Calvetti Ferguson

Las Animas and Prairie Oil and Gas

Las Animas and Prairie Oil and Gas Partnerships – Auditing Decades-Old Information to Give Partnerships New Direction

Decades-old oil and gas partnerships are by their very nature complicated, but when the prospect of new shale production enters the picture, the issues become even more complex.

In 2011, two oil and gas partnerships—Las Animas and Prairie—and their legal counsel contacted Calvetti, Ferguson & Wagner in an effort to better understand their partnership agreements. Originally formed in the 1970s, ownership in the partnerships were sold over time, and in many cases, willed to other parties. The partnerships owned oil and gas rights located in an area that had seen some production from conventional exploration, but they had recently increased significantly in value due to potential shale exploration.

Further complicating matters was the partnerships’ payout structures, based on contractual waterfall provisions. With some partners contributing cash, and others receiving interest as carried interest, there was some dispute about at which point the cash partners had been paid in full, and at which point all partners should begin receiving distributions from the partnerships.

CF&W began by providing forensic accounting services for the partnerships and their legal teams, and working through the partnerships’ historical cash flows. It required quite a bit of digging and some estimating, because financial statements were not available for every year, and some years didn’t have tax returns available either. In some cases of an owner’s death, the partnership had no idea who the new owner of the interest was, and in many cases, owners didn’t know they owned anything, or thought they owned more than they actually did.

Working with the partnerships’ legal team, CF&W developed a financial model that calculated the point at which the original cash partners had received their full return on investment. That model, combined with CF&W’s expert counsel and industry experience, assisted the partners in coming to terms and negotiating each partner’s exact ownership. With that information, the partnerships’ management team began setting up their books properly.

What could have been a very contentious process was diffused, in large part, to CF&W’s energy expertise and recommendation that agreeing on a financial model and go-forward plan was more financially beneficial for all partners than a costly court battle.

With the initial project complete, CF&W is poised to begin the work of auditing the partnerships’ annual financial statements and will also perform their tax work.