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Whether it’s the result of volatile commodity pricing or the natural outcome of an entrepreneurial-driven patch, it’s not uncommon for WCSB producers to have to evaluate their current operations for viability. Companies evaluating either their own viability or those of potential working interest partners have more than just bottom-line financials to consider.
The current importance placed on ARO liabilities within the region has brought end-of-life obligations into viability decision-making. Along with examining the financials and analyzing the administrative, operational, and regulatory requirements to remain in business, producers need to also consider their outstanding liabilities to factor future costs into their calculations and decisions.
Producers do not want to walk away and leave abandonments and reclamations to be taken care of by the province. Today, a responsible steward wants to maintain a strong reputation long after their current venture has concluded, so they recognize the need to address any outstanding liabilities within their cessation process.
When it comes to evaluating potential partners for viability, ARO may be even more significant. Working interest partners must share the liability obligations of assets. An unexpected insolvency by a partner could result in an unexpected 60-day closure order for non-operating partners, blindsiding them and their short-term budgeting. This makes it essential to look at a potential partner’s outstanding ARO before deciding on a business relationship.
But while it’s become essential to factor ARO into viability evaluations, it isn’t always easy to do so. Those relying on LLR figures for their liability management discover it lacks the detailed license-by-license data necessary for this level of decision-making, particularly when it comes to non-operated licenses.
To evaluate potential partners, LLR figures are no longer an option, as the AER ceased providing that information in 2020. Instead, a true viability evaluation requires a database tool with over-the-fence evaluations of all assets and companies. To get a true sense of how ARO can affect viability, one needs:
- accurate, up-to-date information on asset ownership with working interest.
- a list of current liabilities.
- an understanding of the metrics of the well or facility itself (i.e., is it sour, how deep is it, does it have ground water protection etc).
AssetBook ARO Manager by XI Technologies provides ARO liability estimates for every company, well, facility, and pipeline in the WCSB. Our web-based software helps companies get a true sense of their liabilities and those of potential partners. To read about how one company used ARO Manager evaluate their own viability and negotiate buy outs with partners, click here.
If you’d like to get a more detailed look on how ARO Manager can help you properly evaluate viability, contact us today to book a demo.