Sonoro Energy Ltd (SNV)

[jojoba]

Great reply from poster MHT to my question about Sonoro on another board:


You are going to have to be more specific when you state Iraq, because Sonoro Energy's interests in Iraq are two-fold - they have 2 different projects going on simultaneously:

1) Topping Facility
2) Exploration & Production


Topping Facility

The topping facility in this case will be a diesel/kerosene refinery. The objective is to secure a supply of crude oil for a diesel/kerosene refinery that they would like to construct & operate. Please go here for the requirements to construct/operate a refinery in Iraq:

http://www.oil.gov.iq/Law-of-Private%20Investment-in-Crude-Oil-Refining.pdf



Most people are under the impression that this is a done deal - it is not. Please re-read the 3rd Quarter MD&A found on Sedar. Note the following paragraph:

Initially this will include pursuing immediate cash flow by securing a modular topping facility and a supply contract from Salah ad Din and the Ministry of Oil. A new modular topping facility has been identified, and the Company is reviewing options to finance it with debt instruments.


Then please re- read the following paragraph from the Company's Dec 2010 Presentation to Investors:

Topping facility – 1,000 to 5,000 bbls/d
• Discussing potential early supply contract while exploration program develops
• Reviewing possible debt financing with supply and sales contracts



In other words, at the present time, they do not have a deal in place for the Topping Facility. What they are saying is that they will be negotiating with the Iraqi Ministry of Oil and/or the Salah ad Din Province in securing a crude oil supply contract for a diesel/kerosene refinery that they would like to construct & operate.

As per the law above, the refinery will fall under the Ministry of Oil's jurisdiction - not the Provincial Government, and as such, they will have to negotiate with the Ministry of Oil to construct the refinery.

As most of you are aware, Iraq just formed a new government in November 2010. A new Minister of Oil (Abdul Karim al-Luaidi) wasn't appointed until just recently (December 21st, 2010: http://www.iraqoilreport.com/oil/production-exports/oil-output-up-fourth-bidding-round-planned-5255/ ). As such, it would have been impossible to negotiate anything pertaining to constructing a refinery until a couple weeks ago (when the new Oil Ministry opened for business).

Although they presently do not have a deal, I believe - given their contacts - they should have one secured within the next couple of weeks. As such, I believe that the first news headline to come out of Iraq to be either (or both):

a) SONORO ENERGY SECURES CRUDE OIL SUPPLY CONTRACT FROM THE IRAQI MINISTRY OF OIL
b) SONORO ENERGY SECURES CRUDE OIL SUPPLY CONTRACT FROM IRAQ'S SALAD AD DIN PROVINCE


Once they have a Supply Contract in hand, the next step will be to negotiate a Sales Contract for the diesel fuel (enter Mr. Nasser Bin Jarallah). With the Supply & Sales contracts in place, they can then apply for the debt financing (enter Mr. Ahmed Al-Shamsi) to acquire the Topping facility. Therefore once that has been achieved, the subsequent news heading will read:

SONORO ENERGY ACQUIRES DEBT FINANCING TO CONSTRUCT & OPERATE DIESEL/KEROSENE REFINERY IN IRAQ


For a total of $30 Million, one can procure a Diesel Topping facility from Texas, and have it shipped & installed in Iraq. Inglett & Stubbs International Ltd. has been retained to construct the facility.

If they can obtain the debt financing within a month from now, the Topping facility can be shipped as early as March. As such, it could be up and running by year's end.






Oil Exploration & Production

I've seen pictures of oil just seeping out of the ground in Iraq. As such, they would not have to do much drilling. According to the "December 2010 - Presentation to Investors" they will be drilling 10 shallow holes. If they start this program now, they should have a Resource Estimate out by the end of March / beginning April. They should be into production by the Fall 2011 (October - December).

As opposed to the Topping Facility, this is a done deal. Heavy oil does not come under the Petroleum Law; rather it falls under the Mining Law, and as a consequence, falls under Provincial jurisdiction. The Salah ad Din Province has already given Sonoro exclusive exploration & production rights for their entire province.

Incidentally, the Iraqi Ministry of Industry & Minerals was just renamed the Ministry of Energy a couple of weeks ago. The new Minister of Energy is the former Minister of Oil: Husayn al-Shahristani (http://en.wikipedia.org/wiki/Hussain_al-Shahristani)





Conclusion

As such, when you ask when do I expect to hear concrete plans out of Iraq, this is my guess for the next 3 months:

1) Secure Oil Supply & Sales Contracts by Mid-February.
2) Secure Debt Financing for the Topping Facility by the end of February.
3) Acquisition of Topping Facility in March.
4) Initial Oil Resource Estimate (from the shallow drilling) by the end of March / beginning April.


note: Iraqi Ministry of Oil's website is http://www.oil.gov.iq/