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How do we see what is hidden? Imagine looking at a dog behind a picket fence. You do not see several slices of dog; you see a single dog that is partially hidden by a series of opaque vertical slats. Even though we often cannot see an entire object, the human brain is able to fill in the gaps of missing information and create that image. Scientists refer to this amazing ability as amodal completion (Ramachandran et al., 2010) and it is an extremely difficult thing to do. For instance, researchers have been trying for years, without success, to program a computer to perform the task. So, if our brains are so smart, why do we often struggle to understand and appreciate the complete picture when reviewing opportunities that are outlined in MA namely the teaser, the confidentiality agreement (CA), and the all-important information memorandum (IM), from the perspective of the seller and that of the buyer. By detailing key elements of these documents, the text explains what must go into them and what things are better left out, illustrating how sellers can make their sales pitches stand out from the crowd. These illustrations are also used to give the prospective buyers' point of view and show how potential investors can read between the lines of an IM to formulate searching and critical questions to put to the seller (Harrison, 2014a). Any buyers or investors who are considering embarking on a due diligence exercise must always keep in mind the phrase, “caveat emptor,” which is Latin for “let the buyer beware.”

The seller can remain in total control of the M&A process by taking a Do It Yourself (DIY) approach to advertising the asset sale, setting up and administering the data room, writing supporting documentation, finding and contacting potential buyers, and managing the negotiations and the bidding procedure. However, the skills, resources, and time required to achieve these tasks satisfactorily should not be underestimated. Sellers (and buyers) can get support for deal promotion, data room services, and professional advice on financial, legal, and strategic matters, but such external help is not cheap, the specialist services offered can vary widely in scope and in quality, and the seller tends to have less control over the deal. This chapter discusses the pros and cons of keeping the M&A process in-house or getting external help. It suggests how to go about choosing advisers and what they might cost. Finally, some words of caution are given to those who decide to use deal brokers and advisory services.

Benjamin Franklin, the renowned American polymath of the 18th century, famously said, “By failing to prepare, you are preparing to fail,” and nowhere is this advice more apt than in a data room exercise, where every minute counts. This chapter describes how sellers and buyers should get ready for a data room.

Tired and footsore, the M&A team returns from its visit to the physical data room (PDR). Yet, there is likely to be no respite for the team members as their management (or client) will be eager to discover what they think about the assets about which they have gathered information. However, buyers must rein in their impatience for feedback from the data room team as there are some key tasks that need attention in order to ensure the due diligence process stays on schedule.

Before one embarks on discovering the world of data rooms, it is essential to recognize that all parties do not necessarily speak the same language. Whenever the term “reserves” is used, all interested parties in a potential asset deal should know what it means and have the same definition in their minds. One must never lose sight of the fact that M&A activity means that money (and we mean “lots of money”) may change hands, so there is a requirement for due diligence in any oil and gas transaction, as investors should never accept anything at face value. Potential buyers must ensure that a seller’s resource estimates are “properly classified, accurately calculated, and appropriately reported” (Deloitte, 2013). To achieve this goal, buyers need to be diligent, knowledgeable about resource reporting requirements and limitations, and read carefully the provided memoranda to examine a seller’s claims. This chapter explains what due diligence is and why it needs a framework that defines how resources should be reported. This section also introduces the main definitions, conventions, and jargon commonly used by M&A professionals in the oil and gas industry. In this way, it is hoped to get all readers “on the same page” whenever the petroleum resource lexicon is used throughout this book. The fundamentals of a petroleum resource reporting system are described here briefly. Finally, the need for analysts to harbor doubts when auditing hydrocarbon resource volumes is raised.

The data room is a potential treasure trove of proprietary intelligence about oil and gas assets that are up for sale, but one must admit that there are more salubrious places in which to ply one's trade. The author has experienced intense scrutiny by security guards before being permitted to enter a windowless room, with flickering fluorescent lighting and drab monochromatic decor. The seismic workstation and computers sat on bare tables, alongside boxes of musty documentation. The link with the world outside is via the seller's staff, who pop their heads round the door every hour or so to ask if one has any questions or needs any missing reports data to be brought from the archives. This work space is to be one’s “home” for the next few days. Welcome to the Orwellian world of pain that is known as the physical data room (PDR). And the virtual data room (VDR) is not much better, as the M&A team, who has been tasked with due diligence of a large asset portfolio in an impossibly short space of time, can say goodbye to their families and friends for the project duration as they withdraw into their cubicles each day for complete immersion in an online world in order to make sense of a morass of electronic data downloads that is being continually updated by the seller. This chapter covers the various types of data room one might be faced with and why they are so important.

Arguably the biggest challenge in any data room exercise is keeping the due diligence on track while coping with the immense time pressure. This chapter offers some advice on how to ensure the due diligence goes according to plan. Some techniques are represented that can help keep the M&A team focused on processing sufficient data to allow it to provide the buyer with enough comfort and understanding about the deal to either walk away or to make an informed offer.

With a mixture of curiosity and trepidation, the M&A team arrives at the offices hosting the physical data room (PDR). After sitting through a carefully orchestrated sales pitch by the seller's management, they may be asked to show the signed confidentiality agreement to the security personnel before they can gain entry to the PDR itself. The buyer's team hope that the PDR will be an Aladdin's cave of data. This chapter outlines what the M&A team must achieve during its limited period in the PDR and, equally as important, what it must refrain from doing in order not to waste time. The data room framework and hierarchy are introduced, teams are encouraged to be follow in order that no stone is left unturned, essential data are captured, and imperative questions are asked (Harrison, 2012). The buyer's team's efforts must be geared to understanding the four essential things about any potential asset purchase: volume, uncertainty, value, and risk. Thus, the aim of the PDR visit is to furnish the prospective buyers with an independent view of the uncertainty in the seller's petroleum initially in-place (PIIP) and claimed petroleum volumes that are likely to recoverable, in what timeframe, at what level of capital expenditure, an estimate of their value, and what contingencies may impact their recovery. To this end, the roles of the various members of the multidisciplined M&A team are described in detail, including checklists of which data are considered vital and which are nice to have while in the PDR. In contrast, the role of the seller is also discussed.

There are many pitfalls one might encounter during a due diligence exercise of oil and gas properties in the confines of a data room and simply far too many to be covered in this book. This chapter describes almost two dozen examples (from the author's experience) that have occurred but may have been avoided if the approaches suggested in this book had been taken. For the record, going pear shaped is English slang for when things go horribly wrong. The source of the phrase is purportedly the Royal Air Force in the 1940s, who referred to trainee pilots' failed attempts to loop the loop in their aircraft as “going pear shaped.” Yet, mischievous wags claim it is a reference to a person's figure being narrower at the shoulders and wider at the hips, possibly due to the aging process and the effects of gravity.