Managing Litigation Risks Managing Litigation Phase  Evaluate how interested parties will react.  Build successful strategies to reach timely and cost effective settlement.  Step by step support in interpreting plaintiffs actions. Proactive risk management before litigation:  Evaluate trends towards litigation and/or regulation.  Strategies to reduce risk: PR, Lobbying, Business Strategy.

Typical Natural Resource Damage Claim: Starting Positions State sues company for alleged NRD. State indicates a starting demand of $68 million. Hard-line stakeholders advocate $ million Company considers disputing any blame but offering $750,000 to avoid litigation cost. Company wishes to settle as it has continuing local operation. Example based on disguised client data for confidentiality

Stakeholders Diverse Group of over 50 Stakeholders including; State Officials Federal Officials Local Individuals and Groups Environmental Groups National and Local Media Key Government Decision Makers Governor State Attorney General’s Office

Illustrative Litigation Data Set* *. Positions in $ Millions. Partial data set

Base Case Indicates a $65-$70 million Settlement Note: Equilibrium reached in round 5

Key Observations  The settlement is assumed to be shaped by the governor. The governor’s responses appear to be political rather than purely economic.  A low initial company offer would not be viewed as a sign of strength but as unrealistic. It would provide the company little leverage. The governor sees no need to make a compromise with the company that would offend politically influential hardliners.  Company’s position makes it risk averse and a low initial offer suggests to others that it knows it will increase its offer significantly and eventually pay a high price to resolve the case.

Lessons from Base Case  In the base case, the company cannot reduce Government’s settlement demand.  The company needs to increase its leverage and reduce the influence of hard-liners.  Company can use the model to find a more successful alternative approach.

A More Successful Approach  Starting at $10 million makes little difference.  However a much higher starting position - $35-40 million is much more favorable. At this level the company can signal a serious interest in settling but with little room for further movement.  This increases company’s leverage and weakens the influence of the hard line elements who in this context appear unreasonable.

Likely Settlement is $50 Million Note: Equilibrium reached in bargaining round 6

Predicted Settlement Prices Scenario Settlement $M Base Case ($750,000) $65-70mm Company starts at $10 Million $66-69mm Company firm at $35-40 Million $50mm Potential saving of new strategy $15-20mm Approximately percent