8304005 Informal Interpretation

7A(c)(1); 801.40
Wayne Kaplan



April 21, 1983


Wayne Kaplan, Esquire
Pre-Merger Notification Office
Federal Trade Commission
7th and Pennsylvania Avenue, N.W.
Room 315

Washington, D.C. 20580

Dear Mr. Kaplan:

On behalf of our client (Company A), I would like to thank you and Ms. Vidas for you courtesy and patience in

listening to our further explanation of the transaction about which I wrote you on April 6. It is a somewhat unusual and complicated situation, and I can well understand why you were unable to reach a definitive conclusion based on the hypothetical transaction described in by letter.

The purpose of this letter is to set forth the mos significant clarifying facts presented during our conference call

on Friday, April 15.

First. Company a is engaged in the exploration, development and production of gas and oil. It does not raise funds from the public by selling interests in oil and gas properties; nor does it function as a broker or dealer by buying and selling such, interests. From tine to time, however, Company A has sold interest in oil and gas properties which are exploratory. In development, or, infrequently, in production

Second. Company A obtains funds and spreads the risk of its exploration programs by forming joint ventures with

other companies, most of whom are in the oil and gas industry. These ventures are not limited partnerships, but for

each venture one of the venturers will act as the operator. The ventures may involve only one property or one large geo-

graphic area or may involve participation in most of the Company As exploration activities during a certain time period.

(1 - 3 years).

Third. In the present transaction, Company a is forming a new joint venture with Company B for the dual purpose

of (a) exploring and developing certain existing properties owned in part by Company a and in part by other ventures,

and (b) participating with Company A and Company As other venturers in the acquisition of additional properties.

Fourth. In the transaction, three types of properties are involved: (i) exploratory acreage, (ii) proven proper-

ties under development and, (iii) producing properties which are anticipated to require additional development expendi-

tures. The interest to be transferred to Company B in the currently producing properties is inconsequential compared

to the total transaction and involves substantially less thant he $15 million threshold. The contemplated transaction

does not allocate the purchase price among the may properties involved but an independent reservoir engineering com-

pany has valued the interest to be transferred to Company B in the presently producing well and field at approximately


Fifth. The interest in proven properties in this transaction is intended to provide an income stream to Company B

for recoupment of its investment. The agreement provides that until payout Company B will get 75% of the net revenue from The proven properties and Company A 25%. After payout, Company B will receive a 5% share of such net revenue, During this payout period, Company A will pay to Company B a guaranteed 5% annual payment or its unrecovered payout amount.

Sixth. At closing, Company a and Company B will form an unincorporated joint venture. The initial transfer of

assets that occurs in the form of Company Bs purchase of percentage interests in the pools of exploratory and proven

properties is only incidental to the simultaneous transfer of such assets to the newly formed joint venture. Certain tax considerations have dictated the contemplated two-step format.

Based on the foregoing, we believe the transaction can be most realistically characterized as an exempt real estate transaction involving the sale of interests in mostly non-producing oil and gas properties where the currently produc-

ing properties have a value far less than the $15 MM threshold. In the alternative, it can be viewed as an exempt formation of a new unincorporated joint venture. We do not believe that this otherwise non-reportable transaction becomes reportable by virtue of the incidental and preliminary transfer of assets to Company B, which is being done for tax purposes, prior to the further transfer to the new venture.

Your very truly,


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