The tiny Irish stock on the brink of landing 'the first' post-sanction oil deal in Iraq. Ref 'Fleet Street Letter' 12-04-04..

Good Morning Pet Lovers!

On Friday we had an rns telling us the 2 tenders awaiting decisions and the 3r one ready and deadline for submission is the 15 december!

Look at it this way: Would you encourage a company to bid for the 2nd tender if you weren't happy with 1st one, conidering that this involves your time and money! Remember pet received an urgent email to discuss urgently the 2nd Tender. Once again, would you still encourage them and waste you time and money again to tender for the 3rd tender, if you weren't happy with the previous 2 or at least one of the two?

Further, would Pet make last Friday announcement raising investors expectation, only to few days later (announcement has to be soon)say sorry we've got it wrong! And if you were the iraqis would you be happy with and trust such a company who may appear to be misleading their investors! Do you think Pet is not aware of all the above?

In my strongest belief todate, Pet has been given the nod, hence Friday rns and the next one to follow very soon indeed!

Good luck to all pet Lovers!

Hemacik16, well put!!!!! I look forward to all PET holders rejoicing their good fortune.

Morning Eric

sorry I haven't got back to you, but I'm really busy at the moment, probably until the end of the year, as I have to put together a business plan for next year.

Anyway on to PET, I agree 100% with the Irish article, at first I thought the delay may have something to do with the contracts being changed to risk sharing, but from what I've found out, it does appear that any risk sharing or profit sharing agreements will not be awarded until after the elections, and then even after those it is debatable.

PET look set to be awarded a cash contract if indeed they are awarded the contract (my gut stills says "yes", but we await that RNS to confirm it) The PET RNS last week told us nothing we didn't already know, but atleast confirmed that everything was in and they were just waiting on the MOO to make a decision, we've seen in the press that the Iraqi have said by the end of the year, so December will be the month, when well there you have the 64 million dollar question, I'm going for later in the month. I've have two big plays at the moment NBR & PET and I feel NBR will come good before PET.

With a cash contract we will of course have to look at the terms, but you all know that DH would have negiogated some that had a significant risk/reward % for PET. I think again my estimate of 3 pounds a share is not too far out there.

anyway back to work, speak to you guys later

Tokyo

Morning Eric and Kyoto!,
Eric, sorry i have`nt replied to your comments on the Unison article, i`ve not looked on the pc much the last couple of days, any chance you could post it again? to save me looking back.
thanks,
Dexter

dexter

Post was as follows. The article rang true; if any journalist was going to dig up the nature of the deal then likely to be a Dublin paper.

"An interesting point from the Irish Independent article concerns the nature of the contract, i.e. cost plus profit margin. This doesn't seem to tie in with the idea of risk sharing which I believe has arisen late in the day. $250M doesn't sound an awful lot for setting up a field. If we say 135M (obviously in euros I would have thought) and 15% profit margin we have 20K gross profit much of which should come through to the bottom line. There would need to be a fund-raising exercise. If, which seems unlikely, all the money is raised by PET, then existing holdings will be diluted. Following the SEY (and YOO) models this could well be a placing but at a price which takes the assured revenue into account. The calculation must be an iterative process. But lets guess a result and say the price goes to 3, that would be a cap. of 175K. Raise 135K (development cost only) by placing 50M shares at 2.70. Total shares = 108M. Suppose first year completes development and operations goes into second year. Then revenue per share in year 1 is about 145p; gross profit is about 22p per share; pbt, say, is 20p per share; pe ratio is 15. Certainly not too high! Thus the assumption of a share price of 3 is reasonable and may be over-cautious. That is for one field; don't see why 2 fields shouldn't double the result.

The oil specialists will, no doubt, have much more sophisticated ways of doing the sums. One underlying assumption is that the operational years revenue and cost profile are similar; the actual oil revenue going to the Iraqi government. Another assumption is that the other players are not sharing the risk but rather providing services at cost.

I remember Tokyo looking for a bid success price of 3 which is supported by this calculation. Some previous workings seemed to assume that the oil revenues would flow through PET; this model seems more likely. This is just back of the envelope stuff, but how do others see it? Have these Irish Independent figures been seen before? Would they quote them if they didn't have substantiation? The fact that actual figures are quoted increases my own confidence level. Probability up from 75% to 80%! TUT?"

Eric

Eric,
Thanks for that, very good post, totally agree.
JT said in his chairmans statement,June 2003, quote below.

