When trying to get a deal done, you may feel like you are on one side of a huge chasm and no one is on the other side to help you. The well-known "buyer/seller gap" is simply nothing more than the difference between what a seller is willing to accept and what a buyer is willing to pay in any transaction.

The likelihood of a buyer/seller gap is greatest in times of extreme price volatility or when other key market factors, such as geopolitical events, influence the market. A number of different events have converged recently to add instability to the market, therefore making it more difficult for buyers and sellers to reach agreement and close deals.

The recent drop in oil prices and the slide of natural gas below $4 per thousand cubic feet (Mcf) caused the industry to do more than just raise an eyebrow. If tumbling commodity prices weren't enough to widen the gap, add in considerable unrest in the Middle East, the downgrading of the U.S. credit rating and the full-blown decoupling of the historical tracking of oil and gas pricing. The combination of all these events in a short period of time can cause some uneasy markets!

In marketing oil and gas assets, it is important to use "efficient markets" to help minimize the buyer/seller gap and improve the possibility of consummating a transaction. Efficient markets are present when assets are exposed to a broad range of knowledgeable and financially capable potential buyers; accurate and complete evaluation data is provided; and a fair, clearly defined marketing process is in place. If any one of these components is missing, the chance of reaching fair market value will be materially compromised.

The most common and obvious reason for a buyer/seller gap occurs when a seller expects—or hopes—to receive more for an asset than what the market is willing to pay. Commonly, unreasonably high expectations are based on inaccurate or incomplete data. As a result, the seller cannot realistically judge how good an offer is, and may miss an excellent opportunity to sell an asset for a good price.

In other situations, the seller's expectations may be reasonable relative to market value, but bids come in considerably below market value. This often occurs when the assets being offered for sale are improperly packaged, or again, when inaccurate or incomplete data is provided.

A third common scenario for transactions to fail is when both the seller's expectations are above market, and bidders are considerably below market. This is the most difficult gap to close and is often due to evaluation errors on either or both parties' part, or a lack of full understanding of the asset's potential.

The question arises, "How do I mitigate the possibility of a buyer/seller gap?" It is important to base your decision-making, either as a seller or buyer, upon credible, logical and practical technical analysis and economic modeling, while adhering to proper reserve estimation guidelines. It is not uncommon for revenue, production and expenses to be presented at a level higher than on a property-by-property basis.

As a result, sellers frequently do not have an accurate understanding of the true production or profitability of an asset. From a bidder's viewpoint, incomplete or inaccurate data results in uncertainty and ultimately, discounting of the bid. It may seem cliché, but what is not clearly understood is less likely to be valued by the buyer.

To maximize their sales value, sellers should use quality physical and electronic data rooms for delivering information to prospective buyers, and fully disclose all data in the most clear and efficient method possible.

To be successful as a buyer, rather than just another bidder, you sometimes must think "beyond the numbers" and recognize that economic runs are a compilation of assumptions and not necessarily hard facts. Buyers keep the bigger picture in mind, in terms of a possible strategic fit, while recognizing economies of scale and synergy with other operations or skill sets.

Ultimately, when it comes time to reach agreement on price and deal terms, look for the "win-win" and try to understand each others' objectives, capabilities and issues. By doing so, the gaps get closed and deals get done. To be part of a transaction, you may simply have to start building the bridge from your side.

—Ken Olive, president and chief executive, The Oil & Gas Asset Clearinghouse

For details on assets on the market, see A-Dcenter.com.