Calling orphan and inactive wells an issue that has been “festering for years,” Prime Minister Justin Trudeau announced a federal investment of $1.7 billion into the cleanup of old oil and gas wells in Alberta, Saskatchewan and B.C. on Friday.

He estimated the cash infusion would create 5,200 jobs in Alberta alone, getting Albertans back to work “cleaning up their province.”

The program was developed in partnership with the Alberta government and municipalities, Trudeau said, adding the funding would help companies avoid bankruptcy.

Orphan and inactive wells, he said, can be “detrimental not only to our environment, but to people’s health.” 

He noted that farmers and landowners have long struggled to grow crops in areas where wells have contaminated the soil. 

“Just because we’re in a health crisis doesn’t mean we can abandon the environmental crisis,” he added.

While more money for cleanup is viewed as a win for landowners and the environment, it also raises questions about whether the “polluter pays” principle is being flouted. It was always the intention that companies that profited from wells would pay for their eventual cleanup — not the taxpayer.

As orphan wells become something of a go-to for politicians looking for ways to infuse cash into a struggling economy, we wanted to take a step back and look at what got us here. Hot tip: it wasn’t the pandemic. 

What is an orphan well anyway?

An orphan well is one that no longer has a legal or financial owner. 

Most often, an oil and gas company that has gone bankrupt has left behind a long list of wells that were never properly decommissioned or cleaned up — and someone has to pay for that. In the meantime, the well, or pipeline or other related facility, becomes an “orphan.” 

But even without an owner, it still needs to be properly plugged and reclaimed, according to provincial rules.

An orphaned well on a farmer’s property near Taber, Alta. Photo: Theresa Tayler / The Narwhal

Inactive, orphan, reclaimed, abandoned — what does it all mean?

An inactive well is any oil or gas well that is no longer producing but has not yet been permanently sealed off — a process with a terribly confusing name: abandoning.

In what is a rather significant terminology fail, an “abandoned well” is not the same as an “orphan well.”

In fact, “abandoning” a well or pipeline has literally nothing to do with whether it’s an orphan or not.

An “abandoned well” is one that has been properly plugged and is no longer producing oil or gas. Remember, an orphan well is one whose “parent” company has walked away, leaving it to others to clean it up. 

An orphan well could be abandoned, but not necessarily, to the confusion of pretty much everyone (apparently including Trudeau, in Friday’s press conference). So don’t be surprised if you see the term misused all the time, whether by journalists, politicians or anyone on social media with an opinion.

You can think of “abandoning” as essentially sealing a well to prevent it from releasing toxic gases or other substances. A well is often hundreds of metres deep, so a heavy concrete plug needs to be put in place to fully cap it off.

Then there’s the chance a well has leaked and contaminated the ground around it. Cleaning that up is called remediation.

But that’s not where the work stops. As part of drilling and operating, the footprint of a well can be significant. Forest may have been cut down or agricultural land dug up, soil has often been compacted and structures have been put in place on the surface.

All of that needs to be put back to something resembling the way it was before. That’s known as reclamation. And once that’s done, a reclamation certificate needs to be applied for.

Then, once the abandoning, the remediation, the reclamation and the certifying is done, the site is officially “closed.”

It takes years to fully close a well — and there are no required timelines for when any of the work has to be completed.

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

How many orphan wells are there in Alberta?

As of the end of March, Alberta’s Orphan Well Association reported its inventory included 2,983 orphan wells that need to be abandoned, 3,284 orphan well sites that need to be reclaimed and another 935 orphan well sites that have had reclamation work done but are not yet certified.

These numbers have increased substantially in recent years. In 2013, the Orphan Well Association had just 387 orphan sites in its inventory of sites that needed to be reclaimed. That’s a 750 per cent increase in seven years.

But a lot of the concern about orphan wells comes not just from the current inventory, but from the potential for thousands more to be added to the list. 

According to the Government of Alberta, there are an estimated 343,000 oil and gas wells in the province. Approximately half of those are no longer producing, some of which have been properly abandoned, while others are sitting in a state of temporary suspension.

Either way, once a well is no longer active, it’s no longer making the company any money.

In fact, it does the opposite. Oil and gas companies have to pay costs associated with sites they’re no longer using. 

For example, they’re supposed to pay rent to the landowner where the well is located, as well as taxes to the local government. (Hint: it has been more and more common in recent years that companies don’t pay landowners or their tax bills)

All of this means an inactive well can be a costly burden to a company, especially one that’s already struggling financially.

This is where the concern comes in — as oil prices slump and Alberta is poised for major economic hurdles, will more and more companies walk away from all those inactive wells, leaving orphans behind?

Previous reporting from The Narwhal revealed the Alberta Energy Regulator has privately projected that the number of inactive wells in Alberta could double by 2030, to 180,000.

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

Is the orphan well crisis unique to Alberta?

No.

The problem has been intensifying in oil and gas-producing jurisdictions across North America, from Alberta to Wyoming to Texas.

The Narwhal reported earlier this year that B.C., not traditionally thought of as a major player in the world of oil and gas drilling, was also anticipating a massive uptick in orphan wells as a result of an increase in fracking (hydraulic fracturing involves blasting huge quantities of freshwater, mixed with chemicals, underground to release oil and gas trapped in rock).  

