Question
August 22, 2007
BY E-MAIL
Mr.B. Michael Verne
Premerger Notification Office
Bureau of Competition
FederalTrade Commission
600 Pennsylvania Avenue, N.W.
Washington DC 20580
Re: Exemptions Available for Producing and Non ProducingOil and Gas Properties and Entities Holding Those Assets
Dear Mr. Verne:
The purpose of thisletter is to confirm the understanding of (redacted) and I with respect tocertain exemptions from filing under the Hart-Scott-Rodino Antitrust ImprovementAct of 1976 (as amended the "HSR Act") and regulations thereunder(the "Regulations") that are available for producing andnon-producing oil and gas properties and entities holding those assets.
Company A proposes to acquireall of the voting securities of Company B for approximately $875 million.Company B is an oil and gas exploration company, and its assets consist of realproperty interests in oil and gas properties in the United States (the"Oil and Gas Properties"). The value of the interests in thedeveloped and producing portion of the Oil and Gas Properties, along withassociated exploration and production assets related to such properties, isless than $500 million. The value of all assets of Company B other thanreserves of oil and natural gas, rights to reserves of oil and natural gas, andassociated exploration and production assets, if any, is less than $59.8million.
You agreed that the proposed acquisition would beexempt under the HSR Act and confirmed our understanding of the HSR Act andapplicable Regulations as follows:
1.Company A's acquisition of Company B would fall under the exemption set forthin 16 C.F.R. 802.4 concerning acquisitions of voting securities of issuers holding certainexempt assets (the "Voting Securities Exemption") based upon applyingthe unproductive real property exemption set forth in 16 C.F.R. 802.2(c) (the "Unproductive Real Property Exemption") and theexemption concerning acquisitions of carbon-based mineral reserves set forth in16 C.F.R. 802.3 (the "Oil and Gas Exemption").
2.To the extent that certain propertiesand reserves in portions of the Oil and Gas Properties have not yet generatedany revenues, such properties and reserves, along with associated explorationand production assets, will be treated as coming within the Unproductive RealProperty Exemption, regardless of dollar value, while those properties andreserves, along with associated exploration and production assets, that arecurrently developed and producing will qualify for the Oil and Gas Exemption,assuming the aggregate value of such developed and producing properties doesnot exceed $500 million.
3.Associated exploration and productionassets that would qualify for the Oil and Gas Exemption would include field pipelines that exclusively servereserves being acquired as a part ofthe transaction.
4.In applying the Unproductive RealProperty Exemption to Company B's interests in the non-producing properties ofthe Oil and Gas Properties, it is not necessary to determine whether, forpurposes of 16 C.F.R. 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 adjacentproperties being acquired are otherwise exempt under the Oil and Gas Exemption.Therefore, if certain unproductive properties of the Oil and Gas Properties areadjacent to productive properties of the Oil and Gas Properties that are partof the transaction but qualify for the Oil and Gas Exemption, the unproductiveproperties still qualify for the Unproductive Real Property Exemption. Inaddition, within a particular oil and gas lease, a portion of such lease mayinclude productive property that is exempt under the Oil and Gas Exemption andmay also include unproductive property that is exempt under the UnproductiveReal Property Exemption.
5.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 Company B and not to the existingassets of Company A, assuming Company A did not acquire its currently held assetsfrom Company B within the time period and manner that would require aggregationunder 16 C.F.R. 801.13(b).
6.To the extent that a related oil andgas asset does not qualify as an exempt associated exploration and productionasset, such as a processing plant or a non-exempt pipeline, the location ofsuch asset on or adjacent to oil and gas reserve properties being acquired doesnot affect the applicability of the Unproductive Real Property Exemption or theOil and Gas Exemption to the acquisition of those oil and gas properties andany associated exploration and production assets.
7.Based on the foregoing, Company A mayacquire all and hold all of the voting securities of Company B in reliance onthe Voting Securities Exemption without the need to make a filing under the HSRAct assuming it is determined by Company A, or its designee, in compliance with16 C.F.R. 801.10, that: (i) a portion of Company B's assets consists of ownershipinterests in oil and gas properties that have not yet generated any revenuesand therefore come within the Unproductive Real Property Exemption; (ii)another major portion of Company B's assets consists of ownership interests indeveloped and producing oil and gas properties, as to which the fair marketvalue of the properties, reserves, rights and associated exploration andproduction assets relating to such properties does not exceed $500 million; and(iii) to the extent that there are any remaining direct or indirect assets ofCompany B that do not qualify as exempt assets under the HSR regulations, suchremaining assets have a fair market value that does not exceed $59.8 million.
8.If certain persons are delegated bythe board of directors of a corporation (or, if unincorporated, by officialsexercising similar functions) to execute documents and/or otherwise takeappropriate or necessary action to consummate a transaction, any such personwould be considered a delegee for purposes of 16 C.F.R. 801.10, even if theresolution or other authorization does not explicitly mention the HSR Act orthe conducting of a fair market valuation. Further, for purposes of the secondparagraph of the Analysis of Informal Interpretation 87 in the PremergerNotification Practice Manual (4th ed. 2007), a de facto delegee canbe the chief financial officer, or any financial officer with directresponsibility for the proposed transaction, of the entity entering into theproposed transaction or of the ultimate parent of such entity.
Please confirm that our understanding is correct.Thank you very much for your assistance.
Sincerely,