"Petrel has been run on a shoestring for the past three years yet even the lowest level of operations cost money. It costs in excess of 100,000 stg. a year to maintain an AIM listed company. In recent years small placings mainly with the directors and friends has funded ongoing activities. In the Spring of 2003 we agreed a small placing with a City institution which raised 136,000 stg. Since then our price has quadrupled. We will continue a policy of small placements to minimize dilution UNTIL we need to raise money for DEVELOPEMENT AND/OR EXPLORATION"

I don`t see how PET with only 60 million shares could take on exploration and developement without placing several million shares, because, like you say the funding of $250m from japan would`nt cover the cost of more than one contract at the very most. I read somewhere that the total cost for the 3 tenders would be something like $650m.

If PET were to get 2 contracts and block 6, someone on the other board said, which i think is true, that as things stand there are enough shares about for the big institutions to get involved.

Now as for block 6, another quote from JT`s statement.


Petrel entered Iraq seeking a concession to develop and/or refurbish existing oil fields in Iraq. In 1999 we submitted a detailed tender to refurbish the Subba/Luhais oil fields in the Basra area. The feasibility study envisaged the following:

Capital cost $355m.

Daily output of 180,000 bbls rising to 240,000.

27-36 month refurbishment period.

The tender was well received and over the following months a detailed evaluation took place between the Iraqi Oil Ministry staff and Petrel staff and consultants.

As a small junior oil venture Petrel lacked a track record. The Oil Ministry suggested that we cut our teeth on an exploration block and indicated that we should apply for Block 6 a choice block in the Western Desert which lies between Baghdad and Jordan. Only 9 blocks in the area were offered for tender. Outstanding exploration areas in the North and South were not offered.

Block 6 is a 10,000 sq kilometre block about halfway between Baghdad and the Jordanian border. It had some work done in the early 1980s and has pipelines running along the edges of the block.

Over the following two years long and torturous negotiations took place to agree a work programme and then to negotiate commercial and financial terms. In Spring 2001, we signed an agreement with the Oil Ministry. Together with other applicants such as ONGC of India and Petronas of Indonesia we awaited the Proclamation of the Agreement. In December 2002 we were informed that the Proclamation was approved and would be made on December 15th 2002. That is where events remain.

Where are we now? We are open for business in Baghdad. We have presented an interim work programme on Block 6 to the current executives in the Oil Ministry. We have re-affirmed our interest in the development of the Subba and Luhais oil fields. If we get approval we proceed. If we do not we fight. It is as simple as that. We will be flexible not intransigent. I hope and expect that commercial sense prevails and that all realise how we can develop oil projects far quicker than new entrants. It is not as if there is a scarcity of projects. There is oil development work for the next generation. We would like to have a local Iraqi partner as well as the Oil Ministry. We are not averse to taking in an international oil industry partner. The opportunities are so good that to use an old expression half a loaf is better than no bread.

CUT THEIR TEETH ON BLOCK 6!, I bet every oil major in the world would have loved that said to them!.

If,as you suggest, PET were to go to 3 on news(good news!) and they placed shares to have 100m in circulation they would then only have a market cap of 300m.Do you remember when EEN were priced at 2.5p or so, their market cap was about 100m, and they were only producing aprox 1500 bpd!!

I know that was from june 2003, but on the funding front, apart from the Japanese $250m, nothing has changed.

AIMHO,
sorry if it seems disjointed,
regards,
Dexter

Dexter

Thanks for that. I suspect we are homing in on the nature of the deal. I recall mention of the Japanese funding but am not aware of the type of finance -if deferred interest then presumably there are strings, e.g. conversion to equity? It also seems likely that PET would get both northern contracts, given that there must be some economies of scale, particularly in relation to equipment and logistics. So, if you say that the Japanese money funds one field and an equity placement the other, then my figures should stack up and 3 per share would be on the low side. Add in a high probability of Block 6, though probably lower priority time-wise for both Iraq MOO and PET, you get strong support for that price. Political uncertainty is bound to hold things back for a while. But my intention would remain to take profit on one quarter of the holding and run the rest at, effectively, nil cost. Oh, yes, I have moved the probability up to 85%!

Eric

Only 85%!!, i was on that when i first bought in Feb !!

dexter

Come on, then, don't be shy! What's your proablility: (a) of winning contracts regardless of timeframe; (b) contract in December?

Eric

Eric,
I`ve had a gut feeling all along that PET will get 2 contracts and block 6, i would say i`m 90% on that. as for the timeframe, well, probably by end of December (15th-20th),but definitely BEFORE the elections.

Dexter
ps, one i am watching is Sonoran Energy, because of their tie-in with an Iraqi co.

