Written by Brad Gilmour, Keely Cameron and Stephanie Ridge
May 8, 2020: Please read our latest blog, UPDATE: Alberta's Site Rehabilitation Program in Action, for the latest updates on Alberta's Site Rehabilitation Program.
On April 24, 2020, the Government of Alberta announced the creation of the Site Rehabilitation Program (the Program) to be launched May 1, 2020. The Program is the vehicle by which Alberta will distribute up to $1 billion from its share of the $1.72 billion in federal funding to support Alberta, Saskatchewan and British Columbia's work to clean up orphan or inactive oil and gas wells, pipelines and facilities.
Funding for closure and reclamation is one of several measures included in the federal government's COVID-19 Economic Response Plan for the Canada's Energy Sector announced on April 17, 2020. The federal government's response also includes a $750-million repayable loan program through Natural Resources Canada to support eligible energy sector firms in making capital investments necessary to reduce greenhouse gas emissions, with a focus on methane. In addition, as of April 17, 2020, the Business Credit Availability Program was expanded to include medium-sized businesses in the energy sector and to provide those businesses with rapid access to financing.
Under the Program, oil field services contractors who carry out upstream oil and gas infrastructure abandonment or environmental work (referred to as "eligible contractors")—not licensees—may apply for and receive grants to complete well, pipeline, and oil and gas site closure, abandonment, and reclamation work.
Phase I and Phase II assessments are also included, which may open the program up to cover some remediation costs provided the site is considered to be "inactive". To be eligible, it appears that the eligible contractor must have an unconditional agreement with a licensee to carry out an eligible activity.
Eligible activities include:
- closure work on inactive wells and pipelines;
- environmental Site Assessments (Phase 1 and Phase 2);
- reclamation; and
- preparation of applications for remediation and reclamation certificates.
Program funding may be used to cover all costs associated with completing the work are eligible for funding, including wages, materials and supplies, equipment rentals, laboratory analyses, and the transportation of equipment and workers to and from sites.
The following activities are ineligible for grant funding:
- suspension (wells and facilities) and discontinuation (pipelines) costs work on producing sites (for example, spill remediation);
- closure work outside of Alberta; and
- work completed before the Program comes into effect on May 1, 2020.
Additional information will be published when the Program officially opens on May 1, 2020.
When announcing the Program, Energy Minister Sonya Savage advised that Program grants will not necessarily cover the entire cost of completing an eligible activity. Instead, grants to eligible contractors will be provided on a graduated basis based on the licensee's financial ability to pay for the eligible activity. Licensees deemed financially able to pay may be required to contribute a certain amount of the eligible activity's cost, while applications for activities at sites belonging to less financially-able licensees (e.g., licensees who are behind on surface lease payments to landowners) will be granted the full activity cost. Details of how financial ability to contribute to costs will be determined and have not been released.
Notably, the Program will prioritize sites where the landowner "opts-in" to activities on site.
At this time, the allocation of Program grants will be staggered. The first $100 million will be available starting May 1, 2020, and will be targeted at the "hardest hit" oil and gas service companies. Minister Savage stated that future increments are likely to focus on specific regions in Alberta where Program funds may have the most significant environmental benefits; target sites where the province is compensating landowners for unpaid surface lease payments owed by operators in accordance with the Surface Rights Act; or focus on larger projects.
What Does the Program Mean for Licensees?
Minister Savage has emphasized that the Program is intended to put Alberta's oil and gas labour force back to work, accelerate site closure and reclamation efforts, and complete environmentally-significant work. As the Program effectively puts oil and gas service companies in control of the grant process, considerable cooperation with licensees will be required to locate appropriate sites and prepare a scope of work for eligible activities. At this time, it does not appear that the Program grants will be available to licensees with internal service capabilities.
For licensees, the Program is likely of most value to licensees that have posted security with the AER and completion of abandonment and reclamation work would entitle them to a refund of security. The Program could benefit those licensees in a position to leverage existing closure programs however those companies may not qualify if they do not satisfy the financial criteria that will be imposed.
Where companies will not have closure costs fully covered under the program, it will be interesting to see whether they make use of the program given the current liquidity challenges facing the industry and lack of firm requirements to carry out closure activities in Alberta.
Where Does the Program Fit Within Alberta's Orphan Well Landscape?
The Program is a further initiative intended to address closure obligations and the management of outstanding liabilities and targeted at those companies most at risk of sending sites to the Orphan Well Association. The Program comes only a few weeks after Bill 12 - Liabilities Management Statues Amendment Act received royal assent on April 2, 2020.
The Program can be added to the list of measures announced by the Alberta Government to date, which include (but are not limited to) the following:
- funding the Alberta Energy Regulator industry levy for six months, achieving $113 million in industry relief (though it is currently unclear whether this amount will be recovered from industry at a later date);
- extending the term of mineral agreements expiring in 2020 by one year to provide industry with additional time to raise capital and plan future activities;
- extending an existing loan to the Orphan Well Association by a further $100 million; and
- a variety of suspensions related to non-emergency reporting requirements.
We will continue to monitor and update as additional information regarding the Program is released. Please visit our COVID-19 Resource Centre for other COVID-19-related materials.