The recommendations made in the Mature “Asset” Strategy are unlikely to uphold the polluter pays principle and we will all pay the price

In April 2025, the Government of Alberta (GOA) issued its Mature Asset Strategy: What We Heard and Recommendations report.  The report describes the Mature Asset Strategy (MAS) as a “comprehensive approach to managing Alberta’s aging oil and gas infrastructure while driving economic growth, protecting the environment, and ensuring long-term sustainability”.[1]  The MAS Report also states that “Alberta faces significant challenges in balancing the retirement of mature assets with the need to foster continued investment in the province’s energy sector.  The MAS aims to address these challenges through innovative policy solutions, new financial instruments, and collaborative initiatives”.[2] However, the MAS fails to address head-on the liability system that allowed under-capitalized companies to incur closure and clean-up obligations that greatly exceed the recoverable value of “mature assets”.

What is a Mature Asset? The oil and gas well lifecycle

The MAS Report describes mature assets as “wells that are past or near the end of their production lifespan”.[3]  The MAS Report goes on to state that:

In light of this description, the term “mature assets” is not really fitting.  Sites that are past or near their production lifecycle are “mature” but given that the liabilities associated with such sites exceed their value from production or otherwise, the term “assets” is not fitting.  As such, in our discussion of the MAS and matters relating to oil and gas liability, we prefer the term “mature sites” rather than “mature assets”.

Typically, in describing the lifecycle of oil and gas wells, wells are described as being active, inactive/suspended, abandoned, or certified reclaimed and remediated. Each term indicates where a particular well is in its lifecycle from operational to fully dismantled and cleaned up.  An active well is one that is currently operational i.e. producing oil or gas.  An inactive well is one that has not produced in 12 months (or 6 months if a critical sour well). Inactive wells must be suspended in accordance with the AER’s Directive 013 within 12 months of the inactive status date.  Once suspended, a well may be reactivated for production at a later date or eventually dismantled and cleaned up.  The process of permanently dismantling, sealing and removing a well from service is called abandonment.  A well must be abandoned in accordance with the AER’s Directive 020.  There is no legislated or policy timeline for moving an inactive/suspended well into an abandoned state. Once a well has been abandoned, the final step is reclamation and remediation.  Reclamation consists of work to bring the wellsite back to a land capacity equivalent to its state prior to development of the well.  Remediation means that the well-site has been cleaned up to meet specified soil and water standards.

Regardless of where a well is in its lifecycle, a well without a legally responsible or financially viable person to deal with closure and remediation responsibilities is called an orphan.  Sites with ongoing contamination and environmental concerns, originally developed and operated prior to current environmental requirements and standards are referred to as legacy sites (these are not necessarily only oil and gas wells or facilities).

What is the concern with mature sites?

A fundamental environmental principle is the Polluter Pays Principle (PPP).[5]  Essentially, the PPP requires that the person or company whose actions cause environmental harm should be required to bear the costs of rectifying those harms.  The PPP is violated in the situation where a well becomes an orphan because the person who developed and operated the well no longer has the financial viability to undertake the necessary closure and clean-up work.  The cost of closure and clean-up then falls on the public purse unless there is an established back-up such as insurance, security or industrial funding to cover the costs.  The concern with mature sites is that, as a well reaches the end of its production, its value as an asset drops but its environmental liabilities remain.  The well begins to generate less income, perhaps less than that required to meet current obligations, never mind future environmental closure and clean-up obligations.  This can jeopardize the financial sustainability of the well-owner, leading to the creation of an orphan well.   

Understanding AER’s liability management approach

According to the AER, the liability management approach is “holistic … with … programs, systems, and processes to implement the policy and help industry reduce liability in the oil and gas sector. [The] holistic approach applies to all phases of energy development rather than focusing on the end of the life cycle”.[6]

The AER’s liability management approach is outlined in Directive 088: Licensee Life-Cycle Managementand Manual 023: Licensee Life-Cycle Management.[7]  Directive 088 sets out the Licensee Capability Assessment (LCA) system, the Licensee Management Program, the Inventory Reduction Program and the application requirements for licence transfers. Details around security requirements – including calculation, forms and refunds of security[8] deposits – are provided in Directive 068: Security Deposits.[9]

