Nothing is permanent except change. This statement couldn’t be more applicable to today’s liability regulations in Alberta. In 2016, the Alberta Energy Regulator (AER) implemented several new regulatory changes including license transfer requirements for both wells and pipelines. Although there are people frustrated with the new requirements, the AER is being forced to respond to Alberta’s ever changing economic environment.
The AER’s world changed on May 19th, 2016 when a high profile court decision was made concerning Redwater Energy Corporation’s disputed bankruptcy proceedings. The decision ultimately gave the company’s financial lenders priority over the provincial government to clean up existing wellbores. In response, the AER announced on June 20th that all transferees must demonstrate a minimum post transfer Liability Management Ratio (LMR) of 2.0 or provide evidence that the retirement obligations will be met throughout the life cycle of the assets.
It is no surprise the Orphan Well Association (OWA) is being pressured in the current downturn. But to what extent are they being threatened? As per the OWA annual reports, the inventory has grown as follows:
|Date||Well Inventory||Abandoned Wells|
Adding to the multiplying inventory problem is the significant number of companies on the verge of going out of business. As of August 6th, there were 43 licensees with an LMR between 0.01 and 0.5.
Prior to the AER’s new ruling, Alberta’s oil and gas industry operated in way where assets could be purchased and sold with little regulatory interference. However, as shown by the numbers above, the OWA is now being ambushed. That said, there are two ways to fix a sinking ship: Bail water or plug the holes in the bottom of the boat. The new 2.0 LMR regulation is an attempt by the AER to have operators ensure they will meet their obligations and prevent high risk licensees to add to Alberta’s orphaned well problem. For operators willing to dispose or acquire assets, there are simple means to meet the AER requirements and Lighthouse Liability Solutions has a proven ability to lead the way.
Lighthouse Liability Solutions consists of a team of professionals with both direct regulatory and industry experience. The team fully understands Alberta’s regulatory system and shares a common goal to support companies seeking solutions to their deemed liabilities. The license transfer procedure can be confusing with its constantly changing regulations. With a team of experienced individuals, Lighthouse can ensure that companies remain compliant and avoid any unexpected consequences. Recently, our staff helped reduce a corporate LMR by nearly 15% (more than $1.2 MM) through administrative initiatives with no capital or field expenses. Let the team at Lighthouse fully review your assets and identify cost free solutions to improving your LMR.