The Proponent recommends the report be supported with reasonable assurance from an independent auditor. In the Board and management’s discretion we recommend such report also disclose quantitative key assumptions used to estimate the AROs and whether, based on known information, it is reasonably possible that assumptions and estimates will change in the near term.

Oil and gas companies are legally required to decommission long-lived tangible assets at the end of their useful lives. However, given uncertainty around lives of assets in midstream and downstream segments (e.g., refineries, pipelines, and wells), most oil and gas companies have only recognized upstream AROs (presented on a discounted basis). For example, Imperial Oil has generally not recognized the relevant liabilities or disclosed estimated costs for downstream and chemical facilities, maintaining that ‘’these sites have
indeterminate lives based on plans for continued operations, and as such, the fair value of the conditional legal obligations cannot be measured, since it is impossible to estimate the future settlement dates of such obligations.’’1 As such, investors lack the requisite transparency to assess the financial impact associated with the energy transition, how the IEA NZE scenario would affect the assumptions, costs, estimates, and valuations underlying AROs in the financial statements, and the potential for accelerated remediation and closure
obligations.
As companies are not disclosing estimated undiscounted costs or discount rates used and/or the payment schedule of those obligations, investors also have limited insight into the estimates and assumptions that underpin reported AROs, making it difficult for them to analyze the impact of the energy transition on these obligations and to formulate their own risk-adjusted values. However, peers such as bp2 have disclosed the estimated undiscounted ARO [“decommissioning”] amounts and estimated timing thereof. Shell3 has also noted
that some previously unrecognized AROs [“decommissioning and restoration” provisions] would have to be recognized, given the energy transition. Ideally, corporate disclosures would include discount rates, asset types, the range of potential settlement dates and probabilities associated with those dates given potential accelerated timing of the energy transition.

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