Monday, February 26, 2024

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OneNexus targets doubling of $1.2bn funding for decommissioning wells

OneNexus is planning to increase the $1.2bn in funding it is providing to oil and gas companies to help them decommission their liabilities, according to the company’s chief risk officer, Gerry Willinger.

“We think it’s approximately a $500bn issue onshore in North America,” he told Captive Intelligence.

“Our goal is to get through the first tranche of approximately $1.2bn of gross liability exposure in a year. And by next year, hopefully we’ll be out there with another $1.2bn or even bigger.”

The company, supported by its Oklahoma-domiciled captive, recently entered into a definitive agreement with Munich Re’s Energy Transition Finance subsidiary to provide regulatory capital for OneNexus Oklahoma Captive Corporation (OOCC).

Munich Re’s financial commitment, along with capital provided by OneNexus’ founding members, will ensure that the management company has capital to cover up to $1.2bn in liabilities, which it can use to provide energy operators with a clear path to funding their long-term decommissioning liabilities.

Willinger said one reason they had picked the Sooner State for OOCC was because of its regulation of multi-cell captives.

“As you build up the pools of assets, there’s going to be certain assets that fit better into certain cells from a risk perspective,” Willinger said.

“If one client has 25,000 wells, they’re likely to want to be in their own cell, like a separately managed account.”

He highlighted that there are around 3.5 million wells in the US. “And each of them is going to have different levels of risk and duration and you’re going to want to be able to pull those together, to manage the risk effectively.”

Willinger also said the company was attracted to Oklahoma’s history with oil and gas companies.

“We wanted an oil producing state that had a lot of production, and a lot of wells, and we wanted a regulatory body that understood, from an insurance standpoint, the risk associated with the future liability of inactive, unplugged wells,” he added.

This mirrored the thoughts of Oklahoma’s new captive director, Steve Kinion, who highlighted the state’s connection to the oil and gas industry in a recent interview with Captive Intelligence.

“They’re welcome in Oklahoma because Oklahoma has a long history with that industry,” Kinion said.

Willinger said OneNexus had considered the possibility of providing the funds through a trust, before finally settling on the captive model.

“You have the obligation, the moment you drill the well to decommission it, and it’s a growing liability,” he explained.

“So, when we thought about those concepts of liability and risk management, we went down two paths.

“One was to form a trust to help do it, or the other one was captive insurance,” he said.  

“And the reason why we went the captive insurance route is because we think having the long-standing insurance regulations provides and an additional level trust that the money will be there, when claimed, is important.”

He said the company needed a regulated insurance concept that provided a framework where it could be rated from an insurance standpoint and be “regulated by the insurance representatives to verify that the funds will be there”.