Tracey Stock Articles

Box Bombs - April 14th, 2008

Categories: Business Practises, Land A&D, Oil & Gas
Author: Tracey Stock

In your office, on the floor, under a table, there may be a box full of paper that’s a financial and legal time-bomb waiting to sabotage your strategic plans and terminate your tactical genius. It’s the box with closing documents from your last deal and you haven’t done anything with it since it was delivered. You mean to. But, you’re busy and haven’t gotten around to it yet. Soon, it’ll be a box full of trouble.

You didn’t hire a lawyer or land professional to help you with this deal. It was too simple. It didn’t involve many assets and you trust your vendor. At closing you moved through the agenda yourself and carefully ticked off each document as it was presented. You received the purchase and sale agreement, general conveyance, statement of adjustments, officer’s certificates, and you delivered the cheque. But, with most transactions you also received ancillary documents such as: notices of assignment, assignment and novation agreements, licence transfers, regulatory transfers, mineral assignments and transfers, surface agreement assignments, directions to pay, changes of operator, and possibly title transfers. You also received piles of files, although they were probably delivered a few days after closing and are in separate boxes under the table.

You bought these assets for a reason. You may simply want the production. You have a drilling program. Whatever you have in mind, these assets urgently need the ancillary documents processed. If they sit unattended, you risk title entanglements that may compromise your partner relationships, limit access to information, and place cash flows into confusion and controversy that may take years to resolve.

For example, your standing as a joint partner in an operating agreement will not be recognized until the first day of the second month after the notice of assignment is received by the current joint partners. The longer service is delayed, the longer you remain in trust behind the vendor. All your communications with current joint partners will have to be handled through the vendor. Your newly acquired cash flow will continue to be handled through the vendor. ROFR’s will only come to you through the vendor—and if you want to exercise you’ll have to instruct the vendor to do so on your behalf. You will not be recognized as a well operator until the license is transferred. The Crown will not deal with you on the Crown rights you acquired until you file the mineral transfer that identifies you as the new designated representative. Meanwhile, other joint partners may be assigning their interests and you will be out of the loop—dependent on your vendor to pass information to you. As your ancillary documents become stale, the process of ongoing assignments and transfers may create the need for many, or all, of your ancillary documents to be re-drafted and re-executed. As long as you remain a trust party behind the vendor, there is risk that time sensitive opportunities and cash flows may reach you too late.

Don’t let the box blow. The deal isn’t done until all the ancillary documents are processed and all the files are indexed and logged in your administrative systems. Most of the documents can be professionally processed by land administrators and joint venture analysts. Hire one. They’ll scope out the complexity of the work and let you know if you’ll need other administration professionals or the assistance of a lawyer.