Preparing for EPAP

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What does the Enhanced Production Audit Program mean for energy operators?

Oil and gas companies in Alberta will face a new measurement and compliance program, the Enhanced Production Audit Program (EPAP). Declarations must be completed by December 2011 and the time to prepare for it is running out.

EPAP applies to all operators of record which are subject to Energy Resources Conservation Board (ERCB) measurement and reporting requirements for conventional and heavy oil, crude bitumen, and natural gas facilities.

Essentially, what it forces oil and gas operators in Alberta to do is prepare an annual declaration by one or more senior officers confirming their internal controls over volumetric reporting and measurement.

“Volumetric reporting actually touches multiple business functions in both the corporate head office and the various field offices,” explains David Whiteley, an associate partner in the Calgary office of PwC LLP. “As well, it’s going to touch upon many of the cross functions within a company.”

EPAP will affect people in oil and gas production accounting, engineering operations, measurement, and down to the field level where the facility is located. Whiteley says it’s a complicated project because organizations need all these different people at the table to work on what the actual EPAP program should be.

There are about 600 public and private oil and gas operators with 30,000 facilities in the province that will be affected by EPAP. For private companies who may not have undertaken a Sarbanes-Oxley and/or Canadian Sarbanes-Oxley certification, this is unfamiliar territory, and EPAP is more complicated than these other compliance projects.

“I think the juniors and the mid-tier companies will be most impacted,” says Whiteley. “The smaller companies tend to run very lean. They need to supplement resources in various pieces of the project to make sure they’re going to get done on time.”

Larger companies will likely be better off, he says, as they tend to have more people to dedicate at these projects.

Companies will have to adapt fairly quickly, with the first declaration period beginning in January 2011. The process of creating the control framework and reporting on it can take up to 12 months and the first declaration must be filed no later than December 2011, although some companies are electing to declare earlier.

To get the ball rolling, organizations need to take a few steps. First, they should establish effective project management. That includes evaluating the skills required and putting together a cross-functional team, developing and identifying the responsibilities, assessing their knowledge of the applicable ERCB directives for EPAP, and preparing a resource plan and budget.

Secondly, organizations should conduct a risk assessment for the portfolio of facilities that they currently own and which business processes will be impacted by the ERCB measurement and reporting themes. Companies must design and document these key processes via acceptable documentation standards (e.g., flowcharts and control matrices). To properly complete the declaration, every company will be required to map each control to the ERCB’s 15 EPAP reporting themes.

Once designed, companies must test the operational effectiveness of this design. If any deficiencies are identified at this stage they must assess the risk of noncompliance with ERCB measurement and reporting requirements, and each operator must:

  • Create a plan to remediate the process and controls and remediate its progress
  • Strengthen business processes
  • Strengthen the associated controls

“EPAP is a huge undertaking,” Whiteley says. “It’s important to remember that you need to start early, use strong project management rigor, and get prudent advice on creating an EPAP framework that meets both the compliance needs of the ERCB and the business needs of the company."