Alberta Orphan Well Association Granted Expanded Powers to Operate Wells, Facilities, Pipelines

On June 15, 2020, the Government of Alberta proclaimed Bill 12, Liabilities Management Statutes Amendment Act 2020 (Bill 12). Bill 12 significantly expands the powers of the Orphan Well Association (OWA) and addresses certain liability issues associated with wells, well sites and other facilities through amendments to the Oil and Gas Conservation Act and the Pipeline Act.

The OWA is an independent non-profit organization that operates under authority from the Alberta Energy Regulator (AER) and is primarily funded through annual Orphan Well Fund (Fund) levies paid by the upstream oil and gas industry. The OWA was originally mandated to oversee closure activities for oil and gas assets where no party was otherwise legally responsible and/or financially able to do so, hence the reference to “orphan.”

The OWA currently oversees thousands of orphan wells, facilities and pipelines throughout the province in various life-cycle stages.

EXPANDED POWERS

The expanded powers granted to the OWA under Bill 12 will allow it to act as an operator in certain circumstances. This is a significant change from its traditional role, which was limited to closure activities associated with orphan facilities, and provides the OWA with much greater operational flexibility.

Under Bill 12, AER-regulated oil and gas assets in the OWA inventory that remain economically productive will no longer automatically be candidates for decommissioning and reclamation. Instead, the AER may now direct the OWA to take reasonable measures to prevent the impairment or damage of an AER-regulated well, well site, facility, facility site or pipeline, including:

• Taking over the operation of an abandoned oil or gas well or facility to continue production; and
• Taking over the care and maintenance of an active (i.e., non-abandoned) well, facility or pipeline to protect the viability of the asset at the cost of the working interest participants or the Fund.

Bill 12 will also:

• Provide the AER or the OWA the power to apply for the appointment of a receiver or licensed insolvency trustee to oversee and dispose of the oil and gas assets of a defunct licence holder; and
• Provide the AER powers that could increase the obligations of licensees and approval holders, and working interest participants, where required, to take appropriate measures to prevent the impairment of, or damage to, AER-regulated infrastructure, the environment, human health or safety or property.

The AER will also have broad powers to require a licensee, and, in some cases, a working interest participant, to undertake a variety of matters to guard against impairment or damage. That could include implementing measures: (i) to ensure infrastructure and equipment is safe, secure and protected, and (ii) to require equipment to be monitored and maintained to protect against asset deterioration and releases into the environment. Exactly what measures to protect against equipment impairment or damage, or releases to the environment are not prescribed by Bill 12. It remains to be seen how the AER will exercise this discretion within the limits of its statutory jurisdiction.

POTENTIAL IMPACTS OF BILL 12

Allowing the OWA to step into the shoes of a commercial oil and gas operator is intended to provide the OWA with a new revenue stream, and may allow productive assets to be maintained for current or future use, thereby potentially mitigating the likelihood that otherwise productive assets need to be prematurely reclaimed by and at the expense of the OWA.

The AER’s ability to apply for appointment as a licensed insolvency trustee to deal with oil and gas assets may have a similar effect and allow certain assets to remain productive, with an eventual purchaser being responsible for the cost of reclamation.

For further information, please contact:

Scott Birse                    403-260-9666
Dufferin Harper           403-260-9710
Katie Slipp                    403-260-9799
Terri-Lee Oleniuk         403-260-9635

or any other member of our Energy Regulatory or Environmental groups.