M&A in 2013: Environmental Due Diligence as a Value ... · PDF fileContinuing Education...
Transcript of M&A in 2013: Environmental Due Diligence as a Value ... · PDF fileContinuing Education...
Thursday, February 28, 2013 12:00 p.m. – 1:00 p.m. | Central
Web Seminar
M&A in 2013: Environmental Due
Diligence as a Value Proposition
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Speakers
Bill Spence Transaction Practice Lead in Oil and Gas for North America Environmental Resources Management Houston, TX [email protected] +1 281 579 5430
Louis Sey Zimmerman Partner Fulbright & Jaworski, L.L.P. Washington, D.C. [email protected] +1 202 662 4751
Continuing Education Information
If you are requesting CLE credit for this presentation, please complete the evaluation that Fulbright will send via email tomorrow.
If you are viewing a recording of this web seminar, most state bar organizations will only allow you to claim self-study CLE. Please refer to your state’s CLE rules. If you have any questions regarding CLE approval of this course, please contact your bar administrator.
If you should have any questions regarding credit, please email Terra Worshek at [email protected].
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Administrative Information
Today’s program will be conducted in a listen-only mode. To ask an online question at any time throughout the program, simply click on the question mark icon located on the tool bar in the bottom right side of your screen. We will try to answer your question during the session if time permits.
Everything we say today is opinion. We are not dispensing legal advice, and listening does not establish an attorney-client relationship. This discussion is off the record. Anything we say cannot be quoted without our prior express written permission.
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WHY DUE DILIGENCE?
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Why Environmental Due Diligence?
Most Common Purchaser Goals Avoid Remediation Obligation Provide Lenders Comfort on Re-Sale Risk
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Why Environmental Due Diligence?
Other (And Likely) More Important Purchaser Goals Avoid Budget Busters – Determine if budget for future
compliance reasonable Avoid Dashed Dreams – Determine if future expansion plans
reasonable both in scope and timing Wasted Time Is Wasted Money – Determine if there are
Issues which could absorb significant executive time Remember The Real Money Is In Court Claims – Determine
if there is any future litigation risk for personal injury or property damage
Do Not Call Me Names – Determine whether reputational risk issues
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What An ASTM Phase I Shows (And Doesn’t) Shows: The Risk That a Condition Exists Requiring Remediation Does Not Show: Compliance Status ($ & Effort) Permit Preservation and Renewal Risk ($ & Effort) Environmentally Sensitive Conditions (wetlands,
endangered species, local use restrictions) ($ & Effort & Reputation)
Personal Injury and Property Damage Claim Risks ($ & Effort & Reputation)
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WHAT KIND OF PLAN?
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Deciding What To Do
Preliminary Steps: 1. Quick and Dirty Search
U.S. EPA Enforcement and Compliance On-Line (ECHO Site) www.epa-echo.gov/
State Enforcement Data Bases (for example, TCEQ Central Registry Query)
Google Searches ● News Articles ● Webpages for Environmental Groups (Sierra Club, Friends of
the Earth, Environmental Defense Fund) ● Target Company 10Ks
2. Review Target Provided Data
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Deciding What To Do
Develop A Plan: 1. Identify Potential Problem Areas 2. Identify Goals for Due Diligence and Formulate a Plan
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Focus On The Material Issues
This Should Not Be About Largely Immaterial Issues Like: SPPC Plans Tank Registrations Community-Right-To Know Reporting It Should Be About Big Issues Like: Do consistent compliance problems indicate management problems
or an engineering/construction issue? Will renewing existing permits require modification of plant or
operations to meet new requirements? Will projected new expansions likely to have permitting problems? Will historic operations create opportunities neighbor litigation or
employee litigation?
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HOW TO CAPTURE VALUE?
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What Do I Do With Due Diligence Information? Make Go/No Go Decision Negotiate More Advantageous Purchase Terms
● Price ● Escrows ● Indemnities
Set Goals and Benchmarks for New Operations
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Seller Environmental Due Diligence
In Certain Cases Establishing a Base Line May Be Desirable
Provide Perspective in Evaluating Purchasers Negotiating Position
Providing Due Diligence Report May Speed Process By Giving Purchasers and Lenders Confidence That the Transaction Presents Limited Risks
Provides an Opportunity to Cure Defects
CAUTION: If you find something you may have to report it
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Delivering sustainable solutions in a more competitive world
ERM Case Study Unconventional
Resources “ExploreR 2020”
Non-Technical Risk managed well is a competitive advantage for projects where time-to-market is the pre-eminent concern; conversely, non-technical risk managed poorly can paralyze project delivery and significantly increase project cost.
