Overview of Due Diligence

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Overview of
Due
Diligence
William Allen Hood, Esq.
Hood, Benoit & Pyle PLLC
58th Annual Meeting - San Francisco
June 13-16, 2012
AAPL - Copyright © 2012. All Rights Reserved.
Overview of Due Diligence
Typically, the lease files of
small oil companies have
little useful title information.
AAPL - Copyright © 2012. All Rights Reserved.
Overview of Due Diligence
It is sound practice for
the purchaser to conduct a
“thorough title check.”
Overview of Due Diligence
Team members should immediately
review and process
the oil company’s records.
Overview of Due Diligence
Getting the indexes
is the first priority of
the field teams.
Overview of Due Diligence
“Title Standards”
and general laws
are compiled.
Overview of Due Diligence
Getting the rules
on getting copies
is critical.
Overview of Due Diligence
Record Room Clerks
warrant the
highest respect.
Overview of Due Diligence
Lawyers and
landmen work
together.
Overview of Due Diligence
A conservative title
examination approach is
in the client’s best interest.
Overview of Due Diligence
The Purchase and Sale
Agreement (PSA) is the
blueprint of the acquisition.
Overview of Due Diligence
The basic contract
elements are: consent,
the property and price.
Overview of Due Diligence
PSA Property:
1) the minerals
and all rights.
Overview of Due Diligence
PSA Property: 2) agreements,
and 3) every bit of data
about the property.
Overview of Due Diligence
Just “reasonable”
due diligence
is the minimum standard.
Overview of Due Diligence
There is a duty for a
sophisticated party to
investigate the details.
Overview of Due Diligence
Even a hint of
false information calls
for heightened diligence.
Overview of Due Diligence
Caveat emptor:
means using caution in
acquiring oil and gas properties!
Overview of Due Diligence
White v. Potocska,
589 F.Supp.2d 631
(U.S.D.C., E.D. Va. 2008)
Overview of Due Diligence
The standard: to review
every piece of paper
available to the purchaser.
Overview of Due Diligence
There is no excuse not to
review every piece of paper
available to the purchaser.
Overview of Due Diligence
Records and indexes
are reviewed, and guidelines
are written.
Overview of Due Diligence
Leases are checked
for Pugh Clauses
and HBP status.
Overview of Due Diligence
Assignments are examined
to establish the NRI
set in the PSA.
Overview of Due Diligence
A written
Abstract of Title Guidelines
promotes team efficiency.
Overview of Due Diligence
Can you read
your handwriting?
Overview of Due Diligence
There is a presumption
that due diligence
will be conducted.
Overview of Due Diligence
The “Weekly Status Report”
provides accountability
and focus for each researcher.
Overview of Due Diligence
Preston Exploration Co. v.
Chesapeake Energy Corp., et al.,
669 F.3d 518 (U.S. 5th Cir. 2012)
Overview of Due Diligence
October 7: PSAs executed.
November 7: closing.
Overview of Due Diligence
Exhibits reviewed, and
due diligence started
by Chesapeake.
Overview of Due Diligence
November 6: Chesapeake
announces “no closing”!
Overview of Due Diligence
Fifth Circuit ruling: leases
in exhibits can be identified by
volume and page number.
Overview of Due Diligence
Fifth Circuit ruling: recognizes
the certain leases will ultimately
be excluded from the PSA.
Overview of Due Diligence
Preston v. Chesapeake:
the PSA is a process.
Overview of Due Diligence
Twice a month Saturday
classes are mandatory
for team members.
Overview of Due Diligence
Regular classes emphasize
quality and the seriousness
of a landman’s duties.
Overview of Due Diligence
The classes are
conducted like
college seminars.
Overview of Due Diligence
Intensive classes are
essential in learning
about oil and gas law.
Overview of Due Diligence
Fiduciary duty to the
client is the most
important subject.
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