Redwater Energy Orphan Well Alberta Todd Korol PAY PER USE

Alberta loans industry-funded association $100 million to ‘increase the pace’ of orphan well cleanup

As oil and gas companies are increasingly unable or unwilling to properly close down and clean up well sites, the province is stepping in with additional money — following hundreds of millions in past loans and grants — to support the Orphan Well Association

Alberta Premier Jason Kenney announced Monday that more government money — in the form of a loan — will be directed toward Alberta’s orphan well problem, which Energy Minister Sonya Savage dubbed a “growing concern.”

The Government of Alberta will loan the province’s Orphan Well Association — which is funded by levies charged to industry — $100 million. 

The news comes as a growing number of Albertans have voiced concerns over the potential for the province’s growing inventory of inactive wells to become a massive public liability, raising alarms that the costly price tag for well cleanup could increasingly be shifted to taxpayers.

In recent years, a rapidly increasing number of old oil and gas wells have become “orphans” as companies facing bankruptcy have walked away from their liabilities, either as a result of facing an economic slump in the province, or as savvy business decisions to trade away costly liabilities without punishment — what the Globe and Mail described as a “brisk trade in junk assets.”

Meanwhile, concerns have been mounting about regulatory failures to collect sufficient deposits from companies to cover the eventual cost of cleanup.

This has led to an increasing number of wells being foisted onto the Orphan Well Association, which has needed help in the past to cover its costs.

Since 2009, the Alberta government has given the Orphan Well Association more than $30 million in grants, and loaned the organization $235 million in 2017.  

The federal government also previously allocated $30 million to efforts to clean up orphan wells in Alberta.

The annual budget of the Orphan Well Association is $45 million, according to the Government of Alberta.

“We have too many [orphan] wells out there in Alberta,” Kenney said, noting that the new government loan would “speed up well reclamation and completion.” 

The government estimates the cash infusion will create up to 500 direct and indirect jobs, which Kenney said would be a “difference maker.”

“This is about getting oilfield workers back to work,” Kenney added.

Previous reporting revealed the Alberta Energy Regulator internally estimated the total liability faced by the province, when it comes to wells alone, is $100 billion.

Regulator projects Alberta’s inactive well problem will double in size by 2030, documents reveal

Number of orphan wells expected to increase

According to the Government of Alberta, there are an estimated 343,000 oil and gas wells in this province. 

Approximately half of those are no longer active.

Lars DePauw, executive director of the Orphan Well Association, said that it currently has 6,500 sites in its queue — this includes close to 3,500 wells that need to be decommissioned and 2,700 that need to be reclaimed, according to the association’s online inventory.

“We are forecasting that the number of sites going into the next fiscal [year] will continue [to increase], unfortunately,” DePauw said.

And cleaning up these old oil and gas sites can be expensive

The Alberta Energy Regulator estimates reclamation costs can range from $16,500 to $42,125 per well, in addition to $13,000 to more than $120,000 for decommissioning costs, depending on the region and well type— an estimate that has been lambasted by advocates and researchers as far too low, with some suggesting that the price tag could be in the hundreds of thousands per well.

In 2018, the Orphan Well Association submitted applications for 84 sites to receive reclamation certificates, the final step in site cleanup, down from 107 in 2017.

The story of Alberta’s $100-billion well liability problem. How did we get here?

More ‘tools’ to be introduced in coming weeks

Alberta’s energy minister, Sonya Savage, announced more changes and programs will be introduced in coming weeks.

Savage noted the number of orphan wells is a “growing concern in Alberta,” noting there have been “challenges” in the industry.

“To be frank, it’s a situation that needs to be addressed,” she said.

According to a press release from the energy ministry, “government will be introducing a full suite of products, covering the entire lifecycle of wells from start to finish.”

Savage announced that this would include “more flexibility” in rules for the Orphan Well Association and how it handles orphan wells, but did not elaborate.

Many of Alberta’s ‘reclaimed’ wells aren’t actually reclaimed: government presentation

Taxpayer funding for oil and gas industry

The latest $100 million in government money is intended as a loan, though this is not the only channel the government has announced to help prop up a beleaguered industry, and the delinquent companies increasingly unable or unwilling to pay their bills.

For example, oil and gas companies that have failed to make annual land rental payments to landowners have increasingly had rents paid on their behalf by Alberta taxpayers.

That money is supposed to be recouped, but a previous investigation from The Narwhal found that in 2017, less than two per cent of all money paid out by the Alberta government on behalf of delinquent oil and gas companies was recovered.

And the amount owed in land rents was on the rise — The Narwhal revealed last year that the debt owed had increased to $20 million in unpaid land rents since 2010 — and annual payments by government on behalf of delinquent companies had increased 840 per cent over the same time period.

Oil and gas companies owe Albertans $20 million in unpaid land rents

In the most recent budget, the government earmarked an additional $1.7 million for the government arm that deals with landowners filing complaints about unpaid rents from oil and gas companies, and other disputes.

“We continue to have a number of fiscal challenges and so this was not an easy decision, but it was one that we needed to deal with. It was tough to find that money, and I won’t minimize that,” Municipal Affairs Minister Kaycee Madu told The Globe and Mail.

Then there’s the $173 million in rural municipal taxes that oil and gas companies didn’t pay last year. 

In response to growing concerns over companies not paying municipal taxes, the provincial government introduced a relief program for shallow gas companies, and estimated at the time that the government would indirectly foot the bill for $20 million in 2018 taxes for eligible companies. 

All of this adds up to an increasing taxpayer-funded effort to support the oil and gas industry — an effort some speculate may only increase in the future.

Lucija Muehlenbachs, an associate professor of economics at the University of Calgary, told The Narwhal last year that the growing list of orphan wells should be ringing alarm bells about the potential for increased taxpayer liability for old oil and gas wells.

“It speaks to how much liability is being accumulated in Alberta,” she said last year.

If companies are struggling to pay the rent owed to landowners and local governments, there are valid questions about whether they can stay afloat — and pay for their environmental liabilities — in the long run. 

And if they can’t, their wells will end up on the growing list of orphans.

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