Annual
Report2020 2101

OUR MANDATE
To ensure the safe, efficient, orderly and

AN ACKNOWLEDGEMENT

environmentally responsible development

In the spirit of reconciliation, the AERof oil, oil sands, natural gas, and coal overacknowledges that our head office is locatedtheir entire life cycle. This includes allocatingon the Treaty 7 traditional territory of theand conserving water resources, managing

Blackfoot Confederacy (Kainai, Piikani, andpublic lands, and protecting the environment

Siksika Nations), the Tsuu T’ina Nation, thewhile providing economic benefits for all

Stoney Nakoda Nation, and the Métis Nation

Albertans.

Region 3. We are situated on land where the

OUR MISSION
Ensure the safe and responsible developmentof Alberta’s energy resources throughout
the lifecycle.

Bow River meets the Elbow River, and the
traditional name of this place is “Mohkinstsis,”which we now call the City of Calgary.

We also have field centres located on the

OUR VISION

traditional territories of Treaty 6 and Treaty 8,

To be Alberta’s trusted regulator of energy

and all other regions of the Métis Nation

02

resource development.

of Alberta.

CONTENTS

About Us

Messages

Highlights

Looking Forward

Consolidated
Financials

01 03 07 13 14

03

WHAT WE
DON’T

WHAT WE REGULATE

over

over

over

over

over

433 000

146 000

30 000490

21 000kilometresof pipelines*

operating natural gas& oil wells

oil facilities

operatinggas processing plants

gas facilities

gasoline

pipelines thatcross borders

over

over

230

135

27

8

4

operating oilfield waste
management facilities

primary/enhanced
recovery in situ projects

thermal/enhanced
recovery in situ projects

operatingoil sands mines

operatingbitumen upgraders

electricity

regulatednatural gas rate

6

2

5

2

1

operatingcoal mines

suspendedcoal mines

decomissioning
coal mines

suspended coalprocessing plants

decomissioning coalprocessing plant

04*Operating, permitted, abandoned, and discontinued. We also provide inspection and incident response
support for 12 000 kilometres of pipelines regulated by the Alberta Utilities Commission.

renewables

April 2021

ABOUT US
AROUND THE PROVINCE
Alberta’s energy sector is vast and complex. It includes
crude oil, natural gas, oil sands, and coal resources, theproduction value of which totaled $55.7 billion in 2020.
Ensuring that it operates in a safe, efficient, orderly, andenvironmentally responsible manner is no simple task.
Enter the AER, the single regulator for energy development in the province.
Few organizations anywhere are responsible for aslarge and varied a mix of energy resources. We oversee
extensive established reserves:• 1.7 billion barrels of conventional oil• 161 billion barrels of bitumen• 26.8 trillion cubic feet of natural gas• 36 billion tons of coal
To produce and move this energy to market requires morethan 146 000 natural gas and oil wells, over 433 000 kilometres of pipelines (about half of Canada’s entire pipeline
network), over 51 000 oil and gas facilities, 8 operating oil
sands mines, 162 active in situ projects, 4 active bitumen
upgraders, as well as 6 operating coal mines.
We are a full life-cycle regulator, responsible for all stagesof development—from exploration and production to
closure and reclamation.
The Government of Alberta created the AER in 2013
when it proclaimed the Responsible Energy Development
Act. We took on regulatory functions related to energy
development that were held by the Government ofAlberta, and we combined them with the regulatory
functions of the AER’s predecessor, the Energy Resources
Conservation Board.

High Level
Field Centre

We are accountable to both the minister of Energy andthe minister of Environment and Parks and work closelywith a number of government departments on regulatory
and policy issues, including Alberta Health, Alberta
Indigenous Relations, and the Aboriginal Consultation
Office.

Wood Buffalo
National Park

Fort McMurray
Regional OfficeGrande Prairie
Field Centre

Slave Lake
Regional Office
Bonnyville
Field Centre

Our role is to take the policy direction set by government
and apply it to how we regulate energy development ina way that is modern and efficient, while protecting theenvironment and keeping Albertans safe. We also assist
government during the policy development process,providing analysis, advice, and technical expertise.
Since 1938, Alberta has relied on strong regulation toensure that our energy resources are developed responsibly. The AER’s regulatory decisions are always based onevidence supported by science, and we strive to balance
the needs of a multitude of diverse stakeholders. The 904
talented and dedicated employees of the AER work toprotect what matters to Albertans—public safety, theenvironment, orderly energy development, and economic
benefit for Albertans and all Canadians.

Edmonton Regional Office &Alberta Geological Survey
Drayton Valley
Field Centre

JasperNational
Park

Wainwright
Field Centre
Red Deer
Field Centre

Banff
NationalPark

11Core Research Centre
Calgary Head Office

Medicine Hat
Field Centre

locations904

employees

01

MESSAGES

02

HELLO,This past year was like no other. Few would
have expected the toll that a global pandemic
would have on everyone and the challenges it
would bring. I am extremely proud of how the
AER responded to this situation and the way its
leaders and employees remained, and continue toremain, steadfast in ensuring that Alberta’s energy
resources are developed safely and responsibly
during this difficult time. It is because of their
dedication, passion, and adaptability that wewere able to accomplish a great deal of work andachieve success this past year, and on behalf ofthe board of directors, I would like to thank all
employees for their efforts.

enabling innovation, empowering our people andbuilding our culture, and improving our reputation andengagement efforts. These focus areas are the foundationof the 2022–25 strategic plan that is currently underdevelopment.

Aside from the pandemic, the AER experienced changes
from a corporate-wide restructuring. The new executive
leadership team, established in spring 2020, has broughtstability to the organization and established a new visionand mission, as well as four focus areas that will guide us
over this next year while the 2022–25 strategic plan isbeing developed. These focus areas include streamlining
our processes and modernizing our regulatory system,

Looking forward, I’m excited to see what the next year
will bring as we strengthen, streamline, and modernize
our regulatory system while maintaining our focus onprotecting the public and the environment.

Last year we also marked the full implementation of
the recommendations from the investigations into ourrelationship with the International Centre of Regulatory
Excellence (ICORE). Our response to the recommendations, which is being reviewed by the Office of the Auditor
General of Alberta, included strengthening our policies
and controls related to travel, expenses, and improving
the working environment and culture at the AER.

DAVID GOLDIECHAIR, AER BOARD OF DIRECTORS

03

04

GREETINGS,
The global pandemic cast a shadow over us all
in 2020. At the AER, this, on top of a major
reorganization and a new board of directors
and leadership team, resulted in a remarkableamount of change last year. While it createdsome challenges, it also created opportunities—
opportunities to try new things, to figure out
how to do things differently and more efficiently,
and to ensure we’re delivering on our mandate
effectively.
From transitioning our staff to working remotely,
establishing virtual hearing processes, and adjusting fieldwork to comply with pandemic-related health orders, we
adapted quickly and changed the way we worked.
Our staff demonstrated a tremendous amount ofresiliency and remained dedicated to delivering on our
mandate despite the challenges from the pandemic. In
fact, a recent employee engagement survey indicatedthat a high level of staff are engaged, enthusiastic, andcommitted to their work and the AER. Being new to theorganization, I am incredibly inspired by the passion our
employees have demonstrated day in and day out.
It is because of the calibre of our employees that wewere able to accomplish a significant amount of work
to strengthen our regulatory system and make it more
efficient over the past year. We updated 35 regulatory
documents and reduced 1451 requirements to remove
duplication, streamline processes, and ensure our regulatory system is modern and in line with today’s technology,

without compromising environmental protection andpublic safety. We continued to reach milestones in
implementing the integrated decision approach andthe supporting technology to help reduce application
processing times and allow us to focus more of our efforts
on high-risk and more complex applications. We alsobegan to work on new liability management programs as
part of our drive to address the inventory of inactive oiland gas infrastructure.
In addition to the work we accomplished to improve ourregulatory system, we found new ways to connect withand strengthen our relationships with stakeholders in spiteof not being able to meet in person. We also establisheda new executive leadership team to lead us into the future
and together determined four focus areas: taking careof our people, enabling operational effectiveness andinnovation, enhancing regulatory modernization, andstrengthening our reputation and engagement. These
focus areas will drive our work over the next year as wedevelop a new multiyear strategic plan.
Energy development is constantly evolving to face newchallenges, align with new policies, and make use of newtechnology, and the AER is following suit. Establishinga more efficient way of regulating while strengthening
the AER’s culture and ensuring we’re meeting Albertans’
expectations is an exciting challenge, and we are up for it.

LAURIE PUSHORPRESIDENT & CEO

05

HIGHLIGHTS

06

Like every organization around the world, the AER was
faced with the impacts of COVID-19 on our workforce andoperations. Despite the challenges from the pandemic, westayed focused on delivering our mandate and ensuringthat the companies we regulate continue to follow therules to develop our energy resources in a safe andenvironmentally responsible way. Under the guidance of a
new executive leadership team, we established a numberof focus areas to guide our work and inform the development of a new, multiyear strategic plan. These focus areas
include taking care of our people, enabling operational
effectiveness and innovation, enhancing regulatorymodernization, and strengthening our reputation.