The AER characterizes the LCA as part of a “holistic assessment of a licensee’s capabilities and performance across the energy development life cycle.” [10] The LCA uses several factors – such as financial health, total estimated liability, remaining lifespan of mineral resources and infrastructure, and rate of closure activities – to identify the risks posed by a licensee.  Essentially, a licensee is ranked on its performance against similar companies in terms of production levels and operating markets. Details about this tier ranking in the LCA are found in Appendix 3 of Manual 023.  The results from the LCA feed into a broader assessment of the licensee to inform regulatory decisions, including license eligibility, and decisions related to licensee management, inventory reduction and license transfers. Other factors aside from the LCA that contribute to the holistic assessment of licensees are found in Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals.[11]

The Licensee Management Program determines how licensees will be managed throughout the energy development life cycle.  The results from the LCA are used to identify those licensees that are or are likely to be at risk of not meeting their regulatory and liability obligations.  In these cases, the AER will “engage and use appropriate regulatory tools with the licensee to address the identified risks and compel compliance”.[12]  Regulatory actions may include the requirement for security deposits. 

The Inventory Reduction Program is meant to increase the amount of closure work, reduce liability and increase the amount of land returned to equivalent capabilities.  This is done by setting closure quotas which are minimum amounts of closure work, money spent on closure activities, or both.  A minimum mandatory closure spend is set by the AER for each licensee, along with industry-wide closure spend requirements.[13]  Licensees with a mandatory closure spend equal or less than $50,000 have an option to pay security in lieu of meeting the mandatory spend (and if the AER already holds security greater than their total oil and gas liability, no additional security is required).[14]  The AER encourages area-based closure wherein several companies collaborate to complete closure work in similar areas and has developed tools to enable this approach.[15]

In addition to the mandatory spend requirements, there is a closure nomination process which allows certain persons (including a landowner or municipality) to request that a licensee prepare a closure plan for a well that has been inactive or abandoned for five or more years.  Additional information about the closure nomination process – including eligibility requirements for nominating parties and closure plan requirements – are set out in Manual 023.  The default closure plan is called a baseline closure plan and allows for 10 to 13 years to complete closure activities (depending on whether a Phase 1 environmental site assessment has already been completed).  In some instances, a non-baseline closure plan may be allowed in response to complexity or location challenges.

 Finally, in some cases, it may be determined that deferral of the closure plan is appropriate (such as, portions of the site being active or being transitioned to another purpose).  In some cases, the AER may determine that no closure plan is required.  Reasons to not require a closure plan despite a closure nomination include: the site is an orphan and under the purview of the OWA, the licensee is insolvent and a known working interest participant has received a closure order (which supersedes the nomination process), or the licensee is undergoing licensee management intervention that includes closure plan requirements.

A license transfer application triggers a holistic licensee assessment of both the transferor and transferee.  This assessment includes “reviewing abandoned, reclaimed, and reclamation-exempt sites to ensure they are held by a responsible party that can address, manage, and monitor current conditions or future issues related to public safety or the environment should they arise”.[16]  Further scrutiny may be given to a transfer request in light of certain factors such as unreasonable risk factors listed in Directive 067, a LCA that demonstrates a medium or high level of financial distress, or a new licensee with no financial or operational history to support its holistic assessment.[17]  The AER may require supplemental information in support of a transfer request.  The AER may decide to allow a transfer but subject to conditions including meeting requirements for a security deposit.

While the AER has no jurisdiction with regard to the payment of municipal taxes, if a company seeking a new well license or transfer has unpaid taxes that will be a consideration for the AER (as per Bulletin 2024-22).  An application will not be reviewed if a company owes more than $20,000 in municipal taxes unless there is evidence the debt has been paid or a suitable payment plan is in place.  In addition, the AER may request information about unpaid surface lease payments as it is relevant to the assessment of whether a company can meet its regulatory and liability obligations.[18]

What does the Mature Asset Strategy propose?

The MAS is described as a “roadmap to transform Alberta’s approach to mature asset management”.[19]  To this end, the MAS Report outlines the recommendations made by six working groups each addressing discrete areas of concern.  The recommendations are:

Working Group 1: Municipal taxes, surface leases, and rising costs

1. collaborate with the Rural Municipalities of Alberta and municipalities to establish a rapid and transparent process for addressing late or non-payment of municipal taxes
2. re-establish an independent Surface Rights Board within the Land and Property Tribunal to address stakeholder concerns, educate landowners on their rights, support weed control and simplify engagement processes
3.  review AER license transfer mechanisms regarding closure liability funding
4. partner with landowner groups to establish a transparent process for addressing late, non-payment and recurring non-payment of surface lease payment
5. establish a working group to improve communication between government, oil and gas producer associations, and municipalities

