This paper will identify oil and gas property due diligence auditing procedures for quantification of environmental liabilities and assets for both acquisitions and divestitures.

There are many site assessment guidance manuals and auditing programs, brief as well as very detailed, available to direct the general business of liability determination in site assessment. These guidance manuals and auditing software provide an excellent regulatory checklist to organize a site assessment but are lacking in guidance on how best to focus a site assessment on oil and gas producing properties. The most effective site assessment and audits are performed by professionals who know both how the oil business operates in the specific area and what the relevant environmental regulations are.

Efforts in a site assessment for acquisition and divestiture of oil and gas operations can be focussed by:

  • Preparing an inventory of permits necessary for operation, reviewing their compliance conditions, and field verification of compliance.

  • Reviewing all operations where non-hazardous and hazardous chemicals are used and hazardous waste streams are generated with the idea of identifying physical non-compliance rather than documentation violations.

A comprehensive review of regulatory compliance is still necessary but major areas of liability and assets can be identified early in the site assessment process. Many environmental problems which are identified on a property would not be classified as a "deal killer". But, quantification of identified problems in terms of the cost to remedy the problem can significantly reduce the value of the property. Environmental assets can significantly add to the value of the property. In addition, environmental permitting can impact the scheduling of new projects. Delays in project scheduling will in turn affect the property's fair market value.

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