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Critics say a change to the way Alberta collects deposits for reclamation of oilsands mines could weaken the province’s ability to ensure companies have sufficient funds to clean up mine footprints, including contaminated waste held in tailings ponds.
Through Alberta’s mine financial security program, companies are required to pay additional annual deposits if the ratio of a company’s assets — including the value of its oil in the ground — is less than triple the estimated cost of its liabilities.
Here’s the thing: the value of a company’s assets is calculated based on oil prices, and when oil prices hit record lows early in the COVID-19 pandemic, that raised the possibility of triggering annual securities bills for oilsands companies — for the first time ever.
“The math doesn’t work if you have extremely low or negative oil prices,” Minister of Environment and Parks Jason Nixon said in a statement this month announcing the change.
In response to the 2020 oil price crash, the United Conservative Party (UCP) government put in place a temporary change to “ensure security amounts align with the intent of the program” to avoid what it called a “skewed” calculation based on the “drastic swings” of 2020. (A spokesperson for Alberta Environment and Parks did not respond to a request for comment.)
In its May 2021 announcement, the Alberta government said it plans to conduct a review that “will focus on the security calculation” as part of permanent changes to the mine financial security program.
The goal, the announcement said, was “to ensure sufficient funds are collected from oilsands mine operators to pay for future reclamation costs,” but that changes “will not impact environmental outcomes in any way.”
The temporary reprieve for industry raises concerns for local communities like the Mikisew Cree First Nation. The UCP government made “a decision without consulting with Mikisew Cree First Nation and we’re the ones being affected,” said Mikisew Cree Chief Peter Powder. “We’re downstream.”
“Allowing the industry to get a break doesn’t sit well with me,” he added.
Martin Olszynski, associate professor of law at the University of Calgary, doesn’t think companies should have been “allowed to skirt the consequences” of low oil prices last year.
“This wasn’t just a blip. It’s a warning,” Olszynski told The Narwhal. “You’ve built a system that’s fundamentally dependent on the value of assets and there are multiple signals being sent right now that the value of your asset is going to decrease over time.”
“What we’re staring down in the next 10 to 20 years is declining prices.”
Nina Lothian, director of the fossil fuel program at the Pembina Institute, agrees.
“The program is actually insufficient,” she said. “It’s already very weak in the sense that we are not managing the potential risk of massive changes in the energy market and the viability of the oilsands operators.”
The most recent estimate of total liabilities associated with oilsands mines is over $30 billion. As of September 2020, the regulator held $939 million in securities from oilsands mining companies, or just over three per cent of the estimated liabilities.
“It’s a virtual certainty that taxpayers will be on the hook for this,” Olszynski said.
The multi-billion-dollar cleanup tab is split between the six companies that operate oilsands mines: Suncor, Syncrude, Imperial Oil, Canadian Natural Resources Limited, Canadian Natural Upgrading Limited and Fort Hills Energy company. Between them, they operate nine projects.
In 2018, documents from the Alberta Energy Regulator revealed internal estimates of liabilities as high as $130 billion — far more than publicly cited figures, further stoking concerns about whether the industry will be able to pay for the cleanup.
Facing public outcry, the regulator distanced itself from its internal estimates, saying the figures represented a “worst-case scenario.”
The changes announced by the Alberta government this month allow companies to calculate their assets based on revenue, rather than on the present-day value of oil deposits. The higher their estimate of their assets, the less likely they are to have to pay large sums in security deposits.
Under the old system, it’s unclear how many companies would have had to pay additional securities in 2020, but the UCP government is unlikely to have taken this new action unless companies were impacted in a significant way. The regulator said by email that it is “unable to determine what the amount would have been under the previous methodology.”
With the recent changes, companies may avoid paying an annual deposit for 2020.
It’s what Lothian with the Pembina Institute said amounts to “completely undermining the purpose of the mine financial security program.” The program, she said, is designed exactly so that if companies show signs of financial issues, they must start putting aside additional security.
“Anyone with any kind of objectivity that has looked at the [mine financial security program] has concluded that it is wholly inadequate, that the previous formula was essentially too generous,” Olszynski said.
“So really, anything that puts less money into it is a bad idea,” he added. “And that’s what they’ve done this year.”
When an oilsands company builds a new mine, it has to pay a base deposit just to get started. That upfront cost is a flat $30 million for a new oilsands mine and $60 million for one with an upgrader, a facility that processes the raw product from the oilsands into synthetic crude oil.
As a 2018 report from the Ecofiscal Commission noted, calculating the initial deposit based on project type means “projects that present greater environmental risks are not required to submit additional assurance.”
Then there’s the annual evaluation of financial health — the requirement recently amended by the Alberta government — which is intended to make companies pony up an annual deposit if they are deemed to be in a financially precarious situation.
