Legal row looms for Oil Search as rival strikes deal

[katytrader]

That is a good point Palm. If that means that OSH now owns all of the PAC interests in IOC's PPLs then why would they do anything to slow down future exploration?

I think this gets to the real issue.  Does anyone think that ONeill would stand for a legal battle which could hinder if not destroy the development plan now laid out?

I also think that so much of this preemption issue is smoke.  I heard Botten's webcast.  My belief is that he used the preemptive right point to help support the price he paid for his seat at the table.  Having done that on the record, I suppose that Oilsearch now feels the need to have others.....lawyers, bankers, ONeill....to tell them to forget about it.

Lastly, perhaps my strain of paranoia isn't very great, I have never seen Oilsearch as some sort of Trojan horse for Exxon.  I suspect that Exxon did not see or would not concede the potential argued by Hession and simply decided to see where they are later on......much like Hession's comments in the cc.  If they are proved wrong and need the gas, they will make an economically rational decision within their own framework at a time which they decide.  I think it highly improbable that a scheme to get at the gas they passed (on) in August by somehow working through Oilsearch would get very far in the Exxon bureaucracy.  Message board fantasies tend not to play well in large established corporations in this industry.

katytrader

[ArtM72]

How about this interpretation which again leads us to a "much ado about nothing" conclusion: According to Wiki, pre-emptive rights typically involve a shareholder's right to have the first option to acquire newly issued shares by a company so as to be able to prevent the dilution of its ownership. Since IOC sold a portion of its existing shares of E/A to TOT and created no new shares in doing so there was no pre-emptive trigger in the Total transaction.

From Wiki: (http://en.wikipedia.org/wiki/Pre-emption_right)

"In practice, the most common form of pre-emption right is the right of existing shareholders to acquire new shares issued by a company in a rights issue, a usually but not always public offering. In this context, the pre-emptive right is also called subscription right or subscription privilege.[2] This is the right, but not the obligation, of existing shareholders to buy the new shares before they are offered to the public. In this way, existing shareholders can maintain their proportional ownership of the company, preventing stock dilution.[3] In many jurisdictions, subscription rights are automatically provided for by statute, for example the UK, but in other jurisdictions it only arises if provided for under the constitutional documents of the relevant company, for example the US."

[Palm]

Art/Katy,
I think that structuring the deal the way they did in the end was interesting and intentional and from IOC's perspective they obviously feel they eliminated the possibility of OSH somehow being able to use any preemptive right. You would think that O'Neill and the government would not want a legal battle, nor should Total, IOC and OSH, so hopefully this all just fades away and is a non-issue. From what each side has said and from what I see in a couple of court cases (one is Newcrest Mining with a somewhat similar situation) the preemtive right(s) that each side is mentioning might/must be contained in the JVOA (that's why it's frustrating Art that we can't find them; we haven't seen the JVOA, original or the new one).

Oil Search obviously feels that they were able to instead of buying the Interests themselves, buy the company containing the interests and keep IOC from having the preemptive right to step in and aquire the rights. From what Hession is quoted as saying OSH was right. So what does IOC/Total do? They go back to the drawing board and change the SPA in several important places. One is at the very beginning of the SPA (I think this is what Getit was eluding to). The Dec SPA stated under the first Wheras:

"The Seller has agreed to sell and the Buyer has agreed to buy the Assigned Interest"

In the SPA just executed that says:

"The Seller has agreed to sell and the Buyer has agreed to purchase the Shares upon the terms and subject to the conditions set out in this Agreement"

Then under the "Shares" definition (which was not in the original SPA) it says:

"Shares means the issued share capital of the Company, being 997,052 ordinary shares in the Company"

So Hession then says that OSH structured their deal with Pac LNG in a way that kept IOC from using preemtive rights and now says we structured our final deal with Total in the same way so that you have no preemptive rights. This way it's very hard for Botten to tell a judge that OSH should have rights, but IOC using the exact same transaction structure must give OSH preemtive rights. A very smart move by IOC/Total, which as we hope ends up making this all go away in a way we hear no more about it and the process can move ahead as planned.

If nothing else we learn more about this industry, and that is never bad.

