Migration of Contract
On speaking to management this week, all aspects of the business plan and contract have been approved by Pemex. The cost accounting and everything has been completed. Pemex has stated they will file it with the new government for final review and approval after the new government has taken control. Pemex has told ROE that this is the best, most efficient way, as it saves a major step in the review process of essentially having the review done by both of the out going and the incoming administrations. While there is still a chance it could be dealt with before year end ROE ’s realistic expectation is for approval in the first quarter of 2019.
The new contract will be a joint venture amongst ROE, Lukoil and Pemex. ROE expects the royalty structure will be similar to the Diavez contract which migrated a couple of months ago. In that contract there was a royalty based on the price of oil which would average about ten percent (10%) and a bonus royalty on the order of thirteen percent (13%). This level of royalty is good and is similar to royalties in Texas and is not far above royalties in Western Canada.
The change of government process in Mexico which has a five month time between election and taking control is always a time of not getting much done where it involves the Government as no one wants to make decisions that may be overturned and may in fact cost them their jobs. So everything just gets put on hold or slow. This is to be changed, apparently, by next election when the gap will be shortened to two months from five months, but this does not help us now.