SEC Company Response from Freedom Holding Corp. (FRHC) (CIK 0000924805) (FRHC) — Jan 31, 2006
Freedom Holding Corp. (FRHC) (CIK 0000924805)
Date: Jan. 31, 2006 · CIK: 0000924805 · Accession: 0001038838-06-000044
AI Filing Summary & Sentiment
File numbers found in text: 000-28638, 333-129199
Referenced dates: November 23, 2005
Letter
January 31, 2006 H. Roger Schwall Assistant Director Division of Corporate Finance Mail Stop 7010 United States Securities and Exchange Commission Washington, D.C. 20549 Form 10-KSB/A for the year ended March 31, 2004 Filed October 5, 2005 File No. 000-28638
Re: BMB Munai, Inc. Registration Statement on Form SB-2 Filed October 21, 2005 File No.: 333-129199
Dear Mr. Schwall:
At the request of the management of BMB Munai, Inc., (the "Company" or "BMB Munai") and further to my conversations with Mr. Murphy and Ms. Moncada-Terry we are responding to comments raised by the staff at the Securities and Exchange Commission in your letters dated November 23, 2005 and November 30, 2005. Following are the responses to your comments.
LETTER OF NOVEMBER 23, 2005
Selling Security Holders, page 14 ---------------------------------
1. Disclose how the securities being registered for resale were acquired by the selling security holders.
The securities being registered for resale were acquired by the selling security holders directly from the Company in either the private placement of shares concluded by the Company in July 2004 or March 2005, pursuant to exemption 4(2) of the Securities Act and/or Regulation S.
POULTON & YORDAN TELEPHONE: 801-355-1341 324 SOUTH 400 WEST, SUITE 250 FAX: 801-355-2990 SALT LAKE CITY, UTAH 84101 POST@POULTON-YORDAN.COM
Mr. Roger Schwall January 31, 2006 Page 2
If the staff deems it necessary, the Company will add disclosure of this information to the amended SB-2 registration statement.
2. Identify as underwriters all selling security holders who are registered broker-dealers, unless you can confirm to us that such selling security holders received their shares as compensation for investment banking services.
Each selling security holder has confirmed that it is not a registered broker-dealer.
Form 10-KSB/A for the year ended March 31, 2004 -----------------------------------------------
Controls and Procedures, page 30 --------------------------------
1. We note that, in addition to your disclosure that the disclosure controls and procedures were not effective as of the end of the reporting period covered by the amended report, you include disclosure indicating that "your disclosure controls and procedures are now effective." Revise to expand the disclosure to explain how management has determined that disclosure controls and procedures are now effective. Make similar revisions to your Form 10-QSB/A for the quarter ended December 31, 2004.
We propose to amend the disclosure controls and procedures as follows to explain how management has determined that disclosure controls and procedures are now effective.
"Our chief executive officer and our chief financial officer (the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15 and Rule 15d-15(e)). Such officers have concluded (based upon their evaluations of these controls and procedures, as more fully discussed in the following paragraphs, as of the end of the period covered by this amended report) that our disclosure controls and procedures are effective as of the date this amended report is filed to ensure that information required to be disclosed by us in this report is accumulated and communicated to management, including the Certifying Officers as appropriate, to allow timely decisions regarding required disclosure. During the period from the time the original report was filed to the time we filed this amended report, we have developed certain internal financial reporting policies and procedures such as thorough review for compliance with requirements by completing appropriate checklists, which to the best of our knowledge and
Mr. Roger Schwall January 31, 2006 Page 3
understanding proved to be effective as of filing of this amended report thus, making us, as the management, believe that disclosure controls and procedures are effective as well."
LETTER OF NOVEMBER 30, 2005
SB-2 filed on October 21, 2005
Summary Historical Reserve and Operating Data, page 4 -----------------------------------------------------
1. Please remove the dollar signs under the production information for each period shown here and on page 33.
We will remove all dollar signs.
Risk Factors, page 5
A substantial or extended decline in oil and natural gas prices..page 6 -----------------------------------------------------------------------
2. Please include in this risk factor the fact that you currently receive materially lower prices than world market prices for crude oil and your gas price is substantially lower than that received in North America.
We propose to add the following language to the above referenced risk factor (page 6) to the beginning of the paragraph immediately following the second set of bullet point items:
"Until we are granted an export license from the government, we are limited to selling our production to the domestic market in Kazakhstan. As a result, we currently receive materially lower prices than the world market prices for our crude oil. Similarly, the prices we will receive for the gas we produce will be substantially lower than prices for natural gas received in North America."
