Hardman Resources Limited ACN 009 210 235, In the matter of Hardman Resources Limited ACN 009 210 235

[2006] FCA 1635

FEDERAL COURT OF AUSTRALIA

Hardman Resources Limited ACN 009 210 235, In the matter of Hardman Resources Limited ACN 009 210 235 [2006] FCA 1635

HARDMAN RESOURCES LIMITED ACN 009 210 235, IN THE MATTER OF HARDMAN RESOURCES LIMITED ACN 009 210 235

NSD2188 OF 2006

EMMETT J
14 NOVEMBER 2006
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD2188 OF 2006

IN THE MATTER OF HARDMAN RESOURCES LIMITED ACN 009 210 235

HARDMAN RESOURCES LIMITED ACN 009 210 235 Plaintiff
JUDGE:	EMMETT J
DATE OF ORDER:	14 NOVEMBER 2006
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (Corporations Act), the Plaintiff (Hardman) convene a meeting (Hardman Scheme Meeting) of the holders of fully paid ordinary shares in Hardman (other than Excluded Shareholders) (Hardman Shareholders) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement (Hardman Scheme) being the scheme substantially in the form of annexure B of Exhibit 1A.  An Excluded Shareholder is any Hardman Shareholder who is a member of the Tullow Group (being Tullow Oil plc (Tullow) and each of its subsidiaries) or any Hardman shareholder who holds an ordinary share issued in Hardman on behalf of, or for the benefit of, any member of the Tullow Group.

2.The Hardman Scheme Meeting be held at 9:30am (Perth time), on 18 December 2006 at the Burswood Convention Centre (Grand Ballroom 2), Great Eastern Highway, Burswood Western Australia.

3.The Chairman of the Hardman Scheme Meeting be Robert Anthony Carroll and in his absence Peter John Mansell.

4.The Chairman appointed to the Hardman Scheme Meeting have the power to adjourn the meeting in his absolute discretion.

5.All voting at the Hardman Scheme Meeting be by poll as declared by the Chairman.

6.Pursuant to section 411(1) of the Corporations Act, the explanatory statement for the Hardman Scheme in the form of Exhibit 1A be approved.

7.Hardman publish in The Australian newspaper a notice of hearing of any application to approve the Scheme substantially in the form of annexure 1 of this Order no later than 12 December 2006.

8.Pursuant to section 1319 of the Corporations Act, Hardman be exempted from compliance with the requirements of rule 2.15 of the Federal Court (Corporations) Rules 2000 save that regulation 5.6.13 of the Corporations Regulations 2001 shall apply to the Hardman Scheme Meeting.

9.The proceeding be stood over to 19 December 2006 at 9.30 am before Justice Emmett for the hearing of an application to approve the Scheme.

10.Liberty be granted to restore on 2 days notice.

11.These Orders be entered forthwith.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD2188 OF 2006

IN THE MATTER OF HARDMAN RESOURCES LIMITED ACN 009 210 235

HARDMAN RESOURCES LIMITED ACN 009 210 235 Plaintiff
JUDGE:	EMMETT J
DATE:	14 NOVEMBER 2006
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. I have before me an application seeking orders pursuant to s 411 of the Corporations Act 2001 (Cth) (‘the Act’), convening a meeting of members of Hardman Resources Limited (‘Hardman’), for the purposes of considering and, if thought fit, agreeing to a proposed scheme of arrangement between the members of Hardman and Hardman. The proposal is that the holders of shares in Hardman, subject to one exception to which I shall refer, will transfer their shares to Tullow Oil plc (‘Tullow’). The exception is in relation to shares held by Tullow or members of the Tullow Group, or shares held on behalf of Tullow or members of the Tullow Group. The result of the scheme will be that Hardman will become a wholly owned subsidiary of Tullow. Approximately 30 million Hardman shares out of a total of approximately 727 million are currently held by Tullow, or members of its group, or on behalf of Tullow and members of that group.

2. Hardman is a public company, having been incorporated in December 1986.  It was listed on Australian Stock Exchange Limited in 1987 and on the Alternative Investment Market of the London Stock Exchange in 2002.  The headquarters of Hardman are in Perth and it also has regional offices in London, Mauritania, Uganda and Trinidad. 

