Legal row looms for Oil Search as rival strikes deal

[sydbod]

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.

That is where the problem is ........ it is not correct.

OSH purchased "Pac LNG". OSH did not purchase equity in PRL15. "Pac LNG" still owns its equity  in PRL15 and therefore maintains its pre-emption rights.

IOC on the other hand moved some of its equity from itself to one of its created holding company. While ever IOC holds that holding company, it can be argued that this moved equity is still within IOC (so does not trigger pre-emption rights) , but once this holding company is sold to Total, then the equity has been moved effectively from IOC to Total. This is completely different to what OSH did. I suspect it is also not legal as it is a contrivance to try to bypass one of the conditions within the original and still current contract between "Pac LNG" and IOC.

Also, it is not OSH that is trying to enforce its pre-emption rights, it is "Pac LNG" that will be trying to enforce its pre-emption rights.

This situation will not go away until some judge rules on it, or until some understanding is reached between all the parties.

[Getitrt2]

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?

Putn and Palm:  This seems to me to be a source of some confusion, because if OSH bought the Pac LNG Group Companies, why would they not now also own their interests in IOC's PRL 39 and PPLs, which apparently  they do not?  Per the OSH news release, "The Company has entered into a separate Heads of Agreement, to potentially acquire an interest in a number of other exploration licences, including the Triceratops gas discovery."  That's in the form of a six-month period of exclusive negotiations, with no prices yet agreed on.

[jft310]

Nothing to pre-empt .The Total IOC deal was before the OSH deal. Just smoke from the shorts. The 30 days passed. Or its to late. This to will pass quickly.

[Palm]

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?

Putn and Palm:  This seems to me to be a source of some confusion, because if OSH bought the Pac LNG Group Companies, why would they not now also own their interests in IOC's PRL 39 and PPLs, which apparently  they do not?  Per the OSH news release, "The Company has entered into a separate Heads of Agreement, to potentially acquire an interest in a number of other exploration licences, including the Triceratops gas discovery."  That's in the form of a six-month period of exclusive negotiations, with no prices yet agreed on.

Agree completely Getit; thought about that last night.  Botten stated that he bought entity/entities.  In the original SPA the PAC LNG Interests were defined as:

“PacLNG Interest” means, as at the Effective Date, an aggregate twenty two decimal eight three five percent (22.835%) interest in the PRL 15 Title and the JOA applicable to PRL 15 as at the date of this Agreement, which interest is held by the following entities:

(a)

PAC LNG Investments Limited (2.500%);

(b)

PAC LNG Assets Limited (6.750%);

©

PAC LNG International Limited (5.100%);

(d)

PAC LNG Overseas Limited (5.000%); and

(e)

PAC LNG Holdings Limited (3.485%).

If these entities only owned interests in PRL 15 it makes more sense.  But these interests were likely in the original PPLs out of which PRL 15 was carved.  That's where some of this falls away for me.

Done with this; going to let it unfold because I think IOC has this coverered by how the final deal was structured.

[sydbod]

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?

Putn and Palm:  This seems to me to be a source of some confusion, because if OSH bought the Pac LNG Group Companies, why would they not now also own their interests in IOC's PRL 39 and PPLs, which apparently  they do not?  Per the OSH news release, "The Company has entered into a separate Heads of Agreement, to potentially acquire an interest in a number of other exploration licences, including the Triceratops gas discovery."  That's in the form of a six-month period of exclusive negotiations, with no prices yet agreed on.

OSH may now own "Pac LNG" but in the purchase contract would probably be included, as part of the sale, this 6 months period of exclusive negotiations, and if they are not sucessfull, then the other exploration licences would be returned to the original owners of "Pac LNG". The 6 months time period equates to the 180days time period usually allowed for making a pre-emption rights claim. This makes sure "Pac LNG" does not change in substance and therefore keeps its pre-emption rights status.

[cybersssss]

What would be the purpose for OSH to be upset about the deal with Total and want to preempt the rights? If the goal is for Exxon to get the same deal that Total got and then just expand PNG LNG, how is that bad for IOC? In fact I can make an arguement that this is better for IOC for the purposes of faster cash flows.

[Getitrt2]

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

Totally agree, Palm.  It seems to me one of the best ways to speed up the whole process is to accelerate the Antelope appraisal AND exploration (Antelope Deep) to the maximum extent possible.  Hession talked about sequential wells (about 9 months for three?).  Do they need to complete each before locating the next?  Pet?  It seems they certainly could move ahead with Antelope Deep, which would also affect the certification of PRL 15.

[sydbod]

What would be the purpose for OSH to be upset about the deal with Total and want to preempt the rights? If the goal is for Exxon to get the same deal that Total got and then just expand PNG LNG, how is that bad for IOC? In fact I can make an arguement that this is better for IOC for the purposes of faster cash flows.

I suspect that that is the intention.

[sydbod]

Nothing to pre-empt .The Total IOC deal was before the OSH deal. Just smoke from the shorts. The 30 days passed. Or its to late. This to will pass quickly.

It has nothing to do with the OSH deal.

It is a pre-emption rights issue between Total/IOC deal and "Pac LNG".

[Getitrt2]

What would be the purpose for OSH to be upset about the deal with Total and want to preempt the rights? If the goal is for Exxon to get the same deal that Total got and then just expand PNG LNG, how is that bad for IOC? In fact I can make an arguement that this is better for IOC for the purposes of faster cash flows.

Your argument would not be effective, because IOC would probably be stuck with its approximately 28.5% of PRL 15 and no interest in an LNG plant.  It obviously would be worse for Total as well.