Texas Lawyer Publishes Sweeney and Raymond Analysis of Use of Earnouts in Oil and Gas Transactions
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Texas Lawyer has published the article “Earnouts in Oil and Gas Transactions,” written by Akin Gump oil and gas partner David Sweeney and associate Savannah Raymond. The article looks at how earnouts, “a form of consideration that is payable post-closing contingent upon the satisfaction of specified facts or conditions,” are used in oil and gas acquisitions and divestitures.
Sweeney and Raymond write that earnouts are used “to bridge the gap between competing valuations created by the uncertainty in the oil and gas industry.” The uncertainty, they observe, can depress valuations leading to fewer transactions. While an earnout can provide a seller with a higher potential purchase price, it comes at a cost they say, including a higher risk of disputes.
The authors then provide a breakdown of the different categories of earnouts, which they define as commodity price, operational or geological. They categories, they note, “are generally better suited to a specific stage of an asset’s life cycle.”
In the end, the article points out that, while earnouts can be used “to forge deals, create value and increase efficient development of oil and gas assets,” it is important to know “how to navigate the risks and uncertainties of transacting in [the oil and gas] industry.” If understood properly, “lawyers can use earnouts to forge deals, create value and increase efficient development of oil and gas assets.”
To read the full article, please click here.