Bruce M.

Flowers
Kane Russell Coleman Logan PC
1601 Elm Street, Suite 3700
Dallas, Texas 75201
bflowers@krcl.com
214-777-4206

Indemnity and Access Agreements

in Environmental Investigations in
the Oil Field and Beyond
AGENDA

ØBrief Overview of Environmental Risks

ØAccess Agreements for Environmental
Investigations
ØEnvironmental Indemnities
But First….
Ø The New Administration’s Actions
Impacting Environmental Regulations
The New Administration’s Actions
(for better or worse)
Ø Pulling out of Paris climate agreement (aims to limit global warming)
Ø No longer contributing to the UN’s Green Climate Fund (help for poorer nations
to limit reliance on fossil fuels)
Ø Dismantling the Clean Power Plan (effort to comply with Paris agreement)
Ø Rolling back the Waters of the US rule (navigable waters of the US)
Ø Allowing water bottles and lead back into state parks
Ø Shrinking EPA’s budget (30%)
Ø Opening the Alaskan artic for drilling
Ø Opening oil pipelines (Dakota Access Pipeline; Keystone XL Pipeline)
Ø DOE potentially subsidizing coal and nuclear energy (Rick Perry)
Ø Shrinking national monuments (2MM acres in Utah)
Ø Approving the use of a controversial pesticide (Chlorpyrifos)
Ø Deregulating methane leaks (in the Courts)
Environmental Risks Overview
Who Is Potentially Responsible For
Environmental Response Costs
ØPotentially Responsible Parties
Ø Owner (Lessor)
Ø Operator
Ø Generator
Ø Arranger
Ø Transporter
Ø Lender
Ø Caused or contributed to a release
Ø Made a contamination condition worse
Environmental Risks – What Can It
Cost Me?
Statutory and common law liabilities include:
Ø Compliance costs (recordkeeping, monitoring,
reporting, auditing)
Ø Permitting costs
Ø Investigation, removal and remediation costs
Ø Administrative, civil and criminal penalties
Ø Damages to people and property
Ø Contract claims
Ø Land use restrictions
Federal Environmental Statutes

Ø Regulation of waste products and their disposition

Ø CWA (water)
Ø CAA (air)
Ø RCRA (hazardous wastes)
Ø CERCLA (hazardous substances)
Ø Regulation of certain raw materials and the manufacture, importation,
and distribution of products
Ø TSCA (chemical substances)
Ø FIFRA (pesticides)
Ø EPCRA (chemical emergencies)
Ø SDWA (drinking water)
Ø Conservation of natural resources
Ø NEPA (national policy)
Ø ESA (endangered species)
State Environmental Statutes

Ø Delegated federal programs

Ø Parallel to or supplement federal programs
Ø May be more demanding that federal, but not less
The Problem We Want to
Prevent…
Reducing Environmental Risks

ØEnvironmental Site Assessments and ongoing obligations

ØPotential liability protection under certain environmental
statutes
ØIdentify, assess and address environmental concerns before a
transaction closes
ØUse in negotiating deal and contract terms
ØDetermine up front who is responsible for any investigation or
potential response costs
ØMinimize potential legal claims
To Reduce Environmental Risks

ØA Party Needs Access to the Property

Environmental Access Agreements
Why Do You Need an Access Agreement

ØGain/provide access
ØConduct sampling/testing
ØReduce confusion between parties
ØSet access parameters
ØLiability protection
ØPayment
ØControl investigation results
Key Access Agreement Considerations

ØScope of work ØConfidentiality

ØApplicable law ØSafety
ØDispute Resolution ØWaste handling
ØPayment ØRepair and restoration
ØLocation ØRisk allocation
ØDuration (indemnity; insurance)
ØNotice ØResults
Scope of Work

ØIn writing; preferably signed by all parties

ØInspection only or invasive sampling
ØMedia to be sampled (soil, water, air, building materials)
ØWhat contaminants analyzed
ØMonitoring
ØMeasurements
ØEquipment testing
Environmental Laws

