Opinion: Invest in tar sands cleanup as energy booms

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The Mines Financial Security Program (MFSP) is the Alberta Energy Regulator’s (AER) key tool that ensures sufficient funds are in place to carry out the massive cleanup that will be required in the oil sands. The cleanup will involve tailings ponds, water and soil contamination, reforestation and more.

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As accounting professors who have done extensive research on accounting rules and disclosures, government regulations, and environmental responsibilities, we consider the new rules put in place by the AER effective June 30, 2022 to be a serious weakening of the clean-up requirements for oil sands owners. and operators, creating additional environmental risks for Albertans. This cleanup liability is no longer something that is in the distant future and is already estimated by the AER at over $100 billion. And it keeps increasing due to ongoing and planned developments and investments. For operators, it is the largest single liability on most of their balance sheets.

The MFSP stipulates that as an oil sands project reaches the last 15 years of its life, the operator must set aside sufficient funds to pay for the cleanup, funds called “financial security”. The current financial security held by the AER for the oil sands is approximately $900 million (compare with the estimated liability of $100 billion).

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However, the new rules seriously weaken cleanup requirements for oil sands owners and operators. They can now provide financial security, not in cash or cash equivalents as previously dictated, but in the form of a « guarantee bond » – simply a company’s promise that it will be « good for the money « when they actually do the cleaning. Currently, with exorbitant oil prices, the oil sands are extremely profitable, and the owners and operators are indeed « good for the money ».

However, we know this is a highly cyclical industry and current conditions will not last forever. During the pandemic and the latest industry down cycle, the federal government injected $1 billion into the cleanup of the Alberta conventional oil field, a $1 billion subsidy from the Canadian taxpayer to the industry . The environmental liability associated with oil sands is much higher than that of conventional oil. When oil and gas prices fall again, perhaps permanently, as pressures to phase out fossil fuels begin to affect energy markets, profitability will decline while cleanup liabilities will rise dramatically. .

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No Alberta government will make a multi-billion dollar demand on an Alberta oil and gas company during a downturn. It is imperative that the Government of Alberta start setting aside money for future cleanup of oil sands development and not wait for existing projects to approach the end of their lives, which will inevitably happen in the next few decades.

More importantly, surety bonds will be worthless to defunct or financially distressed oil and gas companies. The Alberta government (via the AER) shouldn’t be giving oil sands owners and operators a huge break, especially at a time when oil and gas prices are at record highs. This is counterintuitive and greatly increases the odds that the ultimate cleanup of Alberta’s tar sands will fall to the public, and worse still, it won’t be properly cleaned up at all.

We need to address and plan for these inevitable liabilities today, not let oil sands operators spend their current surpluses on stock buybacks, executive bonuses and increased dividends to owners (most of which are outside the company). Alberta and even Canada).

David Cooper is Emeritus Professor of Accounting at the University of Alberta. Thomas Schneider is an associate professor of accounting at Metropolitan University of Toronto. They are board members of the Alberta Liabilities Disclosure Project.