3. Please include a risk factor that states under the terms of your current exploration contract you only have the right to produce until the year 2007 and that 94% of your proved reserves are scheduled to be produced after 2007. There is no guarantee whether the current license will be extended or a new commercial exploration and production contract will be granted.
We propose to add the following risk factor to the top of page 8:
We will be unable to produce up to 94% of our proved reserves if we are not able to extend our current contract or obtain a new
Mr. Roger Schwall January 31, 2006 Page 4
contract from the Republic of Kazakhstan, which would likely require us to terminate our operations.
Under our current contract for exploration of hydrocarbons on Aksaz, Dolinnoe and Emir fields, we have the right to produce oil and gas only until July 2007, yet 94% of our proved reserves are scheduled to be produced after July 2007. If we are unable to receive a commercial production contract to which we have the exclusive right to negotiate as per exploration contract terms, or extend our current contract we will lose our right to produce the reserves on our current properties. If we are unable to produce those reserves, we will be unable to realize revenues and earnings and to fund operations and we would most likely be unable to continue as a going concern.
Business and Properties, page 28 --------------------------------
Oil and Natural Gas Reserves, page 30 -------------------------------------
4. You state that Chapman Engineering used oil and natural gas prices in effect during March 31, 2005, which you disclosed was $15.17 for the year ended March 31, 2005. However, the reserve report uses an oil price of approximately $21.00 per barrel, which is 38% higher than the price you disclose in the filing. Please explain this to us.
As dictated by Section 210.4-10(a)(2), the reserve report uses an oil price of $21.00 per barrel because that was the price per barrel of oil in the Kazakhstan domestic oil market on March 31, 2005, the date of the reserve report. By contrast, $15.17 reflects the average price per barrel we received throughout the fiscal year for the oil we sold. As you point out, the price of oil in the Kazakhstan domestic market increased significantly during the period from March 31, 2004 to March 31, 2005, not unlike the significant increases experienced in the world market during the same time period. As a result of the significant price increase during the aforementioned period, the average oil price we realized during the period from March 31, 2004 to March 31, 2005, was lower than the price at March 31, 2005.
Production, page 31 -------------------
5. You state that you produced no natural gas during the month of August 2005, however, you disclose 41.7 BCF of proved gas reserves. Please explain this to us.
Please see our response to comment 14 below.
Mr. Roger Schwall January 31, 2006 Page 5
Recent Developments, page 34 ----------------------------
6. You indicate that you have tested several wells such as the Dolinnoe 2 and Emir 1 wells in June 2005. Please disclose the results of this testing and if you think it is representative of the wells' long-term production trends. Along bring this production up to date as possible.
According to the State laws of the Republic of Kazakhstan, the Company is required to test every prospective object on its properties separately, this includes the completion of well surveys on different modes with various choke sizes on each horizon. This testing can take up to three months per horizon.
In the course of well testing, when the transfer from object to object occurs, the well must be shut in, the production activity closes for the period of mobilization/ demobilization of workover rig, pull out of hole, run in hole, perforation, packer installation time, etc. Oil production is temporarily suspended due to well shut down which has the effect of artificially diminishing production rates.
Production rates:
Cumulative total production rate from all intervals tested is shown on the table following the response to this comment.
Aksaz -1
Status: The well is awaiting workover due to technical conditions.
Producing testing intervals: 4,428-4,253m; 4,256-4,257m; 4,261-4,265m; 4,269-4,273m
Prior to workover the single interval production rates were as follows:
139 bpd - 10 mm diameter choke. This production level was registered with paraffin buildup. 252 bpd - 10 mm diameter choke. This production level was registered without paraffin buildup.
Aksaz-4
Status: The well was completed in August 2005.
Producing testing intervals: 4,311-4,299m and 4,294.3-4,292.8m
Mr. Roger Schwall January 31, 2006 Page 6
Current production rates from single interval testing are as follows:
126 bpd - 6 mm diameter choke with paraffin buildup 220 bpd - 6 mm diameter choke without paraffin buildup
Dolinnoe-1
Status: Engaged in test production. The Company plans to increase production from the Dolinnoe-1 well through hydraulic fracturing with acid treatment and, if necessary, horizontal or deviated drilling from existing wellbores will be conducted.
Producing testing intervals: 3,550-3,565m and 3,521-3,532m
Current single interval production rates are as follows:
114 bpd - 6 mm diameter choke with paraffin buildup 189 bpd - 6 mm diameter choke without paraffin buildup
Dolinnoe-2
Status: Engaged in test production. The Company plans to increase production from the Dolinnoe-2 well through hydraulic fracturing with acid treatment and, if necessary, horizontal or deviated drilling from existing wellbores will be conducted.
