Another Try at the Legal Catalyst

[Getitrt2]

sydbod is correct. OSH should be able to fund its share of capex for the projects from its cash flow from PNG LNG.

Furthermore, JFT, that $1.8 billion in "spending" will NOT be a "huge hit" to their "profits". In fact, it will not have any effect on "profits" during that period. That will be capex "spending" or investment that will be capitalized on the balance sheet and not start being charged to "profits" until the plants go into production.

[Indoreservoir]

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

[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

[Getitrt2]

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

A few months ago an expert in this kind of industry arbitration reviewed this situation and posted his findings on SHU.  His conclusion was that OSH  has little chance of winning this arbitration.  That corresponds with the strong confidence of IOC and Total managements and their legal consultants.  I am inclined to trust in those expert sources and think you are wrong, indoreservoir.  Let's drop it at that.  I don't think there is any benefit in further debate/argument.

[Putncalls]

Interesting Indo.
Doesn't OSH have to match the TOT offer in order to preempt the sale? How is prolonging the transfer of PRL 15 a matching offer though?
Thanks.

[Indoreservoir]

Interesting Indo. Doesn't OSH have to match the TOT offer in order to preempt the sale? How is prolonging the transfer of PRL 15 a matching offer though? Thanks.

Putncalls

Certainly OSH has to match the $ and any other interests that TOT has offered.

The purpose of prolonging things would be to allow OSH to know the appraisal results before finalizing a course of action - preempt or not.

But as Getit says, other legally-knowlegdeable folks think OSH won't win, so I'll defer to them.   The devil is in the details and those details could dicatate a different outcome than what I've suggested.

GLTAL

[Li'loilady]

Sir Indo,

You wrote, "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."

I'm way out of my ken here and I do respect your disclaimer that you are "not a lawyer" but, might transferring/selling a portion OF a holding company be different and therefore allowable? I believe that holding company existed before Hession came on board.

I might be contriving a distinction without a difference as the rather transparent intention of IOC was to, well, preempt OSH's "preemptive rights."

I always appreciate you sharing your thoughts, Indo.

[Palm]

Thanks for thoughts Indo. A while back I provided info (regarding cases) which support both an IOC victory and a loss regarding interests held in a subsidiary. For not being an attorney you seem to have gotten input from one or more including some specifics on this transaction. Is that the case or is this all of your research/conclusion? I think IOC/Total (knowing from OSH's statements prior to their closing that they planned on utilizing their perceived preemtive rights) likely had more than a hope that the structure of the final deal would circumvent any challenge by OSH. Total proceeded to closing very quickly after their deal with IOC was agreed to. Whose attorneys are better? We may or may not find out as this could end very amicably for all parties based on drilling results.

Seems at least OSH would have to 100% step into Total's shoes including being recognized as an LNG operator, which they are not. Per the SPA for Total would close and transfer the funds once their name was added to the license among other things. I don't think PNG DPE would have added them to the license without the understanding they they would be the eventual operator as called for in the proposed JVOA. Again, OSH could not fulfill such a role and this would be pointed out to the arbitrator 100 times if necessary. It would be very hard for OSH to not come across as disingenuous in their Dispute as they would have to flip a large piece of the 61% to another recognized operator (Exxon if that's the plan). The term tortious interference of a contract comes to mind.

In the end I still believe IOC will prevail or at worst IOC/Total/OSH will come to terms prior to a final decision by an arbitrator.

[Putncalls]

My daugher is starting to question the need for Universities. I like the internet. From a google.
"Tortious interference with contract is a legal claim that allows a party to a contract to sue a third-party who knowingly interferes with and causes a breach of a contract."

[Palm]

Sir Indo,

You wrote, "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."

I'm way out of my ken here and I do respect your disclaimer that you are "not a lawyer" but, might transferring/selling a portion OF a holding company be different and therefore allowable? I believe that holding company existed before Hession came on board.

I might be contriving a distinction without a difference as the rather transparent intention of IOC was to, well, preempt OSH's "preemptive rights."

I always appreciate you sharing your thoughts, Indo.

Lil,

These shares were previously held in a holding company as a subsidiary in the IOC structure. Where a transaction like this loses credibility is where the IOC interest is held as an asset of IOC just prior to a sale and then is transferred into a holding company to try and avoid preemption, etc. 100% of IOC's interest in PRL 15 was already in a 100% subsidiary in their corporate structure. Had been for many years.