2013/14
Annual Report Highlights

Building the AER
Energy regulation in Alberta spans 76 years and has evolved over time.
This evolution continued in June 2013 when the AER became a new organization
with an entirely new governance structure and took over responsibilities
previously held by the Energy Resources Conservation Board (ERCB).
This journey began with the Governmentof Alberta’s Regulatory Enhancement
Project, which was designed to ensurethat Alberta’s resource policy development, public consultations, and energy
development regulations are efficientand competitive while supporting public
safety, environmental management,
and resource conservation objectives.
From this process the government passed
the Responsible Energy Development
Act (REDA) in 2012, and on June 17, 2013,
the AER was created.
The AER is part of the Government ofAlberta’s Integrated Resource Management
System, which includes›› the Government of Alberta, which sets
policy;›› the Alberta Environmental Monitoring,
Evaluation and Reporting Agency,
which provides data and information;›› the Aboriginal Consultation Office,which manages First Nations consultation on behalf of the Government ofAlberta; and›› the Policy Management Office, which is
the key interface between government
and the AER on policy issues related toenergy development.
Creating the AER was a complex taskthat required careful implementation,
especially considering that all energy
regulation activities in the province

continued throughout the transition.
The AER managed this transition with
the Government of Alberta througha three-phased approach.

›› Phase 1 occurred in June 2013
when the government proclaimed
certain sections of REDA, resulting
in the launch of the AER and its new
governance model. At that time
the AER took on all responsibilities
previously managed by the ERCB.

›› Phase 2 occurred in November 2013
when we took on responsibilities
from Alberta Environment andSustainable Resource Development(ESRD), beginning with public
land and geophysical jurisdiction,and established a Private Surface
Agreements Registry for landowners
and residents who wish to register
private agreements they have signedwith companies.

›› Phase 3 occurred on March 29, 2014,
when the AER took responsibility
for sections of the Environmental
Protection and Enhancement Act
and the Water Act as they relate toenergy development.
Our transition is now complete, and the
AER is the single regulator of energy
development in Alberta — from initial
application and exploration, to construction and development, to abandonment,
reclamation, and remediation.

ALBERTA ENERGY REGULATOR Annual Report Highlights 2013/14

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2014–17 Strategic Plan
Albertans count on the AER to provide
strong regulatory oversight of energy
development across the province. We’re
expected to protect what matters most —public safety and the environment —while ensuring economic benefits fromour energy resources. That’s our mandate,our core business, and what we focus
on every day.
This is important work. But to movebeyond that core work, to truly reachour vision to be best in class, we needa strategy, a focus on a few strategic
priorities, and a plan for how we will
direct our human and capital resources
to those priorities in a way that delivers
results — results for the AER and our
stakeholders.
The AER 2014–17 strategic plan plots
a roadmap that helps us select projects
and initiatives at an enterprise level,
determining what will serve our organization best, help us reach our vision,and make the most of our resources.
To become best in class, we know weneed to do more. Reaching our visioncalls for a proactive strategy that identifies
our key priorities and establishes clear
performance measures to ensure that
we stay on track and can demonstrate
our results.
The strategic plan includes our strategic
priorities, strategic outcomes, themes(areas of focus), and performancemeasures and targets against which the
AER will monitor its progress and how
others will measure our success.
Our strategy reflects our mandate, our
vision, and our pursuit of best in class by
being protective, effective, efficient,and credible.

Strategic
priorities

Protective
Develop integrated
whole-systemregulatory approach

Effective
Strengthenrisk-based
regulation

EfficientTransform Alberta’s
energy regulatory
system to improve
efficiency

Credible
Increase trust andconfidence in how
energy is developedin Alberta

Strategic
outcome

Effective managementof public safety, andcumulative environmental risks and impacts

Effective managementof resource conservationand minimize financial
liability on Albertans

The regulatory systemis efficient, minimizing duplication, withhighly efficient
processes, and onlyintervening to thelevel necessary

Stakeholders are
confident about
how energy isdeveloped in Alberta

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Theme
Play-Based Regulation(land and water)