Frequency by Delay Type (% of sample Goldman Sachs Top 190)
Proj
ect
Del
ay C
lass
ifica
tion
Sustainability (73%) (e.g. stakeholder, community, environment, regulatory, safety-related)
Commercial (63%) (e.g. cost or contract-related)
Technical (21%)
Study of 19 Goldman Sachs Top 190 Projects by Cause of Delay
“Of the 190 projects, we have seen an average of 12 months delay for non-producing fields….”
“Production disappointment is not geological, but from sanction delays and poor execution”
“Poor project delivery could make the situation worse and the industry’s track record is not
comforting”
Goldman Sachs Research
What $ value would you estimate sustainability risk is costing the business each year?
Don’t Know/
Not Willing to Estimate
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2
10
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<$100m
Many $100ms
$1bn
$bns
10% 20% 30% 40%
Loss of NPV due to delayed cash flows
Project cost overruns due to delays
Lost deal opportunities
Cost of putting things right
Senior management distraction due to firefighting
“…if you include the impact of poor reputation on lost deal opportunities and share price.”
Recap: NTR creates significant capital risk and $.
Traditional Phase 1 approach is not adequate Traditional Phase 1 approach is for discreet facilities with discreet
boundaries establishing environmental risks and exposure. Does not characterize all that is needed today!
Upstream “onshore” transactions are generally associated with: ● Large acreage positions ● Larger geographical area with non-contiguous lease tracks ● Confidentiality and need to complete the deal quickly ● Insistence on “as is” during the deal ● Legacy oil and gas operations with observable “wear, tear and visible
impacts” ● Improperly abandoned wells ● Pristine and sensitive receptors ● Reputation Red Flags
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Perspective: Majors abandoned many of the “mature” basins in the lower 48 beginning the 70s, selling to smaller independents who stretched the operations to generate cash. Majors are moving back in!
Social Economic
Environmental
Permian Basin: Could a three-inch lizard collapse the West Texas oil industry? Gunnison Sage Grouse
Pit Closure? P&A?
Abandoned Equipment
ExploreR 2020
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ExploreR 2020 Sustainable Development Due Diligence
“The Triple Bottom Line”: Achieving Sustainable Outcomes Across
Economic, Social, & Environmental Performance
Social Economic
Environmental
-Recognized Environmental Concerns -Limited Compliance -Other environmental issues -Prior oil and gas activities/P&A -Health and Safety -Baseline
-Wetlands/vegetation/flood plain -Surface Water features -Groundwater Sources and receptors -Land use/recreational use -Surface infrastructure -Protected species and ecologically sensitive areas -Habitats -Biodiversity issues -Scenic rivers and waterways -Areas of scenic value -Cultural or historic concerns -NGOs
External Factors/Social Due Diligence
Environmental Due Diligence
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ERM’s ExploreR 2020 Program Example in Sustainable Development DD for land based E&P
Identify risks and valuation issues and create a development roadmap based first on findings from desktop work and followed by targeted on site review. This roadmap can be used to speed development and avoid delays. ERM has performed this program of due diligence on over 40 recent projects.
Questions
Bill Spence Transaction Practice Lead in Oil and Gas for North America Environmental Resources Management Houston, TX [email protected] +1 281 579 5430
Louis Sey Zimmerman Partner Fulbright & Jaworski, L.L.P. Washington, D.C. [email protected] +1 202 662 4751
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Continuing Education Information
If you are requesting CLE credit for this presentation, please complete the evaluation that Fulbright will send via email tomorrow.
If you are viewing a recording of this web seminar, most state bar organizations will only allow you to claim self-study CLE. Please refer to your state’s CLE rules. If you have any questions regarding CLE approval of this course, please contact your bar administrator.
If you should have any questions regarding credit, please email Terra Worshek at [email protected].
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