RE:RE:RE:East West Petroleum Provides Operational Update for RomaniaThe development, exploration and production activities in Romania are being conducted within the framework of the Romanian government and a commercial contract between East West Petroleum ("EW") and NIS Petrol SRL ("NIS"). As you know, EW won the exclusive right to explore for petroleum and if discovered, to produce, market and transport it. In essence, EW and NIS agreed that in exchange for an 85% interest in the licensed blocks (2,3,7,&8), NIS would be the Operator and incur all of the expenses until the wells were declared "commercial." EW would be the other party known as the "Non-Operator". Once the well(s) are declared "Commercial", NIS and EW will split the expenses and profits (if any) on a 85%/15% basis. Among other things, under the Joint Operating Agreement ("JOA") NIS is obligated to conduct the operations in 'a good and workmanlike manner'. The JOA forms the basis for the sharing of the rights and responsibilities under the Production License ("PL") and provides a set of rules for the conduct of operations under the PL. It is my belief at this time, that NIS does not have the sole authority under the contract to declare one or more wells "Commercial".
It is believed that EW has to concur with NIS, as to whether or not a particular well (or wells) is "Commercial". If true, this means that NIS cannot unilaterally force EW to pay its 15% share for a non-economic well and/or its associated infrastructure or unilaterally declare EW in default. In conclusion, it is believed that sooner or later, in order to proceed with commercial production on the four Romanian blocks, NIS will have to negotiate a price with EW, which will likely include royalties, to buyout EW's 15% interest in the JOA. It all comes down to the contract, the lawyers and the deal to be worked out between NIS and EW. I believe there is a substantial basis for optimism, that a deal favorable to both parties will emerge from the negotiation.
Production from the New Zealand asset should return to full output next month, at a time when the netbacks should be excellent, due to the rising price of Brent crude. The shares are inexpensive at this time due to the fact that they are selling for less than the value of the cash in the bank and assigning no value to the Romania and New Zealand assets, at a time when we are coming out of a pandemic and oil prices are rising. GLTA.