Environmental Risk Allocation in the Asset Rationalization Process

Increasing environmental concern is changing the nature of oil and gas acquisitions and dispositions. Factors such as increased liability, continuing liability, the emergence of a "deep pocket" response to environmental problems, and a growing uncertainty over the potential extent and nature of environmental problems requires lawyers to review current methods of allocating risk. Where appropriate, counsel should build from existing contractual models; but. where necessary they should be prepared to modify existing practices and adopt new standards in order to deal with increasing environmental liability. An increased emphasis on due diligence, disclosure and contractual accommodation of environmental problems at the time of the acquisition or disposition is believed to he the best approach as it allows for flexibility, negotiated responsibility and ensures an appropriate level of investigation and recognition of identifiable environmental problems.