Merrill Lynch versus InterOil round 2

First battle legal battle is a draw of sorts. The supreme court doesn’t want to burn it’s fingers on this one, and stipulates arbitration as the way to solve the legal dispute. Serious? Not really. It’s in both parties interest that a strategic partner emerges.

New York court says no to enforcing InterOil decisions on PNG LNG
Singapore (Platts)–28Oct2008

  • The New York State Supreme Court in a ruling late Tuesday rejected Canadian InterOil’s request to enforce its decisions against partner Merrill Lynch on their planned joint-venture liquefied natural gas project in Papua New Guinea, a Merrill Lynch spokesman said Wednesday. InterOil last week decided to rescind Merrill Lynch’s right to lift and market LNG output from the planned liquefaction plant at Port Moresby in Papua New Guinea, which was granted under a shareholder agreement signed in August 2007.
  • InterOil October 21 said the board of PNG Liquid Niugini Gas, a joint venture between equal partners InterOil, Merrill Lynch and Pacific LNG, an investment vehicle of Switzerland’s Clarion Finanz, had decided to market its LNG output directly to industry end-users.
  • The board had also resolved to redeem Merrill Lynch’s Class A voting shares, though the bank would continue to hold all its Class B shares, InterOil said, ascribing its moves to the “recent financial unrest.”
  • Merrill Lynch vowed to fight back, asserting that, contrary to what the InterOil statement suggested, it had not lost its right to the LNG output. InterOil’s actions were “in direct violation” of its contract, Merrill Lynch said at the time.
  • PNG LNG and InterOil’s joint venture subsidiary involved in the Papua New Guinea project had sought a protective order from the New York State Supreme Court to affirm the resolutions against Merrill Lynch and support direct negotiations with industry-based LNG offtakers.
  • The New York State Supreme Court justice, rejecting the motion Tuesday, said the dispute was subject to arbitration under the parties’ shareholder agreement, Merrill Lynch spokesman Bill Halldin said.
  • Merrill Lynch was pleased with the court’s decision, which left its exclusive LNG offtake rights and Class A shareholdings intact pending arbitration, Halldin added.
  • PNG LNG has said it expects to take a final investment decision on the project in the first half of 2010, with LNG production targeted for 2013.
  • Gas feedstock will come from the Elk and Antelope structures in InterOil’s Petroleum Prospecting license 38 in the Eastern Papua Basin. The final size of the recoverable gas reserves will determine whether the plant is developed with a single 5 million mt/year train or with double that capacity from two trains.

It’s a bit of a setback, but not a disaster:

  1. The supreme court doesn’t want to mettle in this and refers it to arbitration, which can settle this pretty quickly
  2. It is also very much in Merrill’s case that InterOil gets a strategic partner which will finance the LNG facility, without that, Merrill doesn’t get anything
  3. Merrill fighting for this means there is something to fight for
  4. Even if InterOil loses, it means Merrill will have to be accomodated as originally planned. That doesn’t seem to be a disaster, in fact, like we just said, it was originally planned this way.

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