At the end of a dirt road about an hour’s drive north of Edmonton, the hum of machinery pierced the air as a pumpjack nodded up and down, striking a black silhouette against the bright sky.

Normally, one would expect the pumpjack to be sitting alone on the Alberta prairie, surrounded only by a few pieces of equipment.

But at this site a gas generator buzzed loudly and power lines snaked their way to another structure filled with rows and rows of computers, arranged on metal shelves and connected with winding, multicoloured cables. A sign nearby listed the operator: MAGA Energy, a privately owned Calgary oil and gas company.

This small operation near Westlock, Alta., is a natural gas well being used for a novel purpose: to generate Bitcoin, the world’s leading cryptocurrency. The Narwhal visited the site in August.

Bitcoin is a form of digital money that can be “mined,” or produced by users who deploy energy-hungry computers to churn through cryptographic puzzles. Some cryptocurrencies like Bitcoin are quite valuable in Canadian dollars, but they can also be volatile, high-risk investments prone to scams.

MAGA Energy — short for “Make Alberta Great Again,” a play on its more well-known use as Donald Trump’s slogan “Make America Great Again” — is hoping to capitalize on a more constant trend: the need Bitcoin miners have for cheap, plentiful sources of energy to power their computers. By offering their natural gas assets to Bitcoin miners, MAGA Energy intends to breathe new life into about 60 of its gas wells in Sturgeon County, in the Edmonton region, that were previously “shut in,” or closed off from production.

According to the company, these wells were shuttered after a nearby power plant — a consumer of the gas produced at the wells — closed in 2014. Now MAGA Energy is among several oil and gas companies across the country hoping Bitcoin can provide a way to sell its products a different way: by burning it on the spot.

Oil and gas companies have been looking at adding generators to their well sites to produce electricity to power banks of computers that will run Bitcoin mining operations. Photo: Amber Bracken / The Narwhal

Crypto mining ‘exacerbates climate change’: White House

For proponents, burning natural gas to power Bitcoin mines is a useful way for companies with stranded oil and gas assets to sell more energy. Advocates also argue if Bitcoin miners can run their computer rigs from escaped methane from oil and gas drilling, it is less damaging to the climate than letting the methane gas escape directly into the atmosphere.

But like other fossil fuel projects, it creates carbon pollution and furthers climate change. A report from Sturgeon County’s administration to local council members makes it clear that MAGA Energy’s proposal would “increase emissions.” It specifically noted this was inconsistent with the county’s guiding principle of “environmental stewardship.”

Powering crypto mining with individual fossil fuel sites would at best be an emissions-neutral undertaking, far from the “urgent system-wide transformation” scientists have shown society needs to undergo in order to avoid more extreme climate consequences.

Crypto-asset mining operations can cause local noise and water impacts, electronic waste, air, and other pollution from any direct usage of fossil-fired electricity, and additional air, water, and waste impacts associated with all grid electricity usage.

— White House Office of Science & Technology Policy (@WHOSTP) September 8, 2022

Critics argue by giving new life to old facilities, these kinds of fossil-to-Bitcoin schemes are threatening to prop up a dying fossil fuel industry and put emissions-reduction targets in jeopardy.

This pattern can be seen in places like Montana, New York and Pennsylvania, where companies have reversed plans to close coal-fired power plants, or restarted plants that had already closed, to power Bitcoin mines.

In September, the White House Office of Science and Technology Policy issued a report concluding U.S. climate objectives would be under threat unless the U.S. government developed environmental performance standards for cryptocurrencies to minimize carbon pollution.

“Crypto-asset mining produces greenhouse gas emissions and exacerbates climate change primarily by burning coal, natural gas or other fossil fuels to generate electricity,” the report said.

“The electricity generated at power plants to power crypto-asset mining and for all uses of electricity can damage the environment and human health.”

Critics argue by giving new life to old facilities, fossil-to-Bitcoin schemes are threatening to prop up a dying industry. Photo: Amber Bracken / The Narwhal

Alberta oil and gas regulator wants to ‘better understand’ crypto mining

MAGA Energy is not the only company in Alberta pursuing this line of business.

In April 2022, the provincial energy regulator issued a bulletin saying it was “aware of cryptocurrency mining operations running alongside” oil and gas facilities in the province.

“We are looking to better understand the situation and work with regulated parties to manage potential risks and ensure compliance and overall safety,” the regulator wrote.

An official at the province’s utilities commission also confirmed to The Narwhal there has been “an increase in cryptocurrency mining operations entering Alberta” and the commission had developed its own bulletin about small power plants, released in March, in part as a result of this activity.

Did you know our Execitve Director @Koleyayyc has spent a decade designing combustion technology for oil and gas, recycling, and aerospace industries! Her passion for technology is limitless and we are so proud of her accomplishments for #Alberta’s technology sector. https://t.co/0zFZM90Pdw

— Canadian Blockchain Consortium (@Blockchain_CBC) May 28, 2019

Koleya Karringten, executive director of the Canadian Blockchain Consortium, a crypto industry group, said there were “large oil and gas companies currently in the province of Alberta that are looking to diversify their assets by adding generators to their sites, and being able to mine” cryptocurrencies.

“There’s a lot of ways [crypto] mining companies can partner with energy companies,” she said.

The industry is lobbying against a proposal to eliminate an existing federal tax break for crypto miners. The legislation to implement this measure has not yet been tabled in Parliament.

These changes would mean “it would be extremely expensive for mining companies to be able to operate in the country,” Karringten said. “So we are hoping that the government sees the value this industry can create, especially supporting our natural resources sector.”

She added crypto miners were dealing with “a lack of clear regulatory guidelines” across the country, and were looking for a national securities framework to allow mining companies to operate with full licenses.

The federal government’s fall economic statement acknowledged Canada’s financial system regulations need to “keep pace” with the transformative impact of crypto and digital money. The government said it is launching consultations on cryptocurrencies in November 2022.

“At the same time, the digitalization of money poses a challenge to democratic institutions around the world. In the last several months, digital assets and cryptocurrencies have been used to avoid global sanctions and fund illegal activities, both in Canada and around the world,” the statement read.

First @bankofcanada warns of “deflation”.Then prints $400B for Trudeau to borrow, causing worst inflation in 30 years.Now “rebuke” me for predicting inflation & supporting people’s freedom to use alternatives like #Bitcoin.Restore sound money. Join: https://t.co/d9I1ky9w2t

— Pierre Poilievre (@PierrePoilievre) April 26, 2022

Give people back control of their money. Keep crypto legal and let it thrive.Become a party member, so you can vote for me as leader, and let's make Canada the blockchain capital of the world: https://t.co/d9I1ky9w2t pic.twitter.com/S1IcVETmZF

— Pierre Poilievre (@PierrePoilievre) March 29, 2022

Conservative Party of Canada leader Pierre Poilievre was initially an outspoken advocate of allowing Bitcoin and other cryptocurrencies to “thrive” in Canada, as an “alternative” to the dollar. He vowed to implement legislation, for example, to treat some crypto assets like regular stocks and bonds if Conservatives win the next election. He talked about “the freedom for buyers and sellers to choose Bitcoin” and promoted himself buying a shawarma using the digital currency.

