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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The Alberta government titled its 2016 budget “The Alberta Jobs Plan” but there’s one group in the province that’s disappointed it will not see its jobs proposal funded.   The reclamation and clean-up of abandoned oil sites was proposed as a potential job creator by the Petroleum Services Association of Canada (PSAC). With over 37,000 orphaned and inactive wells across the province and thousands of unemployed, highly-skilled workers, PSAC said the provincial government should dedicated funds to well clean-up and reclamation.   It’s a proposal similar to Saskatchewan Premier Brad Wall’s ask for federal funding to clean up his province’s orphaned oil wells. His request for $156 million went unanswered in the federal budget. Wall argued the funding would have put 1,200 people back to work.   Alberta’s economic downturn has seen 40,000 jobs lost in the energy sector. PSAC argued putting money into decommissioning oil sites could reclaim some oil and gas sector jobs and get companies back to work.    “We are losing tens of thousands of workers from the oil and gas services sector and, along with them, the intellectual capital and expertise we need when the economy turns around,” Mark Salkeld, president and CEO of PSAC, said.   PSAC has advocated for several months that $500 million in funds, whether from the province or federal government, be put into a decommissioning program for orphaned and inactive wells.   But on budget day in Alberta the only funding dedicated to this issue was a $30.5 million injection into the Orphan Well Association, a group funded predominantly by industry (they received a one-time boost of $30 million from Alberta a few years ago) that cleans up sites abandoned by bankrupted companies.   The cost of reclaiming a single well starts around $10,000 but can become millions in some cases. Since its inception just over two decades ago the Orphan Well Association has reclaimed over 650 wells. Over 540 wells have been abandoned in Alberta in the last 12 months, up four times from previous years as especially junior and intermediate companies have struggled with record-low oil prices. An estimated 700 orphaned wells are the result of bankruptcy.   Brad Herald, vice president of Western Canadian Operations with the Canadian Association of Petroleum Producers and director of the Orphan Well Association, said the group is on its way to reclaiming 160 abandonments a year, which is up from 40 to 50 per year previously.   “We’ve effectively quadrupled the wells we’re going to put to bed in just a couple years,” Herald said.   A lack of fresh funds to handle the growing number of abandoned sites means the Alberta government hopes sticking with a polluter-pays model will pan out in the long run.   “Many Albertans and Canadians alike don’t want their tax dollars going to cleaning up after someone else,” Alberta Energy Minister Marg McQuiag Boyd said in a statement to DeSmog Canada.   Don Bester, president of the Alberta Surface Rights Group, agrees. Tax-dollar subsidized reclamation creates the expectation government will simply pay for industry’s abandoned projects, which, according to Bester, removes any incentive for companies to carry out costly clean-up.   “Oil and gas companies that are not in trouble are going to just say ‘well, why not just leave them? Somewhere down the road the government will clean them up.’”   In the meantime, however, thousands of inactive wells dot the provincial landscape on at times valuable farmland, like environmental potholes left for future generations.

Barry Robinson, lawyer and National Program Director with Ecojustice, said if there was ever a time for government to step in with funds for orphaned wells, it would be now during the economic downturn when costs are low and people need jobs.   “The sooner you clean up the really old wells the less environmental risk you have,” he said.   Robinson said government investment could get clean up going in the short term while a longer-term repayment program could be put in place through royalties.   “Ultimately polluter-pays is the way to do it,” Robinson said. “We’d like to see companies post security for the abandonment and reclamation right at the time the well was drilled.”   It would avoid the current situation of companies going bankrupt and disappearing, leaving their wells to be handled by the province. For Robinson, it’s a long-term solution, which, when it comes to Alberta’s orphaned wells, have been in short supply.   Robinson says a big issue is the absence of timeline rules in oil and gas regulations. Without meaningful time limits regulators have nothing to enforce.   “Companies are not doing anything wrong or illegal by simply leaving wells inactive,” Robinson said, adding there are at times “good reasons for wells to be inactive.”     But he said there are orphaned wells dating back to the 50s and 60s that still have not been dealt with.   The longer a well sits abandoned, the higher the risk of accidental release or groundwater contamination.   For the landowners Bester works with, these legacy wells mean they’re stuck with inoperable and potentially hazardous land. 

During a major review of Alberta’s royalty structure last year, the Alberta Surface Rights Group recommended the government integrate clean up payments directly into the oil and gas regulatory structure.   Bester said he also recommended the government require companies to clean up old well before building new sites. Ultimately his group’s recommendations went nowhere.   Bester’s group has met with Environment Minister Shannon Phillips and Minister McQuiag-Boyd on the issue and is hopeful a regulatory change will come this spring during the legislative session.

Image: Chris & Lara Pawluk/Flickr.

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.