Due diligence is the process of investigating assets to make an informed decision about the cost, benefits and risks of acquiring or investing in such assets. As an industry leader in title diligence, Cinco evaluates mineral properties across the US and works closely with our client’s attorneys and lending partners to help them navigate the risks inherent with their deal.
While no two oil and gas due diligence evaluations are alike, there are common stages and milestones that we see in every process. This article will breakdown the typical oil and gas title due diligence process and describe how Cinco supports our clients’ success at each step.
Land administration personnel are in demand again now that deals are happening.
This edition of the Texas Landman field update covers activity in Railroad Districts 1-6. Even though drilling activity has remained flat since my last report, oil prices have edged up close to $60/bbl and held firm above $55/bbl. The increase in oil prices may be due in part to the Saudi’s keeping their promise to cut production until later next year to speed up the rebalancing of the oil markets. Of course, they may just be trying to boost the price of oil before their IPO of Saudi Aramco later next year.
Title due diligence in certain transactions may seem like an onerous part of the deal, causing some to speed through it and overlook critical issues. Your due diligence process is the most effective insurance policy against title busts and loss of mineral value. However, in our experience, we have seen some big mistakes made by mineral buyers that generate big regrets down the line.
Here are four big mistakes we see made all too often:
- Overlooking Location-Specific Risks
- Not Getting the Executive Rights or Other Rights to Lease
- Acquiring Partial Rights Only
- Skimping on the Diligence
Billions of dollars are exchanging hands chasing mineral interest and royalties.
This edition’s Texas Landman field report covers activity in Railroad Districts 1-6. Drilling activity has remained flat with 75 rigs in the Eagle Ford, 37 in the Haynesville, 20 in East Texas and 5 in the Barnett as commodity prices stay soft with oil trading between $45-50/bbl and natural gas below $3.00/mcf. During this time, there has been significant A&D activity in East Texas where companies are targeting the gas-rich Haynesville shale.
In our last update, we reported on CCI’s acquisition of Anadarko’s assets for $1bln which included its Carthage upstream assets of 160,000 net mineral acres and midstream assets. In July, Rockcliff paid $550MM for Samson’s Haynesville acreage comprising 210,000 net mineral acres and then acquired an additional 60,000 net mineral acres from an undisclosed seller.
The San Juan Basin offers many investment opportunities, as it contains the largest coal-bed methane field in the world and ranks second in total gas reserves. This spotlight provides geological facts, current activity and things to know beforehand.
The first oil well in the San Juan Basin spud in 1911, and since then over 40,000 wells have been drilled. Drilling activity was steady from the 1990s until 2008. In 2007, there were over 40 active rigs. Then attention turned to the prolific Marcellus, where gas could be extracted less expensively. Today, there are four rigs running—BP has two, and WPX and Red Willow Production Company each have one.
Successful dealmakers and investors understand the value of getting the right information to evaluate a new opportunity. Likewise, in the oil and gas space, having a solid understanding of a prospective investment play will enhance the quality of the assumptions and help set realistic expectations. This is particularly true when it comes to mineral title, land title and other regional title issues. An informed buyer will always conduct an assessment of title complexity, potential ‘red-flag’ issues, and the length of time it will take to confirm title.
Questions that should be asked, for example, are:
- How old is the title and what kind of access information will you have to work with during due diligence?
- What are the costs associated with title due diligence and title curative?
- How hard will it be to obtain fill-in acreage or hold on to your acreage post-acquisition?
For energy professionals and investors with limited experience in the business of oil and gas land management, the details can seem daunting, or worse, be treated as an “afterthought” to other steps in the E&P value chain. The simple truth is, diligent upkeep of your land and title matters will pay great dividends, both in the short and long term. Poor land management, on the other hand, can lead to loss of acreage, interference with operations and, ultimately, put you at a disadvantage when it’s time to sell your oil and gas assets.
The following three factors help extract maximum value from an E&P investment:
1) the quality of the title you acquired,
2) the efficacy of your asset management program, and
3) your divestment readiness.