Service companies are on alert with more than $2 billion in 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 (i.e. removing the wells’ final LLR-related liabilities – see note 1) would benefit the E&P companies involved by boosting their overall LLR ratings.
As this $2 billion in reclamation liabilities is spread over the entire province, according to CanOils, Alberta’s environmental service companies have a huge market to operate in.
Source: CanOils Assets LLR – Find out more about how LLR data can benefit oil service companies here.
Operators with LLR ratings near to provincial thresholds that can reclaim abandoned wells in order 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, New Product Development at 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, or Licensee Liability Rating programs, ensure 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 on-going 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 specialise in reclamation operations,” said Chris Wilson, Managing Director at CanOils.
While all of these wells may not be ideal reclamation candidates (see note 2), the total liability of over $2 billion in Alberta is certainly striking. CanOils Assets LLR data reveals that this is just the tip of the iceberg.
Another $1 billion in LLR liabilities for abandoned wells awaiting reclamation across British Columbia and Saskatchewan, while long-term suspended wells – defined here as wells that have not produced oil or gas in the past 24 months but are yet to be abandoned – account for another $1.6 billion in reclamation liabilities across the three provinces combined.
“CanOils Assets LLR data allows reclamation service companies to not only locate every single one of these wells, but also decide which of them represents the best opportunity for immediate business,” continued Wilson.
To find out more about CanOils LLR and how it helps the Canadian service sector unlock sales targets, download our recent whitepaper here.
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1) 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.
2) 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 may be in an area where a high number of producing wells continue to exist. Both would preclude any reclamation taking place. It is possible that a well may have already been reclaimed and just be waiting for this change in status to be officially certified by the provincial regulator.
3) All $ amounts refer to Canadian dollars throughout