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The purpose of the inventory reduction program is to increase the amount of closure work occurring in Alberta, reduce liability, and increase the amount of land being returned to original or alternative uses. To do this, we set an industry minimum standard for annual closure work and encourage companies to collaborate to increase efficiency of projects and complete more closure work. A program to request the closure of a well or facility, that has been inactive or abandoned for 5 or more years, will also be introduced in 2023.

Closure Targets

The AER sets industry-wide mandatory closure spend targets for the oil and gas sector. These mandatory targets help increase the amount of closure work occurring in the province because companies are required to spend a minimum amount of money  each year. The closure targets also allow licensees to take an area-based closure approach to abandonment, remediation and reclamation activity . Companies can also commit to higher voluntary closure spend targets, granting them access to regulatory incentives.

Industry-wide closure spend targets are published for a five-year period, with the first year set, and the remaining four years being forecasted.

Year

Industry-wide mandatory target

2023 (set)

$700 million

2024 (forecasted)

$764 million

2025 (forecasted)

$833 million

2026 (forecasted)

$909 million

2027 (forecasted)

$992 million

The AER reviewed recent closure spending, commodity pricing and market conditions to determining the 2023 target.

Targets will be set annually, and the forecasted targets may be updated due to a variety of factors, such as a significant change in the amount of inactive oil and gas infrastructure, commodity pricing, amount of closure work completed in the previous year, or unforeseen exceptional circumstances.

Based on the industry-wide target mentioned above, licensee-specific targets have been calculated using the licensee's proportion of the industry-wide inactive liability and level of financial distress as determined following the Liability Capability Assessment (LCA). Inactive liability is estimated using Directive 011: Licensee Liability Rating (LLR) Program: Updated Industry Parameters and Liability Costs and site-specific liability assessments for inactive sites.

Mandatory Targets

As of 2022, all licensees with inactive inventory are required to meet an annual mandatory closure spend target. The mandatory target sets the minimum industry requirements for asset retirement in the form of spending.

A licensee's financial capability is used to set appropriate closure targets using a two-target rate approach. Licensees with a high level of financial distress, who hold approximately 10% of the industry's inactive liability, will receive a lower target rate than those not in financial distress.  The intent is for all licensees to conduct closure work; the AER enables this by assessing their capability to complete closure work and providing oversight and performance managed through other Liability Management Framework (LMF) programs in addition to closure targets.

Licensee-level Target Calculation formula:

Licensee Mandatory Closure Spend Target = Licensee Inactive Liability X Target Rate

Target Rate = % of inactive liability to be spent on closure

Year

Higher Target Rate

Lower Target Rate

2022

4.0%

3.3%

2023

6.7%

3.6%

Licensees can view their targets in OneStop using the dropdown menu and selecting closure targets or through the Closure Activity & Spend report, found in the top right-hand corner. More details on target calculation and closure spend can be found in Directive 088: Licensee Life-Cycle Management and its associated Manual 023.

Voluntary Targets

The voluntary closure spend target will offer regulatory incentives in exchange for a higher closure target. For 2022 and 2023 the additional spend required for the voluntary target is equal to 0.3% of a licensee's inactive liability . Licensees can view and commit to their voluntary targets in OneStop. The regulatory incentives available to licensees who commit to their voluntary target include surface equipment removal extension and mineral lease expiry extension. More information about voluntary targets, requirements, and associated incentives can be found in Manual 023.

In addition to target information and commitment, licensees are required to submit closure spend details in OneStop as outlined in Directive 088. For more information about reporting requirements licensees can reference, Manual 023 or OneStop Closure Reporting.

Area-Based Closure Approach

An area-based closure (ABC) approach can reduce the cost of closure through better planning, industry-wide collaboration, and reduced equipment mobilization. This approach benefits industry and Albertans by improving closure cost efficiency and results in more closure work. The AER offers the ABC mapping tool to facilitate collaboration among licensees and oilfield service providers completing work in similar areas. The mapping tool is available for oilfield service companies and all licensees, regardless of their closure targets, to identify the areas they are planning to complete closure work and when. Providing licensees and oilfield service providers a map of current and future closure programs allows services to be shared and reduce overall unit cost.

