Tom Allinder of HotStockChat interviews John N. Erhman, President and CEO of Rocky Mountain Energy Corporation (OTCBB-RMEC)
Tom: Hello, and welcome to HotStockChat. My name is Tom Allinder. Today our guest is John Ehrman. Mr. Ehrman is the President and Chief Executive Officer of Rocky Mountain Energy Corporation. Rocky Mountain Energy Corporation is traded on the OTCBB, under ticker symbol RMEC. Hello, John. How are you doing?
John Ehrman: Great, and yourself?
Tom: Im doing fine. Can you give us a brief description of Rocky Mountain Energy Corporation?s business?
John Ehrman: In a nutshell, what we do here is we buy proved oil and gas reserves and then enhance the reserves by bringing more production online through field development, and also through efficiency of operation. Traditionally, this means that we?re going to buy the older fields that have already been discovered, have long term proved reserves, and then increase that cash flow. So, you see nice steady production that has a long history and has a lot left to go, and then we basically became a self-contained oil company wherein we have our own equipment and we do our own workovers, maintenance, etc., which cuts your operating costs by about 2/3.
Tom: All right. How about your management team? It says on your website that you have combined over 100 years experience in the oil and gas business.
John Ehrman: That?s true. Myself ? I?m a lawyer and engineer and I?ve been at it 20 years. One of our directors, Steve Lieberman, has been a petroleum engineer/field engineer for about 25 years. Mike Pugh has been in the financial side of the business for well over 20 years, 25 years. Paul Bornstein, our Chairman of the Board, has been a stock analyst in New York ? an oil and gas stock analyst in New York ? and, more specifically, managed the oil and gas portfolios at Traveler?s Insurance and Fleet Investment.
Tom: All right. Now I want to go into the nuts and bolts of your business. On the 23rd of September you closed the acquisition of 59 billion cubic feet of gas reserves from United States Oil Company in Sweetwater County, Wyoming. Additional fields in Weston and Crook counties in Wyoming were also acquired. What does this mean for the bottom line of RMEC?
John Ehrman: Well, this is a typical acquisition that we would make. The operator needs development capital. We made the acquisition by using our paper on a convertible note. The note is convertible one year from now ? it is a two-year note but he cannot convert until a year goes by. The proved reserves are there, very shallow production, long, long term reserves. With less than $5 million of development we can bring this field to about $1 million a month. On the shares outstanding that we have, that?s about .70-.80 cents a share that should bring in. Additionally, if you look at the outstanding shares, the net value of the asset over time is well in excess of $2.00 per share, so what it means is that you?ve got asset value of $2.00 a share and a pretty good earning potential on each one of those shares, and so we just need to concentrate on it now and get the gas out of the ground and put it through the lines.
Tom: I?ve read in your letter to shareholders that you?re expecting to make further acquisitions that will add significant value to RMEC. Can you give us some details on your strategy?
John Ehrman: Well, actually over the next several days ? I can?t go into too much of it because it?s a major announcement ? but there is an OTCBB company that has put together a large acreage position in Wyoming with some properties as well as New Mexico, and we are going to be the surviving company and we?re going to do this with our shares, and because we can do it with our shares it allows us to buy into their production. We?ll actually own their production, own their reserves, upwards of 500 billion cubic feet of gas and go out and develop them by using our paper as we did in Sweetwater County, Wyoming. That gives us clear title to the asset without a mortgage on it, which then allows us to go get the development money.
Tom: Okay. I want to go into that financing a little bit later on in the interview. One of the other things I wanted to ask you about ? in order to provide a more stable income, you?re using price hedges. Can you explain what this is and how it benefits your company?
John Ehrman: There are two types of hedges that we use. One is a straight hedge, which is we just lock in a price and we will deliver so many cubic feet to you at this price next month. The other way we do it is to buy no-cost floors and ceilings for collars ? commodities basis, they would be known as the collar ? and so what we?ve done is we?ve been able to lock a price and the prices are nice and high right now so we lock the futures price where we?re at now. If it goes up, of course, I?m not making that upside, but if it goes down, I?m still making the price that we?re looking at today.
Tom: All right. That seems to be pretty easily understood. As far as the technology side, can you tell us a little bit about the BORS System? In my research it states that this system can provide 500% or more improvement in production.
