The Shoeshine Column: Lawyers strike oil as Cue battle rages on

Friday 8th June 2001

Shadowy US corporations, back-door asset sales, sneaky takeovers, litigation by the barrel-load - the Cue Energy Show rolls on with never an end in sight.

The latest twists in the saga of the little company with the large legal bills even introduce the alleged misdeeds of US president George W Bush although it must be admitted these crop up somewhat tangentially.

What remains a mystery is why so many people seem to want Cue so much. The action so far:

Until 1999 Cue enjoyed a somewhat staid existence as an oil and gas explorer. Romance entered its life late that year in the shape of Australian lawyer Leon Musca's Palmcove Asset Pty, which picked up a 30% stake and took board control.

Leon began buying obscure Australian dotcom investments and looking to sell off Cue's energy assets. Some minority shareholders, most notably Western Australia's Anzoil and Browse Petroleum, the vehicle of former Cue director Geoff Albers, objected strongly.

Anzoil tried to merge with Cue and failed. It then made common cause with Browse and other disgruntled shareholders, including Todd Energy.

At the annual meeting last November they succeeded in voting down the plans of Cue's controlling Australian directors to issue a big batch of shares to unspecified parties, and a big batch of options to themselves.

The rift has this year descended into a legal free-for-all as each faction tries to grab board control.

Until now Browse has been leading the rebel charge. At a special meeting on March 30 Browse et al failed to pass resolutions blocking a share issue and sacking Cue's directors, but only because Cue disallowed the rebels' votes.

Cue immediately issued 28.2 million shares (8.7%) at 4Ac each to "a new investor," which has revealed itself only as Citicorp Nominees.

Citicorp's Rocco Di Maggio hasn't returned Shoeshine's calls so the identity of the beneficial owner is unknown.

Cue's victory might be short-lived. The Stock Exchange's market surveillance panel ruled last month that the rebels' votes had been unfairly disallowed and the matter now rests with the High Court, as do a host of other issues, including a petition by Browse that the share issue be cancelled.

All this sounds like a fairly workaday dispute between shareholders with inconsistent objectives. But all is not, according to Cue, what it seems.

Expressing "disappointment" at the panel's ruling, Cue last month counter-attacked with a fresh volley of accusations.

The High Court action, Cue reckons, appears to be driven by "an ill-defined American firm" by the name of PIE Group, which "must be consulted" before the Cue rebels vote their shares.

What's more, Cue alleges, those shares have been pledged to PIE "to secure advances made in order to fund the litigation."

An associate of PIE, InterOil Corporation, had been paying half of the rebels' legal fees in exchange for "top priority" consideration of a takeover offer from InterOil.

For good measure Cue also alleges the rebels secured the votes of "another significant shareholder" by promising they would direct Cue to sell to this shareholder for a nominal sum "a company asset" that cost Cue $5 million.

All this, Cue believes, is "only the tip of the iceberg."

Shoeshine's attempts to prod around below the waterline have so far come to little. A simple internet search reveals the "ill-defined" PIE is the vehicle of Texan millionaire Phil Mulacek. Phil is the chairman and chief executive of Australian Stock Exchange-listed oil and gas explorer, producer and refiner InterOil NL, in which PIE holds a 32.4% stake.

A web search on PIE also throws up a site devoted to detailing a host of alleged misdemeanours of President Bush Jr, although Shoeshine's cursory inspection didn't reveal how PIE is supposed to be involved.

Those who like that sort of thing can visit www.realchange.org/bushjr.

Phil didn't return Shoeshine's calls and Browse's Albers has been uncontactable so the nature, if any, of InterOil's interest in Cue is unclear.

Equally reticent has been one Dr Jaap Poll, the chairman of Anzoil, which on Tuesday issued to the Stock Exchange a notice of restricted transfer declaring it intends to buy, off market from today, up to 118 million Cue shares to take its stake to 43.5%.

Funnily enough that number happens to be the exact sum of the shares held by Todd, Browse, and Leon's Palmgrove between them. And that, conspiracy theorists may conclude, is the end of the battle for Cue. Apparently not.

Todd, contacted the day after Anzoil issued its notice, assured Shoeshine it hadn't heard from Anzoil. It hadn't until then even known of Anzoil's NRT.

The proposed offer is 4.5Ac to 5Ac a Cue share and one Anzoil share for each ten Cue shares, providing, at 3.3Ac an Anzoil share and an exchange rate of 81Ac, a range of 5.9c to 6.6c.

That straddles the pre-NRT closing price of 6c but is well below Cue's 12-month high of 7.5c.

It values the company at $19.2 million to $21.5 million but the sellers will get their cash only in installments with the last one on February 1 next year.

Shoeshine can only imagine Anzoil, if its offer to the major shareholders is successful, will without delay make an on-market offer to take it to at least 50.1% to beat the July 1 introduction date of the Takeovers Code.

The motivation for all this manoeuvring is, as already noted, obscure.

Cue's only asset of any note seems to be the Oyong-1 prospect offshore East Java, where it has a 15% stake and operator Santos 45%. An announcement last Friday advised this:

"Logging has indicated a 110 metre gross column of gas with a possible 22 metres gross column of oil in the Early Pliocene Mundu limestone formation at a depth of 813 metres.

"A wire line sample obtained at 928.2 metres recovered a total of 10.5 litres of 41 API oil and 61 cubic feet of gas. The pressure information indicates a single gas column in good-quality rock underlain by an oil leg of at least eight metres."

Shoeshine has no idea what that means but his geologist buddy says it sounds interesting. Still to be established, however, are the structure's size, quality and pressure.

It doesn't sound enough to trigger a $19 million takeover bid. And Anzoil, Palmgrove, and InterOil's interest in Cue long pre-dates last week's announcement.

Shoeshine's enquiries continue.

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