Industry Compliance
Inspections and Audits
The AER regularly monitors and inspects thousandsof Alberta’s wells, production and processing facilities,
pipelines, and coal and oil sands mines each year toensure that companies are following our requirements
and developing energy resources in a manner that is safeand protects the environment. We do this by visitingenergy sites to inspect a company’s activities and byauditing information they provide.
In 2020/21, we adjusted our programs and processes as aresult of a reduction in staff and to adapt to the impactsof COVID-19. Throughout, we were able to maintain our
focus on ensuring that companies are developing energy
resources responsibly and that the environment andpublic remain protected. We conducted 9048 inspections(6 per cent decrease from last year) and 6497 audits(32 per cent increase from last year).

Liability Management

Investigations
Major investigations are formal processes that mustwithstand a court challenge. Investigations can takeanywhere from three months to two years to complete.
Our investigators are law enforcement officers whogather evidence to piece together the facts and have theauthority to apply for search warrants, lay charges, andserve court summonses.
If we find that a company isn’t following the rules, we cantake a number of compliance and enforcement actions
ranging from issuing notices of noncompliance to prosecutions. Compliance and enforcement action is taken to
notify a company that we’ve identified noncompliancewith our requirements, to provide the company with theopportunity to correct a noncompliance or to compel
compliance if a company fails to correct their actions, andto deter future noncompliance.
In 2020/21, we opened 30 investigations, which resulted
in 16 compliance and enforcement actions taken, including 9 warning letters, 5 administrative penalties, and 2
prosecutions.
Regardless of the compliance and enforcement actionthat we take, our goal is to work with companies to bringthem back into compliance.

Over the past few years, Alberta has experienced agrowing inventory of inactive infrastructure due tothe prolonged economic downturn, low oil prices, andincreased insolvencies. We are developing innovative
approaches to manage these risks while supporting
economic development and balancing multiple interests,
including environmental protection, public safety,
landowner interests, investment, and market volatility.
The primary method of reducing the liability from inactive
infrastructure is by completing closure activities, which
involves decommissioning or reclamation activities. In the2020 calendar year, 6503 wells were decommissioned—anincrease of more than 500 wells from 2019; 625 facilities
were decommissioned last year compared to 367 in 2019;
and approximately 2666 reclamation certificates were
issued, which is fairly consistent with 2019 where 2658
reclamation certificates were issued.
CLOSURE ACTIVITIESInfrastructure decomissioning increased while reclamation certificates issued remained fairly consistent.
wells facilities

5994
INVESTIGATION RESULTS
Out of the 30 investigations, 16 actions were taken.

367
2019

rec.
certs.

2658

6503

625

2666

2020

5 administrative penalties
2 prosecutions
9 warning letters07

Area-Based Closure Program

Additional Work Underway

The area-based closure (ABC) program developed by the
AER, the Canadian Association of Petroleum Producers,
the Explorers and Producers Association of Canada, and
the Petroleum Services Association of Canada, encourages companies to work together in project areas to close
oil and gas infrastructure and sites more efficiently andeffectively. Through the voluntary program, participants
may commit to spending a certain amount of money on
closure activities in a given calendar year, known as aclosure spend target. Participants can complete moreclosure work for the same cost by finding opportunities tocollaborate with other companies. For the 2020 calendar
year, 61 companies participated in the ABC program andcommitted to spend nearly $332 million. An additional
10 companies collaborated to find other licensees planning closure work in the same area but did not commit
to a closure spend target. Despite the challenges of thepandemic and the precipitous fall in oil prices in 2020,
the ABC program resulted in $295 million in closure work.

Through ongoing consultation with industry and otherstakeholders, the Government of Alberta and the AER
have identified gaps in how liability is managed in theprovince. In July 2020, the Government of Alberta
updated their liability management policy and directed
the AER to revise and create new liability programs,
including the following:• Incorporate public feedback received on proposedchanges to Directive 067: Eligibility Requirements for
Acquiring and Holding Energy Licences and Approvals,
which include requiring companies to submit additional
information, particularly financial information, at thetime of application and throughout the life cycle ofenergy development.
• Develop a licensee capability assessment that gives us
better insight into a company’s ability to deal with their
end-of-life obligations.
• Introduce an inventory reduction program to establish
mandatory spend targets for closure work while
continuing to leverage the voluntary spend target
through the ABC program.
• Create a process to allow landowners and other eligible
requestors to nominate inactive or abandoned wells
and facilities for closure work.
• Establish a licensee special action function to proactively
identify, assess, and work with distressed licensees
earlier in the life cycle of energy development to ensurethat they are addressing their regulatory and liability
obligations.
• Implement a liability management program for large
facilities to help protect Albertans from the costs
to abandon and reclaim large upstream oil and gas
facilities, such as gas plants and in situ oil sands plants.
• Work with the Government of Alberta to implementchanges associated with the Orphan Well Association’s
expanded authority to better manage and accelerate
the clean up of sites that do not have a responsible
owner.
• Support the Government of Alberta’s work to determine potential solutions to manage legacy sites (i.e.,

CLOSURE SPENDING
Through the voluntary ABC program, participants may
commit to spending a certain amount of money on
closure activities in a given calendar year.

61 companies participated in the
ABC program$295 million

in closure work completed

08

sites that were abandoned, remediated, or reclaimed
before current requirements were introduced) andpost-closure sites (i.e., sites that have received reclamation certificates and the operator’s liability period
has lapsed) that do not fall within the mandate of theOrphan Well Association.
These initiatives will ensure liability management isapplied throughout the entire life cycle of development
rather than at the end, and will allow us to proactively
identify potential issues, develop timely solutions, andincrease the amount of closure work done by companies—
all of which will further strengthen our ability to help
industry reduce their liabilities.

Modernization
As Alberta’s energy regulator, we contribute to Alberta’s
competitiveness by ensuring that our system is modern
and efficient, while protecting the environment andkeeping Albertans safe. Our work to modernize theregulatory system involves making sure that the systems,
tools, and requirements we have in place are current withtoday’s technology. It also involves removing duplication,
making our processes more efficient, ensuring that theregulator effectively minimizes risks to the public andenvironment, and contributing to the Government ofAlberta’s red tape reduction initiative.

Updating Our Requirements
In 2020/21, we updated 35 regulatory documents, suchas directives, to reduce duplication and modernize ourregulatory system, which includes updates to• allow applications for new incinerator technology
to contribute to reducing emissions (Directive 060:
Upstream Petroleum Industry Flaring, Incinerating,and Venting);• allow companies to abandon together multiple zones
producing from multiple oil and gas pools through asingle wellbore, enabling them to plan abandonment
work more efficiently and start work sooner

09

(Directive 020: Well Abandonment - Commingled
Abandonment); and• the testing, reporting, and repair of isolation packers,
surface casing vent flows, gas migration, and casing
failures (Directive 087: Well Integrity Management).

Red Tape Reduction
The AER’s red tape reduction initiative was formed in
May 2019 in response to the Government of Alberta’s
Red Tape Reduction Act. The government set a goal toreduce regulatory requirements by one-third, cut costs
and inefficient processes, and speed up approvals.
When the initiative launched, the AER had approximately
41 500 requirements across 210 regulatory instruments
such as directives, forms, and manuals. In 2020/21, wereduced the total number of our requirements by 1451.
Combined with the 2019/20 reduction of 1069 requirements, we have reduced our requirements by six per
cent to date. The majority of this work was the resultof making minor or administrative regulatory changes,
as well as reducing duplication, redundancies, andobsolete requirements.

REGULATORY REQUIREMENT REDUCTION
To date, we have reduced by 6 per cent.

2520

requirements

IDA/OneStop

Application Processing Times

In 2014, we introduced an integrated decision approach(IDA) and the OneStop platform to make our application
review process more efficient while ensuring the public
and environment remain protected. OneStop uses acomplex set of rules to automate routine (low-risk)
applications and forward nonroutine (high-risk and more
complex) applications to technical experts for review.

The AER has established application processing targets toensure we review applications in a timely manner. There
are more than 100 different types of energy development
applications that we review, and each application typereceives a target that reflects the complexity of theapplication process.

Since we introduced IDA and OneStop, we have• moved 14 application types into OneStop;• reduced the time it takes for an application to bereviewed manually by an AER technical expert by68 per cent;• created a consistent, risk-informed approach to audits
and inspections across the organization;• enhanced the use of empirical evidence in our application review process, leading to greater consistency indecision-making; and• improved our ability to collect data throughout the life
cycle of energy developments.
While work continues to fully integrate IDA and Onestop
into our regulatory system, in 2020/21• 22 000 applications were submitted through OneStop,
with 80 per cent being routine applications that wereautomated;• new well applications were moved into OneStop,
including well licence amendments, re-entry, andcancellations; and• enhancements were made to the public lands system,
pipeline licensing, and user interface.

