eolas - 25 Aug'07 - 09:48 - 93813 of 94654

I thought I'd share this email that I sent to some horse racing buddies of mine, some of whom I had already persuaded to buy into Pet. Most of them know little or nothing about the company or its prospects in Iraq. I sent this early Thursday morning, and as I put my thoughts down, it convinced to add another 40,000 shares to the significant number I already held, whe nthe market opened.

Guys
I was at the Petrel Resources AGM yesterday. Normally, when I send a note to this group it is to discuss the merits of a certain horse. Sticking with that theme, I think Petrel are an even money shot, that we can get 50/1 or 100/1 on, with a money back offer from our bookie.

I came away from the meeting that positive about it all. They believe that the HCL (Oil Law) will be passed in September. The Shia Alliance have a majority in Parliament. They will force the bill through if necessary, although they are trying to build consensus and get all groups, including the Sunnis, on board. Passing the HCL is the key to progress.

Their current EPC contract (Engineering, Procurement and supervision of Construction) on the Subba & Luhais ("S&L") field is progressing on plan. This is the largest contract awarded in the oil sector since the war. It is valued at $197 million. It is merely a contract to design oil field enhancements and procure equipment to upgrade the fields to boost production from under 50,000 barrels per day ("b/d") to 200,00 b/d. Therefore, this contract does not give them any revenue share in the oil, merely a service fee. However, it has been very useful in building their credibility with the Iraqis. This field is in the Shia heartland, near the Iranian border. The area is controlled by Shia militia, but is safe, if you have their co-operation, and they are linked to the Shia Alliance that is basically the government. Pet also have good ties in Iran, who have huge influence over the Shia group. They have about 80 people working on the project, mainly contractors. In addition, they have a JV with an Iraqi group called Makman, to provide labour and other resources when the 'build' phase begins. They have very good co-operation from the suppliers (including GE) who have been very helpful in terms of building, delivering and extending credit, as the current Iragi LOC system is difficult, and payments are slow.

They have also completed a Technical Cooperation Agreement ("TCA") on the Merjan field. This field has 760 million barrels of proven reserves, but actual reserves are likely to be in excess of 3 billion barrels. The field was discovered in 1983 but has never been developed. In a TCA they do a study of the field using modern 3D seismic and work with the Iragi Ministry of Oil, doing training and transfer of technology. This allows them to design a plan for the development of the field. In addition, it builds trust between the parties. They have now been asked to do, and have started work on another field called Dhafriya.

They are doing the TCA work, partnered by Itochu. Itochu is one of the biggest Japanese trading companies. It is the largest purchaser of crude oil in the Pacific. It has close ties to the Japanese government, who are very concerned about their dependence on oil imports. Itochu pay 50% of the cost of these studies and cover 50% of the overheads. They have a 60 day first option on all Petrel deals in Iraq. Basically, they have to confirm interest in a project within 30 days, and sign an agreement within 60 days, or else Pet can go elsewhere with the deal. The expectation is that Itochu will be actively involved in all Pet deals in Iraq. The Japanese government have offered cheap and freely available loans for re-construction in Iraq, and the expectation is that Pet will tap into this source for a lot of the development costs.

In the pre Saddam era, they were awarded an exploration agreement for Block 6 in the Western Desert. This is an area that has never been explored, but is likely to be very oil rich. Recent reports suggest that there could be over 100 billion barrels of oil in the Western Desert, and Block 6 is one of about 10 exploration blocks in that region. They have been assured by the Oil Ministry that their title to Block 6 will be ratified by the government, after the HCL is passed.

They were approached by someone at the very highest level (not sure if this is the President, Prime Minister or Oil Minister) to look at a field called Halfaya in the south (Shia area) near Iran. This is a super giant oil field with about 14 to 16 billion barrels of proven reserves, and a likely minimum recoverable reserve of 8 billion barrels. They have done a lot of work on this field. Basically, they believe that they have been approached for political reasons. The government are well aware that the big oil companies will be only too happy to sign contracts, and then will do nothing, until the security situation improves. The government needs to start generating more income now, to pay for reconstruction and other projects. They need people to work now. They see Petrel as a company that can do that, as demonstrated by the S&L project. In a couple of years time. the government would like to be able to use the Halfaya development as an example of what a western company can achieve, as a lever to get big oil working in the country.

The HCL is likely to allow for Production Sharing Agreements ("PSA"). They may not be called this, but in practice they will allow oil companies to get a share of the oil. The terms will allow for capital cost recovery (at a rate of 60% of oil until cost recovered) and thereafter they expect the oil company share to be in region of 15% to 20%. These terms are very favourable, and are likely to be reduced in the future. They expect that the early contracts will be at this rate, to reflect the political and security risks. Therefore, those who move early will get best terms. There is a risk that those contracts may be re-negotiated in the future, like Russia has done with the contracts that it signed in the early nineties.

