Rubik’s cubes and other puzzles

What do changes to the AER’s Licensee Liability Rating (LLR) mean and what can be done?

May 2014 marks the 2nd phase of the Alberta Energy Regulator’s changes to the Licensee Liability Rating and if our conversations and questions are an indicator; some in our industry are going to be surprised.  Understanding the AER’s Directives can be time consuming and challenging. Did you know there are over 10 cross-cutting and influencing directives that need to be considered?  What does this mean to your organization? We can help you figure it out.

A review of the most recently posted public data by the AER shows there are 193 companies with an LLR less than 1.00.  This means these organizations need to provide a security deposit to the AER to offset a rating which is below the AER’s accepted threshold.  Come May 2014 the deposit will be 25% greater than what was required in May 2013. Let’s not even talk about May 2015 (which will be even higher still).  The security deposit is held in trust, but its intended use is to ensure the Alberta Government and taxpayers are not left holding the bag on reclamation and abandonment costs.

What’s really changed is the math used to calculate assets and liabilities.  Long story short, many companies have received requests for deposits from the AER, payment of which is required in short-order.  Furthermore, other companies have seen a fundamental change in their LLR Rating and now they are hovering at 1.00 (the AER’s LLR threshold).  Based on production factors and a status quo asset base a company can be on a collision course with liabilities that will wreak havoc on their balance sheets.  Recently, a local energy services consulting firm released a study that, amongst other things, suggests the death of the micro junior.  Undoubtedly, there are companies that may be unsalvageable, but there are strategies that can be executed to help those that are flirting with the threshold.  The first step is to acquire a deep and thorough understanding of the program and the directives.

We have likened the dissection and application of the directives to a Rubik’s cube – complicated, but solvable.  In the end, seeking strategies within the directives may only stem the tide and some organizations will need to look at other alternatives, up to and including, some unpleasant ones.  This being said we have uncovered strategies that can improve a client’s rating and reduce their liability.  There are a set of practical yet time consuming steps that can be enacted today that will not only improve your organization’s LLR, but will set the course for a Liability Management Program.  This alone will allow companies to stay on the positive side of the 1.00 threshold.   Furthermore, a Liability Management Program along with tools developed for predictive analysis will provide an important window into seeing how future production, or acquisitions, or divestments influence a producer’s rating.

After careful analysis and internal discussion, Jaguar Land Group has built a 4 stage, 4 channel program to be enacted whether your rating is 1.02 or 26.05.  The goal is improvement, compliance and the foundation for a Liability Management Program.

If you would like to know more about how we can help your organization move to compliance and/or stay compliant, please contact Jaguar Land Group Ltd. at 403-718-0525 or at to schedule a confidential discussion about your company’s Liability Management Program.