ONESTOP APPLICATION SUBMISSIONSWe recieved 22 000 applications through OneStop.

10

20% manually reviewed
80% routine and automatedOf the 29 597 applications processed in 2020/21, we wereable to meet our targets almost 99 per cent of the time
for routine applications (low risk) and almost 98 per centof the time for nonroutine applications (high risk andmore complex).
APPLICATIONS MEETING TARGETS
99% of the time for routine (low risk) and 98% of thetime for nonroutine (high risk and more complex).

29 597applications

99% of the time
for routine

98% of the time
APR

MAR

for nonroutine

Administrative Levy Review
The AER is 100 per cent funded by industry and isauthorized to collect funds through an administrative fee
levied on energy development projects and activities. For
the first time since 2006, we launched a review of themethodology used to calculate the levy. The review has
been divided into two phases: changes that are possible
in the near term, and more substantial changes in thelong term. The first phase was completed in spring 2020
and resulted in a fee reduction for service wells and wells
producing less than 600 cubic metres of oil or gas per
year. The second phase of our review began in October
2020, and involved collecting feedback from stakeholders
on the current methodology for calculating the levy,
which identified a number of areas for change. We are
now in the process of building a revised model based on
the feedback we received and expect to implement therevised methodology later this year.

Connecting with Albertans
Stakeholder Engagement
The AER connects with our stakeholders and the public
in a number of different ways to provide information,build relationships, and obtain feedback. We participate inmultistakeholder committees, invite the public to provide
feedback on proposed changes to our requirements, andhave staff present in communities across the province toanswer questions about energy development.
In 2020/21, we participated in more than 100 multistakeholder committees, ranging from technical committees,
to synergy groups, to interagency advisory committees.
They include the following:• Drilling and Completions Committee hosted by theenergy industry• Fort McKay Air Quality and Odours Advisory
Committee• Forum of chief geoscientists hosted by the CanadianSociety of Petroleum Geologists• Government of Alberta’s Red Tape Reduction Panel for
Oil and Gas• Inter-Agency Advisory Committee (IAAC) hosted by
the Canadian Association of Petroleum Producers• Multi-Stakeholder Engagement Advisory Committee
hosted by the AER• Land Matters Advisory Group hosted by the Canada
Energy Regulator• Oil Sands Mine Water Science Team hosted by Alberta
Environment and Parks• Oil Sands Monitoring Program Oversight Committee
hosted by Alberta Environment and Parks and Environment and Climate Change Canada• Synergy Alberta Board• Tight Oil Consortium hosted by the University ofCalgary• Western Regulators Forum hosted by the AER

In addition, we proposed major changes to five regulatory
instruments and invited Albertans to provide feedback
each time:• Revisions to Directive 067: Eligibility Requirements for
Acquiring and Holding Energy Licences and Approvals• Proposed changes to the Pipeline Rules• Revisions to Directive 020: Well Abandonment• Updating the AER’s levy methodology• Creation of a directive on well integrity management
AER staff also meet with members of the public,
landowners, elected officials, indigenous communities,
environmental nongovernmental organizations, and otherstakeholders on a regular basis throughout the year.

Hearings
The AER may hold a hearing to gather information before
making a decision on an energy development project,which includes everything from gas or oil wells and pipelines to sour gas processing plants, coal developments,and major oil sands projects. A hearing is a public forum
where Albertans who may be directly and adversely
affected by a decision may participate.
Hearings are conducted by a panel of one or morehearing commissioners, assigned by the chief hearing
commissioner. Hearing commissioners are appointed totheir positions by the Government of Alberta throughan Order in Council. As independent decision makers,
the hearing panel makes an informed decision about anapplication or regulatory appeal based on the documents
filed and evidence provided at a hearing.
Last year, 9 files were referred to the chief hearing
commissioner for a hearing. In addition, 12 files werecarried over from previous years. Out of these 21 files, thefollowing occurred:• 4 hearings took place: one was for a proposed project
to develop a metallurgical coal mine, and three wereregulatory appeals related to a reclamation certificate,a decision to amend an approval related to an in situ

oil sands development, and a declaration issued under
section 106(1) of the Oil and Gas Conservation Act.
• 3 hearings were adjourned at the parties’ request.
• 11 hearings were cancelled—four of which were resolved
through hearing-commissioner-facilitated alternative
dispute resolution– 5 were cancelled due to the statement of concern
being withdrawn.
– 6 were cancelled due to the regulatory appeal being
withdrawn.
• 3 files are pending a hearing.
The health orders associated with COVID-19 prevented
holding in-person hearings during this period, so commissioners and staff developed procedures for electronic
hearings and conducted the four hearings successfully ina fully online format.
HEARING FILES
12 files were carried over from previous years and9 files were added.

11 cancelled
4 took place
3 ajourned
3 pending11

AER Whistleblower Protection Policy
The AER is committed to the highest standards of ethicaland accountable conduct and complies with the laws
and regulations that protect the AER’s funds, assets,
and resources from mismanagement. Our Whistleblower
Protection Policy helps to ensure this commitment is
upheld by providing our employees with guidance on how
to deter, detect, and disclose wrongdoing within the organization in accordance with the Public Interest Disclosure
Whistleblower Protection Act. Under this act, the AER is
required to report annually on the number of disclosures
reported under our Whistleblower Protection Policy andthe outcome of any investigations that are conducted.
In 2020/21, the AER did not receive any disclosures, norwere any disclosures referred to the AER’s designatedofficer. As such, there were no investigations conductedunder this policy.

12

LOOKING
FORWARD

Over the coming year, we will continue to modernize
our regulatory system while protecting what matters toAlbertans: public safety and the environment. We will also
focus on supporting policy changes made by the Government of Alberta to address the changing economic,
environmental, and resource development realities in
the province and adapt our requirements to implement
those changes. To do this, we will focus on a number ofpriorities:• Developing a new strategic plan to guide the work that
we do over the next few years, which will focus on fourareas: taking care of our people, enabling operational
effectiveness and innovation, enhancing regulatorymodernization, and strengthening our reputation.
• Revising and creating new liability programs to support
the Government of Alberta’s policy changes on how
liability will be managed.
• Supporting the Government of Alberta as they introduce new policy. This includes developing a regulatory
framework (i.e., rules, directives, manuals) to support
the development of geothermal energy.

13

CONSOLIDATED FINANCIAL HIGHLIGHTS
2021

CONSOLIDATED SUMMARY OF ANNUAL HIGHLIGHTS

Adjusted budget

2020
ActualActual(in thousands)
Revenues
Administration fees$

1 13 450$

1 14 240$

233 393

Government of Alberta grant

1 13 000

1 13 000-

Orphan fund levy and fees

65 50065 6986 1 039

Other revenue

2 706

3 090

5 248

294 656

296 028

299 680

Energy regulation

214 156

203 753

264 248

Orphan well abandonment

65 50065 6986 1 039

279 656

269 45 1

325 287

15 00026 577(25 607)

Capital investment

14 50013 697

12 704

Less: Amortization of tangible capital assets(16 000)(15 686)(15 947)

(983)

(67)

(2 972)(3 3 1 0)

ExpensesCapitalLoss on disposal and write-down of tangible capital assets(1 500)Net capital investment
Surplus (Deficit)

014$

16 500$29 549$(22 297)

All amounts are expressed in thousands of Canadian dollars.

All amounts are expressed in thousands of Canadian dollars.

The AER is an industry-funded regulator that isaccountable to the Government of Alberta (GoA).
The AER provides for its operating expenses and capital
investment through two separate revenue sources:
administration fees, also referred to as the administrative
levy, and other revenue. The AER also collects an orphan
fund levy, which is paid directly to the Orphan Well
Association (OWA).
The previous table summarizes the results of the AER’s
operations and net capital investment for the year ended
March 31, 2021. The complete audited consolidated financial
statements begin on the following page.
Administration fees
Alberta’s Responsible Energy Development Act authorizes
the AER to levy an administration fee on the sectors thatit regulates. The AER is responsible for regulating theprovince’s oil and gas, oil sands, and coal sectors. The funds
collected from administration fees are used to support
the AER’s operation and fulfil the AER’s mandate toensure the safe, efficient, orderly, and environmentally
responsible development of hydrocarbon resources overtheir entire life cycle. For the year ended March 31, 2021,
administration fees decreased by $119 153, or 51%. The
decrease was offset by a government grant of $113 000.
The remainder of the administration fees decrease of$6153, is related to budget reductions directed by the
GoA. In 2021, the AER collected 73% of industry levies
from oil and gas, 25% from oil sands and 2% from coal
operations in the form of administration fees. Administration fees for 2021 include $125 (2020 – $150) collected inlate payment penalties.
Government of Alberta grant
On March 20, 2020, the GoA committed to provide relief
for the energy sector by funding the AER’s administration
fees for the first six months of 2021. The AER received
the grant in six monthly installments between April and
September 2020 for a total of $113 million.

