Solvenz Launches Assured P&A, a First-of-Its-Kind Insurance Services and Finance Platform with a Focus on Plugging Oil and Gas Wells in the U.S. and Canada
Financial strength for Assured P&A's insurance products is rated "A+" Standard & Poor's, "AA-" Fitch and "A" from A.M. Best.
LUXEMBOURG, May 18, 2021 (Newswire.com) Solvenz announces the launch of Assured P&A, a first-of-its-kind insurance services and finance platform with a focus on plugging oil and gas wells in the United States and Canada. Assured P&A insurance products are issued by Solvenz Specialty Line Insurance Company. Financial strength for Assured P&A’s insurance products is rated “A+” & Standard & Poor’s, “AA-” Fitch and “A” from A.M. Best.
Assured P&A will provide services to oil and gas operators in the U.S. and Canada with a wide range of services and financial products, such as P&A financing, a P&A insurance product line, P&A planning, and regulatory oversight.
Solvenz has developed insurance coverages exclusively for Assured P&A with key features that include: P&A fixed cost completion guarantees, protection against subsurface anomalies, protection against mechanical failure during the P&A completion process, protection against P&A cost overruns, and up to 10 years of post-P&A completion risk from the potential flow-back of pollutants.
There is increasing public pressure in the U.S. that is being put on regulators to usher in legislation to protect against the environmental risks associated with orphaned and non-producing wells that have been left unplugged. In Texas, for example, 10% of wells producing below the volumetric minimal limit of 15 barrels produced over a 90-day period are deemed inactive and are required to be plugged in accordance with the regulatory guidelines. The consequence of failing to meet the annual minimum requirement to plug wells can result in the issuance of fines and the suspension or complete revocation of licenses required to operate oil and gas wells.
The estimated total P&A liability in the U.S. is believed to be in the neighborhood of $280 billion.
A 2020 study completed by Carbon Tracker, a non-profit analytics group monitoring the increasing P&A liability in the U.S estimates there are some 3.8 million unplugged oil and gas wells nationally, including more than 783,000 across Texas. As the coronavirus pandemic forces more oil and gas companies into bankruptcy, Carbon Tracker fears more of these unplugged wells could be abandoned, leaving companies and taxpayers on the hook for $117bn in Texas alone for plugging and cleaning up so-called “orphan wells.”
The October 2020 Carbon Tracker study goes on to say that “the number of orphan wells could rise even higher as society shifts from fossil fuels to more sustainable energy sources. If the world has hit or is approaching peak oil demand, oil and gas companies could be less motivated to plug in wells.”
Billion Dollar Orphans: Why millions of oil and gas wells could become wards of the state – Carbon Tracker Initiative
Richard McCrea – Managing Director, Risk Analysis and Valuation, Solvenz – says, “We are excited to have the opportunity as a lead investor and insurance developer for Assured P&A. The company is in position for sustained growth, and by the numbers, will make a direct impact by working to reduce the growing number of unplugged wells located in the U.S. and Canada. Assured P&A will look to incorporate tailored financial insurance instruments that further reinforce Assured P&A’s business plan and industry services. Assured P&A has developed a platform, with layers of value-driven distinguishable characteristics that cannot be achieved through P&A job completion discounts alone.
Wells requiring P&A are treated as a liability which has a negative impact on a company's evaluation, its borrowing base, and balance sheet. When we consider purchasing or investing in an E&P company, an oil and gas producing asset, or an asset-backed loan, whether that investment is in the form of debt or equity, we reduce that valuation, or borrowing base, by the undiscounted present value of the outstanding P&A liability. The Assured P&A solution will add value back to the balance sheet, which results in an improved valuation, a more robust borrowing base, and regulatory compliance. P&A completion facilities, or P&A Capsules™, consist of a group of wells held within a special purpose vehicle that are in queue to be plugged. P&A Capsules are funded with 100% of the required costs for P&A completions. P&A Capsules are compartmentalized away from the balance sheet and ring-fenced inside a P&A special purpose vehicle (P&ASPV). The P&A Capsule SPV will remain in compliance with regulations and is assigned a dedicated regulatory advisory team throughout the life of the capsule.
Lastly, and most importantly, a producer P&A liability, if not properly addressed, or if the producer does not have an adequate P&A plan in place, will reflect negatively on a company’s ESG scorecard. Rating agencies (S&P, Moody’s & and Fitch), investors, pension funds, banks, etc. see a strong ESG rating as a top priority, and a must-have. Maintaining a strong ESG scorecard will place that business on a preferred list of responsible and sustainable investments that are looked upon favorably by rating agencies and investors. As an Investor, Solvenz is vigilantly seeking sustainable energy investment opportunities that are securely positioned for sustained long-term growth.
Sara Froggatt - President & CCO, Right Decision Regulatory Consulting - Houston, Texas, comments, “The oil & gas industry, in general, has very significantly under-provisioned for necessary P&A work. Reliable estimates put the total bill for ARO’s (Asset Retirement Obligations) in the hundreds of billions of dollars, which will have to be covered by the energy companies themselves, or devolve on the regulatory authorities and, ultimately, the taxpayer. The problem is only getting worse as the industry enters a phase of terminal decline. Any initiative, such as the Solvenz risk management solution, which seeks to corral this runaway issue, must be given very serious consideration by the industry and government.”
The Solvenz Group of companies was formed in 2008 with a primary focus to de-risk its global investment portfolio held in alternative asset classes. The Solvenz Group of companies, along with its regulated investment funds in Luxembourg, is postured for strong growth and is continually expanding its reach into other esoteric asset classes. Currently, Solvenz attributes its success and growth to ongoing rigorous analytical studies and effective de-risking solutions. For more information, visit https://www.solvenz.com
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