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NORSUL OIL & MINING, LTD. v. TEXACO INC.

March 3, 1970

NORSUL OIL AND MINING, LTD. and Petromin, S.A., Plaintiffs,
v.
TEXACO INC. and Gulf Oil Corporation, Defendants


Pollack, District Judge.


The opinion of the court was delivered by: POLLACK

POLLACK, District Judge.

The defendants seek a dismissal of the First and Second Claims of the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the ground that they fail to state a claim upon which relief can be granted.

 These counts purport to state claims under Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), and Securities Exchange Commission Rule 10b-5, 17 C.F.R. § 240.106-5.

 It is clear from the face of the complaint that the plaintiffs are neither purchasers nor sellers of securities. It is on this narrow but well substantiated ground alone that defendants seek the relief requested.

 The complaint alleges that plaintiff "Norsul" (Norsul Oil and Mining, Ltd.) is a Canadian publicly held corporation with approximately 3,400,000 shares of common stock outstanding mostly American owned and traded on the Calgary Stock Exchange and over-the-counter in New York and elsewhere. The co-plaintiff "Petromin" (Petromin, S.A.) is 70% owned by Norsul and is an Ecuador corporation engaged in phases of the oil and gas business.

 In 1961 Petromin acquired, from the government of Ecuador, an oil concession known as the "Coca Concession" in a designated area of approximately 1,606,000 acres in Ecuador. Petromin, in 1965 and 1966, assigned its rights in the concession to subsidiaries of defendants Gulf and Texaco for consideration which included a 2% gross overriding royalty on all oil removed from the Coca Concession.

 In January, 1969, Texaco struck oil in a well, Shushufindi No. 1, which it had drilled on acreage in Ecuador. The find was announced by Texaco as a producer of more than 5,000 barrels of high quality oil per day on a 1/4 inch choke.

 Shortly thereafter Norsul advised its stockholders by telegram and American news media of the completion of the well and that it was on the Coca Concession in which Norsul had an interest through Petromin's royalty agreement.

 Immediately thereafter, the United States Securities and Exchange Commission initiated an investigation and was advised by Texaco that Shushufindi No. 1 was not on the Coca Concession, but was north of it on property in which the plaintiffs had no interest.

 The SEC then suspended over-the-counter trading in Norsul stock and about the same time the Securities Commission of the Province of Alberta suspended trading on the Calgary Stock Exchange.

 The SEC then brought suit in this Court, 69 Civil 3374, against Norsul and its managing director alleging, the sale of unregistered stock of Norsul from February 1963 to 1969; and fraud in the sale of securities by untrue statements relating to discovery of oil on property in which Norsul allegedly had an interest, the Shushufindi oil well, and an overstatement of Norsul's relationship with Gulf and Texaco, two internationally known oil companies. The Commission demanded a preliminary and permanent injunction against the defendants in that case.

 On October 7, 1969 a final judgment was entered in this Court, on Norsul's consent, permanently enjoining it from publicly offering its stock until effective registration thereof and enjoining the corporation and its officers from fraud in the sale or purchase of Norsul stock including misstatements in respect of discovery of oil on its property, the company's financial condition, the properties and leases owned by it and its relationship with internationally known oil companies. Norsul's consent to be enjoined did not admit any of the allegations of SEC's complaint or any violation of law. Proceedings are still in progress before the Alberta Securities Commission with a view to lifting the trading ban on Norsul stock on the Calgary Stock Exchange.

 The proceedings in Court and before the two Securities Commissions received substantial publicity in American and Canadian media.

 Meanwhile, Texaco receded from its previous unequivocal statement that Shushufindi No. 1 was not on the Coca Concession, in a letter to Norsul. Texaco took the position that the well was north of the Coca Concession when drilled, but might be presently on the concession by reason of changes in boundaries forced by the Government of Ecuador. On October 16, 1969 Texaco stated as its opinion, that Shushufindi No. 1 is on Coca, but that the margin of error inherent in astronomical observation renders it impossible to say at this time precisely where the actual physical well location is in respect of the new line. Plaintiffs allege that Texaco always knew that Shushufindi No. 1 was on the Coca Concession and that its conduct and ...


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