Orphan fund levy and fees

Capital investment

Under Part 11 of the Oil and Gas Conservation Act, the
AER is required to prescribe an orphan fund levy. This levy
is based on the revenue requirements identified by the
OWA board and approved by the GoA. In 2021, the AER
issued and collected an orphan fund levy of $65 000,
which is $5000 more than 2020. The increase in orphan
fund levy was required to address the increasing volumeof orphan wells. In addition, the AER collected $225 inpenalties and $473 in first time licensee application fees.
All amounts collected were paid directly to the OWA.

Developing and acquiring tangible capital assets, predominately investments in information technology, plays acritical role in helping the AER achieve outcomes at thelowest possible cost. Investments in information technology
enable the AER remain relevant and responsive.

Other revenue
Other revenue consists of data subscriptions, enforcement
revenue, sales of electronic data and publications, revenue
from projects performed on a cost-recovery basis, andinvestment income. In 2021, other revenue decreased
by $2158 or 41%. In 2021, the AER recognized reduced
revenue from creative sentencing, jointly funded projects
and lower revenue from the Core Research Centre due torestrictions imposed to prevent the spread of COVID-19.
In addition, the AER recognized $196 less in investment
income earned on cash and cash equivalents held with a
Canadian chartered bank.
Energy regulation
Expenses decreased significantly in 2021, mainly as a resultof a reduction of $60 673 for salaries, wages and employee
benefits. In 2020, the AER underwent a re-organization
reducing the number of employees, which resulted in thesignificant decrease in salaries and benefits. In addition,
the AER reviewed and reduced its administrative expenditures, partially offset by an increase in consulting services
related to migrating AER information technology infrastructure to cloud environments.

In 2021, the AER made capital investments of $13 697.
Capital investment projects in 2021 focused on thecontinued development and implementation of the
AER’s integrated decision approach (IDA). IDA allows
companies to submit one integrated application thatcovers activities over the life of the project and to receive
decisions in a single approval document.
Budget management
During 2021, the AER continued to demonstrate its
commitment to effective budget management byexecuting budget reductions in all non-staffing expenditure areas, including administrative expenses, buildings
and fleet. The AER completed the year with a surplus of$29 549. A significant portion of the surplus is related to
the GoA approving the AER to recover $16 500 of the$22 297 deficit incurred in 2020. As the year progressed,
the GoA requested the AER to achieve in-year savings of$1703 and indicated that future budget cuts were likely.
As a result of the economic downturn and COVID-19,
the AER identified and actioned additional cost-saving
opportunities while exercising prudent expendituredecisions, including not hiring to its planned staffing
level in anticipation of 2021–22 budget reductions which
resulted in additional surplus being realized.

ADMINISTRATIONFEE COLLECTION

73% oil & gas
25% oil sands
2% coal15Alberta Energy Regulator
Consolidated Financial Statements
For the Year Ended March 31, 2021

Statement of Management Responsibility
Independent Auditor's Report
Consolidated Statement of Operations
Consolidated Statement of Financial Position
Consolidated Statement of Change in Net Debt
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Schedules to the Consolidated Financial Statements

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of the Alberta Energy Regulator and all otherinformation relating to the AER contained in this annual report have been prepared and presented bymanagement, who is responsible for the integrity and fair presentation of the information.
These financial statements are prepared in accordance with Canadian public sector accounting
standards. The financial statements necessarily include some amounts that are based on informed
judgments and best estimates of management. The financial information contained elsewhere in thisannual report is consistent with that in the financial statements.
Management is responsible for maintaining an effective system of internal controls designed toprovide reasonable assurance that financial information is reliable, transactions are properly
authorized, assets are safeguarded and liabilities are recognized.
The Auditor General of Alberta, the AER’s external auditor appointed under the Auditor General Act,
performed an independent external audit of these consolidated financial statements in accordancewith Canadian generally accepted auditing standards, and has expressed his opinion in theaccompanying Independent Auditor’s Report.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities forfinancial reporting and internal controls. The Board of Directors exercises this responsibility throughthe Audit and Finance Committee, composed of Directors who are not employees of the regulator.
The Audit and Finance Committee meets with the internal auditors and the external auditors-both in
the presence and in the absence of management to discuss their audit, including any findings as tothe integrity of financial reporting processes and the adequacy of our systems of internal controls.
The internal and external auditors have full and unrestricted access to the Audit and FinanceCommittee.

[Original signed by Laurie Pushor]
President and Chief Executive Officer[Original signed by Mike Dalton]
Vice-President Finance and Chief Financial Officer

Date: May 13, 2021

Independent Auditor’s Report
To the Board of Directors of the Alberta Energy Regulator
Report on the Consolidated Financial Statements

OpinionI have audited the consolidated financial statements of the Alberta Energy Regulator (the Group),
which comprise the consolidated statement of financial position as at March 31, 2021, and theconsolidated statements of operations, change in net debt, and cash flows for the year then ended,and notes to the consolidated financial statements, including a summary of significant accounting
policies.

In my opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2021, and the results of its
operations, its changes in net debt, and its cash flows for the year then ended in accordance with
Canadian public sector accounting standards.

Basis for opinion
I conducted my audit in accordance with Canadian generally accepted auditing standards. My
responsibilities under those standards are further described in the Auditor's Responsibilities for the
Audit of the Consolidated Financial Statements section of my report. I am independent of the Group inaccordance with the ethical requirements that are relevant to my audit of the consolidated financial
statements in Canada, and I have fulfilled my other ethical responsibilities in accordance with theserequirements. I believe that the audit evidence I have obtained is sufficient and appropriate toprovide a basis for my opinion.
Other information
Management is responsible for the other information. The other information comprises theinformation included in the Annual Report, but does not include the consolidated financial
statements and my auditor’s report thereon. The Annual Report is expected to be made available tome after the date of this auditor’s report.
My opinion on the consolidated financial statements does not cover the other information and I do
not express any form of assurance conclusion thereon.

In connection with my audit of the consolidated financial statements, my responsibility is to readthe other information identified above and, in doing so, consider whether the other information ismaterially inconsistent with the consolidated financial statements or my knowledge obtained in theaudit, or otherwise appears to be materially misstated.
If, based on the work I will perform on this other information, I conclude that there is a material
misstatement of this other information, I am required to communicate the matter to those charged
with governance.

Responsibilities of management and those charged with governance for the consolidated
financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with Canadian public sector accounting standards, and for such internalcontrol as management determines is necessary to enable the preparation of the consolidated
financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing theGroup’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless an intention exists to liquidate or tocease operations, or there is no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting
process.

Auditor's responsibilities for the audit of the consolidated financial statements
My objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditor's report that includes my opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, I exercise
professional judgment and maintain professional skepticism throughout the audit. I also:• Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related toevents or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If I conclude that a material uncertainty exists, I am required to draw attention in myauditor’s report to the related disclosures in the consolidated financial statements or, if suchdisclosures are inadequate, to modify my opinion. My conclusions are based on the audit
evidence obtained up to the date of my auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the consolidated financial
statements. I am responsible for the direction, supervision and performance of the group audit.
I remain solely responsible for my audit opinion.

I communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies ininternal control that I identify during my audit.

[Original signed by W. Doug Wylie FCPA, FCMA, ICD.D]
Auditor General
May 13, 2021
Edmonton, Alberta

ALBERTA ENERGY REGULATORCONSOLIDATED STATEMENT OF OPERATIONSYEAR ENDED MARCH 31, 2021

2021

2020

Budget(Note 4, Schedule 3)

ActualActual(in thousands)
Revenues
Administration fees
Government of Alberta grant
Orphan fund levy and fees (Note 5)
Information, services and fees
Investment income$

Expenses
Energy regulation (Schedule 1)
Orphan well abandonment (Note 5)

Annual operating surplus (deficit)
Accumulated surplus at beginning of year
Accumulated surplus at end of year$

226,450$

69,0003,542
867
299,859

114,240
113,000
65,6982,731
359
296,028

215,859
69,000284,859

203,753
65,698269,451

264,248
61,039325,287

15,00026,577(25,607)

40,91055,910

The accompanying notes and schedules are part of these consolidated financial statements.

$$

40,91067,487$233,393
61,0394,693
555
299,680

66,51740,910ALBERTA ENERGY REGULATORCONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT MARCH 31, 2021

2021

2020
(in thousands)

Financial assets
Cash and cash equivalents (Note 6)
Accounts receivable (Note 7)
Pension assets (Note 12)$

Liabilities
Bank indebtedness (Note 6)
Accounts payable and other accrued liabilities (Note 8)
Payable to Orphan Well Association
Deferred lease incentives (Note 10)
Net debt
Non-financial assets
Tangible capital assets (Note 13)
Prepaid expenses and other assets
Net assets
Accumulated surplus (Note 14)$

Contingent liabilities (Note 15)
Contractual obligations (Note 16)
The accompanying notes and schedules are part of these consolidated financial statements.

