Recent advances in the unconventional oil & gas plays have resulted in increased investment activities in the upstream space aimed at monetizing large acreage lease holdings as well as cash management to fund exploration and development of new plays. Often these transactions involve the global investment community at both the private and government owned company level. Coupled with these transactions, Global corporations are moving from a narrow view of environmental health and safety (EHS) management to a holistic Corporate and Social Governance (CSG) approach that includes EHS as just one component of managing a sustainable and profitable business. To compete successfully, it is critical that investors understand the implications of CSG risk management strategies and their impact on sustainable business growth plans.

Traditional due diligence activities have focused on quantifying and minimizing EHS impairment liabilities, at best considering a snap shot of current conditions and regulatory operating status. This is due to the fact that the cash flows of established operations are well understood. However, for upstream oil and gas plays with little to no operational assets, the most significant risks are not environmental impairment but rather are the environmental and sustainability risks that could affect asset development. Further, most oil and gas investments involve vast amounts of land and leaseholds, often at various stages within the project life cycle, for which traditional ASTM type due diligence methodologies are not practical.

This paper uses case studies involving due diligence for acquisitions in the Alberta oil reserves to illustrate a forward-looking assessment methodology for evaluating key non-technical risks such as community relations, water availability and management, sustainable risk management strategies, and reclamation planning. The case studies demonstrate how the results of the due diligence activities were incorporated into the financial models for the investment, allowing the investors to more fully understand the potential risks and opportunities associated with the acquisitions and asset development and incorporate these into their financial models.

The approaches used in these case studies represent a significant and important shift in thought processes around risk evaluation and prioritization during due diligence.

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