[Getitrt2]

Indoreservoir, et al: Maybe this issue of pre-emptive rights is the reason for the following per the news release: "Under the revised agreement signed today, Total has acquired – through the purchase of all shares in a wholly owned InterOil subsidiary – a gross 40.1% interest in PRL 15."

You've got it right.  Botten was crowing on his conference call following the acquisition of PAC LNG that he bought not just thee an interest but the entire entity, which meant OSH retained the pre-emptive rights that had been in place.  Among the differences from December was what you mention above.  TOT bought an entity from IOC which nullifies OSH's preemptive rights.  I continue to believe that the drilling will determine which path is chosen.  If IOC has 4 TCF we go with to XOM if the numbers are at the high end TOT/IOC/OSH will build their own plant.  I think IOC's other acreage including Tri could have close to 10 TCF so are you always going to let XOM dictate what they'll pay, or have your own plant?

IOCHUHU, I think you made an extremely important key point here in different terms than I think I've seen before, both for IOC and for PNG:  "are you always going to let XOM dictate what they'll pay, or have your own plant?".  I think it's best for IOC, other resource developers in PNG, and for PNG itself to have more than one outlet and market for those resources.

I agree that the drilling will be an important determinant in all this in the future, but I believe it's most likely PRL 15 will remain devoted to a Total LNG plant, with Exxon being offered gas from other sources, as Hession has suggested as most likely.

[Getitrt2]

Palm, I can't believe that you buy what MR Chambers is selling? OSH thwarted the IOC/TOT deal? OSH can use it's pre-emptive rights to give a piece of E/A to Total? Botten is quoted so MR Cambers must be correct? Let us look at the fallacious quote: "This deal is an enactment of what InterOil announced in December," Mr Botten said. Of course it's a re-enactment! Total wanted a 40 percent stake and got a 40% stake. This article does increase my respect of certain hedge funds. It's better than an avi post on Yazoo. But?

Doesnt matter whether or not I believe it Puts, but it's hard to believe that there's nothing to it when there are rumors out that OSH actually filed an injunction. Again, let's see what comes out tomorrow. But something is going on. BOTH Hession and Botten are quoted and seem to be speaking to a conflict of some sort. To think that there is nothing to it is bit of sticking your head in the sand. Could be minor and nothing or could be something to deal with. But we don't know enough yet. I'm certainly not going to ignore it. Again, better to be aware than be in denial.

It's also a bit naive to think OSH came into this wanting to hold hands and be friends. Too many signs point elsewhere.

These 3 pending articles on SA likely will be out in the next couple of days or by coincidence on Monday or Tuesday. So do I believe the shorts have another coordinated plan in place? Crickets by main players to that on Yazoo today usually means something is coming. I'm sure it won't be congratulating IOC and admitting they were wrong.

Please expand on the highlighted points above. What signs are you talking about?   In this business what goes around, comes around.  OSH has Total as a partner on much of its other PNG leases where OSH is operating.  Total made some very nice statements (much nicer than anything they said about IOC) when OSH made their buyout announcement.  I think if they jack around Total on this deal, they will get payback in various subtle ways later that they might not like. 

We already have assurances by IOC and Total that they will monetize this gas ...“ as quickly as possible, through the fast-growing Asian market." I feel certain that 2020 is not "quickly as possible."  I think this is a strong hint that something will work out with XOM to achieve this objective.  The hope of exporting gas in 2020 is not appealing and seems more along the lines of "as slow as possible.".  I'm sure Hession wants something earlier.  So what would OSH have to gain by suing?  Seems very foolish and doesn't fit the picture of the announcements to date.  If an equitable deal can be worked out, the best economic answer for all is to signficantly expand PNG LNG (XOM) and then build the 2nd plant if IOC discover many more TCF.  Someone said there was space for 8 trains in all.  And right now they're working only on finding gas for train 3. 

Best regards,

Kaliboo

Yes, it probably would be "the best economic answer" for XOM to use PRL 15 to expand PNG LNG, but it certainly appears that it would NOT be for IOC or Total, or for PNG in the long term.  I think they can find ways with the right priorities to export gas before 2020, but they are not going to promise that now.

