Hurricane Hydrocarbons Ltd. has scrapped a $100 million deal to gain a stake in a key export pipeline after failing to come to terms with government agencies and other authorities in the central Asian country. The transaction with BP, which had been in the works for almost a year, was aimed at reducing Hurricane's oil transport costs by having an equity stake in the Caspian Pipeline Consortium line. "The agreement could not be completed because certain approvals of the CPC shareholders could not be obtained within the applicable time limits," Hurricane said after the deal's deadline passed on Thursday. Chief among the CPC shareholders is state-owned KazMunaiGaz. The deal would have allowed the company to ship 64,000 barrels of crude a day to Novorossiisk on the Black Sea from Atkau on the eastern coast of the Caspian. Hurricane was to have acquired a 49.9 percent interest in Kazakhstan Pipeline Ventures LLC, which has a 1.75 percent interest in the CPC line.
Hurricane said BP would reimburse its first payment of $40 million by June 22. The company had first won approval for the deal from former state firm Kazakhoil last August, but the approval was rescinded in March by KazMunaiGaz, which was created by the merger of Kazakhoil and the country's transportation entity.
That kicked off a series of talks between Hurricane chief executive Bernard Isautier and the president of KazMunaiGaz, which resulted in a draft agreement by May. On June 4, another KazMunaiGaz representative said the company was ready to approve Hurricane's deal, but only if Kazakhstan's energy ministry okayed the Canadian firm's development plans for its South Turgai basin oil acreage, which was impossible before the deadline, Hurricane said. "You've heard of being in the right place at the right time? This is called being in the wrong place at the wrong time," Hurricane spokesman Ihor Wasylkiw said.
He said the company would now seek to become a third-party shipper on the CPC line, which would mean its tolls would be less attractive than if it was an owner. However, it will also free up its $100 million of equity. In May, the government unexpectedly placed export quotas on Hurricane's oil just as the firm began scheduled maintenance on its refinery, forcing it to cut its production in half. One analyst said Hurricane's machinations with Kazakhstan authorities and the failure of its pipeline deal sent a bad message to foreign investors in the former Soviet republic and in international equity funds. "BP went through tremendous amounts of work to get letters of credit and every major CPC shareholder went through incredible amounts of work for 11 months to put this through," said analyst Eleanor Barker of Toronto-based MacDougall, MacDougall & MacTier Inc., who predicted the deal's outcome earlier this week. "Then you've got this ridiculous reversal for half of 1.6 percent ownership in one pipeline. There's something that doesn't add up here," Barker said.