Liability Management

The Government of Alberta (GoA) established a panel in January 2021 to explore the issue of legacy and post-closure sites and identify potential solutions and funding options. These sites were abandoned, remediated, or reclaimed before current requirements were introduced. For more information, please contact the GoA at 310-0000.

A New Directive and Manual

The AER has developed a new directive and manual to improve liability management as we implement the new framework. Directive 088: Licensee Life-Cycle Management introduces programs that apply throughout the entire development life cycle, allowing us to proactively identify potential issues, develop timely solutions, and increase the amount of closure work done by companies. Directive 088 includes the following:

• a holistic assessment and licensee capability assessment  
• the Licensee Management program
• the Inventory Reduction Program  
• an updated licence transfer process

Manual 023: Licensee Life-Cycle Management was developed alongside Directive 088 and helps to provide further details and clarity around the new programs. 

The AER’s YouTube channel has a series of videos describing the programs introduced by Directive 088 as part of the new liability management framework.

Moving Away From the Liability Management Rating (LMR)

Historically, liability management has been reactive and not focused on the entire energy development life cycle. In particular, the liability management rating (LMR), the ratio of a company’s assets and liabilities, has proven to be an inaccurate measure of whether a company can address its regulatory and liability obligations.

A company with an LMR of 1.0 (i.e., assets equal liabilities) avoided having to post security for future closure work. When a company had more liabilities than assets (i.e., an LMR below 1.0), we focused on collecting security. However, at this point, it was often too late in the life cycle to collect security because the company was already in financial distress. Some distressed companies eventually became insolvent, and some of their liabilities would ultimately be managed by the industry-funded Orphan Well Association (OWA). 

We saw companies become insolvent with ratings above 2.0 and some as high as 30, highlighting the need for change. A more holistic approach was needed to assess whether companies can meet regulatory and liability obligations and safely clean up their sites.

Our holistic assessment will replace the LMR over time. While we know that LMR is not an accurate measure of whether a company can address its regulatory and liability obligations, it plays an important role in calculating the deemed liability in the oil and gas sector. The LMR is integrated into several of our directives and the Oil and Gas Conservation Rules; it cannot easily or quickly be removed without careful thought and consideration of the effects it could cause in other areas. As our first step towards removing LMR, the holistic assessment has replaced the LMR for security collection for licence transfers. 

We will replace the Licensee Liability Rating (LLR) Program, including the LMR, and establish a new security framework under the Oil and Gas Conservation Act to address these issues and align with the GoA’s liability management policy direction. See Bulletin 2023-41 for details.

Liability Management in the Oil and Gas Sector

Oil and gas companies in Alberta are responsible for ensuring their infrastructure and sites are safely closed and cleaned up. The costs associated with this closure work — also known as end-of-life obligations — are what is called liability. This liability information will be available on our Liability Management Rating and Reporting page until the transition away from LMR is complete.

The GoA sets policy direction for how liability is managed and provides general oversight, with the goal of reclaiming land for other uses. The AER is responsible for implementing policy, monitoring progress, and providing enforcement when needed. Our mandate is to protect public safety and the environment while ensuring responsible energy and mineral resource development.

Liability management has been a growing public concern in recent years in Alberta. Through ongoing consultation with industry and other stakeholders, the GoA and the AER have identified gaps in how liability is managed in the province. Consequently, the GoA released a new liability management framework in July 2020 and directed us to implement new programs.

Why Change Was Needed

Liability management in the oil and gas sector aims to reduce the number of inactive sites (wells, facilities, and pipelines) over time. Inactive wells are wells that have not been produced and have been idle for 6 or 12 months based on the well classification. However, closure work has not kept pace with the steady growth of inactive wells. While past economic downturns are a factor, even during times of prosperity, the closure work has often lagged. The well status graph on the AER Data Hub shows the current and historical number of inactive wells in Alberta.

