Canada: Alberta Energy Regulator Implements The Final Phase Of The LLR Program Changes

The Alberta Energy Regulator's (the "AER") final phase of changes to the Licensee Liability Rating Program (the "LLR Program") comes into effect on August 1, 2015. The AER's Bulletin 2015-13 (found here) says that the implementation date was delayed from May 1 to August 1, 2015, to give licensees more time to understand the implications of, and prepare for, the Phase-3 program changes in light of current market conditions. The AER's revision of the LLR Program was rolled in on May 1, 2013 in Bulletin 2013-09 (found here),with implementation phased over a three-year period effective in May of each year. This post reviews the LLR Program changes in the last two years, the final phase coming into force in August, and the implications of the revisions.


The LLR Program revisions are reflected in the AER's Directive 006: Licensee Liability Rating (LLR) Program and Licence Transfer Process (found here) and Directive 011: Licensee Liability Rating (LLR) Program: Updated Industry Parameters and Liability Costs (found here). These documents are used to calculate the actual amount of financial security owing by a licensee to the AER based on a ratio of the licensee's assets to its liabilities. The revisions increased parameters and liability costs to address concerns that the previous LLR program significantly underestimated abandonment and reclamation liabilities of licensees. The goal was to increase the well abandonment liability costs and industry average netback to the 2012 values by May 1, 2015. Pursuant to the changes, if a licensee's deemed liabilities in the program exceed its deemed assets in the programs plus any previously provided security deposits (including facility-specific security deposits), the licensee will have a Liability Management Rating ("LMR") below 1.0 and will be required to provide the AER with a security deposit for the difference.

In 2013 and 2014, the deemed well abandonment liabilities and assets were updated each year by one-third of the 2012 values and the industry average netback, respectively. Industry average netback was decreased from a 5-year to a 3-year average. The present value and salvage (PVS) factor was changed from 0.75 for active wells and 0.50 for active facilities to 1.0 for all active wells and facilities. The facility abandonment cost parameter for each well equivalent was increased from $10,000 to $17,000 and reclamation costs increased by 25% for wells and facilities.

Phase-3 Changes

In Phase-3, the deemed well abandonment liabilities and assets will increase again by another one-third to bring them to their full 2012 values and industry average netback values, respectively. In Bulletin 2013-09 there was an option in Phase-3 to choose between the lower of the 2012 values and the updated 2015 values. This option was not repeated in Bulletin 2015-13.

After phase three, the liability costs and parameters will be updated in accordance with Directive 011. Throughout the implementation period, the orphan levy is calculated upon the previous year's liability costs and parameters. The 2016 orphan levy will be based upon the total three-year changes. After 2016, the orphan levy will be based on Directive 011 costs and parameters.


There is no doubt that the LLR changes have significant impact on the Alberta oil and gas industry. Some licensees, particularly in the present economic environment, are experiencing difficulties complying with the financial requirements of the LLR Program changes. To mitigate the negative impact, in Bulletin 2014-06 (found here), the AER introduced the LLR Program Management Plan (the "Plan") in February 2014. The Plan allows licensees to pay the financial security they owe in increments, over a longer period of time, while improving their asset-to-liability ratio. The AER says that it adopts a gradual approach to implementing the financial security requirements and enforcement. The Plan is supposed to reduce the overall risk to industry and the Orphan Well Association ("OWA"). However, the Plan invites a higher level of scrutiny by the AER, of the licensee's finances, reduction of liabilities, and improvement of LLR ratios. The licensee must agree to all requirements, and must submit an operating forecast of future cash flow as evidence of ability to meet the plan's future security payments and abandonment and reclamation requirements within the specified timelines.

More than a year after the implementation of the Plan, Alan Tambosso, a merger and acquisition activity advisor in the industry, in an April 2015 Daily Oil Bulletin article entitled "The Impact of Changes to the AER's LMR System on M&A Activity" reported a negative impact on industry, particularly the junior sector. One of the main reasons was said to be the timing of the changes when the sector is starved of capital, with the result of unsustainable levels of debt, marginally economic production coupled with decreasing commodity prices, and steadily rising security deposit owing to the AER. Licensees with LMR ratios below 1.0 who fail to meet the LLR security deposit and the Plan's requirements, where applicable, will be subject to enforcement actions possibly culminating in a shut-in order. An orphan designation by the AER and handover to the OWA for abandonment and reclamation may eventually follow, all of which would only exacerbate an often serious financial situation for the licensee. Meanwhile, the AER may not have obtained enough security deposit from the licensee under the Plan to cover the full abandonment and reclamation costs. It is noteworthy that since 2000, Alberta's statutory criteria for designation of an orphan under the Oil and Gas Conservation Act, RSA 2000, c O-6, s. 70(2)(b) and (b.1) are not only inexistence or inability to locate but include lack of financial means.

The OWA says that in its 2013/2014 fiscal year it saw a jump in inventory of new orphan wells received from the AER due to the LLR Program changes and increases in industry bankruptcies and receiverships. The OWA funded over $14 million of orphan abandonment and reclamation work within this time period. The orphan funds are collected from industry through an annual Orphan Fund levy determined by OWA's annual budget.


It appears that the LLR program changes have produced a cycle that makes orphans and increases the Orphan Fund levy for licensees who manage to weather the current market situation and stay at 1.0 LMR or above. Until a new solution to the cycle is determined, licensees will have to live with the challenges of maintaining an LMR of 1.0 as well as afford the annually increasing Orphan Fund levy. Risk management and survival strategies have become inevitable for licensees in the LLR program.  

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions