Word to the Wise: Looking at the retirement obligations of the WCSB

September 28, 2021

Each week, XI Technologies scans its unique combination of enhanced industry data to provide trends and insights that have value for professionals doing business in the WCSB. If you’d like to receive our Wednesday Word to the Wise in your inbox, subscribe here.

Earlier this year, we looked at the retirement obligations of the Western Canadian Sedimentary Basin for 2020. This week, we wanted to check in on how things are looking in 2021 by diving into the data compiled from January through June of 2021. In doing so, we hope to provide a broad picture of the current state of oil and gas ARO in what has been a bounce back year for our industry.

Retirement Obligation Costs

Figure 1- This information was compiled using XI’s ARO Manager and AssetSuite well and facility data. Pipeline information was specifically excluded for this compilation as provincial LLR calculations do not currently include those assets.

Above is reclamation information for wells and facilities in Western Canada, broken down by province. For comparison, we’ve provided calculations using the AER’s LLR cost model and our own ARO cost model, which considers many real-word factors left out of the existing LLR model. To learn about five major differences between XI’s proprietary third-party cost model and regulator LMR costs, download this case study. The biggest difference noted here is due to regulators understating reclamation costs and not factoring in remediation costs.

Reclamations in Western Canada

Now let’s look at the number of site reclamations done in 2021. This data is based on the license status change for a site, which is to say that it’s not necessarily reflective of when the work was done, but when the status changed according to the regulators (i.e., when the site has officially been “reclaimed”).

Above are the total reclamations in the past six months, broken down by province. Using XI’s cost model, you see that operators in western Canada reclaimed an estimated $9.6 billion worth of liabilities, reclaiming 2634 well sites in the process. There reclamation numbers are for wells only; these costs are based on our reclamation and remediation cost estimates and do not include SSLAs or proprietary estimates.

The chart above details which operators were most active last year in terms of reclamations. Note: this list does not include reclamations performed by the Orphan Well Associations of the provinces. The OWA contributed 225 reclamations in the first half of the year.

This data was calculated using XI’s liability software module, AssetBook ARO Manager. ARO Manager is the only standardized tool for estimating and monitoring asset retirement obligations in Western Canada’s oil and gas sector. To learn how XI’s ARO Manager can help with the planning and reporting of liability management, visit our website or contact us for a demo.