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Downstream: Dispute Resoltution & Chemical Engineering: Value of a Petroleum Refinery

In a dispute between the buyer and seller of a petroleum refinery, the buyer asserted that environmental contamination allegedly caused by the seller had diminished the value of the refinery.  Opportune’s Chemical Engineering practice was engaged to provide expert analysis of the historical operation of the refinery and to evaluate if the value of the refinery might have been affected by environmental contamination.

Assessing the total economic impact of the environmental contamination on business value required specific knowledge of operational factors, market conditions and risk control strategies unique to refinery and terminal operations.  Opportune conducted analysis of how these factors affected the overall business value.

Isolating the effects of environmental contamination on enterprise value from fluctuations in market conditions required in-depth understanding of several aspects of the case.  Knowledge of how feedstocks and products were manufactured, stored, transported and used in daily operations was needed to understand the history at the site. This was particularly challenging as operations changed over time in response to market conditions.  Knowledge of refinery and downstream economics in the local as well as international market was key. Supply and demand conditions unique to the refinery’s local market were modeled to assess historical margins applicable to the crude streams processed and how much revenue was generated over various time periods. Opportune also assessed how to reproduce historical input costs based on factors, such as crude oil pricing mechanisms, pipeline operations, storage and terminaling costs, etc.  Finally, knowledge of industry practices in valuing and mitigating environmental risk was required.

The resulting analysis yielded a detailed recreation of historical operations and market conditions.  Premiums paid for environmental liability insurance policies provided insight into the value that new owners placed on the risk of environmental liabilities when the assets were sold.  This historical valuation, coupled with independent estimates of the change in business value due to changing market conditions provided a critical and objective opinion relied upon by the courts to determine the extent of environmental liability.

Relying upon our expertise and experience, Opportune provides legal support in a wide range of matters associated with the downstream petroleum industries. Among the areas in which we offer guidance are assessment of regulatory changes, asset valuations, analysis of insurance claims, fair value assessments, and incident investigation. For more information, click here.

Matt Flanagan

PartnerOpportune LLP