Top 3 Tips for Start-up Oil and Gas Operators

Here’s how to avoid the top three mistakes start-up oil and gas operators can make. Spending the time and money up front will save you potentially hundreds of thousands of dollars in PHMSA and state agency fines. We speak from experience! Clients have asked Allied Solutions to assist at various stages of the process, and we have seen what happens when the process goes smoothly—and the aftermath when it doesn’t.

To see the rest of our advice for start-up operators, download the free resource "8 Tips for Start-up Oil and Gas Operators."

1.    Exercise proper due diligence.

It’s a hole in one! You just negotiated the best deal ever! Until you realize you don’t have the procedures or records you need to comply with the state and federal regulations.

In addition, the new asset has some serious integrity problems you didn’t know about. Ouch. Turns out you overpaid for these assets, and you’ll have hundreds of thousands in unanticipated maintenance costs for years to come. Suddenly your hole in one turns out to have been made with someone else’s ball; yours is MIA.

If you build and execute a customized due-diligence plan with objective, experienced experts, you can protect your company. The consulting fees are a drop in the bucket compared to the money you could overpay for the assets you are vetting. With the right help, you can turn good deals into great deals and avoid bad deals altogether.

2.    Hire compliance personnel at least a month before you start up operations.

Most people who start up oil or gas assets are focused on getting contracts in place, obtaining permits, getting the facilities ready to run, and hiring key personnel. And in your mind, “key personnel” does not mean compliance experts.

Maybe you had compliance personnel at your previous company, but they operated in the background and you were unaware of their importance. Or maybe it seemed like what they did wasn’t really applicable to you, so you didn’t consider them essential. Besides, you plan to rely on that colleague who’s a compliance expert at another company; surely you can ask them a few questions from time to time to get you by until you really need to hire someone.

Whatever the case, onboarding compliance personnel can come later, right? Not really! Having the right compliance personnel in place from the beginning can save you hundreds of thousands of dollars up front and hundreds of thousands of dollars annually on operations and maintenance costs. They inoculate your company against civil penalties for being out of compliance with state and federal regulations.

Operational compliance personnel are going to walk you through the due diligence process, which can take a month or more. They are going to collect and validate the records and procedures you’re going to need to safely run the asset. Asset construction professionals should NOT be the ones to vet operational procedures. Likewise, EPA and OSHA compliance personnel usually do not know how to comply with DOT regulations.

Pro Tip: Complying with Department of Transportation (DOT) regulations from day one is the law. Sure, you can roll the dice and hope you don’t get caught. Just know that if the Environmental Protection Agency (EPA) catches you, they’ll issue a small fine and you’ll keep on truckin’. If PHMSA catches you, they have the authority to make your life miserable for years to come while you pay the civil penalties. Don’t make the mistake of assuming that all federal agencies operate the same or have the same power and expectations—because they don’t.

3.    Obtain ALL of the documents associated with the assets you are buying BEFORE the sale is complete.

You ask for “all of the documents” associated with the assets you are purchasing, and you’re done, right? That isn’t how it works.

Even if the company that is selling the assets is going out of business, they still have to separate those assets from the rest of the assets they own. So, you must be both specific AND comprehensive about what you ask for. Prevent frustration and having to tell your boss you need unanticipated time and/or money to create the documents from scratch to come into compliance with the regulations.

Also, keep in mind that even though the seller has been very friendly and helpful, they are legally obligated to sever all ties with you once the sale is officially complete (i.e., you’re operating the asset on your own). It’s not personal and most folks who are helping you don’t know they’ll have to ghost you soon, but legally they must—even if they say otherwise.

Moral of the story: You need a solid, thorough plan for which documents you will request, based on what you discovered during the due diligence phase. You also need to allow for the time and money it takes for qualified individuals to vet the documents and records as you go, because you’ve got deadlines to meet.

To see the rest of our advice for start-up operators, download the free resource "8 Tips for Start-up Oil and Gas Operators."

Questions? Concerns?

Schedule a free 30-minute pipeline safety and compliance consultation.

Dan Prascher, Principal

Allied Solutions INC

Dan.Prascher@go-allied.com

(307) 488-0110 (O) | (303) 941-3773 (M)