Another Try at the Legal Catalyst

[Getitrt2]

I don't think it does any of us any good to be speculating about those highly unlikely dire outcomes with licenses.

[Getitrt2]

I've always understood OSH has to match Total's offer. That means IOC LNG plant ownership in addition to all the resource payments. A match means an equivalent hence no impact positive or negative on IOC. The ownership issue aside, just how can OSH agree to be the operator ? IOC's gas will always be more valuable with two LNG plants competing to process it.

OSH would then have to be approved by the PNG DPE?  in order to be "equivalent"

If Total is the only loser and OSH is the only winner in the worst case, I guess this issue is NOT a catalyst.

What about them new holes?

There has to be a better reason as to why OSH is spending time and money on this....

Perhaps OSH is simply trying to establish a stronger position on its preemptive rights for the future, in case IOC or Total decides to offer some ownership interest to another party in the future, as occurred with the PNG LNG JV.

[Palm]

I am not that concerned with the OSH dispute and their claim that they have/had preemptive rights on the interest sold by IOC to Total. OSH has stated that their main concern is that they have a say in the development of PRL 15 resources. Hession has stated that Total/IOC/OSH have had very productive discussions around all of this, and in the end that's what everyone wants; the best monetization of the resources. OSH's claim is that selling a subsidiary holding the interest does not negate the preemptive rights. IOC/Total believe otherwise and there is some support for that. The interests were and still are in the company that Total bought. This is what this whole arbitration action is about. A question would be whether PNG recognizes the legality of selling rights etc. when a wholly owned subsidiary is sold instead of "piercing the corporate veil". They evidently do.

The recent sale of the IOC refinery and gas stations to Puma supports this and may have been done as much to raise cash as it was to show how PNG interprets this principle. If you look at the sales agreements to Puma, both were transfers to Puma of the shares in 100% IOC subsidiaries and both of these subs held valuable intangible assets; the 99 year lease for the old navy base which is where the refinery now operates and includes the wharf and laydown area, etc. As well there are licenses for operating all of the refinery and gas stations properties as well as distribution rights, tax agreements, etc. All of these stayed with the subsidiaries sold to Puma as far as I can see.

O'Neill seems to have acknowledged all of this as he congratulated IOC on the sale of these entities to Puma and welcomed Puma to PNG and IOC on its strategic move to focus on the LNG development.

OSH can keep throwing this issue up in the press, but in the end they likely have a pretty tough case. They would have to show there is no recognition in PNG of proper intangible transfer with subsidiaries, plus they would have to be able to prove that they could step into Total's shoes in every way; including qualifying as an LNG operator IMHO. Things will work out in the end and even easier once IOC proves up its hydros inside and outside of PRL 15. The licenses are in place and the investments are being honored, and management is making the necessary moves to get this all done. Nobody said it would be easy, but so far they have taken care of some of the most difficult moves necessary.

[jft310]

The English/PNG courts would call the PUMA closing as a precedent amongst others on the island making the OSH case very fragile.Loser pays would be a fair way to deal with this type disruption if that's an option.
Agree with Palm that OSH is not a Super Major and that in itself could prevent them replacing Total.
Steep hill for them to climb.

[Palm]

Can't be a "precedent" in and of itself because it's not "pre", but can support PNG's view of how the laws work in PNG. Just like when OSH tried to say which rig(s) should be used where in PRL 15 and the PNG court told them to take their argument elsewhere. Play by the rules OSH.

[2126]

Back in April, regarding the OSH/IOC dispute Macquarie (MPW-Macquarie Private Weatth) said, as quoted in PNG Industry News:

“A formal dispute resolution process has commenced, which will incorporate arbitration and injunctive relief,” MPW said.

“However, given this is likely to be a protracted process and appraisal drilling is set to commence in the second half of 2014, Oil Search has separately commenced formation negotiations to achieve a commercial resolution sooner and therefore is seemingly hedging its bets.”

Source: http://www.pngindustrynews.net/storyview.asp?storyid=824224291&sectionsource=s0

Many arbitration cases are settled on the court house steps...

[jft310]

One analyst stated OSH was trying to use the arbitration in negotiations with Total. Not sure to what end.

[ArtM72]

Because OSH bought out IPI's shares leaving IOC incapable of fulfilling the December agreement, that agreement became null and void as it could not be completed. The subsequent IOC/Total agreement revising the exchange of different considerations has become the governing agreement in the sale of PRL15. Since OSH challenged the first agreement and not the second OSH did not fulfilled the requirements for pre-emptive rights challenge to the second agreement.

Irrespective of any other matters in the case arbitrator finds for IOC.

It's a pretty solid theory methinks.

[Getitrt2]

Palm, I Totally agree with you on this (pun available). OSH may get some confirmation of its future preemptive rights under the current JV; but I see minimal likelihood of disruption of this deal with Total legally and am really not concerned about it, as much as I'd like to see it resolved, especially since the market frequently overreacts to uncertainty and probably has here. I would also say there is zero interest on the part of the PNG government in disruption of the deal or in trying to start over with some company other than Total. I think O'Neill is extremely pleased with the way in which IOC has brought Total and Puma in and attracted major banks, and is ramping up development and exploration in a much stronger position than ever before, and with having Total in PNG as a strategic partner in competition with Exxon. Furthermore, I have a high level of confidence in Hession and his management and legal team on this, in spite of the current stock price, which I think has started into an uptrend.

I would be interested in updated comment on the latter from our market experts.

[Getitrt2]

One analyst stated OSH was trying to use the arbitration in negotiations with Total. Not sure to what end.

That doesn't ring a bell at all.  What analyst?  Is that documented somewhere, or just some informal oral comment from a contact?