Closure Nomination Program

Currently in development and expected to launch for new nominations in 2023, the Closure Nomination Program is an inventory reduction initiative put in place to tackle the ongoing risks and costs associated with inactive or abandoned/decommissioned and un-reclaimed oil and gas sites throughout the province. 

This program provides eligible participants, “requesters,” the opportunity to nominate oil and gas wells and facilities, on their land or land they have rights to, that have been inactive or abandoned for longer than five years, for closure - at the expense of the licensee. 

Eligible requesters, as defined in section 3.016 of the Oil and Gas Conservation Rules, include:  

  • Landowners
  • Council of a band as defined in the Indian Act
  • Metis Settlements
  • Holder of a Disposition under the Public Lands Administration Regulation (on public land)
  • Municipalities (on land owned by a municipality defined in the Municipal Government Act)
  • Government Ministers (on public land) 

Watch Engagement Session Video

Date

Industry [YouTube]

September 22

Indigenous Communities [YouTube]

October 18

Landowner, Municipalities, Disposition Holders [YouTube]

October 25

Transition of Sites Nominated under the Site Rehabilitation Program 

On March 31, 2022, the Government of Alberta closed the application process for the Site Rehabilitation Program (SRP), which included a mechanism for landowners and Indigenous communities to nominate sites for closure.  

The first nominations that will be taken into the Closure Nomination Program will be sites that have been submitted to the Government of Alberta’s SRP prior to March 31 and meet all the following eligibility criteria:  

  • Oil & Gas well or facility
  • Inactive or abandoned for 5 or more years
  • Not considered a legacy site (sites that were abandoned, remediated, or reclaimed before current requirements were introduced)
  • Is not considered “reclamation exempt” meaning it was abandoned prior to legislation regarding reclamation coming into effect
  • Is not reclamation certified
  • Is not currently receiving Site Rehabilitation Program-grants for closure work 

All SRP nominations submitted prior to March 31 that meet the Closure Nomination Program criteria have transitioned to the AER for consideration; requesters do not need to resubmit their site nominations. Those with sites nominated under SRP can expect to learn more about the status of their sites, including whether they meet AER eligibility criteria, in Summer 2022. 

The Government of Alberta will continue to administer the SRP until February 2023, the deadline for completion of SRP-funded closure activity. Questions about the SRP should be directed to @email

External engagement will take place in Fall 2022; opportunities will be posted to the AER Events page. Intake of new site closure nominations is anticipated to begin in early 2023.  

The Closure Nomination Program is not intended to be used as a mechanism for the public to submit concerns about public safety or the environment. All concerns and complaints must be submitted using the AER’s Energy and Environmental Emergency 24-hour response line: 1-800-222-6514.  

Closure Summary Reporting

Before the release of Directive 088, the former ABC program contained components of closure spend and reporting that are now part of the inventory reduction program. The ABC program and the closure work completed by those licensees that participated is highlighted below. 

2021 

In 2021, our preliminary data indicates about $628 million was spent on closure activity funded by industry and grants received from the Government of Alberta’s Site Rehabilitation Program. This represents a closure spend that is 48% higher than the industry-wide mandatory target set for 2022.  

66 licensees participated in the final year of the voluntary Area Based Closure program (ABC) and were collectively responsible for about 85% of the total 2021 closure spend. A detailed ABC highlight report will be published in the future.  

2020

In 2020, despite extenuating circumstances, ABC participants spent $297 million in closure work on over 18 400 licences. Check out the 2020 ABC program highlights report to learn more.

2019

In 2019, ABC participants conducted almost 70% of all abandonment and reclamation in Alberta, spending more than $340 million in the process. Check out the ABC Program 2019 Highlights report to learn more.

Details and requirements for the inventory reduction program can be found in Directive 088 and Manual 023. For more information, please submit your inquiry using the inquiry intake online form.