April 28, 2020
The various efforts of both the provincial and federal government to assist the industry as it struggles through the dual challenges of COVID-19 and catastrophic commodity pricing have largely been focused on liability retirements for orphaned wells or those with the potential of becoming orphaned.
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From the Alberta government’s initial $100 million dollar loan to the Orphan Well Association (OWA) to the federal government’s recent $1.7 billion dollar commitment ($1 billion of which goes to Alberta), the goal has been to help keep workers employed while continuing the important environmental work of abandoning and reclaiming non-productive assets.
Starting May 1, the Site Rehabilitation Program in Alberta will provide grants to oil field service contractors to perform well and pipeline site closure and reclamation work (click here for details on the program). While this program focuses on getting money in the hands of service companies to spur employment in the sector and get them to work, and previous announcements focused on assets in the OWA, there are still some important things for producers to note and potential ways for E&Ps to take advantage of this program while they struggle to navigate our current environment.
The first thing to note is that while the Alberta Government has contributed funds ($100 million) specifically for assets in the Orphan Well Program, the latest offering is available to abandon and reclaim sites currently owned by E&P companies. The earliest funds will target assets owned by producers showing significant economic hardship, but as the program expands, it should open to more producers with projects ready for service companies to tackle.
Since contractors can obtain 100% government funding for a contract on a well-by-well basis as long as the contract is fully executable and only to a maximum of $30,000 per well, a good strategy for producers looking to quickly clear a good chunk of liabilities from their books (or to help meet the 4.33 percent of their total inactive well inventory if they are participants in the ABC program) would be to target low hanging fruit in their inventory for sites easily tackled.
While the program appears to put the onus on service companies, a more collaborative approach that benefits both service company and licensee is possible. By targeting inactive liabilities that can be affordably and relatively easily abandoned or reclaimed, both partners can get optimal results from the incentive. Producers can remove low hanging fruit liabilities from their books, and service companies can mitigate cost overruns and improve efficiency.
Examples of the types of inactive liabilities producers and service companies need to be targeting include wells that are:
XI Technologies can help producers find their best liabilities to target for this opportunity using AssetBook and ARO Manager. For a more detailed explanation of this process, watch our video on Abandoned and Suspended Well Search in Alberta. You can also contact us for a demonstration of how ARO Manager can help you manage your liabilities and why now is a great time to focus on lowering your liabilities to prepare for the turnaround.