As the Ecofiscal Commission’s report put it, the intention is that “more financially risky firms face more stringent financial-assurance requirements.”
The Narwhal asked the Alberta Energy Regulator which, if any, oilsands companies have been required to pay annual deposits in the past. A spokesperson for the regulator said by email that the assessment of companies’ financial health “have never triggered the collection of additional security.”
With the UCP government’s recent tweaks, that trend may continue again this year.
And, lastly, when a mine reaches the last 15 years of its productive life — which, for an oilsands mine, can be many decades — companies are required to increase deposits, with full security posted when a mine has six years of operations remaining.
All of these funds are held as security for the eventual cleanup bill. The deposit, Olszynski said, functions like a special purpose savings account or a Registered Education Savings Plan.
“We’re not taking their money away from them,” he said. “This is about the idea that you should put away money now for something that you’re going to benefit from in the future.”
The Alberta government said this month that it would look at how the deposit system works overall, acknowledging the findings of a scathing auditor general’s report released in 2015.
The auditor general’s report flagged myriad concerns with the province’s mine financial security program.
It found the program “underestimates the impact of future price declines” and left open the possibility “the province may have to pay a potentially substantial cost for this work to be completed.”
Further, it noted “calculation does not reflect any risks associated with the future economic value of the reserves” and that the province bears the burden of this risk.
All of this rests on the calculation done to determine the financial health of a company. A company deemed to be in a precarious position would have to pay additional security — something many companies likely would have had to do before the government’s temporary tweak.
The way financial health is calculated is based on numbers submitted by companies themselves.
The auditor general flagged concerns about this process, saying there’s “significant risk that asset values … are overstated.”
Part of the problem is that companies are able to include both their proven and their “probable” oil reserves as assets. According to the auditor general’s report, probable reserves are defined as those with a 50 per cent chance of being extracted.
“Treating both proven and probable reserves as equally valuable on a per barrel basis increases the risk that the [government] is overestimating the value of these assets,” the auditor general explained.
“Improvements are needed,” the report concluded, highlighting changes need to be made to how security is calculated and how it’s monitored.
Olszynski doesn’t have much faith that the government will make improvements.
“Even if they had kept the formula as it was previously, in my view, it would still not be sufficient,” he said. “They’re just going in the opposite direction.”
In its announcement, the Alberta government said “Indigenous Peoples and stakeholders will be engaged in the [mine financial security program] review,” adding that further details will be announced in the coming weeks.
But according to Mikisew Cree First Nation Chief Powder, his nation was not consulted on the temporary reprieve for oilsands companies.
For him, the most recent announcement harkens back to the government’s decision last year to suspend some environmental monitoring in the oilsands — citing concerns over the COVID-19 pandemic. That decision was widely criticized; Chief Powder said it too was a “unilateral decision” done without Indigenous consultation.
“We need to be taken seriously,” he said.
“We need to make sure that when the last drop of oil is taken out that we are well funded to reclaim the land,” he added. “That’s the most important thing. Our lands are there for the future of the Mikisew Cree First Nation.”
Olszynski and Lothian both advocate for the requirement of full securities and timelines for progressive reclamation.
Full security would mean companies would set aside enough money to clean up their operations from the get-go. Progressive reclamation would mean they could clean up parts of their large mine footprints as they become inactive, rather than waiting until the very end of the project.
“If oilsands operators had to post the full security for their liabilities,” Lothian said, “it would incent much more progressive reclamation.”
It’s something Mikisew Cree Chief Powder would also like to see.
He compares the current situation to putting down an insufficient damage deposit on an apartment.
“When the person leaves and you’ve got to clean it up, if you only have $200 then as a [landlord] you’re going to have to pay the rest yourself,” he said.
The Mikisew Cree First Nation, which is downstream of the oilsands, is poised to bear the brunt of the effects in the long run, he said.
Advocates also note that, as of yet, some reclamation techniques for oilsands tailings ponds remain unproven. “Technological uncertainty in oilsands remediation is not reflected in … financial-assurance requirements,” the Ecofiscal Commission report noted, adding some current remediation techniques have not been proven at scale — meaning more costly technologies may need to be deployed.
And a report last year from the Commission for Environmental Cooperation — created by Canada, Mexico and the United States to implement the environmental side agreement to the North American Free Trade Agreement — pointed out that tailings ponds in Alberta’s oilsands are leaking.
Olszynski worries that all of this will one day fall to taxpayers.
“There are not that many examples of success stories, but there are dozens and dozens of examples of failures,” he said, pointing to Giant Mine in the Northwest Territories, where an old gold mine is now being cleaned up using federal dollars.
“It just seems inevitable, which is really hard to accept,” Olsynzksi said of taxpayers also footing the bill for the oilsands.
“There’s an incredible level of frustration watching this unfold. It’s like watching a slow-motion train wreck.”
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