ØNormally defined very broadly

Ø All applicable laws, regulations, ordinances,
permits, approvals, standards, guidelines,
agreements, letters, requirements, orders and
decrees
Ø Of all federal, state, county, municipal and local
governments, including all administrative
agencies thereof
Ø Many parties then identify specific laws without
limitation
Dispute Resolution

Ø Contract considerations
Ø Liability limitations in contract
Ø Exclusion of certain measures of damages
(punitive, consequential)
Ø Specify dispute resolution forum
Ø Common resolution forums
Ø Mediation (binding; non-binding)
Ø Arbitration (binding; non-binding)
Ø Lawsuit (venue; jury)
Payment for Access

ØUse of staging and storage areas

ØBusiness interruption
ØAdded personnel or equipment
ØAttorneys’ fees
ØConsultants’ fees
Location

ØSpecific written work plan

ØFull or limited access
ØDisturb landscape
ØDisturb equipment
ØDestructive testing
ØStructural safety
Duration

ØOne time event

ØDays, weeks, months, years
ØMonitoring equipment
ØTied to certain events (NFA letter)
ØExtensions
Notice Before Entry
Ø Who gets the notice
Ø What form
Ø When
Ø Contents
ØInsurance certificate
ØSite and work plan
ØIdentification of persons entering
Confidentiality

ØIdentify what information is confidential

ØIdentify who can receive the information
ØIdentify any exceptions
ØInternal provision or separate agreement
ØPenalties
Safety

ØConfirm the work plan

ØUnderstand plan risks
ØSpecify the handling, storage and disposal of
contaminated media
ØNotice requirements
ØUnderstand potential liability exposure
ØRegulatory
ØProperty
ØPeople
Waste Handling

ØWho will be identified on manifests as the Generator

ØWill on-site disposal be allowed
ØWho will have responsibility and potential liability for
storage, handling, treatment, transportation and
disposal of waste materials
ØRemember potential liability for off-site disposal
Repair and Restoration

Ø To what standard; objective or subjective; who

determines
Ø Specify acceptable materials
Ø Permitting/zoning requirements
Ø Remedies if not repaired and/or restored
Risk Allocation
ØIndemnities
ØIndemnify, defend, hold harmless
Ø Insurance
Ø Who is covered
Ø What types (pollution legal liability; cleanup cost cap)
Ø Amount and period of coverage
Ø Excess or primary coverage

Ø Other Securities
ØLetters of Credit
ØContract reserves
ØEscrow
Conclusions/Results

ØDisclosure (who wants to know)

ØForm (verbal, data only, report)
ØConfidentiality
ØAgency reporting requirements
ØLiability considerations
ØOff-site issues
Environmental Indemnity Agreements
Environmental Indemnity Agreements

ØRisk and cost allocation

ØDoes not impact potential liability to the
government
ØForm: separate agreement, section in agreement,
or buried in agreement
ØGenerally only binds the parties to the agreement
(potential exceptions: successors and assigns; affiliates; running
with the land)
ØOnly as good as the assets that back the indemnity
Indemnity Enforcement
ØWill be strictly construed in favor of indemnitee (unless clear
contract language otherwise)
ØMore likely to be enforced against sophisticated parties where
the intent is clearly shown by the contract language
Ø Fair notice requirements (if the indemnity is intended to cover
indemnitee’s own negligence)
Ø Must specify what claims are intended to be indemnified
(not just what is not indemnified)
Ø Express negligence (intent to be indemnified for own negligence)
Ø Applicable whether the indemnitee is solely or concurrently
negligent
Ø Must be CONSPICUOUS
ØPublic policy can be a concern (gross negligence; intentional torts)
What Does the Indemnity Cover?