John Ehrman: Yes; in an oil well, a lot of the fields that we get out here are stripper production. In an older field, you?re going to make a lot of water with your oil. Oil, of course, floats on top of water in a formation, and so you?re bringing up the fluid, you?re bringing up the oil and the water, and then you have to separate the water from the oil. So, let?s say you have a 15% or 20% oil cut. You?re going to make 100 barrels of oil a day, on a 20% cut you?re going to have to move 500 barrels of fluid and then separate out the 400 barrels of water to get your 100 barrels of oil. So what a BORS unit does is it, for lack of a better term, it?s like a bucket that goes on a conveyer belt down to the bottom of the well, siphons off just the top of the oil right off the top of the formation, and then brings the oil to the surface and leaves the water down below. This reduces your wear and tear on the well, obviously. Reduces your sucker rods, which have a tendency to wear through your pipe and then cause maintenance problems. And of course you don?t have to dispose of the water any longer, so it?s environmentally safe as well as saving an immense amount of disposal costs and so what happens is then you?re just moving oil and you?re not moving the water itself.
Tom: Okay. Now I?d like to talk about some stock and finance-related issues, and this kind of ties into some of the things that we talked about a little bit earlier. On the 11th of October of this year you announced that you had obtained $5 million in development financing. Are you looking to obtain more financing or will this be enough to put the properties that you have in production?
John Ehrman: The $5 million is enough to do what we need to do in Wyoming, but there will be other acquisitions that we?re making and other development that we?re going to do, so there will be a need for other financing and we have something of very large scope for some very large acquisitions that we?re currently working on, and we should go ahead and make an announcement shortly on it. However, the $5 million is adequate to fully develop the Wyoming fields that we purchased from U.S. Oil Company.
Tom: Specifically, as far as the stock of RMEC is concerned, how many shares outstanding and what?s in the public float?
John Ehrman: The total outstanding shares of RMEC are right at 31 million. You will see that 15 million of that, however, is held by us in escrow, and the rest is in the public float, so you?ve got about 16 million shares in the float, and of course 8 million of that is at issue.
Tom: Yes, absolutely, and that?s something that I?d like to talk to you about next.
John Ehrman: But as long as we?re talking about the stock, I?d like to point out that the $5 million financing we have is asset based on the properties, it?s not tied to the stock in any way.
Tom: So, we?re not going to see any dilution of the stock through this financing?
John Ehrman: You will not see a dilution on the stock based upon the $5 million financing in Wyoming.
Tom: All right. Now, the biggest news that you?ve had lately, and I saw this the day that it came out and this was extremely interesting to me, was on the 23rd of October, stating that you?d filed a lawsuit against SOS Resources, Salvatore Russo, Ronald Brooks, Marathon USA Corporation in Hutchinson, Kansas, George Malina and Horst Danning for alleged conspiracy, fraud, and theft of 8 million shares and a $100,000 fee and the case is in the 113th Judicial District Court of Harris County, Texas. Can you explain this situation, how all this came about, and what your resolution is going to be on this?
John Ehrman: Obviously, I don?t like to fight my lawsuits in the press. The thing that?s going to matter is what a judge and 12 people think, but what happened is we were forced to do this. I don?t like lawsuits. I want to stay away from a courthouse if at all possible, but this was forced upon us. Mr. Russo and Mr. Malina of SOS Resources introduced us to Ronald Brooks and Horst Danning of Marathon Corporation. Marathon Corporation, if you look through our very earliest announcements, was to provide a $40 million credit line to the company for acquisition and development of various crude oil and gas reserves. Those projects were approved by Marathon and, as part of that, they were to get 20 million shares, 8 million of which were freely trading, and a $100,000 fee. We paid them the $100,000 fee, we put the 20 million shares in escrow, and Mr. Russo and Mr. Malina then had a contract with Marathon Corporation to provide investor relations. As it turned out, the documents which we were given in due diligence were frauds, specifically a $1.5 billion financial statement that was provided to us. Obviously, if they?re going to give us a $40 million credit line, I wanted to say ?so where are you going to come up with this money," right?
Tom: Absolutely.
John Ehrman: It turned out that Ernst and Young, the ostensibly Ernst and Young audit turned out to be a fraud when after the thing blew up, we found out ? we got a letter from Ernst and Young saying they?d never seen it before, as well as the letters from the bank they provided us telling us that we had the $40 million line through their client Union Bank of Switzerland as well, were cut and paste jobs. And then, what had happened is we closed the projects in escrow and then when we went to cash the checks to get the properties paid for, the $3 million check bounced. So, immediately we knew we?d been taken. When we asked for our shares back, I was able to grab the restricted shares back because there were restrictions. They couldn?t have done anything with them. But they had already taken the shares out of escrow and had already been selling the shares, and when I went to Russo and said ?I want them back,? he told me that he wanted to keep 3 million for himself. I said ?No, that?s unacceptable, you?ve already been involved in this fraud,? and he disclaimed of course any knowledge of Marathon.
