The government of British Columbia recently introduced legislation aimed at strengthening the province's orphan well and liability management regime. Currently at the first reading at the province's Legislative Assembly, the Energy, Mines and Petroleum Resources Statutes Amendment Act, 2018 (Bill 15), would amend the Oil and Gas Activities Act (OGAA) and the Petroleum and Natural Gas Act. The amendments aim to create a stricter liability management regime to combat the ballooning number of oil and gas sites in B.C., with insolvent operators. Since the beginning of the 2016/17 fiscal year, the B.C. Oil and Gas Commission (Commission) reported that the province has gone from 45 to 307 designated orphan sites due to such insolvencies.1

Foremost among Bill 15's proposed amendments is the replacement, by levy, of the current orphan site reclamation fund tax paid by permit holders under the OGAA. The levy would become the primary payment by permit holders into B.C.'s Orphan Site Reclamation Fund (OSRF) — an industry-funded program that addresses the cost of abandonment, reclamation and environmental clean-up. The levy formula would be based on forecasted orphan site treatment and closure costs, set annually, with possible adjustments throughout the year as deemed necessary by the Commission. The calculation of each permit holder's levy will be determined by dividing the permit holder's liability by the total amount of liabilities of all permit holders required to pay the levy.2

This change from a tax to levy is likely to increase front-end financial obligations on operators and permit holders. Under the current fixed-tax regime, for example, producers make monthly payments of $0.03 per 1,000 cubic metres of marketable gas produced and $0.06 per cubic meter of petroleum produced.3  In substituting for a liability-based regime, the Commission will determine the total levies that permit holders will pay into the OSRF based on their current abandonment and reclamation liabilities rather than future production.

Enhanced Commission Authority

Bill 15 would also award additional powers to the Commission including further discretion in awarding permits and monitoring existing permit holders. The Commission will have an expanded range of factors to consider when deciding to issue, suspend, cancel or amend a permit. For example, even the conduct of the permit holder's "associates", including agents, directors, officers or shareholders of the permit holder or any person who may have influence over the permit holder or affect the activities permitted by the permit, could potentially be part of the Commission's deliberations.

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Footnotes

1 British Columbia Oil and Gas Commission, "Commission Developing Comprehensive Liability Management Plan", (Victoria: BCO&GC April 2018) at page 3. online: https://www.bcogc.ca/publications/industry-bulletins.

2 "Liabilities" are defined in Bill 15 as the Commission's estimate of the total cost to fully restore and reclaim a site, which would apply for each of a company's wells, facilities and pipelines.

3 "Orphan Site Reclamation Fund Tax - Province of British Columbia", (2018), online: Www2govbcca  https://www2.gov.bc.ca/gov/content/taxes/natural-resource-taxes/oil-natural-gas/orphan-site-tax.

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