Risk allocation in oil and gas transactions
Produced in partnership with Hussain Kubba of Norton Rose Fulbright LLP
Risk allocation in oil and gas transactions

The following Energy guidance note Produced in partnership with Hussain Kubba of Norton Rose Fulbright LLP provides comprehensive and up to date legal information covering:

  • Risk allocation in oil and gas transactions
  • Introduction
  • Warranties
  • Indemnities
  • Time Limitations and Financial Thresholds
  • Interim period covenants
  • Other practical considerations

Introduction

During the due diligence exercise, any issue raising concerns will be flagged up in the due diligence reports of the relevant team (legal, technical, financial) and recommendations will be made as to how to best deal with it. For more details on due diligence issues in oil and gas transactions generally, see Practice Note: Due diligence and warranties in oil and gas M&A transactions.

Typically, the principal ways to address specific concerns within the underlying sale and purchase agreement (SPA), and thereby allocate risk between the parties, include the following:

  1. warranties

  2. indemnities, and

  3. interim period covenants

The due diligence process is crucial to the underlying proposed acquisition since the relevant findings (legal, financial and/or technical) will directly impact upon the type of specific warranties and indemnities (as well as any particular purchase price adjustments and interim period covenants) which the buyer will seek to incorporate in the SPA.

There is no ‘one size fit all’ approach—the specific warranties, indemnities and interim period covenants, as well as any individual price adjustments, will depend on the particular characteristics of the individual transaction. Therefore, this Practice Note sets out a general overview of the typical provisions and mechanisms which parties to an oil and gas transaction may wish to negotiate and include in their SPA in order to manage and allocate risk between