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The Sultanate of Oman’s oil and gas industry is undergoing a much needed revival. During the late 1990s, exploration and production (E&P) activity saw the country produce 950,000 barrels of oil equivalent per day (boepd) on average. However, by 2007 production fell to an all time low of 714,000 boepd prodding Omani policymakers towards placing greater emphasis on fresh technological and capital investment to boost production.

Since Oman’s proven reserves, thought to be in the region of 5.5 billion barrels of oil equivalent, are considerably less than neighboring powerhouses of Saudi Arabia, United Arab Emirates and Iraq, the country has always been decidedly less protectionist. Oil majors, who get better terms in this non-OPEC Middle Eastern production zone compared to other hubs in the region, were meaningfully behind the first wave of E&P activity.

On a visit to Oman last year, the latest E&P wave felt different to me courtesy of independent upstarts. Don’t get me wrong, I am not overplaying their significance. Shell’s historic presence is well documented and BP , Occidental and MOL are all active prospectors in the sultanate, along with state-owned oil and gas firms from Asia Pacific. However, rubbing shoulders, or should we say exploration blocks, with them are the likes of DNO, Circle Oil and Frontier Resources.

Of the aforementioned, Frontier Resources, listed on the London Stock Exchange ’s Alternative Investment Market (AIM) since July 2013, has an interesting corporate narrative on how and why it came to back Omani E&P. The company might be a mere six years old, but its origins date back to a US technical consultancy founded in 1989 by current CEO Jack Keyes, the man who also helped create Circle Oil.

According to Barbara Spurrier, Finance Director of Frontier Resources, the company reassessed its priorities well before its decision to raise equity in London. “In October 2012, we sold all our US assets, in favor of projects in Oman alongside Namibia and Zambia. It might seem a bit dramatic, but aside from our desire to concentrate elsewhere, the decision made commercial sense.

“Our US holdings comprised of small shares, often in the shape of limited partnerships, in nearly 80 wells, mostly onshore in Texas. Getting a CPR (Competent Person’s Report, viz. Mineral Expert Report) on each of them would have been very expensive and time consuming ahead of our Initial Public Offering (IPO). So we decided to divest and concentrate on exploration assets such as Oman’s Block 38.”

Getting the 17,425 square km block, which is 100% owned by Frontier Resources, was a real coup. A six year exploration and production sharing agreement (EPSA), signed in November 2012, is currently in place. While attaching the caveat that a lot of work still needs to be done, the company remains confident about the block itself as well as its presence in Oman.

“Of the three countries we’re in, Oman holds the greatest potential. Initial seismic surveys and feelers have provided a very positive view of what the asset may generate. Furthermore, Oman is a very stable country politically, which gives any company, not just us, the ideal conditions to enter the market. On the legislative and regulatory side, the government is making the right noises, working proactively to match international standards. The Omanis are also investing heavily in their infrastructure, including ports.”

The IPO secured $2.43 million in funding last year, but Spurrier says convincing investors on the basis of potential that’s yet to be realized is never easy. “London Stock Exchange is a good place to raise equity. There are sectors that click with investors at certain times, but it depends on general market conditions, timing of the float and risk profile of the company in question. I think when we came to AIM there had been quite a bit invested at the risk end of the oil and gas business, and we caught the tail end of the cycle to get the IPO funded.”

But before that, Frontier had to move from ISDX which in itself was a challenge. “While we got there, the problem was that the ISDX is quite an illiquid market which complicated the transition. So I’d say a private valuation is a better methodology to come on to AIM with the sort investment agenda and forward planning we had in mind.”

The company also raised $476,000 via private placement ahead of last year’s IPO. In June, it raised a further $1 million via another round of ordinary share issuance. With the company firmly on London’s junior market, Spurrier is fairly relaxed about investors’ perceptions.

“It’s a time of great change, from being a private company with small portfolio, to an AIM-quoted public company with a big footprint and large acreages. That process now is going to accelerate. There will be an increase sharing of the knowledge base, for instance the geology in Namibia is thought to be similar to Oman’s.”

Often an investor’s valuation is very different from an industry insider’s viewpoint, especially at the nascent stages of prospection when it is difficult to predict where the final valuation sits in the absence of a revenue or profit stream to gauge things.

“At the time of the IPO, I remember an analyst saying the industry will at times value your company five times more than the market would, which is an interesting take on the difference between market valuation and industry valuation; the latter’s viewpoint is bound to be more technical,” Spurrier says.

The Frontier Resources FD, who also juggles directorships at several companies including Blur Group, Oloco and Cambridge Equity Partners, says there’s a lot of hard work ahead and it is something she’s well drilled for. “I come from a background where my father was a farmer who worked seven days a week, and it meant exposure to a work ethic that involves long hours from a very early age. As for a portfolio career, I have now been doing it for nearly 25 years.

“At an independent oil and gas sector upstart, working capital models are very different and as a finance chief you have to act accordingly. You are more of a stakeholder and less of an accountant. I understand Frontier Resources’ business well enough to realize that our Oman, Namibia and Zambia acreage potential is immense. However, there won’t be a hydrocarbon bonanza overnight.”

Spurrier wouldn’t put a figure on what oil price level she currently thinks would be conducive for E&P investment. However, she says the next five years would be very interesting in terms of oil and gas supply and demand scenarios.

“There are difficult E&P prospects around the world that may materialize against all expectations. Conversely, some prospects the market is counting on might turn out to be duds or uneconomical to exploit. All I can say is Oman will play its part in the world, and I certainly hope Frontier Resources will play its part in Oman.”



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