The number of orphan wells in B.C., for example, has increased by 770 per cent since 2016. The latest stats indicate B.C. has 346 orphan wells. Saskatchewan also has hundreds of orphan wells in its inventory.

A report released in 2018 by Saskatchewan’s provincial auditor noted the number of inactive wells in the province increased by nearly 90 per cent between 2005 and 2017, to about 30,000.

What is the Orphan Well Association we keep hearing about?

Alberta’s Orphan Well Association is a not-for-profit organization that is theoretically — aside from government loans and grants — funded entirely by industry.

It takes over responsibility for cleanup when no company is legally or financially responsible for a well (or related pipeline or facility).

According to the association’s most recent annual report, it spent nearly $90 million on cleaning up and sealing orphan wells, pipelines and related facilities in the fiscal year that ended in 2019 — almost three times the amount spent the previous year.

The Orphan Well Association is overseen by a board of directors made up of industry representatives from the Canadian Association of Petroleum Producers, Cenovus, Canadian Natural Resources Limited (CNRL), and others, as well as one government official and one representative of the Alberta Energy Regulator.

Alberta issues 97% of reclamation certificates without ever visiting oil and gas sites

Who’s supposed to pay to clean up orphaned wells?

The short answer: industry.

The idea is that all companies pay into the orphan well fund, to make a “kitty” of sorts available for when companies go bankrupt, or otherwise walk away from their liabilities.

The idea is that “good neighbours” in the industry fund the cleanup for insolvent companies, according to the Orphan Well Association’s chair, Brad Herald, who is also a member of the executive of the Canadian Association of Petroleum Producers. 

In theory, this fund should be enough money to fund orphan well cleanup in the province.

In reality, it’s not.

Has the Orphan Well Association received government money before?

Just last month the Alberta government announced a $100 million loan to the Orphan Well Association. 

At the time, COVID-19 was only just beginning to make waves in North America, and Alberta Premier Jason Kenney was increasingly embittered about the trends he was seeing in the oil and gas industry.

“It frustrates me that I think we’re doing everything that we reasonably can to get this economy moving again,” he told reporters. 

“And yet we’re being sideswiped by global events that are beyond our control,” he added, referring to the pandemic and the global supply glut.

Kenney’s loan to the Orphan Well Association was not the first time public funds have been offered up.  

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

In 2017, the federal government also allocated $30 million to the cleanup of Alberta’s orphan wells — much of this money was used to cover the interest on the $235 million loan from the provincial government.

The payback of those loans hinges on the ability of the association to get on top of its inventory. One day, it hopes to pay back loans with the money it brings in through industry levies.

It was not clear from the Prime Minister’s announcement exactly how the $1.7 billion to clean up orphan and inactive wells would be distributed, and how much would go toward the Orphan Well Association.

How much work has actually been done to clean up orphan wells?

In 2018, 93 well sites — of the thousands of orphan well sites in the association’s inventory —were “closed,” meaning they are no longer part of the association’s inventory, they have received a reclamation certificate or equivalent and rent is no longer due to landowners.

According to its most recent annual report, the Orphan Well Association had successfully decommissioned just over 2,000 orphan wells and reclaimed around 800 sites in its 17 years in operation.

Mike Smith, a retired reclamation inspector in Alberta, at a flooded oil lease site in Wainwright. Smith says on-the-ground inspections of abandoned and reclaimed well sites aren’t being done enough in the province. The pictured site has been suspended, according to the regulator. Smith lives nearby and drives by the site occasionally, to see if any reclamation work is being done. It isn’t. He’s seen plenty of contamination issues over his career. If no one checks, he worries about the long term recovery of sites. “Those problems are still there,” he told The Narwhal.  Photo: Amber Bracken / The Narwhal

How much does it cost to clean up old wells?

The Alberta Energy Regulator estimates it can cost $12,800 to $134,177 to plug a well, and $16,500 to $42,155 to reclaim the site.

As The Narwhal has previously reported, a researcher at the University of Calgary found that actual reclamation costs can easily be 60 per cent higher than the regulator’s estimates. 

Others have said the numbers may be far higher — in the hundreds of thousands of dollars.

Could orphan well cleanup follow public health guidelines during the pandemic?

Currently, Alberta’s public health rules restrict gatherings of more than 15 people, encourage physical distancing of two metres and restrict businesses to those considered to be essential services.

There is a long list of “petroleum, natural gas and coal” jobs that are considered to be essential services in Alberta. There’s little doubt that, at least for the time being, reclamation work could continue on orphan wells. “Environmental services for agriculture, mining, oil and gas,” are all currently considered to be essential services by the Government of Alberta.

Minister of Environment and Parks Jason Nixon said at a press conference that it was his government’s goal to “keep people working… in the oil and gas industry where safe and within the requirements the chief medical officer has set out.” 

“We believe we can do that on lots of projects,” he added.

Can farmers really not grow crops on fields where there are abandoned or orphan wells?

In his announcement Friday, Trudeau urged Canadians to “think of the farmer who can’t grow anything on his land because of the abandoned well a few steps away from his home.”

Indeed, there are a number of risks, and common complaints, that landowners experience when a well is left to sit on their property for years. 

Those include soil contamination, dust, invasive weeds and possible leaks if wells have not yet been properly plugged. 

