Annual report pursuant to Section 13 and 15(d)

Reclamation and Restoration Provisions

v3.21.2
Reclamation and Restoration Provisions
12 Months Ended
Aug. 31, 2020
Reclamationand Restoration Provisions [Abstract]  
RECLAMATION AND RESTORATION PROVISIONS
17. RECLAMATION AND RESTORATION PROVISIONS

    Oil              
    Extraction     Site        
    Facility     Restoration     Total  
Balance at August 31, 2018   $ 371,340     $ 212,324     $ 583,664  
Re-evaluation of reclamation and restoration provision     119,716       2,255,443       2,375,159  
Accretion expense     7,428       4,246       11,674  
Balance at August 31, 2019     498,484       2,472,013       2,970,497  
Accretion expense     -       -       -  
Balance at August 31, 2020   $ 498,484     $ 2,472,013     $ 2,970,497  

(a) Oil Extraction Plant

In accordance with the terms of the sub-lease agreement disclosed in note 8 above, the Company is required to dismantle its oil extraction plant at the end of the lease term. During the year ended August 31, 2015, the Company recorded a provision of $350,000 for dismantling the facility.


During the year ended August 31, 2019, in accordance with the requirements to provide a surety bond to the Utah Division of Oil Gas and Mining in terms of the amendment to the Notice of Intent to Commence Large Mining Operations at an estimated production of 4,000 barrels per day, the Company estimated that the cost of dismantling the oil extraction plant and related equipment would increase to $498,484. The discount rate used in the calculation is estimated to be 2.32% on operations that are expected to commence in September 2021.


Because of the long-term nature of the liability, the greatest uncertainties in estimating this provision are the costs that will be incurred and the timing of the dismantling of the oil extraction facility. In particular, the Company has assumed that the oil extraction facility will be dismantled using technology and equipment currently available and that the plant will continue to be economically viable until the end of the lease term.


The discount rate used in the calculation of the provision as at August 31, 2019 was 2.0%.


(b) Site restoration

In accordance with environmental laws in the United States, the Company’s environmental permits and the lease agreements, the Company is required to restore contaminated and disturbed land to its original condition before the end of the lease term, which is expected to be in 25 years. During the year ended August 31, 2015, the Company provided $200,000 for this purpose.


The site restoration provision represents rehabilitation and restoration costs related to oil extraction sites. This provision has been created based on the Company’s internal estimates. Significant assumptions in estimating the provision include the technology and equipment currently available, future environmental laws and restoration requirements, and future market prices for the necessary restoration works required.


During the year ended August 31, 2019, in accordance with the requirements to provide a surety bond to the Utah Division of Oil Gas and Mining in terms of the amendment to the Notice of Intent to Commence Large Mining Operations at an estimated production of 4,000 barrels per day, the Company estimated that the cost of restoring the site would increase to $2,472,013. The discount rate used in the calculation is estimated to be 2.32% on operations that are expected to commence in September 2021.


The discount rate used in the calculation of the provision as at August 31, 2019 was 2.0%.