Question
May 6, 2004
VIA FAX: 202-326-2624 AND CMRRR
Mr. James Ferkingstad
Premerger Notification Office
Federal Trade Commission
6th & Pennsylvania Avenues,N.W.
Washington, D.C. 20580
RE: Hart Scot Rodino Exemption ForCertain Proved Oil and Gas Reserves
Dear Mr. Ferkingstad,
As a followup to, our conversationof March 29, 2004, 1 am sending this letter to you to confirm in writing myunderstanding of the HSR exemption relating to unproductive property.
As advised in our conversation, myclient is a limited liability company which is proposing to sell threeproperties at auction, each in a separate sale transaction. Since ourconversation, the client is alternatively proposing to sell (1) all shareholderinterests in the members of the company at the time of closing; (2) all memberinterests of the company; or (3)I, a combination of (1) and (2) (theshareholder interests and the member interests are collectively referred toherein as the "Equity Interests"), The three properties areessentially the entire assets of the company.
As the properties or EquityInterests are going to be sold at auction, we do not know the acquisitionprice', but have considered various fair market valuations of the properties inconsidering the antitrust implications of the sale. The properties are each ofoil and gas reserves. There is a general exemption covering oil and gasreserves valued at less than $500 million. See 96 CFR 802.3(a). ifsold as separate assets, two of the properties fall well within this exemption.The third property, and all three properties together, could have a fair marketvalue in excess of $500 million. The third property has proved developedproducing reserves, proved undeveloped reserves, probable reserves, and provedreserves which are "behind the pipe" or "behind the casing"(herein "PBP").
We understand that the provedundeveloped reserves and probable reserves fall within the exemption forunproductive property. See 96 CFR 802.2(c). The proved developed producing reservesin the third property fall below the $500 million limit, even if taken togetherwith the value of proved developed producing reserves in the other twoproperties. The question is in regard to PBP reserves, as the value of thesereserves taken together with the proved developed producing reserves, wouldpush the estimated fair market value over the $500 million exemption.
In this case, the PBP reserves arethose reserves which were located at a higher level then produced For instance,serves might- have been located at 14,000 feet, but that which is beingproduced is at 16,000 feet. The reserves at 14,000 feet are proved landdeveloped (based on the SEC definition of proved developed oil and gas reserves inRegulation S-X, Rule 4-10(a)(3)), but are not being produced at this time, andhave produced no revenue to date. Therefore, we believe that PBP reserves fallwithin the exemption for unproductive property, and that the transaction as awhole falls within the exemption as well whether structured as a sale of assetsor of Equity Interests, with do requirement of an HSR notice filing.
Please advise 0 you concur. Wewould appreciate your prompt attention to this matter as the necessity of an HSR notice filing willaffect the timing of closing. Do not hesitate to call if you have any questionsor comments in this regard. My direct line is (redacted).