Poilievre has not actively promoted Bitcoin since its value crashed in the second quarter of 2022. Since the crash, a number of companies have been driven into bankruptcy. This fall, Prime Minister Justin Trudeau criticized Poilievre over his past support for Bitcoin.

MAGA Energy wants to put carbon-capture technology on its sites that will mine for Bitcoin. Photo: Amber Bracken / The Narwhal

Carbon pollution from crypto ‘not that easy to measure’

Karringten estimated there were about 40 crypto mining companies in Alberta, and virtually all of them were running off natural gas. Fossil fuels produce almost 90 per cent of electricity in Alberta.

Large companies like Exxon Mobil are also interested in crypto mining. The largest U.S. oil and gas company has been running a pilot project to burn natural gas from North Dakota oil wells to run crypto mining operations.

Exxon Mobil is the majority owner of Imperial Oil, one of the largest fossil fuel companies in Canada. The company’s annual report does not mention crypto mining. A spokesperson for the company did not respond to questions from The Narwhal.

There are several Bitcoin mining companies across the country, some of which are publicly traded. Many of these companies are powered by the grid, not individual oil and gas facilities.

The country’s “hash rate,” an industry estimate for how much computing firepower is being aimed at the Bitcoin network, has increased by over 1,200 per cent in less than three years, according to an index published by the University of Cambridge.

But those numbers are just a broad estimate and don’t break down the industry by energy type. Exactly what kind of fossil fuel-powered Bitcoin mining is happening in Canada, or how much carbon pollution the activity is generating, is unclear.

Henry M. Kim, an associate professor at York University and the director of the blockchain lab at the Schulich School of Business, has been studying the carbon footprint of cryptocurrency mining and also has found there is a lack of data.

Kim and Andrea Podhorsky, an assistant professor of economics at York University, published a paper in October concluding “since the carbon intensity of electricity generation varies widely from region to region and the Bitcoin network design largely conceals the miners’ locations, it is difficult to precisely estimate the [carbon dioxide] emissions from mining at a regional level.”

“The bottom line is, people don’t know. … It’s actually not that easy to measure,” Kim said.

The crypto mining industry is lobbying against a proposal to kill an existing federal tax break, but the legislation has not yet been tabled in Parliament. Photo: Amber Bracken / The Narwhal

Utilities across Canada cite privacy, lack of data as obstacles to understanding crypto mining

Neither Alberta’s energy regulator nor its utilities commission could give any specifics about how many crypto mining operations there were in the province, or what kind of emissions they were responsible for.

The regulator said it was still working to verify the information it had received from its public outreach. The commission said it didn’t track how many power plants were dedicated to crypto mining, because applicants aren’t required to say what purpose the power is to be used for.

The provincial energy ministry refused a freedom of information request from The Narwhal for access to records concerning the use of oil and gas sites to power cryptocurrency mining operations, stating it included “advice from officials,” and other information that could be “harmful to economic and other interests of a public body.”

Freedom of information legislation in Alberta requires provincial ministries and other public organizations to provide access to information, upon request to anyone who pays a $25 fee, unless they have a valid reason to refuse.

Alberta Municipalities, an organization representing cities in the province, said in an October 2021 brief that cities “may need to balance their role in the regulation of climate change matters with the approval of cryptocurrency mines which require significant power.”

The organization told The Narwhal it was not tracking the issue. Another group, Rural Municipalities of Alberta, an association made up of rural municipal districts and that counts Sturgeon County as a member, also said it didn’t have any data to share on the topic.

The picture is similar outside the province. Utilities and regulators across Canada were hesitant to share statistics on the industry when asked by The Narwhal, either because the information isn’t being collected or because of privacy concerns.

“In order to protect the privacy of our customers, we do not publicly disclose the types of businesses connected to our system,” a spokesperson for Hydro One, one of the largest utilities in Ontario, said in an email.

Similarly, a spokesperson for Manitoba Hydro confirmed it did have “a number of cryptocurrency operations in Manitoba,” but said it couldn’t divulge “the number of operations or their load due to confidentiality reasons.”

BC Hydro estimated it was supplying on average about 80 megawatts of electricity load to crypto mining activity. But it said since customers weren’t required to disclose the nature of their business, the utility couldn’t determine how many cryptocurrency operators that number represented.

“There is still a significant amount of uncertainty as to how this industry will develop over time,” a spokesperson for the utility said in an email.

The B.C. Oil and Gas Commission said it was “not aware of any crypto mining operations on or near any of our regulated assets.”

Hydro-Québec said at the end of June it had 103 clients involved in crypto mining on their grid, and they had consumed 75 gigawatt-hours in that month. But the utility said that because its electricity was almost 100 per cent non-emitting, “there is no greenhouse gas emissions associated.” Quebec’s electricity is 94 per cent hydropower.

In early 2021, Canada’s national energy regulator singled out the “energy demands associated with cryptocurrency mining” as an example of how a new and significant power drain could affect climate goals. That regulator had also not done any recent analysis of crypto mining, a spokesperson told The Narwhal.

The Canada Revenue Agency, which has produced several guides on keeping records of crypto transactions, said it has “established a dedicated crypto-asset unit to build intelligence.” But, it added, it “does not currently track crypto-asset declarations separately in our system.”

Utilities and regulators across Canada were hesitant to share statistics like the number of crypto mining operations they support or oversee. Photo: Amber Bracken / The Narwhal

A private company with carbon capture dreams

MAGA Energy insists its plan is greener than it sounds.

In response to questions from The Narwhal about the climate impact of their operations, company board chair David Tian said the firm’s plan is to eventually bundle their sites with emissions-lowering technologies, like carbon capture.

In an interview, he also talked about a plan to erect greenhouses nearby to their gas wells — greenhouses he said could use the excess carbon dioxide from burning gas and waste heat from running Bitcoin computers, to grow vegetables.

“Because this is waste heat, and also [carbon dioxide], we’re not going to charge much for those [greenhouses] — we can give them a very low price, and let the greenhouse operators have reasonable returns,” he said.

That infrastructure had not yet been built when The Narwhal visited.

It’s unclear what kind of ability the company has to invest in these emissions-lowering projects. MAGA Energy has 20 employees and 95 operating wells, producing about 1,800 barrels of oil equivalent per day of oil, gas and natural gas liquids. For perspective, large oilsands companies produce many hundreds of thousands of barrels per day.

Tian declined to share business statistics with The Narwhal such as general revenues or costs, whether it was making a profit right now or whether it was backed by any significant investors.

“We are a private company and we don’t disclose these financial results publicly,” he said. “However what I can disclose is that currently MAGA is a financially healthy company after two years of a very tough time during COVID-19, and it is on the way to getting better.”

Bitcoin’s volatility in the markets will also affect how profitable MAGA Energy’s plans can be. Tian said there is now less demand from Bitcoin miners than when they pitched Sturgeon County administrators on their plan to use their shut-in gas wells. But he said MAGA Energy still hopes to attract miners “at a gas price lower than market price.”

Even if the price of Bitcoin rises again in future, the company’s plans to add carbon-capture equipment will still face a big technical challenge. Most major projects, for example, have failed to stop the emissions they promised to capture. The technology is also still unproven at the scale necessary for broad decarbonization of the energy sector.