The farmers growing this canola in Fairview, Alta., say oil and gas pipelines and infrastructure is stunting the growth of their crops. Photo: Amber Bracken / The Narwhal

The impact on a farmer’s ability to grow a crop depends on a myriad of factors — the maintenance record of the company operating the well and how much care was taken to not disturb soil during drilling, for example. Some farmers report still being able to farm very close to old wells.

Others aren’t so lucky. As one farmer told The Narwhal last year, an old well site on his property is known locally as “the spot where nothing grows.” 

But it’s not just wells that can pose problems for farmers. When The Narwhal visited farmers attempting to grow crops atop pipelines, there were numerous concerns about how the soil compaction and possibility of leaks made crops dramatically less productive when grown atop buried oil and gas infrastructure.

And earlier this year, The Narwhal reported that the Alberta government has also long had internal concerns about the legacy of oil and gas wells — even long after they’ve been reclaimed.

That leaves questions about whether the federal government’s $1.7 billion investment will be able to erase the legacy of the old oil and gas wells dotting the province, where there’s a well for approximately every square kilometre of land.

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For small, rural municipalities in Alberta, the fortunes of a single oil and gas company can be acutely felt.

This summer in Mountain View County, a rural area just north of Calgary, gas company Trident went bankrupt, leaving 4,700 orphan wells and hundreds of thousands in unpaid taxes in its wake.

Bruce Beattie, the reeve of Mountain View, which has a population of about 13,000 people, told The Narwhal Trident’s sudden fall places a significant burden on the county.

The county “will be looking at a reduction of half a million dollars in our revenue from the oil and gas sector,” Beattie said.

He’s hopeful the county can survive the shock by tightening its belt.

“When you have 363-odd bridges, for example, to look after and 2,800 kilometres of roads — those numbers are significant,” he said.

“That kind of an impact is definitely going to be felt at the municipal level.”

Mountain View is by no means alone. 

Earlier this year, the Rural Municipalities of Alberta — the organization representing Alberta’s rural counties and municipal districts — put out a press release, saying a survey of its members found many oil and gas companies hadn’t been paying their taxes. 

The amount of lost income for rural municipalities, the association said, is “unprecedented.” 

The survey found at least $81 million in unpaid taxes from oil and gas companies had accumulated across the province, creating a “significant hole in rural municipal budgets throughout Alberta.” 

In 2015, new rules came into effect, requiring for the first time oil and gas companies publicly disclose how much money they pay to governments, from the municipal to federal. 

The Narwhal analyzed data filed under the Extractive Sector Transparency Measures Act (ESTMA) to examine how reliant counties and municipalities in rural Alberta are on oil and gas payments for their revenues.

The findings show two thirds of Alberta’s rural municipalities received tax payments from oil and gas companies totalling more than $2 million in 2018. 

In some cases, the taxes from oil and gas companies made up more than 90 per cent of local governments’ available tax revenue.

But as the experience of Mountain View shows, a high reliance on industry payments can create a deep vulnerability for local governments that must weather the highs and lows of a sometimes volatile market economy.

The fragility of the tax base is opening up new concerns for municipalities across rural Alberta who are openly questioning measures by the current government to step in and give parts of the industry a break. 

At least 20 counties, districts rely on payments for more than half of tax revenue

Alberta’s rural municipalities — most commonly known as counties or municipal districts — cover approximately 85 per cent of land in the province, which means they are home to a large portion of the province’s oil and gas activity. 

Their local governments are responsible for paying for public infrastructure and services, which can include roads, policing, wastewater treatment, parks, libraries and cemeteries.

Though the rural municipalities do have other sources of revenue — property taxes paid by landowners, government transfers, investment income or levies for licenses and permits — many rely extremely heavily on tax paid by oil and gas companies.

The Narwhal’s dive into corporate payments found 20 counties and municipal districts relied on oil and gas tax payments for more than half of their net tax revenue in 2018 (see the bottom of this article for more details on The Narwhal’s calculations).

The Narwhal calculated the reliance of Alberta’s rural municipalities on tax revenue from oil and gas companies using data obtained through the Extractive Sector Transparency Measures Act (see the bottom of this article for a full explanation on how we did this). The results reveal that rural communities are deeply reliant on the industry — and when we talked to local officials, we found communities worried that some companies have simply stopped paying their bills, leaving local governments in a lurch. Map: Carol Linnitt / The Narwhal

Taken together, the 41 rural municipalities that received more than $2 million in tax payments from oil and gas companies received close to $1.2 billion altogether, The Narwhal’s analysis found. Their total net tax base was $1.8 billion.

That’s a substantial share of rural municipalities’ funding hanging in the balance if oil and gas companies don’t pay their bills.

Estimated portion of net taxes derived from oil and gas companies in Alberta’s top-ten most reliant rural municipalities in 2018, based on The Narwhal’s analysis of data obtained through the Extractive Sector Transparency Measures Act and the 2018 financial statements of each rural municipality. Graph: Carol Linnitt / The Narwhal

‘Blind-sided’ in Woodlands County

In Woodlands County, a 7,600-square-kilometre rural municipality two hours north-west of Edmonton, the small population has relied on oil and gas taxes for services for its entire existence.

The rural municipality’s mayor, Ron Govenlock, told The Narwhal that around 80 per cent of the county’s taxes are supposed to come from oil and gas companies. 

This year, Govenlock said, council was “blind-sided” to find out that some companies in the area were simply not paying.

