Oil and Gas Acquisition Due Diligence before Closing

An asset purchase identifies the property and liabilities the buyer agrees to acquire, subject to liabilities applicable law may impose independently. In a stock purchase, the acquired company generally retains its assets and obligations; changing its shareholders does not erase its history.

Compare asset schedules with recorded instruments, assignments, well identifiers, and lease records. Review mineral interests, access rights, liens, and restrictions on assignment rather than relying on the seller’s inventory alone. The buyer should also confirm its share of operating expenses and production revenue.

For assets in New York, Environmental Conservation Law §23-0501 prohibits permits authorizing high-volume hydraulic fracturing or carbon dioxide use to complete or recomplete oil or natural gas resources. Revenue projections should distinguish existing lawful production from development that depends on a prohibited method.

DEC approval of a Request for Transfer of Well Responsibilities is required to legally transfer those responsibilities. The agreement should assign responsibility for submissions and address delayed or denied approval. Depending on the assets involved, regulatory review should also identify other permits and authorizations requiring separate action.

Under New York Navigation Law §181, a person who has discharged petroleum faces strict liability for covered cleanup costs and damages. Whether a buyer qualifies as a discharger depends on the facts and applicable law; review historical releases, site conditions, and operational control.

CERCLA provides a separate federal framework with an exclusion for certain petroleum substances. That exclusion may not cover added hazardous contaminants and does not eliminate liability under state law.

Review inactive wells, inspection records, closure requirements, and applicable financial security. DEC requires security for many wells, subject to exceptions, but the amount posted does not establish the actual cost of plugging and reclamation. Obtain current estimates that account for well condition, access, and restoration needs.

Specify how the buyer must notify the seller of title or environmental defects, what evidence supports a claim, and when corrective work must finish. Missing a contractual notice deadline can restrict negotiated remedies even when the underlying problem remains.

An indemnity allocates costs between contracting parties; it does not by itself release either party from statutory responsibility. Review coverage, exclusions, claim deadlines, and the seller’s financial capacity. Where appropriate, an escrow, holdback, or guarantee can support the seller’s payment obligations.

Seller reports can guide further review, but their age, scope, assumptions, and reliance restrictions matter. Confirm that they cover the assets being purchased and account for later operations or newly identified conditions.

Before committing to the transaction, corporate legal review can connect outstanding findings to the purchase documents. The final decision should identify the risks the company accepts, the protections it negotiated, and the approvals still required.