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No matter which way Canada’s Supreme Court rules, in the post-Redwater world it will be essential for E&P companies, lenders, and other investors to have an early and realistic estimate of the asset retirement obligation (ARO) associated with an oil and gas asset. If the Court rules in favour of the AER and the Orphan Well Association (OWA), then lending institutions will very likely impose ARO-related constraints and conditions on capital. If the Supreme Court rules in favour of Redwater’s receivers, then the government, through the AER and OWA, is likely to tighten regulations around LLR and ARO to ensure companies are setting aside enough funds to effectively cover the abandonment, reclamation, and remediation costs to retire wells and facilities.
Either way, astute E&P companies are recognizing the importance of having a clear upfront picture of Asset Retirement Obligations on both the assets they currently hold and any prospects they may consider adding to their portfolio. Having a simple, standardized process that can be used industry-wide will help companies to remain compliant and allow all stakeholders to make realistic, apples to apples comparisons when evaluating acquisitions and managing long-term liabilities. It will also help determine more realistic budgets and more realistic return on investment (ROI) projections.
The full summary report is available as a free, downloadable ePaper titled, LLR vs ARO – The Cost of Uncertainty
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