Seamless accounting transition enables timely close of major Texas oil and gas asset acquisition

Client background

The client was a lean leadership team of just two individuals, backed by private equity, who were responsible for executing a major oil and gas acquisition involving 460 operated wells. Many of these wells included leases that added regulatory and operational complexity to the transaction. With such a small internal team managing a large and technically demanding acquisition, the client required experienced support to navigate both the transition and the ongoing operational responsibilities.

Business challenge

Given the scale of the acquisition and the limited size of the leadership team, the client needed comprehensive assistance throughout the transaction, particularly in transitioning all accounting functions from the seller to the newly formed operating company (OPCO). This included support before, during and after the close of the deal to ensure continuity of operations and compliance with state, regulatory and contractual obligations. They required an experienced partner who could manage the complexity and volume of work involved in shifting accounting responsibilities from the seller to OPCO.

The client faced an aggressive two-month timeline transitioning all accounting and field operations from the seller, with only a one-month transitional services agreement in place and financial penalties for delays. As the process advanced, several unanticipated issues surfaced, including the need for production services consultants, new software implementation efforts and additional monthly revenue and expense accruals. Compounding these challenges were discrepancies in net revenue interest calculations for certain wells, minimum royalty payment obligations and joint interest billing (JIB) charges that were questioned by working interest owners. These complexities heightened the urgency and required highly coordinated operational and accounting support on monthly basis to transition all accounting and field operations from the seller, with only a one-month transitional services agreement in place and financial penalties for delays.

Baker Tilly approach

Baker Tilly supported the leadership team throughout the transaction by guiding the transition of all accounting responsibilities from the seller to OPCO. The team established OPCO for state regulatory and tax compliance, set up critical relationships with working interest owners and collaborated closely with the seller’s accounting team to transition cost allocation processes, overhead charges, tertiary accounting and revenue recognition. They analyzed and converted the seller’s system data, resolved owner relations issues and addressed numerous field level operational nuances including spreadsheets, system configurations, property names, owners and vendors. Baker Tilly also verified JIB decks and revenue decks, ensuring accurate charges and proper payments. Additional solutions included reconciling the final closing statement, establishing and operating the Merrick production system without delaying startup, retrieving historical data needed for accruals, verifying lease discrepancies, setting up lease management systems to track minimum royalties and leveraging COPAS expertise to review direct expenses charged to the joint account level operational nuances.

Results achieved

Baker Tilly’s managed services for the oil and gas industry successfully completed the accounting transition on schedule and under the original cost estimate, ensuring a smooth operational launch for the new OPCO. Moreover, by leveraging efficiencies within its outsourcing group, Baker Tilly was able to further reduce the client’s ongoing per-well costs to levels significantly below typical COPAS overhead benchmarks. The team’s expertise added measurable value throughout the transition, reinforcing the firm’s commitment to delivering impactful and cost-effective solutions on every assignment, reducing per-well costs to a fraction of COPAS overhead.

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