The American Society of Testing Materials (ASTM) has developed a standard practice (E-1527-00) for conducting Phase I Environmental Site Assessments (Phase I Assessment) associated with the transfer of commercial property. The primary objective of the ASTM standard practice is to identify apparent conditions of environmental concern and conduct adequate due diligence so that the buyer can avail themselves of the "innocent purchaser provision" under CERCLA. There are many potential objectives a buyer of oilfield properties might have in conducting acquisition due diligence beyond CERCLA considerations. Because oilfield properties typically have environmental impairments, the threshold considerations for the buyer typically relate to the management and allocation of risk for current and future liabilities between the buyer and seller.
Historically, oilfield sellers have provided either a full or partial indemnification to the buyer for environmental conditions that existed before the date of sale or have provided a due diligence period after the date of sale for the buyer to conduct additional environmental investigations. Today, typical sales are on "as-is" basis where the seller is willing to entertain adjustments in the purchase price for environmental impairments identified by the buyer in a due diligence period before closing.
An Environmental Business Risk Assessment goes beyond the traditional Phase I Assessment to better meet the business needs of purchasers of oilfield properties in "as-is" deals. The scope of the Environmental Business Risk Assessment is tailored to the risk tolerance of the buyer and the nature of the deal. The Environmental Business Risk Assessment provides information the buyer needs to make informed business decisions about allocation of risk as a part of the negotiation of the Purchase and Sales Agreement.
This paper presents four case studies that illustrate how Business Environmental Risk Assessments were conducted to address unique issues associated with the transfer of four "as- is" oilfield property sales in California.