3. In the mid-1990s, Hardman embarked upon an international strategy of acquiring acreage in under-explored but prospective regions of the world.  The first and most significant achievement was Hardman’s first production-sharing contracts in offshore Mauritania, West Africa, signed in late 1996.  The contract area, together with other production-sharing contracts in the same offshore basin today, represent Hardman’s most important interests, covering an area of approximately 50,767 square kilometres. Hardman has a portfolio of other international projects, which are currently at varying stages of exploration and development.  They include projects in Guyana, Uganda, Tanzania, the Falkland Islands and Suriname. 

4. Tullow is a public limited company incorporated in England and Wales, with its headquarters in London.  Tullow is listed on the London Stock Exchange and the Irish Stock Exchange.  As at 13 November 2006, Tullow had approximately 8,600 shareholders and a market capitalisation of approximately ₤2,610,000,000.  Tullow is one of the largest independent exploration and production companies in Europe, with a balanced business which focuses on gas in the United Kingdom Southern North Sea, and both oil and gas in Africa and South Asia. 

5. Under the proposed scheme, Hardman shareholders who are to participate in the scheme may elect to receive either cash, or new shares in Tullow, or a combination of cash and shares, as consideration for the transfer of their shares in Hardman.  The cash consideration is $2.02 for each fully paid share.  The share consideration is .22289 new fully paid ordinary shares in Tullow for each fully paid share in Hardman.  There is, however, an aggregate of 65 million new Tullow shares. If Hardman shareholders elect to take share consideration that would exceed 65 million shares, their entitlements will be cut back pro rata according to the number of shares they elect to take. 

6. The Hardman directors have recommended that Hardman shareholders vote in favour of the scheme and each Hardman director who holds shares has indicated his intention to vote in favour of the scheme in the absence of any superior proposal.  The scheme is being propounded pursuant to a scheme implementation agreement entered into between Tullow and Hardman on 25 September 2006.  The implementation agreement provides for conditions precedent that must be satisfied or waived before the scheme is to be effective.  Obligations are imposed upon each of Hardman and Tullow to use their respective best endeavours to procure that the various conditions within their power are satisfied or waived.  Provision is also made in the implementation agreement for consultation in good faith between Hardman and Tullow in the event that a condition is not satisfied.  The purpose of the consultation is to determine whether the proposed transaction might proceed by alternative means or methods.  Clause 4 of the implementation agreement imposes obligations on Hardman to propose a scheme of arrangement and upon Tullow to provide the consideration contemplated by the scheme of arrangement.

7. As contemplated by s 411 of the Act, an explanatory statement in the form of a substantial booklet has been prepared. That booklet is intended to be provided to members of Hardman in order that any decision on the scheme is an informed decision. I am satisfied that the proposed scheme booklet complies with the requirements of the Act and the Corporations Regulations 2001 (Cth), in so far as they impose prerequisites for such a document.

8. KPMG Corporate Finance Australia Pty Limited (‘KPMG’) has been engaged by Hardman to prepare an independent report as to whether the scheme is in the best interests of Hardman shareholders.  KPMG have expressed the opinion that the scheme is in the best interests of scheme shareholders.  In forming that opinion, KPMG’s assessed value for a share in Hardman was the primary matter that needed to be considered.  The value of a Hardman share determined whether the cash consideration and the share consideration reflected a fair return for Hardman shareholders.  KPMG considered both the cash consideration and the share consideration.  KPMG assessed the value of Hardman, as a whole, to lie in the range of $742.7 million to $1078.8 million, which represents approximately $1.02 to $1.48 per Hardman share.  KPMG’s range of assessed values was undertaken on a sum of the parts basis and incorporated head office cost savings that would generally be available to a purchaser.  However, it did not include other strategic or operational benefits to Tullow associated with control of Hardman.  KPMG considered that it was reasonable to expect, with respect to an offer for Hardman, that there be a premium to reflect the advantages associated with acquiring a pool of assets and other strategic and operational benefits. 

9. In arriving at the range of assessed values for a share in Hardman, KPMG placed reliance on a report by RISC Pty Limited (‘RISC’), prepared at their request, as to the valuation of Hardman’s oil and gas assets.  RISC have prepared a report dated 25 October 2006, providing their opinion on the fair market value of Hardman’s oil and gas properties.  Their detailed report is also intended to be included in the scheme booklet. 

10. Having regard to the premium of the cash consideration to KPMG’s range of assessed values, KPMG considered that the cash consideration is fair.  KPMG also considered that it is reasonable to expect the Tullow share is likely to trade at an equivalent price in the immediate future that is greater that the assessed values for a share in Hardman.  KPMG referred to the fact that the closing price for a Tullow share on the trading day prior to the date of the report was 406 Great British pence per share, or the equivalent of AUD $10.15 per share.  Based on the terms of the scheme, that implies a value for the share consideration of $2.26.  KPMG, therefore, considered that the share consideration was fair. 

