Question
Letter 1
August 23, 2004
Mr. Michael Verne
PremergerNotification Office
Bureau of Competition
Room 303
Federal Trade Commission
6th Street and Pennsylvania Avenue, N.W.
Washington, D.C. 29580
Dear Mr. Verne:
Enclosed is the originalof the letter that was faxed to you on Friday. Please contact me at (redacted)should you have any questions.
Letter 2
August 20, 2004
Via Facsimile
Mr. Michael Verne
Premerger Notification Office
Bureau of Competition
Room 303
Federal Trade Commission
6th Street and Pennsylvania Avenue, N.W.
Washington, D.C. 29580
Dear Mr. Verne:
This correspondence is a follow-up to my voice mail to you from earlier today.
As I explained, the factual circumstances are as follows. Company A proposes toacquire all of the voting securities of Company B. Company B is an oil and gasexploration company and its assets consist of real property interests in oiland gas fields in the western part of the United States ("the Fields").
The focus of my inquiry was whether Company A's acquisition of Company B wouldfall under the exemption set forth in 16 CFR 802.4 concerningacquisitions of voting securities of issuers holding certain exempt assets (the"Voting Securities Exemption"), which, in turn, cross references theunproductive real property exemption set forth in 16 CFR 802.2(c) (the"Unproductive Real Property Exemption") and the exemption concerningacquisitions of carbon-based mineral reserves set forth in 16 CFR 802.3(the "Oil and Gas Exemption").
Based on several discussions I have had with you in the past, my understandingis as follows:
1. To the extent that certainproperties and reserves in portions of the Fields have not yet generated any revenues,such properties and reserves will be treated as falling under the UnproductiveReal Property Exemption, while those properties and reserves which arecurrently developed and producing will qualify for the Oil and Gas Exemption(assuming the latter's aggregate value is under $500 million).
2. In applying the UnproductiveReal Property Exemption to Company B's interests in the non-producingproperties in the Fields, it is not necessary to determine whether, forpurposes of 16 CFR 802.2(c)(2)(iii), such properties are or are not"adjacent to or used in conjunction with real property that is notunproductive real property" as long as any other such adjacent propertiesare otherwise exempt under the Oil and Gas Exemption. That is, if certainunproductive real properties in the Fields are adjacent to productive realproperties in the Fields which are part of the transaction but qualify for theOil and Gas Exemption, the unproductive real properties still qualify for theUnproductive Real Property Exemption.
3. In determining whether thetransaction falls within the terms of the Oil and Gas Exemption, Company A needfocus only on Company B's assets. In other words, the $500 million figure inthe Oil and Gas Exemption relates only to the target company (Company B) andnot to the existing assets of Company A.
4. On the basis of the foregoing,Company A may acquire all and hold all of the voting securities of Company B inreliance on the Voting Securities Exemption without the need to make an HSR filingif it is determined by Company A, or its designee, in compliance with the HSRregulations at 16 CFR 801.10, that: (i) a portion of Company B's assetsconsists of ownership interests in oil and gas properties which have not yetgenerated any revenues and therefore fall within the Unproductive Real PropertyExemption; (ii) another major portion of Company B's assets consists ofownership interests in developed and producing oil and gas properties, as towhich the fair market value of the properties, reserves, rights and associatedexploration or production assets relating to such properties does not exceed$500 million; and (iii) to the extent that there are any remaining direct orindirect assets of Company B which do not qualify as exempt assets under theHSR regulations, such remaining assets have a fair market value of less than$50 million.
Please contact me as soon as possible at (redacted) if you should disagree withany of the views expressed above.
Thank you very much for your assistance.