Performancemeasures

Performancetargets

Volume of all water (fresh,
saline, and recycled) used
for oil, oil sands, and gas
operations

Work with GoA to set
benchmarks and requirements
for reduction of water use forenergy resource development

Air emissions

Volume of gas flared and vented
from oil and gas operations

Flaring levels are withinprovincial guidelines

Aging Infrastructureand Liability Management

Proportion of inactive
wells that meet current
suspension requirements

100 per cent of high-risk inactive
wells meet AER suspension
requirements

Reservoir containment

Adoption of risk-based
regulation to respond tochanges in technology
and complexity in oilsands development

Complete shallow SAGD
caprock integrity study

Pipeline safety

Number of incidents per
kilometre of pipelines
regulated by the AER

Pipeline incident rate
reduced by 4 per centOperations continuous
improvement

Regulatory process
efficiencies$60 million in verified cost savings
from efficiency initiatives in thefirst year

Regulatory
simplification

Relevant regulatory
requirements

Complete a full regulatory
review to identify and execute
opportunities for consolidationand simplification

Open, transparent
communication

Percentage of Albertans
confident that oil and gas
development is occurring
responsibly

10 per cent increase inawareness of the AER and
its role in regulating energy
development in Alberta

Stakeholder
engagement

Stakeholder rating of AER
performance in key areasof concern

10 per cent increase inpositive perceptions/rankingsof AER performance

Best-in-class review

Recommendations forbest-in-class performanceare developed throughstakeholder collaboration

Completion and release ofrecommendations in 2015

Integrated Resource
Management System

The AER is recognized as best in class, ensuring the safe, environmentally
responsible development of energy resources for the benefit of all Albertans.

Implementation of regulationsaligned with Alberta’s Tailings
Management Framework

Tailings water
management

Vision* Performance measures and targets will be modified andexpanded following input from stakeholders and partners.

ALBERTA ENERGY REGULATOR Annual Report Highlights 2013/14

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our priorities — protective

Develop an integrated, whole-system regulatory approachto safety, environmental protection, and risk management
At the AER, we know that regulating a world-classenergy resource is a huge responsibility. The first priorityof our strategic plan is to be protective of public safety
and the environment. While any type of industrial
activity comes with risks, these risks can be minimized
through strong regulatory requirements at every stageof a project’s life cycle.
As new technology drives the intensity and scale ofdevelopment, we need a new approach to energy
regulation. The AER will address cumulative impacts
and align with Alberta’s Integrated Resource Management System as part of the decision-making process
for approving energy resource development.
We will focus on what’s important to Albertans:public safety, protecting our water resources, making
sure companies follow safety and environmental
requirements, and enforcing compliance when thoserequirements are not met.
We will do this by working on projects that deliver
measurable results.

Play-Based Regulation
Recognizing the distinct challenges of developing
unconventional resources in Alberta — especiallywith respect to water use, concerns around hydraulicfracturing, and the regional effects of large-scale
operations — the AER will be conducting a pilot ofplay-based regulation. This project will›› establish requirements for subsurface reservoir
management,›› create a single application and decision-making
process,›› conduct a full review of the costs and benefitsof the play-based approach; and›› require companies to work together on plans forsurface development to minimize the numberof facilities and surface impacts, reduce the useof fresh water and reuse water where possible,
and engage stakeholders.

5Compliance Assurance Framework
Our new approach to compliance puts our focus on higher-risk activities,
such as developments near populated or environmentally sensitive areas.
When companies fail to follow our rules and requirements, the AER has theauthority to take strong action including shutting down their facilities.
Simply stated, companies that are allowed to develop Alberta’s oil and gas
resources must follow all rules, regulations, and requirements. If they don’t,
there are serious consequences.

