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The many phases of due diligence for oil and gas acquisitions

On Behalf of | Sep 21, 2020 | Oil And Gas |

Texas entrepreneurs who are interested in purchasing a business in the oil and gas industry are wise to conduct thorough due diligence before finalizing the transaction. The first phase generally involves gathering data. The selling party often has a sales brochure that outlines the executive summary and marketing data for the real estate. The document should also include a map outlining the area and leasehold data. If the buyer still wishes to pursue the purchase after reviewing this information, it is time to initiate a more thorough due diligence process.

Confidentiality agreements

Before beginning the process, the seller may require a confidentiality agreement. A buyer should carefully review the terms of the agreement. The buyer should look for anything concerning, with careful consideration for how the document defines the buyer and confidential data. The buyer may wish to negotiate these terms with the seller to ensure buyer can comply with the confidentiality requirements imposed.

The important role that engineers play

Engineers will play an important role in the process. These professionals will gather information about title and environmental defects, casualty losses and a preferential right of purchase. From a legal perspective, it is also important to gather information about the target acquisitions’ SEC filings, annual reports, and litigation history. This will include a list of all threatened or actual lawsuits that are connected to the property. An attorney will also provide information on applicable regulatory requirements and how they could impact your future plans with the property.

It is also helpful to complete an accounting review including royalty payments, revenue receipts and gas imbalances along with a careful review of any potential discrepancies between working and net revenue reports.

Although a thorough due diligence process will take a chunk of time, it will help to mitigate the risk of any surprises in the future.


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