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ANNUAL REPORT 2019 Contents ANNUAL REPORT 2019 Contents Our Vision and Mandate 1 Highlights 2 The Year in Perspective 3 • Message from the Chair 3 • Message from the Executive Director 4 Sometimes You Need a Plan ‘Bee’ 6 Operational Summary 7 Independent Auditor’s Report 14 Financial Statements 16 Governance 27 Our Vision and Mandate The Orphan Well Association began as an innovative collaboration among the Alberta Government, provincial regulators and the oil and gas industry to work toward a common goal: protecting public safety and managing the environmental risks of oil and gas properties that do not have a legally or financially responsible party that can be held to account. These properties are known as “orphans.” The mandate of the OWA is to safely decommission orphan oil and gas wells, pipelines and production facilities, and restore the land similar to its original state. Since its formation in 2002, the OWA has successfully decommissioned approximately 3,100 orphan wells, with 940 sites reclaimed. This Annual Report contains forward-looking statements based on current expectations, estimates, projections and assumptions, and certain operating and financial measures. By the nature of its mandate and work, there are potential impacts to the organization’s future operations and related finances that the OWA cannot predict. Where expressed, forward-looking statements are provided in the interest of context that stakeholders may find useful. The OWA fiscal year is from April 1 to March 31. For this annual report, years are referenced as the first year; that is, 2019 refers to April 1, 2019 through March 31, 2020. OWA 2019 Annual Report | 1 Highlights NUMBER OF SITES RECLAIMED AND CLOSED FUNDING 180 160 160 140 140 120 120 100 100 80 80 60 60 Number of Sites 40 40 Millions of Dollars 20 20 0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Fiscal Year Fiscal Year OPERATING EXPENDITURES BY FISCAL YEAR 2019 OPERATING EXPENDITURES BY CATEGORY 120 Well 100 Decommissioning 90 80 43% Facilities 12% 70 Decommissioning 60 7% 50 Pipeline 40 Decommissioning 13% 30 25% Millions of Dollars 20 Working Interest 10 Claims/Other 0 2015 2016 2017 2018 2019 Site Fiscal Year Reclamation Overall funding for the OWA ORPHAN WELL INVENTORY AND WELLS DECOMMISSIONED decreased in 2019 due to how the Government of Alberta loan, 3000 announced in 2017 and provided 2500 over three years, is structured. All other funding increased in 2019. 2000 The OWA increased its operational 1500 activities and, as a result, the 1000 orphan well inventory decreased. There was also an increased umber of Wells 500 number of sites reclaimed and 0 closed. The reclamation process 2015 2016 2017 2018 2019 takes several years as vegetation grows and sites become ready Fiscal ear for the detailed site assessment Wells Decommissioned Total New Wells Total Orphan Well required for a reclamation by OWA Added to Orphan Inventory Inventory at Fiscal Year End certificate application. 2 | OWA 2019 Annual Report The Year in Perspective Message from the Chair Investment in the oil and gas industry has long resolution, these factors have had the collective been a leading indicator of prosperity for Alberta— effect of reducing capital spending plans in the and for all of Canada. The work of the Orphan energy industry. This, in turn, reduces direct and Well Association is, frankly, more often a trailing indirect jobs, and may also ultimately impact OWA indicator of the health of our provincial and national budgets, as we are funded based on a levy on every economies and our domestic energy industry. When oil and gas producer in Alberta. our economic engine begins to slow, we see the In response to these extraordinary circumstances, results in our work. we have seen extraordinary efforts from the OWA We have certainly seen in the past five years some management, staff experts and contractors. And difficult times for many energy producers. It’s a very importantly, we have seen the governments of resilient industry, and oil and gas price cycles are Alberta and Canada continue to step up to support nothing new, but we have experienced sustained our work. low commodity prices over a long period, with In early March of 2020, the Province committed less access to capital, and some companies have $100 million in new, repayable loans to the OWA. struggled to recover. This ultimately led to several This available funding is in addition to a staged loan insolvencies and a significant increase in our orphan of $235 million announced in 2017. well inventory in 2018. It was, however, an increase for which we were well prepared, with more funding Along with loans, the OWA has also been supported from industry and a ramped-up mobilization plan. by the Government of Alberta’s passage of Bill 12, Critically, that