Launching our Legacy Fund, a great team effort

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2. Introduction to Quatre
&
Legacy Funds
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3. Energy
Environmental
Expertise
EfficiencyI V /
Quatre Limited is a limited liability company registered in England and Wales with registered number 8521541 and registered address :
Aldgate Tower, 2 Leman Street, London. E1 8QN
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4. Strengthening Your Corporate Brand
in the Financial & Equity Investment Sector
The Path Forward
• Become a Leader in Sustainability.
• Become a Leader in Environmental Stewardship.
• Become a Leader in meeting the United Nations Sustainability Development Goals (SDG).
• Here is the pathway.
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5. Providing a Financial Solution for the Extractive Industry
• Segregated Funds are set aside to directly finance future abandonment and reclamation liabilities
• A self-funding model , funding throughout the assets life cycle
• A Tax efficient structure already embedded in certain countries Income Tax Act (Canada)
• Creditor protected, reduces uncertainty around the funding of reclamation claims in an insolvency
• Rigorous methodology , reflects individual corporate assets. Economic life and cost estimates
• Reinforces principle of individual responsibility and “Polluter Pays” no pooling or transfer to the
public purse
• Funds independently managed by arm’s length Trustee and Portfolio Manager Established
governance and reporting models
• Liability funds reported as a financial asset offsetting the decommissioning liability .
• Credit capacity is enhanced
• Contribute to Sustainable Development Goals
• QUARTE Ltd has Legacy Funds for YOU
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6. Introduction to Quatre
Quatre Limited was founded in 2013 to provide oil and gas licensees and other extractive industries
with sustainable decommissioning management solutions to optimise their long-term financial
planning. Quatre’s Exit Strategy Management Solution (ESMS) evaluates Clients’ portfolio-specific
exposure to the cost decommissioning of onshore and offshore wells and the reclamation of offshore
and onshore facilities. Quatre has successfully applied this solution to other environmentally sensitive
sectors, including mining and landfill regeneration.
Current estimates for global decommissioning costs run in excess 200 Billion dollars over the next 50
years, representing an unprecedented capital spend on an activity where operator’s and service
providers’ experience is still relatively immature.
Quatre has developed an innovative suite of trust based products that allows E&P companies to set
aside funds efficiently and securely. No similar products are currently available on the market and
Quatre has positioned itself to be the leading provider of financial solutions for decommissioning.
Quatre’s suite of innovative trust services automatically stimulates and enhances Clients’ interaction
with the United Nations’ 2000 Millennial Goals, Environmental Sustainable Goals (ESGs) and the 2015
United Nations’, Sustainable Development Goals (SDGs) through the activation of a Legacy Fund which
connects Quatre with its core activities and philosophy of delivering sustainable financial solutions for
the extractive industries sector.
The Quatre team includes expertise across the fields of financial services, insurance brokerage,
investment management, legal, taxation, trust management, E&P Operations and environmental
liabilities.
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7. Quatre Managed Legacy Funds Solution – Quatre Guernsey Limited
Quatre Guernsey Limited (an affiliate of Quatre Limited) will act as the trustee. Legacy Funds are
created for a specific purpose - in this case, future decommissioning costs - in accordance with the
specific provisions of Guernsey trust legislation.
The company will be regulated by the Guernsey Financial Services Commission, ensuring the highest
standards of governance, transparency and protection of trust assets.
As trustee, Quatre Guernsey Limited will be accountable to settlor companies and responsible for
holding all assets for the stated purpose of meeting future decommissioning costs.
All assets held in trust will be ring-fenced, and therefore beyond the reach of any creditors other than
trust creditors.
Consequently, the Quatre Managed Fund Solution provides a bankruptcy-protected commitment to
future decommissioning costs, providing comfort to both regulators and the public.
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8. Quatre Legacy Funds Solution – Due Diligence
At the point of establishment of each special purpose trust, documentation to be provided by each
settlor company in accordance with regulatory and best practice requirements, to include:
• Financial information and latest financial statements;
• Information and identification on substantial shareholders of privately owned E&P companies;
• Identification of authorised signatories and representatives of E&P companies;
• Evidence of source of funding, to be provided prior to transfer of funds.