Working Group 2: Resource conservation and enhanced oil recovery (EOR)

6. develop financial models for mature fields which might include changes to the Enhanced Hydrocarbon Royalty Program
7. establish an EOR working group to evaluate and accelerate adoption of new EOR technologies and opportunities
8. establish an informal working group with new technology innovators in oil and gas to develop a policy template to accelerate the adoption of commercially viable innovations
9. request that Ministry of Energy and Minerals review shallow and deep rights reversion rules and oilsands tenure regulations to identify opportunities for increasing production through new technologies and redevelopment of overlooked resources

Working Group 3: Economic Opportunities

10. form a working group to review and scope the potential for repurposing gas transmission infrastructure
11. establish a working group to explore the optimal regulatory framework for encouraging small-scale electricity generation from diverse sources
12. encourage collaboration between industry, the RMA and Ministry of Municipal Affairs to investigate or develop economic growth opportunities based on rural energy projects

Working Group 4: Shared resources and dedicated closure entities

13. encourage Energy Safety Canada to host a joint industry initiative to develop cross-industry best practices and standards for accelerated mature asset closure, supported by trade associations, and funded through industry-mandated closure spend obligations
14. enable development of HarvestCo entities which are special purpose entitles that can assume the tenure and license of wells and assets that would otherwise be surrendered to the OWA so that economic value can be used for closure
15. update federal insolvency law to capture the needs of closure and reclamation

Working Group 5: Closure liability funding alternatives

16. enable asset-attached closure funding mechanisms (rather than to the producer/licensee) and establish a working group for third-party end-of-life liability models
17. examine the creation of a long-term industry-funded capital pool as a liability indemnity fund for closed assets post-reclamation certificate
18. explore requiring asset-attached closure funding on wells or assets that have been decommissioned for years but not reclaimed or where off-site contamination from those assets is present
19.  explore carbon credit markets for end-of-life funding on emitting assets

Working Group 6: Risk-based closure regulatory review

20. the government should mandate that regulatory stakeholders consider implementation of any industry recommended practices (developed as per Recommendation 13), this included necessary legislative or regulatory changes
21. if industry agrees to a joint industry closure initiative, then establish a working committee to define the specifics of the joint review process (program details and operating mechanisms)

As can be seen from the recommendations, a significant focus of the MAS is maximizing resource extraction from mature sites.  There is also discussion around reducing the number of inactive and unreclaimed sites on Alberta’s landscapes, primarily using the mechanisms of HarvestCo and ClosureCo entities (as will be discussed below).  However, there is little focus on reducing existing legacy and orphan sites and revising the current regulatory approach to preemptively address closure liabilities of actively producing sites to ensure compliance with the PPP. 

Concerns with the Mature Asset Strategy

A strategy for addressing mature sites, along with liability management in general, needs to address existing legacy sites and to prevent the creation of future legacy sites while adhering to the PPP.  It is not clear that the approaches proposed in the MAS Report will achieve these goals. 

The framing and focus of the MAS seems to be primarily concerned with maximizing resource extraction and ensuring the viability of oil and gas operators, and less so with maximizing closure of mature sites and adherence to the PPP.  For instance, the MAS Report devotes a lot of space to the discussion of municipal taxes, surface leases and rising costs.[20]  The MAS Report states that:

While these costs will no doubt contribute to the cost of doing business as an oil and gas operator, these costs have legitimate policy and legal bases for their existence.  Economic and environmental sustainability require that operations remain viable in the face of legitimate legal and policy objectives.   This issue speaks to the need to ensure the securement of closure costs at the beginning of well and infrastructure development rather than trying to obtain closure costs from operators and owners that are in possession of mature sites that are more liabilities than assets.

The recommendations made in the MAS Report on the issue of municipal taxes and unpaid rent are mainly focused on procedural responses such as establishing a process for addressing late or non-payment of municipal taxes, reconstituting the Surface Rights Board and creating a more transparent process for addressing non-payment of surface leases.  There is also a suggestion that “mitigating impact of financial pressures” and “economic adjustments to taxes and/or royalties” could be used to benefit mature oil and gas fields and extend their productive life.[22]  In the ELC’s view, late or non-payment of municipal taxes and surface rents are signals of financial distress which should trigger closer management to ensure closure requirements can be met. 

