CHAPTER 1 DISCUSSION HYPOTHETICAL

• Jurisdiction: United States

International Resources Law and Projects
(Apr 1999)
CHAPTER 1
DISCUSSION HYPOTHETICAL
Paul J. Schlauch
Holland & Hart LLP
Denver, Colorado, USA
Robert A. Bassett
Dorsey & Whitney LLP
Denver, Colorado, USA

ROCKY MOUNTAIN MINERAL LAW FOUNDATION

SPECIAL INSTITUTE

CO-SPONSORED BY

THE

INTERNATIONAL BAR ASSOCIATION'S

SECTION ON ENERGY & NATURAL RESOURCES LAW

INTERNATIONAL RESOURCES LAW AND PROJECTS

STRADDLING THE MILLENNIUM

DISCUSSION HYPOTHETICAL¹

A. Overview of Business Transaction

1. A multinational resources company ("MRCo") from a common law country wishes to enter a business arrangement with a local company ("LCo"), organized in a civil law jurisdiction. LCo owns a concession containing a significant mineral deposit, but lacks the management experience and funds to develop the deposit. The essence of the business arrangement is that LCo will make its mineral concession available for development and MRCo will acquire an interest in the concession in return for spending a specified amount of money to bring the deposit into production. If MRCo "earns" its interest, the parties may thereafter jointly proceed with the further development and exploitation of the properties, with each having the right to decline to spend additional funds and suffer a reduction in its ownership interest in the properties if the other elects to proceed. MRCo conducts business in the English language; LCo conducts its business in French.

2. The project's processing facilities will require the construction of a cross-border natural gas pipeline from production sources across the northern border. In exchange for a commitment to build, own and operate a natural gas pipeline, and to deliver gas to the project, the owner of the gas production facility and the (soon-to-be-constructed) cross border gas pipeline will take a relatively small equity ownership share in the project. The gas producer and pipeline are government owned, but are being prepared for privatization via a float as a public company.

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B. Site and Project Characteristics

1. The area subject to the concession is in a remote portion of the host country, approximately 30 kilometers from its northern border. A recently established national park lies approximately 1 kilometer from the boundary of the concession lands. The park was established to protect the rookery of an endangered hereon; but also contains the remains of several very significant prehistoric temples. Although these...