Finalizing the Sale – Pollution Issues in a Purchase & Sale Agreement

01/28/2020 Written by: Trevor Gilstrap

In the last twelve months, we have seen an increase in the number of divestitures and acquisitions taking place in the oil patch. For many operators in the industry, the buying and selling of existing production and/or leases seems to be a revolving door. Unfortunately, many of these deals stall when it comes to negotiating the responsibility for unknown, pre-existing pollution conditions within the agreement. Most often, the seller does not want to retain any of the liability and the buyer certainly does not want to inherit any unknown pollution conditions that may have previously developed. Typically, this potential for liability leads to significant funds set aside in escrow to cover a potential event.
To help expedite an amicable purchase and sale agreement and avoid setting aside a lump sum in escrow or personal guarantee, we often recommend our clients look to the insurance marketplace. Coverages you likely already have in place, such as General Liability, may include endorsements that would exclude any gradual pollution events. However, the gradual pollution marketplace is ever-changing, and there are now reputable carriers offering broad form gradual pollution coverage with no retroactive dates. These policies can also be transferable upon sale, allowing either the divesting or acquiring company to purchase the policy. 
By obtaining such a policy, operators can assure buyers that any unknown pre-existing pollution conditions, no matter what date the event is traced back to, can be covered, easing concerns and eliminating the need to set aside additional funds. The AssuredPartners Energy team works in tandem with our clients to ensure a top-down risk management approach that suits each individual client’s needs. Contact our Energy team to learn more about the coverages we offer and how we can help you protect your operation.

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