We’ve all become accustomed to the first uploaded link providing access to a Seller’s digitized contract as part of an acquisition and the related feeling of terror as the reader begins to wonder how to organize the laundry list of files and contracts.

Fortunately, a few contracts deserve more attention in the due diligence process after you’ve got access to the data room. We will attempt to identify those and provide some context for their importance.

1. Purchase and Sale Agreement (“PSA”) is the underlying agreement template drafted by the Seller for acquiring the Assets, including prior agreements under which the Seller acquired all or a portion of the Assets. Buyers should pay special attention to the survival period for any representations and warranties, excluded assets, indemnity language, and disclaimer language in the PSA to carefully negotiate the purchase price and due diligence in light of the contractual terms.

2. The Joint Operating Agreement (“JOA”) is a contract between the Operator and Non-Operators that governs the relationship between the parties and important details like expense sharing, participation in operations, failures of tile, risk apportioning, rights to the produced hydrocarbons, and lien and recoupment rights. Buyers should focus on any language in the JOA with non-consent penalties, operator removal and election rights, cross-conveyance language, and other miscellaneous provisions delegating special authority to the operator to ensure compliance with operational standards post-closing.

3. Assignments and conveyances are those deeds, assignments, and bills of sale that formally transfer ownership of the assets, including leases, minerals, easements, equipment, pipeline, midstream contracts, rolling stock, and inventory. Buyers should focus on any contracts noted in assignments and consent to the assignment of those contracts, which must be obtained before the assignment. In addition, Buyers look to confirm that the property legal and any associated interests noted in the exhibits to the assignments and conveyances adequately describe and accord with the interests that they are purportedly obtaining under the same instruments as part of the overall transaction and in accordance with the interest as noted in the PSA.

4. Energy Marketing and Midstream Contracts are agreements and contracts under which a marketer of oil and gas hydrocarbons sells production on behalf of a producing company and then pays revenue less expenses. Those similar contracts guarantee that oil and gas hydrocarbons can be properly transported from the well to a central facility. As these contracts relate to the most basic ability of a Buyer to transport and monetize their production, special attention should be directed to any minimum volume commitments, quality specifications, dedications, expense calculations, and termination language that would affect the Buyer post-closing.

5. Leases are instruments under which a producer of minerals or hydrocarbons can coordinate with the legal owner to obtain the right to explore for and develop oil and gas resources on their land. It is important that the Buyer looks to key provisions dealing with lease maintenance, continuous drilling requirements, consent to assign, and surface remediation in order to interpret what its obligations will be concerning the landowner or mineral owners after receiving an assignment of the Leases from the Seller as there is no possibility of successful future development without explicit compliance.

Obviously, this treatment of the most important contracts in due diligence is limited, and many acquisitions have been waylaid by a single contract buried in a series of nested folders in a data room. Regardless, it is necessary to engage counsel early to help sort through the deluge of documentation, particularly as to the above-listed critical contracts and others.

RR&A has attorneys with decades of experience advising private and publicly traded energy companies at all stages of their transactions. Because so many of our attorneys have spent time in-house, we understand the business and the legal risk in these situations. This is an experience most other law firms can’t offer. If you have questions about these or anything else you see in a data room, contact us today.