Technical due diligence scope of work: what to ask for when buying an oil and gas asset

You have a teaser, a data room opening date and a bid deadline. Before anyone opens a folder, someone on your side has to write the technical due diligence scope of work, and that document decides what you will actually know when you put a price on the asset. A loose scope buys a thick report that restates the seller's numbers. A tight one buys a short list of issues your deal team can take into the negotiation. If you need the case for doing this work at all, our note on technical due diligence before you sign covers it. This note is about what to put in the scope, what to ask the seller for, and what to demand back.

What should a technical due diligence scope of work cover?

Organise the scope by discipline, and give each discipline a question to answer rather than a list of activities to perform. Every question should trace back to money: how much the asset will produce, what it will cost to keep it producing, and what it will cost to leave it at the end. For an oil and gas asset, these six areas belong in almost every scope.

• Subsurface and reserves. Does the reservoir data support the seller's production forecast? The review should test volumes and reserves categories independently, compare the forecast rate of decline with how the field has actually behaved, and say plainly what the upside cases depend on. This is independent geosciences evaluation, and it should not start from the seller's conclusions.
• Wells and integrity. How many wells produce as designed, how many are shut in (not producing) and why, and which have known integrity problems such as leaks or unexplained pressure? Ask for a view of what each problem well will cost to repair or abandon, judged against the standard it was built to, whether NORSOK, API or the operator's own. That takes a drilling and well engineering review, not a summary of the seller's well list.
• Facilities and subsea. What condition is the equipment in that carries production to the point of sale, and how much life does it have left? Cover inspection backlogs, corrosion history, deferred maintenance and any capacity limit that would cap the forecast.
• Operations. Does the operating cost forecast match the history? Cover uptime, the shutdown record, incidents, and who will run the asset after closing: staff, contractors and any transition services from the seller.
• Decommissioning liability. What does the seller's estimate include and leave out, what is it based on, and when does the money fall due? Include the financial security the regulator or partners hold against it. A decommissioning cost review matters because this is a large cost that falls due after the revenue has stopped; our note on decommissioning liability covers the background.
• Regulatory. What does the licence still require, which non-compliances are open, which consents are pending, and what has the regulator already asked for that has not yet been done?

Red-flag review or full review?

Depth should follow the stage of the deal. Before a non-binding offer, you usually need a red-flag review: a quick pass across all six areas that looks only for issues big enough to change the price or end the deal. Before a binding offer, the review goes deep where the red flags pointed. Writing both stages into one RFP, with a go or no-go decision between them, stops you paying for depth on an asset you may drop.

What to request from the data room

The seller builds the data room to support the seller's price. What is missing often tells you more than what is there, so put a written request list into the scope from day one and ask your consultant to log every gap and every question the seller has not answered. As a minimum, ask for:

• reserves reports with the underlying models, not only summary tables, plus the current and previous production forecasts;
• production history well by well, with downtime and the reason for every shut-in;
• well files: well diagrams, integrity test records, current integrity status and the history of repairs;
• inspection and maintenance records for facilities and subsea, including the backlog and anything deferred;
• operating cost statements across several years, split by category;
• incident records and all regulator notices and correspondence;
• the decommissioning estimate with its basis, its revisions and the security arrangements behind it;
• licence documents, outstanding work commitments and the status of every consent;
• a session with the operator's technical staff and, where the sale process allows, a site visit.

The deliverable to demand: a findings register for the negotiation

A technical report can be correct and still be of little use to a deal team. Write the deliverable into the scope. Alongside any narrative report, what you need is a register of findings in which each item is translated into a commercial consequence.

Every finding should end up in one of four places: the price, the sale and purchase agreement, a condition before closing, or the work plan for after closing. A finding that lands nowhere is background reading.

For each finding, the register should show:

• what was found, and where the evidence sits in the data room;
• how confident the reviewer is, and what data would change that view;
• the effect on volumes, cost or value, given as a range when a single figure would overstate the certainty;
• the recommended response, whether a price adjustment, a specific indemnity or warranty, a condition before closing, or work after closing;
• whether it is a potential deal-breaker.

Ask for red flags to be reported as soon as they are found rather than held for the final document. A deal-breaker raised early in the data room window is worth far more than a polished report that arrives after your bid is in.

Questions to ask a technical due diligence consultant

With the scope written, you will be comparing proposals from the firms on your list. Put the same questions to every firm offering technical due diligence services, ours included; the answers show who will help you negotiate and who will just describe the asset back to you.

• Who will actually read the data room, and are they the people in the pitch meeting?
• Does the firm have any current work for the seller, the operator or another bidder on this asset?
• How will it record what it could not check, and why?
• Will findings be turned into value and contract terms, or only described?
• How and when will a potential deal-breaker reach you?
• What does the firm need from you on data access, management sessions and a site visit?
• Who can rely on the report, and can your lenders, board or partners be named as users of it from the start?

Treat these as warning signs in a proposal:

• a list of activities with no link to your decision;
• the seller's reserves report adopted as the baseline with no plan to test it;
• decommissioning missing or treated as a footnote;
• firm conclusions promised on data nobody has seen yet.

Scope is also what drives the fee: the number of disciplines, how deep each one goes after the red-flag stage, the size and state of the data room, and how short the bid window is. A tight scope keeps the cost in proportion to the decision.

One of these engagements appears on our cases page, anonymised as "Mature-field acquisition, de-risked". We work on the owner's side, and the review stays with the senior partner who scoped it and is not handed to a pool of juniors, so the person in the pitch meeting is the person reading the data room. If a data room is about to open, send us the index and your bid timetable.