In Canada’s province of Alberta, oil and gas producers are taking a major role in funding the plugging and abandonment of non-producing wells. Guidelines set by the province’s energy regulation group, the Alberta Energy Regulator (AER), establish an industry-wide closure spend requirement that licensees must follow. The AER recently released its annual closure spend requirement for 2024, keeping it at $700 million as in 2023.
Industry-wide Spending Quotas
The AER first established an Inventory Reduction Program that sets industry-wide closure spend requirements. The closure spend requirement was introduced in 2022. This amount is to be updated each year to account for changes in the energy market and closure spending in the prior year. In 2022, the closure spend requirement was $422 million; however, an AER study that year found that oil and gas producers spent more than targeted to shut down oil and gas sites.
Alternate Focus on Closing Inactive Wells
Closure spend requirements mean that more work is done to plug and reclaim inactive wells. Oil and gas wells that are no longer producing can present problems, and with around 459,000 wells in Alberta, inactive wells are becoming a growing concern. The approach used by the AER is similar to other efforts to incentivize oil and gas producers to seal and reclaim inactive wells; however, its use of industry-wide and licensee-specific spending targets differs from other approaches that focus on the number of wells closed.
Who is the AER?
The AER is a regulatory body operating under the authority of Alberta’s government to ensure safe and responsible energy production in the province. The AER conducts inspections, audits, and investigations and works closely with oil and gas companies at every stage of production from exploration to remediating inactive wells. Additionally, through Alberta’s Liability Management Framework, the AER provides guidance for oil and gas companies that are having financial or other difficulties. The aim is to help those companies maintain operations and keep the citizens of Alberta from having to bear all of the financial and environmental costs of orphan wells.
Orphan Wells and the AER
The AER also works with the Orphan Well Association (OWA), an industry-funded group that focuses on sealing and reclaiming oil and gas sites run by companies that no longer exist. The OWA has spent millions of dollars through its loan program, which has led to the reclamation of thousands of abandoned sites. For 2024, oil and gas companies are slated to contribute $135 million to the OWA.
Licensee Closure Spend
As part of the industry-wide closure spend requirement of $700 million, each oil and gas licensee in Alberta that has inactive wells and facilities will have to pay an individual mandatory closure spend amount. The AER sets these individual spending targets based on the industry-wide requirement and how many of the overall inactive wells in Alberta each licensee holds. The AER also considers financial information that companies submit at the end of each fiscal year. Licensee-specific spend amounts will be announced by September 28
