InterOil Corporation (NYSE:IOC) & Exxon Mobil Corporation (NYSE:XOM) Named Defendants in a Securities Class Action Lawsuit
On January 2, 2018, a class action lawsuit, alleging InterOil, InterOil’s Board of Directors and Exxon Mobil Corporation violated the Securities Act of 1933 (Block v. InterOil Corporation), was filed in United States District Court, Northern District of Texas, Dallas Division.
Acquistion of InterOil Corporation Shares – Exxon Mobil Shares Worth $45 and a Contingent Resource Payment
The class action lawsuit was filed on behalf of all persons who purchased, or otherwise acquired, Exxon Mobil Corporation (“Exxon Mobil”) shares worth $45.00 and a Contingent Resource Payment (“CRP”) for each outstanding InterOil Corporation share in connection with the acquisition of all of the issued and outstanding shares of InterOil by an affiliate of Exxon Mobil Corporation on or about February 22, 2017.
InterOil Corporation’s Primary Assets
According to the class action complaint:
InterOil engaged in the exploration, appraisal and development of hydrocarbon resources. Its primary assets were (i) a gross 36.5% interest in petroleum retention license 15 (“PRL 15”) in the Gulf Province of PNG, which includes the world-class Elk and Antelope gas fields (the “PRL 15 License Interest”), and (ii) the right to receive substantial future payments from French oil and gas supermajor TOTAL, S.A. (“TOTAL”), arising out of TOTAL’s 2014 purchase from InterOil of a gross 40.19% license interest in PRL 15 (the “TOTAL Payments”). The TOTAL Payments are calculated based on certified “in the ground” estimates of the total hydrocarbon resources of the Elk and Antelope gas fields to be prepared by certain designated independent third-party estimators according to an industry standard commonly referred to as “2C” (the “PRL 15 2C Resource Estimate”). Under the TOTAL sale documents, the process of preparing the PRL 15 2C Resource Estimate is referred to as the “Interim Resource Certification.” InterOil’s additional assets included other interests in petroleum exploration and retention licenses covering an area of approximately 16,000 square kilometers in the Gulf Province of PNG. InterOil was the operator of PRL 15 until TOTAL assumed operations on August 1, 2015. [Emphasis added]
InterOil Class Action – The Acquisition’s Alleged False and Misleading Information Circular
According to the class action complaint:
On or around January 13, 2017, Defendants disseminated [a] false and misleading Information Circular to InterOil shareholders. InterOil filed the Information Circular [“Management Information Circular for a Special Meeting of Holders of Common Shares, Options and Restricted Share Units of InterOil Corporation with Respect to an Arrangement Involving InterOil Corporation and Exxon Mobil Corporation”] with the SEC as Exhibit 99.2 to its Form 6-K on January 17, 2017. By this date, Antelope-7 had drilled 143 meters below the base carbonate case but failed to intersect the Antelope Field, and so could provide no support for extending the projected western boundary of the Antelope Field beyond its assumed location before drilling Antelope-7. Thus, Defendants knew or should have known on this date that (i) Antelope-7 had not substantively addressed the volume uncertainty or established the limits of the Antelope reservoir and so would almost certainly have no material upside impact or a negative impact on the overall projected size of the Antelope Field, the eventual PRL 15 2C Resource Estimate or, most importantly, the CRP, and (ii) consequently, the new CRP cap of 11 tcfe would almost certainly provide no additional consideration for InterOil shareholders above the original CRP cap of 10 tcfe. [Emphasis added]
Just like Antelope-7, the side track well experienced a series of misses of its key geological targets in January and February 2017. On January 31, 2017, TOTAL announced the side track well reached 1,980 meters without intersecting the Antelope reservoir. Then, on February 19, 2017, InterOil announced that the side track well reached its target depth of 2,383 meters without intersecting the Antelope reservoir. [Emphasis added]
Meanwhile, on February 14, 2017, InterOil shareholders approved the Revised Plan of Arrangement based on the false and misleading Information Circular. The Supreme Court of Yukon approved the [a]cquisition pursuant to the Revised Plan of Arrangement on February 20, 2017. Due to the InterOil shareholders’ approval, the [a]cquisition closed on February 22, 2017, with InterOil shareholders purchasing $45.00 worth of Exxon shares and the CRP with each outstanding InterOil share on a fully taxable basis. [Emphasis added]
The [a]cquisition amounted to a sale of Exxon shares by Defendants to InterOil shareholders by means of a false and misleading prospectus, as these terms are used by §12(a)(2) of the Securities Act. [Emphasis added]
Antelope7’s Impact on the CRP – Alleged Material Omissions
The complaint alleges that “[t]he Information Circular approved by Exxon and InterOil omitted the material fact that Antelope-7 would almost certainly have no impact or a negative impact on the Interim Resource Certification and, thus, the size of the CRP. Rather than disclose this fact, the Information Circular misleadingly stated on several occasions that Antelope-7 could have a positive or negative impact on the Interim Resource Certification without indicating which outcome was more likely. As a result, InterOil shareholders were misleadingly led to believe there was a good chance Antelope-7 would positively impact the size of the CRP and, thus, the merger consideration.” [Emphasis added]
The Information Circular issued in connection with the acquisition, according to the complaint, omitted material facts and contained material misstatements regarding Antelope-7’s impact on the CRP, the actual value of the new CRP cap, and the placement of Antelope-7. Further, the class action complaint alleges that the omissions and misstatements were material to InterOil shareholders, because they impacted the perceived value of the CRP and, consequently, prevented InterOil shareholders from accurately valuing the CRP and making an informed vote on the acquisition.
Purchasers or Acquirers of Exxon Common Stock and the CRP Pursuant to the Information Circular in Connection with the InterOil Acquisition
If you purchased, or otherwise acquired, Exxon Mobile Corporation shares worth $45.00 and a Contingent Resource Payment for each outstanding InterOil Corporation share in connection with the acquisition of all issued and outstanding InterOil shares and have questions or concerns about your potential legal rights or claims, please contact John Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected], complete the form above on the right or e-mail [email protected].