MAGA Energy says its plan would result in regional benefits like local job opportunities. Amber Bracken / The Narwhal

‘We are trying to find a way to create a win-win situation’

In addition to emissions, crypto mining can also cause other environmental impacts, according to the White House report. It flagged local noise and water impacts, air quality and environmental justice concerns as other potential issues.

MAGA Energy is familiar with noise complaints. A previous partnership with another firm using one of its gas wells to mine for Bitcoin led to nearby residents complaining about the mine’s noise levels, comparing it to “several idling Boeing 737s.” The operation was shut down.

In November 2021, the company gave a presentation to Sturgeon County administrators about changing the land-use bylaw to allow these kinds of facilities. Council approved, and voted in favour of adding “data processing facility” as a legitimate operation.

As part of its presentation, the company promised to follow all regulatory requirements “strictly,” such as noise and environmental assessments, as well as respecting stakeholders’ rights.

The company also promised its plan would result in other benefits to the region, in the form of royalties from the use of the gas, increased demand for local businesses and “job opportunities for the local residents.”

An emailed request to speak with a county administrator on the issue was not returned.

Tian argued that gas wells that are shut-in for too long are in jeopardy of developing corrosion issues, which he noted are also an environmental problem. In addition, he said, nearby farmers can’t grow crops as easily when pipelines and wellheads still occupy their fields.

Leaving the wells shut-in is “not the best option for both MAGA Energy and also the landowners. So we have to find a way to produce those [gas] reserves, but at the same time, protect the environment,” he said.

“We are trying to find a way to create a win-win situation between the economic return and also the environment.”

The White House has calculated crypto’s emissions equal all the world’s barges, tankers and other ships on canals and rivers. Photo: Amber Bracken / The Narwhal

‘This is not extending the life of oil and gas’

Cryptocurrencies are clearly a massive energy hog around the world. Yearly global electricity use by crypto assets now equals what is consumed by all of Australia, according to the White House, and Bitcoin accounts for about three-quarters of that.

Crypto’s emissions, meanwhile, are equivalent to that of all the world’s barges, tankers and other ships on canals and rivers, the office estimated.

The issue of energy use is in part why Ethereum, a competing cryptocurrency, recently switched its protocol to cut down on the amount of work computers needed to perform to validate its transactions.

Industry advocates suggest their activity is not necessarily at odds with climate goals. The Bitcoin Mining Council, a Texas-based group of companies including some headquartered in Canada, said that 66 per cent of the power used by its members and identified in a voluntary survey was deemed as “sustainable.”

“It is important for the world to get the real facts about the amount of energy used and carbon released by the Bitcoin Network,” co-founder Darin Feinstein said in a press release.

Key insights:•By mid-Sept, approx. 199.65 MtCO2e attributed to #Bitcoin network since inception•Current annualised GHG estimate at 48.35 MtCO2e – down 14.1% on 2021 estimate•Fossil fuels = 62.4% & sustainable energy sources = 37.6% of Bitcoin’s electricity mix

— Cambridge Centre for Alternative Finance CJBS (@CambridgeAltFin) September 27, 2022

University of Cambridge researchers found fossil fuels account for “almost two-thirds of the total electricity mix” at 62.4 per cent, compared to 37.6 per cent for sustainable energy sources.

By mid-September 2022, they concluded, about 199.65 million tonnes of carbon pollution was attributed to the Bitcoin network.

Karringten dismissed Bitcoin mining’s dirty reputation as a leftover myth from its history of linking up with the coal power industry in China. Since that country engaged in a crackdown on crypto, miners have been “looking for the cleanest, most ethical, most renewable sources of energy,” she said.

Asked how much Canadian mining represents in terms of global crypto emissions, Karringten said she doubted if Canada would even make up a full per cent.

She also called natural gas “a very clean and very effective” source of energy for Bitcoin mining, and rejected the idea that gas-to-Bitcoin schemes were giving the fossil fuel industry a new lease on life.

“This is not extending the life of oil and gas. This is a benefit that could create a more positive environmental impact, if you can use the waste heat off of Bitcoin mining, and you can use that heat towards greenhouses, you can actually increase our agricultural production through that and create net-zero on sites, as opposed to stacking and flaring your gases,” she said.

“You can take those gases, combust them, create less damaging emissions and then use that waste heat for good.”

Tian said he believed people outside Alberta didn’t understand how serious oil and gas workers treat environmental issues. Photo: Amber Bracken / The Narwhal

‘Those people don’t fucking care about the environment.’ But we do.’

Although Tian has talked about reducing greenhouse gas emissions from the company’s projects by using carbon-capture technology, he also expressed skepticism about whether these types of initiatives were needed — raising his own personal doubts about widely accepted and extensive scientific evidence concluding humans have been responsible for global warming.

Tian said he is a geologist with a master’s degree. His name does not appear in the member directories for the professional geoscientist associations of B.C., Alberta or Saskatchewan. He declined to give more information about his professional credentials.

He said he believed people outside Alberta didn’t understand how serious average workers in the oil and gas industry treat environmental issues.

“My impression is, most people think of the oil and gas industry, ‘those people don’t fucking care about the environment.’ But we do. We do a lot,” said.

To give some examples, he talked about an experience he had 15 years ago at another oil and gas company, when he was visiting one of the company’s wells.

He said there was a spill while they were working on the well, maybe 20 or 30 litres. The supervisor at the time impressed Tian by putting down sawdust on the spill and removing the contaminated soil immediately, he said.

He said he was also amazed by how a fracking company he’d seen had made sure each joint didn’t even leave “one drop of fluid on the ground.”

In the end, Tian said he’s interested in caring for the environment for the same reason as many other people.

“We are all human beings living on this planet, and we all have to do our part to keep it in good condition,” he said.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

In the first four days after applications opened for companies to access $1.7 billion in federal funding to clean up inactive wells in Alberta, the province has been inundated with nearly 20,000 applications. 

While much of the political and media focus has been on orphan wells — those left behind without an owner —  they are just the “tip of the iceberg,” Nikki Way, senior analyst at the Pembina Institute, told The Narwhal.

“The bulk of the work that needs to be done is still in the hands of private industry.” 

That work involves the sealing off and cleaning up of tens of thousands of inactive wells across the province, still owned by private companies that haven’t had the means — or the incentive — to clean them up.

Some of those wells have been languishing on the landscape for decades.

With federal funds flowing to private companies to clean up the wells, questions are now being raised about whether that funding provides a transfer of taxpayer money to the oil and gas industry — and what strings might be attached.

“It was a good compromise right now. These are very unusual times,” Barry Robinson, a Calgary-based lawyer with Ecojustice said, noting the funding means more jobs and a reduction of environmental risk.

But, he added, the problem of companies not cleaning up wells is “a bigger problem to fix.” Too often, he noted, companies let wells sit for years or decades instead of paying to clean them up.

For Lucija Muehlenbachs, associate professor of economics at the University of Calgary, the program has good goals — it reduces environmental risk and creates jobs in the short term — but confuses the message to companies. As she put it, it sends a “bad signal.”

“Are companies thinking, ‘OK, why should I clean [a well] up because eventually the government is going to pick up the bill?’” she asked.

“It’s a good idea to try and facilitate as much of that [cleanup] work as possible,” Way said. “But it’s key that the public isn’t exposed to that risk.”

