JurisdictionUnited States
Due Diligence in Oil & Gas and Mining Transactions
(Sept 2018)


Michael R. McCarthy
Barrick Gold Corporation
Salt Lake City, UT

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MICHAEL R. MCCARTHY serves as Senior Counsel at Barrick Gold of North America, Inc., in Salt Lake City, Utah, where his practice involves all facets of Barrick's U.S. operations. At Barrick, and previously in private practice at Parsons Behle & Latimer, his mining practice involves mining transactions and land, water, and permitting diligence. Mr. McCarthy has represented natural resource clients in federal court as well as before the London Metal Exchange. Mr. McCarthy's experience prior to law school as a mining engineer provides insight for his legal work. Along with Michael J. Malmquist and Patricia J. Winmill, Mr. McCarthy authored Public Lands Rights-of-Way and Access--an Update, Rocky Mtn. Min. L. Inst., Public Land Law, Regulation, and Management (2003). With Stephen J. Hull, Mr. McCarthy authored Extralateral Rights in the 21st Century: Considerations for Title Examination (2014).

I. Introduction

The ability of the parties to freely share information is a necessity. The information sharing stage is part of the due diligence process typically undertaken when parties are exploring some type of business transaction or arrangement. Because parties are understandably reluctant to share confidential information without legal assurances that such information will be protected and will remain unavailable to the public or competitors, due diligence can be frustrated or hindered without a mechanism to lessen the risk inherent with sharing confidential information. Traditionally, parties to transactions and potential transactions have turned to non-disclosure agreements ("NDA"), sometimes referred to as confidentiality agreements or confidentiality and nondisclosure agreements, to provide a measure of protection against risk of disclosure of confidential information.2 As such, NDAs are a powerful and often necessary tool when parties engage in business discussions.3

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Beyond the simple recognition that an NDA is needed, much more thought and careful consideration must be given to the context of the situation or transaction at hand before the risk of information sharing can be adequately mitigated. Initially, practitioners and their clients must recognize that there is no foolproof way to eliminate the risk. After a party shares information pursuant to an NDA, there is always the possibility that the other party may disclose the information, inadvertently or otherwise. Such disclosure can have devastating effects, including the loss of trade secrets and irreparable damage to the party whose confidential information was shared. But that said, apart from simply refusing to disclose confidential information, which is largely unrealistic, NDAs are generally the best mechanism to mitigate the risk of disclosing confidential information. Accordingly, practitioners conducting due diligence must consider the purpose of the business discussions taking place, such as a particular or contemplated transaction or arrangement, because this context will guide the selection of the most suitable confidentiality provisions to be included in the NDA. Although it seems obvious, beyond recognizing the purpose for the information sharing, practitioners also need to carefully consider the language employed in the agreement to both ensure the agreement covers the intended purpose and guard against unintended or unanticipated consequences.

II. Types of NDAs

Business due diligence comes in many forms, mirroring both the nature of the businesses or parties involved, and the transaction or arrangement being considered. NDAs commonly used include those for traditional business transactions or arrangements, such as mergers, acquisitions, sales of stock, assets, products or services, and everyday information sharing ("Standard NDAs"), as well as those designed for very specific transactions or business discussions. Two such specialized NDAs important for resource companies include those used for real-property transactions ("Land NDAs"), and technology transactions ("Digital NDAs"). All types can be mutual, in that the provisions of the NDA anticipate and cover information sharing by both parties, or unilateral, in that the provisions of the NDA anticipate and cover information being disclosed by one party to the other, but not the reverse.

a. Standard NDAs

Standard NDAs are a basic tool to facilitate common business discussions and due diligence efforts. Parties need a straightforward but protective mechanism to allow basic information sharing. Standard NDAs serve this need without the provisions that may be specific to NDAs commonly used for specific industries or business arrangements, such as area-of-interest protections in transactions involving real property or intellectual property ownership provisions in

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technology transactions. As such, Standard NDAs serve as the foundation for more specialized NDAs.

b. Land NDAs

Land NDAs are a specialized version of NDAs typically used by resource companies or real estate businesses, such as mining and oil and gas companies regarding the potential acquisition, investment, or other transaction involving identified real property. In this regard, Land NDAs are often unilateral, with the party that owns the real property sharing information with the other party that is interested in learning more about the real property.

The property involved can be any type of real property interest, whether it is held in fee, or through a different mechanism, such as a lease or unpatented mining claim. Two typical provisions that often differentiate Land NDAs from more general NDAs include area-of-interest ("AOI") and property access provisions. The former limit or restrict acquisitions of real property interests within a certain proximity to the subject real property (the AOI) by the party receiving confidential information, while the latter allows the party receiving confidential information to access the identified property in some manner to either generate additional information regarding the property or to verify existing confidential information. Access rights are commonly used to conduct "All Appropriate Inquiries" processes,4 such as environmental site assessments, or if the transaction involves resources companies, for non- or minimally invasive mineral exploration of some type, such as geologic mapping or geophysical work.

Another provision that is sometimes used in Land NDAs is a standstill provision, although this provision is also widely used for business combination or merger and acquisition-type discussions. Standstill provisions allow parties to preserve the status quo and prevent the receiving party from using confidential information of the disclosing party to the former's advantage during, and for a period of time after, the due diligence process unless certain triggering events occur.5

c. Digital NDAs

Digital NDAs are another specialized version of an NDA to cover situations when the parties are exploring or discussing technology-based transactions or arrangements. Digital NDAs may have several provisions that do not typically appear in Standard NDAs: (1) identification of a party's existing technology by type, tradename, or the like, and a disclaimer of any license grant to the party receiving confidential information to this existing technology; (2) a commitment not to reverse engineer, improve, or create derivative works of a party's disclosed technology or

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information unless done under an agreement by the parties; and (3) an allocation of ownership of any improvements made by a party to the other party's identified technology.6

Identification of a party's existing technology is often an important part of Digital NDAs because it sets the baseline for due diligence and future assessments of yet-to-be developed technology. Once technology is identified and then defined in some fashion in the NDA, and assuming at least some information regarding that technology is shared under the NDA, any like technology developed in the future by the party receiving confidential information may be subject to scrutiny. Digital NDAs commonly address the situation that arises if the future technology is deemed to be an improvement by allocating ownership of that improvement, usually vesting ownership in the party that owns the existing technology identified in the NDA (the party that disclosed information about the identified technology under the NDA).

III. Common Substantive NDA provisions

a. Definition of "Confidential Information"

To fully understand the importance of NDAs and the difficulty in appropriately crafting language for NDAs, the aim of the agreement must be understood. That understanding begins with defining what is to be protected. Confidential information can be defined many ways, from the very specific to the general. For purposes of information that a party seeks to protect with an NDA, confidential information can encompass any and all proprietary and non-public information with respect to the party and the business of the party, held in any form, such as digital, paper, or otherwise. Examples of such information could include information about a party's financial and accounting affairs, operations, engineering and technical data, and business methods, processes, and procedures.

To appreciate the extensive range of potential confidential information a business may own, it is useful to consider an example definition. Often definitions of confidential information are intentionally broad so as to lessen the risk that some particular piece of information may fall outside of it and thereby become unprotected. In this regard, confidential information is commonly defined similar to the following...

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