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Best Management Practices--Securing Your Position

Jeffrey S. Munoz, Nikita S. Taldykin, Financial Distress in the Oil & Gas Industry

For the better part of the last decade the oil and gas industry has experienced increased growth and interest from investors - the likes of which it had not experienced since the early days of Spindletop and the East Texas Field. The industry's expansion was due primarily to high commodity prices and new technologies that allowed oil and gas producers to extract hydrocarbons from areas that they had previously been unable to reach. Competition between producers to acquire oil and gas properties became intense. Producers feared that if they did not act quickly they may be locked out of the next great oil or gas field.

During this period, some producers did not always follow the best practices to ensure that they had fully protected their oil and gas investments. Many of these producers were new to the oil and gas industry and unfamiliar with the nature of the oil and gas interests that they were acquiring. In some instances, this failure to follow best practices was a result of a producer's increased acquisition activity and a lack of personnel resources necessary to fully address all of the issues that typically arise in an oil and gas investment. In other cases, some of these producers simply felt that because of a perceived stability in the industry, the high commodity price environment they were enjoying would last forever and their investment would not be at risk.<