After three years of industry-wide discussion and drafting, the Association of International Petroleum Negotiators ("AIPN") has published its model Asset Sale and Purchase Agreement in June 2020 ("Model ASPA").

This marks the first time that an English law governed model contract for an asset sale and purchase agreement has ever been published by an international oil and gas organisation. The AIPN haves also published a detailed guidance note along with the Model ASPA which provides a great deal of assistance to the reader in terms of understanding the architecture of the Model ASPA and the various options within the model form.

The Model ASPA has been developed specifically to be suited for an international upstream asset acquisition, for oil and gas fields in the development and/or production stage, subject to any requirements of the jurisdiction in which the assets are situated and the bespoke circumstances. In this update, we look at some of the key provisions in the Model ASPA and the relevant commercial issues. 

As with all model forms, the Model ASPA should be used only as a reference to aid commercial negotiation, and should not be applied rigidly.  


The Model ASPA assumes one seller is selling its interest under a petroleum right granting instrument (concession, licence, production sharing agreement etc.), along with its interest in the associated joint venture (usually under a joint operating agreement). The Model ASPA also assumes that there be pre-emptive rights of other co-owners of that instrument. It also assumes host government consent is required because it is an asset sale. 

It is important to note that the Model ASPA adopts English law as the governing law and therefore English law concepts run through the DNA of the document. In particular, certain legal concepts may be treated differently under English law (as opposed to another jurisdiction) and may result in distinct legal consequences. For example, there is generally no implied duty of good faith under English law (other than for trusts and insurance contracts), and varied degree of endeavours may be required for performance of contractual obligations depending on the drafting (e.g., best endeavours is a heavier burden than reasonable endeavours). The concept of representations, warranties and indemnities also carry different meanings from those under US jurisdictions such as New York law. However, the AIPN produced the Model ASPA on the basis of English law for good reason: it is the most popular choice of law by parties for upstream asset purchase and sale transactions internationally.

Representations & Warranties

While in some jurisdictions representations and warranties may be treated as interchangeable concepts, under English law, a breach of a warranty results in different remedies compared to a breach of a representation. Breach of warranties may entitle the claimant to recover damages whereas misrepresentation will provide the claimant with additional rights to rescind or unwind the transaction. 

The Model ASPA provides for a list of representations and warranties usually seen in oil and gas asset transactions. The list should be thoroughly considered along with the content of the buyer's due diligence and seller's disclosure, including the data room findings, and revised based on such information.  


Consideration & Purchasing Price Adjustment Mechanism

The mechanics and contents of the purchase price are often a point of intense commercial negotiation, due to differences in expectations between buyers and sellers in, for instance, oil price movements, looming regulatory and fiscal policy changes and the asset's specific circumstances. In light of the complexities and difficulties involved in agreeing to an appropriate purchase price, the Model ASPA provides a good starting point for a completion account arrangement. Contingent consideration (a mechanism whereby part of the purchase price is determined by reference to a milestone or event happening) or deferred consideration (e.g., retention of certain amount until price adjustment is completed or as security for warranty or indemnity claims) is usually not favoured by the seller, but in the current market, it is becoming more prevalent. The Model ASPA also provides for such options. 

The Model ASPA adopts a traditional completion account mechanism, where the parties agree on the value of the assets/interest to be purchased in the agreement on the effective date, subject to adjustment after completion based on certain agreed parameters, such as adjustments based on working capital, receipts from hydrocarbon sales, billings, and non-petroleum revenue from the effective date to completion. A reconciliation payment reflecting such price adjustment will be made post completion with a fixed or floating interest rate from the effective date. 

Although it is not usually required, an option for a deposit is provided for under the Model ASPA. Usually this deposit ranges from 5% to 20% of the total purchase price, and acts as proof of a buyer's commitment to consummate the transaction. The Model ASPA has provided two alternatives for paying the deposit: paying in escrow or to the seller directly. Depending on the creditworthiness of the seller, the buyer may deem an escrow arrangement better as the return of the deposit will be certain if the SPA is terminated, although escrow arrangement will involve additional costs and documentation. 

