Envirotech Engineering Calgary
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Liability Management Rating (LMR) Optimization

Are you aware of your oil & gas companies LMR rating? Are you aware of the financial risks posed by a downward trending LMR and how those risks can significantly impact your compliance status, financial resources and your company’s ability to obtain financing?      

In Alberta, and British Columbia, the regulatory bodies (the Alberta Energy Regulator and the BC Oil & Gas Commission) have developed programs to determine a licensee’s LMR as a ratio of “deemed assets” divided by “deemed liabilities” as summarized in the documents entitled:

  • BC OGC - Liability Management Rating Program (February 2015)
  • AER Directive 006 – Licensee Liability Rating Program and Transfer Process (March 12, 2013)
  • AER Directive 011 - Licensee Liability Rating Program Updated Industry Parameters and Liability Costs (March 31, 2015)
  • Directive 024 - Large Facility Liability Management Program (September 15, 2009)
  • Directive 075 - Oilfield Waste Liability (OWL) Program (September 15, 2009)

If the licensee’s LMR falls below 1.00 then a company must pay a security deposit equal to the total deemed assets minus the total deemed liabilities which is placed in trust and in an orphan fund by the regulator. This security deposit can be substantial and is held until corrective action is taken to bring the LMR back above 1.00. The purpose of the LMR programs is to minimize the possibility of a licensee’s suspension, abandonment, remediation, and reclamation costs being borne an orphan fund in place in each Province.

The calculation of a company’s deemed liabilities is undertaken by the regulator and often is inaccurate due to errors within the oil and gas well, facility, or pipeline submissions to the regulators. If the deemed liabilities calculation is artificially high it can potentially drive the liability rating down below 1.00, thus requiring the licensee to pay the security deposit. A licensee who fails to comply with the requirements of these programs is in noncompliance and subject to enforcement provisions.
How can we help? Envirotech Engineering provides a 2-step process to optimize a licensee’s liability rating to reduce or eliminate the value of the security deposit that needs to be paid, and then an ongoing management program to ensure company decisions factor in the effect on their liability rating (e.g. decisions to shut-in wells, abandonment/reclamation priority setting, and acquisitions and divestitures).

STEP 1 - Short-Term LMR Optimization Plan

    • Establish availability and QA/QC of the necessary data
    • Generation of short-term liability rating optimization plan
    • Optimization of liability rating by submissions to the AER
    • Reduction/recovery of security deposit in consultation with AER

STEp 2 - Long-Term LMR Management Plan

    • Generation of long-term liability rating management plan
    • Generation of cost/risk based reclamation list
    • Ongoing management advisory service

Do you require assistance with your LMR optimization and compliance? Please feel free to Contact our Upstream Liability Management Division for more information or a quote.

APEGA Permit Holder Envirotech Engineering
Suite 12-B, 1235 - 64 Avenue SE       
Calgary, Alberta                                 
Canada T2H 2J7
Phone:  403.225.8755
Toll Free: 1-888-225-8755
Fax:  403.225.8756
Email:  info@envirotecheng.com
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