(In the third article in a series focusing on organizations that are changing the way we positively, and imaginatively, think and talk about energy, I profile ReGenerate Alberta, whose founders believe we need to reframe our asset management and liability conversations. The first two articles looked at Energy Futures Lab and Positive Energy.)
Alberta has a skeleton in its closet no one really wants to talk about.
Even when we do, the bone rattling isn’t necessarily “good talk.”
This negative problem talk focuses on the physical artifacts from a sector that has brought this province so much wealth — in other words, directly to the lives of ordinary Albertans. And while in large measure those artifacts may be out of sight, these days they’re increasingly not out of mind.
The problem: Alberta’s steadily growing ranks of aging oil and gas assets which haven't been properly readied for (permanent) retirement.
In a form of industrial demographics — call it Drill, Produce and Echo — the magnitude of the liability those aging assets represent has burgeoned steadily over recent years. These include wells, pipelines and other infrastructure components. Many haven’t received the required care and attention required by the provincial regulator to ensure they don’t represent environmental and economic liabilities.
Wells that haven't been formally abandoned are perhaps the most potent symbols of this asset dynamic. In some cases, the owners have long disappeared and the liability falls to the upstream sector through its Orphan Well Association program to clean up; in others, assets remain inactive on existing balance sheets but there is neither the corporate will nor dollars to invest in end-of-life care. Put colloquially, many of those assets have never had a proper burial — and their owners aren’t in any rush to call the funeral home. Alberta doesn’t specify timelines for when companies have to activate or abandon inactive wells, which results in kick-the-can-down-the-road thinking. Indeed, the argument that many inactive wells could have new lives, say at higher commodity prices, is largely spurious. The data to date doesn’t support that thesis.
Meanwhile, the doomsday liability clock keeps ticking forward — including the growing delta between inactive wells and abandoned wells — while the costs associated with abandonment creep forward too.
More recently, the Alberta Energy Regulator (AER) has clamped down on the most egregious offenders (come on down, Lexin Resources) and has taken — and is taking — steps to stem the impact of this rustbelt tsunami by tightening the regulatory framework within which companies operate. This includes a laser focus on their financial wherewithal to take care of their future abandonment obligations. It’s telling that currently more than 300 companies on record with the AER have liabilities that trump their assets.
As a result, the “talk” associated with assets that have had productive lives (but unproductive deaths) tends to blacken industry’s collective eye — when in fact, a few bad apples have tainted the collective barrel, as for example, using bankruptcy to walk away from their liabilities. Of course, the sector’s cyclical nature also plays a part, particularly in the recent downturn with the collapse of so many operators who have had their balance sheets ripped from under them — with result being they lack sufficient financial stability to pay for their asset retirement obligations.
For geologist Juli Rohl, the consequential cloud of the sector's downturn has a silver lining: it was the catalyst for her to take action on something that had long been bedevilling her: how to think differently about those assets and their life cycles. Thinking differently also means talking differently.
For Rohl, this inflection point in the sector’s history represents both a business opportunity as well as a social challenge. While the dollars associated with the liability number — literally in the billions — may seem daunting, Rohl believes there are bucks in the rust — as well as social redemption.
So along with partner Shawna Stirrett, Rohl formed ReGenerate Alberta. They asked themselves:
What if Alberta’s oil and gas assets could be re-imagined and repurposed in a way that redefines their life cycles? That breathes new life and a new raison d’être into aging iron and decrepit well sites? That generate new dollars flowing into old assets?
It means new ways of creating new narratives about the assets — and the people and processes associated with them. It also means rupturing a classic and conventional business model that is built linearly, and replacing it with one more geared to circular thinking. It also means a deeper and more meaningful emphasis on the community dimensions of solutions development. That means tackling the challenges at a community of interest level, so solutions are contextual and contingent to specific circumstances, including the investment thesis that might drive a particular project.
Put more bluntly, ReGenerate’s team understands there is no single universal silver-bullet answer. What there is a newer, bolder and more imaginative way to get the necessary discussions stimulated.
So, to turn former well sites into solar installations or infrastructure locations into community spaces, means pulling together a different group of voices and interests.
Rohl and Stirrett reflect on ReGenerate’s mission:
What in your view is required to "reset" the conversation around the way the sector thinks about its assets and their management?
We think the turning point will come when the sector stops thinking about their older assets as something to be gotten rid of—as a liability—and starts thinking about them as potential opportunities. That could mean finding ways to convert a “waste product” into something that can be sold (for example, the lithium that can sometimes be found in produced water), or converting existing infrastructure into a something that is valuable to a community (example: converting an oil and gas well into a geothermal heat source for a community). When one or two companies start to do this successfully, it will reset the conversation in the sector and other companies will start looking at their asset management programs differently.
What gives you hope we've reached a positive pivot point?
The most important thing that gives us hope is the growing acknowledgement that the status quo is not sustainable and that the current clean-as-you-go model will never suffice. While some are in denial about this, it is causing many companies to broaden their scope and redefine themselves as energy companies. It’s encouraging government and regulators to look for new asset management incentives, and it is galvanizing individuals and organizations to search out creative solutions through groups like the Energy Futures Lab. People want to build a better future and be part of something meaningful and, given the resource development expertise in this part of the world, this is a natural issue for them to be drawn to.
How would you recommend the sector start promoting and amplifying its change in thinking? As an industry more largely? Or by individual leadership companies?
We think it is going to be come down to the leadership of companies and individuals. Once a few key people and companies can practically demonstrate that change is something to be capitalized on and that there are opportunities to be found through new ways of thinking, the change will be amplified. Simply talking about these issues — without demonstrating that a different approach can be economically, environmentally, and socially valuable — will accomplish little.
What are your thoughts on the overall economics of such a fundamental change? What do you think it will take for companies to see the upside?
There have been many studies done in Europe on the financial value of introducing a circular economy framework and those same principles can be applied to the energy sector. It may be that this will happen gradually and will start by companies thinking about how to create value by reducing their liability expenses. An example of this is when companies build with the end in mind and are able to find efficiencies by planning for the decommissioning of their assets even during the build phase of a project. Eventually, those companies may take this further and will start thinking about how to convert their liabilities or waste products into saleable assets that actually add revenue to the bottom line. It doesn’t have to happen overnight; even a slight change in approach has the potential to bring upside to a company.
(Next in the series: Kinetica, a part of CTI.)