Due Diligence for Acquisitions

Due Diligence for Acquisitions

Due diligence/transaction advisory services for investment in equity positions

The scope for technical and economic due diligence begins as a "light" audit.   For instance, we check initial production rates, spud dates, well and production histories, permitting, etc. from the public domain against the data supporting the transaction.  We make sure that the price decks and capex/opex in the seller's calculations of the undiscounted cash flow are reasonable.  We look at other operators' field development in the play vs. proposed development plans of seller.  We look at the overall property portfolio of the operator and assess the relative value of the marketed properties to that portfolio to draw conclusions on the chance that the lease will be intensively drilled and produced or drilled just to fulfill the minimum lease agreement.

We draw up high, low and best case scenarios for estimated ultimate recoveries, prices and costs, and cash flows.  In some cases, we do not furnish a written deliverable.  In other cases, we furnish a letter report with discussion and recommendations.  In some cases, advisory services progress to a more in-depth due diligence exercise, including the preparation of a reserves audit with an opinion letter.  It attests that the marketed reserves estimates vary more or less than 10 percent from the audited value.

Stages of technical and economic due diligence

  • Screening Economics
    • Review deal prospectus and generate questions.
    • Review a seller or borrower’s reserves report and suggest risking.
    • Compare opex in prospectus to lease-operating statements.
    • Review field development costs and bound those within estimated ranges.
    • Time permitting, conduct cursory evaluation.
  • Capex Review
    • Suggest a range based on analog projects evaluated by Ryder Scott.
    • Assist with historic actual cost analysis.
  • Reserves and Profile Sensitivities / Final Economics
    • Create or adjust third-party profiles of resources and/or reserves for investment decisions. Analyze economic sensitivities.
    • Provide critique/risking of exploration prospects