I spoke to management today and they indicated they don’t really know anything more than what was reported in the press today.
To the best of managements knowledge, the letter of intent is still sitting, unsigned on the E & P managers desk. ROE and the shareholders will know it is signed when they see the signatures on the paper.
Politically there seems to have been a big argument, debate, or fight at the highest political levels between the one side that wants Pemex to go it alone (Such as Amlo and Nahle) and the side that wants Pemex to partner with private companies, such as Romero.
The recently announced losses of U.S. $9,1 Billion 4th quarter loss and $18.1 billion annual loss, seems to have tipped the scales in favour of those wanting private sector investments in partnership with Pemex. However, as management says, we won’t know until we see the announcements. There is not much place left for Pemex to borrow money, other than the Government and somebody has to cover the losses.
Management doubts if the bond raters will downgrade Pemex any further as Pemex is seen as part of the Government and they tie Pemex to Mexico as sovereign debt. In other words, Pemex is too big to fail, the Government has to kick in and support.
I asked if ROE was on the list of private companies that would be partnering with Pemex and he said he did not know and they typically would not know.
He said the ROE was waiting like all of the other private companies. He said that these deals where to be announced in January, then by the 3rd week of February and now within the next 10 days. They are waiting.
He did say however that virtually everyone they have had negotiations and dealings with at Pemex are excited and anxious for the deal to get done and to move forward. They all know what ROE can do and they are waiting to see it get started. Management and all of us shareholders have known for a long time it is all political and they have been following the political shifts of AMLO and the government. Management said that dealing with both Pemex and the Government people is a lot easier this year as the Government people are starting to become more knowledgeable about the oil and energy sectors and are learning the costs and timelines for everything.
Rather than simply signing contracts and getting on with business the Mexican Government appears to want to make a big splash, headlines, to rebuild confidence with the bondholders and the private sector investors.
The ROE contract will provide a lot of money to Pemex, RO, Lukoil and the Government when it gets going. The Amititlan block is sitting on at least 2.0 Billion Barrels of oil. It would not take long to add this as 3P reserves to Pemex and to ROE and its partners.
One of the interesting points that Management mentioned, was that in their proposed contract with Pemex, the production from Amititlan and the proceeds of sales will go into a trust and then paid out to all of the parties, it will not go to Pemex for Pemex to pay out. Apparently this is done in a lot of countries, but I didn’t know that piece of information.
If the Government does not resort to new auctions and wants Pemex to partner with companies this will also give ROE a big edge as there will be virtually no one else around to develop the shale oil on neighbouring blocks and Pemex knows what ROE cand do. WE also have to remeber that Pemex sad the government want to do business with LUKOIL.
With respect to day to day business ROE, aside from pushing to get this contract migrated, is negotiating contracts with drilling companies for rigs to drill the Chiapas blocks. It is a good time to negotiate as not much is happening in the oil patch in Mexico, in spite of all the Pemex hype.
So, it is just wait and see what the Government will announce.