Forbes - The Politics Of Oil: What’s A Tiny Texas Company Doing With A Million Acres In The Country Of Georgia?

Despite the rush to get off carbon fuels, oil is still paramount and a disrupting force in international relations.

Currently, the Eastern Mediterranean is seething. There is a dispute between Israel and desperate Lebanon over offshore fields, and Turkey and Greece are at each other’s throats over deposits off Cyprus.

There is a dispute of another kind, in Georgia, located at the eastern end of the Black Sea on the southern flanks of the Greater Caucasus Mountains.

The Georgian government is at loggerheads with a Houston-based firm, Frontera Resources, and a small group of members of the U.S. Congress from Texas and Oklahoma has involved itself, siding with the company. The congressional pressure has been so great that the Georgians have partially backed off — even though in April, Georgia won its breach of contract suit filed against Frontera with the Permanent Court of Arbitration in the Netherlands.

The company appears to be something of a ghost operator, holding onto leases without finding any oil or acting as an upstanding corporate citizen.

This report is based on information from sources in Georgia familiar with the dispute as well as published information. My attempts to reach Frontera by email and phone in Houston failed: The telephone is answered by a recording. David Tvalabeishvili, Georgia’s deputy minister of economy and sustainable development, responded quickly and frankly to questions I emailed to him.

Frontera first appeared on the scene in 1997 when it hooked up with the Georgians. A small company with big hopes, it declared its intention to find and exploit natural gas and oil deposits in emerging markets, especially those opened after the fall of the Soviet Union in 1991. It seems to have settled on Moldova and Georgia, the latter its principal play.

The company was the creation of group of politically well-connected people in Houston, including Lloyd Bentsen, the former Treasury secretary and Texas senator, and organized by Bill White, formerly a deputy secretary of energy in the Clinton administration, who felt hydraulic fracking would release huge quantities of oil, gas and money when applied to proven reserves in those countries. White left Frontera in the early 2000s to join an investment firm and then went on to serve as mayor of Houston. I reached out to White by email but got no response.

In 2005, things looked good for Frontera, which got $80 million in an initial public stock offering and a listing on a subsection of the London Stock Exchange, the Alternative Investment Market (AIM). Today things look dismal, published reports concur. The company has been delisted, is in debt, and simply hasn’t been able to produce any new oil from proven reserves.

The only oil that is being produced from the 1.25-million-acre leases is a paltry amount coming from Soviet-era wells, hardly enough to keep Frontera ticking over. This oil is recovered from just 1 percent of the lease territory.

U.S. Interest in Georgia

In 1997, the United States was interested in the Caucuses in general and Georgia in particular; and it still is. It sees Georgia as part of a bulwark, along with its neighbors Turkey, Armenia, and Azerbaijan, against the Russian regional influence. Georgia, which gained its independence from the Soviet Union in 1991, was westward-oriented.

Although Georgia has since been through turbulent political upheavals, including the Rose Revolution in 2003 and Russia’s invasion and occupation of South Ossetia and Abkhazia in 2008, it remains firmly westward-oriented. It is negotiating to join the European Union and NATO; and since 2008, it hasn’t had an embassy in Moscow. The World Bank lists Georgia as the seventh-best country to do business.

When Frontera was formed the geopolitics and the technology fit. With the company’s political strength, it wasn’t hard to do a deal with Tbilisi, the Georgian capital. I’m told White had contacts there from his time at the Department of Energy.

Frontera has said that its failure was due to its geologists’ underestimating the difficulty of drilling and fracking the formations, and to encountering down-hole pressures it hadn’t expected. It also found it difficult to operate in a faraway country without much of a supply chain. The company has maintained that it is on a learning curve and that it will yet succeed.

Its Georgian workers went on strike in the winter of 2019, claiming that they hadn’t been paid in 11 months. They were finally paid by the Georgian state oil company.

In 2017, Georgia, saying that it had finally had enough, sought through international arbitration to reclaim its leases. The international arbitration tribunal found largely in favor of Georgia, but Frontera also claimed victory, I was told.

Tvalabeishvili told me that under the terms of the arbitration, contestant parties must mutually agree to the release of the text of the arbitrators’ decision. As yet, Georgia hasn’t received a consent from Frontera, so it is unable to release the full agreement.

Meanwhile, Georgia regards its contracts with Frontera as vacated but has delayed seizing the company’s leases in the face of political threats from Washington.

When the arbitration was handed down, the company demurred and applied maximum U.S. political pressure through an intensive lobbying effort, which had been pre-prepared by steady and substantial contributions to the Texas and Oklahoma congressional delegations, both by the company and its senior staff.

$500,000 on Lobbying

The Houston Chronicle reported that Frontera spent $500,000 with the lobbying firm Cornerstone Government Affairs to push its case. The newspaper also reported that Frontera Chairman Steve Nicandros and other company executives have contributed more than $180,000 to federal campaigns, primarily to Texas and Oklahoma Republicans, citing the Center for Responsive Politics.

The issue was framed by members of the House and by Sens. Ted Cruz and John Cornyn, Texas Republicans, as a move against the United States, inspired by Russia and prosecuted by Georgia. In their May 15 letter to Secretary of State Mike Pompeo and Treasury Secretary Steve Mnuchin, the senators, joined by Reps. Jodey Arrington (T-Texas) and Markwayne Mullin (R-Okla.), said, “We are specifically and increasingly concerned about Georgian ties to American hostile rivals and enemies, which are coming at the expense of geostrategic and business interests.” It goes on to insinuate high irregularities and anti-American actions.

This has outraged people in Georgia, including the American business community.

Lobbying by a small oil company shouldn’t derail 30 years of strategic, diplomatic, and economic cooperation between the United States and the most pro-Western country in the South Caucasus.

Forbes

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