Over the past weeks, we attended the Suncor and Cenovus AGMs to continue to press them on their liabilities accounting and auditing gaps, with billions at stake in shareholder capital.
They were, unsurprisingly, bullish about this moment. The Cenovus Board Chair sees “incredible opportunity for Canada to deliver our oil and natural gas to a growing world for decades to come.” Suncor CEO Rich Krueger told investors that there appears to be “a growing recognition among policyholders and Canadians nationwide of the long-term value and importance of the energy industry.”
Unacknowledged was the elephant in the room: that the current “biggest energy crisis in history” is sparking an accelerated transition away from oil and gas to renewable energy.
Why does this matter for liabilities accounting? Because they currently significantly underplay their massive clean-up bill by putting it off decades into the future. If they have less time than they claim, their books look a lot worse.
For Canadian oil and gas producers who own and operate a vast number of mines, wells, pipelines, and other physical assets, decommissioning liabilities are one area on their balance sheets that will be significantly impacted as the energy transition accelerates. Decommissioning liabilities are an estimate of future costs the companies will legally owe to decommission all of their infrastructure and clean up the land it sits on.
By arguing that oil and gas demand will grow for decades to come, Suncor and Cenovus are aiming to put off paying their decommissioning bill. If they accounted for these liabilities based on a scenario where global demand for oil and gas rapidly declines, the costs would grow by at least two to three times what’s currently reported. Rather than paying off these costs decades from now, they’d have to pay them in the next few years — much earlier than expected. With decommissioning liabilities already estimated in the billions of dollars, this increase would throw into question the valuation of these companies.
For over a year now, we have been asking Canada’s largest oil and gas producers and their auditors, to provide some insight into how the energy transition could impact the financials. At the start of 2026, we sent the top oil and gas producers in Canada an open letter that included specific recommendations for how to do this – using sensitivity analysis, realistic accounting assumptions, and overall greater transparency in their financials. We cc’d their auditors, who are responsible for assuring investors that financials are complete and accurate.
Following in the footsteps of similar investor engagement on accounting concerns at energy companies in the United States and the UK, we warned the audit committee chairs and auditors at these companies that we would vote against their appointments at the upcoming AGMs if we did not see our recommendations addressed.
In March, when the companies released their financials for the last fiscal year, and auditors provided their stamps of approval, we saw no progress.. We then prepared briefs outlining our decision to vote against the audit committee chairs and auditors at Suncor and Cenovus.
At the AGMs we asked the auditors – KPMG and PwC – about why decommissioning liabilities were not mentioned in the audit report. They replied that these liabilities “did not involve especially challenging, subjective or complex judgments.” Meanwhile, Suncor and Cenovus both highlighted decommissioning liabilities as key areas of estimation uncertainty in the notes to their financial statements and listed a number of reasons why they apply significant judgment when estimating these costs.
The auditors are not discharging their duties if they don’t recognize the contradiction between management telling investors that these liabilities are highly uncertain and auditors saying they’re not. Auditors are supposed to verify management’s judgments.
The audit committees for Suncor and Cenovus are made up of board members, and their job is to oversee and challenge the assumptions that management applies in the financial statements. When asked about dramatically optimistic liabilities accounting, executives at Suncor and Cenovus answered that they had applied “reasonable judgment” in regards to future scenarios and estimates of future values.
How do investors know what they consider “reasonable” when there is no disclosure indicating a balanced assessment of demand scenarios given an unparalleled increase in global demand for renewable energy?
At the end of the day, Cenovus and Suncor shareholders re-elected their audit committees and auditors by a majority vote. A structural problem with the vote is that investors have a perverse incentive to go along with rosy and unreasonable portrayals of diminished liabilities because to do otherwise may devalue their investments. Likewise, for auditors, challenging company management could cost them a client.
Yet by joining the companies in kicking decommissioning costs down the road, they just postpone the inevitable. Unfortunately for some, like Calgary Sinoenergy Investment Corp who lost $800 million due to decommissioning liabilities at now-bankrupt Long Run Energy, investors are left holding the bag when management’s “reasonable judgments” crash against reality.
This leaves us relying on the regulators. We won’t hold our breath that the Alberta Securities Commission will do anything, despite being responsible for accurate and complete disclosure. We have slightly higher expectations of the Canadian Public Accountability Board which already requires consideration of climate risk for exposed companies during financial audits, but is yet to follow through on specific file investigations into the missing billions in liabilities costs.