And that, she says, means ensuring public money isn’t handed out without “policies that address the root causes of the growing liability issue.”

We looked into how we got here — and what experts are saying the province can do about it, especially with an extra billion dollars floating around.

1. What exactly is the billion dollars for well cleanup going to be spent on?

Last month, the Alberta government made the first announcement on how it will spend $1 billion in federal money it is receiving to encourage the cleanup of inactive wells across the province.

The money is part of a $1.7 billion package for well cleanup announced by Prime Minister Justin Trudeau in April — an olive branch extended to the beleaguered oil and gas industry, hit hard by a supply glut and reduced demand as a result of COVID-19.

Trudeau’s announcement initially attracted the praise of environmental groups, industry and the Alberta government alike. Energy Minister Sonya Savage called it “a job-creation program that has the added benefit of being an environmental program.”

As part of the package, a $200 million loan is being extended to Alberta’s Orphan Well Association, to expedite the cleanup of the province’s roughly 7,000 orphan well sites requiring some kind of site cleanup, be it sealing or remediation.

Then there’s another billion dollars in funding — not a loan — going toward cleaning up inactive wells in Alberta.

Friday was the first day oil and gas service companies across Alberta could apply for government funding to clean up inactive wells — and there’s quite a bit of money to go around.

The Alberta government is allocating the federal money through what it dubbed its Site Rehabilitation Program.

The program will provide grants to service companies that complete cleanup work on inactive well sites — funding up to 100 per cent of the total cost of the work. Normally, the company that owns the well would be responsible for picking up the cleanup tab.

How much the government pays is “dependent on the ability of the oil and gas company responsible for the site to help pay for cleanup,” which implies that companies in precarious financial situations may be off the hook entirely for the cleanup of wells accepted into the program. 

As Energy Minister Sonya Savage put it to The Globe and Mail, the first phase of the program will be aimed at wells owned by companies that “don’t have two pennies to rub together right now.”

The government says the program will create 5,300 direct jobs and will result in the cleanup of thousands of well sites.

2. How big is the inactive well problem?

The Government of Alberta reports the province has some 91,000 inactive wells.

The Narwhal previously reported on internal documents showing the Alberta Energy Regulator has privately projected that the number of inactive wells in Alberta could double to 180,000 by 2030.

As Robinson pointed out, the number of inactive wells has continued to climb in the province — and not just when times are tough. 

“You’ve got to remember that when oil was $60 or $80 a barrel, the number of inactive wells went up every year,” he said.  “The number of inactive wells has just been going up, up, up, up, up.”

“The trend has been up for a very long time.”

The problem of inactive wells has grown by six per cent each year on average, according to a graph obtained through a FOI request. An “abandoned” well, in a confusing bit of industry jargon, refers to the proper sealing of an inactive well. Graph: Carol Linnitt / The Narwhal. Source: Alberta Energy Regulator

According to an internal presentation from the Alberta Energy Regulator, the number of inactive wells has grown by six per cent each year.

The government also reports the province has another 73,000 “abandoned” wells. Abandoned wells can still be owned by a company. In a confusing bit of bad jargon, they are not the same as orphans. Abandoned wells have been permanently sealed, but the site has not been cleaned up.

Taken together, the number of wells no longer in use is roughly the same as those still pumping oil and gas.

3. Why would a well sit inactive?

Wells can be left to sit inactive — rather than being sealed and cleaned up — on the chance they may again one day produce oil or gas, and once again garner a profit for their owner. 

In reality, that seldom happens.

According to a 2017 briefing paper from the University of Calgary’s School of Public Policy, “the vast majority of these wells will never be reactivated, no matter how dramatically conditions improve.”

The paper found that even “if oil prices rise 200 per cent, the modeling shows that just 12 per cent of oil wells become reactivated, and just seven per cent of gas wells.”

In the current situation where negative oil prices are making headlines, oil prices are certainly not rising by 200 per cent.

Even before the COVID-19 pandemic, an internal presentation from the Alberta Energy Regulator showed that less than 0.2 per cent of wells that have sat for 10 years were reactivated.

And the longer an inactive well sits, experts say, the higher the risk of problems.

4. What’s wrong with an inactive well?

Not every inactive well is a risk to human health, the environment or agriculture. 

But some are.

“The longer a well sits inactive, the more likely it’s either leaking methane, a greenhouse gas X times more potent than carbon dioxide, to the surface or the more likely the pipe is broken down and you’re leaking contaminants into groundwater,” Robinson said.

“In a nutshell, the longer a well sits, the greater the risk of some sort of environmental harm.”

Report ‘buried’ by Alberta government reveals ‘mounting evidence’ that oil and gas wells aren’t reclaimed in the long run

5. Does Alberta have any timelines on how long a well can sit inactive?

No.

Last year, B.C. became the first province in western Canada to introduce timelines for how long a well can sit dormant before it needs to be sealed and cleaned up. Similar regulations exist in Texas and North Dakota.

Nothing of the sort exists in Alberta.

In essence, leaving a well to sit on a landscape becomes an economic decision for the company that owns it.

On one hand, plugging the well, remediating the soil and obtaining a reclamation certificate can be expensive — some wells may incur costs in the hundreds of thousands of dollars.

On the other hand, until a reclamation certificate is issued, a company is required to pay rent to the landowner, and any taxes it owes to local governments. (Though, as The Narwhal has previously reported, Alberta companies have been increasingly not making rental payments and are behind on their tax payments.)

In the end, for close to 100,000 wells across the province, it makes more sense for many companies to just to let them sit there. 

6. How can Alberta realistically solve its inactive well problem?

Muehlenbachs, the economics professor, isn’t convinced timelines alone would solve the growing problem of inactive wells. 

She argues instead that an additional incentive could be put in place to prevent companies from leaving wells to sit idle indefinitely, pointing to California as an example.

In that state — where there are approximately 100,000 wells, representing a cleanup liability of an estimated US$9 billion — regulators have put in place what’s called an idle well fee. In essence, if companies want to leave a well sitting on the landscape, they have to pay. Fees range from US$150 to US$1,500 per year. 

Muehlenbachs thinks that could be done in Alberta, too. “A smart policy would be to put a price tag on inactive wells and make that increase with age,” she told The Narwhal.

7. What other kinds of policies are advocates hoping to see tied to this $1 billion?

Advocates have long been calling for the province to put in place tougher regulations to stop the growth of inactive wells, arguing that the environmental risks  — and the chance that unprofitable wells might end up orphans — are too great for Albertans to ignore.

The Pembina Institute has argued for full securities or bonds when a company applies to drill a new well. 

This would require companies to post the full cost of cleanup prior to drilling, and reaping the profits from drilling. The bond would only be returned once the well was properly plugged, the site cleaned up and a reclamation certificate issued — possibly in stages, to incentivize a company to move along the steps.

To Muehlenbachs, a bond would be a reasonable expense for a company wanting to drill a well. “I mean, new wells are so expensive, what is a bond to these companies?” she wondered.

Although it has been reported that the federal funding for cleanup comes with “a provincial commitment to implement strengthened regulations to prevent this problem from reoccurring,” no details have been released. 

“We’ve gotten commitments by the government of Alberta to strengthen regulations so we see fewer orphan and inactive wells in the future,” Prime Minister Justin Trudeau said, according to CBC.

