Canada: British Columbia Implements Mandatory Shutdown Timelines For Dormant Oil And Gas Sites

Last Updated: June 24 2019
Article by Brendan Downey

On March 14, 2019, the Office of the Auditor General of British Columbia released a report entitled The BC Oil and Gas Commission's Management of Non-Operating Oil and Gas Sites.1 The report focused on whether the British Columbia Oil and Gas Commission (the Commission) could ensure that persons holding permits for oil and gas infrastructure were able to adequately decommission wells and restore sites. Among other things, the report concluded that the Liability Management Rating program was insufficient to mitigate the risk posed by orphaned wells and sites.2 To address this shortcoming, the Auditor General recommended that the Commission continue to "develop and implement regulations, policies and procedures" that will ensure these sites are decommissioned and restored in a timely manner.3

In its response to the report, the Commission advised that it was developing a "Dormant Site Regulation" as part of its mandate under Bill 15, The Energy, Mines and Petroleum Resources Amendment Act, 2018 (Bill 15).4 Bill 15 received Royal Assent on May 17, 2018, and ushered in a number of changes to the orphan well and abandonment regimes.5 In particular, it amended the Oil and Gas Activities Act to include provisions related to the timely abandonment of "dormant sites,"6 a new site classification that refers to inactive wellsites operated by solvent companies.7

On May 30, 2019, the Commission fulfilled its mandate and introduced the Dormancy and Shutdown Regulation

8 (the Dormancy Regulation), effective May 31, 2019. At a high level, the

Dormancy Regulation

distinguishes between three classes of dormant sites (Types A, B, and C), which are identified with regard to the activity levels associated with the well(s) on that site.9 The classification scheme applies to all sites in B.C. that are currently—or in the future may become—inactive for a sustained period. Depending on the classifications of the sites in its "portfolio", a permit holder will have varying reporting, decommissioning, remediation, and reclamation obligations, all of which were developed with the goal of restoring 10,000 to 11,000 dormant wells and sites by 2036.10

Dormant site classification

Dormant sites are defined in the negative. The Commission considers a site to be dormant if none of the following events have occurred in the five calendar years leading up to the year the site is deemed dormant:

  1. production from or injection or disposal into the well for a total of 720 or more hours in a calendar year;
  2. a zone is completed;
  3. a drilling event occurs;
  4. (for observation wells) the well is active on at least one day; or
  5. the permit holder designates it as such and notifies the Commission.11

Importantly, an operating site is not a dormant site if, notwithstanding the above, it is home to a multi-well pad site and activities regarding the other wells continue.12 Similarly, the Commission will not consider a "portion" of an operating area to be a dormant site if a facility, road, or pipeline associated with other active wells is located on that portion.13

Though exceptions exist for persons that hold a small number of permits, a permit holder will have complied with the Dormancy Regulation if it fully restores its Type A, B, and C sites in accordance with the shutdown timelines described below and in accordance with B.C.'s regulatory requirements.14

In addition to the dormant site classification triggers and shutdown periods outlined above, if a well permit is cancelled, declared spent, or expires, the permit holder must immediately undertake to decommission, assess, and remediate the operating area of the permit.18

Priority sites

Notwithstanding the above shutdown timelines, the Commission retains the power to give written notice to a permit holder that any Type A, B, or C site in its portfolio is a "priority site" and that it is in the public interest that the permit holder decommission, assess, and restore the site on an expedited basis.,sup>19 In deciding whether a site is a priority site, the Commission can consider the following factors:

  • the age of the site;
  • public safety and human health;
  • the environment;
  • social and agricultural values;
  • impacts on local communities;
  • cultural and environmental values of local Indigenous nations; and
  • the capacity and portfolio of the permit holder.20

The scope of these factors is broad, effectively enabling the Commission to act in its discretion to further the public interest. Of particular interest, however, is the ability of the Commission to consider the "capacity and portfolio of the permit holder." This imports the principles underlying B.C.'s Liability Management Rating Program to the Dormancy Regulation: if, having regard to the value of its entire asset base, a permit holder is carrying too many liabilities, the Commission can prioritize the restoration of certain sites to mitigate the threat that insolvency may pose.