26,226
1,456
4,923
32,605

$

1,920
1,505
3,425

18,362
1,942
14,332
34,636(2,031)

812
17,955609
15,94935,325(31,900)

60,133
9,385
69,518

63,105
9,705
72,81067,487$40,910ALBERTA ENERGY REGULATORCONSOLIDATED STATEMENT OF CHANGE IN NET DEBTYEAR ENDED MARCH 31, 2021

2021

2020

Budget(Note 4, Schedule 3)

Annual operating surplus (deficit)$

Acquisition of tangible capital assets (Note 13)
Amortization of tangible capital assets (Note 13)
Loss on disposal and write-down of tangible capital assets
Decrease in prepaid expenses and other assets
Decrease/(increase) in net debt
Net debt at beginning of year
Net debt at end of year

15,000

Actual(in thousands)$

26,577$(13,697)
15,686983
320
29,869(31,900)(2,031)(14,500)
16,000$16,500(31,900)(15,400)

The accompanying notes and schedules are part of these consolidated financial statements.

Actual$(25,607)$(12,704)
15,94767
1,033(21,264)(10,636)(31,900)

ALBERTA ENERGY REGULATORCONSOLIDATED STATEMENT OF CASH FLOWSYEAR ENDED MARCH 31, 2021

2021

2020
(in thousands)

Operating transactions
Annual operating surplus (deficit)
Non-cash items included in annual operating surplus (deficit):
Amortization of tangible capital assets (Note 13)
Loss on disposal and write-down of tangible capital assets(Increase)/decrease in pension assets
Amortization of deferred lease incentives (Note 10)$

26,577$(25,607)

15,686983(3,418)(1,617)
38,211
464
320
407
1,333
40,735

15,94767
636(1,619)(10,576)
5,564
1,033
(2,550)(1,319)(7,848)

Capital transactions
Acquisition of tangible capital assets (Note 13)
Cash applied to capital transactions(13,697)(13,697)(12,704)(12,704)

Financing transactions
Proceeds from line of credit
Debt repayment
Cash (applied to) provided by financing transactions

9,855(10,667)(812)

64,587(63,775)
812

Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

26,226
26,226(19,740)
19,740-Decrease in accounts receivable
Decrease in prepaid expenses and other assets
Increase/(decrease) in accounts payable and other accrued liabilities
Increase/(decrease) in payable to Orphan Well Association
Cash provided by (applied to) operating transactions$

The accompanying notes and schedules are part of these consolidated financial statements.

$

ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 1AUTHORITY
The Alberta Energy Regulator (AER) is an independent and quasi-judicial organization of the Government of Alberta. The AER
operates under the Responsible Energy Development Act. The AER's mandate provides for the safe, efficient, orderly andenvironmentally responsible development of hydrocarbon resources over their entire life cycle. This includes allocating andconserving water resources, managing public lands, and protecting the environment while providing economic benefits for all
Albertans. The AER is exempt from income taxes under the Income Tax Act.

Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES
These consolidated financial statements are prepared in accordance with Canadian Public Sector Accounting Standards (PSAS).
Reporting Entity and Method of Consolidation
The consolidated financial statements reflect the assets, liabilities, revenues and expenses of the AER, which is composed of allcomponents controlled by the AER. The Orphan Fund is a fund retained and administered by the AER. The AER collects theorphan fund levy and first time licensee application fees, and transfers the funds to the Orphan Well Association. The AER andthe Orphan Fund are consolidated using the line-by-line method.
Basis of Financial Reporting
Revenues
All revenues are reported on the accrual basis of accounting. Cash received for which services have not been provided by year
end is recognized as unearned revenue and recorded in accounts payable and other accrued liabilities.
Government of Alberta Grant
Transfers from the Government of Alberta are referred to as provincial grants.
Provincial grants, without stipulations for the use of the transfer, are recognized as revenue when the transfer is authorized andthe AER meets the eligibility criteria (if any).
Investment Income
Investment income includes interest income.
Expenses
Expenses are reported on an accrual basis. The cost of all goods consumed and services received during the year is expensed.
Employee future benefits
The AER maintains its own defined benefit Senior Employees Pension Plan (SEPP) and two supplementary pension plans tocompensate senior staff who do not participate in the government management pension plans. Retirement benefits are based oneach employee's years of service and remuneration.
Pension assets represent the sum of the accumulated cash contributions less the sum of the current and prior years' pension
expense.
Accrued benefit obligations are actuarially determined using the projected benefit method prorated on length of service andmanagement's best estimate of expected plan investment performance, projected employees' compensation levels andretirement age of employees.
Accrued benefit obligations and pension benefit costs for the year are calculated using the expected rate of return on plan assets
as the discount rate, which is determined using market values of plan assets.

ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES (continued)
Basis of Financial Reporting (continued)
Actuarial gains and losses are amortized over the average remaining service period of the active employees, which is
11.2 years (2020 - 10.9 years).
Past service cost arising from plan amendments is accounted for in the period of the plan amendments.
Gains and losses determined upon a plan curtailment are accounted for in the period of curtailment.
The AER participates in the Government of Alberta's multi-employer pension plans: Management Employees Pension Plan,
Public Service Pension Plan and Supplementary Retirement Plan for Public Service Managers. Defined contribution planaccounting is applied to these plans as the AER has insufficient information to apply defined benefit plan accounting. Accordingly,
pension expense comprises employer contributions to the plans that are required for its employees during the year, which arecalculated based on actuarially pre-determined amounts that are expected to provide the plans' future benefits.
Valuation of financial assets and liabilities
The AER's financial assets and liabilities are generally measured as follows:
Financial Statement Component
Cash and cash equivalents
Accounts receivable
Bank indebtedness
Accounts payable and other accrued liabilities
Payable to the Orphan Well Association
Deferred lease incentives

Measurement
Cost
Lower of cost or net recoverable value
Cost
Cost
Cost
Amortized cost

The AER has not designated any financial assets or liabilities in the fair value category, does not have any significant foreign
currency transactions and does not hold any derivative contracts. The AER has no significant remeasurement gains or losses
and consequently has not presented a statement of remeasurement gains and losses.
Financial assets
Financial assets are assets that could be used to discharge existing liabilities or finance future operations and are not for
consumption in the normal course of operations.
Financial assets are the AER's financial claims on external organizations and individuals at the year end.
Cash and cash equivalents
Cash comprises cash on hand and demand deposits.
Accounts receivable
Accounts receivable are recognized at the lower of cost or net recoverable value. A valuation allowance is recognized whenrecovery is uncertain.

ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES (continued)
Basis of Financial Reporting (continued)
Liabilities
Liabilities are present obligations of the AER to external organizations and individuals arising from past transactions or eventsoccurring before the year end, the settlement of which is expected to result in the future sacrifice of economic benefits. They arerecognized when there is an appropriate basis of measurement and management can reasonably estimate the amounts.
Liabilities include all financial claims payable by the AER at fiscal year end.
Bank indebtedness
Bank indebtedness comprises the amount outstanding for a revolving line of credit.
Deferred lease incentives
Deferred lease incentives, consisting of leasehold improvement costs, reduced rent benefits and rent-free periods, are amortizedon a straight-line basis over the term of the leases.
Environmental Liabilities
Liability for Contaminated Sites:
Contaminated sites are a result of contamination of a chemical, organic or radioactive material or live organism that exceeds anenvironmental standard, being introduced into soil, water or sediment.
A liability for remediation of a contaminated site may arise from an operation that is either in productive use or no longer inproductive use and may also arise from an unexpected event resulting in contamination. The resulting liability is recognized net ofany expected recoveries, when all of the following criteria are met:
i.
ii.
iii.
iv.
v.

an environmental standard exists;
contamination exceeds the environmental standard;
the AER is directly responsible or accepts responsibility;
it is expected that future economic benefits will be given up; anda reasonable estimate of the amount can be made.

Contingent Liabilities
Contingent Liabilities:
A contingent liability is recognized when:i. there is an existing condition or situation;
ii. there is an expected future event that will resolve the uncertainty as to whether a present obligation to sacrificeeconomic benefits exists;
iii. it is likely that a future event will confirm that a liability has been incurred at the date of the financial statements; andiv. a reasonable estimate of the amount can be made.
Non-financial assets
Non-financial assets are acquired, constructed or developed assets that do not normally provide resources to discharge existing
liabilities, but instead:- are normally employed to deliver AER services;- may be consumed in the normal course of operations; and- are not for sale in the normal course of operations.
Non-financial assets of the AER include tangible capital assets, prepaid expenses and other assets.

ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES (continued)
Basis of Financial Reporting (continued)
Tangible capital assets
Tangible capital assets are recognized at cost less accumulated amortization, which includes amounts that are directly related tothe acquisition, design, construction, development, improvement or betterment of the assets. Cost includes overhead directly
attributable to construction and development of the asset.
The cost of the tangible capital assets, excluding land, is amortized over their estimated useful lives as follows:
Leasehold improvements
Straight line
Term of the lease
Furniture and equipment
Straight line
5 - 12 years
Computer hardware
Straight line
4 years
Computer software - purchased
Straight line
4 years
Computer software - developed
Declining balance
5 years
Amortization is only expensed when the tangible capital asset is put into service.
Work-in-progress, which may include developed computer software and leasehold improvements, is not amortized until a projectis complete and the asset is put into service.
Tangible capital assets are written down when conditions indicate that they no longer contribute to the AER's ability to provide
goods and services, or when the value of future economic benefits associated with the tangible capital assets is less than their
net book value. The net write-downs are accounted for as an expense in the Consolidated Statement of Operations.
Prepaid expenses
Prepaid expenses are recognized at cost and amortized based on the terms of the agreements.
Measurement uncertainty
Measurement uncertainty exists when there is a variance between the recognized or disclosed amount and another reasonably
possible amount, whenever estimates are used. The amounts recognized for amortization of tangible capital assets are based on
estimates of the useful life of the related assets. Accrued defined benefit obligations are subject to measurement uncertainty due
to the use of actuarial assumptions. The resulting estimates are within reasonable limits of materiality and are in accordance with
the AER's significant accounting policies.
Estimates of contingent liabilities for contaminated sites are subject to measurement uncertainty because the existence andextent of contamination, the responsibility for clean-up, and the timing and costs of remediation cannot be reasonably estimatedin all circumstances. The degree of measurement uncertainty cannot be reasonably determined.

Note 3

FUTURE CHANGES IN ACCOUNTING STANDARDSThe Public Sector Accounting Board has approved the following accounting standards:
PS 3280 Asset Retirement Obligations (effective April 1, 2022)
This standard provides guidance on how to account for and report liabilities for retirement of tangible capital assets.
PS 3400 Revenue (effective April 1, 2023)
This standard provides guidance on how to account for and report on revenue, and specifically, it differentiates between revenue
arising from exchange and non-exchange transactions.
The AER has not yet adopted these standards. Management is currently assessing the impact of these standards on the financial
statements.

ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 4BUDGET
The budget and budget adjustments reflected on Schedule 3 have been approved by the Government of Alberta.

Note 5

ORPHAN WELL ABANDONMENT(in thousands)
The Government of Alberta has delegated the authority to manage the abandonment and reclamation of wells, facilities andpipelines that are licensed to defunct licensees to the Orphan Well Association. The AER collects the orphan levy and first time
licensee application fees through the Orphan Fund and transfers the funds to the Orphan Well Association. During the year
ended March 31, 2021, the AER collected $65,225 (2020 - $60,345) in levies and $473 (2020 - $694) in application fees.

Note 6

CASH AND CASH EQUIVALENTS AND BANK INDEBTEDNESS(in thousands, unless otherwise noted)
2020

2021
Cash and cash equivalents$

26,226
-

$

(812)

$

26,226$(812)

Bank indebtedness

Cash and cash equivalents are held in an account with a Canadian chartered bank and earn interest calculated based on the
average monthly cash balance. The funds are available to be withdrawn upon request. During the year ended March 31, 2021,
the AER earned interest at an annual average rate of 0.7% (2020 - 2.1%).
The AER has an unsecured $75 million revolving line of credit. Amounts borrowed can only be applied to general corporate
purposes and exclude the funding of capital expenditures.
Bank advances on the line of credit are payable on demand and bear interest at a rate of prime less 0.75%. For the year ended
March 31, 2021, interest expense on the revolving line of credit was $4 (2020 - $143).
Note 7

ACCOUNTS RECEIVABLE(in thousands)
Accounts receivable are unsecured and non-interest bearing.

2020

2021

Accounts receivable
Note 8Gross amount

Allowancefor doubtful
accounts

$

$

3,127

Net
recoverable
value(1,671) $

1,456

Net
recoverable
value
$

1,920

ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES(in thousands)
Accrued liabilities
Accounts payable
Unearned revenue

$

$

2021
15,7222,315
325
18,3622020$$

14,177
3,052
726
17,955ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 9FINANCIAL INSTRUMENTS(in thousands)
The AER has the following financial instruments: cash and cash equivalents, accounts receivable, bank indebtedness, accounts
payable and other accrued liabilities, and payable to the Orphan Well Association.
Financial Risk Management
The AER has exposure to the following risks from its use of financial instruments:(a) Liquidity risk
Liquidity risk is the risk that the AER will encounter difficulty in meeting obligations associated with its financial liabilities. Liquidity
requirements of the AER are met primarily through the collection of funding at the beginning of the year to fund operating
expenses and capital expenditures throughout the year. The AER manages liquidity risk by having established budget processes
and regularly monitoring cash flows to ensure the necessary funds are on hand to fulfill upcoming obligations. In addition, the
AER maintains a revolving line of credit which provides financial flexibility to allow the AER to meet its obligations if funding
cannot be collected on a timely basis. As at March 31, 2021, the AER had bank indebtedness of $nil (2020 - $812).
(b) Credit risk
The AER is exposed to credit risk from potential non-payment of accounts receivable. A substantial portion of the AER's accounts
receivable includes balances due from operators in the oil and gas industry, and is subject to normal industry credit risk. The AER
regularly monitors the financial status of operators and assesses the collectability of accounts receivable. The AER's maximum
exposure to credit risk is limited to the carrying amount of accounts receivable presented in the Consolidated Statement of
Financial Position at the reporting date. The AER established a valuation allowance that corresponds to the specific credit risk ofoperators, historical trends and economic circumstances.

Note 10 DEFERRED LEASE INCENTIVES(in thousands)
The AER has entered into various lease agreements which provide for lease incentives comprising reduced rent benefits, rentfree periods and leasehold improvement costs. These amounts are amortized on a straight-line basis over the term of the lease.
2020

2021

Balance at beginning of year
Amortization
Balance at end of year

Reducedrent benefits
Leaseholdimprovement and rent-free
periods
costs$
12,891 $3,058 $
(1,252)(365)$
11,639 $2,693 $

Total
15,949 $(1,617)
14,332 $Total
17,568(1,619)15,949

ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 11 ENVIRONMENTAL LIABILITIES(in thousands, unless otherwise noted)
The AER has a mandate to protect public safety and the environment. As at March 31, 2021, the AER is not responsible, nor has
it accepted responsibility, for performing remediation and reclamation work at contaminated sites. The AER has $nil (2020 - $nil)
environmental liabilities recorded.
As at March 31, 2021, the AER is administering 28 (2020 – 28) legacy sites. Of these sites, the AER identified 5 (2020 – 3) sites
as having immediate public safety and environmental risk, and the AER needed to take appropriate action to mitigate these risks.
During the year ended March 31, 2021, the AER incurred $906 (2020 - $460) in costs to mitigate immediate public safety andenvironmental risks. Costs to mitigate immediate public safety or environmental risks are costs where the AER has completed
protective or remediation work at legacy sites. Costs for ongoing assessment and monitoring are not reported.
Note 12 EMPLOYEE FUTURE BENEFITS(in thousands, unless otherwise noted)
The AER participates in the Government of Alberta's multi-employer pension plans: Management Employees Pension Plan,
Public Service Pension Plan and Supplementary Retirement Plan for Public Service Managers. For the year ended March 31,
2021, the expense for these pension plans is equal to the contributions of $12,539 (2020 - $15,533) and is included in salaries,
wages and employee benefits on Schedule 1. The AER is not responsible for future funding of the plan deficit other than throughcontribution increases.
In addition, the AER maintains its own defined benefit Senior Employees Pension Plan (SEPP) and two supplementary pension
plans to compensate senior staff who do not participate in the government management pension plans. Retirement benefits are
based on each employee's years of service and remuneration.
All the information presented in the note below is related to the AER's defined benefit pension plans.
The effective date of the most recent actuarial funding valuation for SEPP was December 31, 2018. The accrued benefit
obligation as at March 31, 2021, is based on the extrapolation of the results of this valuation. The effective date of the next
required funding valuation for SEPP is December 31, 2021.
Pension plan assets are valued at market values. During the year ended March 31, 2021, the weighted average actual return onplan assets was 14.7% (-3.7% in 2020).
Significant weighted average actuarial and economic assumptions used to value accrued benefit obligations and pension benefit
costs were as follows:
Accrued benefit obligations
Discount rate
Rate of compensation increaseLong-term inflation ratePension benefit costs for the year
Discount rate
Expected rate of return on plan assets
Rate of compensation increase

