Closure spend quotas specify the minimum amount of money licensees are required to spend on closure work in a given year to help increase the amount of closure work occurring in the province.
The AER sets annual mandatory closure spend quotas for each licensee.
Industry-Wide Closure Spend Requirement
The industry-wide closure spend requirement was introduced in 2022 and set at $422 million. In 2023, the requirement increased to $700 million. The 2024 requirement was maintained at $700 million. For 2025, the requirement will be $750 million.
The AER reviews the industry-wide closure spend requirement each year. Before setting the requirement, the AER will evaluate such factors as market conditions and the results of the previous year’s closure spend to ensure licensees are meeting their spend quota and continuing to close oil and gas infrastructure.
Mandatory Closure Spend Quota
The licensee's mandatory closure spend quota is based on the industry-wide closure spend requirement that the AER sets for the oil and gas sector.
A licensee’s share of the industry-wide closure spend requirement—their mandatory closure spend quota—is calculated using a two-rate approach, which includes the licensee's proportion of the industry-wide inactive liability and level of financial distress as determined by the Liability Capability Assessment (LCA).
A lower spend rate will be applied to licensees with a high level of financial distress 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 spend quotas.
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.
A licensee’s mandatory closure spend quota is the value of their total inactive liability multiplied by the spend rate. Spend rates are reviewed annually.
|
Year |
Higher Spend Rate |
Lower Spend Rate |
|
2022 |
4.0% |
3.3% |
|
2023 |
6.7% |
3.6% |
| 2024 | 6.6% | 3.6% |
Small dry gas producers may receive a deferral from their assigned 2024 and 2025 mandatory closure spend quotas. The AER will contact all micro and junior dry gas producers affected by this change directly.
Licensees can view their annual mandatory closure spend quota in OneStop using the dropdown menu and selecting “closure spend” or through the Closure Activity & Spend report found in the top-right-hand corner. More details on closure spend calculations can be found in Directive 088: Licensee Life-Cycle Management and its associated Manual 023: Licensee Life-Cycle Management.
Licensees are required to submit closure quota details in OneStop as outlined in Directive 088. For more information about reporting requirements, see Manual 023 or OneStop Closure Reporting.
Area-Based Closure Approach
Licensee-specific closure quotas allow licensees to take an area-based closure (ABC) approach to abandonment, remediation, and reclamation activities. An 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 to oilfield service companies and all licensees to identify areas planned for closure work and the corresponding timing. The mapping tool enables licensees to share services and reduce overall unit costs.
Closure Summary Reporting
From 2019 to 2021, the ABC program included components of closure spend and reporting that only applied to licensees who participated in that program. Now, all licensees participate in the Inventory Reduction Program introduced in December 2021. The closure work completed by licensees is highlighted below.
2023
As of June 30, 2024, industry reported 2023 closure spend of approximately $923 million, which includes the remaining funding from the Government of Alberta’s Site Rehabilitation Program. Industry-funded closure exceeded the $700 million requirement set for 2023 by 22%. The 2023 Liability Management Performance Report, which is expected in late 2024, will provide more details including updated industry reported spend.
2022
In 2022, more than $1 billion was spent on closure activity on over 50 000 licences, which includes grant funding received through the Government of Alberta's Site Rehabilitation Program. Check out the 2022 closure quotas highlights report to learn more.
2021
In 2021, $550 million was spent on closure activity on over 28 800 licences by ABC participants. Check out the 2021 ABC program highlights report to learn more.
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.