Working Together to Address Tailings Management
Through our risk-based approach, the AER assesses potential risks to safety,
the environment, and the orderly development of energy resources. We use
this assessment to address higher-priority areas such as the growing numberof tailings ponds associated with oil sands mining.
Working as part of a larger province-wide initiative to regulate tailings management, the AER provides scientific and technical advice to the Government ofAlberta as it develops a tailings management framework for the province.
Once the framework is complete, the AER will work with the Alberta Environmental
Monitoring, Evaluation and Reporting Agency to monitor water quality in tailings
pond areas. Working as part of an integrated team, the AER’s goal is simple —to manage tailings ponds growth and minimize the footprint of tailings ponds
throughout their life cycle.

Performance measures and targets
MeasureVolume of all water (fresh, saline, and recycled)
used for oil, oil sands, and gas operations

MeasureVolume of gas flared and vented fromoil and gas operations

TargetWork with the Government of Alberta to set
benchmarks and requirements for reduction ofwater use for energy resource development

TargetFlaring levels are withinprovincial guidelines

Implementation of regulations alignedwith Alberta’s Tailings Management
Framework

ALBERTA ENERGY REGULATOR Annual Report Highlights 2013/14

Responding to concerns in Peace River

In July 2013, president and CEO
Jim Ellis called for a proceeding
to examine odours and emissions
generated by heavy oil operations in
the Peace River area. The proceeding
allowed residents and operators to
express their concerns in a publicforum. The proceeding included areview of industry practices andexplored possible solutions to thisimportant issue.
The independent AER hearing
panel released its recommendations
on March 31, 2014. The AER acted

immediately to address the recommendations, accepting all those in our jurisdiction
on April 15, 2014.
That same day, the AER released arevised version of Directive 060: Upstream
Petroleum Industry Flaring, Incinerating,and Venting. These revisions requirecompanies to conserve gas, regardlessof the economics of an energy operation,and give the AER enforcement tools to
address off-lease hydrocarbon odours.
In early May, the AER made further
revisions to Directive 060 and released arevised Directive 056: Energy Development

Applications and Schedules. The changes
will ensure that casing and tank-top gas
are conserved in the Peace River area.
Companies that fail to meet these newrequirements will face enforcement action.
“We are developing a strategy tomeet the panel’s remaining recommendations that are within our jurisdiction,”
said Carol Crowfoot, vice presidentof the Regulatory Operations andEconomics Branch. “This includes strategies to reduce emergency flaring andfugitive emissions and to increase gas
conservation in the Peace River area.”

The AER is also exploring opportunities with the Government of Alberta
to establish and expand a regional
air quality monitoring program in thePeace River region.
We’re working on long-term
strategies to reduce flaring, venting,and incineration and to increasegas conservation in Alberta. We willcontinue to find ways to improve ourapproach to addressing air emissions
and protecting the environment while
ensuring the conservation of Alberta’s
oil and gas resources.

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our priorities — effective
Strengthen risk-based regulation

Alberta’s energy resources provide economic benefits
for all Albertans. The AER regulates development in a
way that reduces risks and ensures the greatest economic
benefits. We also protect Albertans from the risk offinancial liability of aging infrastructure, especially ifcompanies fail.
To do this, we must be effective and focus on risk-based
regulation, which means prioritizing regulatory activities
so that the most significant risks receive the greatest
attention.
It’s about the effective management of our energy
resources on behalf of Albertans, who own that resource.
It’s about understanding our resources — where they
are, how much we have — and how to ensure they aredeveloped to optimize benefits to Albertans.
To become more effective, the AER will focus our
risk-based approach on projects that›› reduce risks to public safety and the environment,›› limit the financial risks to Albertans,›› effectively manage resource conservation, and›› improve industry performance.
These risk-based projects will include the Inactive
Well Compliance Program, reservoir containment,
and improving pipeline safety.

Inactive Well Compliance Program
The AER will ensure that high-risk inactive wells comply
with requirements so that they may be safely suspended.
The Inactive Well Compliance Program will offer solutions
for well inventory management while addressing thecauses of noncompliance, including›› a robust compliance monitoring and management
system;›› a plan to bring inactive wells into compliance;›› a reduction in liability, improved well integrity,and clear and consistent expectations for industry; and›› a clear plan for enforcement.

