The economic downturn from the commodity price crash in 2014 has had a major impact on organizations relying upon the revenues tied to commodity prices like oil and gas. It's no surprise that with low oil and natural gas prices, the number of licensees in Alberta has decreased. Simply put, the investment is shifting away due to lower returns. The total number of licensees over the past 16 months can be shown in the plot below: The plot above indicates that there are more licensees [Read more]
Is there an easier way to fund the Orphan Well Association?
The Orphan Well Association (OWA) is a government created group that abandons and reclaims old wellbores/facilities. Recently in this deep commodity down cycle, they have been bombarded with new entities from defunct operators. Its very common to hear individuals saying, “its going to be up to Albertan tax payer to clean up oil companies’ mess." This couldn’t be further from the truth because the OWA is 100% funded by Alberta oil and gas licensees. The 2017 OWA budget is $30,000,000 (split [Read more]
What is the financial impact of abandonment and environmental liabilities?
The LLR program was created by the government to estimate the deemed assets and liabilities of licensees to identify at risk companies. Although the asset values are based on outdated netbacks and are rarely used by anyone other than the regulating bodies, the deemed liabilities are widely used across the industry for financial reporting. Here is how liabilities directly affect cashflow. Orphan Fund Levy’s In 2016, the Orphan Fund Levy in Alberta was $30,000,000 and this was completely [Read more]
How has Alberta done cleaning up liabilities in 2016?
Regardless of the benefits the oil and gas industry provides to everyone across Canada, the industry will always face criticism. 2016 has been one of the most challenging years for operators with record low oil and natural gas prices. Western Canada Select dropped below $14/bbl in January 2016 and AECO spot pricing was under $0.50/mcf in May 2016. Although the majority of companies posted multimillion dollar losses, they proved to reduce their liabilities. Below is a plot of the monthly total [Read more]
Why the LLR’s of most licensees are highly undervalued, even with current netbacks
In my last article, I explained why the LLR formula was extremely generous to licensees due to the overstated industry netback. The AER's posted $37.61/bbl industry netback is nearly double the realized netbacks of the top performing producers in the basin. Alberta's LLR is calculated using a quick formula of assets divided by liabilities, but the major flaw in the equation is the use of three years in the numerator: The governing agencies assess a valuation of each licensee by [Read more]
Lighthouse Liability Solutions: Which Province has the most generous LLR formula?
Alberta, British Columbia, and Saskatchewan each have very similar liability management programs and licensees are given a liability rating to determine if they are an at risk company. The licensee liability ratio is determined by dividing their deemed assets by their deemed liabilities. For licensees producing in Alberta, the LLR formula is as follows: BC and Saskatchewan have subtle differences in their programs in comparison to Alberta, but all three provinces determine the asset [Read more]
Lighthouse Liability Solutions Inc: Does LMR actually identify at risk companies?
The Alberta Energy Regulator's LMR rating is used as an indicator by the government to show which companies are at risk of potentially carrying too many liabilities compared to their production. Is it fair to say that the LMR ratio is accurate on identifying companies on the brink of default? The answer is usually no. This summer, several companies unfortunately fell into receivership as a result of the current economic downturn. One of the companies, a junior oil and gas producer in central [Read more]
Lighthouse Liability Solutions helps clients improve their LMR ratio
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 [Read more]