1. Define the Rights and Obligations Being Acquired
Start by identifying whether the transaction involves individual assets or ownership of the company holding them. That distinction affects which documents transfer rights and where existing obligations remain.
Separate Asset Ownership from Company Ownership
An asset purchase identifies the property and liabilities the buyer agrees to acquire, subject to liabilities applicable law may impose independently. In a stock purchase, the acquired company generally retains its assets and obligations; changing its shareholders does not erase its history.
Verify the Seller’S Interest
Compare asset schedules with recorded instruments, assignments, well identifiers, and lease records. Review mineral interests, access rights, liens, and restrictions on assignment rather than relying on the seller’s inventory alone. The buyer should also confirm its share of operating expenses and production revenue.
2. Establish Whether Operations Can Continue
An ownership document does not establish operational authority. Check existing authorizations, proposed activities, and outstanding agency requirements before valuing future production.
Confirm Development Restrictions
For assets in New York, Environmental Conservation Law §23-0501 prohibits permits authorizing high-volume hydraulic fracturing or carbon dioxide use to complete or recomplete oil or natural gas resources. Revenue projections should distinguish existing lawful production from development that depends on a prohibited method.
Address Operator Changes before Closing
DEC approval of a Request for Transfer of Well Responsibilities is required to legally transfer those responsibilities. The agreement should assign responsibility for submissions and address delayed or denied approval. Depending on the assets involved, regulatory review should also identify other permits and authorizations requiring separate action.
3. Assess Contamination and Closure Costs Independently
A producing asset can carry obligations that outlast its revenue. Review contamination records and well closure requirements separately so neither disappears inside a general operating-cost estimate.
Distinguish State Liability from Federal Coverage
Under New York Navigation Law §181, a person who has discharged petroleum faces strict liability for covered cleanup costs and damages. Whether a buyer qualifies as a discharger depends on the facts and applicable law; review historical releases, site conditions, and operational control.
CERCLA provides a separate federal framework with an exclusion for certain petroleum substances. That exclusion may not cover added hazardous contaminants and does not eliminate liability under state law.
Estimate Plugging and Restoration Work
Review inactive wells, inspection records, closure requirements, and applicable financial security. DEC requires security for many wells, subject to exceptions, but the amount posted does not establish the actual cost of plugging and reclamation. Obtain current estimates that account for well condition, access, and restoration needs.
4. Connect Each Finding to a Contractual Remedy
A due diligence report should explain what an unresolved issue means for the transaction. Depending on negotiated terms, the response may involve corrective work, a price adjustment, exclusion of an asset, delayed closing, or termination.
Define Defect Procedures and Deadlines
Specify how the buyer must notify the seller of title or environmental defects, what evidence supports a claim, and when corrective work must finish. Missing a contractual notice deadline can restrict negotiated remedies even when the underlying problem remains.
Check Whether Indemnities Are Collectible
An indemnity allocates costs between contracting parties; it does not by itself release either party from statutory responsibility. Review coverage, exclusions, claim deadlines, and the seller’s financial capacity. Where appropriate, an escrow, holdback, or guarantee can support the seller’s payment obligations.
5. Prepare a Closing Decision the Company Can Support
Management should receive a concise record of unresolved rights, approvals, estimated liabilities, and available remedies. Each material issue needs an assigned owner and a clear explanation of whether it requires resolution before closing.
Check the Limits of Existing Reports
Seller reports can guide further review, but their age, scope, assumptions, and reliance restrictions matter. Confirm that they cover the assets being purchased and account for later operations or newly identified conditions.
Review Remaining Exposure before Signing
Before committing to the transaction, corporate legal review can connect outstanding findings to the purchase documents. The final decision should identify the risks the company accepts, the protections it negotiated, and the approvals still required.
21 Apr, 2026
