Question
October 29, 2007
Mr. B. Michael Verne
Premerger Notification Office
Federal Trade Commission
6th Street & Pennsylvania Avenue, NW
Room 310
Washington, DC 20580
Re: Hart-Scott-Rodino Act Interpretation
DearMr. Verne:
This letter summarizes our conference call on Monday,October 29, 2007, during which you confirmed our conclusion that our client's(the "Company") acquisition of certain assets primarily consisting ofproducing and non-producing oil and gas reserves (the "Acquisition")does not require a filing under the Hart-Scott-Rodino Antitrust Improvement Actof 1976, as amended (the "Act"). Please confirm your concurrence withthis conclusion based on the facts outlinedbelow by return e-mail to me at (redacted),
The Company has represented to us that it proposes to acquirecertain assets (the "Assets") from the target company("Target") for approximately $825 million subject to certain purchase price reductions. TheCompany or its designee have determined, in compliance with 16 C.F.R. ;801.10, that the Assetsconsist solely of (i) developed and producing oil and natural gas reserves and associatedexploration and production assets related to such properties valued at less than $500 million; (ii) provedand unproved non-producing reserves (certain of the non-producing reserves areadjacent to various of the producing reserves); and (iii) certain assets other than reserves of oil andnatural gas, rights to reserves of oil and natural gas, and associated exploration and productionassets valued at less than $59.8 million.
Regarding general principals andrules under the Act, you confirmed that the following apply to the Acquisition:
Reserves of oil andnatural gas that are presently producing are included in the $500 millioncarbon-based mineral reserves exemption under 16 C.F.R. 802.3(a).
Reserves of oil and natural gas thathave not yet generated any revenues (or have not generated revenues in excessof $5 million during the 36 months preceding the acquisition) are exempt withno dollar limit as unproductive real property under 16 C.F.R.802.2(c)). Thesereserves do not count towards the $500 million carbon mineral reservesexemption limit.
Non-producingoil and natural gas reserves are exempt with no dollar limit as unproductivereal property under 16 C.F.R. 802.2(e) even if they are adjacent to or usedin conjunction with real properly that is not unproductive real property aslong as any other such adjacent properties being acquired are exemptcarbon-based mineral reserves under 16 C.F.R. 802.3(a).
Indetermining whether the transaction falls within the terms of the exemptionprovided in 16 C.FR. 802.3(a), the Company need focus only on theTarget's assets. In other words, the $500 million figure in the exemption provided in 16 C.F.R. 802.3(a) relates only to the Assets of Target being acquired and not to theexisting assets of the Company, assuming the Company did not acquire its currently held assets from Target within thetime period and manner that would require aggregation under 16 C.F.R. 801.13(b).
Based onthe foregoing, the Company may acquire the Assets from Target in reliance onthe exemptions set forth in 16 C.F.R. 802.3(a) and 16 C.F.R. 802.2(c) without the need to make a filing under the Act. Please let me know ifI have misstated our discussion or your conclusions in any way. Thank you foryour time and assistance.