$100 million in federal funding for cleanup of Alberta oil and gas wells went to sites licensed to CNRL
Canadian Natural Resources Limited — which has reported an average annual profit of $1.9 billion...
Success Energy, an oil and gas company headquartered in a two-storey stucco house in the Calgary neighbourhood of Ranchland, did not live up to the promise of its name.
The company failed last year, leaving behind three fracking wells in northeast B.C. One well had spilled hydrocarbons on the ground and in surface water, requiring immediate testing for toxic chemicals such as benzene and toluene and remediation of the impacted area.
Success Energy never carried out the mandatory testing and remediation work, outlined in one of four orders from B.C.’s oil and gas commission that it largely ignored. In one order, the company was also instructed to take action to stop methane, a highly potent greenhouse gas, from being released into the atmosphere at the same well, 50 kilometres west of Fort St. John.
The troublesome well, known in industry parlance as WA 04980, recently joined a lengthening list of B.C.’s orphan wells — oil and gas wells whose owners are insolvent or can’t be located.
There are 346 orphan wells in B.C. — compared to just 45 four years ago — according to the B.C. Oil and Gas Commission’s annual service plan, released on Feb. 18 as part of the provincial budget. That’s a 769 per cent increase.
And while B.C. orphan wells are a fraction of the burgeoning number of orphan wells in Alberta, the list continues to grow, with the commission struggling to pay for costly cleanups that are ultimately the responsibility of B.C. taxpayers.
The number of orphan wells in B.C. is poised to double this year, after 300 to 400 wells that belonged to an insolvent company called Ranch Energy are added to the list, according to the service plan.
As northeast B.C. readies for a fracking boom to supply gas for the LNG Canada project — gas that will travel from B.C.’s Peace region to Kitimat along the contested Coastal GasLink pipeline — the tally of orphan wells could soar.
“It is pretty clear that in the current climate of uncertainty related to oil and gas development, the number of orphaned wells is just going to continue to grow,” said John Werring, senior science and policy advisor with the David Suzuki Foundation.
“We need to find a way, as soon as possible, to deal with this massive liability.”
Ranch Energy, a Calgary-based company, went into receivership in 2018, leaving behind 700 wells, a sea of debt and a large leaking fracking pond 400 kilometres north of Fort St. John.
Some of Ranch’s assets will soon be transferred to Erikson Energy in a court-approved sale, the commission said in an emailed response to questions from The Narwhal. But the commission will be saddled with hundreds of wells Erikson does not wish to purchase.
Ranch left a $15.6 million security, the commission confirmed in an email.
But that pales in comparison to the $50 million liability the commission says will be associated with Ranch’s orphan wells, leaving it stuck with a bill for more than $34 million for decommissioning and reclamation costs.
Last year, former B.C. Auditor General Carol Bellringer noted the oil and gas commission’s orphan site reclamation fund had a shortfall of $13.1 million and liabilities of $120 million for what, at the time, were 326 orphan wells.
This year, the situation is even worse. The fund’s shortfall will jump almost threefold this year, to more than $36 million — news that shocked Werring.
“Good Lord,” he said. “We have to build that fund up.”
David Hughes, an earth scientist who has studied energy resources in Canada and the U.S. for more than four decades, said B.C.’s 646 to 746 orphan wells (depending on the final tally of Ranch’s orphan wells) could be “the tip of the iceberg.”
A commercial database shows B.C. had 11,976 inactive or suspended wells as of December, said Hughes, who spent 32 years with the Geological Survey of Canada as a scientist and research manager.
“Why are they suspended?” he asked. “Why are they inactive? Some of those could potentially become candidates for orphan wells.”
In North Dakota, unlike in B.C. and Alberta, Hughes said companies are obliged to cleanup wells that are inactive for more than a few months.
“In Canada, wells can be inactive for a lot longer. If the financial health of the well operator is weak and sureties held by the government for cleanup are insufficient, some of those wells are likely to become a problem for the taxpayer.”
Restoring oil and gas wells is a multi-year process. First, wells need to be decommissioned, or sealed with cement. Full reclamation involves cleaning up contamination and restoring the land to pre-activity conditions.
According to the auditor general’s report, it costs an average $370,000 to seal a well and restore a site.
At that price, the oil and gas commission would be responsible for more than $276 million in cleanup costs should 400 Ranch Energy sites be added to the current orphan well list.
But the commission has only budgeted $10.5 million for reclamation this year, $12 million next year, and $10 million and $9 million in each of the following years, according to its service plan.
“Decommissioning an inactive well reduces the likelihood that oil, methane gas and saline water will move up through the well into freshwater aquifers, surface water, the ground or the atmosphere,” Bellringer noted in her 54-page audit.
Werring, who trekked more than 10,000 kilometres in B.C. to document fugitive methane emissions from gas wells, said the provincial government needs to collect more money in securities from oil and gas companies before they are allowed to operate in B.C.
“They need to pay,” he told The Narwhal. “They’re making money hand over fist on the resource that they are extracting. They’re getting millions and millions of dollars in subsidies from government. So it’s time to start putting that money back where it needs to go, in particular for orphan wells.”
The oil and gas commission’s stated goal is to cleanup and restore all orphan wells in B.C. within 10 years of their orphan designation, according to the service plan.
But the sheer number of orphan wells makes that impossible, Werring pointed out.
“There’s no way they’re going to be able to catch up. Even if they did, say, 10 wells a year, you’re looking at 30 years before they clean up 300 wells,” he said. “And 10 wells a year is quite ambitious in terms of the way things have been going.”