As an overall observation, the MAS Report is quite vague in terms of recommendations, even to the extent that the term “mature assets” is not fully defined.  While a definition is offered for mature assets – wells that are past or near the end of their production lifespan and associated equipment that is no longer economically viable due to reduced production[23] – it is acknowledged in the MAS Report as not being a comprehensive definition.  Many of the recommendations made in the MAS Report are to establish working groups for a variety of future work and are lacking precision. 

HarvestCo and ClosureCo: Promising or Problematic?

Perhaps the most developed recommendation in the MAS Report is that regulatory and financial support should be given to HarvestCo and ClosureCo entities but even this recommendation lacks precision.  The MAS Report describes HarvestCo and ClosureCo as follows:[24]

The MAS Report acknowledges that HarvestCo-type companies already exist in Alberta as licensees and consulting services but asserts that additional regulatory and financial support could expand Harvest Co to make a greater impact on closure activities.  As well, it is asserted that ClosureCo, with the right regulatory and liability financing framework, could also accelerate closure for certain licensees and assets.  The MAS Report indicates that changes in license transfer processes and liability financing mechanisms are necessary to accelerate the adoption of these types of companies.  Engagement presentations made as part of MAS process indicated that “management of end-of-life mature assets from the OWA” could be enhanced “by proposing policy changes to ensure commercial viability in this space by lowering operating costs, accurate metrics for corporate health, efficient turnaround for seized assets, alignment of AER priorities with public goals, and streamlining AER processes”.[25]   According to the MAS Report, this might include changes to the federal Companies’ Creditors Arrangement Act (which we note is not within provincial jurisdiction to amend).  Further, it is recommended in the MAS that a working group – comprised of industry, the Ministry of Energy and Minerals, and AER – be formed to explore the structure of HarvestCo and to advise on appropriate regulations.

Aside from these broad recommendations to encourage and enable HarvestCo and ClosureCo entities, there is not a tremendous amount of detail.  Although it is not expressly stated that these entities are meant to be Crown entities, that seems to be the implication.   Or perhaps the regulatory changes envisioned would provide a legislative exemption from liability to private HarvestCo and ClosureCo entities? 

Given that part of the proposed function of HarvestCo and ClosureCo entities is to accept transfers of low value, high liability mature sites; it seems highly unlikely that private entities would be interested in doing so unless there is some legislative protection from incurring liability.  It is not obvious that private HarvestCo and ClosureCo entities will possess sufficient capital to cover closure and clean-up costs to avoid the mature sites ultimately becoming orphans.   Presumably, if mature sites possess enough value, there would be a market-driven incentive to assume these sites without the need for legislative change (and we note such entities can already exist under current corporate legislation). So the implication seems to be that these entities are meant to be Crown entities with the risks being transferred to the Crown and ultimately the taxpayer.  Or, alternatively, perhaps it is envisioned that HarvestCo and ClosureCo will be private entities with a legislative exemption from assuming liability, once again transferring risks to the Crown and ultimately the taxpayer.

The ELC recommends that, rather than creating new entities for dealing with mature assets, it would be more effective to require collection of up-front security and institute mandatory closure timelines.  Admittedly, this will likely mean some existing firms will be forced to wind-up with their mature sites becoming orphans.  The OWA already has authority to operate and close mature assets that have become orphans, so could play the role of HarvestCo and ClosureCo entities.  Although this would significantly expand the role and responsibilities of the OWA, it is the ELC’s view that additional funding of OWA (by industry) to address orphaned mature assets would be more effective than creating new, likely under-capitalized entities into which to transfer low-value high-liability properties.  For those mature assets that are not orphans, certainly more could be done to encourage cooperation among operators such as the Area-Based Closure approach which has been implemented in recent years.

It is also not clear precisely what regulatory and liability financing frameworks are envisioned by the MAS.  There is discussion in the MAS Report around innovative liability funding solutions such as a legacy asset insurance fund, innovative business models (i.e. ClosureCo and HarvestCo), and asset specific closure financial instruments (i.e. funds attached to individual wells or asset portfolios).  It is interesting to note that a leaked draft of the MAS Report recommends a “new post-reclamation future environmental liability insurance fund – financed by contributions from licensees but ultimately backstopped by the province – [that] could provide dedicated capital for managing liabilities tied to closed assets”.[26] In other words, it is recommended that ultimate responsibility for oil and gas liabilities should fall to the province (i.e. taxpayers).  This amounts to a violation of the PPP.

