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Newfoundland and Labrador asked to figure out cost of shutting down oil projects



Newfoundland and Labrador faces a crucial task in determining the potential financial burden on taxpayers as offshore oilfield operators contemplate the closure of their operations, according to Denise Hanrahan, the province's auditor general. Tasked with overseeing the government's financial management, Hanrahan has persistently urged authorities since 2021 to assess the costs associated with supporting companies in decommissioning their oilfields. In her recent report, Hanrahan emphasized the need for these figures to be integrated into the province's financial records.


"For us, it's an incomplete line," Hanrahan explained in an interview. "It's not unusual for us to record decommissioning costs; it's a pretty normal thing. And as we know, at the end of the life of these fields, that can be pretty sizable."


The consideration of shutting down any of the four oilfields off the province's east coast was a distant notion before the onset of the COVID-19 pandemic. However, in 2020, both Suncor Energy and Husky Energy, later merging with Cenovus, were contemplating abandoning their respective oilfields, Terra Nova and White Rose.


One significant concern is that companies may claim decommissioning cost overruns against past royalties paid to the province. This implies that if the costs for dismantling these oilfields surpass expectations, the government might owe companies a royalty refund. Documents obtained by The Canadian Press indicated that officials estimated a potential cost of about $157 million to taxpayers if Suncor decided to abandon its Terra Nova field in 2020.


Responding to these uncertainties, the province established a "Future Fund" in 2022 to serve as a reserve for forthcoming expenses, including oilfield decommissioning. A $157-million contribution was made to the fund that year, demonstrating a proactive approach to financial planning.


Russell Williams, an associate professor of political science at Memorial University, commended Hanrahan's persistence in urging the government to assess decommissioning liabilities. He emphasized the importance of making such information public, drawing attention to Alberta's challenges with non-producing or abandoned oil wells, where the responsibility for cleanup remains unclear.


Williams noted that Hanrahan has been pressing the province since 2021 without receiving a satisfactory response. "I don't think the government wants to tell us about these things," he expressed. "And, of course, that's a basic political problem, right? When it comes time to clean these things up, the minister will be long gone."


Hanrahan reiterated that the province has repeatedly informed her that the calculation of potential payouts upon the cessation of oilfield production is incomplete. While it's possible that no payments may be required, she stressed the government's responsibility to determine the financial implications and communicate them transparently.


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