Geoffrey Morgan

May 6, 2021

-Financial Post


CALGARY — Last year’s oil price collapse has disrupted how Alberta’s government collects financial security from oilsands mining companies for environmental clean up.

Alberta will unveil one-time changes to its Mine Financial Security Program (MFSP) for oilsands companies on Thursday to adjust for last year’s oil price crash. In addition, the province plans to launch a full review of the MFSP beginning this summer to address issues previously raised by the province’s auditor general in a 2015 report.

The current MFSP requires oilsands companies to pay a security deposit to the Alberta Energy Regulator each June based on a ratio of the value of their mining assets against the total liability to clean up their mines.

Last year, when oil prices collapsed with the outbreak of the first wave of the COVID-19 pandemic and briefly fell to –US$37 per barrel, the value of those mining assets plummeted, which would have triggered massive liability payments and security deposits for the Alberta government come June 30, 2021.

Under the current system, an oilsands mining company is required to make additional security payments to the Alberta government if the ratio of its assets compared with its clean-up liabilities is less than 3-to-1.

The province believes the value of multiple oilsands mines may have fallen below this threshold last year during the oil price collapse. Average U.S. crude prices fell to US$39.16 per barrel last year — levels last seen in 2003.

As a result, the province will introduce changes Thursday that will allow oil companies to calculate their security payments based on the revenue they earned from each barrel of oil they produced from their mines rather than directly tying their value to the price of oil.

“The math doesn’t work if you have extremely low or negative oil prices, like we did in 2020. Instead, what we need is a long-term solution for the Mine Financial Security Program to better protect our environment and taxpayers,” Alberta Environment and Parks Minister Jason Nixon said in a release seen by the Financial Post.

Government officials confirmed to the Financial Post that the security deposits collected this year are expected to be similar to those collected in previous years, but will be substantially less than they would have been under the existing calculations.

Right now, the government is holding $1.48 billion in security under the MFSP and oilsands deposits account for $1 billion of that total. Critics have repeatedly said those figures are too low to properly remediate the multiple oilsands mines in the Fort McMurray region.

Academics and environmental organizations have previously criticized the MFSP for collecting too little security and warned that Alberta could face a crisis similar to that of the abandoned and orphaned oil and gas wells, which are now being cleaned up with provincial and federal funding.