2021
4.4%
0% until March 31, 2022,
3.0% thereafter
2.0%
2021
4.8%
4.8%
0% until March 31, 2021,
3.5% thereafter

2020
4.8%
0% until March 31, 2021,
3.5% thereafter
2.0%
2020

5.1%
5.1%

0% until Sep 30, 2019,3.5% thereafter

ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 12 EMPLOYEE FUTURE BENEFITS (continued)(in thousands, unless otherwise noted)
The funded status and amounts recognized in the Consolidated Statement of Financial Position were as follows:
Market value of plan assets
Accrued benefit obligations
Plan surplus (deficit)
Unamortized actuarial losses
Pension assets

$

$

2021
74,119 $(70,954)
3,165
1,758
4,923 $

2020
65,442(72,461)(7,019)
8,524
1,505

2021
3,976 $
3,442
(3,039)804
5,183 $

2020
4,326
3,382
(3,574)
(53)
1,342
(172)
5,251

The pension benefit costs for the year included the following components:
Current period benefit cost
Interest cost
Expected return on plan assets
Amortization of actuarial losses (gains)$

Loss on curtailments (a)Unamortized gains recognized in curtailments$(a)

For the year ended March 31, 2020, the AER underwent a re-organization and decreased the number of employees. This
resulted in a curtailment due to a reduced number of active employees in the AER's defined benefit pension plans. The
curtailment impact was a $1,342 increase in the accrued benefit obligations recognized through pension expense for the year
ended March 31, 2020.

Additional information about the defined benefit pension plans is as follows:
Benefits paid
AER contributions
Employees' contributions
The asset allocation of the defined benefit pension plans' investments was as follows:
Equity securities
Debt securities
Alternatives
Other

$

2021
10,171
8,600
683
2021
48.2%
22.2%
17.3%
12.3%
100.0%

$

2020
5,325
4,616
839
2020
42.3%
24.7%
19.6%
13.4%
100.0%

ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 13 TANGIBLE CAPITAL ASSETS(in thousands)

Estimated useful life

2021

2020

Land

Leaseholdimprovements

Furniture andequipment

Computerhardware andsoftwareIndefinite

Term of thelease

5-12 years

4-5 years

Total

Total

Historical cost (1)Beginning of year

$

282

$

45,735$

13,112$

143,420$

202,549$

196,874

Additions

-

765

396

12,536

13,697

12,704

Disposals, including write-downs

-

-

(448)

(7,394)(7,842)(7,029)282

46,50013,060148,562

208,404

202,549

Accumulated amortization
Beginning of year

$

-

$

20,179

$

9,427

$

109,838$

139,444$

130,459

Amortization expense

-

2,734

905

12,047

15,686

15,947

Effect of disposals, including writedowns

-

-

(426)

(6,433)(6,859)(6,962)-

22,913

9,906

115,452

148,271

139,444

Net book value at March 31, 2021

$

282

$

23,587

$

3,154

$

33,110Net book value at March 31, 2020

$

282

$

25,556

$

3,685

$

33,582$60,133$

63,105(1) As at March 31, 2021, historical cost of computer hardware and software includes work-in-progress totalling $6,630 (2020 - $76).

Note 14 ACCUMULATED SURPLUS(in thousands)
The accumulated surplus of the AER is calculated as the sum of the AER's net debt and its non-financial assets. The
accumulated surplus represents the net assets of the AER and comprises the following:
2021

2020

Net investment in capital assets (a)Investments in Unrestrictedtangible capital net assets(debt)
assets (a)$50,214 $(9,304) $26,577(1,720)1,720

Balance at end of year$

Balance at beginning of year
Annual operating surplus (deficit)

48,494$18,993$

Total
40,91026,577
67,487(a) Excludes leasehold improvement costs received by the AER as a lease incentive and related amortization.

$

$

Total
66,517(25,607)
40,910ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 15 CONTINGENT LIABILITIES(in thousands)
The AER is involved in legal matters where damages are being sought. These matters may give rise to contingent liabilities.
Accruals have been made in specific instances where it is likely that losses will be incurred based on a reasonable estimate. As
at March 31, 2021, accruals totalling $125 (2020 - $630) have been recognized as a liability.
The AER has identified various sites where contamination exists and the level of contamination is either known or unknown at
this time. As at March 31, 2021, no liability has been recognized for these sites as further testing and evaluation is required todetermine the extent of immediate actions necessary. No liability for remediation on other sites has been recognized as the AER
becoming responsible for these sites is not determinable; the AER does not expect to give up any future economic benefits; noreasonable estimate of the amount can be made; or a combination of these factors. The AER’s ongoing efforts to assesscontaminated sites may result in environmental liabilities related to newly identified sites, or change in the assessment or
intended use of existing sites. Any change to the environmental liabilities will be accrued in the year in which they are assessed
as likely and measurable.
Note 16 CONTRACTUAL OBLIGATIONS(in thousands)
As at March 31, 2021, the AER had contractual obligations totalling $162,248 (2020 - $171,894).
Contractual obligations are obligations of the AER to others that will become liabilities in the future when the terms of thosecontracts or agreements are met.
As at March 31, 2021, estimated payment requirements for obligations under operating leases and contracts for each of the next
five years and thereafter are as follows:
2021-222022-232023-242024-252025-26
Thereafter$$

43,05929,634
17,497
11,662
10,46449,932
162,248

ALBERTA ENERGY REGULATORNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 17 ASSETS UNDER ADMINISTRATION(in thousands)
The AER administers security deposits in accordance with specified acts and regulations. Security deposits are held on behalf ofdepositors with no power of appropriation and therefore are not reported in these consolidated financial statements. The AER
does not have any financial risk associated with security collected. Security, along with any interest earned, will be returned to thedepositors upon meeting specified refund criteria.
As at March 31, 2021, assets under administration included the following types of security deposits:
2021

Liability Management Rating programs and landfills
Mine Financial Security program
Other programs

$

$

Cash
90,431
39,342
10,446140,219

2020

2021

2020

Cash
$
98,812
39,146
6,834$ 144,792

Letters ofcredit$225,418
1,447,447
7,714$ 1,680,579

Letters ofcredit$220,667
1,434,643
7,778$ 1,663,088

Note 18 COVID-19 IMPACTOn March 11, 2020, the World Health Organization declared the COVID-19 disease to be a global pandemic and on March 17,
2020, the Government of Alberta declared a state of public health emergency. These declarations have impacted the AER in thefollowing ways:
Revenues
On March 20, 2020, the Government of Alberta committed to provide relief for the energy sector by funding the AER's
administration fees for the first six months of fiscal 2020-21. The AER received the grant in six monthly installments between April
and September 2020 for a total of $113 million.
Operations
The AER maintained core regulatory functions as most staff transitioned to working remotely during the COVID-19 pandemic.
The AER's operations were not significantly impacted by COVID-19.
Note 19 COMPARATIVE FIGURES
Certain 2020 figures have been reclassified, where necessary, to conform to the 2021 presentation.
Note 20 APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements were approved by the AER Board of Directors on May 13, 2021.

ALBERTA ENERGY REGULATORENERGY REGULATION EXPENSES - DETAILED BY OBJECTYEAR ENDED MARCH 31, 2021

Schedule 1

2021

2020
(in thousands)

Salaries, wages and employee benefits
Buildings
Computer services
Amortization of tangible capital assets
Consulting services
Travel and transportation
Loss on disposal and write-down of tangible capital assets
Administrative
Abandonment and enforcement
Equipment rent and maintenance$$

131,598
20,354
17,112
15,686
14,634
1,382
983
915
766
323
203,753$$

192,271
20,577
17,23815,947
12,429
1,815
67
3,492
412
264,248

ALBERTA ENERGY REGULATORSALARY AND BENEFITS DISCLOSURE
YEAR ENDED MARCH 31, 2021

Schedule 2

2021
Base
salary (a)

2020
Other
non-cashbenefits (c)Other cash
benefits (b)

Total

Total

(in thousands)
Position
Board of Directors
Chair (d)Members (e)

$

131
334

$

-

$

7
20

138
354

$

78
332

Executives
President and Chief Executive Officer (f)Chief Hearing Commissioner
Chief Operations Officer (g)Executive Vice-President, Law and General Counsel
Executive Vice-President, Corporate Services (h,n)
Vice-President of Finance and Chief Financial Officer (i,n)

319
218
259
274
231
130

30
24
17
9
196
7

73
47
64
60
77
54

422
289
340
343
504
191

296
148
363
157
-

Former President and Chief Executive Officer (j)Former Executive Vice-President, Operations (k,n)
Executive Vice-President, Strategy & Regulatory (l,n)
Executive Vice-President, Stakeholder & Government Engagement (m,n)

17
-

6
-

-

23
-

511
394
686
407

(a)
(b)

Includes retainers and per diems for Board Directors and regular salary and acting pay for Executives.
Includes payments in lieu of vacation, pension and health benefits, as well as severance, vehicle allowances and other cash reimbursements. There were nobonuses paid in 2021.