The Halfaya field could cost up to $1 billion to develop. However, Itochu and Japanese loans will be the primary way of financing it. They will resist any major share placing, so there should not be too much dilution. Halfaya is expected to produce a minimum of 600,000 b/d and to produce for 30 years.

The numbers on Halfaya are truly staggering. I'll use an oil price of $70 per barrel, and a 20% PSA. Production costs in Iraq are about $1 per barrel which is the lowest in the world.

Annual Revenue 600,000 b/d * $70 * 20% * 365 days = 3.066 billion dollars or 1.5 billion pounds. At a forward PE of say 10, this would place a value on Halfaya of 15 billion. Maybe split this 50/50 with Itochu and you get 7.5 billion. Pet is capitalised at 64 million, so the share price would need to rise over 110 times to reflect my simple value on the Halfaya field. There will be share issues along the way so this will affect my calculation. Pet expect to get Block 6 ratified, which will be worth a lot, and hope to get PSA agreements on S&L and Merjan.

They have cash in the bank. David Horgan, the MD, is a very impressive guy. He is highly qualified (Cambridge law degree, Harvard MBA) and very personable. You may have seen the video of his appearance before the Iraqi Commission in the UK, and he is well used to dealing with politicians. Pet has strong local ties with many groups in Iraq, and has worked with 5 successive governments. They have got a PSA in Jordan (a Sunni country) and their sister company PNG works in Iran (Shia) and has many ventures there.

They plan to work initially in the South of Iraq, which is the most stable area. Merjan and Block 6 are in the Sunni heartland, where there is most trouble. It will be a while before any major work can be done there.

They have been told that the HCL will pass in September, and to be ready to travel to Baghdad at short notice to begin contract negotiations.

You can see where my 100/1 price been offered on an even money shot comes from. I cannot see how they will not get something in Iraq, which allied with the Jordan PSA should underpin the price (the money back offer from your friendly bookie). If they get a PSA on S&L (as they are doing the work on the field) or on Merjan or Dhafriya it would be worth a major share price hike. Block 6 likewise would have a major impact. Halfaya is the 100/1 shot.

I have never come across as good an opportunity. It has risk, as all share purchases do. Therefore, be cautious and only invest what you can afford to lose. I now have 850,000 shares and will continue to add, as and when funds permit.

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I post on the other side as well, however it is run by a number of individuals who cannot bear an alternative view to their own !!

I believe pet is in a unique position and the price will make many a lot of money.

However, I look at the broader picture and I believe that we have until just before the games next year before the economic picture could change dramatically.

The Chinese are sitting on trillions of US dollars - the Russians and the Chinese plus the Iranians will be successful in setting up an alternative oil market which will not be based on dollars.

These two factors will change the way we look at the world forever and believe me it will happen - but after the games.

So, beware and if as I hope Pet gets to quite a price before August - take the profit and wait for what will be the most dramatic correction world markets will have ever seen.

LEX....brill posting today @ 09.56 hrs mate..Any more shares and you will soon be a director of PET!!!!!
Seriously though can you confirm what mechanism you use to find out price on German Stock Exchange???

PINNACLES....found your mail interesting, however can you expand on your views in your latest mail...I am a little in dark on the issues you refer to ( ie Games/August/Alternative Oil Market)

cheers guys

Hatto - 28 Aug'07 - 10:46 - 94750 of 94774


I fully understand what fellow PIs are going through.

Excitement.....Fear......Hope......Panic......

And all in only three hours.

All the questions going on in our heads....

Should I buy more ?
Should I Sell ?
Will the Sp go up ?
Will it go down ?

All the thoughts.....I should have sold at 135p its 130p to sell now. Good job I didn't sell its 141p to buy now etc...etc...etc....

Personally I hate days like today, you feel you need to do something but in reality what you should do is just sit on your hands or better still get away from the bleedin' computer.

peteh1 - 28 Aug'07 - 10:57 - 94768 of 94773


A good post Hatto and very much feel also for newcomers to PET i.e.should I buy more or should I sell some,all of my holding or just keep holding.One has to remember that an opportunity like PET does not come around every day.In fact in all my years of investing I have only seen a couple of shares like this that could be truly life changing.This I feel is one of those stocks that have the real potential to come good.I have had many hundreds of stocks in my time.I have made profits on some,losses on others but a majority have vertually stood still.This share is on the increase and investors should not panic just because they may see themselves in profit.

orvil - 28 Aug'07 - 10:59 - 94772 of 94773


palwing-only invest that which you can afford and only keep in the market that which you are comfortable with. Do not be pressurised by others as they may have different agendas. I for one will be riding the ups and downs but that does not imply it is the crrect decision for everyone. If you are of a nervous disposition you are probably in the wrong share and i suggest you take sufficient profit now to feel more comfortable.

piston broke - 28 Aug 2007 10:59 - 20

Link to German Stock Exchange.


