Overview of Due Diligence

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Overview of Due Diligence William Allen Hood, Esq. Hood, Benoit & Pyle PLLC

58th Annual Meeting - San Francisco June 13-16, 2012

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Overview of Due Diligence Typically, the lease files of small oil companies have little useful title information.

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Overview of Due Diligence It is sound practice for the purchaser to conduct a “thorough title check.”

Overview of Due Diligence Team members should immediately review and process the oil company’s records.

Overview of Due Diligence Getting the indexes is the first priority of the field teams.

Overview of Due Diligence “Title Standards” and general laws are compiled.

Overview of Due Diligence Getting the rules on getting copies is critical.

Overview of Due Diligence Record Room Clerks warrant the highest respect.

Overview of Due Diligence Lawyers and landmen work together.

Overview of Due Diligence A conservative title examination approach is in the client’s best interest.

Overview of Due Diligence The Purchase and Sale Agreement (PSA) is the blueprint of the acquisition.

Overview of Due Diligence The basic contract elements are: consent, the property and price.

Overview of Due Diligence PSA Property: 1) the minerals and all rights.

Overview of Due Diligence PSA Property: 2) agreements, and 3) every bit of data about the property.

Overview of Due Diligence Just “reasonable” due diligence is the minimum standard.

Overview of Due Diligence There is a duty for a sophisticated party to investigate the details.

Overview of Due Diligence Even a hint of false information calls for heightened diligence.

Overview of Due Diligence Caveat emptor: means using caution in acquiring oil and gas properties!

Overview of Due Diligence White v. Potocska, 589 F.Supp.2d 631 (U.S.D.C., E.D. Va. 2008)

Overview of Due Diligence The standard: to review every piece of paper available to the purchaser.

Overview of Due Diligence There is no excuse not to review every piece of paper available to the purchaser.

Overview of Due Diligence Records and indexes are reviewed, and guidelines are written.

Overview of Due Diligence Leases are checked for Pugh Clauses and HBP status.

Overview of Due Diligence Assignments are examined to establish the NRI set in the PSA.

Overview of Due Diligence A written Abstract of Title Guidelines promotes team efficiency.

Overview of Due Diligence Can you read your handwriting?

Overview of Due Diligence There is a presumption that due diligence will be conducted.

Overview of Due Diligence The “Weekly Status Report” provides accountability and focus for each researcher.

Overview of Due Diligence Preston Exploration Co. v. Chesapeake Energy Corp., et al., 669 F.3d 518 (U.S. 5th Cir. 2012)

Overview of Due Diligence October 7: PSAs executed. November 7: closing.

Overview of Due Diligence Exhibits reviewed, and due diligence started by Chesapeake.

Overview of Due Diligence November 6: Chesapeake announces “no closing”!

Overview of Due Diligence Fifth Circuit ruling: leases in exhibits can be identified by volume and page number.

Overview of Due Diligence Fifth Circuit ruling: recognizes the certain leases will ultimately be excluded from the PSA.

Overview of Due Diligence Preston v. Chesapeake: the PSA is a process.

Overview of Due Diligence Twice a month Saturday classes are mandatory for team members.

Overview of Due Diligence Regular classes emphasize quality and the seriousness of a landman’s duties.

Overview of Due Diligence The classes are conducted like college seminars.

Overview of Due Diligence Intensive classes are essential in learning about oil and gas law.

Overview of Due Diligence Fiduciary duty to the client is the most important subject.

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