One of the innovative liability funding solutions proposed in the MAS Report is that financial markets for methane mitigation and carbon offset markets be used to incentivize closure while offsetting closure costs via issuance of credit.  It is perverse that credit be granted for fulfilling existing regulatory obligations.  The owner of an oil and gas property is legally obliged to close and clean-up its properties at end of life.  Methane market, carbon market or other credits should not be granted for fulfilling those obligations.  Perhaps, in the event that there is a legislated timeline for closure and clean-up, credits could be earned as an incentive for exceeding those requirements (as early closure could potentially reduce overall emissions).

ELC’s Recommendations

There are several recommendations for improving the approach to oil and gas liability management including management of mature sites.  The guiding principles to any approach should include application of the PPP and the elimination (or at least minimization) of future liabilities.  Thus, the recommendations are:

1. Imposition of legislated timelines for abandonment and clean-up of wells and infrastructure.  If there is a desire to integrate carbon market credits as suggested in the MAS Report, it is recommended that that occur only in the context where there are strict legislated timelines for clean-up.  Carbon market credits could be considered as an incentive to accelerated clean-up timelines where credits can be earned by completing abandonment and clean-up activities in timeframes that are significantly shorter than legislated timelines.
2. A mandatory requirement to provide up-front reclamation security prior to commencement of drilling activities and/or construction.  We note that renewable energy projects are currently subject to mandatory reclamation security requirements.
3. Improvements should be made to the AER’s compliance assurance program with respect to closure activities.  As noted in the AG’s 2023 Report, there are existing processes for AER inspection and identification of sites that are non-compliant with closure requirements, however improvements to these processes are needed.
4. Enhance approaches such as area-based closure and OWA operational activities that facilitate faster and more efficient closure while better adhering to the PPP (i.e. liabilities remain with the industry that created the liabilities if not the precise operator).

In their March 2023 Report, the Auditor General of Alberta (AG) referenced three main problems with the existing liability management system that had been previously identified by a comprehensive risk analysis completed by the AER in 2019.[27]  These issues were a lack of prompt closure of inactive wells, unfunded liabilities where there is no owner or industry-funded backstop, and inadequate collection of security from operators.  Since 2020, the AER has been making modifications to the liability management system and the MAS Report is meant to further inform the AER and government response.  Unfortunately, the MAS Report does not address the problems discussed in the AG’s March 2023 Report, it fails to fix what is broken.

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[1] Ministry of Energy and Minerals, Mature Asset Strategy: What we heard and recommendations report (Edmonton: 2025, Government of Alberta) [MAS Report] at 6.

[2] Ibid. at 6.

[3] Ibid. at 11.

[4] Ibid. at 17.

[5] For more information on PPP, see Environmental Law Centre, The Polluter Pays Principle in Alberta (Edmonton: 2019, Environmental Law Centre), online: https://elc.ab.ca/wp-content/uploads/2019/12/The-Polluter-Pays-Principle-in-Alberta-Law-December-2019.pdf.

[6] AER website at https://www.aer.ca/understanding-resource-development/how-we-regulate/liability-management.

[7] Alberta Energy Regulator, Directive 088: Licensee Life-Cycle Management (Calgary: 2025, Alberta Energy Regulator), and Alberta Energy Regulator, Manual 023; Licensee Life-Cycle Management (Calgary: 2025, Alberta Energy Regulator).

[8] Is this a missing citation?

[9] Alberta Energy Regulator, Directive 068: Security Deposits (Calgary: 2025, Alberta Energy Regulator).

[10] Directive 088 at 2.

[11] Alberta Energy Regulator, Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals (Calgary: 2024, Alberta Energy Regulator).

[12] Directive 088 at 4.

[13] For a critique of closure spend requirements, see Drew Yewchuk …..

[14] Manual 023 at 9.

[15] Manual 023 at 9.

[16] Directive 088 at 9.

[17] Manual 023 at 22.

[18] Ibid.

[19] MAS Report at 9.

[20] For a critique of the MAS Report with respect to municipal taxation and other matters, see Rural Municipalities of Alberta, Mature Asset Strategy: RMA Response to Final Report (Nisku, AB: 2025, Rural Municipalities of Alberta).

[21] MAS Report at 26.

[22] MAS Report at 31.

[23] Manual 023 at 11.

[24] MAS Report at 38.

[25] MAS Report at 39.

[26] DRAFT Mature Asset Strategy: What We Heard and Recommendations Report (January 28, 2025) [Draft MAS Report] at 59.

[27] Auditor General of Alberta, Liability Management of (Non-Oil Sands) Oil and Gas Infrastructure, Alberta energy Regulator (Edmonton: 2023, Auditor General of Alberta).

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