Buying an energy asset? What technical due diligence should tell you before you sign

A seller's data room is put together to support a price. The reserves report, the production forecast and the cost plan were prepared, or paid for, by a seller who wants the deal to close at the top of the range. That does not make them wrong, but it does make them one-sided. Technical due diligence in oil and gas is how you, as a buyer or a fund, test the asset underneath the story, before a signature turns the seller's problems into yours.

What should technical due diligence in oil and gas actually tell you?

A useful review answers a short list of commercial questions, each in a form your negotiation team can act on:

• How much is really there, and how sure can you be? A range with a low, a central and a high case rather than a single number, plus a clear view of which case the asking price assumes.
• What will it cost to keep it producing? The spending the forecast quietly depends on: new wells, repairs, replacement of ageing equipment.
• What will it cost to leave? The decommissioning bill, when it falls due, and who carries it.
• What could stop it? Wells or equipment that are leaking or wearing out, open findings from the regulator, or gaps in the records, any of which could halt production or delay the plan.

If a finding cannot be turned into a price adjustment, a contract protection, a fix the seller makes before closing or a reason to walk away, it does not belong at the top of the report.

The data room is built to sell the asset. Due diligence is there to price it.

Where do the expensive surprises usually hide?

The numbers that move a deal rarely sit in the headline figures. Working on the buyer's side, we find they tend to turn up in three places the sales material spends little time on. Ageing subsea equipment and facilities come close behind, and our subsea engineering analysis covers that side.

Decommissioning liability. Every well will one day have to be permanently sealed, and every pipeline and structure made safe, then removed or left in a condition the regulator accepts. In many jurisdictions that obligation follows the asset, and in some it can reach back to earlier owners, which means it can come back to you even after you sell. On a mature field it can be one of the largest numbers in the deal. The questions that matter are how big it is, how much earlier it arrives if production declines faster than forecast, and whether the seller's estimate was built from the real condition of each well and a realistic view of what may stay in place, or from a generic allowance. That is the kind of estimate we build, well by well, in our decommissioning and operations optimisation work.

Well integrity. This is whether each well can still safely hold what is inside it, which it must do for decades, long after it stops producing. Wells that stopped producing years ago but were never permanently sealed, and wells with patchy records, are where hidden cost lives. A well that cannot be permanently sealed at a reasonable cost, or one that is slowly leaking, becomes your problem on the first day of ownership. Ask about every well on the asset, not only the ones producing today.

The subsurface. A production forecast is an interpretation of rock nobody can see. Optimistic assumptions about how fast output will decline, how much water will come up with the oil, or how much of the field the existing wells really drain can prop up a valuation for years before reality catches up. An independent geosciences evaluation checks whether the seller's reservoir model agrees with the field's own production history.

What should you ask the seller before you bid?

Before the data room closes, these are the questions we would want answered in writing:

• Which reserves estimate does the asking price rest on, who prepared it, and when was it last checked against actual production?
• What is the full list of wells, including those that are closed or suspended but not yet permanently sealed, and what leaks, failed tests or other problems are on record for each?
• Which recognised industry standards were the wells designed and maintained to (the Norwegian NORSOK standards, those of the American Petroleum Institute, or the regulator's own rules), and are the records complete enough to prove it?
• How was the decommissioning estimate built, and has the regulator reviewed it or asked for financial security against it?
• What did the regulator raise in recent inspections, and what is still open?
• Which maintenance and repairs have been deferred, and does the forecast assume they will be done, or quietly assume they will never be needed?

Missing answers are not neutral. A gap in the records is a risk you will own after closing, and it should be priced as one.

How should the findings change the price and the terms?

Every technical finding has four possible destinations at the negotiating table. It can come off the price, when the cost is clear and reasonably certain. It can become a specific protection in the contract, such as an indemnity or part of the price held back, when the cost is real but hard to size. It can become a condition the seller must fix before closing, when the seller is better placed to deal with it. Or it can be a reason to walk away, when the risk cannot be sized at all.

Timing matters as much as content. A red flag that arrives in a polished final report after the binding offer has gone in is history, not advice. Ask for serious findings to reach your deal team as they emerge, while you still have something to negotiate with.

Does the same apply to geothermal and CO2 storage assets?

Yes, with a different emphasis. In a deep geothermal project, the value sits in how hot the water is, how much of it the wells can deliver and for how long, and whether the wells will survive the fluid they carry. At a CO2 storage site, the owner takes on a commitment to keep the gas underground for the very long term, so the questions shift to how well the storage rock and its seal are understood, and whether old wells crossing the site could open a path for leakage. The logic does not change: find the liability before it becomes yours.

When should an owner's engineer be brought in?

Earlier than most buyers expect. An owner's engineer is an independent engineering adviser that works for the buyer or owner of the asset, not for the seller. By the time exclusivity is granted and the lawyers are drafting, the technical picture should already be settled. The useful moment is before the first offer, when findings can still shape the price instead of decorating the file. An independent technical due diligence review of subsurface, wells and liabilities is what sits behind a number you can defend to a board or an investment committee.

One of the engagements on our cases page, “Mature-field acquisition, de-risked”, is work of this kind. For geothermal and CO2 storage, see “Deep geothermal wells, delivered to standard” and “CO2 storage site, characterised and licensed” on the same page.

If you are weighing up an asset now, tell us what you are looking at and when bids are due. We reply to every enquiry within 24 hours, which matters when a data room has a closing date.