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9. Legacy Funds Management – Investment Strategy
Rigorous process, including utilisation of third party investment consultants, to determine appropriate
risk strategies and appointment of a number of regulated, independent professional investment firms.
Quatre’s management of multiple funds will minimise fund management fees across the portfolio.
Risk profile of investments will be be altered for different phases of the fund life-cycle, to provide
greater security of returns in later years. The investment managers are currently targeting a 6% real
return on capital investment.
Funding profiles to be agreed in advance and based upon:
• Low input initial phase;
• High input production phase;
• Final drawdown phase.
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10. The Strategy
The Trust Fund’s investment objective is to achieve sufficient growth to cover the cost of
decommissioning of facilities that still have 10+ years of operational life ahead of them. The objective
closure date and the fund’s asset allocation can be modelled to meet the company’s specific needs.
However, it is anticipated that the Legacy fund’s asset allocation will become more conservative as the
closure date approaches, moving from higher risk (equity) to mainly lower risk (fixed income)
investments, with the aim of reducing volatility and the risk of capital erosion.
The CFOs strategic tool: The solution provides a strategic tool for the company’s CFO, enabling the
effective management of the liability with a minimal impact on the ability to raise finance (debt/equity),
unlike more conventional solutions e.g letters of credit. The concept of regular contributions enables
the CFO to more effectively manage cash flow. Provides security to investors and stakeholders that the
liability is managed in a cost effective and efficient way.
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11. The Fees
The management fees quoted cover the investment management costs, but also Trustee, legal, tax and
technical input required from Quatre to manage the fund.
Fees will depend on size of investment and complexity of individual cases, and are likely to vary with
the size of the fund, however 2.5% is an initial estimate of the likely quantum of total costs.
We are transparent with regard to costs and fees and able to provide further quotes and information
based on specific circumstances.
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12. Legacy Funds Management – Reporting and Information Flow
Reporting by the trustee (Quatre Guernsey Limited) to each settlor company will be tailored to their
individual requirements.
Reporting requirements either formally designated within the trust documentation or agreed flexibly
with each settlor company, offering benefits of either certainty of fixed reporting or flexibility of easily
adaptable future reporting.
The initial suggestion would be monthly (or at most quarterly) reporting to settlor companies giving
them regular information on their investments.
Reporting should include information on projected payment model, cash flow, expenditure and
investment performance and valuation.
Accounting Treatment
PwC Guernsey and Deloitte Canada have both advised that the assets of the trust can be recognised
on the balance sheet, to part-offset the value of the liability on the balance sheet. In addition, if the
trust is set up as a Canadian Qualifying Environmental Trust (“QET”), corporation tax deductions
will be available on the contributions to the QET.
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13. Summary – Advantages of a Decommissioning Liability Fund
Segregated Funds are set aside to directly finance future abandonment and reclamation liabilities
A self-funding model , funding throughout the assets life cycle
A Tax efficient structure already embedded in certain countries Income Tax Act (Canada)
Creditor protected, reduces uncertainty around the funding of reclamation claims in an insolvency
Rigorous methodology , reflects individual corporate assets. Economic life and cost estimates
Reinforces principle of individual responsibility and “Polluter Pays” no pooling or transfer to the
public purse
Funds independently managed by arm’s length Trustee and Portfolio Manager
Established governance and reporting models
Liability funds reported as a financial asset offsetting the decommissioning liability .
Credit capacity is enhanced
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14. Lack of suitable, efficient alternatives to Purpose Trusts
Decommissioning Insurance Products
The marine and energy insurance markets have designed policies to address specific decommissioning
risks, including contractual liability exposures, seepage, pollution and contamination risks.
In addition it is possible to extend standard removal of wreck cover to address risks unique to
decommissioning projects. Such policies provide platform operators with extra cost and expense cover
and, if required, physical loss and damage cover.
However, these insurance policies deal with the risks associated with the decommissioning process and
not the cost of actually performing decommissioning.
Decommissioning is an event that is certain to take place - it is a requirement of the license / permit to
drill of the E&P operations. As such it is not a fortuitous event which is a requirement of the construct
of a contract of insurance.
