Active wells

Alberta taxpayers footing bill for delinquent oil and gas companies, investigation reveals

Landowners are supposed to get paid for wells on their property, but companies are increasingly defaulting, which means the Alberta government ends up picking up the tab. An investigation by The Narwhal reveals the province is almost never recouping these costs

Perry Nelson has been farming near Provost, Alta., for more than 50 years — since he took over from his dad in 1965. He runs mostly cattle, some grain.

In 2012, he bought some more land, for extra pasture for his cattle. As with so much land in Alberta, it came with oil and gas wells already drilled deep down below the surface.

“The wells were on it when I bought it,” Nelson told The Narwhal. “Abandoned wells.”

“I don’t think [the company] had any intention of paying,” he said of the company that owned the wells and owed him money in the form of annual rent for drilling a well on his land.

“That guy’s gone broke I don’t know how many times,” he told The Narwhal. “[The regulator] still lets him start over again.”

Sure enough, according to Nelson, the company was soon a year behind on the annual rent payments it owed.

Nelson, a director with the Alberta Surface Rights Federation — a group of landowners concerned about oil and gas activity on their land — wasn’t having it.

“They have a contract that says what they’re supposed to pay,” he told The Narwhal. “That’s the way they should be paying.”

So Nelson did what many farmers do in this situation — he filed an application to Alberta’s Surface Rights Board. The Surface Rights Board is a tribunal that uses taxpayer money to reimburse landowners what they are owed by oil and gas companies.

Nelson’s was just one of thousands of cases that have been brought forward in recent years.

The government is supposed to recoup the money it pays out to landowners  from companies so taxpayers aren’t footing the bill — but new data obtained by The Narwhal shows that’s simply not happening.

Less than two per cent of funds recovered

There are 450,000 oil and gas wells registered in Alberta. They’re dotted across the province — one for every 1.4 square kilometres — and are on both public and private land.

For many landowners, they have become an enormous burden: there’s the added difficulty of farming around a wellhead, the noxious weeds, the dust, the added traffic.

But it’s goes beyond that. For many farmers and landowners — who are not receiving the basic compensation owed to them by oil and gas companies — there’s a financial headache as well.

In Alberta, landowners are supposed to receive compensation in the form of annual rent, to reimburse them for lost productivity, nuisance and adverse effects.

Far too often, advocates say, the company simply doesn’t pay.

If a company fails to pay a landowner the annual rent they have agreed on, a landowner can apply for a “recovery of rentals” from the Surface Rights Board, as per the Surface Rights Act, and receive their compensation from Alberta’s general revenue fund — in other words, taxpayer money.

This is supposed to be a temporary fix, as the government is then meant to recoup taxpayers’ money by tracking down the company and collecting the funds.

The trouble is, the Crown basically never gets that money back.

Information obtained by The Narwhal shows that, in 2017, less than two per cent of all money paid by the Alberta government on behalf of delinquent oil and gas companies was recovered.

Oil and gas land rent taxpayers vs companies

Graphic: Carol Linnitt / The Narwhal

That means that taxpayers are on the hook for the annual rent owed by these absentee oil and gas companies — millions of dollars annually. And the number of cases is only increasing.

“It’s getting worse all the time,” Nelson said of the situation with delinquent oil and gas companies.

“It’s just spiralling down.”

Influx of applications

In 2017, 1,934 cases were brought before the Surface Rights Board, which already had a backlog of 1,990 from previous years — something many landowners say leads to frustratingly long wait times.

“It’ll probably take a year and a half before you get paid,” Nelson said.

“It’ll probably take a year and a half before you get paid.” — Perry Nelson, farmer

“It’s almost suicide,” said John Alpin, another landowner who spoke to The Narwhal, of the long process of applying for compensation.

The Surface Rights Board declined a request from The Narwhal for a phone interview, but Mike Hartfield, a spokesperson for the board, acknowledged long wait times by e-mail.

“Considerable emphasis is placed on processing these applications in a timely manner,” he said. “However, the board has to balance that with having a fair and thorough review process to ensure landowners are entitled to the monies being paid — this does take time.”

“[T]imely decisions on these matters is very important to us,” Hartfield added, noting that the board has increased the number of staff it employs to deal with applications, and concluded that the board is, “now in a great position to manage this influx of applications.”

Reporter Sharon J. Riley inspects an abandoned gas well

Reporter Sharon J. Riley inspects an abandoned well with Daryl Bennett, a director with Action Surface Rights, near Taber, Alta. Photo: Theresa Tayler / The Narwhal

‘I’m paying myself’

When an application is eventually addressed, the board will try to track down the company and order them to pay. If they can’t, the board directs the Minister of Environment and Parks to pay the landowner out of the government’s general revenue.