Liability Cap & Indemnification

As with most oil and gas transactions, indemnities are heavily negotiated. Buyers will wish representations and warranties to be given on an indemnity basis, something that would generally be strongly resisted by sellers. The Model ASPA reflects the usual "your watch my watch" approach where the liability is apportioned between the parties on the basis of the ownership before and after the effective date. The parties will also indemnify each other for specific indemnities agreed. Note that under English law in general there is an implied obligation for a party suffering loss and damages to mitigate its loss, regardless as to whether or not it is expressly provided for in the agreement. The rules on causation, mitigation and remoteness to the calculation of damages do not apply to debt claims. It is therefore sometimes argued that an indemnity claim is exempt from these rules, because it creates a primary debt obligation rather than a secondary duty to pay damages for breach of some other obligations. It is for this reason that clear and express drafting to stipulate "dollar for dollar" (i.e. 100%) indemnification for losses, damages and expenses is necessary to ensure that indemnities give better recovery for the buyer than would be the case for simple damages for breach of contract. 

While an indemnification provides comfort to buyers, sellers would often push back in excluding and limiting its liability in pursuit of a clean break from the asset. Although some jurisdictions allow for a blanket exclusion of liability, in others it risks not being enforceable as it may be deemed to be a contractually unreasonable provision. Therefore, it is advisable to expressly accept certain liabilities and provide for specific exclusion and limitation on liabilities. 

It is common to impose limitations on liabilities as provided in the Model ASPA: a de-minimis bar (the buyer will not be able to claim against the seller for any claims that fall under a monetary threshold, usually below 0.5% of the total purchase price), a basket (a claim or a series of claim must reach a certain amount before being able to claim against the seller, often between 0.5%-3% of the total purchase price), an overall cap or caps (e.g., 100% of the total purchase price for fundamental representation and warranties, and 25% for others), and a time period for claiming against the seller (majority are 18 to 36 months for non-tax claims). 

Material Adverse Change ("MAC") Clause

A typical MAC clause gives the buyer (and sometimes the seller) the right to withdraw from the transaction in the event of a material adverse effect or change to the ownership, development, operation or financial condition of the acquired asset during the interim period between signing and closing. MAC clauses usually face strong resistance from the sellers as they reduce deal certainty. However, MAC clauses, have been gaining traction in recent oil and gas M&A.

The inclusion and definition of MAC will often be heavily negotiated to prevent buyer(s) from walking away from the transaction due to an event outside of the parties’ control. The drafting of MAC in different jurisdictions can vary to a great extent. The Model thus only provides a starting point for discussion with an extensive list of options to be excluded in the definition, such as any outbreak of disease, and international sanctions. Given the recent extreme volatility of oil prices, rendering deal certainty a premium, general financial or economic MACs shall be less likely to be agreed. It is important to bear in mind that a MAC clause cannot be relied upon for an event, circumstance or market condition at the time of entering the SPA.  The relevant event must be new – arising after signing.

Additionally, a dispute-resolution mechanism is inserted in the Model to facilitate the discussion between the parties of ascertaining the occurrence of MAC events. In practice, the inclusion of MAC may make the buyer's offer unattractive in a competitive auction process, and it may be a sticky point that affects the purchase price and surely requires tailoring based on the parties’ commercial objectives. 

While the parties agreed terms will govern the effect of a MAC clause, it is worth noting that under English law, a change is not material if it is merely temporary and it usually requires that the parties not be aware of the MAC at the time of the agreement. In addition, where the MAC clause relates to a company's financial condition, it generally does not include matters such as the company's prospects or external economic or market changes, particularly in asset transactions. 


The COVID-19 outbreak has created extreme uncertainty in the oil and gas market. While deal volumes will probably remain suppressed until a vaccine is found and crude oil prices stabilise within a more steady range, the Model ASPA comes at a high time as some national and major companies are reportedly looking to divest low-priority assets while other players are considering this time to be the right opportunity to break into the industry or enhance their existing portfolio with some quality producing assets at a low point in the cycle. Some of the deals in the short and medium-term are likely to be distressed asset sales, which can be attractive for many investors including private equity firms with ample dry powder and the right expertise. Users of the Model ASPA, however, should take caution and acquire a good understanding of the Model, and modify the terms to reflect the agreed rights and liabilities of the parties to fully navigate the downturn in the market.

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Martin Stewart-Smith

Martin Stewart-Smith

Partner, Infrastructure Projects & Energy
London, UK

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