For now, advocates are left wondering what that might look like. 

Asked for comment, the Prime Minister’s Office referred The Narwhal to Natural Resources Canada, which referred The Narwhal to the Department of Finance, which did not answer questions by publication time.

“I would want to see the details of that system,” Robinson said.

“Alberta over the last 40 years has many times said, ‘oh, here’s our program to fix this problem.’ And the program has never been effective.”

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

The Narwhal has obtained a previously unreleased report commissioned by the Alberta government that raises red flags about whether the government’s own program to ensure oil and gas sites are cleaned up is actually working in the long term. 

The 55-page report, obtained through a freedom of information request, cites “mounting evidence” that Alberta’s land reclamation program is not ensuring former oil and gas sites meet regulatory requirements in the long run, and instead confirms that, of the sites studied so far by an internal government pilot project, all but one failed to meet the government’s standards.

A former senior government official (who asked to remain anonymous) with knowledge of the report told The Narwhal that releasing the report was “seen as an extreme risk to the department” and that there was “extreme pushback” against it being made public. 

The former official described the report as a “valuable piece of science” and one “that needed to be publicly reported.”

But “politically inconvenient” reports, the official said, were often “buried” within the department, regardless of the government in power.

The province’s United Conservative Party (UCP) government has indicated that the office that has been working on this research — the environmental monitoring and science department — will soon be eliminated, and its staff “integrated” into other government departments.

‘The public needs to know that this land is being degraded’

There are nearly half a million oil and gas well sites in Alberta, covering an estimated 400,000 hectares — an area approximately five times the size of Calgary. 

For the last century, oil and gas companies have made a promise to Albertans — that the wells they’ve drilled across the province would one day be cleaned up. Companies promised that land would be returned to just as good as before drilling, sometimes even boldly claiming it would end up even better.

The Environmental Protection and Enhancement Act, the legislation that governs how companies must act to protect the environment, requires that operators — like those drilling oil and gas wells — fulfill “the objective of protecting the essential physical, chemical and biological characteristics of the environment against degradation.”

But the report finds that the government’s reclamation certificate program is unable to ensure this is happening in the long run.

The government updated its reclamation criteria in 2010, requiring cleaned-up well sites to achieve a sort of equivalence with nearby land. The government issues certificates to sites to mark them as officially cleaned up, called reclamation certificates. 

However, many reclaimed sites are not actually reclaimed at all, according to the report. 

In farmer’s fields, the exact outlines of well pads may be clearly visible through crop degradation. 

A drone shot used in a presentation made by an Alberta Environment and Parks scientist at an Alberta Institute of Agrologists conference in April 2018. The image clearly shows lingering crop degradation, long after a reclamation certificate was issued. The Alberta Institute of Agrologists told The Narwhal in fall 2018 that “there was unwanted negativity toward s[the] findings.” Image: Alberta Environment and Parks

In forested areas, there may be no trees where wells used to be.

Peter Eggers, a farmer in northern Alberta, told The Narwhal last year that an old well site on his property that has received a certificate is known locally as “the spot where nothing grows.” 

As John Begg, recently retired senior manager of public land policy and former manager of the public land reclamation program with the Government of Alberta, told The Narwhal: “The public needs to know that this land is being degraded.”

“The fact that a … certificate is issued doesn’t mean everything is good — or is going to be good in 20 or 30 years.”

Shari Clare, a professional biologist and one of the authors of the report, told The Narwhal by email that the provincial government is “very focused on the short-term goal of issuing reclamation certificates, with the assumption that once a site is certified it will continue to improve through time.”

But, she said, “there is evidence to suggest that this is not the case.”

Long-term impacts of wells ‘largely unknown’

Companies are supposed to restore an area where a well has been drilled to “equivalent land capability,” a term that — according to the report — has turned out to be more subjective than one might imagine. The government uses an extensive list of criteria to compare an old well site to a nearby piece of land that hasn’t been drilled.

In the public understanding, a reclamation certificate should ensure that the site of an oil or gas well has been returned to an environmentally acceptable state. 

The report’s authors note “the ecological implications of certification remain largely unknown,” citing a number of factors, including a lack of any long-term monitoring of well pads after they are certified.

“[S]ites are underperforming long after certification,” the authors write, referring to reclamation certificates issued by the regulator once it deems sufficient work has been done. 

They note previous research has shown “a large number of certified well sites do not meet an acceptable standard,” as defined by the government.

Alberta Environment and Parks did not respond to The Narwhal’s repeated requests for an interview.

Oil operations near Carseland, Alta. An author of a previously unreleased report on the long-term reclamation of sites like these told The Narwhal that the government and the provincial energy regulator are “very focused on the short-term goal of issuing reclamation certificates, with the assumption that once a site is certified it will continue to improve through time.” Her research found “mounting evidence” that this is not the case. Photo: Todd Korol

Alberta’s reclamation certificate program is overseen by the Alberta Energy Regulator, an independent corporation funded entirely by industry that oversees the regulation of oil and gas activities in Alberta.

The Alberta Energy Regulator declined to make anyone available for an interview and instead requested questions submitted by email.

Shawn Roth, a spokesperson for the Alberta Energy Regulator, said in an emailed response that the regulator has “concerns with the methodology and interpretations made in the report.”

He noted that the sites studied received a reclamation certificate before the government’s current criteria were being used to evaluate equivalent land capability. “A site should not be reassessed using criteria that came into place after its reclamation certificate was granted as criteria evolve over time,” he wrote.

But the report notes that, currently, a “fairly substantive number of reclamation certificates are being issued for sites that do not meet the 2010 criteria,” because the regulator grants exceptions to companies by labelling their applications as “non-routine.”

“This raises important questions regarding long-term liability of these sites, that will eventually shift to Albertans on both private and public land,” the report’s authors write.

Clare, one of the authors of the report, told The Narwhal that “while the government insists that the new (2010) reclamation guidelines will result in better outcomes, there is no requirement to monitor these sites once they have been certified.”

And, as others point out, the massive number of sites that have already been certified as reclaimed may be a liability Alberta needs to deal with.

“Some of the things that are diminished are maybe permanent,” Begg said. “It’s not necessarily fixing itself over time.”

Alberta’s Energy Regulator’s public reporting is ‘not transparent’

The report alludes to a brewing regulatory failure to oversee the reclamation certificate process in the first place.

The report — which dubs the Alberta Energy Regulator’s public reporting as “not transparent with respect to very basic metrics,” “somewhat opaque,” and “unlikely to be informative” — was provided to the Alberta Energy Regulator in 2018 by Government of Alberta staff, according to emails obtained through a freedom of information request. 

The report contains a lengthy analysis of Alberta’s reclamation laws, policies and regulations and raises concerns about the Alberta Energy Regulator.

In it, the authors wave a red flag about the regulator’s audit system, which relies on a program for certification that is largely automated and seldom sends auditors out into the field to check the work of consultants hired to fill out applications for reclamation certificates. 

Less than three per cent of sites that have received reclamation certificates from the Alberta Energy Regulator have been visited as part of an audit of the site’s approval, which is largely automated. The public has frequently been told 15 per cent of sites would be visited for an audit. Graph: Sharon J. Riley, Carol Linnitt / The Narwhal

The authors interviewed practitioners who work in reclamation. Those practitioners felt the “audit system resulted in a greater proportion of poorly performing sites being certified, as there was less regulatory oversight in the audit system.”