11. KPMG also considered the premium implied by the cash consideration and the premium implied by the share consideration.  They consider that the premiums fall within or exceed the range of premiums typically paid in acquisitions within the Australian market.  In their report, KPMG had regard to a number of other considerations, details of which are set out in their report which will form part of the scheme booklet. 

12. Mr Ian Richard Jedlin, who is a partner of the KPMG partnership and an executive director of KPMG itself, has confirmed by affidavit that the opinions expressed in the KPMG report are opinions that he held at the date of the report and he is not aware of any facts or circumstances since the date of the report that would cause him to change those opinions.  Mr Peter Martin Stephenson is a director of RISC.  He has also confirmed, in an affidavit, that the opinions expressed in the RISC report are opinions that he held at the date of the report and is not aware of any facts or circumstances since that date which would cause him to change the opinions. 

13. In addition, Deloitte Touche Tohmatsu (‘Deloitte’) have provided a report, at the instigation of Tullow and Hardman, concerning the financial information relating to Tullow and the pro forma financial information concerning the proposed standard Tullow Group, which is to be included in the scheme booklet.  Based on their review of the relevant material, which was not an audit, Deloitte have confirmed that nothing has come to their attention that causes them to believe that the Tullow historical financial information or the expanded Tullow Group pro forma financial information is not presented fairly in accordance with recognition and measurement principles appropriately prescribed and the accounting policies adopted by Tullow, as disclosed in Tullow’s consolidated financial statements for the year ended 31 December 2005. 

14. Mr Johan Simon Duivenvoorde, who is a partner of the Deloitte partnership, has confirmed in an affidavit that the opinions expressed in the Deloitte report are opinions that he held at the date of the report and has not become aware of any facts or circumstances since that date that would cause him to change the opinions expressed in the report. 

15. I have considered the terms of the scheme and of the implementation agreement.  In addition, I have considered the terms of a deed poll to be executed by Tullow in favour of each holder of ordinary shares in Hardman.  By the deed poll, Tullow acknowledges that it may be relied upon and enforced by any scheme shareholder in accordance with its terms, even though the scheme shareholder is not a party to it.  By the deed poll, Tullow undertakes in favour of each scheme shareholder to provide the scheme consideration contemplated by the scheme.  Following approval of the scheme, if that occurs, Tullow is to deposit an amount equal to the aggregate amount of cash consideration into a trust account of Hardman.  The sum deposited is to be held by Hardman, as trustee, to pay the cash consideration in accordance with the scheme.  Provision is also made in the scheme and the associated documents for Tullow to issue the requisite number of new Tullow shares comprising the scheme consideration, prior to the transfer to Tullow of shares in Hardman. 

16. The scheme booklet refers to optionholders and performance rights holders.  There are arrangements in place whereby an executive of Hardman may exercise options to take up shares in Hardman as well as arrangements whereby employees have joined a long term incentive scheme for its employees.  It is expected that the option will be exercised to enable the optionholder to participate in the scheme.  In addition, provision is contained in the rules for the long-term incentive scheme for the board of Hardman, in effect, to extinguish the rights by the allotment of shares.  I am satisfied that full disclosure of the arrangements concerning the optionholders and the performance rights holders has been made in the scheme booklet. 

17. Australian Securities & Investments Commission (‘ASIC’) has written to Hardman’s solicitors concerning the proposed scheme.  ASIC has considered the detailed material that has been put before the Court and has confirmed that it has had a reasonable opportunity to examine the terms of the scheme. ASIC does not wish to appear to make submissions or intervene to oppose the convening of the meetings. 

18. Hardman has provided evidence that satisfies me as to the formal matters necessary for the convening of the meeting sought in the proceeding.  I am satisfied that the proposed scheme is of such a nature and the supporting documents are in such terms that, if the scheme receives the requisite approval at the meeting, the Court would be likely to approve it at the second hearing date.  I am satisfied that the scheme is such that reasonable shareholders, properly informed, could agree to the scheme.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:        27 November 2006

Counsel for the Plaintiff:	Mr M Oakes SC with Mr RA Dick
Solicitor for the Plaintiff	Blake Dawson Waldron
Counsel for Tullow Oil plc:	Mr IM Jackman SC
Solicitor for Tullow Oil plc:	Freehills
Date of Hearing:	14 November 2006
Date of Judgment:	14 November 2006