The uncertainty that does exist in relation to decommissioning relates to timing and cost, and to some
extent whether the E&P company will be a going concern able to fund and execute decommissioning.
There is no current conventional insurance product that can deal with the funding of decommissioning.
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15. Captive Insurance Models
A “captive” in its purest form is a wholly-owned insurance subsidiary of the party that purchases
insurance from it. Such companies are costly to set up and administer, and there is the possibility of
conflicts of interest between the captive and the holding company.
Captives are classed as insurance companies and therefore can only be used to insure fortuitous risks.
Decommissioning costs do not represent a fortuitous risk and therefore are not insurable other than
with regard to the risk of the financial failure of the E&P company.
However it is not possible for an insurance company owned by an E&P company to provide insurance
against the financial failure of that E&P Company.
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16. Financial Performance Bonds
There is a section of the insurance market that issues performance bonds which could potentially be
used to fund decommissioning.
These bonds are effectively insurance policies that would provide funds in the event of the financial
failure of the E&P company.
However there are a number of issues with this potential solution, not least:
(i) the capacity in this sector of the insurance market is nowhere near sufficient to respond to the needs
of all E&P companies;
(ii) the price of the insurance will be driven by an insurer’s view of the future credit worthiness of the
E&P company - they would be making an assessment 25 years into the future, an impossible task, and it
would be likely that only the very strongest of E&P companies would be offered the limited capacity in
the market - the price would be significant and the E&P company would still remain liable to address the
costs of decommissioning to the extent that is able to do so.
This is not a viable or attractive solution to the funding of decommissioning costs.
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17. Letters of Credit
A letter of credit is an arrangement whereby a bank (the issuing bank) acting at the request of a
customer is to make payment to or to the order of a third party, in exchange for stipulated documents.
In the context of decommissioning security, a key disadvantage of the letter of credit is that it ties up
capital (because it is usually issued for the full anticipated cost of decommissioning, and
countersecurity is usually required by way of a cash deposit with the issuing bank).
This in turn reduces the customer’s debt capacity, and increases its cost of capital. The increase in the
cost of capital may to some extent be tax deductible (in the case of the UKCS, loan interest is allowed
against Corporation Tax (CT), but not against the Supplementary Charge (SC) nor the Petroleum Revenue
Tax (PRT)).
In these times of increased commodity price fluctuation, capital cost increase can shorten marginal field
longevity and ultimately impact a host nation’s energy security.
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18. Escrow Accounts
The term “Escrow” could be used to refer to a number of different legal concepts, not all necessarily
involving a trust or imposing on the escrow agent the duties of a trustee.
However, escrow arrangements have this in common that they usually only pay interest (negligible at
the moment)—unlike funds held in the Quatre purpose trust, which will be invested.
As a matter of terminology, Quatre prefers the more specific description of a “trust”, which better
conveys the protections that arise from the purpose trust structure under Guernsey law, and the
benefits that arise from investment.
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19. Legacy Funds
Sustainable Financial Solution
for
Decommissioning &
Reinstatement
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20. Building a sustainable solution
requires taking a series of defined
steps..
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21. Action 1: Create a Legacy Fund managed by independent
investment professionals
• Achieves an optimum balance of real return and protection
• Ensures access to independent assessment of costs
• Allows the contribution profile to be adjusted
• Fully transparent and accountable
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22. Why invest sustainably?
Sustainable investing covers a wide range of different risk, liquidity and environmental considerations.
It is not possible to take a “one size fits all” approach and we would have a discussion with interested
parties around what it means to and for them and how to tailor a suitable approach for the relevant
circumstances.
We do have first-hand experience of sustainable investment funds and portfolios that have matched and
exceeded returns of traditional portfolios and indices.
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23. Action 2: Sustainable Investing
• Sustainable companies have good corporate governance, and are focussed on desirable products and
good brands
• They are well run companies – guaranteeing financial reporting, brand, socially and environmentally
aware, good staff
• They offer competitive financial returns
• Investing in companies which will be around for the long term and are best in class
• Active engagement with these companies
• Sustainable funds are achieving excellent investment returns whilst investing in companies having a
positive impact on society and the environment.