The Narwhal’s analysis of disclosure data found those companies reported paying only about 17 per cent toward the county’s net tax revenue in 2018.

The county, Govenlock added, is “out $9 million over two years … a revenue stream that Woodlands county depends on to continue its operations.”

“It’s a serious situation,” he said, while also acknowledging that the revenue from the oil and gas industry is crucial to his county’s operation.

“Our population base is way too small to support the area that we are responsible for providing infrastructure for,” Govenlock told The Narwhal. “So the oil and gas industry, unquestionably, has been a real boon for rural municipalities such as ours to help provide those kinds of services.”

“Woodlands County and neighbouring municipalities like Greenview have been blessed to have oil and gas activity in the area,” he added. 

“That’s changing, however.”

Govenlock pointed to the closure of a local gas plant as a symptom of the shift.

“A substantial amount of the activity — in terms of conventional oil and gas drilling — has seen substantially less investment and less activity as the resources have been tapped,” he said of Woodlands County. 

In the nearby municipal district of Greenview, however, the drilling of unconventional resources deep in the Duvernay formation has exploded, leading to much wealth for that region.

Town of Valleyview offices in the Municipal District of Greenview, which receives the highest per capita oil and gas payments of any district in Alberta. Photo: Amber Bracken / The Narwhal

That kind of money isn’t flowing in Woodlands County, where Govenlock said the county is “out $4.5 million out of the $11.5 million that would have been generated on a normal year from the oil and gas industry. That’s in excess of a third that has not been paid.”

And that shortfall, he said, led council to vote to freeze all non-essential spending a few weeks ago. 

Plans for paving projects and road maintenance have been paused. There’s a hiring freeze on all new staff. 

Council recently heard that taxes on everyone — including residents — could have to increase by 15 or 21 per cent over five years, though Govenlock noted that they have not yet reached any conclusions.

And, he said, there are more “challenging decisions yet to come.”

‘Conscious choice’ to not pay bills: mayor

Govenlock is concerned that companies are simply deciding not to pay their taxes — and that the Alberta government isn’t doing enough to ensure rural municipalities get a fair shake.

“The people in the industry that are taking advantage of the rules … what we need to do is ensure that the provincial government that’s ultimately responsible for managing the oil and gas industry understands the impact that failure to pay taxes has on not only the municipality,” he told The Narwhal.

 “We do not have tools in the provincial regulations that help us to force these guys to do the right thing,” he added.

Some oil and gas companies, he said, are “simply flouting the process.”

The Canadian Association of Petroleum Producers (CAPP), the self-described “voice” of Canada’s oil and gas industry, has previously said that rural municipalities in Alberta and Saskatchewan “place a disproportionate fiscal burden on industrial property, including upstream oil and natural gas property.” CAPP declined The Narwhal’s request for comment on taxes paid by producers to rural municipalities, saying the organization “does not comment on company-specific issues such as the individual taxes paid by an operator in a municipality.”

Industry players have echoed CAPP’s concerns about tax rates. When Trident Exploration ceased operations earlier this year, the company’s president cited “extremely high rural municipality taxes” which it said led to “inflated” property tax obligations that made it infeasible to continue operations.

Govenlock doesn’t think that’s an accurate portrayal of what’s going on.

“There’s a multitude of factors that go into any business in terms of its operational cost,” he told The Narwhal. “So to suggest that it’s the tax burden — that’s been consistent for the past 20 years — that is now going to be targeted as the reason that their profit margin is tighter?” 

“I don’t buy that.”

Beattie of Mountain View County expressed similar concerns. “I’m in the agriculture sector, so I know all about volatile pricing,” Beattie told The Narwhal. “Our revenues go up and down, whether it’s beef cattle or grain. The market can be very volatile.”

 He said some financial planning can go a long way. 

“We set aside reserves in the good years so we take care of those years when the income isn’t there. I wonder why these companies haven’t done that,” he said. 

“Where have the profits gone for these companies that they say they can’t make it?”

Smaller companies ‘struggling to pay their bills’

Company payments can vary greatly, with operations run by huge, multinational companies as well as small, local drilling companies.

Some large companies report very large tax payments — Imperial Oil, for example, paid approximately $29.5 million in taxes to the Municipal District of Bonnyville alone.

But many payments to rural municipalities come from smaller companies — as low as $193 — with many reporting tax payments in the thousands, not the millions. 

With low commodity prices, larger often-global companies have diversified their operations to remain profitable. It’s often smaller companies, reliant on only upstream production, that are more likely to struggle to pay their bills. 

The Narwhal’s analysis found roughly half of all tax payments to rural municipalities were for amounts less than $500,000.

A lack of funds like these force counties to make tough decisions.

In Yellowhead County, west of Edmonton, where oil and gas companies reported paying $49.8 million in taxes in 2018 under the Extractive Sector Transparency Measure Act, approximately 91 per cent of the 2018 net tax base came from oil and gas companies. 

But this year, the county reported over $7 million in unpaid taxes, “a figure considerably higher than prior years,” and concluded that oil and gas companies owed some $3.8 million of those outstanding taxes. (Yellowhead County did not respond to The Narwhal’s request for comment by press time.)

“The County is now in the position where tax receivables are approximately five times greater than this period last year,” the council heard in late July. In response, the Yellowhead Council approved a motion to transfer nearly $3 million from an emergency fund to compensate for “noncollectable taxes.”

