How M&A activity impacts facility re-benchmarking
    in Validere Blog

    TIER: how M&A activity impacts facility re-benchmarking & aggregate populations

    With the AEP releasing new facility-specific benchmarks between now and July, producers need to understand how the re-benchmarking of aggregate facilities works to prepare for compliance reporting.

    In our recent webinar on hitting a moving emissions reduction target, Corey Wood, VP, Emissions, Regulatory, & Carbon Strategy at Validere, breaks down the keys to getting ahead of facility re-benchmarking, including how mergers and acquisitions (M&A) impact this process.

    Here’s what you need to know about changes to aggregate facility populations due to M&A activity, key deadlines, and more.

    What is an aggregate facility population?

    Before we dive into how M&A activity impacts re-benchmarking, it’s important to define the term aggregate facility population (sometimes called membership). Overall, an aggregate facility population refers to a group of two or more conventional oil and gas (COG) facilities.

     

    HubSpot Video

     

    “When we look at a TIER aggregate registration form, what we know is that one, single aggregate is made up of two or more conventional oil and gas facilities,” says Wood. “Those conventional oil and gas facilities may represent a single or multiple Petrinex facility IDs.” 

    Wood notes that, when talking about facility population or membership, it’s really referring to these COGs or Petrinex facility IDs. 

    “What we really want to get across is the idea of the complications or some of the implications that arise from reporting at the facility ID level,” he explains. “We know that the facility ID level — especially batteries — can represent multiple different sites, well sites, underneath of a battery. So when we’re viewing our membership, it’s important to look below the battery level.”

    Wood also adds that it’s important to understand which wells report to which batteries, the physical supply chain, as well as the accounting chain within Petrinex so that you can manage and be aware of changes within your population.

    How common are changes within aggregate populations?

    Whether it’s due to M&A or other activities, changes are actually quite common and should be expected within aggregate facility populations.

    According to 2020-2021 AEP data, there were 250 active aggregates regulated by TIER, representing approximately 60,000 facilities. Of those, only 20% (~50 aggregates) had a stable population of COGs across 2020 and 2021. Meanwhile, 50% (~100 aggregates) had updated populations in 2021 that required benchmark adjustments.

    “This idea of population and membership change is actually the norm,” explains Wood. “We should not be expecting a stable population with our aggregate. In fact, we should be expecting this re-benchmarking process to be important to us and something that we should be considering throughout the year.”

    In addition to M&A activity, Wood notes that production accounting practices, as well as changes within Petrinex and the reporting of volumetric activity can also trigger this benchmarking activity and have an impact on your benchmark moving forward.

    What you need to know when M&A activity triggers re-benchmarking.

    When it comes to M&A activity, different people may be responsible for reporting duties depending on timing.

    “When we look at the reporting duty for the year that the merger or the acquisition occurred, it’s important to remember that the original person responsible will continue to carry that duty for the reporting year,” says Wood. “The new person responsible doesn’t actually take over reporting duty until the subsequent years that come after that merger or acquisition.”

    How to manage incoming aggregates during M&A

    When the new entity does take over reporting duties, there are usually three options available for how to handle the incoming aggregates:

    1. Take on the aggregate.

    2. Create a new aggregate.

    3. Merge acquired aggregate with existing aggregate.

    For company acquisitions and mergers, all three of the above options are available. However, in cases of partial facility acquisitions (meaning only individual facilities were acquired, not an entire organization), the only options available are creating a new aggregate or merging aggregates.

    “In most of these options, if not all, it will require an understanding of whether a re-benchmarking will be triggered,” notes Wood. “In many cases, re-benchmarking will have to occur.”

    3 important steps for mergers & acquisitions.

    HubSpot Video

     

    In order to ensure compliance with TIER, there are three key steps organizations must take after a merger or acquisition.

    1. Submit TIER Notification Form by the existing person responsible.

    2. Submit Aggregate Facility Change Form by the existing person responsible for the removal of facilities from the aggregate for the following year.

    3. Submit Aggregate Facility Change Form by the new person responsible for the addition of the facilities into their aggregate for the following year.

    Aggregate facilities TIER enrollment & deadlines.

    As organizations prepare to meet TIER requirements, there are a few key deadlines to keep in mind under the updated regulations. The actions bolded below are particularly relevant in cases of M&A activity impacting the re-benchmarking process.

    September 1

    This is the final due date for organizations to submit the following:

    • Request for a review of the aggregate facility-specific benchmark for the current reporting year for existing aggregate facilities (note: companies should consider and assess which production unit will provide the most stable compliance outcomes)
    • Application for Benchmark Unit and Benchmark for new aggregates with the first Compliance Report
    • Notification about selected Benchmark Reference Years for new aggregate with the first Compliance Report

    December 1

    This is the final due date for organizations to submit the following:

    • Application for adding a facility to an existing aggregate facility for current reporting year
    • Application for creating a new aggregate facility for next reporting year
    • Application for removal of a facility from an existing aggregate facility for next reporting year
    • Application for revocation of aggregate facility designation for next reporting year 

    Work with commodity management experts who understand the evolving regulatory landscape.

    Does your organization need help making sense of the latest regulatory changes? Connect with our team of experts to learn how to prepare your business for upcoming reporting periods.

    Watch the full webinar to learn more about how to get ahead of facility re-benchmarking.

    OFFICES

    Houston 11700 Katy Fwy, 700 | Calgary 530 8 Ave SW, Suite 710 | Toronto 1300 Yonge St, 7th Floor