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Purchasing Producing Properties: Getting What You Purchased

Eugene O. Rooke, Proceedings of 33d Annual Rocky Mountain Mineral Law Institute (1987)

Acquisitions are generally undertaken by a buyer to reduce the costs of embarking upon a new or expanded venture or to purchase assets that the buyer believes are undervalued. Although the success of an acquisition often depends upon a quality analysis of the industry and the acquired company or assets, acquisition agreements (agreement) are often negotiated and finalized before much is known about the interests, properties, contracts, and other rights (generally, the assets) being sold. The seller may need to sell the assets to raise funds quickly or the buyer may want the additional revenues from the assets to improve its financial reports. The acquisition may be a hostile takeover where the buyer cannot approach the seller directly for information. [7-3] On the other hand, the parties may want to close their deal quickly because the buyer does not want to lose a golden opportunity or because the seller is concerned that the buyer may learn too much about the assets. Often the situation is simply that a party believes that it knows more about the assets than the other party.

Whatever the impetus, the negotiatiors may finalize the acquisition agreement with little knowledge of the assets other than preliminary evaluations and asset lists.

The seller and buyer consequently may have to undertake a separate evaluation of the assets, obligations, and liabilities