“It’s not a perfect world … Smaller gas companies are struggling to pay their bills,” Dale Smith, the reeve of the Municipal District of Greenview in northwestern Alberta, told The Narwhal when we visited this summer to ask how that region uses industry money.

It’s not just taxes that some oil and gas companies struggle to pay. 

Earlier this year, an investigation by The Narwhal revealed that oil and gas companies owe the Alberta government more than $20 million in unpaid land rents — paid out to farmers and landowners on behalf of delinquent oil and gas companies— accumulated since 2010. 

The investigation found that government was increasingly stepping in to pay landowners on behalf of oil and gas companies — payments made to cover for delinquent companies increased 840 per cent between 2010 and 2017.

Alberta taxpayers are increasingly picking up the tab for rents owed to landowners by delinquent oil and gas companies. Photo: Theresa Tayler / The Narwhal

Uptick in fracking to pay the bills?

Other rural municipalities are less concerned about companies’ ability to pay the bills — especially those experiencing an uptick in hydraulic fracturing, as in the Municipal District of Greenview, where revenues from the industry have meant a huge windfall for the local government.

Similarly, Brazeau County in central Alberta, home to a fracking boom, reported $25,585,209 in net tax revenue from all sources in 2018. That same year, oil and gas companies reported paying $24,637,988 in taxes to the country — roughly 96 per cent of the entire net tax base of the county.

In an emailed statement, Jocelyn Whaley, chief administrative officer of Brazeau County confirmed the county’s “tax revenue from all non-residential and farmland sources was approximately … 92.1 per cent.”

In its 2018 financial statement, Brazeau County acknowledges there are issues with collecting taxes from a boom-and-bust industry.

“The County is exposed to the credit risk associated with fluctuations in the oil and gas industry,” the statement reads, adding a “significant portion” of outstanding taxes were “receivable from companies in the oil and gas industry.” 

In the county, the taxes reported by oil and gas companies are down 12 per cent from 2016, the earliest year for which data is available through the Extractive Sector Transparency Measures Act.

The County told residents that it had identified “efficiencies” and would be able to keep up its level of service, even in the face of a “downturn in the economy and the decrease of tax revenue.” The county’s new budget plans are designed to “minimize the impact to our citizens” of the economic challenges of the oil and gas sector.

But Whaley said in the statement that the problem hasn’t been overwhelming, noting the county “has not encountered any major issues collecting taxes from industrial properties, including oil and gas properties.”

In neighbouring Clearwater county — home to its own uptick in hydraulic fracturing — county officials are similarly betting on companies’ ability and willingness to pay.

The Clearwater River near Rocky Mountain House, Alta., is a major source of water for fracking operations in the county and is also a tributary of the North Saskatchewan River, the sole source of drinking water for Edmonton. Photo: Amber Bracken / The Narwhal

“The recent changes in the economy have forced many municipalities to be conservative while exercising high fiscal responsibility,” the Clearwater’s communications coordinator, Djurdjica Tutic, wrote in an email to The Narwhal. 

But an increase in fracking in Clearwater has also led to an increase in community tensions around industry impacts. When fracking company Repsol was granted permission to withdraw 1.8 billion litres of water from the Clearwater River each year, locals generally supportive of industry vocalized an uncommon level of concern.

The Clearwater River is a tributary of the North Saskatchewan River, the sole source of drinking water for Edmonton. 

Residents concerned with industrial uses of water from the Clearwater River meet at a resident’s home near Rocky Mountain House, Alta. Photo: Amber Bracken / The Narwhal

But while there may be concerns about the environmental impact of the industry, the revenue generated continues to be a boon to the community — and they don’t see it disappearing any time soon.

Tutic said the local government in Clearwater is “cautiously optimistic” about the future potential of oil and gas revenues. 

Both Brazeau and Clearwater counties sit above the Duvernay, a geologic formation rich in shale gas. A growing demand for the resource in recent years has led to a boom of activity in the region.

But the gas boom hasn’t meant a windfall for many other parts of rural Alberta, where local governments are left holding the bag for profiteering companies that have come and gone. 

‘No mechanism’ to collect from delinquent companies

When it comes to issues with oil and gas companies not being able to — or otherwise neglecting — to pay rural tax bills, Govenlock said the small rural municipalities are “caught in the middle.”

And there’s a frustrating lack of tools available to rural municipalities to recover costs from delinquent companies. 

“If they go into receivership, there’s no mechanism in place provincially to allow municipalities to be on the priority list to collect from the assets these guys had,” Govenlock said.  

That means, once again, the small local government is left with a big hole in their budget where tax revenues were supposed to be.

Beattie of Mountain View County said there seems to be a different set of rules when it comes to oil and gas companies.

Municipalities are equipped to deal with evasion when it comes to personal taxes, he said. 

“If you don’t pay your income taxes, we know that the CRA will clearly be knocking at your door very quickly.”

Oil infrastructure no longer in use in a farmer’s field, near Fairview, Alta., on Tuesday, July 23, 2019. Photo: Amber Bracken / The Narwhal

But municipalities do not have the same authority when it comes to the oil and gas sector. 

“There’s no mechanism in place to force these guys to pay their tax arrears,” Govenlock said, “Unlike a normal residential or commercial property that goes into arrears where we can seize assets and post them for sale.”

