New Liability Management Framework For Oil And Gas In Alberta

• Published date: 08 June 2022
• Subject Matter: Environment, Energy and Natural Resources, Energy Law, Environmental Law, Oil, Gas & Electricity
• Law Firm: Borden Ladner Gervais LLP
• Author: Ms Chidinma Thompson

Overview

In its continued effort to reduce the number of orphan and inactive wells in the province, the Government of Alberta introduced a new Liability Management Framework in July 2020. In December 2021, the Alberta Energy Regulator (AER) released Directive 088: Licensee Life-Cycle Management, and the accompanying Manual 023, to implement the new framework. Licensees are responsible for ensuring their infrastructure and sites are safely closed and cleaned up. The AER describes the costs associated with this closure work as end-of-life obligations or "liability." The new framework uses a wider variety of parameters to perform a holistic assessment on licensees at all phases of energy development and ensures timely closure. The holistic assessment shows a licensee's risk and performance profile throughout the energy development life cycle. The new framework does not apply to oil sands mines and coal mines.

The AER has commenced a phased transition away from the previous Liability Management Rating (LMR) Program. There is now established closure spend targets for licensees by July of each year, which outline a licensee's minimum obligation to abandon, remediate and reclaim certain oil and gas sites. Several directives relevant to liability management have been amended and more amendments are proposed. As we move towards the second half of 2022, licensees will need to ensure these new requirements are being implemented to avoid enforcement actions. Further to routine compliance, acquisitions or divestitures requiring transfer of licenses, new projects requiring repurposing of wells or sites for alternative use (for example, helium, lithium, geothermal, etc.), and insolvency or ceased operations requiring forced sales or care and custody by working interest participants, all trigger holistic assessment under the new framework.

Background

On January 31, 2019, the Supreme Court of Canada released its decision in Orphan Well Association v. Grant Thornton Ltd., popularly known as Redwater. At issue was the ability of trustees or receivers to disclaim property or unprofitable oil and gas assets to avoid a company's end-of-life/environmental obligations, including the payment of security deposits to the regulator to address the obligations. The case was decided under the LMR Program, which the AER discovered, with the Redwater case, was not an accurate measure of whether a company will be able to address its regulatory and liability obligations.

In its decision, the Supreme Court of Canada determined that a regulator exercising a power to enforce a public duty is not a creditor of the individual or corporation subject to that duty. In seeking to enforce the bankrupt company's end-of-life obligations, the regulator is acting in the public interest and for the public good. While a trustee or receiver is not personally liable for claims, they cannot ignore the environmental obligations of the bankrupt estate they are responsible for overseeing.

Liability Management Framework

In July 2020, consistent with the Supreme Court of Canada's decision in Redwater, the Government of Alberta launched a new Liability Management...