Last year, according to the commission’s service plan, four orphan wells were restored — as 10 new orphan wells were added to the list, three from Success Energy and seven from an insolvent company called Sun Oil.
This year, the commission states that 15 wells will be reclaimed. If achieved, that would be almost four times the current pace. Meanwhile, 300 to 400 new orphan wells from Ranch will be added to the orphan tally.
The commission says it aims to restore 25 wells two years from now.
At 35 wells a year — the commission’s stated goal three years from now — only 350 wells would be restored after 10 years, even as new ones are added.
In its service plan, the oil and gas commission said expenses from the orphan site reclamation fund “continue to impact the commission’s ability to balance its budget.”
And the situation is unlikely to improve.
A report posted to the oil and gas commission’s website on Feb. 12 says the outlook for the current fiscal year remains “challenging,” due to depressed gas prices that continue to affect permit holders.
The report said the commission is “preparing for further financial impacts” to the orphan well site reclamation fund from insolvent companies.
Asked if it has investigated the contamination at Success Energy’s problem well, the oil and gas commission said it has taken action “to safely shut in the equipment.” Investigation and restoration work will be carried out by the orphan site reclamation fund, it said.
The commission also said it has lowered water levels in Ranch’s wastewater storage pond, suspected of contaminating soil and groundwater through a leak in its outer lining.
“This involved the removal, trucking, and safe disposal of 10,000 cubic metres of water,” the commission said in an email.
The pond held 113,000 cubic metres of sludge and water, according to The Narwhal’s review last year of Ranch’s receivership documents, meaning that the commission has trucked away less than one-tenth of the contaminated wastewater.
The commission said it spent $470,000 from Ranch’s security deposit to remove and dispose of the fracking wastewater, noting that responsibility for ongoing management remains with Ranch’s receiver. Following the upcoming court-approved sale of Ranch’s assets, the commission said responsibility for the pond will transfer to the new owner.
In 2018, B.C.’s NDP government enacted legislation to strengthen the commission’s powers to restore well sites.
In an email, the commission said its comprehensive liability and management plan ensures the full cost of reclaiming oil and gas sites in B.C. will be covered by industry, with a new liability levy of $15 million kicking in the year after next, in addition to a projected $300,000 in security deposits and interest.
Werring said that will still fall far short of the funds needed to clean up orphaned sites.
“There’s not enough money coming in,” he said.
Bellringer’s audit, which examined how the oil and gas commission is managing the rising environmental and financial risks posed by orphan and inactive wells, pipelines and other fracking industry infrastructure, noted gaps between the deposits paid by other insolvent companies and the cost of cleaning up their orphan well sites.
One Calgary-based company, Terra Energy Corporation, had just under $1 million in security deposits but left a $55 million liability when it went bankrupt four years ago, saddling the oil and gas commission with 175 orphan wells.
Calgary-based Quattro Exploration and Production Ltd. left $75 million in liabilities when it went bankrupt in 2017. The company left zero in securities to cover the cost of restoring 75 orphan sites.
The federal Supreme Court Redwater ruling — which found that insolvent or bankrupt companies must fulfill environmental obligations before paying back creditors — is only of limited assistance when it comes to cleaning up inactive wells and associated infrastructure, according to Ecojustice lawyer Barry Robinson, who has spent almost a decade working on issues related to inactive oil and gas wells.
“The problem is that often by the time the company’s gone bankrupt there are pretty empty shelves and there’s not a lot of money in there,” Robinson previously told The Narwhal.
“Often, even if the environmental order comes first there’s not enough money to meet it, to carry out the work.”
Bellringer’s audit also zeroed in on clean-up costs for B.C.’s inactive oil and gas sites that are not considered to be orphan sites. Inactive sites are wells that are no longer producing any oil or gas, but that haven’t been properly sealed. In May 2018, there were almost 10,700 such sites, according to the audit.
Bellringer found the oil and gas commission had not secured enough money from companies to cover an estimated $3 billion in cleanup costs for the inactive wells.
“While the upstream oil and gas industry is an important component of B.C.’s economy, it introduces environmental risks that result in financial liability,” Bellringer’s report noted.
“Potential contamination from oil and gas activities can affect ground and surface water quality, air quality, human health, wildlife and livestock … If operators do not restore their inactive sites in a timely manner, environmental risk and resulting financial liability will remain.”
Werring pointed out that fracked wells have a much shorter lifespan than conventional wells, which might be plumbed for 20 years. Fracking, or hydraulic fracturing, involves the injection of large amounts of water and proprietary chemicals into the ground to release gas or oil trapped in rock formations deep below the surface.
“Once you’ve fracked a well you might only get gas production out of it for six months or three years,” he said.
“The biggest problem with the fracking boom is the sheer number of wells that will be lying dormant … A lot of those wells actually belong to companies that are entirely solvent and they’re not even going back in there and restoring those wells,” Werring said.
“I think there’s a real problem in communicating the true impact of this industry … yes, companies will go insolvent and, yes, there will be wells that will need to be put to bed but they’re a mere drop in the bucket compared to the sheer number of wells that are already out there that require attention.”
Restoring orphan and inactive wells would be a huge job-creation project if money were available, Werring said.
“There’s only two sources for that money. One is from the oil and gas companies themselves and the other is from the taxpayers,” he said.
“The way things are going right now all the liability is falling on the taxpayers.”
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