“How do I feel about people who walk away from legitimate costs and legitimate bills? I don’t have much respect for people like that,” Beattie said, adding companies need to be “made responsible — just as every other citizen is — to pay their taxes.”

Government aid adds to controversy

In July, the UCP government announced a new program to cut the taxes some gas companies pay to rural municipalities and said it would, in a roundabout way, foot the bill.

Under the province’s shallow gas relief program, announced in July, companies will get a 35-per-cent cut on taxes on shallow gas wells and pipelines for the 2019 tax year.

This, of course, means rural municipalities will collect less tax revenue. In turn, the Government of Alberta will reduce the amount of education tax the rural municipality has to pay, by the amount forfeited in gas tax. Under the current system, municipalities have to pay the education tax to the government, regardless of whether they were able to collect it.

The government estimates it will be indirectly footing the bill for $20 million in taxes for these companies.

A spokesperson for the Ministry of Energy did not respond to requests for an interview. 

The news adds to Beattie’s worry about the budget shortfall his county will face when this temporary measure is expected to end next year.

“We don’t believe [reducing] municipal taxes is the route to save the shallow gas industry,” he told The Narwhal. “I think everyone would say ‘oh my taxes are too high,’ without realizing the services that come with them.”

Under the province’s relief program, Beattie said, “everyone else will pay and the shallow gas guys won’t. They’ll get the services but they’ll be paying less.”

 Govenlock of Woodlands County, where companies were behind on $4.5 million in tax payments last year, told The Narwhal the province’s shallow gas relief program won’t help his community, where “a very, very small percentage” of wells qualify under the program. 

The government describes 15 counties of Alberta’s more than 60 rural municipalities where the relief program will be most applicable — and Woodlands is not one of them.

Under the program, only companies behind on payments on shallow gas activity would quality — in other words, any oil company, or companies active in deep hydraulic fracturing won’t receive any relief. 

Neither then, will the counties that have to remit taxes — on behalf of delinquent companies that don’t qualify — to the provincial government.

“If we don’t get paid [by oil and gas companies], we still have to pay the province,” Govenlock said. 

“That’s a real slap in the face to have to pay someone else’s debt.”

***

This article is part of a collaboration between The Narwhal, the Corporate Mapping Project, Publish What You Pay Canada and the Natural Resource Governance Institute. The Corporate Mapping Project is jointly led by the University of Victoria, Canadian Centre for Policy Alternatives and Parkland Institute. This research is supported by the Social Sciences and Humanities Research Council of Canada.

How did we calculate our data?

The Narwhal analyzed 2018 data obtained through the Extractive Sector Transparency Measures Act by looking at taxes that oil and gas companies reported paying to 63 rural municipalities in Alberta. Data was retrieved from Resourceprojects.org and converted from USD to CAD using the exchange rate listed on the website, 0.778629.

We added up the payments reported in each rural municipality to obtain the total amount of tax oil and gas companies had reported paying in each region. 

Of those 63 rural municipalities, we found that 41 received more than $2 million in taxes reported by oil and gas companies. The payments reported reflect not what was owed to each rural municipality, but only the amount companies have reported to have actually paid.

We then compared the amount of tax revenue reported through the act with the actual net tax reported in the 2018 financial statements of each rural municipality. This allowed us to calculate an approximate portion of available tax revenue that is derived from oil and gas companies.

This resulted in an estimated reliance on oil and gas taxes. In some cases, the actual portion of tax revenues that are composed of oil and gas tax payments may be different from what was calculated, in part because the data does not include taxes that were assessed but not paid.

Actual net tax revenues were chosen as the numbers represents the amount of tax revenue available for spending — after requisitions and any other revenue sharing — and because the figure was consistently reported across all financial statements we examined. (Net tax revenues do not include what are known as well-drilling taxes, optional one-time charges levied on companies drilling new wells. Our analysis found a relatively small handful of rural municipalities listed this type of tax on their financial statements.)

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Nearly 400 kilometres north of Fort St. John is a large, leaking fracking pond owned by Ranch Energy Corporation, a Calgary-based company that went into receivership last year leaving 700 gas wells in B.C. and a sea of debt.

The storage pond is filled with 113,000 cubic metres of sludge and water that may be contaminating soil and groundwater through a documented leak in its outer lining, according to the B.C. Oil and Gas Commission.

Twenty months ago, the commission issued an order to Predator Oil BC Ltd., the company that sold Ranch the wells, to empty the pond and test for contamination.

But nothing has been done. Ranch’s receiver, Ernst & Young, says it’s an expense the estate cannot afford.

The story of Ranch — pieced together by The Narwhal from a review of receivership documents and B.C. Oil and Gas Commission documents — highlights some of the mounting financial and environmental problems created by B.C.’s fracking industry.

And that’s even before a fracking blitz gets underway in the province’s Peace region, already covered by thousands of wells, to supply gas for the $40 billion LNG Canada project that will ship liquefied natural gas overseas.

Fracking, or hydraulic fracturing, involves the injection of large amounts of water and proprietary chemicals into the ground to release gas.

Three oil and gas companies went belly-up last year

When companies like Ranch become insolvent, the provincial government is left holding much of the substantial clean-up bill for the industry equivalent of a dine and dash.

