Service companies are on alert, with more than CA$2 billion in licensee liability rating (LLR)-related costs currently accruing against abandoned wells awaiting reclamation in Alberta, according to the latest CanOils data.
Engaging service companies to reclaim these abandoned wells—such as by removing the wells’ final LLR-related liabilities—would benefit E&Ps involved by boosting their overall LLR ratings. LLR liabilities for a well include both abandonment- and reclamation-related costs. For a well that is already abandoned, the only remaining LLR liabilities are reclamation liabilities.
As this CA$2 billion in reclamation liabilities is spread over the entire province, according to CanOils, Alberta’s environmental service companies have a huge market in which to operate.
Operators with LLR ratings near provincial thresholds that can reclaim abandoned wells to boost LLR ratings will be of particular interest to specialist reclamation companies.
“The environmental benefits of reclaiming the wells reflect positively on operators,” said Karl Norrena, manager of new product development for JWN Energy. “For some, the motivation will be to return to provincial LLR compliance without having to provide a security deposit or seek other financial measures.”
LLR programs ensure that costs to suspend, abandon, remediate or reclaim a well, facility or pipeline are not borne by the public if a licensee becomes defunct. To fulfil LLR regulations, the value of a licensee’s ongoing assets must outweigh any liabilities related to abandonment and reclamation costs.
“This dynamic, along with the inherent public relations boost with any environmental program being instigated by any E&P company, represents a huge opportunity to find business for environmentally-focused oil service companies that specialize in reclamation operations,” said Chris Wilson, managing director at CanOils.
While all of these wells may not be ideal reclamation candidates, the total liability of more than CA$2 billion in Alberta is certainly striking. CanOils Assets LLR data reveals that this is just the tip of the iceberg.
While long-term suspended wells—wells that have not produced oil or gas in the past 24 months but are not yet abandoned—account for another CA$1.6 billion in reclamation liabilities across British Columbia, Saskatchewan and Alberta, there is another CA$1 billion in LLR liabilities for abandoned wells awaiting reclamation across British Columbia and Saskatchewan.
However, a well, despite being abandoned and awaiting reclamation, may be unsuitable for reclamation for a number of reasons. For example, the company in charge of reclaiming the well may not be able to afford to do so just yet, or the well could be in an area where many still-producing wells remain. Both would preclude any reclamation taking place. It is possible that a well might have already been reclaimed and is just waiting for this change in status to be officially certified by the provincial regulator.
“CanOils Assets LLR data allows reclamation service companies to not only locate every single one of these wells, but also to decide which of them represents the best opportunity for immediate business,” Wilson said.
To find out more about CanOils LLR and how it helps the Canadian service sector unlock sales targets, download this recent whitepaper.
Mark Young is a senior analyst for Evaluate Energy and CanOils.
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