For most attorneys, closing on a multimillion-dollar deal is cause to pop open the champagne and issue a press release. But late last year when the energy attorneys of Carrington, Coleman, Sloman & Blumenthal closed a landmark $1 billion deal, then completed the closing of another significant energy transaction valued in excess of $300 million just a few days later, they kept both deals quiet.
It was all in a week’s work for a group, led by partners David Drumm and David Heidenreich, that over the past two decades has been a central, yet discreet, fixture in the negotiation and completion of some of the largest oil and gas deals in Texas and across the country.
The transactional team routinely handles significant deals for private wealth entities and family office clients in oil and natural gas plays such as the Barnett Shale, Permian Basin, Marcellus Formation and Williston Basin. But if you haven’t heard many specifics about their work on what could be termed “trophy-sized” deals, don’t let the lack of chest-thumping headlines belie their expertise. Maintaining confidentiality on sensitive negotiations is one of the keys to what makes these attorneys the go-to option when it comes to completing even the most complex energy deals.
A: Well, as Yogi Berra said: “It’s difficult to make predictions, particularly about the future.” The most important thing is to be perceptive and spot trends in their earlier stages as they emerge. I suppose the one certainty is that the pace of negotiations will continue to accelerate due to technology innovation.
A: Yogi’s adage applies especially well to this question. The primary thing that kills deals is the inability to make reliable forecasts about the future. With a president exhibiting mercurial tendencies and with battles between presidential power and the other two branches of government a distinct possibility, we can only hope that enough stability will endure for businessmen and women to maintain confidence in their forward-looking pro formas.
A: For one thing, we can counsel our client on controlling the content of the press releases issued by the public company. In addition, by recognizing the needs of a media-sensitive client at the inception of the negotiation process, we are able to effectively negotiate contract terms that balance our client’s need for confidentiality with the public company’s need for disclosure. For example, publicly traded companies often are required to disclose the general nature of the assets they purchased, but not necessarily the identity of the seller or the specific location of the assets. At a more general level, strict client confidentiality is of the essence of our relationship with our clients.
A: The deal flow we saw was depressed during 2014 and 2015. However, in 2016 many “hung deals” from earlier years got unstuck and closed, often with publicly-traded purchasers. Perhaps this reflects the sense of many that energy commodity prices have bottomed out. Also, while many public companies are pressed to deploy capital that is “burning a hole in their pockets,” whether sourced from their own funds, or, more likely, from cash infusions by equity players, a number of independents seem to be taking a “wait and see” approach in the current climate. Economies of scale are also assuredly playing a role in the deals that are being closed.
A: You hear plenty about the amount of private equity “dry powder” on the sidelines waiting for deals. In our experience, the parameters set for many of those buy-side mandates have an unrealistic expectation of the market environment. They expect that lower short-term commodity prices will result in a fair amount of distress selling. There always will be some sellers forced to sell at unattractive prices, but many of the would-be buyers have underestimated the staying power and resolve of asset owners.
A: There’s always a tradeoff between efficiently executing on a transaction and maximizing the “wins” in a negotiation. Negotiating positions need to be carefully considered to be aggressive enough to gain some ground, yet realistic enough to avoid a quagmire. As the next step, positions need to be skillfully maintained or compromised to create momentum toward a closing while avoiding a rout.
A: Yes. Over time, we have increasingly realized the importance of having an understanding of the assets and the client’s organizational and capital structure and objectives before diving into the legal weeds of a PSA. That sets a framework for informed attorney-client dialogue during the negotiation process.