Accommodating Timing Issues in Structuring Oil and Gas Acquisitions

Considerations that go into choosing the acquisition structure for oil and gas assets or stock are embodied in the Purchase and Sale Agreement (“PSA”)1, a contract that fits neatly into the center of a traditional documentary obstacle course:

>Confidentiality Agreement

>Letter of Intent

>Purchase and Sale Agreement

>Closing Conveyances and Paperwork

>Post-Closing Adjustments and Documentation

These five steps are familiar to most transactional lawyers. In a textbook acquisition, the parties will proceed in an orderly manner along the course, pausing at each juncture to catch their breath and consider what lies ahead. In the real world, the process is likely either a pell-mell dash to the finish line or a frustrating slog through a swamp of negotiations.

DUE DILIGENCE OVERLAYS THE FIVE STEPS

At the same time that the transaction is proceeding through the five steps, another important process is taking place: due diligence. When does this investigation of the seller and its assets begin? It [2A-2] should commence at some point after execution of the confidentiality agreement, but the particular point is subject to wide variation. Sometimes due diligence does not begin until after execution of the letter of intent. Usually it begins before negotiation of the PSA commences, but not always. In appropriate circu