Producing testing intervals: 3,574.5-3,577m, 3,578.4-3,582m, 3,600-3,609m; 3,611.5-3,613.5m; 3,616-3,627m; 3,640-3,641m
Current single interval production rates are as follows:
126 bpd - 4 mm diameter choke with paraffin buildup
Dolinnoe-3
Status: While testing various intervals, we determined that the current interval from which solid production rates occurred is 24 m, but only 17 m were perforated. After perforation of the 17m a blowout occurred and we could not run in hole with the pipe. We are in the process of killing the well. After killing the well we will clean the bottomhole zone, run in hole with a perforator and will perforate the remaining 7 m in the producing interval. After perforation we will lower tubing and start testing again in order to determine the proper rate.
Mr. Roger Schwall January 31, 2006 Page 7
Producing testing intervals: 3,614.5-3,603m and 3,600.6-3,594.5m
Current single interval production rates are as follows:
756 bpd - 4 mm diameter choke with paraffin buildup 1260 bpd - 8 mm diameter choke with paraffin buildup
Emir -1
Based on logging, 4 prospective objects were identified and perforated and all 4 objects were tested. This well is awaiting a service rig to perform workover as discussed in our response to comment 17 below.
Producing testing intervals: 2,863-2,871m; 2,922-2,924m; 2,930-2,975m; 3,009-3,017m
Current single interval production rate is 40-50 bpd.
With current completions, which include only one zone per well, the overall daily production rate range from the 6 wells is 1,266 to 2,100 bpd, depending on choke sizes and well bore conditions on the wells, etc. This, of course, is not representative of the cumulative total production rate from all of the tested intervals in each of the wells. The accumulated total for the tests on these wells are shown below:
---------------------------------------------------------------------------------------------------------------- Choke size, Well Interval, m Influx Mm Oil, bpd Average ---------------------------------------------------------------------------------------------------------------- 6 184 Aksaz 1 4249-4307 Oil and gas flow 8 250 245 10 300 ----------------------------------------------------------------------------------------------- Total 245 ---------------------------------------------------------------------------------------------------------------- 4296-4293, 4 107 4272-4266, Oil and gas flow 6 126 151 Aksaz 4 4261-4257 8 220 ---------------------------------------------------------------------------------
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POULTON & YORDAN
ATTORNEYS AT LAW
RICHARD T. LUDLOW
January 31, 2006
H. Roger Schwall
Assistant Director
Division of Corporate Finance
Mail Stop 7010
United States Securities and Exchange Commission
Washington, D.C. 20549
Re: BMB Munai, Inc.
Registration Statement on Form SB-2
Filed October 21, 2005
File No.: 333-129199
Form 10-KSB/A for the year ended March 31, 2004
Filed October 5, 2005
File No. 000-28638
Dear Mr. Schwall:
At the request of the management of BMB Munai, Inc., (the "Company" or
"BMB Munai") and further to my conversations with Mr. Murphy and Ms.
Moncada-Terry we are responding to comments raised by the staff at the Securities
and Exchange Commission in your letters dated November 23, 2005 and November 30,
2005. Following are the responses to your comments.
LETTER OF NOVEMBER 23, 2005
Selling Security Holders, page 14
---------------------------------
1. Disclose how the securities being registered for resale were acquired
by the selling security holders.
The securities being registered for resale were acquired by the selling
security holders directly from the Company in either the private placement of
shares concluded by the Company in July 2004 or March 2005, pursuant to
exemption 4(2) of the Securities Act and/or Regulation S.
POULTON & YORDAN TELEPHONE: 801-355-1341
324 SOUTH 400 WEST, SUITE 250 FAX: 801-355-2990
SALT LAKE CITY, UTAH 84101 POST@POULTON-YORDAN.COM
Mr. Roger Schwall
January 31, 2006
Page 2
If the staff deems it necessary, the Company will add disclosure of
this information to the amended SB-2 registration statement.
2. Identify as underwriters all selling security holders who are
registered broker-dealers, unless you can confirm to us that such
selling security holders received their shares as compensation for
investment banking services.
Each selling security holder has confirmed that it is not a registered
broker-dealer.
Form 10-KSB/A for the year ended March 31, 2004
-----------------------------------------------
Controls and Procedures, page 30
--------------------------------
1. We note that, in addition to your disclosure that the disclosure
controls and procedures were not effective as of the end of the
reporting period covered by the amended report, you include disclosure
indicating that "your disclosure controls and procedures are now
effective." Revise to expand the disclosure to explain how management
has determined that disclosure controls and procedures are now
effective. Make similar revisions to your Form 10-QSB/A for the quarter
ended December 31, 2004.