The board can also suspend a company’s access to the wellsite, but this is often little punishment when a well is inactive anyway.

The Narwhal found that the board issued 1,537 rental payment orders to the Minister of Environment and Parks in 2017. Those orders amounted to requests that more than $6 million  — roughly the amount the government has budgeted for the Stollery Children’s Hospital’s critical care program — be paid to landowners on behalf of delinquent oil and gas companies.

In theory, this shouldn’t end up being a taxpayer expense.

According to the board, “where the Minister pays an operator’s compensation owing, the amount paid and any expenses incurred constitute a debt owing by the operator to the Crown.”

In turn, the crown debt collections division — part of Service Alberta — is supposed to go after companies to recoup that money.

But the result of their efforts is measly. In 2017, with millions of dollars owed by oil and gas companies, just over $100,000 was recouped.

In the end, taxpayers are footing the vast majority of the bill to reimburse landowners who are owed money by delinquent oil and gas companies.

At a meeting of Alberta Surface Rights — a group of landowners from across the province who are concerned about oil and gas activities on their land — in Camrose, Alta., attended by The Narwhal last month one refrain came up over and over again: “I’m paying myself.”

‘Dire financial situation’

When Regan Boychuk, a founder of Reclaim Alberta — a group advocating for the cleanup of inactive wells in the province as a job creation program — tried to find more information about how much taxpayers were on the hook for when it comes to covering for oil and gas companies, he was told that many companies lack the resources to pay in the first place.

A Government of Alberta representative told him in an e-mail that “in the vast majority of cases, an operator fails to pay the landowner not because of willful negligence or non-compliance, but that the operator is in dire financial situation (i.e., in receivership or bankrupt) and is not able to pay, therefore the likelihood of [the government] recovering any amount is very limited.”

Hartfield, the spokesperson for the board told The Narwhal by e-mail that, “The vast majority of operators [whose rents are being paid by taxpayers] are in bankruptcy proceedings, receivership or insolvent.”

Financially unstable companies have long been able to obtain licences and to drill new wells through a flawed system liability rating system administered by the Alberta Energy Regulator — a system that allows companies to exaggerate their assets by assuming oil prices of more than $100 per barrel and underestimates the costs of safely sealing and cleaning up wells.

These financially shaky companies then negotiate contracts with landowners. At the Alberta Surface Rights general meeting in Camrose, landowners alleged that companies had failed to pay — or sent out notices saying their rent would be unilaterally reduced.

The Narwhal also heard complaints that companies threatened to not pay farmers anything at all — if they didn’t accept a 50 per cent reduction in annual rent.

“We encounter this type of concern regularly,” Peter Dobbie, the Farmers’ Advocate in Alberta, told The Narwhal by e-mail, when asked about the allegations.

Rent recovery applications up 283 per cent

Some companies reportedly tell landowners that times are too tough to keep paying the agreed-upon rent, hoping their woes will hit a chord with Albertans.

According to a presentation by Michele Delcolle, a representative of the Farmers’ Advocate Office, at the Alberta Surface Rights meeting in Camrose, “a landowner is under no obligation to accommodate the changing financial circumstances of a company.”

But, Delcolle’s presentation added, “companies are stating economic hardship and believe reducing annual surface lease rentals will contribute to a strong economic health of the company.”

Other companies just don’t pay at all.

“Companies are becoming defiant,” Delcolle told the room. “They know the process.”

Their thinking, she continued, is often “‘rents are the highest part of our expenses… the Surface Rights Board is behind, so [we] have a year.’” In other words, companies can defer — or avoid altogether — paying expensive rents by gaming the system. (Delcolle didn’t respond to The Narwhal’s questions by press time.)

Whatever the reason, it appears to be becoming more prevalent.

Landowner applications for rent recovery are up 283 per cent compared to 2014.

Oil and gas rent recovery applications

When companies stop paying annual rent, landowners can apply to the Alberta Surface Rights Board to recoup money they’re owed. In 2017 applications were up 283 per cent from 2014, according to information from the board. Graphic: Carol Linnitt / The Narwhal

“The board has experienced a substantial increase in the volume of rental recovery applications since 2016,” said Hartfield, the spokesperson for the board.

“We expect that trend to continue.”

Changing hands

Another common problem faced by landowners happens when a well changes hands — when it is sold off to another company, often as part of a package.

“As the landowner, you won’t be notified of that,” said Nelson. Too often, he said, landowners aren’t paid after a company changes hands.

“The first time you know is when you don’t get paid. You phone the company and they say the phone number is no longer in service.”

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