July 28, 2020
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The biggest part of the government’s response to the oil and gas industry struggles with COVID-19 and international price wars was the implementation of the Site Rehabilitation Program, which started May 1st, 2020. Funded by the Federal Government’s COVID-19 Economic Response Plan , the $1 billion program was designed to fund abandonment and reclamation work by providing grants to oil field service contractors, thereby helping keep the sector employed while ensuring important environmental work continues to be done. As of July 24, 2020, 91.8 million in grant funding had been approved and allocated to 169 Alberta based companies. There is still more than $100 million left to be distributed in these previous two phases.
While phase 1 and 2 are now closed to new applicants, the Government is reassessing applications and may possibly approve more. Phase 3 began on July 17, 2020, extending to March 31, 2021 (or until the application period is terminated by the Department). It allocates up to $139,000 in grant funding to sites held by each active licensee in Alberta, with projects eligible for 100% grant funding of the oil field service (OFS) contract value. The one-size-fits all approach is clearly focused at smaller producers, where it can go a longer way to reduce liability exposure relative to their portfolio. As with the past two SRP application periods, only OFS companies can apply for and receive the grant funding — licensees cannot apply for funding. (Go here for more details on Phase 3).
The initial optimism surrounding the SRP program has often given way to frustration as applications have been slow to process or been rejected for unknown reasons. A recent survey of those in the remediation sector suggested that only 2.7% of their applications were approved, with concerns that the delays and confusion around approvals were actually delaying reclamation work, rather than accelerating it.
The hope is that now that the Government has had a few months to work through the process, and that phase 3 opens it up to more of the industry, more OFS companies will be able to take advantage of the program. As more service and supply companies get approvals, producers will get more opportunities to improve their liabilities.
The key will be for OFS companies to uncover opportunities quickly and easily. The biggest opportunities for OFS companies will come from targeting junior oil and gas firms that stand to gain the most, and have liability work ready to go. The amount of money available from the program is not enough to make a large impact for the asset retirement obligations of major producers, but for juniors and midsize producers, it could be a difference-maker.
To find these opportunities in areas that are cost-effective for their operations, OFS companies need to be able to search within their area of expertise for low hanging fruit. Wells that are not complicated, i.e., no spills, that are in areas with a variety of operators who can all take advantage of the 139,000 per licensee to complete this work will be some of the best targets to go after.
Examples of the types of inactive liabilities service companies need to be targeting include wells that are:
XI Technologies can help producers and/or service companies find the 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. For those who don’t require the full capabilities of AssetSuite, we’ve created a new report purpose-built for service companies. Click here to learn more about our new InactiveLiability Report.