Word to the Wise: New draft of Directive 067 adds liability management requirements to energy licence and approval eligibility

January 26, 2021

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On January 13, 2021, the AER published a draft for a revised Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals. The AER is currently seeking feedback for this draft, which aims to update the Directive that was last updated in December 2017. The goal of these changes is to support the Government of Alberta’s new Liability Management Framework and ensure liability obligations are taken into consideration before a licence is even granted.

To this end, the new draft includes language in the “Obtaining General Licence Eligibility” section, where it defines “Unreasonable Risk” (Section 4.5). Of note, some of this language addresses liabilities both directly and indirectly as factors in deciding the eligibility of an applicant to get a licence in Alberta. These passages are as follows:

In assessing whether the applicant, licensee, or approval holder poses an unreasonable risk, the AER may consider any of the following factors:

• the assessed capability of the applicant, licensee, or approval holder to meet its regulatory and liability obligations throughout the energy development life cycle
• outstanding debts owed to AER or the Orphan Fund by the applicant, licensee, or approval holder, or by current or former AER licensees or approval holders that are directly or indirectly associated or affiliated with the applicant, licensee, or approval holder, or its directors, officers, or shareholders
• working interest participant arrangements, including participant information and proportionate shares

This insertion into Directive 067 reinforces the direction the province has been heading in relation to abandonments and reclamation work in Alberta: emphasizing the importance of liabilities for both licence holders and working interest partners along with attempting to ease the burden of the Orphan Well Association. This change, which has long been in the works, shows the province’s commitment to ensure that producers meet and maintain their environmental liability responsibilities.

It is a priority for this government to reduce the number of inactive wells in the province and mitigate the risk of a growing inventory of orphan sites, with the hopes of improving Alberta’s ability to attract oil and gas investment. If passed, this change to Directive 067 places this emphasis on tackling inactive wells at the very beginning of the lifecycle of a licence, all the way through to the end.

This means that those who want to produce in this province must have plans in place to manage their future liabilities. Failure to do so could result in the denial of a licence for posing an unreasonable risk. As the Directive states, “acquiring and holding a licence or approval for energy development in Alberta is a privilege, not a right”. With this update, the AER has made clear that they view part of that privilege as demonstrating ability to manage an asset from inception to reclamation.

XI Technologies helps E&Ps strategically manage their liabilities with tools to estimate, analyze, and monitor ARO. XI’s cost model was developed independently of LLR through a combination of government resources, expert opinion, and industry data. To learn how ARO Manager can help your company navigate liabilities and demonstrate responsible liability management, visit our website or contact us today.