Here is a possible scenario (I worked in the oil and gas industry from 1974 to 1980 as a CPA auditing the firms and from 1980 to 1989 in varying industry positions, including CFO:
LFT owns the production rights (i.e. working interests in the leases, a royalty interest, or some other legal ownership interest) in the wells which have proven producing reserves assigned. Back in the 70's, there was a form of "loan" known as "production payment". It was a loan guaranteed by a certain quantity of oil/gas. A bank, group would loan money to an oil company and the repayment of the loan was from the production from the wells (ergo, production payment). The lender would be repaid from (pick a number) 80% of the oil/gas produced from the well.
In exchange for the LCE's and stock, LFT may have given HITT an IOU, in the form of an above production payment. This would be different that putting up the leases, etc., as collateral, but the production payment would be a valid claim, subject to a UCC filing as a lien on the production.
If proper due diligence is not done, and the production is not sufficient to cover the loan, the loan holder (as in HITT) is S-O-L. Similarly, if there is a problem with the LFT ownership interest in the wells or production rights, HITT could be S-O-L.
Lots of interesting possibilities here. |
