Word to the Wise: Can corporate ARO affect your liability insurance?
February 19, 2019
This week’s Wednesday Word to the Wise is by XI’s QA and Support Specialist, Kathy, who also happens to hold a Certified Insurance Professional designation. If you’d like our Wednesday Word to the Wise delivered directly to your inbox each week, subscribe here.
As discussed in a recent XI Blog, many sources within our industry are telling us that 2019 could see increased A&D activity as established Juniors who simply lack the critical mass to grow in the current market begin to assess their divestiture and/or merger options. This, coupled with recent high-profile environmental liability cases, brings up an important question: when searching for A&D opportunities, how much consideration do you give to your corporate insurance? Maybe you weren’t even aware that an acquisition can affect your liability premium. It can, and it does – sometimes significantly.
Have you ever thought about your Contingent Business Interruption Insurance with an eye on your Working Interest Partners? Surely you have contingency plans in place for a situation where one or more of your working interest partners becomes insolvent. We explored this scenario in a recent blog entitled “What happens to chain of title during insolvencies?”.
The energy sector comes inherent with all the regular risks (“trip and fall” type lawsuits, etc.), but we also have environmental liability risks to think of. These are cases wherein claims go against the company holding the asset at the time that the suit is brought forward. Are you privy to the possible environmental issues that you may have inherited with the purchase of a new asset? It’s important to know who all the working interest partners are in a purchase package to ensure that if they are brought into a legal battle, you do everything you can to ensure you aren’t dragged in with them.
The best way to deal with these scenarios is not to get into them in the first place. To make sure that you have all the information when making an asset purchase, adequate research is your best defense.
Corporate financial information such as Debt Ratios (for example, Debt/BOE or Debt/Operating Cash Flow) and Corporate LMR (Licensee Management Rating) are available at a glance with AssetBook. Before making an asset purchase, you can calculate the LLR (Licensee Liability Rating) impact of the purchase in question on your working interest partners using our LLR Analysis Module. With our ARO Manager module, you can go a step further and see which wells or facilities have reported spills, as well as all liability costs you will assume with a purchase.
Despite – or perhaps because of – the current market, many solid opportunities exist for companies that are in a position to make strategic acquisitions. Using XI’s data tools, you’ll be able to discern quickly and clearly if the asset that you are looking to purchase is actually a liability hazard waiting to happen. At XI we want you to make deals, but let’s make sure you’re getting the right deals.