Where the Commission deems a site to be a priority site, the permit holder must comply with the shutdown timelines on an expedited basis.21 These expedited timelines apply at each stage of the decommissioning, assessment, and restoration process, but the Dormancy Regulation contemplates the site will be restored within five years of its identification as a priority site.22

Annual work plans and reports

If a permit holder's portfolio contains a dormant site, the permit holder must comply with the Commission's "annual work plan" requirement.23 For 2019, the Dormancy Regulation requires the permit holder to develop and submit its annual work plan by August 31, 2019, and for any subsequent year, the permit holder must submit its plan by the earlier of January 30 of the calendar year the plan corresponds to, or the date that is 60 days before the permit holder expects to begin work on a dormant site.24 The statutory language here is convoluted. More simply, if a permit holder plans to begin work on a dormant site in the first quarter of any calendar year, it must submit its annual work plan at least 60 days in advance of that scheduled date. Depending on how early in the calendar year the permit holder plans to begin work, this submission requirement could be triggered in the preceding calendar year. However, if the work will not begin until some time after the end of the first quarter, the permit holder must submit its annual work plan by January 30.

The Commission expects that an annual work plan will:

  • identify, by permit and type (Type A, B, or C), each dormant site that will be decommissioned, assessed, or restored in that calendar year;
  • set out the anticipated timelines in which the permit holder intends to complete the work identified in the annual work plan;
  • identify any factors that might cause the permit holder to deviate from the plan; and
  • provide contact information for the permit holder.25

The annual work plan is prospective, notifying the Commission of the work that the permit holder expects to complete in the forthcoming calendar year. In addition, any permit holder whose portfolio contains a dormant site must also submit a retrospective annual report within 60 days of the end of the calendar year in which it conducted work outlined in an annual work plan.26 The annual report functions as a compliance status update and must demonstrate that the permit holder is on track to meet the applicable shutdown requirements, and identify, by permit and type, the sites that were decommissioned, assessed, or restored in the relevant calendar year.27

Notification requirements

The Dormancy Regulation also requires a permit holder to provide written notice and a copy of the annual work plan to any "interested persons" that may be impacted by such work.28 The timelines for this notice requirement track the timelines established for the development and submission of an annual work plan. That is, if a permit holder plans to begin work on a dormant site in the first quarter of any calendar year, it must provide notice to the interested person at least 60 days in advance of that scheduled date. And if the work will not begin until some time after the end of the first quarter, the permit holder must provide notice by January 30. Finally, if the permit holder expects to begin work on a dormant site in 2019, it must provide notice before August 31, 2019.29

The Dormancy Regulation defines "interested person" to include:

  • the landowner of the site;
  • a local Indigenous nation identified for the site (in a manner specified by the Commission); and
  • a municipality or regional district, if any part of the site falls within the municipality or regional district.30

The notification requirement establishes a consultation process that will inform the permit holder's planned operations for a particular site. An interested person may either meet with the permit holder or respond in writing within 30 days of receiving the notice.31 If the person requests a meeting, the permit holder must make reasonable efforts to hold a meeting and take minutes that describe what the parties discussed and any concerns the person raised, as well as any changes the permit holder agreed to make to the relevant work plan.32 All of this information must then be submitted to the Commission.33

Similarly, if the interested person chooses to reply in writing to the notice that the permit holder provided, the permit holder must consider the contents of the response, including any reasons why the person believes the work should be conducted in a different manner, as well as any scientific, Indigenous, and/or local knowledge that is relevant.34 Within 30 days of receiving a written response, the permit holder must provide an additional notice to the interested person, describing any changes it has made to the annual work plan.35 The permit holder must then submit a copy of the original notice, the response received from the interested person, and the permit holder's final response to the Commission.36

Liability reduction plans

If a permit holder's portfolio contains more than 100 Type A wells, it may submit a liability reduction plan to the Commission.37

Though a liability reduction plan should substantially comply with the requirements set forth in the Dormancy Regulation, this process can afford a permit holder greater flexibility in addressing its shutdown obligations.38

Conclusion

The Dormancy Regulation is an important shift in the regulation of oil and gas sites in B.C. and is representative of the greater emphasis that Canadian oil and gas regulators will continue to place on the timely and adequate management of asset clean-up and retirement obligations.

