4 Reasons Your Oil and Gas Company Should Hire a Transaction Advisor
Due to the precipitous drop in oil and prices and the sustained lower price environment that has followed, the landscape of the oil and gas industry has become more complicated. The significant number of bankruptcies and restructurings, the re-valuation of oil and gas reserves, and the risk of further downside has given oil and gas investors and management teams reason for increased scrutiny as they evaluate their investments and businesses. This scrutiny is particularly focused during financing deals, mergers, and acquisitions.
Given the increased complexity of the industry and the extra care paid to transactions, transaction advisory services have become more necessary. The scope of these services covers the gamut from basic proper due diligence, quality of earnings review, cash flow analyses, settlement statement review, and even forensic reviews.
As an investor looking to deploy capital or as a manager involved in a merger or acquisition, prudent investigative work is advisable. First, a due diligence clause should be included in the agreement. Next, the decision must be made whether to use existing in-house resources or to hire a consulting team to provide transaction advisory services. Four reasons to hire a transaction advisor are:
The complexity of the work may be beyond the capabilities of your existing team
Further, you will most likely encounter issues that require special expertise. An experienced oil and gas transaction advisory consultant can navigate these issues including complex accounting rules, nuances of bankruptcy court, and/ or valuation techniques. Any of these pitfalls will most likely stall out the efforts of a small team. With a consultancy firm, these issues can be dealt with professionally by the relevant experts.
Transactional expertise and knowledge of recent deals will enhance the diligence effort
Besides a broad methodology, familiarity with deal nuances can be useful to your investigation. Again, every deal is unique, but knowledge of how certain exceptions or irregularities have been handled can inform your own due diligence effort. Precedent examples are incredibly useful for any unknown territory encountered by your company. Transaction advisors are even more useful when trying to support a decision or stance that the counterparty may disagree with.
Lastly, the experience of a consulting firm will be useful for scoping the project. Based upon the perceived risk and following an assessment, the established methodology should be adjusted to be as penetrative as necessary, from the financial statements all the way down to a single check.
Established common practices, experience with deal nuance, and the ability to scope properly are all benefits that a forensic accountancy firm will bring to the table.
Your existing team may not have the resources
It may be beneficial to have an intermediary should contentious issues arise