In our March 2021 blog on the difference between Alberta and Saskatchewan's approach to Oil and Gas liability management, we commented on the differing approaches to liability management introduced in each province following the Redwater decision. On June 25, 2021, the Saskatchewan's Minister of Energy and Resources published the Oil and Gas Conservation Amendment Regulations, 2021 and the Financial Security and Site Closure Regulations in the Saskatchewan Gazette. These regulations will introduce further changes to manage liabilities and address the risk associated with new orphan wells. Both regulations are to come into force on a day fixed by order of the Lieutenant Governor in Council.
The Oil and Gas Conservation Amendment Regulations, 2021 (OGCAR)
OGCAR provides for the ability of "closure companies" to hold licences. A closure company is defined as an appropriately licensed company that has as its main business both "the abandonment and reclamation of inactive infrastructures and sites." Historically, to hold a licence a party had to be a working interest participant in a licensed site. This amendment makes it possible to transfer sites to a company for the sole purpose of having that entity address legacy environmental liabilities associated with the lands. When considering a transfer to a closure company, the Minister will consider "if that person poses an unreasonable risk to the orphan fund, public safety, property or the environment, or poses a risk of contamination." Pursuant to this new added subsection, the Minister takes the compliance history, the experience and the financial health of the person into consideration.
This new requirement is unique to Saskatchewan; in Alberta for example, for a "closure company" to assume AER licenses, it would be treated as any other licensee and required to assume a working interest.
The Financial Security and Site Closure Regulations (the Closure Regulation)
The Closure Regulation will apply to wells, facilities, pipelines and their associated sites. The provisions include:
Working interest participant liability: Saskatchewan is introducing a more limited increase in liability exposure for working interest participants compared to that which was recently introduced by the AER. Under the AER regime, the regulator can now look to working interest participants to provide reasonable care and custody in addition to looking to a working interest participant to carry out abandonment or reclamation work. By contrast, in Saskatchewan, a working interest participant only becomes liable for abandonment and reclamation where the licensee is insolvent, bankrupt or cannot be located.
Security Deposits: The Closure Regulation further provides certainty in terms of when a security deposit will be required and what use may be made of the security deposit. Where a working interest participant carries out closure work, the regulations enable the Minister to provide the security deposit to the working interest participant for the purpose of carrying out the required work. The Closure Regulation further sets out revised formulas for calculating the liability management rating as well as a formula which will be utilized to determine whether a proposed transfer creates a risk. In which case, the formula will establish the amount of security that will be required as part of the transfer.
Annual Spend Requirements: Commencing in 2023, licensees will be subject to an annual mandatory expenditure on addressing inactive liabilities. The initial spend requirement will be five percent of a licensee's inactive liabilities and must be spent on sites for which the licensee holds a licence. There is a process in place where a licensee can apply to the Minister for a variation of the spend requirements. Where a licensee spends more than required in a given year, it can carry the amount over and where a licensee has posted security the security can be accessed to meet the spend requirements. Under the program, the Minister reserves the right to require the licensee to prioritize its spend on sites that pose a greater risk, have been inactive for more than 15 years or where the landowner has requested removal.
The differing approaches to liability management utilized by Alberta and Saskatchewan will provide an opportunity to assess the effectiveness of each approach and adopt learnings from each program.
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