What are the best ways to conduct due diligence on oil and gas assets?

Conducting due diligence on oil and gas assets requires a meticulous approach to assess their value and risks accurately. Start by examining geological data and production history to gauge reserve size and potential output. Review legal titles and contracts for clarity on ownership and obligations. Analyze financial records for profitability, expenses, and liabilities. Environmental assessments are crucial to identify potential cleanup liabilities. Finally, consider the geopolitical context and regulatory environment, as they can significantly impact operations. Engaging with industry experts and using advanced analytical tools can provide deeper insights, ensuring a comprehensive evaluation of the asset's worth and viability.

Before you start your due diligence, you need to have a clear idea of what you want to achieve and what you are willing to accept. Depending on your role and strategy, you may have different objectives, such as maximizing value, minimizing risk, diversifying your portfolio, or securing a strategic partner. You also need to set your criteria for evaluating the assets, such as the expected return, the payback period, the break-even price, or the reserve potential. Also take in consideration repair and maintenance cost. In oil and gas this tends to be expensive. Having a well-defined objective will help you focus your due diligence on the most relevant aspects and avoid wasting time and resources.

One of the things I have found helpful in conducting due diligence is gathering the maximum of data available of the oil and gas asset, then analyze the information by experts about the value of potential asset considering all benefits and risks

Sharing from my experience, you want to start by knowing the objectives. It is the first and most crucial step in conducting techno-economic evaluation and due diligence on oil and gas assets. Be conversant with the objectives you want to achieve from the evaluation & due diligence. This could range from portfolio reviews, reserves classifications, or asset valuation studies. Your objectives will guide the entire due diligence process and help you focus on the most relevant information you need to gather for your analysis.

To conduct due diligence on oil and gas assets, follow these key steps: Review sales brochures, public production history, and key documents to estimate reserves and profitability Engage petroleum engineers to assess economic viability, reserves, and future production potential Conduct land due diligence by reviewing real property assets, leases, deeds, and encumbrances Perform legal due diligence to analyze licenses, contracts, regulatory issues, and legal liabilities Consider operational due diligence focusing on how the company operates and turns inputs into outputs

Conducting due diligence on oil and gas assets involves reviewing various documents: Geological and Geophysical Data: Assess seismic surveys, well logs, and reports to understand reservoir characteristics. Reservoir Engineering Reports: Analyze for performance and production forecasts. Production Data: Examine historical data for trends and well performance. Financial Records: Review statements and expenses for profitability. Legal Documents: Scrutinize contracts and permits for regulatory issues. Environmental and Regulatory Compliance: Assess reports for adherence to regulations. Operational Reports: Study maintenance records and HSE performance for efficiency and risks. Thorough review informs investment decisions.

A quality data room is key to any successful oil and gas asset divestment or project farm-out. Potential buyers or partners make their decision whether to make an offer based on the information made available to them. It also influences their offer size and quality. Therefore, it is important to prepare an easy-to-navigate and buyer-friendly data room (or virtual data room, VDR). It is recommendad a: - a well-structured and organised data room. - rganise the folder structure to ensure prospective buyers can easily navigate to find what they are seeking. - rename folders and files so that prospective buyers can easily recognise what it contains without having to open

One time I supported a colleague on this and here are the advise I shared to enable him succeed. Plan for the worse scenario in the data room. That is, you may not find all the data you require and the ones you find may be incomplete. However, ensure to have a checklist of the key data you need based on the objectives of your review. When you have access to the data room, be focused and find these data. This typically will include geological data, production data, reservoir pressure data, well test reports, reports of previous asset reviews and studies, well intervention and workover histories, and more depending on the objectives. It’s important to quickly scrutinize this information for completeness and flag any perceived gaps.

Lease operating statements for a producing asset can also provide valuable insight into how the asset has been managed and if there is any room to improve the operations and the productivity of the asset - both in the short term and in the long term. The lease operating statements are used in calculating fixed and variable operating costs for the purpose of reserve estimations, but they also provide other details. For instance, are the field personnel on a steady viable contract or are they company employees; how are costs related to safety performance handled (training, spills and cleanup, injury time, etc.)? Reviewing the prior years of lease operating statements beforehand can help the due diligence team ask some good questions.

