Law firm Baker Botts’ energy litigation team sent out an update on trends the lawyers are seeing relating to litigation and oil and gas development. Meghan Dawson McElvy is the firm’s point person in this practice area.

The firm said that the traditional E&P buy-and-flip model for private equity energy firms consisted of putting acreage together with a management team and selling it as a large development package to bigger public E&Ps. This model allowed the PE firms to generate relatively high rates of return with a relatively low risk profile.

More recently, though, the firm said, “private equity firms have been under pressure to concretely demonstrate the value of their assets, for example in the form of drilling numerous revenue-generating wells, before selling the package to larger producers.”

Longer hold periods for Private Equity in today’s capital environment leads to higher risk

This has required firms to hold on to these assets for longer periods of time, thereby exposing them to greater risks, such as from third party dealings with contractors, vendors, and even the underlying mineral rights’ owners, Baker Botts said.

Merging of models: private equity energy + traditional oil and gas producers

“In a sense, we are seeing a merging of the private equity energy model toward the traditional oil and gas producer model. With that, we expect that private equity energy firms will face increased exposure to the full array of oil and gas disputes,” the Baker Botts team said.


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