On January 5, 2017, the Alberta Energy Regulator (AER) released Bulletin 2017-01 Enhancements to Licensee Liability Rating Program which provides for the submission of additional information that will improve categorization of wells for calculating abandonment liability. A month later, on February 6, 2017, the AER released Bulletin 2017-04 First 2017/18 Orphan Fund Levy prescribing the first tranche of the annual orphan fund levy in the amount of $15 million. The Orphan Well Association (OWA) and Industry approved a $30 million orphan fund levy to fund the OWA’s budget for fiscal year 2017/18. The AER will collect the levy in two tranches. The first $15 million will be collected in March 2017, and the second $15 million in September 2017.
Bulletin 2017-01 Enhancements to Licensee Liability Rating Program issued January 5, 2017, provides additional well information (tubing and artificial lift) required for calculating abandonment liability. Under Directive 011: Licensee Liability Rating (LLR) Program, Updated Industry Parameters and Liability Costs, the AER categorizes well abandonment based on the presence of tubing and artificial lift. Licensees have the opportunity to voluntarily submit this information. The AER will use the submitted information to properly categorize wells and recalculate abandonment liabilities. Any alterations to the well relating to including or removing of the tubing or artificial lift requires the licensee to resubmit the information to the AER within 30 days of the change.
Bulletin 2017-04 First 2017/18 Orphan Fund Levy issued February 6, 2017, is the first of the two levies to be collected as the 2017/18 Orphan Fund Levy. The OWA and Industry (comprising the Canadian Association of Petroleum Producers (CAPP) and Explorers and Producers Association of Canada (EPAC)) approved a $30 million orphan fund levy to fund the OWA’s budget for fiscal year 2017/18.
Pursuant to Bulletin 2017-04, the AER will allocate the year’s first orphan fund levy among licensees and approval holders included within the Licensee Liability Rating (LLR) and Oilfield Waste Liability (OWL) Programs based on the February 2017 monthly assessment. Each licensee or approval holder included in the Programs will be invoiced for its proportionate share of the orphan fund levy in accordance with the a prescribed formula, which is the licensee’s or approval holder’s deemed liabilities divided by the sum of the industry’s deemed liabilities on February 4, 2017, and multiplied by $15 million. The calculation is based on the licensee’s or approval holder’s licensed and approved properties, according to AER records, as of February 4, 2017. Facilities under the Large Facility Liability Management Program are not part of this calculation.
Invoices will be sent to licensees or approval holders by email on February 16, 2017, to the address on file with the AER at the time of issuance and Licensees and approval holders are required to notify the AER of any changes to their email addresses. Those who do not receive invoices are required to contact the AER and request their copy. All payments on the orphan fund levy invoices must be received by the AER by March 20, 2017. Failure to pay the full invoiced amount by March 20, 2017, incurs a penalty of 20% of the original invoiced amount and compliance measures may apply. While an appeal of the invoiced amount must be made in writing by March 20, 2017, payment in full of the original invoiced amount is required by this deadline to avoid the penalty.
The orphan fund levy remains the same for the 2015/2016 fiscal year. While this has enabled the OWA to increase its orphan abandonment and reclamation work, licensees and approval holders continue to face challenges in meeting their monetary obligations. This may lead to circularity, where financial issues lead to more wells and facilities ending up as orphans requiring further increases in the orphan fund levy. However, it appears that the AER is making effort to alleviate these challenges. Splitting collection of the orphan fund levy in two tranches and collecting information on cost parameters to improve well categorization for recalculating abandonment liability are steps in the right direction. However, neither increasing the orphan fund levy nor improved well categorization can cure all of the circularity challenges of the LLR program.