Property Divestment: Developing Environmental Liability Transfer Agreements for Major Oil Company

A major integrated oil company was divesting its western region retail fuel outlet portfolio of 591 properties in 15 states. As part of this process, they desired to transfer the associated environmental remediation liabilities to a third party under a guaranteed environmental liability transfer (ELT) agreement. Antea Group developed a strategy to evaluate each site’s status in their respective state regulatory programs and model lifecycle costs to achieve regulatory closure. Our team was asked to provide those results within a limited time to facilitate the property divestment process.

Antea Group provided an in-depth review of data related to known environmental conditions, as well as tank system and other data related to potential unknown conditions which may negatively impact future environmental liability. Based on this review, management strategies were developed, and probabilistic cost modeling was performed to forecast lifecycle environmental costs to achieve regulatory closure at each site. 

Antea Group supported the client in developing an asset purchase and sale agreement with selected buyers, which included a separate ELT agreement covering 270 open incident sites in 8 states. ELT program features included a fixed cost to achieve regulatory closure for pre-existing active incidents, incentivized by a risk reward scenario which balanced self-insured retention exposure by Antea Group with the potential to keep remaining ELT program funds if program objectives are achieved at a lower cost. Contractual elements of the ELT program include a Liability Transfer Agreement executed by seller, buyers, 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.

This environmental liability transfer agreement allowed the seller and all buyers that were party to the agreement to eliminate internal management costs and liability provisions and engage in future property acquisitions and divestments without the financial uncertainty of the heritage environmental liability. Antea Group assumed management of the 270 site ELT program in 2009, and to date has closed 234 of the sites. Of the 36 remaining open incident sites, 5 have achieved conditional closures and are in the final steps to satisfy the closure terms of the ELT contract. The buyers and seller continue to engage in retail petroleum acquisition and divestment activities, enhancing the value of their retail operations and property assets.