M&A in subsurface use

The role of a foreign consultant

Steven Dalton, Herbert Smith

23 April 2010Doc ID: 27074369

Why English law?

• Advantages of English Law

• Globalisation– International sellers, buyers, lenders– Overseas regulations affecting sellers, buyers, lenders– Target may have debt or equity securities listed overseas– Financial promotion regulations in overseas jurisdictions

FlexibilityThere are few restrictions on how parties contract

CertaintyThe court generally does not rewrite the parties’ bargain by reference to a third party standard

PrecedentOver decades the court has considered in detail many of the usual points of contention

CustomBuyers, sellers, financiers and other stakeholders are familiar with English law deals

Why an international law firm?

• English law capability

• Global reach– Presence in home jurisdictions of buyers, lenders, financiers

and markets in which securities are commonly listed– Experience of market practice in relevant jurisdictions– Depth and breadth of human resources

• What is market?

Deal structure•deferred consideration/earn-outs•conditionality•adjustments to the consideration

Deal protection•warranty cover – extent of warranties, time and money caps

•seller security•break fee

Stages in a typical private M&A auction1

Financial advisor appointed by Seller2

Potential bidders identified and approached3

Confidentiality agreements entered into4

Optimum deal structure developed and regulatory/third party consent analysis completed

5Data room prepared. Seller documentation reviewed prior to disclosure

6Information Memorandum circulated

7Limited Due Diligence. Bidder’s questions answered

Stages in a typical private M&A auction

9Detailed Due Diligence. Bidder’s questions answered. Bidder reviews

Seller SPA

10Binding Bids submitted. Seller and Seller’s counsel review Bidder mark-ups

and any new deal structures proposed by Bidder

11[Exclusivity Letter]

12Negotiation with one or more Bidder (including on ancillary matters such as

transitional services)

8Indicative Bids submitted

Stages in a typical private M&A auction

13Executed SPA and ancillary agreements

14Conditions Precedent satisfied

15Completion

16[Completion Accounts]

17Claims Period

So what is “market”? – Analysed deals…Energy deals concluded since January 2009

Cap on claims - 45% - 100% of consideration (‘all claims’) (average c.85%)

Individual claim threshold - 0.3% consideration

Aggregate claim threshold – 1.9% consideration

Notification period – 26 months

Commencement of claims – 10 months

Arbitration – ½ (always when international)

English law – ¾ (even when not UK)

Security from buyer – approx ½ (usually Parent Company Guarantee), deposits not common

Security from seller – 1/5 (retentions or Parent Company Guarantees)

Material Adverse Change / Rescission rights – less than ¼

Energy deals concluded in 2006 – 2008

Cap on claims - 10% - 50% of consideration (‘all claims’)

Individual claim threshold - 0.3% consideration

Aggregate claim threshold – 2.5% consideration

Notification period – 18 months

Commencement of claims – 9 months

Arbitration – ½ (always when international)

English law – almost ¾ (even when not UK)

Security – approx ¼ (usually PCG), deposits not common

Material Adverse Change / Rescission rights – less than ¼

Recent natural resources M&A experience

ENRC

Eurasian Natural Resources Corporation on its acquisition of Central African Mining & Exploration Company for US$ 950 million

BP

on the disposal of its interests in the Caspian Pipeline Consortium (CPC) Pipeline and the Tengiz Oil Field in Kazakhstan and Russia, held through the KPV and LUKARCO joint ventures to KazMunaiGaz and LUKOIL respectively for a aggregate consideration of US$1.85 billion

Sinopec Corporation on the US$3.72 billion acquisition of Udmurtneftfrom TNK-BP and the associated LBO and joint venture with Rosneft

Gazprom Neft

on its US$ 3 billion acquisition of Sibir Energy plc

CNOOC

on its LNG Project Development Agreement with BG or the purchase of LNG and acquisition of upstream and midstream interests in the Gladstone LNG project in Queensland

PTT Exploration & Production (PTTEP)

on the acquisition of a 100% interest of Coogee Resources, a private Western Australian company with interests in Australia

BP

on the sale of its West Java PSC interests to Indonesian state-owned oil and gas company PT Pertamina for US$280 million

INPEX Corporation

on the acquisition of a 10% stake in Joslyn Oil Sands Project in Canada

Alliance offices