Reading Between the Lines of A&D Documentation

Abstract

Abstract Whenever oil and gas assets are to be divested, the selling company usually provides potential purchasers ("buyers") with their own versions of the following Acquisitions and Divestitures (A&D) documents: a ‘teaser’, a non disclosure agreement (NDA) and an information memorandum (IM). At the outset of a divestment exercise, sellers often send a flyer or teaser to buyers to garner their interest by conveying just enough of what the deal entails. The language used in the teaser is strident and upbeat in order to whet the buyers' appetite and to encourage them to proceed to the next stage. Then a legally binding NDA or confidentiality agreement or must be signed between buyers and seller, which defines the confidential data to be shared in order that the buyer can understand and evaluate the deal. The NDA forms a confidential relationship between the parties to protect non-public asset information and buyers will not get access to the seller's data room until they have signed one. Finally, the buyers are sent the IM, which contains the pertinent information required by them to make a preliminary assessment of the asset and its value. The IM must grab the attention of the buyers and inform them clearly of the asset for sale while instilling confidence in the buyers of the asset's performance, its management team and its perceived worth. The paper details the development of each of these documents in turn, explaining what must go into them and what things are better left out. Examples of key elements of each document illustrate how a seller can ensure that his sales pitch stands out from the crowd. These illustrations are also used to give the buyers' point of view and show how investors can ‘read between the lines’ of the A&D documentation in order to formulate searching and critical questions to put to the seller. One should not underestimate the amount of time and effort needed to produce A&D documentation. Sellers can get external support from brokers, but such help can be expensive and varies enormously in quality, and sellers may have less control over the A&D process.