Written by Brad Gilmour, Keely Cameron and Stephanie Ridge
On May 22, 2020, the Saskatchewan Ministry of Energy and Resources announced the creation of its Accelerated Site Closure Program (ASCP). In line with the Alberta Site Rehabilitation Program and British Columbia's Dormant, Orphan, and Legacy Sites Reclamation Programs announced in the last month, Saskatchewan's ASCP will administer its $400-million share of the federal government's COVID-19 Economic Response Plan for the Canada's Energy Sector.
A Procurement-Based Program
The ASCP will use a "procurement-based model" under which the Saskatchewan Research Council (SRC) will administer program fund allocation by putting work to be completed out for tender. This contrasts with Alberta and British Columbia, which have undertaken a grant-based approached to date.
Under the ASCP, eligible licensees will first be allocated a portion of the funding available based on the criteria of that stage (see below). Eligible licensees will then nominate their wells and facilities for abandonment and reclamation. While licensees may identify preferred contractors, the SRC—not licensees—will then procure services from eligible service companies to conduct the work and will in turn pay the contractors.
The funds available for each licensee's sites will be pre-determined by the Ministry of Energy and Resources based on each eligible licensee's share of the total deemed liability of all eligible licensees identified for that phase.
Despite not choosing the contractor that will complete the abandonment or reclamation work at their site, the Ministry of Energy and Resources assures licensees that contracting for services will remain between the eligible licensee and the eligible service company. All affected licensees will be required to sign-off on work packages created by the SRC before they are put to tender.
This model is intended to allow the SRC to facilitate the formation of area-based closures and work bundling in order to obtain greater efficiencies in abandonment work and economies of scale.
Funding Allocation to Be Determined
$100 million in funding will be allocated to licensees in Phase 1. The minimum funding allocation for an eligible licensee at Phase 1 is $50,000. Work approved under this phase will be funded at 100 percent of eligible costs.
The amount available to eligible licensees during Phase 1 will be calculated by considering the eligible licensee's total deemed liability as a percentage of the total deemed liability of all eligible licensees. A licensee's eligible funding allocation will be calculated by applying this ratio to the $100 million available during Phase 1.
The Ministry of Energy and Resources will determine both licensee eligibility and funding allocations, and will post that list publically no later than May 29, 2020.
Licensee and Contractor Eligibility
During Phase 1, funding will be available to licensees in good standing in relation to amounts owing to the Crown, landowners, and municipalities as of March 1, 2020. This includes amounts owing for the Oil and Gas Administration Levy, the Orphan Well Levy, and on Crown oil and gas royalties, mineral disposition rentals, and surface lease rentals. Put another way, wells, facilities, and sites located on lands with outstanding municipal taxes or surface lease payments are ineligible for Phase 1 funding.
This prioritization differs from the approach being taken by Alberta in Phase 2 of the Alberta Site Rehabilitation Program which is currently accepting applications for sites where licensees' surface rentals are being paid by the province.
At Phase I, eligible activities include:
- abandonment of oil and gas wells, facilities and associated flow-lines;
- environmental site assessments (Phase 1 and Phase 2);
- site remediation activities; and
- site reclamation activities.
In order to be designated an eligible service company, service companies must be located in Saskatchewan, employ "Saskatchewan people" (undefined), pay taxes in Saskatchewan and source supplies (where possible) from Saskatchewan-based businesses. Services companies must also meet the technical qualifications as outlined in the project tender including safety requirements.
Expenses associated with completing the work that are eligible for the ASCP include:
- materials and supplies;
- equipment rentals;
- laboratory analysis; and
- transportation of workers and equipment to and from sites.
Licensees will first nominate their wells and facilities for abandonment and reclamation through the Integrated Resource Information System. Licensees are being asked to submit abandonment projects for up to 125 percent of their funding allocation in order to provide the SRC with flexibility to create area-based procurement packages.
Service companies wishing to participate in the ASCP are asked to apply through SaskTenders. Successful service companies will be added to the list of eligible service providers and permitted to bid on procurement contracts as tendered by the SRC.
Additional information, including eligibility amounts for each licensee, the project nomination process, and a how-to guide for licensees, is due to be released by May 29, 2020.
Saskatchewan's centralized approach to procurement represents a marked departure from the first-come, first-served approach to the funding of eligible sites being rolled out in Alberta and British Columbia. Competitive tendering, area-based closure, and the nomination of multiple sites by a single licensee all have the potential to see federal funding stretch further than in a site-by-site (and in Alberta's case, activity-by-activity) approach, while still achieving the ASCP's mandate of putting companies in the oil and gas services sector back to work.
The program's success may very well depend on the SRC's ability to pre-qualify contractors and assemble procurement packages in the face of heavy interest in the ASCP. The Ministry of Energy and Resources has already indicated on its website that while an area-based closure model remains a priority, the rapid roll-out of program funds is intended at Phase 1 and preference will be given to activities that can be approved "routinely".
As seen to date in Alberta, eligible funding for Phase 1 activities will be fully funded. Saskatchewan has not yet announced whether future phases will include a required financial contribution by licensees, in line with the 50% licensee contribution seen in British Columbia's Dormant Site Reclamation Program.
Unlike Alberta, where grants are issued on a site-by-site, activity-by-activity basis, and British Columbia, where funding is intended to complete the reclamation of dormant sites, the funding allocation approach in Saskatchewan means that eligible licensees will know exactly how much funding is available to them at each phase of the ASCP. It will be of interest to see how licensees strategize their site nomination and the spreading of funds between their sites and activities once the funds available to them becomes clear.
We will continue to monitor as more information becomes available.