Frankfurt
IE0001340177 2,10
400 +0,14
+7,14 104.226
=+==+-=- 11:47:23
28.08.2007 2,07
2,11 1,96
1,99 2,12
1,92 40
211.7k
Stuttgart
IE0001340177 2,12
10.000 +0,16
+8,16 17.550
++--+=+- 10:53:44
28.08.2007 2,03
2,11 1,96
1,97 2,18
1,97 8
36.5k
Berlin-Bremen
IE0001340177 2,08
3.000 +0,23
+12,43 5.466
++++ 10:57:09
28.08.2007 2,02
2,09 1,85
1,95 2,08
1,95 4
11.2k
Mchen
IE0001340177 2,05
192 +0,09
+4,59 3.102
++=+-++ 10:44:31
28.08.2007 2,07
2,11 1,96
2,03 2,10
1,95 7
6.3k
XETRA
IE0001340177 1,95
1.499 +0,12
+6,56 1.499
+== 13:31:16
27.08.2007 0,00
0,00 1,83
1,95 1,95
1,95 1
5.8k

http://www.finanztreff.de/ftreff/kurse_einzelkurs_alle.htm?u=0&k=0&s=694395&b=0&l=276&n=PETREL%20RESOURCES%20PLC%20Registered%20Shares%20E

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America, it has been reported is having a trade spat with China.

As a result China has hinted that it could dump its vast holdings of US government debt thus promoting a slump in the dollar.

China holds approx $900 bn in a mix of US bonds - liquidating the dollar could trigger a dollar crash perhaps tipping the US into recession.

The games are so important for China's image - they will do nothing till they are over.

The collective over oil is something the Chinese, Russians and others are keen to establish asap - especially now oil is available in Iraq.

The above are to be monitored - the chinese hold all the cards and the USA knows it but cannot do anything about it.

I advise caution and to keep a watchful eye over these future events as they will have a huge impact worldwide - all in my opinion of course !!

Hope the above helps clarify.

Hatto - 28 Aug'07 - 11:14 - 94785 of 94786


25k roll-over just gone through.....looks like 2 sells but isn't.

The world needs oil.Peak Oil predicted years 2010-2015. Oil in Iraq is crucial to keep pace with world demand.India and China.PET initially will be valued on oil in the ground i.e proven resources and again when it becomes independant Iraq oil producer.Oil is just sitting there in billions of barrels do bear in mind oil easy and cheap to extract.

Quite right lex - peak oil is already here and things are already going wrong - the saudis in my research do not have what they say they have - hence why Iraq is so important.

This will become a battleground between Eastern powers and the western powers for this oil in Iraq - PET is in a great postion to benefit it's shareholders - Itochu is the largest importer of pacific oil - work it out which side PET will eventually be on !!

My comments in other posts will have an effect on all that happens in Iraq and the world - just be aware nothing wrong in that.

For those that do not know - August is the Olympic games in China

Pinnacles---------Very interesting couple of posts, I gather from what you are saying that there will be two markets for oil in the future, ie one in dollars & another in whatever currency the Russians, Chinese & Iranians decide upon? Whilst PET is in a great position (I still hold PET), I would have thought that ultimately the beneficiaries will be decided by the Iraqi Government, and if a large chunk goes to the U.S. then that would somewhat dent the aspirations of the R,C, & Iranians to become the dominant force in oil. Only my view.
2517

I don't think the Iraqi's will give much to the USA - the american oil companies will try to get what they need by takeovers.

In pet's case it will the Japanese who will make the offer - all in my opinion of course.

In terms of aspirations most of the new oil will be in the East making it very tough for the americans - however word is they are now waking up to the problem so watch those tiddlers get swallowed up !!

You have to remember that it is cheaper to take others over than drill to the depths to get oil - apart from Iraq of course.

Tar sands - waste of time and too expensive.

Pinnacles ----One of my earlier posts on the previous PET thread voiced my fears of PET being taken over before they (PET) realise their potential, ie acquired on the cheap. Interesting that you think the U.S. won't get much Iraqi oil. I agree with your 'most of the new oil will be in the East', and if the majority of it is under the control of the Russians, Chinese & Iranians then God help the world, which is why I think the West and in particular the U.S. will be huge beneficiaries. I cannot see the yanks after the losses they have incurred in Iraq, allowing themselves to be held hostage by an unfriendly (possibly) Eastern cartel.
2517

George,

I would like to think you are right, however they are already being held to ransom by the middle east.

The new era sadly is in the hands of the chinese and russians and they don't take prisoners.

If anyone really thinks they have mellowed then they are not part of this planet.

The contracts I bet will have a proviso in them stopping any USA companies taking over the contracts unless the Iraqi government says so.

The Americans are not what they used to be and the Europeans are now more to the left - so the gap is already there.

Remember that PET when awarded contracts can book the reserves to the balance sheet - we do not need to wait until the actual oil is coming out the ground - it is all down to potential.

The dangerous bit with this share is not to be too greedy when the price reaches 'ss.

Excellent thread and an excellent share. This is the start of big things