environmental due diligence: paying due care and attention

1. Environmental Due Diligence:Paying Due Care and Attention Alan Harvie, PartnerMacleod Dixon LLPalan.harvie@macleoddixon.com (403) 267-9411 November 9 and 10, 2009

3. Two Types of Liability for Environmental Issues: 1. Regulatory Liability Liabilities that arise to government for violating a statute or regulation.(e.g.) Alberta's Environmental Protection and Enhancement Act (EPEA), Canada's Fisheries Act 2. Civil Liability Liabilities that arise to neighbours, customers and others for polluting their land, air or water.(e.g.) trespass, nuisance, negligence

4. Alberta's Environmental Protection and Enhancement Act It is an offence for a corporation to: carry out an activity which requires an approval without an approval; breach a term or condition of an approval knowingly or unknowingly; knowingly or unknowingly release a substance into the environment which causes an adverse effect; fail to report a release; fail to take all reasonable measures to confine and remediate a release;

5. Alberta's Environmental Protection and Enhancement Act (continued) fail to reclaim certain types of land; keep, store, transport, distribute, use or dispose of a pesticide in violation of the Act or regulations; improperly dispose of waste; and fail to follow an environmental protection order or an enforcement order.

6. Penalties Some offences: $100,000 fine plus 2 years in jail if an individual. $1 million fine if a corporation. If the events leading to an offence occur on more than one day, each day is a separate offence.

7. Liability of Directors and Officers Where a corporation commits an offence under this Act, any officer, director or agent of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of the offence is guilty of the offence and is liable to the punishment provided for the offence, whether or not the corporation has been prosecuted for or convicted of the offence.

8. Due Diligence Defence No person shall be convicted if it is established on a balance of prohibition that they took all reasonable steps to prevent its commission.

9. The Reality Few companies actually get charged. Few companies actually get sued. But many have to clean-up predecessor problems.

10. Designing an Ideal Environmental Due Diligence Program for a Transaction Materiality Scope Timing Reporting Negotiating

11. Materiality How big must problem be to potentially impact the deal? Cumulative "little" problems? Reputational events Non-public events

12. Scope Geographical scope? Core assets only? Most valuable assets only? Random selection? Type of assets? (e.g. sour, salty oil wells/facilities before shallow sweet gas wells) Environmental Management Systems

13. Scope Searches File Review Interviewers Field Visits Other

14. Scope Determined by materiality threshold, timing and budget Division of labour with environmental consultants, engineers and others Planning and communication OH&S overlap First Nations overlap Benchmarking

15. Timing Searches take 1 to 4 weeks Field work has seasonal considerations What's the deadline?

16. Searches Courthouse (Federal and local) Land Titles (present and historical) Encumbrances Alberta Environment Approval Viewer Environmental Site Assessment Repository (ESAR) Hazardous Wastes

17. Searches (continued) Environmental Law Centre Prosecutions Well site reclamation Petroleum Tank Management Association of Alberta Energy Resources Conservation Board Municipal Zoning Fire department Heritage sites

18. Searches (continued) Alberta Sustainable Resources Development Public lands Occupational Health and Safety Environment Canada Department of Fisheries and Oceans Transport Canada Freedom of Information

19. File Review Asset Retirement Obligations Internal Environmental program Environmental Site Assessments Regulatory Compliance Audits Inspections and Investigations Data site vs. Physical on-site Q&A procedure

20. Interviews Key employees VP Operations, VP Land Environment Managers Facility Managers Regulators

21. Field Visits Phase I vs. Phase II Standards and qualifications Reporting of field results Summary sheets vs. full reports

22. Other Google! Local newspapers Problems confronting other operators Evolving regulations and policies

23. Reporting Who is the audience? Scope: What not looked at? Key findings Snapshots in time Relevant legislative schemes Access and cooperation Reliance and disclaimers

24. Negotiating Bless the deal or "improve" the deal? Representations and warranties Indemnities Post-closing promises What happens to the environmental due diligence?

25. Questions and Comments?

26. Environmental Due Diligence:Paying Due Care and Attention Alan Harvie, PartnerMacleod Dixon LLPalan.harvie@macleoddixon.com (403) 267-9411 November 9 and 10, 2009