Reserve-based lending (RBL) is a type of asset-based lending used to finance the operations of independent oil and gas companies. Debt is issued as a factor of reserve value, which is known as the Borrowing Base. Loans are subject to redeterminations of the borrowing base, commonly twice a year.
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.
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.
When the stakes are high with oil and gas acquisitions—and they always are—you need a rigorous due diligence process performed by an experienced firm to avoid driving up costs or taking too much time. This specialized analytical process, when done correctly, will help uncover potential risks as well as opportunities, while also helping to prevent investment errors or miscalculations.
Smart, money-saving questions
You can’t afford not to ask certain probing questions for vetting purposes when deciding who to hire as your oil and gas due diligence team. You’ll be surprised by what is revealed during this “due diligence” exercise.
Here are the top five:
What landmen should know about this quarter’s E&P transactions in Texas.
The field report for this current issue will cover activity in the Permian Basin, Railroad Districts 8, 8A and 7C, in addition to covering activity in RR Districts 1-6. The Permian is the most active basin with 339 rigs currently running. It is worth noting that in comparison to a year ago, the rig count in the Permian was 141 rigs, less than half what it is today. In a distant second, the Eagle Ford remains active with 75 rigs, followed by Haynesville 37, East Texas 20 and the Barnett 5. This explosion of activity in the Permian was created by massive investments from public and private companies because of the play’s superior economics and low commodity prices. However, Permian acreage comes with a continuous drilling commitment and if left unfulfilled, companies may lose significantly on their investment.