ØMay be able to indemnify against:

ØContract claims
ØTort claims
ØStatutory claims
ØStrict liability claims
ØOn and Off-site contamination
ØInvestigation, removal and remediation
ØFines, penalties, costs assessed
Expected Provisions in Environmental
Indemnity Agreements

Ø Specifically identify the parties

Ø Environmental related definitions
Ø Indemnification provision
Ø Clean up parameters
Ø Choice of law
Ø Termination
Ø Survival
Key Definitions

Ø Indemnified and Indemnifying Parties

Ø Applicable Environmental Laws
Ø Covered Claims (first or third-party)
Ø Hazardous Materials
Ø Losses (include first and third party claims, only in
violation of environmental laws, only as required by
agency)
Ø Release (spilling, leaking, pumping, pouring, emitting,
injecting, escaping, dumping, migrating)
Ø Removal and Remediation (to what standards)
The Scope of the Indemnity
ØDuty to Defend, Indemnify, and Hold Harmless
ØWho Controls the Defense
ØWho Selects Counsel
ØLimitations in time, amount, coverage
Ø Type claims/damages
Ø Personal injury, property damage, strict liability, contract
Ø Property damage, personal injury, investigation, removal, remediation, natural
resource damages, voluntary cleanup, business interruption, diminished value,
wetlands restoration
Ø Related to specific work
Ø For a specific time period
Ø “Caused by” or “arising out of or related to”
ØExceptions for Intentional Wrongdoing, Gross Negligence
Additional Scope Considerations

Ø Does the indemnity extend to third-party claims only or include

damages to the Indemnitee
Ø Most indemnities use terms such as “defend and indemnify”
against “all claims, suits, limitations and expenses.”
Ø Most courts have held such indemnities do not include
coverage for breach of contract or damages not involving third-
party claims.
Ø To cover damages to the Indemnitee, add specific language
confirming the coverage.

ØConsider shifting liabilities for certain activities or conditions

ØObligations can shift after a certain period of time or certain
benchmarks are achieved
Define Cleanup Parameters

ØPre-closing contamination only (how established)

ØOnly when government requires cleanup
ØVoluntary cleanup
ØWhat medias (soil, water, vapor, air)
ØWhat contaminants (hazardous substances, hazardous wastes, solid
wastes, asbestos, lead paint, fungal growths)
ØCleanup standard (industrial/commercial or residential; risk-based;
institutional or engineering controls permitted; deed restrictions)
ØOn-site only or include off-site
Choice of Law

ØWhat law is going to control interpretation and

determination of each party’s rights under the
agreement
ØLaws of different states can lead to different
outcomes
Termination of the Indemnity

ØPassage of time
ØAchievement of benchmark(s)
ØNo Further Action letter or equivalent
ØWritten approval from an Environmental Professional
ØTask completion
More Involved Indemnity
Structures
ØBasket Indemnities: Buyer totals post-closing
environmental liabilities up to a specified amount,
which upon reaching, the buyer can assert
indemnity claims against seller

ØCap Indemnities: Dollar amount limit on a party’s

liability (or can act to trigger shared liability after the cap
amount is reached)

ØBoth may be coordinated with insurance

Texas Oilfield Anti-Indemnity Act
Ø The Texas Oilfield Anti-Indemnity Act expressly prohibits: any covenant,
promise or agreement; contained in, collateral to or affecting; an
agreement pertaining to a well for oil, gas, or water or to a mine for a
mineral; if it purports to indemnify a person for damage that results from
the sole or concurrent negligence of the indemnitee; arising from personal
injury, death, or property injury.
Tex. Civ. Prac. & Rem. Code 127.003.

Ø Exception: Where parties agree to mutual indemnity provision that are

covered by insurance, the agreement is valid to the extent of the coverage
and dollar limits each party has agreed to obtain for the benefit of the
other party. When the parties procure different levels of insurance, the
indemnity obligations are limited to the lower amount of insurance
obtained.

Ø Where a unilateral indemnity obligation exists, the insurance limit is

capped at $500,000.00.