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Legacy Issues Associated with Oil and Gas Development

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Presentation for 2013 MPA Annual Meeting in Billings, MT August 27, 2013.
George Mathes, P.E., Vice President - Trihydro Corporation

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Legacy Issues Associated with Oil and Gas Development

  1. 1. Legacy Issues Associated with Oil and Gas Development George Mathes, P.E. Vice President – Trihydro Corporation August 27, 2013
  2. 2. 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
  3. 3. WHAT IS LEGACY LIABILITY?
  4. 4. WHY DO WE CARE?
  5. 5. 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and gas plants  Damaged well casing  Non-compliant operations  Air permits and reporting  NPDES discharges  Out of date SPCC plans  OSHA
  6. 6. Typical Legacy Issues and Costs  Soil and groundwater impacts  NORM  Landfills/Boneyards  Compliance  Safety/OSHA
  7. 7. 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
  8. 8. BMPs for Legacy Issues– Due Diligence DEFINE OBJECTIVES DATA ROOM SEARCH REGULATORY & RECORDS REVIEW SITE ASSESSMENTS AND INTERVIEWS INTRUSIVE ASSESSMENTS AND SAMPLING QUANTIFICATION OF LIABILITIES CONCLUSION AND PATH FORWARD
  9. 9. 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
  10. 10. 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)
  11. 11. Emerging Issues Affecting Legacy Liability
  12. 12. Key Emerging Issues Affecting Environmental Liability & Risk Regulatory Changes / Uncertainty Increasing Acquisition / Divestiture Development of Legacy Sites
  13. 13. USEPA Enforcement Initiatives 2014-2016 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
  14. 14. 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
  15. 15. 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
  16. 16. 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.
  17. 17. Development of Historic Fields EOR Dismissed Zones Source Rock
  18. 18. CASE STUDIES – The Good, The Bad, and the Ugly
  19. 19. Case Study – The Good  Acquisition details  Specific scope of work  Project completion/solutions
  20. 20. Case Study – The Bad  Non-Owned Wastewater Treatment / Disposal Facility  CERCLA Action
  21. 21. 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
  22. 22. Contact Information: George Mathes, P.E. Vice President – Trihydro Corporation gmathes@trihydro.com 307/745-7474

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