Word to the Wise: Increased mandatory closure spend targets reflect industry commitment to addressing liabilities

July 26, 2022

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When the Alberta Energy Regulator (AER) released the new Liability Management Framework (LMF) in December of 2021 with Directive 088, it came with industry-wide mandatory closure targets. The goal of these closure spend targets is to help increase the amount of closure work in the province as licensees are now required to spend a minimum amount on closure annually. In June, the AER released a revised closure spend target for 2023, an increased amount from the previously announced target that reflects the priority set by the industry on meeting closure responsibilities.

The new target for 2023 is set at $700 million, which represents an increase of $257 million from the original 2023 target, set when the LMF was first announced. Subsequent forecasted targets have also been adjusted accordingly, as revealed by this table from the AER (found via this link):

Figure 1- AER industry-wide mandatory targets

The increase is explained by AER assessments that estimate $628 million was spent on closure activities in 2022 (exceeding the original 2022 target of $422 million), along with the increased growth and commodity prices we’re seeing in the industry right now. The AER wants to ensure that the growth in the industry is met with growth in meeting end-of-life obligations for licensees.

A 44% increase in spending targets in just one year is itself a positive indicator of the state of our industry. Combine this news with the latest regulatory changes and the creation of the Licensee Capability Assessment (LCA) and it’s clear that the commitment from the province to address the issue of dormant assets is not to be taken lightly. License holders in the province need to ensure that their liability management processes are prepared to meet these standards today and in the future.

XI Technologies’ AssetSuite provides quick access to well declines, working interest production, and an industry-leading cost model that gives the robust depth needed for evaluating liabilities for opportunities. We’ve recently released an LCA report to view peer group information and view LCA calculations for acquisition targets. For more information on AssetSuite, visit our website or contact us today.