Dexter

Thanks for that! Having been involved in big ticket sales (computers), in the end of the day it is not a question of probability. Its either win or lose: 1 or 0. This a '1'! Because: (a) they do need to award the contract; (b) plenty of indicators that only PET are in the frame.

So, watchers on the sidelines, this is the chance for a mimimum 300% win; probably more! All the research you need can be found by trawling through this bb, particularly the last 2 or 3 weeks.

Eric

Eric et al: I agree with Eric's assessment and indeed have topped up. I was especially glad to read that a number of prominent shorters have decided to short PET, because they have helped the MM bring the SP down. We will see. John

This would`nt be the MM`s wanting our stock by any chance would it?!!,buys out-numbering the sells by nearly 100k and down by 5p!!!

Dexter

I invented the RPR syndrome over on the ASC bb; Robson Pattern Repeater; but as usual, johngtudor spiked my guns by saying it was already in the text books! I thought it was too simple for the professionals! If there is a preponderence of sells early in the day then the price is moved down disproportionately, in case the stream turns into a torrent; buyers move in but the MMs do not need to move the price back that far; the price closes lower although buys outnumber sells. The inverse also applies if the initial action is with the buyers. The basis is that the MM is primarily tehre to make money on trading whilst keeping stock as low as possible. The pattern occurred on 5 successive day with ASOS, two days of falling prices, followed by three days with the inverse pattern.

Having said that, the sells did eventually out-number buys because of a 150,000 T sale at 90p. A professional trader wanting to reduce his exposure? The MM picking it up to satisfy buyer demand? Glad to see jgt buying again - good news for PET!

Eric

Good Morning Pet Lovers!

Now that it has been established by Sonoran themselves in their announcement last night (see their their website) that Sonoran has not tendered for Pets project, I believe the following will show why I think the other two competitors Everasia (Turkish co) and Dome (UAE co), if they are still running, do not stand a chance against pet!

With regard to the security situation, Pet being an Irish company, the Irish are seen in the Arab world just as victims of colonialism as the Arabs themselves. Take it from me, I am Arab. I once met an Irish guy in the pub who seemed to know a lot about the Algerian war of independence. He linked it the Irish struggle for freedom from the British or the English as he put it. Like wise the Arabs feel the same about the Irish- does anyone recall Gaddafis support of the IRA in the 80s?

Further the Iraqis, being the most educated and sophisticated people in the Arab word, can make the difference between those who have a genuine business interest in Iraq and those who waged an illegal war to just grab their oil. Pet has been in Iraq longer than any other western oil company in recent years, and at times when the world not only turned its back on them but enforced a genocide (a word used by 2 directors of the UN Food for Oil Program who resigned as a result) inflicted sanctions leading to the death of more than half a million children. In fact at such times Pet has donated food and medecines to the Iraqis. Such gesture would not be unrewarded in the Arab world, believe me. Generosity is the most valued human quality in the Arab world and shame on those who lack it, and worse still for those who do not reciprocate.

Pet's management may be the most well known westerners in Iraq given their time in the country, and therefore their movements are no secret to the insurgents. Is anyone surprised why nothing has happened to Pet's directors so far? I am not.

Finally even the insurgents know that Iraq and they themselves need oil to survive.

The question that follows therefore is whether Pet has (or is being)or has not been successful? Does anyone really think the Iraqi oil ministry would send their people for training if at least one of the contracts is not already in the bag? What would be the point of having training, in the first place?

Another idea to consider may be a bit far fetched, but knowing the politics of the murky world of middle eastern governments and western involvement, the following point is a fact of life in the middle east or any other unstable country for that matter.

Government officials or VIPs in these countries would go to any length to have contacts (or contracts in Pet's case???)with western officials or business people. The reason being that, the latter may be needed to facilitate a refuge in the west just in case these dictatorial governments turn against their officials, which happens regularly. Where do 99.99% of the VIPs from the developing countries flee to when they are in trouble? The west. For the simple reason that the justice system in the west is such that you just cannot arrest somebody, try him before a state court after being tortured, and then throw him in jail or, in some cases, make him disappear.