The Commission has made more detailed information available for industry:

  • https://www.bcogc.ca/node/15485/download
  • https://www.bcogc.ca/industry-zone/dormant-sites

This article is intended as general information only and is not to be taken as legal advice. If you have any questions, please contact any member of Burnet, Duckworth & Palmer LLP's Energy Group.

Footnote

1 BC Auditor General, The BC Oil and Gas Commission's Management of Non-Operating Oil and Gas Sites (14 March 2019) online: http://www.bcauditor.com/sites/default/files/publications/reports/OAGBC_Oil-Gas-Non-operating-Sites_RPT.pdf [Auditor's Report].

2 Auditor's Report at 8.

3 Auditor's Report at 9-10.

4 Auditor's Report at 12. See also: BC Oil and Gas Commission, "Information Bulletin 2018-02: Commission Developing Comprehensive Liability Management Plan" (18 April 2018); BC Oil and Gas Commission, "Industry Bulletin 2019-03: New Dormant Site Provisions" (4 March 2019) [Bulletin 2019-03].

5 Bill 15, ss 7 and 9-12.

6 Oil and Gas Activities Act, SBC 2008, c 36, ss 43.1-43.4 [OGAA].

7 British Columbia, Legislative Assembly, Hansard, 41st Leg 3rd Sess, No 123 (24 April 2018) (Hon Michelle Mungall).

8 Dormancy and Shutdown Regulation, BC Reg 112/2019 (30 May 2019) [Dormancy Regulation], ordered under the authority of the OGAA, ss 106, 111.1, and 112.

9 Dormancy Regulation, ss 3(1), 3(2), and 4.

10 BC Oil and Gas Commission, "News Release 2019-02: First Timelines in Western Canada for Oil and Gas Well Cleanup Announced in New Plan" (31 May 2019).

11 Dormancy Regulation, s 3(1)(a).

12 Dormancy Regulation, s 2(2)(b).

13 Dormancy Regulation, s 2(3).

14 Dormancy Regulation, ss 6, 8, 9(a), (b); OGAA, ss 40, 41(1), 43; Environmental Management Act, SBC 2003, c 53, s 40; Environmental Protection and Management Regulation, BC Reg 200/2010, s 19.

15 Dormancy Regulation, s 4(1).

16 Dormancy Regulation, s 4(2).

17 Dormancy Regulation, s 4(3).

18 Dormancy Regulation, s 28(1).

19 Dormancy Regulation, s 5.

20 Dormancy Regulation, s 5.

21 Dormancy Regulation, ss 18(3)-(5).

22 Dormancy Regulation, s 18(5)(b).

23 Dormancy Regulation, s 11(1).

24 Dormancy Regulation, s 11(2).

25 Dormancy Regulation, s 11(1).

26 Dormancy Regulation, s 12.

27 Dormancy Regulation, ss 12(a), (b).

28 Dormancy Regulation, ss 13(1), (2)(b).

29 Dormancy Regulation, s 13(2)(a).

30 Dormancy Regulation, s 1.

31 Dormancy Regulation, ss 13(b)(i)-(ii).

32 Dormancy Regulation, s 13(4).

33 Dormancy Regulation, s 13(4)(b).

34 Dormancy Regulation, s 13(5)(a).

35 Dormancy Regulation, s 13(5)(b).

36 Dormancy Regulation, s 13(5)(c).

37 Dormancy Regulation, s 19; OGAA, s 43.4.

38 See: Dormancy Regulation, ss 22(2)(a), 22(3), 22(4), 22(6).

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.

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