Canadian Manufacturing

New oil & gas regulatory approach could have huge benefits: report

Ernst & Young says an approach known as play-based regulation has potential to boost the sector in a low oil-price environment



CALGARY—The crash in oil prices has the potential to force a revamp to Canada’s oil sector regulations, and a new report from advisory firm Ernst & Young says it could create numerous benefits for the industry and the public purse.

The report says a regulatory approach known as play-based regulation (PBR) would enable growth while ensuring the efficient development of resources and minimizing the environmental footprint.

“Advances in technology have expanded oil and gas companies’ ability to exploit unconventional oil and gas plays in recent years,” says Lance Mortlock, strategy partner at Ernst & Young’s Canadian Oil and Gas practice. “But the current regulatory framework does not effectively take into account the cumulative impacts of this type of development—nor does it efficiently address the risks introduced when leveraging these technological advances.”

The Ernst & Young study outlines potential benefits of PBR, such as improved regulatory effectiveness and reduced burden, creating a “broader view of cumulative effects of development within an area, optimized facility development and increased ability to capture technology changes,” all of which would reduce develop times.

“The Alberta Energy Regulator (AER) is piloting a new PBR system in the province now, with keen interest from other regulators,” says Mortlock. “Especially as companies deal with the current lower oil price environment, it’s a welcome example of enabling innovation that could change the face of regulation in the future both here in Alberta and beyond.”

The report notes, however, that successful implementation will depend on the Alberta Energy Regulator and industry continuing to fully engage with the multiple stakeholders and refining the process from the feedback received.

“When we talked to industry stakeholders about PBR, they expressed the importance of carefully thinking about the potential impacts,” says Mortlock. “Sharing lessons learned from the pilot to help increase understanding among stakeholders and identify areas for improvement will be critical for the AER.”

“High-performing companies will be those that quickly embrace the new system and approach,” says Mortlock. “Those companies will stand to take full advantage of the benefits of PBR, if—or more likely when—it’s fully implemented.”

Ernst & Young is a global assurance, tax, transaction and advisory services.

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