Another Try at the Legal Catalyst

[ArtM72]

Palm -

I like your arguments. If OSH tried to peddle its rights to XOM wouldn't IOC in turn have the right to exert their own preemption right over XOM? There's a hoot. Wouldn't it also be a takeover scenario, as IOC isn't an operator either so to get out of the logical loop would require IOC to be acquired by a supermajor...like Total.

I'll stick with the idea it is not possible for OSH to meet the terms provided by TOT due to the operator clause. I'm also still wondering about whether OSH filed for preemption on the second and governing IOC/TOT agreement and if not, would they have inadvertently missed the opportunity to do so.

[jft310]

Oil Search uses a similar holding company structure as IOC . Works for them and therefore should work for us. OSH is posturing. One may ask why?

[Indoreservoir]

Oil Search uses a similar holding company structure as IOC . Works for them and therefore should work for us. OSH is posturing. One may ask why?

I agree OSH is posturing, but the PACLNG deal worked for them because no one challenged it.  Had someone challenged it (tried to pre-empt) they might have had the same dilemma as IOC/TOT.

A concern I have is that IOC easily changed from about 61% to 41% which suggests they transferred the interest to the separate holding company with the express purpose of selling that interest.

Again, if they've sold a 61% interest out of their total share in the same company, then OSH would very likely have had a strong case to preempt.

As to Palm's comment, my 'knowledge' as a non-lawyer on this simply comes from reading a lot of JOAs and seeing deals done - you talk with lawyers in this business and they tell you what works and why, and what can get you into trouble.  Transferring a % interest to a new holding company simply to avoid pre-empt rights generally does not work.

As for a back-to-back deal between OSH and XOM, there are all kinds of ways to structure that so that it would not allow IOC/TOT to pre-empt an onward sale of OSH's purchase of TOT 41% to XOM.  A joint holding company with 51% OSH ownership is possible, but there are a lot of other mechanisms - boggles the mind actually.

But lets hope as others have said that IOC/TOT have the upper hand and OSH is simply threatening this to get an advantage.

We'll see in due course.

Bottom line is if its OSH or TOT, might not matter a whole lot.  If OSH puts a lot of $ in, they are not going to let the asset sit there while they develop their Highlands gas.  They 'll want to mometize E/A to get their money back.

Either way IOC will be OK methinks.

All IMHO.

GLTAL

[Getitrt2]

One other detail about what you said, indoreservoir. I don't believe IOC/Total could have closed before OSH, because some of the details of the terms had to change as a result of the OSH purchase of the PacLNG interests.

[Indoreservoir]

One other detail about what you said, indoreservoir. I don't believe IOC/Total could have closed before OSH, because some of the details of the terms had to change as a result of the OSH purchase of the PacLNG interests.

Good point.  Had not considered that. Cheers

[Getitrt2]

I'm no expert on any of this, but now you seem to be contradicting yourself, indo. You say OSH could probably preempt IOC/Total, but could set up a new deal with Exxon in a way that would not allow IOC to preempt. If you think that would be so easy for OSH/Exxon, why are you so skeptical IOC/Total could have done it?

Also, what about the issue Palm brought up of OSH not meeting the requirement of being a qualified LNG operator, which also happened to be a requirement of the PNG government?

I would have preferred to have avoided all this imo needless speculation on this topic. Must be some really bored people on this forum, since I have no reason to suspect any ulterior motives!

[Palm]

Again, the interests sold were already in a 100% subsidiary. You can bet there is no "trail" that leads to the sole reason for transferring the interests was to avoid preemption. There are plenty of legal. valid reasons for first transferring interests to a new entity instead of selling the interests out of an entity. The arbitrator must look at the actions and listen to the reasons of both sides for doing what they did. OSH is not squeaky clean in their approach to the deal. Total is said to have been trying to deal directly with OSH to buy part of Total's 61% and be part of the project. IOC was dealing with the IPI interest holders. Very suddenly the IPI interest holders made a deal with OSH. An arbitrator will also look at that process. IOC and Total were well along in their deal process when things changed suddenly. Granted the talk is that the IPI Interest holders were not happy with what was being offered, but the arbitrator will look at all he can in how the deals came about and have to decide what is best overall. As is normal in deals both sides likely did something the arbitrator will consider was "wrong", but both sides will also have "valid" explanations for what they did. That's why we are where we are with this.

