Private equity funds have supplied much of the capital injected into the oil and gas exploration and production sector over the last decade. These investors will typically seek to identify acquire, operate, enhance, and ultimately exit from an investment within a defined investment period. Assembling a strong management team at the front end of an investment and maximizing returns with a clean exit at the back end are two key areas of focus for a typical private equity fund investor, and these points often drive considerations for the counterparties in private equity deals. For example, if a newly formed private equity-backed company is the buyer, the parties must consider whether the buyer has the management infrastructure and financial backing in place to operate the acquired properties and assume the seller's obligations, the necessary scope of the transition services agreement, and the extent to which the seller must cooperate and provide financial information to the private equity-backed company after closing. If a private equity-backed company is the seller, the buyer (whether strategic or also private equity backed) should consider who will stand behind the obligations of the private equity-backed seller in the purchase and sale agreement. The buyer should also consider whether an indemnity escrow and representations and warranties insurance are viable sources of recovery and, if so, be familiar with the common terms associated with these mechanisms. This chapter explores and identifies the questions a private equity-backed and conventionally financed producer should consider in acquisition transactions involving private equity.
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