Transfer of environmental liabilities in the oil and gas sector - WSP

TRANSFEROR OF OBLIGATIONSTransfer of environmental liabilitiesWSP Environment & EnergyTime is moneyTime is money, especially in asset transactions. There are manycases where the sale of a contaminated property has beenhindered by: uncertainty surrounding the exact value of liability;concerns about the adequacy of clean-up by a purchaser; and,the companies’ view of the likelihood of the regulatory agencyrequiring a site clean-up, if not already required. Active Transfer“un-hinders” and streamlines the process.With Active Transfer, we have been able to save clients tens ofmillions of dollars through efficiency and technical expertise byreducing the cost of conventional environmental remediation. Thescenario below shows the percentage of cost savings we deliveredto a client using Active Transfer for a site in the United States.THIRD-PARTYLAW-SUITSTECHNICAL SOLUTION REMOVES RISK & REGULATORY REQUIREMENTSMANAGEMENT OF CONTRACT & INSURANCE BY WSPTRANSFER BACKED BY INSURANCE PRODUCTSCONTRACTUAL TRANSFER TO THE ACTIVE TRANSFER ENTITYCLIENTSKNOWNENVIRONMENTALOBLIGATIONSCost savings result due to:• Implementation of alternative remediation technologies• Proper scaling of remediation system• Streamlined process through removing the opportunityfor disputes between parties• Increased efficiency for project initiativesGeneralized Cost Cost of ofRemediation using usingStandard Standard Practice PracticeGeneralized Cost Cost of ofActive Active Transfer TransferInfrastructurePotential Future CostInfrastructurePotential Future Cost0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Transfer FeesActive Transfer One-time FeesValue of Active Transfer (cost savings)Transfer FeesNote: Active These Transfer savings One-time Fees do not include the savings associatedwith Value divesting of Active Transfer carrying (cost savings) costs (to the seller), the reduction ofmanagement required (buyer), or the capital invested inremediation prior to the initiation of the Active Transferprogram. Therefore, the savings are potentially greater thanthe percentages shown above.How is the financial structure secured?In the current market conditions, the ability to quantify and manageliabilities and risks effectively is paramount. A properly structuredliability transfer can provide multiple layers of protection for boththe seller and buyer. Our approach, establishing a separate entityprotected by a trust, is capable of performing even in the eventthat all parties to the original transaction dissolve.UNKNOWNENVIRONMENTALOBLIGATIONSAbove: The layers of protection between our client andthe risks associated with an environmentally impaired asset.InfrastructureInfrastructurePotential Future CostPotential Future CostScenarios for Active TransferActive Transfer has the ability to bring a client peace of mind bymanaging their known and unknown environmental obligations,changes in regulation and limiting the exposure to third-partylawsuits. Active Transfer is a favorable solution in a number ofscenarios, some of which are described below:Transfer FeesTransfer Active Transfer Fees One-time FeesCHANGESINREGULATIONDeadlock Active Value of Transfer in Active a transactionOne-time Transfer (cost Feessavings)Value of Active Transfer (cost savings)Selling an environmentally-impaired property involves negotiationsbetween the responsible party(ies), regulators, buyers, auditors,and lawyers. Buyers often quantify the oversight and managementof environmental obligations significantly higher than expected,citing they are burdensome and distracting from the underlyinggoals of a company. By introducing a third party to accept theenvironmental obligation, clear ownership of the environmentalobligation is established to overcome historic liability chains.Furthermore, the indemnity is transferrable and can followownership of the property.Clean-up balance sheetsOil and gas companies typically establish financial reserves forenvironmental obligations at active, inactive or closed assets.Closed or inactive assets are associated with a negative cashflow due to ongoing environmental costs, carrying costs, taxes,insurance, utilities, and maintenance, among other expenditures.Active Transfer can eliminate environmental liability from thebalance sheet and cap the cost of managing the liability whiletransferring the risk. This is accomplished by WSP through accurateand fully auditable estimated reserves for environmental liabilitiesand added protection above the reserve estimates.Page 3.