[admin]

Yes, I second that, getitrt, it's a very important point IOCHUHU made.

[cybersssss]

Hession did see on the cc that one way to speed up FID would be to start FEED studies during the appraisal program. He also said that they would avoid unnecessary extra tests and studies.

[Palm]

Then get FEED going; the faster they move the better. I'd like to see first thing going be the LNG plant.

[Getitrt2]

Art/Katy, I think that structuring the deal the way they did in the end was interesting and intentional and from IOC's perspective they obviously feel they eliminated the possibility of OSH somehow being able to use any preemptive right. You would think that O'Neill and the government would not want a legal battle, nor should Total, IOC and OSH, so hopefully this all just fades away and is a non-issue. From what each side has said and from what I see in a couple of court cases (one is Newcrest Mining with a somewhat similar situation) the preemtive right(s) that each side is mentioning might/must be contained in the JVOA (that's why it's frustrating Art that we can't find them; we haven't seen the JVOA, original or the new one). Oil Search obviously feels that they were able to instead of buying the Interests themselves, buy the company containing the interests and keep IOC from having the preemptive right to step in and aquire the rights. From what Hession is quoted as saying OSH was right. So what does IOC/Total do? They go back to the drawing board and change the SPA in several important places. One is at the very beginning of the SPA (I think this is what Getit was eluding to). The Dec SPA stated under the first Wheras: "The Seller has agreed to sell and the Buyer has agreed to buy the Assigned Interest" In the SPA just executed that says: "The Seller has agreed to sell and the Buyer has agreed to purchase the Shares upon the terms and subject to the conditions set out in this Agreement" Then under the "Shares" definition (which was not in the original SPA) it says: "Shares means the issued share capital of the Company, being 997,052 ordinary shares in the Company" So Hession then says that OSH structured their deal with Pac LNG in a way that kept IOC from using preemtive rights and now says we structured our final deal with Total in the same way so that you have no preemptive rights. This way it's very hard for Botten to tell a judge that OSH should have rights, but IOC using the exact same transaction structure must give OSH preemtive rights. A very smart move by IOC/Total, which as we hope ends up making this all go away in a way we hear no more about it and the process can move ahead as planned. If nothing else we learn more about this industry, and that is never bad.

Thanks for ALL that, Palm.  Lays out important evidence and certainly makes sense.  Mulacek created this Company and its most important assets and deserves much credit, but I sure am glad we now have this current management team at the top.

[ArtM72]

An interesting piece on pre-emptive rights at http://www.austlii.edu.au/au/journals/AU...003/44.pdf. Palm is right that my frustration lies in nobody having access to the JVOA where any pre-emptive rights may have been defined. From the article cited it appears there may be no truly "customary" PERs but such rights are frequently used in the hydrocarbon industry in general and are addressed extensively in British/Australian law from which PNG law no doubt has sprung.

One point made in that article might be telling, and that is where major oil companies deal with one another on an ongoing basis in multiple joint ventures there is little chance one will attempt to use any pre-emptive clause in a manner to undermine the other's interests. ("What goes around comes around") Clearly we have the case where OSH and TOT have an ongoing JV in PNG, an association that OSH is not likely to want to upset (strike one).

Further, PNG's stated interest is to have a super-major run its second LNG plant. Should OSH attempt to acquire by pre-emption TOT's interest not only would the likely delay in development of the project due to the inevitable legal dispute (strike two) but OSH would likely not meet PNG's qualification as an approvable LNG operator (strike three).

Oh, in case that last strike was in fact a foul tip...any operative pre-emption clause would likely go both ways. So if OSH were to want to sell XOM its interest in E/A thus engaging the super-major to operate the LNG then IOC could step forward and acquire what OSH had intended to sell to XOM. A bloody mess, no? Such a move would only serve to delay this project, something clearly not in the interest of OSH shareholder (strike four).

I'll take Hession at his word on this one and believe the TOT deal has been structured in whatever way so that OSH will not step forward in an attempt to pre-empt the TOT sale. All this talk is misinformation being promoted to enhance investors' strategic interests.

I wonder if the drill bits are making their 30 meter/day average. Anybody following the weather down there?