1303002 Informal Interpretation

Date:
Rule:
802.2, 802.3
Staff:
Michael Verne
Response/Comments:

  1.    Only use the revenues attributable to the 50% interest being acquired, not the revenues attributable to the entire reserve. Likewise, for purposes of 802.3, value only the 50% interest. 2.    I think the O&G inventory is more appropriately exempted under 802.1(c)(1) as it has already been extracted from the reserve.

Question

From: (Redacted)

Sent: Wednesday, March 13, 2013 1:15 PM

To: Verne, B. Michael

Subject:RE: HSR Questions

Mike,

I'm following up on my email below.We've continued our analysisand have just two questionswe would like yourviews on.

By way of background, the transaction will consistof the purchase and sale of an undivided 50% interest in all oil, gasand mineral leases in an agreed Area of Mutual Interest, together with an 50% undividedinterest in all wells (O&G and saltwater disposal) and otherassociated exploration and production assets connectedto or otherwise used in connection with the wells or the ongoingE&P program. As I'm sure you know, under applicablestate law, an undivided interestis a discrete, assignable interestin the real property lease and underlying minerals, and assignments of the undivided interest will be recorded in the real propertyrecords. The acquisition will be effective as of a fixed date before the closing, and as a result, the assigned interest will include 50% of all O&G inventoryproduced from the properties involved and held by the seller as of the closing date.

The two questionsare:

1.In applying the exemption for unproductive real property under Rule 802.2, are we correctin applying the $5 million limit forrevenues over the last 36 months only to the revenues attributable to the undividedinterest being acquired(i.e., the 50% undivided interest in the properties to be acquiredin this transaction)?

2. Arewe correct in concluding that the O&G inventory at closing will be eitherexempt under Rule 802.1(c)(1) asinventory acquired in the ordinarycourse of business solely for purposes of resale, or eligible for exemptionunder Rule 802.3 as part of the carbon-based mineralsto be acquired?

In this transaction, becausethe properties are still in the development phase, all of the interests to be acquired will qualify for exemption under either Rule 802.2 or Rule 802.3 (unless the O&Ginventory is exempt under Rule 802.1). This will be the case even if we use 100% ofthe seller's revenues from the properties for purposes of the Rule 802.2 analysis,but we want to be as correct as possible in advisingour client.

From: (Redacted)

Sent: Thursday, March 07, 2013 1:48PM

To: 'mverne@ftc.gov'

Subject: HSR Questions

Mike,

We are working on an oil and gas deal and have a couple of questions I wouldlike to discuss with you. Would you have 15 minutes later today or tomorrowto talk?

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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