#7
Quote:Thank you ENGGEO for your post and questions in Post #1 above. We apologize for the delay in responding back to you due to internal technical issues with the back office of the Forum software. This has been rectified.
We have replicated your post below:
Jerry:
Sorry to see that the 10Q will be late; with that, not much other news about the JVs a nose dive in the oil market and the market in general there is not much joy in October. I did have a couple questions if you could take a moment.
1) I understand that the price of jet fuel is tied to the price of BRENT crude oil. Can you perhaps explain how the price of jet fuel would be determined in a deal with a supplier and a buyer? That is, does it float daily and with a similar volatility or is there a different price structuring for large purchases? AND how is the price volatility affecting your efforts to secure the deal, if you can say.
and,2)Is the progress in purchasing the Falls properties tied to success in the JV(I view the Falls as Plan B if there is no success with the JVs) or is it directly tied to the success of the JVs? If not can you say what stage the Falls project purchase is at or if it is tied to some other element of Xun financing? I know these are two different divisions and two different financing mechanisms but still, one could see where the financing might relate to a view that the company is past a threshold??
Looking for some light as we approach November.
Thanks for any input.
Question #1: Can you perhaps explain how the price of jet fuel would be determined in a deal with a supplier and a buyer?
Response #1: There are two factors in concluding a jet fuel transaction, one, as a buyer, becoming a title holder of the jet fuel and the second, as a seller, selling the jet fuel to the end buyer. In both cases, the jet fuel price is negotiated. As a buyer of the jet fuel, the Company negotiates a price based on what the supplier is offering the jet fuel at and negotiating its final price based on delivery at the destination we choose to have the product delivered to. As a seller, market demand and supply dictate the final selling price. Each jet fuel transaction varies and the potential profit or loss as a result of the transaction could vary from deal to deal and from month to month depending upon the purchase price of the product and selling price of the product.
Question #2: That is, does it float daily and with a similar volatility or is there a different price structuring for large purchases?
Response #2: There are jet fuel transactions happening everyday around the world. There are price indexes that are published, i.e. Platts or Argus, that track the daily market prices and publish daily reports. Prices are negotiated based on which index is used for the particular location. For example, a purchase may be based on Argus Index for Singapore and sold based on NWE Platts Index. Purchase or sale price could be at the index pricing or at a discount to the index pricing or at a premium to the index pricing. Bottom line is dependent upon the date and time you purchase the product and the date and time you sell the product. Profits or losses will vary from transaction to transaction. Success will be based on the negotiation skills of the buyer and then as a seller.
Question #3: AND how is the price volatility affecting your efforts to secure the deal, if you can say.
Response #3: Price volatility has not effect on our efforts to secure a deal. Price volatility will affect the amount of profits or losses one can incur at the time of purchase and then at the time of sale. If the price is too high and there is a risk of having a loss at the time of sale, why buy it in the first place. Goal would be to buy the product below the price of market and sell it to make a profit. There are no assurances that this business model will be successful and there may be a time difference between the purchase of the product and the selling of the product which price volatility could create profits or create losses. The recent price volatility of jet fuel correlates to the recent price volatility of Brent Crude Oil. As we stated in our 10K and in our 10Q, the Company has not actuated the Xun Oil Marketing Division and as such, the current transactions are research projects to provide data as to whether the Company wishes to establish Xun Oil Marketing Division as a profit centre.
Question #4: Is the progress in purchasing the Falls properties tied to success in the JV(I view the Falls as Plan B if there is no success with the JVs) or is it directly tied to the success of the JVs?
Response #4: No, they are independent of each other.
Question #5: If not can you say what stage the Falls project purchase is at or if it is tied to some other element of Xun financing?
Response #5: Please refer to our latest 10Q, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Question #6: I know these are two different divisions and two different financing mechanisms but still, one could see where the financing might relate to a view that the company is past a threshold??
Response #6: As you state in your question, they are two different divisions. They are unrelated and do not correlate with each other. However, the success of the research project could assist the Company in finalizing its endeavors to close on the Texas Falls Project.
DISCLAIMER: SUBJECT TO SAFE HARBOR CLAUSE.
We thank you for your interest, support and faith in the Company.
Respectfully,
Xun Energy, Inc.
Jerry G. Mikolajczyk
President and CEO