(c)Includes contributions to all benefits as applicable, including employer's share of Employment Insurance, Canada Pension Plan, Government of Alberta and
AER pension plans, health benefits, and payments made for professional memberships, tuition fees, fair market value of parking and other taxable benefits.

(d)Two individuals occupied the position of Chair during 2021. The current Chair was appointed on April 15, 2020, and is remunerated with a monthly honorarium
as per rates prescribed in the Orders in Council. Prior to the current Chair's appointment, the previous Chair's remuneration was set at $nil while this individual
occupied the position from September 6, 2019 until April 15, 2020. Prior to the previous Chair, a former Chair occupied the position until September 6, 2019,at which time the individual’s appointment was rescinded; the amount in 2020 reflects remuneration paid to the individual until September 6, 2019.

(e)

The incumbent Board of Directors consists of six members. Five Board members are remunerated with monthly honoraria as per rates prescribed in theOrders in Council. Remuneration for one Board member is set at $nil. As at March 31, 2020, the Board of Directors consisted of four members. On April 15,
2020, one member resigned and four new members were appointed. On June 5, 2020, one member was rescinded. The 2020 amount reflects four members
until April 28, 2019 and three members from April 28, 2019 until September 6, 2019. For the remainder of the 2020 fiscal year, the Board of Directors
consisted of four members.
The incumbent held the position effective April 15, 2020.
The incumbent held the position of Executive Vice- President, Operations until February 24, 2021, at which time the incumbent was appointed to the positionof Chief Operations Officer.

(f)
(g)
(h)

The incumbent held the position until February 24, 2021, at which time the position was eliminated and the incumbent was terminated. Other cash benefits
include $170 of severance pay.

(i)

The incumbent held the position effective September 8, 2020, at this time the position became a voting member of the Executive Leadership Team. Prior tothis appointment, the position was a non-voting member of the Executive Leadership Team.

(j)
(k)
(l)

The incumbent held the position until April 15, 2020, at which time the incumbent's contract ended.
The incumbent held the position until October 23, 2019, at which time the incumbent was terminated. Severance pay of $171 was expensed in 2020.
The incumbent held the position until October 23, 2019, at which time the incumbent was terminated. The position was eliminated effective October 28, 2019.
Severance pay of $449 was expensed in 2020.

(m) The incumbent held the position until October 23, 2019, at which time the incumbent was terminated. The position was eliminated effective October 28, 2019.
Severance pay of $168 was expensed in 2020.

ALBERTA ENERGY REGULATORSALARY AND BENEFITS DISCLOSURE
YEAR ENDED MARCH 31, 2021

Schedule 2 (continued)(n) Under the terms of the AER's defined benefit SEPP and two supplementary retirement plans (SRP), employees may receive supplemental retirement
payments. Retirement arrangement costs as detailed below are not cash payments in the period but are the period expense for rights to futurecompensation. Costs shown reflect the total estimated cost to provide annual pension income over an actuarially determined post-employment period.
The SEPP and SRP provide future pension benefits to participants based on years of service and remuneration. The cost of these benefits is
actuarially determined using the projected benefit method pro-rated on service, a market interest rate and management's best estimate of expected
costs and period of benefit coverage. Net actuarial gains and losses of the benefit obligations are amortized over the average remaining service life of
the employee group. Current service cost is the actuarial present value of the benefits earned in the fiscal year. Prior service and other costs include
amortization of past service costs, amortization of actuarial gains and losses, and interest accruing on the actuarial liability.
SEPP AND SRP RETIREMENT BENEFITS(in thousands)
The costs detailed below are only for those employees, included in Schedule 2, who were employed during the year ended March 31, 2021 andparticipated in the SEPP and SRP maintained by the AER. The SEPP and SRP provide retirement benefits to compensate senior staff who do notparticipate in the government management pension plans.
2020

2021

Position
Executive Vice-President, Corporate Services
Vice-President of Finance and Chief Financial Officer
Former Executive Vice-President, Operations (o)Executive Vice-President, Strategy & Regulatory
Executive Vice-President, Stakeholder & Government Engagement

Current
service cost
$
32
23
-

Prior service
and other costs
$
2
-

$

Total

34
23
-

$

Total

33
7
15
28

The SEPP and SRP accrued obligation for each executive employed by the AER during the year ended March 31, 2021 is outlined in the following table:

Position
Executive Vice-President, Corporate Services
Vice-President of Finance and Chief Financial Officer
Executive Vice-President, Strategy & Regulatory
Executive Vice-President, Stakeholder & Government Engagement

Accruedobligation
April 1, 2020
$
128
718
16

Changes in
accruedobligation
$
59
25
1
1

Accruedobligation
March 31, 2021$
187

Accruedobligation March
31, 2020
$
128

25
719
17

718
16

(o) The pension obligation for the former Executive Vice-President, Operations was paid out during the year ended March 31, 2020.

ALBERTA ENERGY REGULATORCONSOLIDATED ACTUAL RESULTS COMPARED WITH BUDGETYEAR ENDED MARCH 31, 2021

Schedule 3

Budget(Note 4)
Revenues
Administration fees
Government of Alberta grant
Orphan fund levy and fees
Information, services and fees
Investment income$

Expenses
Energy regulation
Orphan well abandonment

CapitalCapital investment
Less: Amortization of tangible capital assets
Loss on disposal and write-down of tangible capital assets
Net capital investment
Surplus226,450(a)

Adjustments
Adjusted budget(in thousands)$

69,0003,542
867
299,859(113,000)
113,000(3,500)(1,703)(5,203)215,859
69,000284,859
15,000(1,703)(3,500)(5,203)-214,156
65,500279,656
15,000203,753
65,698269,451
26,577

14,500(16,000)-

14,500(16,000)

13,697(15,686)(983)(2,972)(1,500)$16,500$-$113,450
113,000
65,5001,839
867
294,656

Actual

$(1,500)$16,500$114,240
113,000
65,6982,731
359
296,028

29,549(a) Adjustments reflect a provincial grant announced by the Government of Alberta (GoA), a decrease in revenues collected from information sales, a GoA-mandated inyear savings request, and a GoA request to delay issuing the large facility levy. Adjustments are related to the economic impacts of COVID-19 and low commodity
prices.

ALBERTA ENERGY REGULATORRELATED PARTY TRANSACTIONSYEAR ENDED MARCH 31, 2021

Schedule 4

The AER, in the normal course of business, entered into various transactions with entities consolidated or accounted for on the modified equity
basis in the Government of Alberta's Consolidated Financial Statements. These entities are considered to be related parties of the AER.
Related parties also include key management personnel and close family members of those individuals in the AER. In 2021, there were noamounts or transactions, other than compensation, between the AER and its key management personnel. Key management personnel
compensation is disclosed in Schedule 2.
Related Party Transactions with Government of Alberta Entities
The AER recognized the following transactions with Government of Alberta entities in the Consolidated Statement of Operations and theConsolidated Statement of Financial Position at the amount of consideration agreed upon between the related parties:
Entities in the
Ministry of Energy
2021
2020
(in thousands)
Revenues
Government of Alberta grant
Information, services and fees$$

113,000366
113,366$$

Other entities
2021(in thousands)
96
96

$

$

$

$

418
418

Receivable from$

Prepaid expenses and other assets

361
361

$

Entities in the
Ministry of Energy
2021
2020
(in thousands)
ExpensesComputer services
Buildings
Administrative
Consulting services

2020

2021

$

$

454
454

108

$

$

-

Payable to$Unearned revenue
Contractual obligations (a)

$

618
618

$

Other entities
2020 (a)(in thousands)
$

$

2,975
528
396
310
4,209

$

4,270
509
430
573
5,782

119

$

33

$

4

$

-

$

36

$

40

209

$

94

$

641

$

724

$

1

$

-

$

-

$

-

$

-

$

-

$

7,069

$

10,390(a) Certain 2020 amounts have been restated to ensure completeness of 2020 related party transactions.
(b) Contractual obligations are obligations of the AER to related parties that will become liabilities in the future when the terms of thosecontracts or agreements are met.

LET’S CONNECT
ALBERTA ENERGY REGULATORHead Office
Suite 1000, 250 – 5 Street SW
Calgary, Alberta T2P 0R4

www.aer.ca

ABEnergyRegulator

inquiries
1-855-297-8311@aer_news

Alberta Energy Regulator (AER)

inquiries@aer.ca
resource.aer.ca
24-hour emergency
1-800-222-6514

016