Regulatory Changes to Implement the New Framework

Before implementing the new government policy, changes were required to several rules and AER directives. In 2020, we announced updates to the Oil and Gas Conservation Rules and Pipeline Rules. We then published an updated Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals, including a public comment period in 2021.

The Oil and Gas Conservation Rules and Pipeline Rules were updated again in 2021, enabling the new directive to be implemented. The creation of Directive 088 included a public comment period. The extensive feedback we received through that process led to the creation of Manual 023 to help address that input. 

Regulatory changes to the rules, directives, and manuals will continue as we implement the new liability management policy. We will consolidate, remove duplicate requirements, and reorganize information, making our requirements clearer for stakeholders.

Security

Through the Oil and Gas Conservation Rules, we can require security deposits throughout the energy development life cycle. In determining whether a licensee poses an unreasonable risk and the security required, we will consider the holistic licensee assessment results and other appropriate factors. The maximum security that may be required equals the licensee’s total liabilities, including the cost of providing care and custody and the cost to permanently end operations, which includes site abandonment, remediation, and reclamation.

As we implement the new liability management framework in phases, the security collection framework will be updated in phases. The first phase, completed in 2021, revised Directive 088 for holistic licensee assessment when considering whether to require security deposits and the amount. These improvements apply to the Licensee Management Program, Inventory Reduction Program, and transfer applications. The next phase involved replacing the LMR security collection described in Directive 006 and developing a broader security framework for oil and gas. See Bulletin 2023-41 for more information.

See Manual 023: Licensee Life-Cycle Management and Directive 068: Security Deposits for more information on security deposits.

Other Liability Initiatives Not Involving the AER

Site Rehabilitation Program

The GoA's Site Rehabilitation Program allows eligible companies to apply for funding to complete abandonment and reclamation work. The Government of Canada provides program funding. The GoA is responsible for awarding and distributing program funds. The program is not part of the new liability management framework, nor are we are not involved in its administration.

Companies participating in the program must continue to meet all AER requirements. Albertans can contact the AER’s 24-hour response line at 1-800-222-6514 if they have safety, environmental, or compliance concerns.

See the GoAs Site Rehabilitation Program website for information about eligibility, project requirements, and detailed guidelines. Questions about the program should be directed to the GoA at 1-833-680-9083 or energy.srp@gov.ab.ca.

Unpaid Municipal Taxes

Starting May 1, 2023, we are reviewing all new well licence or well transfer applications to confirm whether companies have unpaid municipal taxes above $20 000 (see Bulletin 2024-22  for details). Companies with unpaid municipal taxes above this threshold amount must provide evidence they have paid their debt or have an acceptable payment plan in place with the owed municipality before we review their application. If the required evidence is not provided, the AER will close the new well or well transfer application as incomplete.

We are not involved with collecting unpaid municipal taxes and have no jurisdiction to take compliance or enforcement actions related to nonpayment.

Surface lease payments

We may request information from companies on unpaid surface lease payments when assessing their eligibility for energy development activities. When requested, companies must disclose the amount of any unpaid surface lease payments. This information helps us assess if a company has the financial capacity to hold a licence and whether they can meet their regulatory and liability obligations, including closing energy infrastructure.

Those owed unpaid surface lease payments may submit a statement of concern (SOC) on Directive 067 eligibility applications and on Directive 088 transfer applications. We post public notices for all applications we receive on our website. 

Landowners should contact the Land & Property Rights Tribunal at 780-427-2444 or lprt.appeals@gov.ab.ca for information or questions about surface lease payments. Landowners may apply for surface lease compensation through the Land and Property Rights Tribunal. The GoA has more information on what to do when a company fails to make annual surface lease payments. The Farmers' Advocate Office provides support and resources for farmers and ranchers, including advocacy and energy, utility, surface rights, and rural dispute resolution. Contact the Farmers' Advocate Office through 310-FARM (3276) or farmers.advocate@gov.ab.ca.

We know that Albertans are passionate about liability. If you have a question about a certain program, contact us at inquiries@aer.ca or call 1-855-297-8311 (toll-free).