Reinsurer Munich Re has agreed to provide backstop capital for a new funding product from OneNexus that seeks to provide the oil and gas industry with an option to reduce its environmental footprint.
OneNexus’s Asset Retirement Obligation (ARO) product aims to address the decommissioning liabilities associated with retiring long-lived hydrocarbon producing assets, such as wells, facilities, and production and gathering systems.
The ARO liabilities held on energy company balance sheets remain largely unfunded, and, if neglected, OneNexus says the number of orphaned wells in the US will continue to increase, leaving a burden on taxpayers and creating environmental hazards.
The company plans to use its captive insurer, OneNexus Oklahoma Captive Corp (OOCC) and a partnership with Munich Re Energy Transition Finance (MRETF) to safeguards funds in a regulated ‘lock box’ structure until the capital is needed for the decommissioning of the oil and gas wells.
After this, OneNexus will take title to the plugged wells, to ensure that they do not present further risks in the future.
MRETF’s financial commitment, along with capital provided by OneNexus’ founding members, ensures sufficient capital for OneNexus to cover up to $1.2 billion in ARO liabilities.
“The transaction with OneNexus demonstrates our unwavering commitment to energy transition,” said Vikram Nath, Managing Director, Munich Re Energy Transition Finance.
“Unplugged or improperly plugged oil and gas wells might lead to harmful emissions, but to date there has been no solution that could address this problem head-on,” Nath added. “We have worked closely with the OneNexus team in structuring this product and are confident that, as this product gains acceptance, it will be a win-win solution for all stakeholders.”
Tony Sanchez, co-founder of OneNexus, also commented: “As we get down to the business of managing ARO liabilities and plugging wells, we will be helping energy companies become proactive in addressing their decommissioning obligations. OneNexus products will ensure that funding for plugging and abandonment activities is available, no matter who owns the wells, far into the future.”