There is saying in the Arab streets that the ONLY THING that middle eastern governments agree on is in helping one another fight their political opponents. There have been few cases where these opponents flee to another Arab country whose government happen to be in dispute with their government. First these opponents are used as pawns to taunt the government concerned. However, in most cases these governments make amend and believe you me, the main reason for their rapprochement sometimes is their opponents; and the poor opponents are either exchanged or thrown in jail and sometimes assassinated by the receiving government on behalf of the other government. This has led middle eastern political opponents to seek refuge even in some western countries they blame for their predicaments, i.e. western governments who support dictatorial regimes when even these oppress their own people. Who put Saddam Hussein in power and helped him get rid of his opponents, including Allawi the current Iraq Prime Minister? The American and the British governments. Where did Allawi live his 26 years in exile? In Britain.

In dictatorial regimes contact with the west is a matter of life and death for some officials. For example in the case of Algeria, although it is a against the law, and in the eyes of the public anathema, for members of the government to have French citizenship, because of the French colonial past in Algeria, yet dozens of secretaries of state have secretly obtained French citizenship - as an insurance policy when their time is up. In fact there are many former Algerian government ministers living in France at the moment. Further, both Allawi and Karzai, the current Afghanistan Prime Minister, hold British and American citizenships, respectively again in contravention with their countries laws. And I can assure you they will never get rid of their foreign nationalities, for soon they will be back in the west.

Now how is this murky world of politics related to Pet?

The other two Pet competitors are middle eastern countries, one Turkish and the other from the UAE. Therefore Iraqi officials, for their own sake as an insurance policy given the uncertain future of Iraq, would almost definitely award at least 1 if not 2 contracts to Pet. Add to this the west technological superiority, political and financial stability and you have all the ingredients for a winning Pet.
In the murky world of politics and business: scratch my back and I'll scratch yours.

Just put yourselves in the Iraqis shoes, who would do business with Pet, a western company with all technological know-how and financial stability or middle eastern countries. When you need refuge given the current situation and its ramification, where would you rather go? To a western country where the law protects you or in a Middle Eastern country where powerful man/woman can sign you death warrant?

From another bb this am

looks like pet have other irons in the fire:

Cabinet endorses MoUs with oil, gas exploration firms - JORDAN


AMMAN The Cabinet yesterday approved two memoranda of understanding signed with two international firms to start exploring for oil and gas in the country.
Government Spokesperson Asma Khader told reporters following the weekly Cabinet session that while the US firm Sonoran Energy will assess the Kingdom's untapped resources in Al Azraq area, the Irish company Petrel Resources will explore for oil and gas in the eastern part of Safawi.

http://www.menafn.com/qn_news_story_s.asp?StoryId=72057

Cabinet endorses MoUs with oil, gas exploration firms - JORDAN

Jordan Times - 08/12/2004

AMMAN The Cabinet yesterday approved two memoranda of understanding signed with two international firms to start exploring for oil and gas in the country.
Government Spokesperson Asma Khader told reporters following the weekly Cabinet session that while the US firm Sonoran Energy will assess the Kingdom's untapped resources in Al Azraq area, the Irish company Petrel Resources will explore for oil and gas in the eastern part of Safawi.

There are currently two companies exploring potential oil and gas reserves in the Kingdom: The US Trans-Global Petroleum Jordan Ltd. Company operating in the Dead Sea and Wadi Araba regions, and the National Petroleum Company, which has a concession agreement since 1996 to explore for and produce gas in the 7,500sq.km. Risheh area, near the Jordanian-Iraqi border.

A few years ago, the government approved competitive, flexible, substantial, financial and contractual privileges for international companies interested in exploring natural resources in the country.

Also yesterday, the Cabinet announced it would buy farmers' production of wheat in 2004 -2005 at competitive prices.

Under the decision, the government will buy the locally-grown wheat at international prices, with transportation expenses and 15 per cent of the overall cost added.

"The decision seeks to encourage wheat farmers to start planting as much as they can in the coming season," Khader said.

The minister said that the Cabinet also asked the Ministry of Finance yesterday to start receiving offers from "interested local institutions and companies" to finance the Disi Water Conveyance Project. She did not elaborate.

The Disi pipeline is seen as a strategic project, which will largely solve the water crisis in the Kingdom, one of the 10 most water-deprived countries in the world.

Upon completion, the project will provide the country with approximately 100mcm of drinking water annually from around 65 wells in the ancient Disi aquifer in the south.

During their weekly session, the Council of Ministers also approved a new law for the Ministry of Education and a new health insurance system for the Jordan Armed Forces.

hemacik16: Great research. Presumably PET will issue an RNS later today to announce the Jordan deal?

I assume the share price will shoot with this news so why the red so far?
Does any one know the potential of this contract ?

I rang pet they asked me to call back in an hour ,presumably an rns will be issued before or at that time.The lady did say "we don't have enough info. to be able to comment at present"