EEN - Undervalued & Oversold

Found the following from the prospectus regarding the commerical terms of the Syria contract (significant passage highlighted in bold):

15.12 A contract for the exploration, development and production of petroleum between Syrian Petroleum, the government and Ocean Energy and Gulfsands. SNG Overseas holds the 50 per cent participation interest in the Block 26 EDP Contract previously held by Ocean Energy Inc. and Gulfsands Syria now holds the interest of Gulfsands Petroleum Limited. The Block 26 EDP Contract provides for the exploration, development, extraction and production of hydrocarbon
resources from the lands of Block 26 in Syria. Under the contract the “Contractor” (defined as SNG Overseas and Gulfsands Syria jointly) has an initial 48 month exploration period with two further periods of 36 and 24 months if the
obligations during the prior periods are satisfied. If no commercial discovery is made after the 108 month exploration period the contract is terminated.

During the initial 48 month period the Contractor is obligated to drill four exploration wells and acquire 500 kilometres of 2D seismic. The Contractor is also obligated to spend a minimum of $15,000,000. If these obligations are satisfied the Contractor may, by surrendering 25 per cent of the original area, secure a 36 month extension for exploration. During this period the Contractor must spend a minimum of $10,000,000 and must complete two exploration wells and acquire a
further 250 square kilometres of 3D seismic. At the end of this 36 month extension the Contractor may, by surrendering a further 25 per cent of the original area, secure a further 24 month extension for exploration work, during which period it must expend a minimum of $4,000,000 and complete two further exploration wells. Any excess work done in one exploration period to a maximum expenditure of $3,500,000 and work involving the completion of one exploration well may be credited to the next exploration period.

If the contract is surrendered during any exploration period without the minimum expenditures for that period being incurred the Contractor is obligated to pay the difference to Syrian Petroleum Company. As security for the obligations in respect of the initial 48 month exploration the Contractor is obligated to post a US$15,000,000 guarantee, which is to be reduced, to a minimum of US$500,000 by the end of the initial 48 month exploration period, quarterly by the amount actually spent on exploration activities. The guarantee ceases in any event 54 months after the commencement of the agreement.

Once a commercial discovery is made a Syrian operating company is to be formed to be owned as to 50 per cent by the Contractor and 50 per cent by Syrian Petroleum Company to conduct and oversee development and production. If commercial production does not occur within four years of the discovery (with respect to oil) or seven years (with respect to gas) then the development
area is to be surrendered.

Upon commencement of commercial production the SAR Government is to receive a 12.5 per cent royalty on the petroleum produced and the remaining 87.5 per cent is to be split between the Contractor and Syrian Petroleum Company based on the level of daily production and subject to the right of the Contractor to recover the costs associated in the exploration, development and production out of 50 per cent of the crude oil produced annually net of the 12.5 per cent royalty payable to the government of the Syrian Arab Republic.

In addition to its share of petroleum revenues, Syrian Petroleum Company is to receive from the Contractor a bonus of $2,000,000 where production reaches 25,000 bopd and a further bonus of $5,000,000 where production reaches 50,000 bopd.

Then a further passage about the mysterious Ramak:

15.14 An assignment and assumption agreement (the “Assumption Agreement”) dated 15 May 2005 between Gulfsands Syria (1) Gulfsands Petroleum Holdings Limited (2) Ramak Limited (3) and SNG Overseas (4) pursuant to which SNG Overseas agreed to accept responsibility for 50 per cent of the rights and obligations due from and to Ramak under an agreement dated 1 November
2000 between Devon Energy International Limited (1), Gulfsands Petroleum Holdings Limited (2) and Ramak (3) (the “Ramak Agreement”). Under the Ramak Agreement, Ramak agreed to provide consultancy services to assist the parties to the Ramak Agreement in negotiating the Block 26 EDP Contract and to assist generally in doing business in Syria in consideration of which the parties agreed, following the grant of the Block 26 EDP Contract to pay Ramak a consultancy fee of $20,000 per month, plus production bonuses of $500,000 if Block 26 produces
an average production rate of 25,000 bopd over 90 days, $1 million if Block 26 produces 50,000 bopd and $1.5 million if Block 26 produces 75,000 bopd, together with a net profit interest of 2.5 per cent. in relation to each arrangement entered into by Gulfsands Syria and SNG Overseas.