Alberta’s energy regulator overhauls liability management for oil and gas wells

Open this photo in gallery:

Alberta’s energy regulator will soon require oil companies to spend a specified amount each year on environmental clean-up activities.

In addition, should a company want to pick up new wells or secure the transfer of an asset, the cash it owes in property taxes and to landowners will play into whether or not such initiatives get the green light.

It’s part of an overhaul of Alberta’s liability management framework for oil and gas wells. Part of that is the licence liability rating – a kind of credit score for energy companies that governs whether they receive approval to operate wells and other facilities in the province. Energy Minister Sonya Savage announced the sweeping changes almost a year ago, leaving the Alberta Energy Regulator to nail down the details.

Under the old rules, a company simply had to demonstrate to the AER that it had twice as many assets as liabilities on its books to gain regulatory approvals, thus proving it could cover the cost of cleanup when a well reached the end of its life. Even if it didn’t meet that criteria, it could apply for special dispensation.

But over the past five or six years, as oil prices fell, the recession hit and bankruptcies spread like wildfire through the oil patch, many companies simply dusted their hands of their cleanup responsibilities. They dumped sites onto the Orphan Well Association, which cleans up abandoned wells, and walked away.

AER chief executive Laurie Pushor told The Globe and Mail Thursday the new rating system will broaden the regulator’s ability to gather information and analyze the financial health of energy companies. That in turn will allow the AER to factor in more than just the value of what it assesses in determining whether a company – be it new or the result of a merger or acquisition – should be granted an operating licence.

The AER has already hired specific staff to bring more financial expertise in-house. And Mr. Pushor expects his team to be “awfully busy over the summer” collecting financial information, including outstanding tax bills and landowner payments, and other fiscal measures.

”How a company is treating the people closest to the land is a very good indicator, in our view, of how they are acting on the landscape,” he said.

The regulator hasn’t yet landed on a concrete number of how much energy companies must spend each year on clean-up activities, but Mr. Pushor said it will likely be around 4 to 5 per cent of the total value of their environmental labilities.

Alberta has been grappling for years with how to beef up its liability framework, and make sure oil and gas companies pay to clean up the messes they create.

But the regulator has also struggled with transparency and public trust – which wasn’t helped when three provincial watchdogs found that a former AER boss, Jim Ellis, set up a pricey side project that diverted resources, money and employee time from the agency while concealing many of the details from the board of directors.

Mr. Pushor, a long-time Saskatchewan public servant, took the helm of AER in April, 2020.

At the time, he told The Globe he would focus on rebuilding confidence in an organization tarnished by scandal and, on Thursday, said the regulator’s leadership and organizational structure have been stabilized.

“We have just asked the Auditor-General to come back and look at all of the changes we’ve made and the controls we’ve put in place,” he said.

The AER is also eyeing a website overhaul to make data and information more readily available to industry and the public.

“We’ve started to really work hard on being as transparent as we can in the work we do, so that Albertans know what we’re doing and how the industry is performing, and they can evaluate whether we’re doing our jobs,” he said.

Although constrained somewhat by the pandemic, he said he has also been meeting virtually with environmental and non-government organizations, Indigenous groups, rural municipalities and industry associations.

“When you’re driving down the road and see an AER truck drive by, you should feel good. You should go, ‘Yeah, they’re on the job,’” he said. “That’s where we want to be.”

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.