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25. Ac#on Outputs
Required Future Fund Value $200,000,000
Gross rate of return per annum* 7.5%
Quatre fees 2.5%
Net rate of return per annum 5.0%
Number of years 25
Required payment per annum $3,990,944.25
Total cash contribuSons $99,773,606.19
Less Federal Tax relief @ 15% $-14,966,040.93
Cash cost to the company $84,807,565.26
ProducSon per annum 40,000
Ave Price Per Bbl $35
Cash Flow per annum $511,000,000
% of cash flow required 0.7810%
The annuity due payment formula using future value
is used to calculate each equal cash flow or payment
of a series of cash flows when the future value is known.
The formula is specific to annuities where the initial
cash flow is received immediately
* As Directed in C.O.B.S Annex 2 . www.handbook.fca.org.uk
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26. So Where’s the Sustainability ?
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27. Reaction 1
• As soon as an entity commits to the Legacy Fund
• Depending on whether it is Offshore or Onshore
• It is committing to Sustainable Development Goals (SDG)
• SDG14 Life Below Water
• SDG15 Life on Land
• During the Operational Life Cycle it is contributing to
• SDG 8 Decent Work and Economic Growth
• SDG 9 Industry, Innovation and Infrastructure
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28. Legacy Fund – SDG Interaction
17 Sustainable Development Goals
Goal 1 - End poverty in all its forms everywhere
Goal 2 - End hunger, achieve food security and improved nutrition and promote sustainable
agriculture
Goal 3 - Ensure healthy lives and promote well-being for all at all ages
Goal 4 - Ensure inclusive and equitable quality education and promote lifelong learning
opportunities for all
Goal 5 - Achieve gender equality and empower all women and girls
Goal 6 - Ensure availability and sustainable management of water and sanitation for all
Goal 7 - Ensure access to affordable, reliable, sustainable and modern energy for all
Goal 8 - Promote sustained, inclusive and sustainable economic growth, full and productive
employment and decent work for all
Goal 9 - Build resilient infrastructure, promote inclusive and sustainable industrialization and
foster innovation
Goal 10 - Reduce inequality within and among countries
Goal 11 - Make cities and human settlements inclusive, safe, resilient and sustainable
Goal 12 - Ensure sustainable consumption and production patterns
Goal 13 - Take urgent action to combat climate change and its impacts*
Goal 14 - Conserve and sustainably use the oceans, seas and marine resources for sustainable
development
Goal 15 - Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably
manage forests, combat desertification, and halt and reverse land degradation and halt
biodiversity loss
Goal 16 - Promote peaceful and inclusive societies for sustainable development, provide access
to justice for all and build effective, accountable and inclusive institutions at all levels
Goal 17 - Strengthen the means of implementation and revitalize the global
partnership for sustainable development
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29. ACTION + REACTION =
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30. QUATRE’S
LEGACY FUNDS
A SUSTAINABLE FINANCIAL
SOLUTION
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32. For more InformaSon, about this multidisciplinary team of financial services and operational professionals,
working in a collaborative forum to deliver a fully integrated special purpose trust solution to the
challenges of decommissioning cost effectiveness, please contact
Paul Jardine: paul.jardine@quatre-ltd.com
Ian McConnell: ian.mcconnell@quatre-ltd.com
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33. Useful Links
United Kingdom
Oil & Gas Authority OGA https://www.gov.uk/government/organisations/oil-and-gas-authority
Business, Energy & Industrial Strategy
https://www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy
HSE Oil & Gas http://www.hse.gov.uk/offshore/
COBS https://www.handbook.fca.org.uk/handbook/COBS.pdf
Canada
National Energy Board https://www.neb-one.gc.ca/index-eng.html
Alberta Energy Regulator https://www.aer.ca/
Mining Act Tax Reference http://miningtaxcanada.com/taxation-framework/
QET Alberta http://www.finance.alberta.ca/publications/tax_rebates/corporate/corp39.html
Denmark
Danish Energy Agency https://ens.dk/en
United Nations Sustainable Development Goals
https://www.un.org/sustainabledevelopment/sustainable-development-goals/
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