Begg, the retired former manager of Alberta’s public land reclamation program, is concerned there are few consequences for a company when an audit reveals a site should have failed. “When there’s an audit failure there’s got to be drastic consequences, other than just failing the site,” he said.

Currently if an audit reveals a site should have failed, the company will simply need to update its application and complete any work to ensure the site passes next time.

The report suggested there is a large amount of leeway for the consultants that sign off on reclamation jobs, even if they may not meet the criteria required by the government.

Following an analysis of data provided by the regulator, the report found a “fairly substantive number of reclamation certificates are being issued for sites that do not meet the [government’s] criteria.”  

And that’s a problem — as the government has no mechanism to monitor the health of sites in the long term.

The report noted “there are no formal or legislated post-reclamation metrics against which to evaluate reclamation outcomes longer-term.” 

And with the soon-to-be elimination of the government division that was looking into long-term monitoring, it seems unlikely there will be any type of metric in the future.

No consensus a reclaimed well site is ‘actually going to grow a tree again’

The report notes that forestry operators have long found that certified well sites in the boreal region “do not support trees with the same growth and yield” and that farmers and landowners report that crop productivity on certified well sites is not comparable to the rest of their fields.

According to Begg, “on forested well sites, there isn’t consensus it’s actually going to grow a tree again.” 

A ‘reclaimed’ oil and gas well in Yellowhead County, 250 kilometres west of Edmonton, Alberta. The landscape has not been returned to its former state. Image: Screenshot / Google Maps

The problem is often with the soil.

As Larry Brocke, former director of the Government of Alberta’s land reclamation division in the ’90s, put it in an interview with the Petroleum History Society, “You can’t put it back the way it was immediately. You just can’t.”

Roth, the spokesperson for the regulator, noted in an email that “companies remain responsible for surface issues related to reclamation for 25 years after receiving a reclamation certificate. They are also permanently responsible for contamination and any infrastructure left beneath the surface.”

But there are concerns that issues with reclamation may not be noticed for years, or even decades, particularly on remote public lands where there is no nearby landowner to keep a watchful eye.

And the question remains: how long does it take for land to get “back to what it was before” after oil and gas development? Or can it?

No one knows what will happen in the future

The Alberta Energy Regulator received the report in 2018. Nothing appears to have changed since the findings were shared among government officials.

Roth from the regulator wrote by email that “while we are not currently working on anything specifically with Alberta Environment and Parks, we are always looking for potential improvements to the reclamation certificate process.”

The Narwhal first reported on the Alberta government’s internal pilot project to evaluate a small number of reclaimed well sites in 2018. 

Since then, some of the results of that pilot project have been published for the scientific community.

In research published in November, University of Alberta scientists and their government counterparts found that “well pad impacts can be long lasting and may remain for decades or more post reclamation,” suggesting that regardless of the criteria used to measure a pass or fail, former well sites simply cannot be said to be recovering from the impacts of oil and gas development.

A paper in the Canadian Journal of Soil Science has detailed some of the results of the pilot project — and is sharply critical of the government’s ability to ensure oil and gas wells are truly cleaned up.

“There is a general lack of assurance to the public that intended goals of reclamation and recovery, as expressed in legislation, are achieved at reclaimed and certified well pads,” the authors write. 

The lead author of the paper is a land scientist with the soon-to-be scrapped environmental monitoring and science division of Alberta Environment and Parks.

The authors lambast the government for its lack of monitoring and its failure to collect scientific evidence.

They write that “even after more than five decades of certification history,” the government has not acted to collect any long-term information about the success of the cleanup of well sites.

”This type of scientific evidence is essential … to assure citizens that public and private land will be protected.”

The authors undertook a pilot project, called the ecological recovery monitoring project, that found “significant” environmental and crop impacts of oil and gas wells long after the government had signed off on reclamation certificates.

The path of a buried pipeline is clearly visible in a farmer’s fields near Fairview, Alta. Some farmers have long been concerned with the impacts of oil and gas infrastructure on their crops. A report obtained through a freedom-of-information request has warned that even after oil and gas sites are certified as reclaimed, there may be long-term issues with the productivity of the land. Photo: Amber Bracken / The Narwhal

The pilot project found “there are long-term oil and gas legacy effects on soils at reclaimed well pads.”

The funding for the ecological recovery monitoring project has since been cut, according to internal emails obtained by The Narwhal through a freedom of information request. 

And in October, CBC reported that the entire environmental science and monitoring division would be dissolved by the UCP government.

‘The most efficient regulatory system is one that doesn’t exist’

It has been internally estimated that it would cost as much as $100 billion for all the wells across the province to meet the government’s standards.

“Given how many of these sites exist on the landscape, and the enormous ecological and public liability that this represents, I think that the provincial government should be giving greater attention to this issue,” Clare, one of the authors of the report, said in an email.

There should be, she added, “less focus being put on the number of applications that are being processed, and more focus being put on the quality of those sites.”

This report raises serious questions about what happens if sites still don’t meet standards, even after they’re certified as reclaimed — at a time when the Alberta government has increasingly put an emphasis on “efficiency” in its regulatory bodies.

“The most efficient regulatory system is one that doesn’t exist,” Begg told me. “It doesn’t create any burden. That’s extremely efficient.”

That sort of system, he laments, would also mean zero oversight for companies operating all over Alberta.

Begg is adamant that more needs to be done to ensure reclamation policies have been working in the province, and that includes ensuring companies invest in reclamation work in the first place. 

“We need policies to have timelines to ensure reclamation occurs,” he tells me.

And, he added, the government — who is responsible for setting reclamation policy — needs to take a step back and fully evaluate whether its program is working (as it appears the report obtained by The Narwhal was intended to do).   

“You’ve got to look back and make sure that the things you’re doing today are delivering what they’re supposed to,” Begg says. 

Eliminating the only government department to date that has tried to do just that, he implies, certainly isn’t helping.

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There’s little doubt Alberta is chock-full of oil and gas wells. There’s a well for every 1.5 square kilometres in this province — wells in the middle of farmers’ crops, wells submerged in ponds, wells in the prairies, wells buried under sheds in people’s backyards, wells in forests and even wells smack dab in the middle of playgrounds.

What’s less certain is when all these wells are going to be cleaned up.

According to the Government of Alberta, there are an estimated 343,000 wells in this province. Half of those — roughly 50 per cent — are no longer active.

The government estimates 77,000 wells have been plugged — known in the industry as “abandoning” — and another 90,000 are sitting inactive. Those inactive wells are not yet plugged, and neither category has been reclaimed.

The vast majority of these are wells that still have a rightful owner who is supposed to pay for their clean up.

But in Alberta, there’s currently no requirement as to when they do that — in theory, a company could leave a well unreclaimed, indefinitely.

As for the hope that inactive wells are just temporarily idle, and might one day be put back into production, a paper from the University of Calgary predicts that “most inactive wells will likely never produce oil or gas again.”

With estimates published last year that put the total price tag on cleaning up Alberta’s wells at $100 billion, the issue is on the minds of many Albertans — as well as politicians — as Albertans get ready to head to the polls on April 16.

We took a look at what Alberta’s two major parties have to say about the province’s well-liability issues.