9Reservoir Containment
Earlier this year, the AER responded to a potential risk at certain steam-assisted
gravity drainage (SAGD) operations by establishing specific requirements for theseprojects at shallow depths. While SAGD production has been practiced for years,
more and more projects are being proposed in areas where oil sands deposits areat shallow depths. The AER is concerned that at shallower depths, steam, bitumen,or other fluids might escape the reservoir and reach the surface.
We are now working on a technical review, which will include stakeholder consultation.
The result could include new rules and requirements that address potential risks andensure that development using this method is safe and environmentally responsible.

Improvements in Pipeline Safety
Pipeline safety has improved over the past 20 years. In fact, pipeline incidents havefallen from 2.1 incidents per 1000 km of pipeline in 2008 to 1.4 incidents per 1000 km
in 2013.* This is good news, but more can be done.
The AER recognizes that pipeline safety is a top concern for Albertans and will work
to further reduce the rate of pipeline incidents across the province. We’ll do that by›› focusing inspections on pipelines at major water crossings and›› improving integrity programs as Alberta’s pipeline inventory continues to grow.
* The AER requires pipeline operators to report ALL pipeline incidents, including breaks, test failures, and external
contact with the pipeline — regardless of whether there is an actual leak.

Performance measures and targets
MeasureProportion of inactive
wells that meet current
suspension requirements

Target
100 per cent of high-risk
inactive wells meet AER
suspension requirements

MeasureAdoption of risk-based
regulation to respond tochanges in technology andcomplexity in oil sands
development

TargetComplete shallow SAGD
caprock integrity study

MeasureNumber of incidents per
kilometre of pipelines
regulated by the AER

TargetPipeline incident rate
reduced by 4 per cent

ALBERTA ENERGY REGULATOR Annual Report Highlights 2013/14

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our priorities — efficient
Transform Alberta’s energy regulatory system
to improve efficiency

When the Government of Alberta initiated theRegulatory Enhancement Project, one of its main goals
was to improve Alberta’s competitive advantage. One
way to accomplish this is to make Alberta’s regulatory
system as efficient as possible.
We believe that transforming the regulatory system will
reduce duplication, resulting in more efficient processes
and ensuring that the regulator intervenes to minimize
unacceptable risks. Reduced costs, greater certainty,
and clearer processes will benefit landowners, industry,
and the public. At the same time, regular and openreporting on our activities and results will demonstrate
our performance.
“Efficient” means more than just cutting the cost of
regulation or saving time. Efficient means reducing
duplication in our system, changing our processes toimprove our ability to get the work done, and ensuringthat we only intervene to the level necessary. For example,
making sure that our data collection policies focus ongathering information we need to do our job as opposed
to gathering outdated information or duplicate information because “that’s how it has always been done.”
Achieving efficiencies will not be easy. After decades ofmultiple regulators overseeing energy resource development, Alberta’s regulatory system has grown to be very
complicated as new rules have been added over time.
The AER ensures that unnecessary costs in our system
are not economic obstacles to future development.
Our goal is to design a simpler regulatory system —one that protects the public and the environment,
and improves performance at minimum cost.

Efficiency is about more thansaving money, it’s about reducing
duplication, improving ourprocesses and delivering great
service to our stakeholders.

11Continuous Improvement of Operations
The AER is responding to concerns about the effectiveness, efficiency, andtransparency of regulatory processes and requirements by remaining true toour promise to provide safe, efficient, orderly, and environmentally responsible
regulation of Alberta’s energy resource sector. This will be achieved by›› enhancing how we process applications and conduct surveillance operations,›› establishing a continuous improvement process,›› eliminating redundancies and improving processes,›› setting clear expectations and meeting them, and›› using a risk-based approach to conducting business.

Regulatory Simplification Project
Effective regulation means ensuring that all regulatory requirements arenecessary, accessible, easy to understand, and enforceable. It means ensuringthat all requirements clearly add value. This project will identify outdated,
redundant, unnecessary, and confusing or contradictory requirements andeliminate or simplify them.
The AER will›› inventory all regulatory requirements,›› align strategic outcomes with each requirement,›› reduce/eliminate duplication and inconsistencies, and›› consolidate our regulatory requirements.

