As industry practices and technologies advance, the requirements for each phase of energy development are updated as needed. With increased knowledge comes our commitment to strengthening our requirements and oversight.
Resource Development and Liability Management
For more than a hundred years, Alberta has developed its natural resources. For much of this time, the focus has been on increasing production and building new infrastructure to support the industry. Throughout the province, tens of thousands of wells, pipelines, and facilities were built. Over the decades, this continued growth has led to several hundreds of thousands of sites and associated infrastructure, resulting in a stable energy sector that drives the economy.
The energy sector is global. It has many external drivers, and as the economy and commodities markets fluctuate, so too do the number of licensees that can meet their regulatory obligations to continue operating in the province. Downturns can sometimes leave sites and infrastructure without a responsible party to restore them, and as we began to see more sites become orphaned, the need to strengthen how we manage liabilities in the province was prioritized to protect taxpayers and uphold the principle that industry is responsible for paying for all closure work.
In 2020, a new liability management approach for oil and gas was introduced by the Government of Alberta, and we have implemented the majority of the components within it. It is important to acknowledge that it has taken decades to accumulate the amount of infrastructure on the land, and it will take time, careful planning, and the right tools and approaches to clean it up.
Liability
Energy companies must ensure that all infrastructure and energy development sites are permanently and safely decommissioned, assessed, remediated if necessary, and reclaimed. These activities are known as “closure.” The cost for this closure work is called “liability,” and the responsibility of completing it rests with industry.
Liability is created as soon as any disturbance occurs on the landscape for energy development and remains until the site is reclaimed and the land is returned to an equivalent land capability. The amount of liability for a site will fluctuate throughout its life cycle.
Estimated Liability in Alberta
To address the issue of liability, we need to know how much of it there is. Quantifying the amount of liability in the province is not straightforward – there are several variables and factors that shift the value.
For oil and gas, starting in 2024, we estimate liability using closure costs submitted to us by industry. This licensee-level reporting requirement helps us understand the actual costs to complete closure work in each region of the province.
With continued collection of reported closure costs, the estimated liability values will remain more current.
Liability Management for Oil and Gas
Industry has two mechanisms to reduce liability. The first is through the Inventory Reduction Program, which requires licensees to financially prioritize closure activity on their infrastructure. The second is through the Orphan Well Association (OWA), which safely closes sites left behind by licensees that were unable to meet regulatory and liability obligations. The OWA is funded by industry through the orphan fund levy and any security collected from the insolvent licensee.
The liability management programs are scaffolded by the deep knowledge we have about the financial capability, performance, and compliance behaviour of each licensee operating in the province. This business intelligence is gained through the holistic licensee assessment and leveraged through the Integrated Compliance Assurance Framework. The compilation of this information, combined with behavioural data acquired through inspections, provides insight to risk-related trends and the ability to identify an emerging issue so we can proactively manage it rather than respond to an issue after it arises.
Each program and element in the framework helps us understand and track estimated liability while actively ensuring that industry reduces the total liability by closing infrastructure and sites.
