Oil junior AED Oil has drawn the attention of the share market regulator over the timing and content of its disclosure relating to problems at the Puffin oil field in the Timor Sea.
Oil junior AED Oil has drawn the attention of the share market regulator over the timing and content of its disclosure relating to problems at the Puffin oil field in the Timor Sea.
The Australian Securities Exchange is understood to be scrutinising AED's tardy disclosure of the May suspension of production at Puffin and a subsequent $US60 million legal claim against it and Chinese joint venture partner Sinopec.
The claim, by Norway's Sea Production Ltd, relates to the Puffin partners' decision to halt operations due to alleged environmental and safety breaches by the Norwegian offshore production specialist.
Sea Production is the owner and operator of the Front Puffin floating production vessel, or FPSO, which was chartered by the Puffin partners in 2006 to extract oil from the field.
A search of company statements shows AED waited more than a month to advise shareholders that production had stopped at Puffin, and that it also waited ten days to report a $US60 million-plus legal claim against one of its subsidiaries by the Norwegian company.
AED first advised shareholders of a problem with the Puffin FPSO contract on June 17, when it stated production would be interrupted due to a "number of operating and performance issues".
Two weeks later on July 3, AED advised that it had terminated the FPSO contract due to "certain material operating and safety breaches".
Yet when it released its annual report and full year results on September 30, AED admitted that production had actually been suspended on May 8 - six weeks before it first reported a problem with the FPSO operator.
Furthermore, it alleged the FPSO contract had been terminated because of "serious matters of occupational health and safety and the environment".
Neither AED nor Sinopec have since released any details of the alleged environmental breaches by the FPSO operator.
Furthermore on July 20, Sea Production told the Oslo stock exchange that it had launched legal action against AED subsidiary AED Services Ltd over the termination of the contract, and that it was seeking to recover at least $US60 million it believed it was owed under the contract. It also denied any breach of its contractual obligations.
Yet AED did not reveal the scope or detail of Sea Production's claim until it released its June quarter report on July 31. Expressing confidence it would defeat any claim against it, AED added that it could only be held liable for 40 per cent of any successful claim as it had sold a 60 per cent interest in Puffin to Sinopec for over $650 million in 2008.
In its full year accounts, AED estimated its potential share of the outstanding minimum rentals payable under the "non-cancellable operating leases" of the FPSO contract to be more than $32.5 million. The contract was due to end in mid 2010.
Coincidentally, AED shares reached their highest close since early January on May 7 - the day before production ceased - when the stock closed at $1.20. The stock began falling the next day, despite the absence of any comment from the company, and has now halved in value over the last six months.
AED did not return repeated calls for comment relating to its disclosure of the problems at Puffin.
A spokesman for the ASX would not comment on AED specifically, adding that materiality was the key test of whether any matter should be disclosed.
"Although the ASX won't comment on any specific supervisory action it may be considering, it is making enquiries as a matter of routine," he said.
AED currently has around $95 million in cash, but any adverse outcome in the Sea Production matter could have a significant impact.
With Puffin out of production, AED has little income but has committed to an aggressive development program over the next two years. It last week agreed to acquire a half stake in a major Brunei project, and is planning a new development plan at Puffin to resume production in 2012.
It also has over $US48 million in convertible notes which mature in mid 2012.
Puffin, which lies just 50km from the crippled Montara oil field, was last month revealed as the second Timor Sea oil project with a leaking well. The minor gas leak is considered no threat to the environment and is scheduled to be plugged once a rig becomes available.
Ironically, the last job completed by the ill-fated West Atlas rig before it relocated to Montara was a major exploration campaign at the Puffin field in May.