We propose to amend the disclosure controls and procedures as follows
to explain how management has determined that disclosure controls and procedures
are now effective.
"Our chief executive officer and our chief financial officer (the
"Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rule
13a-15 and Rule 15d-15(e)). Such officers have concluded (based upon
their evaluations of these controls and procedures, as more fully
discussed in the following paragraphs, as of the end of the period
covered by this amended report) that our disclosure controls and
procedures are effective as of the date this amended report is filed to
ensure that information required to be disclosed by us in this report
is accumulated and communicated to management, including the Certifying
Officers as appropriate, to allow timely decisions regarding required
disclosure. During the period from the time the original report was
filed to the time we filed this amended report, we have developed
certain internal financial reporting policies and procedures such as
thorough review for compliance with requirements by completing
appropriate checklists, which to the best of our knowledge and
Mr. Roger Schwall
January 31, 2006
Page 3
understanding proved to be effective as of filing of this amended
report thus, making us, as the management, believe that disclosure
controls and procedures are effective as well."
LETTER OF NOVEMBER 30, 2005
SB-2 filed on October 21, 2005
Summary Historical Reserve and Operating Data, page 4
-----------------------------------------------------
1. Please remove the dollar signs under the production information for
each period shown here and on page 33.
We will remove all dollar signs.
Risk Factors, page 5
A substantial or extended decline in oil and natural gas prices..page 6
-----------------------------------------------------------------------
2. Please include in this risk factor the fact that you currently receive
materially lower prices than world market prices for crude oil and your
gas price is substantially lower than that received in North America.
We propose to add the following language to the above referenced risk
factor (page 6) to the beginning of the paragraph immediately following the
second set of bullet point items:
"Until we are granted an export license from the government,
we are limited to selling our production to the domestic market in
Kazakhstan. As a result, we currently receive materially lower prices
than the world market prices for our crude oil. Similarly, the prices
we will receive for the gas we produce will be substantially lower than
prices for natural gas received in North America."
3. Please include a risk factor that states under the terms of your
current exploration contract you only have the right to produce until
the year 2007 and that 94% of your proved reserves are scheduled to be
produced after 2007. There is no guarantee whether the current license
will be extended or a new commercial exploration and production
contract will be granted.
We propose to add the following risk factor to the top of page 8:
We will be unable to produce up to 94% of our proved reserves
if we are not able to extend our current contract or obtain a new
Mr. Roger Schwall
January 31, 2006
Page 4
contract from the Republic of Kazakhstan, which would likely require us
to terminate our operations.
Under our current contract for exploration of hydrocarbons on
Aksaz, Dolinnoe and Emir fields, we have the right to produce oil and
gas only until July 2007, yet 94% of our proved reserves are scheduled
to be produced after July 2007. If we are unable to receive a
commercial production contract to which we have the exclusive right to
negotiate as per exploration contract terms, or extend our current
contract we will lose our right to produce the reserves on our current
properties. If we are unable to produce those reserves, we will be
unable to realize revenues and earnings and to fund operations and we
would most likely be unable to continue as a going concern.
Business and Properties, page 28
--------------------------------
Oil and Natural Gas Reserves, page 30
-------------------------------------
4. You state that Chapman Engineering used oil and natural gas prices in
effect during March 31, 2005, which you disclosed was $15.17 for the
year ended March 31, 2005. However, the reserve report uses an oil
price of approximately $21.00 per barrel, which is 38% higher than the
price you disclose in the filing. Please explain this to us.
As dictated by Section 210.4-10(a)(2), the reserve report uses an oil
price of $21.00 per barrel because that was the price per barrel of oil in the
Kazakhstan domestic oil market on March 31, 2005, the date of the reserve
report. By contrast, $15.17 reflects the average price per barrel we received
throughout the fiscal year for the oil we sold. As you point out, the price of
oil in the Kazakhstan domestic market increased significantly during the period
from March 31, 2004 to March 31, 2005, not unlike the significant increases
experienced in the world market during the same time period. As a result of the
significant price increase during the aforementioned period, the average oil
price we realized during the period from March 31, 2004 to March 31, 2005, was
lower than the price at March 31, 2005.
Production, page 31
-------------------
5. You state that you produced no natural gas during the month of August
2005, however, you disclose 41.7 BCF of proved gas reserves. Please
explain this to us.
Please see our response to comment 14 below.
