Arbitration Tribunal Releases Decision in Respect of Apco Austral Acquisition

Source Press Release
Company PluspetrolApco Oil and Gas International IncCrown Point Energy Inc. 
Tags Corporate Deals, Deals, Upstream Activities
Date December 13, 2018

Crown Point Energy Inc. (TSX-V:CWV) ("Crown Point" or the "Company") announces that a decision has been released by the arbitration tribunal (the "Tribunal") formed to consider the claims made by  Roch S.A. ("Roch") in respect of the Company's acquisition of Apco Austral S.A. ("Apco Austral").

Background Regarding Acquisition of Apco Austral and Related Litigation and Arbitration

On June 7, 2018, the Company closed the acquisition (the "Acquisition") of all of the issued and outstanding shares of Apco Austral from Pluspetrol Resources Corporation ("Pluspetrol") for US$28.4 million of cash consideration plus up to US$9 million of contingent royalty payments. Apco Austral holds a 25.7796% participating interest in the Rio Cullen, Las Violetas and La Angostura hydrocarbon exploitation concessions located in the Tierra del Fuego region of the Austral basin in southern Argentina (the "TDF Concessions").  Following the completion of the Acquisition, Crown Point holds a 51.56% participating interest in the TDF Concessions. The Acquisition doubled Crown Point's reserves and production.  

Pursuant to the joint venture agreement governing the TDF Concessions (the "UTE Agreement"), Crown Point's and Apco Austral's partners in the TDF Concessions (each an "UTE Partner") had a right of first refusal ("ROFR") that allowed them to participate in the Acquisition at a level that was equivalent to their participating interest in the TDF Concessions.  Roch, one of the UTE Partners, disputed the validity of the ROFR notices issued by  Pluspetrol to the  UTE Partners and obtained an injunction (the "Injunction") from an Argentine court prohibiting  Pluspetrol from selling the shares of Apco Austral to the Company.  Both  Pluspetrol and the Company successfully challenged the Injunction and the Argentine court ordered that the Injunction be revoked and that instead Roch's claim be recorded in Apco Austral's share registers to give notice of the claim to potential purchasers (a legal remedy known as "lis pendens" in Argentina) (the "Lis Pendens Remedy").  However, Roch immediately appealed this decision to an Argentine Court of Appeal, which had the effect of reinstating the lower court's initial decision (which kept the Injunction in place). The Argentine Court of Appeal subsequently rejected Roch's appeal, with the result that the lower court's decision to revoke the original Injunction and impose the Lis Pendens Remedy was restored.  Roch did not appeal the Court of Appeal's decision by the applicable deadline, with the result that the Injunction was permanently revoked and the Lis Pendens Remedy remains in effect.     

During the course of the ROFR litigation described above, Roch also commenced arbitration proceedings against Apco Austral and Pluspetrol under the  UTE Agreement (the "Arbitration") in order to have the Tribunal consider and rule on the ROFR dispute.   Pluspetrol has provided certain indemnities to the Company in connection with the Arbitration proceedings.

Arbitration Tribunal's Decision

The Tribunal has now released its written decision (the "Arbitral Award"), in which it has made, among other things, the following conclusions and declarations:

  • The Tribunal has determined that the Acquisition involved the indirect transfer of Apco Austral's participating interest in the TDF Concessions and that Apco Austral and Pluspetrol failed to properly comply with the procedures set out in the  UTE Agreement that must be complied with in order for Roch to exercise its ROFR.
  • As a result, the Tribunal has concluded that Roch was not required to respond to the ROFR notice provided to it by Apco Austral and Pluspetrol by the applicable deadline, and that Roch's ROFR has not been extinguished.
  • The Tribunal has ordered Apco Austral and Pluspetrol to comply with the provisions of the  UTE Agreement that grant a ROFR to Roch and the other  UTE Partners to acquire their respective pro rata portions of Apco Austral's participating interest in the TDF Concessions. Apco Austral and  Pluspetrol are required to commence the ROFR process by January 18, 2019. The Arbitral Award provides that the ROFR notices must otherwise comply with all of the requirements of the ROFR provisions of the  UTE Agreement.

Crown Point is reviewing the Arbitral Award with counsel in order to, among other things, assess the alternatives available to Apco Austral and determine how the Arbitral Award would be implemented in light of the fact that, among other things, the Acquisition closed over six months ago and involved the acquisition of the shares of Apco Austral rather than the direct acquisition of Apco Austral's interest in the TDF Concessions. Crown Point will provide further updates regarding any material developments relating to the Arbitral Award and the Company's response thereto as they arise.

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