In Albania, shadowy memo haunts Calgary energy firm

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One of Canada's fastest-growing energy companies is grappling with a murky set of unsubstantiated allegations of environmental damage in Albania, the tiny Mediterranean country blessed with Europe's biggest onshore oil field.

Bankers Petroleum Ltd. is a Calgary high flier that is developing a major oil property in Albania, a frontier for energy companies on the prowl for lucrative reserves. Bankers has so far spent $400-million (U.S.) in Albania, with another $1-billion to come, making it one of Canada's biggest overseas oil investors. The company sports a market value of $1.6-billion (Canadian).

Bankers Petroleum late last month asked Albania's government to investigate allegations that it set off subterranean well explosions that triggered an "environmental catastrophe."

In a June 24 letter to the Albanian National Agency of Natural Resources, known as AKBN, Bankers' chief financial officer Douglas Urch said the allegations "not only misrepresent the facts, but also makes accusations of illegal activities by Bankers, Albpetrol [Albania's state oil company] AKBN and the Ministry."

The letter requests of ABKN executive director Taulant Musabelliu "that this matter be investigated and addressed immediately for the benefit of all parties slandered therein."

The allegations, reported in part by the Albanian press in recent days, come at a sensitive time for Bankers, which is listed on the Toronto and London AIM stock exchanges. It is in the middle of a raising $100-million in a bought-deal equity financing led by underwriters Raymond James and GMP Securities.

The deal, at $7.75 a share, is expected to close on July 14, and will be used to finance the next stage of its development of Albania's massive Patso-Marinza heavy oil field and the smaller Kucova field.

Bankers entered Albania in 2004 and currently produces 10,000 barrels of oil a day from the Patos Marinza field, which was discovered in 1928 and worked haphazardly for decades by Albanian, Russian and Chinese oil companies. Bankers estimated the total resource at 5.7 billion barrels, making it Europe's top onshore field.

Bankers officials believe the company is the victim of a bizarre series of allegations from IEC Visoka, a company with an oil field development venture in Albania. IEC Visoka was and may still be connected to former British Columbia businessman Frank Hertel, according to officials of a British company that claims ownership of the Albanian venture. Mr. Hertel (sometimes referred to as Wolfgang Hertel) is a former Victoria resident and technology entrepreneur who fled Canada 25 years ago after being hit with tax evasion charges. He went to Venezuela, was arrested 14 months ago at London's Heathrow airport and reportedly awaits extradition to Canada. There is no suggestion that Mr. Hertel is involved in the allegations against Bankers.

Bankers officials say IEC Visoka is behind the allegations, contained in an anonymous memo, that the Canadian company is responsible for the well explosions and subsequent pollution. Mr. Urch's letter to AKBN said "the wording within [the memo]does suggest that it may have originated from IEC Visoka Inc. or associates thereof."

Abdel Badwi, the Bankers CEO, said in a phone interview that he is convinced IEC Visoka made the allegations because the company has made legal threats against Bankers, though has not launched a lawsuit. Mr. Badwi says the legal threat is apparently based on IEC Visoka's belief "that we have caused damage to the [Visoka oil field]reservoir" whose drilling rights, he said, are essentially shared by the two companies; IEC has the rights to the "deeper" part of the field.

The allegations are contained in a seven-page memo, dated Oct. 12, 2009, called "Summary of events surrounding environmental damage to Visoka oil field." The author is not named, though IEC Visoka is mentioned several times. The memo became public two months later, when it surfaced on the Wikileaks whistle blower site. Mark Hodgson, Bankers' investor relations officer, said Bankers became aware of the memo only recently.

The memo centres on "Well 646" in the Visoka field, which Bankers acknowledges it was operating. The memo says "Apparently Bankers determined that they could increase well 646's ability to receive injected water by setting off explosives in IEC Visoka's reservoir within the IEC Contract Area."

The alleged explosions, the memo says, happened last year and caused "extremely serious environmental damage" to other wells, including one called G44. "Some 250-300 metres below well G44 the pipeline is compromised and water and gas are spewing at a rate of 400-450 cubic metres a day over the surface and into a small stream and then on to Gjanica river."

Mr. Badwi said the seismic activity mentioned in the memo was not caused by well explosions, but by earthquakes. "During that period earthquakes occurred and caused some damage to several points in Albania," he said.

It is not known whether AKBN has taken up the call to investigate the allegations. E-mails and phone calls to Mr. Musabelliu, the agency's director, were not returned.

Complicating the matter is the question of IEC Visoka's true ownership. IEC Europetrol, an enhanced oil recovery technology company based in Bristol, England, and at one point led and owned by Mr. Hertel, claims it is the legal owner of IEC Visoka, said Ian Poornan, Europetrol's finance director. "Our argument is that IEC Europetrol PLC should be the major shareholder of IEC Visoka and not Dr. Hertel and others personally," he said in an e-mail. "The business in Albania was introduced by IEC Europetrol PLC shareholders, not by Dr. Hertel himself, and they were alarmed when the contract was signed by Dr. Hertel in the name of IEC Visoka Inc., a [British Virgin Islands]company."

Mr. Hertel, who was born in Germany and was 72 at the time of his arrest, is the founder and former chairman of International Electronics Corp.(IEC). He set up shop in Victoria in the early 1980s and said he used the federal government's scientific research tax credit program to fund research into new technologies such as advanced electricity meters and a system to extract lingering oil from mature reservoirs.

In 1986, he left Canada, with Revenue Canada (now the CRA) claiming $33-million in back taxes. Mr. Hertel publicly resurfaced in Albania in late 2008. It is not known whether Mr. Hertel is still a shareholder and director of IEC Visoka.

Mr. Poornan said his company has filed a petition in a German court for €100-million ($133-million) in damages against Mr. Hertel for "the mis-assignment of the Visoka oil field contract."

A message left at the Zurich phone number of Pauline Champ, whom Mr. Poornan said is a director of IEC Visoka, was not returned.

Mr. Urch, the Bankers' CFO, said Bankers would not be making an official statement about the allegations contained in the memo. "We're currently in the midst of our prospectus filing for a bought-deal equity issue and we're restricted by the regulatory process as to disclosing any information on all corporate matters," he said in an e-mail.