More Information on Contract Situation. The deal that has been negotiated and verbally agreed to between ROE and its partners and Pemex is described by management as a good deal for both parties.
The reserve issue has been resolved in that it is going to be a revenue sharing contract and 100% of the reserves can stay with Pemex for its’ accounting and reserves purposes. Since it is a revenue sharing contract, ROE and its partners will be able to book reserves as well for ROE’s Corporate and financing purposes. Management stated that their reserves consultant, Sproule & Associates explained that since it is going to be a revenue sharing contract 100% of the reserves stay with Pemex and ROE can book reserves based on its percentage of the Revenue sharing. So, technically, the reserves booked will be more than 100%.
While details where not provided to me, the revenue sharing contract will be superior to a licensing agreement.
Pemex will be paying nothing under the terms of this new proposed arrangement. They put up zero money and they get a percentage of the Revenue. It is not production or cost sharing.
Part of the deal will include the cost recovery of Pemex share of the 17 Chincontepec wells which remains unpaid to ROE and its partners. This cost recovery is being done through Pemex taking a lower share and leaving a bigger share of the revenue to ROE and ROE’s partners. The revenue from the 17 Chincontepec wells will be under the revenue sharing arrangement.
Pemex wants none of the risk and does not want to spend a dollar (Peso) . Pemex just wants money. Pemex wants its percentage of the revenue. So I am not sure if the percentage is before or after cost recovery, but Pemex gets the agreed upon percentage. I was not told what that percentage would be. If oil prices go up they both do better. If production increases above the amount they have based projections on, then they both do better. Since ROE and partners are bearing all of the cost of exploration and development, all of the risk, there is no cap for ROE.
ROE was hoping to give all of us shareholders a Christmas present but it looks like it is now delayed by the removal of the Exploration and Production Manager. This E&P manager, Mr Lozada, apparently,has been under investigation almost since his appointment to the position last December. He was investigated, he was suspended, he was exonerated, then investigated more and now he is out. The impact for ROE and this agreement is that he was the person to sign off on the Letter of Intent. Without him or someone in his place, it goes on hold. There is a possibility that the CEO who is the only one above him could sign off on it. Most likely ROE now has to wait until a new person is appointed, and then get him informed and then get him to sign off.
As for all other Government Departments it was the view of management that they are all in agreement and that the finalization of all paper work will move quickly once Pemex signs on to the deal.
While this appears to be at the same stage ROE got to a year ago, there are some differences. The key difference is that this deal has been negotiated with all of the new management and government. AMLO and the Government now know they need private help.These people have now all had a year to discover what a huge financial mess Pemex really is, and they have a clearer understanding of what a huge job it will be to turn this all around. There is a different knowledge level. This deal, once signed, will also be substantially better in the long term for both parties