accelerated work was supported by a which updates and expands our mandate to better repayable loan from the Government of Alberta to manage current challenges as our project closures help cover near to mid-term costs, and a grant from have gone from single digits per year to nearly a the Government of Canada to cover interest charges thousand. The new legislation provides additional on this loan. scope and authority as we work on the operational and financial management of sites that range from Although 2019 was a strong year for the OWA’s those that are economically viable to those that are results on the ground, the economic context has truly at end of life, often within the same company. remained difficult for the energy industry for now, I believe the new tools and flexibility we have will and likely for the next few years which has a direct help the OWA team to manage ongoing work safely, impact on our plans. efficiently and effectively. Our last fiscal quarter—January to March of 2020— In addition to provincial funds and legislative saw the Saudi-Russia price war that dragged support, the federal government has also benchmark WTI prices down by half and the Western stepped up to support the energy sector with a Canada Select benchmark below $5 per barrel. This $1.7 billion commitment for decommissioning price shock was compounded with the alarming and reclamation, which includes a $200 million spread of the COVID-19 virus. This pandemic has repayable loan to the OWA. This investment in an had the doubly deleterious effect of throwing industry that has invested so much in Canada is uncertainty on our planning as we focus on safety timely and appreciated by working people in every close to home, as well as the impact of reduced corner of Alberta, not just in the energy industry, energy demand in an over-supplied global market but in all the businesses, large and small, that in the mid-term. Although the price war looks, support our work. at the time of this writing, to be heading toward OWA 2019 Annual Report | 3 In our current context, we need to manage our industry and government funding now committed, orphan well inventory, the safety of our workers that’s a trend that we expect to continue over time. and communities, our shared environment, and On behalf of the operations, safety and the very important need to get Albertans working. environment experts who deliver results for the The expanded work of the OWA with industry and Orphan Well Association across Alberta, we thank government support is the very definition of a you for your support. With the guidance of the “win-win.” OWA’s Board of Directors, the Alberta Energy Orphan wells that range from nuisances for Regulator that oversees our efforts and the industry landowners to potential environmental risks will be members that share learnings and fund us, we have decommissioned at a faster rate and the reclamation been hard at work. work advanced, while a significant fiscal stimulus We have met extraordinary challenges over the past will be pumped into communities across the year—and we remain strong, capable and ready to province where front-line energy employees live meet the challenges going forward. and work. The same skilled workforce that has driven a very professional “business-as-usual” in our industry is well prepared to take on “business-as-unusual”. Over 2019, we saw steady or increased spending on decommissioning, remediation and reclamation in Brad Herald most regions of the province and, with additional Chair, OWA Message from the Executive Director Over the past year, the OWA continued to build success can be attributed to an approach that goes momentum, decommissioning more wells and beyond a well-by-well basis to a regional strategy completing more reclamation projects than ever covering multiple wells and facilities known in the before. In 2019, despite receiving a substantial industry as Area Based Closure. This allows us to number of new orphan wells—more in just one better leverage industry expertise, local services and year than in 2014 to 2017 combined—we actually economies of scale. decreased the overall inventory with a steady and Better and faster can only be celebrated if it can strategic approach. With our existing inventory also be done safely. One area of concern for me is of just under 3,000 wells, we decommissioned injury incidents, which increased from three to five 982 wells in 2019—that’s a third of the inventory, last year. Understanding the critical importance of showing that our organization is more than capable safety, we almost doubled our safety assessments of tackling what lies ahead. in 2019, which we expected to result in decreased There were several drivers behind our 2019 injury incidents. We are disappointed that, instead, performance.
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