Ranch was just one of three companies operating in B.C. that went belly-up last year, leaving a forecast $12.3 million deficit in the B.C. Oil and Gas Commission’s orphan site reclamation fund, according to the commission’s annual service plan.

Demands on the reclamation fund will “continue to impact the Commission’s ability to balance its budget,” the plan states.

It notes that 300 to 500 Ranch wells could still be designated as orphans, leaving the commission responsible for additional clean-up costs it estimates at $40 million to $90 million — but with less than $14 million budgeted for the orphan fund over the next year.

“Given the uncertainty about the timing of these orphan designations, there is no provision built into the financial plan,” the commission duly noted.

Ranch also owes $1.88 million to the B.C. ministry of finance, $478,000 to the B.C. Transportation Financing Authority, $93,000 to BC Hydro, $7,500 in carbon taxes, and almost $500,000 more to the government for various unpaid bills, receivership documents show. (B.C.’s finance ministry said it could not disclose the nature of the outstanding bills due to privacy concerns.)

What the Redwater ruling means for Alberta’s thousands of inactive oil and gas wells

Redwater ruling only helpful in certain circumstances

Ecojustice lawyer Barry Robinson told The Narwhal that the recent federal Supreme Court Redwater ruling — which found that insolvent or bankrupt companies must fulfil environmental obligations before paying back creditors — is only of limited assistance when it comes to cleaning up inactive wells and associated infrastructure such as Ranch’s fracking pond.

“This doesn’t resolve the problem,” said Robinson, who has spent almost a decade working on issues related to inactive oil and gas wells. “This doesn’t let the provinces wash their hands and say ‘well, it’s all good now.’ ”

“The problem is that often by the time the company’s gone bankrupt there are pretty empty shelves and there’s not a lot of money in there,” said Robinson.

“Often, even if the environmental order comes first there’s not enough money to meet it, to carry out the work.”

John Werring, a senior scientist and policy analyst with the David Suzuki Foundation who trekked more than 10,000 kilometres in B.C. to document fugitive methane emissions from gas wells, said potential contamination of groundwater and impacts on wildlife and vegetation are some of the main concerns associated with leaking fracking ponds.

He pointed to his field work in the Montney formation in B.C.’s Peace region, one of the largest shale gas resources in the world, where he saw other fracking ponds that appeared to be leaking.

“In particular, animals like moose and caribou are attracted to what they call mineral licks. They would be around these areas where we saw leaks,” Werring said.

“The smell was terrible. We took samples of the water and found there were high volatile organic compounds. Downstream of the slope where these ponds were leaking all the vegetation was dead.”

Werring pointed out there is “absolutely no information” on the effects of leaking frackwater ponds on groundwater.

This Vigilante Scientist Trekked Over 10,000 Kilometres to Reveal B.C.’s Leaking Gas Wells

Oil and gas commission left in a pickle when companies become insolvent

The paper trail for the leaking storage pond offers a revealing glimpse of some of the issues faced by B.C.’s oil and gas commission as it struggles to pay for massive clean-up costs related to the fracking industry and deal with urgent safety and environmental issues left behind by insolvent companies.

According to Ranch’s receivership documents, Ernst & Young spent $580,000 last year to fix 23 “regulatory deficiencies” and issues of non-compliance in B.C.

Those included what the receiver described as a “major environmental and safety issue” related to a leak of an undisclosed substance from a pressure safety valve and spool piece on a cooler, the subject of an apparent July 30, 2018 order issued by the oil and gas commission.

“The issue was significant and needed to be addressed immediately,” documents from the receiver note.

Ernst & Young committed a further $270,000 to “rectify regulatory deficiencies,” most of which it said arose prior to Ranch’s insolvency in July 2017.

But the receiver balked at picking up the unknown tab to comply with the oil and gas commission’s order to remedy the leaking fracking pond, declining a suggestion from the commission that it cover the cost of trucking out contaminated liquids from the fracking storage pond.

It determined that “the cost to do so would be significant and constitutes an expense that the estate cannot afford.”

The commission’s order to deal with the fracking pond was issued on July 14, 2017, when the regulatory agency noted the pond’s outer liner was leaking and leaked liquid was being pumped back in.

“Emptying all materials from the Site will facilitate inspection of the leak for contamination of soils and the environment,” said the order, issued to Predator.

The commission ordered the removal of “all the liquid, sludge and waste residue from the frac water storage site,” to be disposed of at approved facilities, giving until October 31 of that year to comply.

The commission also ordered the company to submit an environmental site investigation report by August 2018 “to determine the presence and extent of potential contamination in the soil and groundwater at the Site.”

The company was given a further six weeks to “ensure that any contaminated soils, if present at the Site, are removed or otherwise remediated…”

A frack water pond at an unspecified gas operation in B.C. Scientist John Werring told The Narwhal he suspects this pond is leaking but was not able to gain access to the site to test the water in the pond against what appeared to be leaking wastewater. Photo: John Werring

Werring travelled across B.C. documenting oil and gas sites. He told The Narwhal there is virtually no research done in B.C. on the impacts of leaking frack water ponds on groundwater. Photo: John Werring

Werring said he documented sites downslope from leaking fracking wastewater ponds where all vegetation was dead. Photo: John Werring

Commission asks receivers to clean up leaking pond

To complicate matters, Predator holds the permits for the Ranch well sites because Ranch was not qualified to hold the permits under B.C.’s regulatory regime. And given Ranch’s insolvency, “there is no real likelihood of the permits ever being transferred from Predator BC to Ranch,” according to an October report from Ernst & Young.

