Another Try at the Legal Catalyst

[katytrader]

The legal dispute ultimately is to try and get Exxon into Total's position per the article in The Australian. If OSH simply wanted in to another LNG project, they would have figured things out with Total, again per the article. Total was negotiating with OSH to sell them part of their 60% interest while IOC was negotiating with the IPI interest-holders. If the article is correct (which a good part of it makes sense), Exxon wanted/still wants to control EA for the purpose of piping the gas to PNG LNG. We don't know what all has gone on behind closed doors, but OSH has dealings with both Total and Exxon, so they likely were shown an opportunity where they can hardly lose. If somehow they can convince the arbitrators that Total and IOC played dirty and OSH should have the right to match the Total deal, then they would try and make that play and possibly flip the 40% to Exxon. Then OSH and Exxon have control of how things go. If that happens, what will Total see their legal rights to be? However, if things go the way most of us expect and the arbitrator says OSH has no pre-emptive rights, OSH becomes another partner in PRL 15 and Total/IOC likely push hard for a separate plant and maxing it out with gas from their license areas and if there is enough for everyone and Exxon still needs gas, IOC/Total/OSH can sell gas to PNG LNG as long as the price is right. Way too many "what if's" to try and get definitive right now. But if you want to see a bunch more what-iffing, see what happens when/if IOC announces finds in any or all of Wahoo, Bobcat and/or Raptor. The fur will fly and will fun to watch.

Palm

I expect OSH will win the arbitration, and they'll use the option to preempt TOT and deal with XOM or for some other option (force a gas sale at beneficial terms to PNGLNG?) or wait with that option until E/A delineation and then decide what to do.

I'm not a lawyer, and I've not seen the JOA but having seen a lot of JOAs most allow premption in the event of sale of a participating interest in the PSC (the buyer becomes a party to the PSC with the government).

Sale of a company holding the participating interest generally cannot be pre-empted.

However, the structure of the TOT deal was originally for a sale of some 61%, with that interest having been transferred to a wholly IOC-owned holding company for the purpose of the sale.

When the deal changed to 41% or whatever it was, IOC simply transferred/sold that amount to the holding company.

The problem with this approach is under english law (very likely the governing law for the JOA) you can't transfer/sell shares to a holding company for the express purpose of avoiding the premption right.

The arbitrators would clearly see this and rule in favor of OSH.

So OSH wins and draws-out the arbitration process until appraisal and then they decide what to do.  An option which they've bought for a few million $ in legal fees.

Now TOT and IOC are saying they have a strong case, but doubt that they do.  What else would they say?  We screwed up?  They wouldn't say that.

But they didn't really screw-up - many interest transfers are conducted in this manner and partners agree beforehand about pre-emption or the difficulty/cost of arbitration scares off possible preemptees.

The fact OSH closed on the PacLNG buy before TOT/IOC closed is the key - in this way TOT/IOC could have done better if they'd closed before OSH.

All IMHO.

GLTAL

Indo, you may well be right.....but I don't think we know what the arbitration rules are.  There is one form of arbitration which says that the arbitrator chooses one side's view or the other's.  But it may well be that the arbitrator can simply create a resolution from whole cloth.  I know of one situation in the US oil patch in which the "winners" were so shocked by the arbitrariness of the arbitrator that, along with the "loser", they decided never to include binding arbitration in future agreements.  It was too scary.  So.....the parties will continue to negotiate, probably right up to the deadline which might preempt a negotiated settlement.   fwiw

katytrader