Oil and Gas – Facilities
Under the Government of Alberta’s new Liability Management Framework, the AER has implemented an Inventory Reduction Program (described in Directive 088: Licensee Life-Cycle Management), which involves setting industry-wide closure spend targets. Setting closure spend targets increases the amount of closure work occurring in the province as it requires licensees to spend a minimum amount annually on abandoning, remediating, and reclaiming their oil and gas sites.
To determine closure targets, the AER uses liability associated with inactive wells (as per Directive 013: Suspension Requirements for Wells) and inactive facilities (no activity for 12 months) (collectively, “Inactive Liability”).
Targets are reviewed annually and are subject to change. After reviewing the 2023 closure target, the AER opted to increase the target based on:
(a) preliminary AER data indicating that in 2021 about $628 million was spent on closure activity, funded by industry and grants from the Government of Alberta’s Site Rehabilitation Program. This amount represents a closure expenditure that is 48 percent higher than the industry-wide mandatory target set for 2022;
(b) the consideration that higher commodity prices are creating the financial conditions where licensees can increase closure spending; and
(c) growth in the oil and gas service sector for the first time since 2014, supported by the Site Rehabilitation Program. Increasing the closure target helps maintain that growth.
The AER set an industry-wide mandatory target of $700 million for 2023, forecasting an increase to $992 million in 2027.
Each oil and gas licensee with inactive wells and facilities is required to meet an individual annual mandatory target.
In setting licensee-specific targets, the AER considers the licensee’s proportion of the total industry Inactive Liability and the licensee’s financial health, determined using financial information provided under Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals.
Licensee-specific targets for 2023 will be visible by July 31 within OneStop. Licensees may still commit to a voluntary closure spend target exceeding their mandatory target to qualify for incentives.