naftogaz

If Frontera really has found huge reserves of gas in Georgia, or has a credible reason for believing them to be there, other countries will be queueing up to buy it.

All regional countries are trying to diversify supplies to withstand possible geopolitical shocks, and a completely new supply, of potentially vast quantity, from a staunch US ally would be a very attractive prospect.

So which country is interested in this gas? On 13 July 2015, the Frontera Resources Corporation signed a strategic Memorandum of Understanding (MOU) to undertake a study into the possibility of transporting liquefied natural gas (LNG) from Frontera’s ongoing upstream gas works in Georgia to another country.

This despite that fact that the other country must have signed this memorandum on the basis of inside information, as the “discovery” had not been announced at that point, a course of action its parliament might consider dubious, and want to investigate.

The other signatory to this memorandum was Naftogaz, Ukraine’s national energy company. The latest US political project is the only one interested in these new gas reserves.

Frontera claims that similar studies are in progress related to other trans-Black Sea markets and regional pipeline routes. But no one else has expressed any interest in this gas, despite the fact it has now been announced to probably exist, thus giving those countries more reason than Ukraine had to sign a memorandum.

__________

The front in Frontera

Georgia might have enough gas for a few fire-swallowing acts

Frontera is openly described by sources within the Georgian Ministry of Internal Affairs as a CIA front company which is used to raise money for special operations, such as covert operations in Syria and the transit of Chechen fighters to Turkey.

These are programmes Georgia is still in the thick of, the previous government having sold its soul for the opportunity to use Georgian territory to conduct them.

Of course, it is easy to bandy such words about. But another company in Georgia alleged to be a CIA front is CanArgo, a Norwegian-American oil explorer. All special operations have to run from a common playbook so they can be controlled.

Like Frontera, CanArgo invested a lot of money in Georgian exploration projects until its share price shot up, then failed to deliver on its promises.

Like Frontera, CanArgo raised this money by talking about appraising new gas reserves. Like Frontera, not only did it not deliver gas but it did not properly account for its funds.

Like Frontera, only its unsubstantiated claims, and not its actual situation on the ground, is reported in the US-funded Georgian media outlets. So a playbook is definitely being followed here, and there is only one government which could be using it.

Like CanArgo, the Frontera operation in Georgia is a pump and dump fraud. The funds it raises for investment then go to support special US operations. Its work has nothing to do with Georgia, its economy, its people or even its energy.

Kaladze won’t say this publicly because he has a family, like his colleagues. He sees the extent of the effort being made to promote such activities as a great new dawn for Georgia, and knows he has every reason to watch his back.

The Irish English-language poet Patrick Kavanagh was once introduced to someone who was described as an Irish-language poet. He expressed his doubts. The introducer asked him, “how can you say that when you don’t speak the language?”

Kavanagh replied that he couldn’t bawl like a cow either, but he knew a cow when he saw one.

Georgians know cows when they see them too, however much the supposedly superior West tries to tell them they don’t. But the arrogance with which the West tries to perpetuate such abuse is not going to go away, and ultimately that is not just Georgia’s problem, but the whole world’s.

Georgia’s main energy supplier is not Russia but Azerbaijan. Kaladze is being vilified by the US-funded press in Georgia for trying to address the Azerbaijan energy shortage, which he will know a lot about given the prominence of SOCAR, the Azerbaijan state oil company in Georgia, by replacing some of its supplies with actual gas Russia has rather than the possible, but not credible gas Frontera might one day be able to supply in the dim and distant future.

One claim made in the press is that dealing with Gazprom is dangerous because “Russia endeavored to make Georgia pay a political price for its Euro-Atlantic aspiration and, as a result, cut gas supply in the cold winter.”

However it is known within the industry, and in the intelligence world, that Georgia blew up its own pipeline as a political ploy during Saakashvili’s time.

Attempts to cover this are what the puffing of Frontera’s claims is actually about.

Henry Kamens, columnist, expert on Central Asia and Caucasus, exclusively for the online magazine “New Eastern Outlook”.

Tbilisi