Industry spent close to $700 million on closure activities
CALGARY, ALBERTA, OCTOBER 16 – The Alberta Energy Regulator (AER) today published information on how much the conventional oil and gas sector spent on closure activity in 2022, the first such update under the new Liability Management Framework. Direct spending by industry in 2022 was $685 million, exceeding the spend requirement of $422 million by almost 60 per cent. Additional funding was also made available from the Government of Alberta’s Site Rehabilitation Program (SRP). Altogether, more than $1 billion was spent on closure activities in 2022.
Speaking about the data, Laurie Pushor AER President and CEO said, “when the government of Alberta introduced the new liability management framework in 2020, it heralded new requirements for industry to address its end-of-life obligations, including mandatory closure spend quotas for oil and gas companies. Although early days, the significant amount that Industry has spent in the first year of the mandatory closure spend requirement, which is considerably more than was asked for, is a strong indication that mandatory closure quotas are achieving the goal of increased closure work. There are some companies who have not spent what was required of them and this will be addressed by our compliance processes”.
In 2022, the AER implemented the Inventory Reduction Program which includes an industry-wide spend requirement and mandatory closure spend quotas for licensees in the oil and gas sector who have inactive liability (used to determine the licensee’s portion of the industry-wide spend requirement), as part of the new Liability Management Framework (LMF). Mandatory closure spend quotas specify the minimum amount of money that licensees are required to spend on closure work each year. In 2022, the industry-wide spend requirement was $422 million. The 2023 and 2024 industry closure spend requirement has been set at $700 million.
The Inventory Reduction Program, with its mandatory closure spend quotas for all licensees with inactive liability, replaced the voluntary Area-Based Closure (ABC) Program, which some licensees participated in from 2019 to 2021. The purpose of the Inventory Reduction Program is to increase the amount of closure work, reduce inactive liability, and increase the amount of land returned to equivalent capabilities. Closure consists of activities to abandon, remediate, and reclaim infrastructure and sites. The requirement for closure spending allows licensees to focus on aspects of closure work that fit their inactive liability reduction goals. A significant benefit of closure spending is that licensees can direct spending towards large-scale, efficient, area-based closure projects.
Approximately $9 million, or two percent of the $422 million mandatory closure spend from 2022 is outstanding. The AER can undertake compliance assurance activities against licensees who remain noncompliant with their mandatory closure spend quota. Further enforcement information will be posted on the AER Compliance Dashboard in due course.
While industry can report on closure spend for wells, facilities, and pipelines, closure spend is still primarily focused on wells (88 percent of spend). Compliance with the mandatory closure spend quota is achieved in the following three ways:
- Licensees spent sufficient money to meet or exceed their mandatory closure spend quota.
- Licensees opted to provided security in lieu of closure spend.
- Licensees provided security for the difference between their mandatory closure spend quota and their closure spend reported.
About the Alberta Energy Regulator
The AER ensures the safe, efficient, orderly, and environmentally responsible development of energy resources in Alberta through our regulatory activities. For more information visit aer.ca.
