Canadian court lets hunts make good on silver losses

Suspense is proving to be an essential ingredient of the continuing Hunt brothers saga. A last-minute change in an outstanding court injunction in late April allowed Nelson Bunker Hunt to make good on a $300 million debt to one of his major creditors. Justice Calvin Tallis of the Supreme Court of Canada's Northwest Territories ruled some of the Hunt interests in Beaufort Sea exploration permits could be transferred to the Engelhard Chemicals & Minerals Corporation of New York.

Experts here quickly pointed out that the approximately 20 percent gross interest in about 3.8 million acres of some of the world's most promising offshore prospects had been substantially undervalued.

But caught up in an apparent race against time to satisfy creditors, Mr. Hunt did not have the luxury to make it look like less than a desperate giveaway. The deadline for the transaction -- a partial settlement of a much greater Hunt debt incurred in March's collapsing silver market -- has been set for May 30.

BP Exploration (Libya) Ltd. held the key to the Hunt deal. by agreeing to collect a $40 million claim of its own from selected Hunt permits instead of tying up all of Mr. Hunt's Beaufort Sea assets in court, BP broke the legal logjam that had been threatening to force the wealthy Texan into default.

The overall value of the Hunt assets still within the court's jurisdiction following the Engelhard transaction has been estimated for the record at no less than $100 million, and no less than $50 million for the choicest block alone. That's the Kapanoar permit covering a tantalizing oil strike. More liberal private estimates put the value of the remaining Hunt interests between $1 billion and $2 billion.

Dome Petroleum Ltd., which has acted for the past four years as operator for the Hunts and other joint interest partnes (Gulf Canada Resources Inc.), is now readying the fleet for the brief navigation season in the Beaufort Sea.

Four drill ships, tenders, and icebreakers will attempt to break out of protected wintering spots along the northern mainland coastline by the end of June. Dome expects to spend about $200 million of joint venture funds on the forthcoming program that includes evaluating three wells drilled in previous seasons. It is doubtful the Hunt interests will put up any new money this year toward the costs, and they will likely pay their share of future exploration and development expenses by diluting their holdings even further.

The same legal deal has given both Dome and Gulf Canada their respective entitlements to a share in the Hunt permits in lieu of actual cash reimbursement.

Dome now holds about 2.8 million net acres of permits, most of it earned from the Hunt interests. Petroleum industry experts here value the Beaufort Sea permits at about $1,000 per acre as the result of the Hunt-Engelhard transaction.

The Hunts acquired their offshore acreage in Canada's far north in the 1960s for nominal fees. Several Canadian companies are known to be interested in acquiring a piece of the Hunt permits if and when additional chunks are offered for sale. If the current crop of wells yield commercial hydrocarbons during the tests, the Beaufort Sea probably would become Canada's hottest oil play with ramifications felt around the globe.

Almost at once, Beaufort Sea oil could again make Canada self-sufficient in oil, with the possibility some production might be shared with the United States.

In return for having accommodated Mr. Hunt in his hour of dire need and tribulations, BP won tacit recognition of the validity of its claim against the Hunt interests. BP has been trying, so far in vain, to collect the English High Court award handed down March, 1979, first in Australia, then in New Zealand, and now in Canada's north. Mr. Hunt's lawyers earlier argued that the Yellowknife Court had no jurisdiction to apply the London verdict, while emphasizing that in any case the Hunt-Engelhard transaction initialed on March 31 preceded the injunction obtained here by BP.

The litigation is unlikely to be fully resolved until BP is paid and the Hunts once again have become free to offer more Beaufort Sea permits for sale to help their family's worsening liquidity crisis. BP's claim goes back to joint interest operations with the Hunts in Libya prior to the nationalization of the oil industry there.

Several Canadian companies are eager to get into the Arctic offshore "play" now that oil and gas, possibly in commercial volumes, have been found under the ice-infested waters.

The Hunts recently hinted that more of the Beaufort Sea permits might be offered to "qualified" parties especially as some of the blocks are nearing expiration dates. Renewal of the exploratory rights would be contingent on an "appropriate" Canadian content, and failure to come to terms with private companies automatically would bring Petrocanada into the fold.

The Federal Crown Corporation could choose to participate in 30 percent of the permits without having to reimburse anyone for past expenditures.

Clearly, Mr. Hunt would prefer to deal with Canadian private enterprise. And continued legal maneuverings to deny BP what amounts to little more than peanuts by comparison might wind up costing him dearly in the end.