But the bottom line was I wasn?t about to stand there and reward him for that and he said that if you try to move on these shares that I?ll flood the market with the shares, and he then proceeded to do just that. Therefore, I was left with no alternative but to go to the United States Attorney, the Harris County District Attorney, the New York State Attorney General, which is where Russo?s at, and also file a civil suit on them to freeze the shares and go after them and get the shares back. And on final resolution, I don?t think that any one of these crooks actually has the $100,000. I think they probably spent that already many times over. But they have sold our stock and they did put their money in the pocket and I want my 8 million shares back. If you?ve got 16 million shares in the float, you don?t give away half your float for nothing, and I want my 8 million shares back because the price, frankly, is ridiculously low compared to what we?re doing right now.
Tom: Okay. Have they tried to settle for any share amounts of less than 8 million shares?
John Ehrman: They have, and I?ve told them that hell is going to freeze over before I take less than 8 million shares. Let them go back out in the market and buy the shares. The problem is the DTC sheets show that they?ve still got 5.2 million shares; well let them go. I don?t care what they have. Let them go back to the market and sell the shares and buy the shares back, like anybody else would have to do.
Tom: So if they have 5.2 million, they would give you back the 5.2 million and then they?d need to go out and buy 2.8 million?
John Ehrman: That?s correct. I will accept nothing less.
Tom: All right. Now, on the 31st of October, you announced that you were buying back 8 million shares of common stock. Does this have anything to do with this particular lawsuit that you mentioned before, and I ask this simply because of the share amounts are exactly the same ? 8 million shares ? or is this just simply a stock buyback of 8 million shares?
John Ehrman: No, I?ve targeted the 8 million shares because I think it?s time to pull these shares back in. It?s going to take a long time to go through the court system. So, let?s just go out there and I?ll buy the shares back now and as I said, it?s a ridiculously low price, and the more I can reduce the float the better all my shareholders are going to like it.
Tom: And in addition, if these characters have to buy the stock back, the 2.8 million shares, then they are going to have to buy it back at a significantly higher price, one would think.
John Ehrman: I would hope so, yes.
Tom: All right. Where does RMEC stand right now with regard to revenues and profits, and I know that you?re awfully close, you?re right there with the acquisition of the 59 billion cubic feet of gas reserves from United States Oil Company?
John Ehrman: Our year end was September 30, so for our year end no one?s going to really see anything of any note because we only went public in June, so you?ve only got about 90 days of operation going for our year end that just ended on September 30. However, because we made the acquisition on September 23, we are poised to show profit in the first quarter of our current fiscal year, which would be the end of December. I believe that the profit is going to continue to build on this as well as other properties. I think that for this year, with the development that we have planned, I think looking at somewhere between .40 and .50 per share is a reasonable number.
Tom: Where do you expect RMEC to be financially two years from now?
John Ehrman: I hope to be sitting on 1 trillion cubic feet of gas reserves, and we are taking the steps to get us there. If what I talked about earlier with this other OTCBB company and the financings that I eluded to, should put us in the ¾ of a trillion cubic feet range, and once you?re at 1 TCF of gas, you are talking about net assets proved reserve value, but not gap that I?m talking about, just kind of net future value of somewhere over a billion dollars, which means then you?re off of there. The one thing that I would point out is this acquisition of this other company, which I?m not at liberty to disclose yet, will put us into a position where we qualify to get off the OTCBB. Frankly, that?s something I want to do. I want to get off the OTCBB.
Tom: Well that certainly makes sense. Finally, my last question is what makes RMEC a good investment?
John Ehrman: Frankly, at the current price we?re at, I don?t see how anybody who knows what I know about the company ? and obviously what I know is considerably more than I can say at this time, and the proof?s in the pudding. I?m voting with my checkbook because we?re buying our shares back as we speak ? the current price makes it a very attractive investment. There?s only one place this thing can go; it hit so low as a result of Mr. Russo?s dumping of shares, that there?s only one place it can go, and that?s significantly north from here. So I would say at this point, the news that?s about to come out, people would be hard put to find fault with coming in on a .045 or .05 cent stock, that should be many times that multiple right now. I?d say that?s the thing that makes it attractive in the short term.
In the long term, our reserves are all long-term reserves. Our fields are all 20-25 year well lives, so unlike an offshore company that has ? and when I say offshore I mean offshore oil fields ? they have very, very high cash flows, three years down the road you?re replacing them or the cash flows are gone. Whereas in the Rocky Mountains your 20-25 year well lives, you?re going to do very well over the long term because it?s steady as a rock and you can build a company on that. So in the short term and the long term, Rocky Mountain is an attractive situation.
Tom: All right, John. We want to thank you very much for taking the time to do this interview. We?re certainly going to follow this story as it develops here and we certainly wish you the best of luck in getting your 8 million shares back.
John Ehrman: Thank you.
Commitment to Expansion
Rocky Mountain Energy Corporation
333 N. Sam Houston Pkwy. E.
Houston, Texas 77060 |