Mr. Roger Schwall
January 31, 2006
Page 5
Recent Developments, page 34
----------------------------
6. You indicate that you have tested several wells such as the Dolinnoe 2
and Emir 1 wells in June 2005. Please disclose the results of this
testing and if you think it is representative of the wells' long-term
production trends. Along bring this production up to date as possible.
According to the State laws of the Republic of Kazakhstan, the Company
is required to test every prospective object on its properties separately, this
includes the completion of well surveys on different modes with various choke
sizes on each horizon. This testing can take up to three months per horizon.
In the course of well testing, when the transfer from object to object
occurs, the well must be shut in, the production activity closes for the period
of mobilization/ demobilization of workover rig, pull out of hole, run in hole,
perforation, packer installation time, etc. Oil production is temporarily
suspended due to well shut down which has the effect of artificially diminishing
production rates.
Production rates:
Cumulative total production rate from all intervals tested is shown on
the table following the response to this comment.
Aksaz -1
Status: The well is awaiting workover due to technical conditions.
Producing testing intervals: 4,428-4,253m; 4,256-4,257m; 4,261-4,265m;
4,269-4,273m
Prior to workover the single interval production rates were as follows:
139 bpd - 10 mm diameter choke. This production level was registered
with paraffin buildup. 252 bpd - 10 mm diameter choke. This production
level was registered without paraffin buildup.
Aksaz-4
Status: The well was completed in August 2005.
Producing testing intervals: 4,311-4,299m and 4,294.3-4,292.8m
Mr. Roger Schwall
January 31, 2006
Page 6
Current production rates from single interval testing are as follows:
126 bpd - 6 mm diameter choke with paraffin buildup
220 bpd - 6 mm diameter choke without paraffin buildup
Dolinnoe-1
Status: Engaged in test production. The Company plans to increase
production from the Dolinnoe-1 well through hydraulic fracturing with
acid treatment and, if necessary, horizontal or deviated drilling from
existing wellbores will be conducted.
Producing testing intervals: 3,550-3,565m and 3,521-3,532m
Current single interval production rates are as follows:
114 bpd - 6 mm diameter choke with paraffin buildup
189 bpd - 6 mm diameter choke without paraffin buildup
Dolinnoe-2
Status: Engaged in test production. The Company plans to increase
production from the Dolinnoe-2 well through hydraulic fracturing with
acid treatment and, if necessary, horizontal or deviated drilling from
existing wellbores will be conducted.
Producing testing intervals: 3,574.5-3,577m, 3,578.4-3,582m,
3,600-3,609m; 3,611.5-3,613.5m; 3,616-3,627m; 3,640-3,641m
Current single interval production rates are as follows:
126 bpd - 4 mm diameter choke with paraffin buildup
Dolinnoe-3
Status: While testing various intervals, we determined that the current
interval from which solid production rates occurred is 24 m, but only
17 m were perforated. After perforation of the 17m a blowout occurred
and we could not run in hole with the pipe. We are in the process of
killing the well. After killing the well we will clean the bottomhole
zone, run in hole with a perforator and will perforate the remaining 7
m in the producing interval. After perforation we will lower tubing and
start testing again in order to determine the proper rate.
Mr. Roger Schwall
January 31, 2006
Page 7
Producing testing intervals: 3,614.5-3,603m and 3,600.6-3,594.5m
Current single interval production rates are as follows:
756 bpd - 4 mm diameter choke with paraffin buildup
1260 bpd - 8 mm diameter choke with paraffin buildup
Emir -1
Based on logging, 4 prospective objects were identified and perforated
and all 4 objects were tested. This well is awaiting a service rig to
perform workover as discussed in our response to comment 17 below.
Producing testing intervals: 2,863-2,871m; 2,922-2,924m; 2,930-2,975m;
3,009-3,017m
Current single interval production rate is 40-50 bpd.
With current completions, which include only one zone per well, the
overall daily production rate range from the 6 wells is 1,266 to 2,100 bpd,
depending on choke sizes and well bore conditions on the wells, etc. This, of
course, is not representative of the cumulative total production rate from all
of the tested intervals in each of the wells. The accumulated total for the
tests on these wells are shown below:
----------------------------------------------------------------------------------------------------------------
Choke size,
Well Interval, m Influx Mm Oil, bpd Average
----------------------------------------------------------------------------------------------------------------
6 184
Aksaz 1 4249-4307 Oil and gas flow 8 250 245
10 300
-----------------------------------------------------------------------------------------------
Total 245
----------------------------------------------------------------------------------------------------------------
4296-4293, 4 107
4272-4266, Oil and gas flow 6 126 151
Aksaz 4 4261-4257 8 220
---------------------------------------------------------------------------------