2 Things You Need To Know When Purchasing Oil & Gas Assets From Distressed Companies
By James Hanson
Many of our clients are actively seeking asset purchases from distressed companies during this market dislocation. Prior to the downturn, it was difficult for buyers and sellers to get past wide bid-asks. Now, many oil and gas companies don’t have the luxury of holding out for a better commodity price environment.
The current market environment provides a unique opportunity for buyers with cash to pick up great assets for a bargain. However, an issue for buyers is that if a seller is left insolvent after such a transaction and didn’t receive “reasonably equivalent value” the bankruptcy court could actually require an unwind of a transaction.
Here are two ways to protect against this kind of fraudulent transfer claim:
1) Solvency Opinion
Oftentimes, buyers are requiring, as a closing condition to the transaction, for the seller to obtain a solvency opinion. This not only protects the transaction and the buyers from potential unwind down the road, but it also protects the seller, its managers and Board from potential personal liability. A solvency opinion focuses on the seller both before and after the sale transaction.
2) Reasonably Equivalent Value (REV) Opinion
Oftentimes a solvency opinion on a distressed seller isn’t feasible. The seller could already be insolvent. However, it’s possible that an asset sale, especially a deleveraging transaction, would still be in the best interest of a company and its creditors. If a company receives REV for the assets, they have an affirmative defense against a fraudulent transfer claim. Unlike a solvency opinion, a REV opinion focuses on the value of assets being sold. Sometimes sellers get both a solvency opinion and a REV opinion (i.e., “belt and suspenders”).
About the Author:
James Hanson is a Managing Director with Opportune Partners LLC, an investment banking and financial advisory affiliate of Opportune LLP, a leading global energy business advisory firm. James has nearly 30 years of commercial and investment banking, capital raising and M&A transaction advisory experience. Prior to joining Opportune, James served as Managing Director, Energy Transaction Opinions for all energy subsectors, at Duff & Phelps where he advised and executed 70 engagements representing over $50 billion of transaction value. These transactions included fairness opinions, solvency opinions, debt opinions and reasonably equivalent value opinions. James began his career specializing in energy investment banking at Salomon Brothers, Bear Stearns and Barclays Capital where he advised a wide variety of large cap and mid cap energy companies in M&A and public capital markets transactions, raising over $25 billion for his clients. James holds an MBA in Finance from The Wharton School, University of Pennsylvania and a BS in Finance from the University of Illinois. He received the chartered financial analyst (CFA) designation and is a FINRA Series 7, Series 24 and Series 63 registered representative.