Remediation Portfolio Environmental Liability Transfer for an Integrated Oil Company

Remediation Portfolio Environmental Liability Transfer for an Integrated Oil Company

Challenge:   

Antea Group’s major integrated oil company client was divesting a retail fuel outlet portfolio of 591 properties in 15 states. As part of this process, they desired to transfer the associated environmental remediation related liabilities to a third party under a guaranteed fixed cost agreement.

Solution:     

Antea Group services included an in-depth review of data related to known environmental conditions, as well as tank system and other data related to the potential for unknown conditions. Based on this review, management strategies were developed and probabilistic cost modeling was performed to forecast active environmental incident costs to achieve regulatory closure. A program structure was presented to the client including diagnosis results and options for contractual and environmental insurance product applications.

Antea Group then supported the client during the process of developing an asset purchase and sale agreement with the selected buyer. This included a presentation of the proposed program as well as assistance in developing the purchase and sale agreement environmental indemnification language. Further, Antea Group assisted in the negotiation of liability buyout agreements with additional third parties responsible for liabilities at the subject sites. Antea Group concurrently negotiated an environmental services agreement with the clients, including associated escrow agreements and assignment and assumption agreements.  

Program features included a fixed cost to achieve regulatory closure for pre-existing active incidents, with client pre-funding at net present value, net of anticipated state fund recoveries. A risk-reward scenario balances self-insured retention exposure by Antea Group with the potential to keep remaining funds if program objectives are achieved at a lower cost. Remediation cost containment insurance limits are designed to cover potential overruns.

Key documents for the liability transfer program include: a liability transfer agreement executed by seller, buyer, and Antea Group; a cost cap insurance policy to cover cost overruns associated with the remediation of pre-existing known environmental incidents, and; a pollution legal liability policy intended to cover costs associated with pre-existing undiscovered incidents, regulatory re-openers, third party property damage and bodily injury claims, and legal defense costs.

Result:    

The client benefited from this program in that they were able to transfer legacy environmental liabilities along with the assets, thus eliminating internal management costs and liability provisions. The asset buyer was able to assume the liabilities with a sound management plan and cost backstop requiring minimal internal resources to administer. Seven years into this program, Antea Group has achieved regulatory closure for over 80% of the active incidents.

For more information, see the Oil & Gas segment page