Legacy Issues Associated with Oil and Gas Development

Legacy Issues Associated with Oil and Gas Development

George Mathes, P.E.Vice President – Trihydro CorporationAugust 27, 2013

Presentation Outline

Types of Legacy Issues

Associated with Oil & Gas Development

Best Practices to Address

Legacy Environmental

Issues

Emerging Issues

Affecting Legacy Liability

Case Studies – The Good, The Bad, and The

Ugly

Questions and Discussion

WHAT IS LEGACY LIABILITY?

WHY DO WE CARE?RISKS AND

LIABILITY

PROFITS AND

GROWTH

Typical Sources of Legacy Impacts Historic drilling pits Historic releases and spills Improper materials management Waste disposal (NOD) Leaking tank batteries Junkyards / boneyard / landfills Abandoned pipelines Legacy compressor stations and gas plants Damaged well casing Non-compliant operations

Air permits and reporting NPDES discharges Out of date SPCC plans OSHA

Typical Legacy Issues and Costs Soil and groundwater

impacts NORM Landfills/Boneyards Compliance Safety/OSHA

Best Management Practices (BMPs) to Reduce Risk

Know what you are buying, selling, shipping, or developing

Negotiation of liability with buyer, seller, NOD, etc.

Use of environmental pollution liability insurance

BMPs for Legacy Issues– Due DiligenceDEFINE

OBJECTIVES

DATA ROOM SEARCH

REGULATORY & RECORDS REVIEW

SITE ASSESSMENTS

AND INTERVIEWS

INTRUSIVE ASSESSMENTS

AND SAMPLING

QUANTIFICATION OF LIABILITIES

CONCLUSION AND PATH FORWARD

BMPs for Legacy Issues – Liability Transfer

Liability Transfer and Management

Mechanisms

Baseline Water Quality

Monitoring

Reductions in Purchase Price

Escrow of Environmental

Liability

Insurance – PPL, 3rd Party, Pre-Existing,

NOD

Institutional Controls &

Legal Agreements

Exclusions

Advantages of Knowing Legacy Risk Conditions

Reduces risk by managing financial and business exposures

Eliminates or reduces unknown legacy conditions

Allows risk to be managed proactively

Negotiated with seller as environment defect

Environmental liability insurance bridges gap between buyer-seller

Exclusions manage “high-risk” elements

Manage liability reserves (Sarbanes-Oxley / Financial Accounting Standards)

Emerging Issues Affecting Legacy Liability

Key Emerging Issues Affecting Environmental Liability & Risk

Regulatory Changes / Uncertainty

Increasing Acquisition / Divestiture

Development of Legacy Sites

USEPA Enforcement Initiatives

2014

- 20

16

Reducing Air Pollution from the Largest Sources

Cutting Hazardous Air Pollutants

Keeping Raw Sewage and Contaminated Storm Water out of Our Nations Waters

Preventing Animal Waste from Contaminating Surface

and Ground Water

Reducing Pollution from Mineral Processing

Operations

Assuring Energy Extraction Activities Comply with Environmental Laws

Department of Energy (DOE)

Continuation of “all of the

above”

Supportive of Nuclear, including

small reactors

Shale gas the preferred “bridge”

Anticipated fight over

LNG exports

Department of Interior (DOI)

Hydraulic Fracturing Rule

• August 23, 2013• Main provisions include disclosure of chemicals, well

integrity, and management of drilling/flowback fluids• Includes provision to defer to states if regulations are

more/equally restrictive

Regional Framework for Water Resources Monitoring• 7 Step Process• Very, very extensive• Being adopted/incorporated by more offices

Acquisitions and Divestiture Trends 2011

Projections were high for 2011 698 transactions $300.6B

2012 Projections for steady growth 576 transactions $321.5B

2013 Projected to moderate to 2011 levels

Sources: Deloitte Oil and Gas Mergers and Acquisitions Report, 2011 & 2012 and RR Donnelley, 2013 M&A Outlook.

Development of Historic Fields

EOR

Dismissed Zones

Source Rock

CASE STUDIES – The Good, The Bad, and the Ugly

Case Study – The Good

Acquisition details Specific scope of work Project

completion/solutions

Case Study – The Bad

Non-Owned Wastewater Treatment / Disposal Facility

CERCLA Action

Case Study – The Ugly Legacy Field –

Impacts to domestic wells noted in 2008

USEPA commenced investigation in 2009

USEPA deferred to WY for evaluation and assessment in June 2013

Contact Information:George Mathes, P.E.Vice President – Trihydro [email protected]/745-7474