AER: 2024 Closure Spend Requirement Announcement

According to today’s announcement from the AER, the industry-wide closure spend requirement for 2024 will be the same as in 2023, at $700.0 million.

Every year, the closure spend requirement for the entire industry is evaluated. To ensure licensees are fulfilling their spending limit and continue to close oil and gas facilities, factors like economic conditions and the results of last year’s closure spending will be considered before reviewing the spending.

In 2022, the closure spend requirement was established, at $422 million. In 2023, the total closure spending requirement for the industry went up to $700 million. Preliminary data supplied by the AER in April shows that oil and gas companies spent around 40% more than necessary on closing oil and gas wells in 2022. The final results will be released towards the end of September.

AER launched an Inventory Reduction Program (Directive 088: Licensee Life-Cycle Management) under Alberta’s Liability Management Framework, which sets industry-wide closure spend criteria.

Given that licensees must spend a specific amount each year on abandoning, cleaning up, and reclaiming abandoned oil and gas sites, the amount of closure activity taking place in the province has increased. In Section 3.014 of the Oil and Gas Conservation Rules, these obligations are referred to as closure quotas.

Besides the Inventory Reduction Program, the AER also applies an orphan fund tax on licensees to pay for the Orphan Well Association (OWA), an organization dedicated to the closure of abandoned oil and gas infrastructure. For fiscal year 2023–24, the levy is $135 million. Albertans will not have to pay closure costs thanks to these funds.