Ann: Quarterly Report, page-193

Furious, maybe an analogy will help you understand the basics of what's played out in Uruguay as for someone who's a regular poster seems a little confused about 'his choice to increase our stake'?


Once upon a time, NetInc.(PRL) and Fast&Furious(SEI) researched the property market in Uruguay and discovered that if the two families built a 4 bedroom house in Montevideo countryside statistics show that it would be worth 10x what it would cost to build in 3 years time.

The two families agreed that the NetInc. with take ownership of 51% whilst Fast&Furious - 49% of the investment.

The construction is estimated to cost $100,000 using a local builder in Uruguay. Thus, NetInc. share will cost $51,000 and the remaining $49,000 is with Fast&Furious. Both families save their money and proceed with their investment by paying the $100,000 to the nominated builder.

Construction starts, and as the frame is being constructed the builder discovers that the slab he poured cracks due to ground instability and therefore will have to start over on a large portion of works he's already constructed(drilling delays). This will cause delays and extra material costs valued at $50,000 that the two families have agreed to fund(CR).


As the construction continues, the builder comes across various other issues that result in further additional costs which soon enough burns through the total $150,000 outlay.

This forces the two families into making an agreement that they will each pay the builder their share of the construction costs at the end of each quarter.

18 months later Fast&Furious decide that after spending a significant amount more then they'd hoped on this investment they were not going to pay this builder any more money. It was now up to NetInc. to decide whether he wanted to continue with the investment or give up.

NetInc. decided to continue with the construction, paying his share of the quarterly payments as well as Fast&Furious' share. For every quarterly payment that NetInc. made it was agreed that his share of the profits taken from the sale of the house would increase by 20%. This leaves us where we are today.

The two families in hindsight could have been better off using a builder from another country that had more experience but maybe that builder could have ran into the same issues whilst charging a higher quarterly rate?


PRL are now at the crossroads where they need to pay SEI's share of drilling costs plus their own, but only have $800k in the bank. In my opinion PRL have the following two options moving forward in Uraguay;

1. Continue drilling with the $800k and HOPE that they hit oil before running out of cash. - If they do run out of cash they will find it very difficult to find shareholders willing to participate in another CR. If they hit oil, the share price will increase making it easier to complete a CR to fund the remaining holes of the 4 well programme.

2. Suspend all onsite works until PRL can find another investor to fund SEI's share of the campaign. -With another investor on board this will allow drilling to recommence whilst PRL complete another CR with their shareholders - albeit not as successful as the previous CR.


Although I am a long term holder and would love to see PRL hit oil in the next few weeks, I think that David Casey will do what's best for the company and go with option 2 - I expect this will be announced within the next week.