August 15, 2023
Each week, XI Technologies uncovers trends and insights using our enhanced data and software focused on the WCSB. If you’d like Word to the Wise delivered directly to your inbox, subscribe here.
During this quieter August, XI has taken the opportunity to look back over the past year to see which articles generated the most interest from our readers. Here are the Top 3:
The first blog that resonated with our audience was our discussion on why LLR still matters. You can read the original here.
As an update, the oil and gas industry in the WCSB continues to rely on Licensee Liability Ratings (LLR) and Licensee Management Rating (LMR) to assess liability risks in the A&D scoping process, regardless of changes to regulations in Alberta and British Columbia that have declared their intention to transition away from LLR.
The AER’s Directive 088, updated most recently in February of 2023, was the Alberta regulator’s foray into a new holistic approach to a licensee’s capabilities and performance across the energy development life cycle. Imperfect as the LLR and LMR ratings were (download our case study LLR vs ARO for more details), they remain the most transparent metrics for our industry and provide a level of certainty. This is probably why we are routinely asked, “Does LLR still matter?”
While the answer to this is multi-faceted, the simplest answer is “Yes, LLR still matters, because people still use it.”
While the regulators have correctly reasoned that the prior LLR calculation didn’t tell the true picture of a licensee’s capability to operate efficiently and responsibly, the bigger picture approach lacks the simplicity and transparency of a before and after asset transfer ratio.
Early-stage A&D due diligence is simply easier and more reliable using LLR numbers – it’s the snapshot needed for quickly determining financial health, magnitude of liability vs. active wells, closure rates, compliance, etc., from an over-the-fence perspective. LLR is particularly advantageous for assessing individual packages since LCA is a more high-level assessment based on licensees. Moreover, the Deemed Liability calculations that make up LLR are used in the calculations for LCA, and this will likely continue into the near future. The holistic view of Directive 088 includes these liabilities to determine which Crossover Timeline should be applied in LCA and to calculate mandatory spend values for any company.
As liability frameworks evolve, it’s unlikely that these calculations will go away completely. While the industry and the regulator work through the process of changing to the new Liability Management Framework (LMF) of Directive 088 and the particulars of LCA, they still need a quick assessment tool for early scoping and baseline comparisons before they can do the deeper analysis of capability assessments. LLR still matters, now and in the foreseeable future.
On December 9, 2022, Crescent Point Energy Corp (“Crescent Point”) announced their acquisition of Kaybob Duvernay assets from Paramount Resources Corp (“Paramount”) for a value of $375 million. In this article, we looked at both companies through a few different lenses. Read more here.
In general, M&A snapshots remain among our top articles of all time. Why? With AssetSuite, we can take a deeper dive into the assets being purchased and gain some insights into the nuances of the deal. We also provide information on other companies in the area to see who may be affected or who may be looking for fall-out properties from the sale.
In the case of Crescent Point, the summary revealed that this Duvernay play was active with several large players including Whitecap Resources Inc., Chevron Canada Limited and Petrochina Canada Ltd. In general, M&A activity, along with drilling activity in this area, has definitely been heating up of late, with 51 wells drilled in the past 12 months.
Last summer, we took a look into the prevalence of sour gas wells in Alberta to prove the necessity of H2S compliance. Using data pulled from XI’s H2SReports software, it was clear how common an issue potential H2S releases can be when drilling throughout the WCSB. Read the full article here.
This regulatory requirement is necessary from a safety and compliance standpoint and understanding the areas that are more sour helps our clients meet those requirements quickly and efficiently. Hot spots of sour gas include Crossfield East, Okotoks, and Ricinus, but many others have a concentration over 10%.
Stay tuned for an updated heat map next week!
XI Technologies used AssetSuite to showcase the LCA Reporting capabilities and pull M&A comparisons such as Peer Group, historical BOE levels, estimated year-over-year spend, Inactive and Marginal well ratios, and Cross over timeline necessary for LCA assessments at a corporate or package level. We used our RegulatorySuite to generate the heat map showing sour gas for H2S Release Rate Assessments. For more details on any of these modules, visit XI Technologies.com or contact us today.