NDP promises timelines, UCP acceleration of drilling approvals

The NDP’s platform, released on Sunday, promises to implement timelines for reclamation of oil and gas sites, saying it “will implement clear timelines for when companies need to clean up their abandoned oil and gas wells and require them to justify delays in reclaiming sites.”

States like Texas, North Dakota, Alabama and Nevada have timelines in place to ensure oil and gas companies clean up their sites in a set amount of time. According to a report by Lucija Muehlenbachs, an associate professor of economics at the University of Calgary, “in the U.S., the time limit on suspension ranges from six to 300 months.”

The UCP platform, on the other hand, makes no mention of timelines, other than to note that it will speed up the approval of new well sites.

On Tuesday, Kenney stood in front of a pumpjack and a herd of cattle in Turner Valley and told reporters there would be a “rapid acceleration of approvals,” noting the UCP would “establish legislated benchmarks for approval times” on new wells, but did not specify if timelines would be imposed on cleanup of the hundreds of thousands of old ones.

The party’s platform does note that a UCP government would “increase the rate at which wells that will not be used again are officially ‘abandoned,’ ” though it remains unclear what this might entail.

Alberta’s current system relies on a cost-benefit analysis for the company. The company is required to pay rent to landowners when a site sits unreclaimed on their land. Once the company obtains a reclamation certificate, that obligation is over.

The trouble is, many companies have simply stopped paying rent to landowners, forcing the government to step in and pay it for them. The Narwhal reported earlier this year that government payments to landowners on behalf of delinquent companies are up 840 per cent since 2010.

In the meantime, inactive wells languish on the landscape, posing risks for soil and water contamination, release of greenhouse gases, air pollution or explosions.

Inactive oil and gas wells in Alberta. Map: Fuzeium

UCP: Encouraging reclamation by asking for federal tax incentives

The UCP has two specific ideas for incentivizing reclamation, though they both come in the form of requests to the federal government.

First, the party says it will ask the federal government to provide tax incentives and “financial support,” including what they call “green flow-through shares.” A flow-through share would apparently allow an investor to purchase shares that would pay for reclamation, then claim the cost as a federal tax deduction.

The UCP also plans to “urge the federal government to establish alternative financial vehicles that focus on environmental reclamation in the oil and gas industry, such as adapting Qualifying Environmental Trusts (QET) to include well decommissioning costs.” Essentially, this would allow companies to claim a federal tax deduction for any money set aside for future reclamation.

The NDP does not specify any tax incentives it would propose the federal government make for this purpose.

An end to sloughing off liabilities?

The National Observer reported last fall that the Alberta Energy Regulator had privately estimated the cleanup costs of oil and gas wells in the province to be $100 billion.

Many of those liabilities are traded around like sports cards, in what The Globe and Mail described as a “brisk trade in junk assets.”

There have long been concerns with the way companies are able to sloughing off their liabilities to financially precarious companies, who then may in turn go bankrupt and leave taxpayers with the bill.

The NDP is proposing a new way to evaluate a company’s viability prior to approving transfer of assets (and liabilities). It says it will “implement new corporate health measures on asset sales to prevent liability dumping as we continue to work with industry.”

Currently, the regulator relies on what’s called a liability management rating system. In this system, a company’s assets (essentially an estimate of the money it makes from oil and gas production) are measured against its liabilities (the cost to seal and clean up all its infrastructure) to establish a ratio. If the company’s ratio of assets to liabilities is less than one, it must pay a deposit on cleanup. As The Narwhal reported last year, this system has been found to be dramatically exaggerating assets and underestimating liabilities.

A corporate health tool would, in theory, take into account more parameters than the current system.

The UCP makes no mention of a corporate health tool, saying only that  it will “work jointly with the AER and industry to overhaul the liability management framework in Alberta, ensuring liabilities are covered without unduly discouraging new investment.”

Implications for the long-term

Everyone agrees — Alberta has too many inactive and unreclaimed wells, and there’s a potential for disaster if something isn’t done, and soon.

Much has been made of the importance of getting more wells through the reclamation phase. Once a well is certified as reclaimed, it removes the liability from a company’s balance books. At least on paper, it looks like the problem has been solved.

However, concerns have been raised about whether the rush to issue reclamation certificates has been leading to subpar work — and whether that has long-term implications for the Alberta landscape.

Under Alberta regulations, companies have a responsibility to restore sites to something known as “equivalent land capability” — which means the land should be just as productive, ecologically or agriculturally, after reclamation as it was before the well was drilled.

The Narwhal reported last fall that a Government of Alberta pilot project found that the vast majority of certified reclaimed sites studied were not meeting the government’s own criteria — noting that certified reclaimed wells were, in general, in poorer condition than nearby references sites.

Farmers and landowners have told The Narwhal that they have long noticed that many sites are more likely to host invasive species and less productive crops.

On reclamation, the UCP says it will “streamline the process for well and facility abandonment and environmental reclamation to reduce costs.”

As The Narwhal reported last week, previous streamlining efforts have led to a regulatory system in which an inspector visits less than three per cent of sites that receive reclamation certificates, which has led some to refer to the Alberta Energy Regulator as a “bingo-dauber agency.”

On Tuesday, Kenney announced he would commit to a review of the Alberta Energy Regulator within 180 days of taking office, to “identify efficiencies.” It’s no secret that the UCP is committed to cutting red tape.

Albertans are left to wonder how the red-tape reductions would impact the landscape itself.

Both parties are eager to win the favour of a populace that is often portrayed as “defined by the health of our oil and gas industry.”

It remains to be seen how either party would ultimately deal with what’s been referred to as a “brewing disaster” here in Alberta.

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On Thursday, the Supreme Court handed down a long-awaited decision on the Redwater case, which has major implications for the cleanup of oil and gas wells across the country.

The case has often been regarded as a crucial test of the ‘polluter pays’ principle.

But how did the case come about? What does the decision really mean? And does this mean Albertans are in the clear when it comes to the billions of dollars in environmental liabilities associated with oil and gas wells in the province?

You have questions, we have answers. Read on!

What the heck is ‘Redwater’?

This all started with an oil and gas company in Alberta, called Redwater Energy Corporation.

The company was founded in 2009, with headquarters in the small town of Okotoks, just south of Calgary. It was a small-ish operator — as far as oil and gas companies go — with dealings across western Canada. It owned 100 wells, pipelines and related facilities.

And then, in 2015, it went bankrupt.

Okay, so how did the Redwater case end up at the Supreme Court?

When an oil and gas company goes belly-up, it leaves behind some assets. In this case, that included 17 producing wells. But it also leaves behind liabilities — money it owes to creditors and the cost of environmental cleanup of inactive wells.

When Redwater went bankrupt, its trustee argued that its creditors (such as the banks that lent it money) should collect what they were owed before any leftover funds were used to pay for environmental cleanup.

In essence, the trustee argued that cleaning up was the last priority when divvying up leftover funds.

Cue the Redwater case.

A lower court agreed with the trustee. Chaos ensued as people scrambled to cope with the idea that companies could walk away from the messes they make. The Orphan Well Association and the Alberta Energy Regulator appealed the lower court’s decision.

Eventually, the case headed to the Supreme Court.

What exactly did the Supreme Court decide?

