Our March 2023 report examines six key areas of AER’s liability management system: Risk Management, Performance Measurement and Public Accountability, AER’s Processes to Assess Information From the Orphan Well Association (OWA), Timely Closure of Inactive Sites, Financial Security and Licence Transfers, and Regulatory Compliance of Closure Activities.
Objective and Scope
For this audit, we had two audit objectives focused on the regulator’s oil and gas activities excluding oil sands and coal mining sectors:
- to assess whether AER has an effective liability management system to mitigate the risks associated with the closure of oil and gas infrastructure
- to assess whether AER’s analysis of the oil and gas liability management system appropriately identified risks and gaps and whether AER prepared an implementation plan to effectively mitigate those risks and gaps in the design of its system changes
We conclude—based on our audit criteria and findings—AER has a system to mitigate the risks for the closure of oil and gas infrastructure; however, parts of the system have not operated effectively.
Specifically, we found criteria were not fully met in the following areas:
- risk management practices
- goals, performance measurement and public accountability
- assessing information from OWA
- timely closure of inactive sites
- collecting sufficient financial security and minimizing risk of inappropriate licence transfers
- suspension, abandonment, remediation and reclamation regulatory processes
For our second objective, AER met the criterion, and we concluded that AER had appropriately analyzed the system to identify risks and gaps and established an implementation plan to respond to significant risks in the design changes to its liability management system.
Since the announcement of provincial government policy on liability management in July of 2020, AER has been working on the development of new programs to implement the policy. The two objectives of this audit are closely related in that identification of risks and gaps and devising implementation plans to deal with them, if appropriately executed, could resolve the key findings from our examination on the criteria noted above.
However, AER will need to continue to work with government to close existing gaps in the liability management system and ensure that risk management and performance measurement systems can demonstrate that significant recent changes to the liability management system are achieving objectives.