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Structuring Oil and Gas Property Acquisitions: Stock Transactions Versus Asset Sales

Howard L. Boigon, Paul Hilton, Oil and Gas Agreements: Sales and Financings (2006)

Most of corporate America buys and sells businesses, small and large, by means of stock purchases and merger transactions, yet asset sales remain the customary transaction in the oil and gas industry. With record high commodity prices and the entry of new investors like the private equity buyers into the oil and gas arena, is there an opportunity to reconsider whether stock transactions may provide benefits to both sellers and buyers?

Most acquisitions of producing oil and gas properties are structured as asset acquisitions, generally because the target assets do not comprise the entirety of an operating entity or because the buyer is unwilling to take on the seller's corporate liabilities or because asset transactions can be more favorable for buyers from a tax perspective. In some cases, however, it may be more beneficial to one or both of the parties to structure property acquisitions as stock purchases rather than asset acquisitions. This paper will consider issues relevant to the decision of both seller and buyer to choose one form of transaction vs. the other and will discuss the drafting differences between a stock acquisition agreement and an asset purchase and sale agreement.

The Foundation has addressed this topic before. In the November 1995 Special Institute on Oil and Gas Acquisitions, there were several papers focusing at least in part on stock t