The emergence of Canadian gas divestments: Part Two

According to EY gas divestment success depends on four critical dimensions: deal strategy, cost management, speed and risk mitigation.

Ensuring long term success, both on the buy and sell side, requires companies to identify and address a number of common challenges. Carve outs are often complex and demand adequate resources to add value to both sides of the transaction.

Considerations

People

• People may not be easily aligned with the new business units (legal entity versus business unit).
• Allocation of split heads can result in cherry picking and stranded costs.
• Seller staff might not want to transition to the buyer and engaging those people during transition may be a challenge.
• Key talent will always be in demand (both the buyer and the seller might want some of those same people).

Business processes

• Shared services provided to/from during the transition period can vary greatly depending on the buyer (corporate versus private equity), resulting in stranded costs.
• Interdependencies are generally underestimated and uncovered too late.

Systems

• Who ‘owns’ specific applications can be difficult to determine.<
• What applications will be needed during transition needs to be assessed early on for effective logical separation on Day 1.
• Access to non-public personal information post close can create data privacy challenges.
• Day One seperation requirements will impact timeline to close deal.

Assets

• Assets (tangible and intangible) may not be easily identifiable by the business unit.
  • Consider whether all royalty interests, entitlements and burdens are properly reflected.
  • Identify when the most recent title reviews were completed and how comprehensive they were.
• Ownership of shared intellectual property must be determined and separately licensed, if necessary for post close use.
  • Identify whether there are restrictions on the transfer of seismic and well data libraries.

Third party obligations

• All legal obligations need to be identified, which can be extremely challenging if a central repository does not exist.
• Seller and target need to identify and reach consensus on what is in scope.
• Business and regulatory licenses are critical for Day 1 readiness.
• Separation of third party obligations is a significant undertaking and should be started as soon as possible.

Adapted from a report by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/04092014/canadian-gas-divestments-1233/