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Due Diligence For Oil & Gas Mergers & Acquisitions

Richard L. Burleson, Due Diligence in Mining and Oil & Gas Transactions

Due diligence is the critical process required in every transaction in which a potential purchaser undertakes a detailed review and analysis of the assets, liabilities and legal and commercial status of a company and/or its assets it hopes to acquire in order to confirm that it will derive the benefit of the bargain it has entered into with a potential seller. This paper describes in general terms the principal areas of focus that are important to purchasers in connection with transactions involving the definitive acquisition of oil and gas properties or the acquisition or merger with an operating oil and gas company.

A. OBJECTIVES AND BENEFITS OF DUE DILIGENCE.

The overriding goal of due diligence is to ensure that the information relied upon by the purchaser in the deal-making stage of an acquisition is accurate and complete, and that the actual information revealed about the assets or the target company after careful due diligence will support the agreed-upon consideration. An effective due diligence process also enables a purchaser to assess the risks of the transaction and to structure an appropriate purchase price adjustment mechanism into the definitive agreement. The ultimate objective is to help purchasers be certain that the transaction meets their objectives - financially, operationally, legally, and structurally - and to minimize if not eliminate a