The data room is important for conducting due diligence on oil and gas assets because it provides access to comprehensive information about the assets, including geological, technical, financial, and legal data. This allows potential buyers or investors to assess the value, risks, and opportunities associated with the assets before making any decisions.

Based on my experience, conducting site visits is an invaluable part of the due diligence process. It allows you to validate the information you have, gather more information, gain a better understanding of the operations, identify any potential issues that may not be apparent from the data alone, and strengthen your recommendations. You can learn so much about the data you have gathered from the data room by engaging the field operators.

A site visit is an essential part of due diligence, as it allows you to verify the physical condition and performance of the assets, as well as the operational and safety standards.

Valuation analysis in oil and gas due diligence involves: Comparable Transactions: Analyze recent deals for similar assets to gauge valuation metrics. Discounted Cash Flow (DCF) Analysis: Estimate the present value of future cash flows by forecasting production, commodity prices, and costs. Reserve-Based Valuation: Value assets based on proved and probable reserves by assigning a value per barrel and multiplying by estimated reserves. Net Asset Value (NAV) Analysis: Calculate asset value by deducting liabilities from asset estimates, including reserves, facilities, and infrastructure. These methods aid investors in assessing asset fair value for informed decision-making.

Performing valuation analysis is essential in the due diligence process for oil and gas assets because it provides investors with an objective assessment of the assets' financial worth. Valuation analysis takes into account various factors such as production forecasts, commodity price projections, reserve estimates, operating costs, and discount rates to determine the fair market value of the assets.

This involves a joint team effort of analyzing the asset’s cash flows, remaining reserves to production rates ratio, and other key factors. It’s also important to consider the current market conditions and the future outlook for oil and gas prices.

Based on my experience, it’s crucial to assess both the risks and opportunities associated with the asset. This includes technical risks, operational risks, economic/commercial risks, political risks, environmental risks, and social risks. At the same time, it’s important to identify opportunities for increasing efficiency, optimizing production, or reducing costs and risks.

Risk assessment is an integral part of due diligence process and should be carried out from multiple aspects. Technical risks arising from inaccuracy of sub-surface data and models may result in the departure from potential investor's initial anticipated economic interests. Further, risks associated with surrounding circumstances (including change in regulations, extreme weather, social and geopolitical factors) that may adversely affect field development operations must be scrutinized.

I'd say gather enough data to make insightful decisions based on facts rather than feelings.Data driven insights have shown to be more factual in judgement and help analysts streamline processes and reviews to smarter and more cost-efficient decisions about oil and gas assets.

Assessing the risks and opportunities associated with oil and gas assets is a key for making informed investment decisions. Understanding the potential risks such as regulatory, environmental, operational, and market risks helps investors evaluate the downside potential. Conversely, identifying opportunities such as exploration potential, production optimization, cost efficiencies, and market growth prospects allows investors to gauge the upside potential and overall value of the assets. This balanced assessment enables investors to make well-informed decisions and mitigate potential risks while maximizing opportunities for success.

Oil & Gas asset is the cash engine of the business. Due diligence for the asset means ensuring that the asset is safe, working efficiently and is primed to grow. Safety is priority and people make it happen. Central to the safe operation of the asset is a motivated workforce committed to personal and process safety. A working asset is that with a predictable oil/gas reservoir behaviour, active well stock producing optimally and overall, facilities delivering optimal availability year on year. Due diligence must focus on ensuring that the asset is performing optimally with clear indicators. Due diligence must also focus on growth to counter the natural decline associated with oil & gas assets. Growth in the areas of new production, etc.

Due Diligence should also incorporate asking the right questions from industry peers about the asset holders/ the licensees especially where the intent is to acquire a percentage of equity and not 100% equity. This is to ensure that issues around business compatibility are properly dealt with. Issues around the values, the manner in which the asset holders manage the business should be obtained before taking the final investment decision.

In the context of oil and gas assets evaluation, conducting M&A due diligence requires a careful examination of every facet of the potential investment in order to get a sense of the whole sum of key parts. One of these key parts is Geoscience. As geoscientist our role is to ensure the target assets of an acquisition or merger are assessed by diligent analysis and sound evaluation in order to assign a reserve value upon which the acquiring company can make a fair bid.

The acquiring firm should have a realistic view of the value created by acquiring the asset & a realistic plan of "how to make it work" after the deal is completed.