It's hard to imagine that an arbitrator would throw the deal to OSH, but stranger things have happened. Again, I would expect that this gets resolved before an arbitrator has to make a decision, or it gets decided in IOC/Total's favor. If the only way for OSH to step in to Total's "shoes" as an operator is to bring Exxon in through a newly created entity, IOC/Total will easily argue the move is no different than moving an interest to a new entity before it is sold. An arbitrator would be in a very tough spot to rule in that way IMHO.

[sydbod]

......... If the only way for OSH to step in to Total's "shoes" as an operator is to bring Exxon in through a newly created entity, IOC/Total will easily argue the move is no different than moving an interest to a new entity before it is sold........

All this has been covered many times before.

OSH just sells some of its equity (some of the shares) in the acquired PAC Companies to XOM. There is no pre-emption involved in that. There is no change of entity ownership in that sort of transaction. The PAC Companies are the ones claiming Pre emptive rights.

All this is academic until the case gets heard and concluded .... we just do not know exactly what OSH has in mind at the moment, or all the other intricacies involved.

[sydbod]

Oil Search uses a similar holding company structure as IOC . Works for them and therefore should work for us. OSH is posturing. One may ask why?

This has been flogged to death many times before.

OSH IN NO WAY is using a holding company, OSH has only purchased shares in another company.

It is this other company that is claiming Pre emptive rights.

IOC actually sold a holding company, and in truth moved equity between various holding companies to enable them to sell one of the holding companies with an appropriate equity content to try to get around the Pre emptive rights issue.

The 2 situations are completely different in every way.

[kommonsents]

Again, the interests sold were already in a 100% subsidiary. You can bet there is no "trail" that leads to the sole reason for transferring the interests was to avoid preemption. There are plenty of legal. valid reasons for first transferring interests to a new entity instead of selling the interests out of an entity. The arbitrator must look at the actions and listen to the reasons of both sides for doing what they did. OSH is not squeaky clean in their approach to the deal. Total is said to have been trying to deal directly with OSH to buy part of Total's 61% and be part of the project. IOC was dealing with the IPI interest holders. Very suddenly the IPI interest holders made a deal with OSH. An arbitrator will also look at that process. IOC and Total were well along in their deal process when things changed suddenly. Granted the talk is that the IPI Interest holders were not happy with what was being offered, but the arbitrator will look at all he can in how the deals came about and have to decide what is best overall. As is normal in deals both sides likely did something the arbitrator will consider was "wrong", but both sides will also have "valid" explanations for what they did. That's why we are where we are with this. It's hard to imagine that an arbitrator would throw the deal to OSH, but stranger things have happened. Again, I would expect that this gets resolved before an arbitrator has to make a decision, or it gets decided in IOC/Total's favor. If the only way for OSH to step in to Total's "shoes" as an operator is to bring Exxon in through a newly created entity, IOC/Total will easily argue the move is no different than moving an interest to a new entity before it is sold. An arbitrator would be in a very tough spot to rule in that way IMHO.

I agree with Palm's analysis above and believe that the IOC/Total deal will stand.

An important point is that OSH is not a NG/LNG operator which was a PNG requirement from wayyy back.  How can they claim preemptive rights if they are missing a very key component of the requirements, that of being an established operator?

How can they buy in, claim preemptive rights and THEN form a qualifying entity with operator capability to satisfy the PNG requirements?  Wouldn't they have to first form the qualifying entity, then through that entity buy the IPI interests, then have that entity claim preemptive rights?

However, in the event that the arbitration upholds the OSH claim, it would seem that if they then try to form a new entity with Exxon that IOC/Total may have some preemptive rights there as well.  True or false?

Further, if OSH wins arbitration, forms a new entity with Exxon, they could not then change the structure of the agreement to build a new LNG plant with IOC and maintain the same IOC percentage ownership.  Could they?

So in that regard, I agree with the worst case situation that it should make little difference to IOC what the outcome of the arbitration is with the exception that they would now be in bed with Exxon instead of Total.

What would be the net effect of a partnership with Exxon instead of Total?  Could Exxon/OSH force the NG to go to PNG LNG?  Wouldn't they still  have to honor the same ownership of the new train(s) at PNG LNG?  Or would they be bound to build the new LNG plant with IOC on the same terms as with Total?  This curious mind wants to know.