Closing oil and gas transactions, including asset acquisitions and divestitures, by the end of the year can be challenging due to various timing considerations. Several factors can potentially trip up the closing process, so it’s crucial to be aware of and address these issues in advance. In honor of the holiday season and the ever dwindling end of year calendar, here are twelve considerations before you pursue that last minute transaction:
Delays in obtaining necessary regulatory approvals, such as environmental permits or antitrust clearance, can significantly impact the closing timeline. Be proactive in engaging with regulators and ensure all required permits are in order. When dealing with government entities, it can be difficult to make contact, especially during state and federal holidays. Review applicable regulations to determine the regulatory filings and consents required before the closing. Moreover, many regulatory changes automatically take place at the end of the year, so it’s crucial to either timely file for approval or make use of newly enrolled regulatory approval forms.
Insufficient time for thorough due diligence can be a significant hurdle. Rushed due diligence may result in overlooked risks or undervalued assets. Ensure you allocate ample time for a comprehensive review of all aspects of the transaction. Make sure to check your closing checklist twice and consult with your helper elves for due diligence findings, closing conditions and information contained in the disclosure schedules. These items can include any required third party consents, liens that may need to be released, underlying debt obligations that need to be paid, and any defects in title to the assets of the target company and/or the stock of the target company if the transaction is a stock acquisition, that need to be fixed before closing.
Complex tax planning and compliance issues can cause delays. Work closely with tax experts to address tax implications and ensure all required documentation is prepared and submitted on time. Ensure the tax structure comports with the type of transaction (i.e., asset purchase, stock acquisition, etc.). This will help secure favorable post-acquisition tax results.
Title disputes, ownership discrepancies, or unresolved liens can stall a transaction. In order to prevent last minute delays, you should verify the ownership chain and the unencumbered title of assets and address any discrepancies well in advance of closing deadlines. However, you should be aware that the due diligence services of title brokers are notoriously backlogged during the holiday season. Nevertheless, title checks are a vital instrument for companies involved in oil and gas transactions, and courthouse access may be limited due to closures for state and federal holidays at the end of the year. Identifying title issues before closing will save you incalculable costs down the line.
Environmental issues, non-compliance with regulations, or unresolved environmental liabilities can be major roadblocks. Address any environmental concerns early in the process. The perfect transaction can be stalled or ruined due to a lack of environmental or other regulatory authority compliance. Ensure you are up to date with current and any new regulations going into effect in the next year that may affect your transaction.
Securing financing for the transaction can be time consuming. Ensure that you have all necessary financial arrangements in place and be prepared for potential delays in financing approvals. A transaction consisting of both stock and cash considerations can complicate the arrangements and timeline of the deal. If your transaction could be subject to an end of year time crunch, it may be wise to consider a more straightforward deal structure to reduce the risk of potential termination, lender delay, bank holidays, or limited lender personnel availability.
Protracted negotiations or disputes between parties can slow the process. It’s essential to have a clear negotiation strategy and dispute-resolution mechanisms in place. Address this early in the transaction timeline. If there are negotiation issues, it would be unwise to leave them unaddressed until the later stages of a deal, as those issues could result in your transaction not closing on your desired timeline. It’s far easier to hash out disagreements in person or on the phone rather than having your transaction waylaid by the other party’s holiday schedule or impromptu ski trip.
Preparing the necessary legal documents, contracts, and agreements can take longer than anticipated. Work with experienced legal professionals and allocate sufficient document preparation and review time. Engage a qualified attorney and other specialists, if needed. Account for the availability of necessary signatories, who will receive copies, and who will collect and store the documents, particularly as these people may not be available during this time of the year.
Year end can be busy for businesses, accountants, and legal professionals, and the increased workload can delay getting the necessary support and expertise for transactions. Plan for potential holiday related delays and ensure your staff schedules are current. Have contingencies in place to avoid negotiating post-closing obligations over the holidays.
In acquisitions, an employee’s transition and integration into a new organization can be time consuming. To avoid delays, produce a well defined plan for employee transitions to ensure peace of mind for the other side of the acquisition. Moreover, consider that employee availability and last minute job changes may wreak havoc on your well laid plans for operations.
In the oil and gas industry, logistical challenges related to equipment, transportation, and infrastructure can affect the closing timeline. Plan for potential logistical hurdles and ensure all necessary resources are available. Conduct equipment checks, account for any construction delays, ensure that relevant assets are located, and resources are in place to avoid post-closing issues.
Developing contingency plans for unexpected delays or issues during the closing process is essential. Having alternative solutions in place can help mitigate the impact of unforeseen challenges. The old saying “anything can happen” always rings true, particularly when it’s December 31st, and you’re desperately trying to spend the last bit of your 2023 budget to close this last minute deal.
With the end of the year fast approaching, it’s crucial to plan thoroughly, communicate clearly, and engage early with meticulous legal representation to ensure your transactions are secure and free of any potential issues. At RR&A, our team of experts is here to help you navigate the often complex world of end of year transactions, ensuring that everything is correctly compliant with regulations. Don’t wait until the last minute – contact RR&A today to get the support needed for a successful end of year deal.
Disclaimer: The information and material on this website is general information about our practice and firm. This information does not offer specific legal advice and the use of this information does not create an attorney-client relationship with RR&A or any of its attorneys. The information on this website should not be used for legal advice, and persons should not act upon the information on this website without engaging professional legal counsel.