Performance measures and targets
MeasureRegulatory process efficiencies

MeasureRelevant regulatory requirements

Target$60 million in verified cost savings fromefficiency initiatives in the first year

TargetComplete a full regulatory review to identify
and execute opportunities for consolidationand simplification

ALBERTA ENERGY REGULATOR Annual Report Highlights 2013/14

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our priorities — credible
Increase trust and confidence in how energy isdeveloped in Alberta

Being a best-in-class regulator means more thanproviding best-in-class regulation. It means we mustensure that all of our stakeholders are confident about
how energy development is regulated in Alberta.
At the AER we know that doing our job and doing it wellis important.
We know that the development of Alberta’s oil and gas
resources attracts international attention. The fact is,
the work we do is of interest to people across North
America and beyond, as energy development continues
to be a source of worldwide debate.
We also know we must do more than simply regulate
well. We have a responsibility to share Alberta’s 76-year
tradition of strong regulatory oversight of energy
development — to tell our story and build relationships
with our stakeholders. To be best in class, we must›› report on the results of our work,›› be open to discussing issues of concern to ourstakeholders,›› share information about the work that we do, and›› work toward a common definition of what is meantby “best in class.”
Our strategic focus will include being best in classand sharing Alberta’s regulatory story.

Best-in-Class Project
Alberta has a 76-year tradition of strong energy
regulation, but we know there is more that canbe accomplished. The development of Alberta’s
energy resources attracts international attention.
We operate on the world stage.
It’s not enough for the AER to declare itself a bestin-class regulator. We must define what that meansand discuss with our stakeholders here in Alberta
and beyond what qualities a best-in-class regulator
demonstrates and what it would take for the AER tomeet that standard. We’ll do that with a project that13›› provides a definition of “best in class” and a method for measuring theperformance of best-in-class regulators;›› engages experts, academics, regulators, and think tanks throughout Alberta,
Canada, and internationally; and›› builds international relationships by sharing differing perspectives on energy
development with a focus on strategy, organizational design, the role
regulatory bodies play in society, and how the best regulators communicate,share information, and build partnerships.
At the end of the day, we’ll have a definition of what it means to be best in classthat will lead our efforts in the years ahead — one that our stakeholders helped
to develop and confirm.

Sharing Alberta’s Story
The AER welcomed 24 foreign delegations since June 2013. Government officials,
industry representatives, and regulators from around the world travel to Alberta tolearn about how we regulate the province’s energy resource industry. In the coming
months and years, we’ll expand that network, reaching out to provincial and federal
counterparts to share information, work together on common goals, and build
formal partnerships that improve our ability to regulate as we learn from each other.
We’ll share information and expertise formally by forming partnerships with otherregulators and informally by participating in research projects, conferences, andpublic education programs. We’ll better inform Albertans who deserve to know
more about the AER and how we protect public safety and the environment.

Performance measures and targets
MeasurePercentage of Albertans
confident that oil andgas development isoccurring responsibly

MeasureRecommendations for bestin-class performance aredeveloped throughstakeholder collaboration

Target
10% increase in awarenessof the AER and its role
in regulating energy
development in Alberta

TargetCompletion and release ofrecommendations in 2015

MeasureStakeholder rating of
AER performancein key areas of concern

Target
10% increase in positive
perceptions/rankingsof AER performance

ALBERTA ENERGY REGULATOR Annual Report Highlights 2013/14

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Our Mandate
The AER’s mandate is to ensure the safe,
efficient, orderly, and environmentally responsible
development of hydrocarbon resources overtheir entire life cycle. This includes allocating
and conserving water resources, managing
public lands, and protecting the environment
while providing economic benefits for
all Albertans.

Our Vision
The Alberta Energy Regulator is recognized as
best in class, ensuring the safe, environmentally
responsible development of energy resources
for the benefit of all Albertans.

ALBERTA ENERGY REGULATOR Annual Report Highlights 2013/14