The Supreme Court overturned the lower court’s decision, with a 5-2 majority.

Writing in a summary, the Supreme Court said Redwater’s trustee couldn’t walk away from cleanup costs — Redwater’s estate, so to speak, couldn’t just abandon its obligations to the public, to landowners and to the environment.

Farmer and Action Surface Rights chairman Ron Huvenaars stands beside active oil and gas infrastructure on his family farm. Increasingly, he’s worried that companies in Alberta aren’t taking into account the costs they’ll have to pay to clean up wells like this one when they reach the end of their productive life. Photo: Theresa Taylor / The Narwhal

According to the court, the money left over from Redwater’s assets must now be used to clean up the wells it left behind.

The Alberta Energy Regulator said it was “pleased.” Alberta’s Energy Minister, Margaret McCuaig-Boyd, called it “good news.” The Pembina Institute called it “reassuring.” Ecojustice called it a “win.” Greenpeace called it “a victory for the ‘polluter pays’ principle.”

There’s a caveat to some of the celebrating, though. As The Pembina Institute put it in a press release, “we aren’t out of the woods.” (More on that in a minute.)

Why does the Redwater case matter across Canada?

The Alberta Energy Regulator was concerned about the implications for any future cleanup — and who would pay for it.  

“If this decision is upheld by the Supreme Court of Canada, we — and every other regulator in Canada — will no longer be able to hold companies accountable for cleaning up their mess,” it wrote last February.

The decision wouldn’t just have implications in Alberta — but across the country, where other provinces are also dealing with a big backlog of wells to clean up, as well as the environmental liabilities of other industries, such as mining.  

Canada’s northern ‘zombie mines’ are a lingering multi-billion dollar problem

On top of that, people wondered what would stop companies from spinning off their less-profitable assets into separate companies, letting them go bankrupt and then walking away from the mess.

As Keith Wilson, a long-time lawyer working on behalf of landowners with wells on their land put it to The Narwhal last year, “If a restaurant could dump all of its garbage out the door and not pay anything, why wouldn’t it?”

Oil and gas companies aren’t restaurants, and their garbage is of a slightly, um, larger magnitude. The C.D. Howe Institute has estimated there are approximately 450,000 wells in Alberta — a well for every 1.4 square kilometres in the province.

And of those wells that are inactive in one way or another, one University of Calgary study pegged the time it would take to get everything cleaned up, using the current rate of spending, at 177 years.

What’s involved in cleaning up an old oil or gas well?

Well, first and foremost, it takes dollar bills. Conventional wells can be thousands of metres deep.

Once the well is no longer producing, what’s left behind is probable soil and water contamination, a risk of explosion and a constant release of air pollutants, Jodi McNeill, a policy analyst with The Pembina Institute, told The Narwhal last fall. And then there are the emissions.

“When something hasn’t been plugged, it just continually releases greenhouse gases into the atmosphere,” McNeill told The Narwhal.

So once a well has had its moment, you might assume it would be cleaned up. Not so fast.

A flooded and inaccessible oil lease site owned by Sequoia in Wainwright, Alta. on Monday, November 5, 2018. Photo: Amber Bracken / The Narwhal

Alberta doesn’t currently have any time frames on when a well should be properly sealed and reclaimed, while many other oil-producing areas do — deadlines on sealing a well range from six months to 25 years in the United States, for example.

It’s also worth noting that even after environmental cleanup is all said and done  — and a site has been issued an official reclamation certificate — there are serious concerns about whether that land will ever actually recover.

The Narwhal uncovered the Government of Alberta’s own research that documented issues with crop productivity and ecological health long after a site had been reclaimed.

This is but one reminder that Alberta is not free and clear when it comes to oil and gas liabilities, even now that the Supreme Court has made its decision on Redwater.

Umm, quick aside, why are financially precarious companies allowed to drills wells?

Well, funny you should ask.

You’d think that provincial regulators might be able to put a stop to this problem before it starts. You might wonder, ‘if a company can’t afford to pay for cleanup of the mess it makes, why should it be allowed to make the mess in the first place?’

As it turns out, the Alberta Energy Regulator has been giving out licences and allowing companies to drill for years, even if they don’t have enough money to pay for cleanup.

There is a system in place that is supposed to ensure that financially unstable companies get weeded out — or that they pay a deposit for cleanup if they can’t prove they have sufficient assets to take on new liabilities.

The trouble is, that system is woefully out of date.

The Narwhal’s investigation into this system last year found the regulator is still valuing oil at over $100/barrel — something Albertans are all too aware is no longer the case. And it’s underestimating the cost of cleanup, according to recent research from the University of Calgary.

As Wilson, the lawyer, put it to The Narwhal, it is, at best, a “rosy picture.”

And painting that rosy picture means the regulator has allowed many companies to continue to operate — and to expand those operations — without having nearly enough money to pay for cleanup. And the way the regulator looks at the books means many companies haven’t had to put down a deposit for cleanup, either.

In November, the regulator estimated total liabilities to be $58.65 billion.

According to the Pembina Institute, “only $1.2 billion is currently held in securities to protect the public.”

Mind the, erm, $57.45-billion gap.

Can’t the Orphan Well Association just deal with this?

The Orphan Well Association is funded by oil and gas companies, which must pay a deposit (based on those calculations we talked about before) before getting a licence. It also gets money in the form of grants and loans from taxpayers, both federally and provincially,

The association brought in $30 million from the orphan well levy in 2017 — this part comes from energy companies. But since 2009, the Alberta government has given the Orphan Well Association more than $30 million in grants and, in 2017, it moved to loan the organization $235 million. Last year, the federal government also announced it would allocate $30 million to efforts to clean up orphan wells in Alberta.

Lars DePauw, executive director of the Orphan Well Association, spoke to The Narwhal last year, after our article came out about Alberta’s well-liability problem. He told us industry has contributed $314 million to the association to date, noting “this is a substantial amount that companies have paid for other company’s missteps.”

An orphaned oil and gas well on private property near Taber, Alta. Photo: Theresa Tayler / The Narwhal

Currently, the association’s inventory includes more than 3,000 orphan wells that haven’t been properly sealed yet (sealing is, curiously, known in the industry as “abandoning,” leading to countless confusing headlines) and another 1,500 orphans that have been sealed but still need to be reclaimed.

As The Narwhal reported last fall, the association spent more than $30 million in total expenditures in 2017. And, in that same year, it reported sealing just 232 wells.

So, no, the Orphan Well Association probably isn’t equipped to deal with too many more orphans.

What will a post-Redwater Alberta look like?

In a statement, the regulator acknowledged that improvements remain to be made. “[W]e must manage liability differently,” it wrote, “in order to continue protecting Albertans, our environment, and our province’s many responsible operators.”

The Pembina Institute appears to agree. “While the Supreme Court’s decision ensures bankrupt companies’ remaining assets first go to clean up, those assets are often insufficient to cover full costs,” it wrote.

That gets us back to the original problem: even if it’s been confirmed that the funds of bankrupt companies have to be used for cleanup — is that enough?

The regulator has long allowed financially precarious companies to operate and trade licences, so it’s no surprise that even after the Redwater decision, there’s still more work to do for the province to ensure the public isn’t left on the hook in the future.

Not yet out of the woods, indeed.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.