Acquisitions & Divestitures, Mineral Buying

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:

  1. Overlooking Location-Specific Risks
  2. Not Getting the Executive Rights or Other Rights to Lease
  3. Acquiring Partial Rights Only
  4. Skimping on the Diligence
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Acquisitions & Divestitures, Mineral Buying

As oil prices remain stagnant, many companies are seeking to offload non-core assets in an effort to survive the downturn. As a potential buyer, there are increasing opportunities to acquire portfolio assets at a discount. In this pricing environment, there are additional considerations any would-be buyer should plan for as part of its acquisition model.

Buying from a Distressed Seller

When reviewing buying opportunities, be sure to evaluate the financial health of the seller as part of your pre-due diligence. Identify whether the potential seller may file for bankruptcy within the next two years. If you are concerned that a bankruptcy filing may be in the seller’s future, you should ensure the transaction is at arms length and would be considered fair and reasonable to an outsider who may have an interest in seller’s assets (such as a creditor). Work with legal counsel to mitigate your risk during the negotiation period. Carefully value your assets, and understand the Seller’s financial health before proceeding with a buyer’s due diligence of the assets.

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Mineral Buying

Pooling is the process of combining the interests of two or more tracts in the same spacing unit. The area is called a pool, or a unit. Pooling provides benefits to the operator by uniting all landowners’ interests in one common pool under one drilling unit and utilizing one or more common underground geological reservoirs/formations, commonly referred to as a “common sources of supply” by the Oklahoma Corporation Commission (“OCC”). The primary purpose of pooling is to develop and operate a given formation in order to recover the greatest amount of hydrocarbons that can reasonably be produced, and also to achieve equity among the interest owners by permitting each owner to recover a fair share of hydrocarbons (or proceeds) therefrom. There are several types of pooled units – voluntary pooled units, forced pooled units, drilling units, working interest units, enhanced recovery units, and specially defined units in lease agreements.

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