Understanding client legal diligence goals has become increasingly important in the face of challenging economic conditions in the energy sector. Buyers are often frustrated by the high cost of legal diligence and the unwieldy work product created by external counsel. To maximize efficiency and ensure that clients are receiving high quality and useful information, we have prepared the Canadian Oil and Gas M&A Legal Diligence Toolkit.
Rather than offering legal advice, our approach in developing the Toolkit has been to describe a series of management practices that we feel can be used to direct the work of any Canadian legal counsel, external or internal.
The Toolkit outlines three approaches to legal diligence, offering clients a menu from which they can choose methods and design an effective diligence process.
1. The Search Review When the buyer has the expertise and capability to review material disclosed by the target, external counsel plays a limited role in the legal diligence process. External counsel reviews key public registry searches in the jurisdictions in which the target is active and communicates findings through conversation with the client, or on request, in writing.
2. The Limited Review
In addition to completing a Search Review, external counsel aims to identify material issues that may affect a transaction. External counsel completes a limited review of the legal documents provided by the target to identify material approvals and consents required and to highlight material risks of the transaction. Findings are reported through conversation with the client and high-level summary reports. If the target owns interests in land, the buyer is responsible for title review.
3. The Comprehensive Review
External counsel provides an overview of the target’s material legal affairs and reports on the key legal terms of the target’s material contracts. External counsel reviews land titles and advises on general employment compliance, litigation, intellectual property and regulatory issues, as required by the client. The results of the review are communicated by written report, the scope and form of which are agreed in advance with the buyer.
The Toolkit outlines:
- How to implement and manage all three methods
- 22 best practices for managing diligence and diligence reporting
- Sample scoping memorandum for diligence reporting
- Sample Comprehensive Review reporting memorandum
- A unique, FAQ-based form of contract review reporting