How great would it be if you could purchase a portfolio of gasoline service stations without spending future earnings on drilling, sampling and consulting fees? Imagine being confident that your acquisitions will bring you financial returns rather than unplanned expenses!
For years, environmental consultants have sold a traditional due diligence approach that focuses on finding, quantifying, and remediating subsurface contamination. But, should this REALLY be the main focus of your due diligence? Experience has shown that a gasoline dispensing facility’s greatest asset AND greatest liability is the UST system. UST upgrades and replacement can make or break an acquisition, particularly if you are buying several properties with concurrent upgrade requirements.
Of course, there are other factors to consider as well:
- Is the site eligible for reimbursement from a State fund?
- What are the typical payouts and timelines for reimbursement?
- Are there potential third party liabilities that may not be reimbursable or may exceed reimbursement caps?
- Have there been other activities at the site that may have created contamination that is not reimbursable?
- How will your UST management program impact the timeline for incurring environmental expenses?
With a properly designed due diligence program, you would know the status of the USTs, the likely environmental liabilities, the health of petroleum cleanup funds, and your cash flow. In a nutshell, is the acquisition going to be a winner, or a loser?
To make an informed buying decision, you need a pragmatic due diligence program that helps you make decisions without extensive and costly sample collection. This due diligence should focus on 3 key areas:
- The UST system
- Environmental liabilities
- Petroleum Fund reimbursement
Environmental liability is a straightforward analysis for retail gasoline facilities – most have had historic releases, and the likelihood of a future release is high, whether from failed equipment, installation issues, or fueling operations. Usually, the environmental liability of a portfolio can be assessed by conducting state database file reviews along with a thorough site inspection.
Additionally, you should evaluate the current status and proposed changes to environmental regulations and petroleum cleanup funds, and consider minimizing your exposure in these contexts. You should develop cost models to predict annual expenses based upon best, likely and worst case environmental liability scenarios.
Adding to a portfolio of stations is never a risk-free endeavor, but petroleum cleanup funds, UST and environmental cost/cap insurance products, and pay-for-performance contracting can be used to limit your assumed and/or future liabilities.
ATC has helped hundreds of clients minimize their risk and financial exposure. We are experienced with all the financial instruments mentioned and can help you select and/or manage your environmental liabilities after closing. Give us a call at 800-789-3530, or send an email to daniel.felten@atcassociates.com.