Effective May 1, 2013, the Alberta Energy Resource Conservation Board (the “ERCB”) is implementing changes to the Licensee Liability Rating Program (the “LLR Program”). These changes will result in amendments to ERCB Directive 006: Licensee Liability Rating (LLR) Program and Licence Transfer and Directive 011: Licensee Liability Rating (LLR) Program: Updated Industry Parameters and Liability Costs (collectively, the “LLR Program Changes”). One major effect of the LLR Program Changes is that it will require 248 licensees to post financial security of $297 million in accordance with the LLR Program, up from the current 88 licences that have posted deposits of approximately $13 million to date. According to the ERCB, the changes were made to address concerns raised by industry groups that the LLR program, which was last updated in 2006, significantly underestimated abandonment and reclamation liabilities.
The purpose of the LLR Program is to minimize the risk to the Orphan Well Fund in Alberta posed by unfunded well, facility, and pipeline abandonment and reclamation liability. The LLR program compares a licensee’s assets with its liabilities, and requires companies to post security if liabilities exceed the licensee’s assets. The Orphan Well Fund pays for the abandonment and reclamation of wells, facilities, and pipelines included within the LLR program if a licensee or working interest participant, who has not provided security in accordance with the LLR program, defaults on its obligations to abandon and reclaim or to pay the costs associated with those activities.