So Predator is still listed on the B.C. Oil and Gas Commission’s website as the permit holder for Ranch operations, including for the leaking fracking pond.

The Oil and Gas Commission did not answer a question from The Narwhal, sent last Friday, asking if all nine orders to Predator listed on the commission’s website, including orders related to safety issues, refer to wells and infrastructure that were owned by Ranch.

On September 27, 2018, the oil and gas commission asked Ernst & Young to implement plans to address problems at the fracking pond, giving the receiver only two weeks to respond, according to receivership documents.

Ernst & Young advanced a proposal to deal with the frack pond issues in what it called “an economically feasible manner, given constraints associated with winter conditions.”

The commission then suggested “that the Receiver should truck the liquids out of the Frac Pond…”

At that point, Ernst & Young replied that while the estate could not afford that expense it was willing to continue working with the oil and gas commission to address the issue.

‘Who’s going to pay for all of this?’

The B.C. Oil and Gas Commission declined a request from The Narwhal for an interview, asking for questions to be emailed.

In response to those questions, the commission said the Redwater ruling gives it and other regulators “another tool to ensure companies are held responsible for cleaning up and restoring their sites.”

But B.C. budget and Ranch receivership documents suggest the deficit in the orphan site reclamation fund could climb much higher, further impeding the commission’s ability to balance its budget, if Ranch wells are designated as orphans or other companies become insolvent.

Orphan wells are designated by B.C.’s oil and gas commission when a permittee or former permit holder cannot be identified or is insolvent.

“Suddenly there is no viable entity that has responsibility for that well,” Werring explained.

An abandoned fracked gas well, on the other hand, is owned by a company that holds the lease to the land and has pumped out all the gas.

“When the well is finished pumping and there’s nothing left to come out of it, and the company wants to close that well, there’s a procedure called abandonment where they have to go out and remove all the surface infrastructure,” Werring said.

“They cut the well head off, they fill the well with cement, they cap it and they bury it a metre underground and then they scarify all the earth around it and then replant it to make it come back to a semi-natural state.”

Werring’s research showed that less than six per cent of all abandoned wells in B.C. are on sites that have been reclaimed and replanted.

“Most of the wells that are abandoned still have infrastructure on site — well heads, buildings, things like that that need to be dealt with,” Werring said. “There are a lot of these wells out there that are not properly abandoned. So there’s a huge liability there that now falls on the Crown.”

“A lot of these wells are dangerous. They could deteriorate, fall apart, cause major environmental problems. Unless somebody fixes them it could be an ongoing liability not just from a financial perspective but from an environmental perspective. The question comes down to, ‘Who’s going to pay for all of this?’ “

B.C. orphan well sites increase by 48 per cent in last two years

According to an affidavit from James O’Hanley, the oil and gas commission’s vice-president of applications, filed as part of Ranch’s receivership proceedings, B.C. has 326 designated orphan well sites, of which 310 require further restoration.

That number has climbed from March 2017, when there were just 220 designated orphan sites, according to the B.C. Oil and Gas Commission’s service plan.  

Restoration costs vary from site to site but the average cost to abandon and reclaim a site is approximately $370,000, Hanley said in his affidavit.

At that price, it would cost $114.7 million to reclaim the 310 well sites already designated as orphans.

But only $13.9 million has been earmarked for the next fiscal year to carry out decommissioning and restoration activities on orphan sites, according to the oil and gas commission’s budget documents.

And Ranch’s 300 to 500 potential orphan wells are not included in the designated orphan sites because the commission is waiting to see how many of the company’s 700 B.C. wells will be sold by the receiver, the commission said.

At the average clean-up cost cited by Hanley, Ranch’s potential orphan sites could add another $111 million to $185 million to reclamation costs — considerably higher than the figure cited by the commission in its service plan.

“The orphan well fund is a drop in the bucket compared to the liability out there and what needs to be fixed,” Werring pointed out.

Pace of orphan site restorations very slow

The oil and gas commission’s service plan also reveals the glacial pace of orphan site restorations in B.C. even as the number of sites rapidly increases.

In 2017-18, the commission restored six orphan well sites. In 2018-19, it forecasts that it will restore just three, noting that other sites have work underway.

The number of certified restorations is expected to increase over the next few years, with a target of 25 sites restored in 2021-22.

The oil and gas commission confirmed in an email that there have been no designations of orphan wells due to Ranch’s insolvency as of yet, because the company’s receiver has “undertaken a process to facilitate sales of Ranch’s assets.”

“The Commission will continue to regulate all assets owned by the company and take steps as required to protect public safety and the environment,” it said.

The commission also pointed out that it is changing how funds are collected for the orphan site reclamation fund. In the past, the commission has collected funds from industry permit holders for the orphan fund to deal with the costs of abandonment, remediation and reclamation of sites.

The system differs from Alberta’s, where those costs are managed by the Orphan Well Association, not by the province’s oil and gas regulator.

“We are continuing our work to enhance our comprehensive liability management plan to address ongoing environmental and financial liabilities associated with oil and gas sites, including the timely restoration of orphan oil and gas sites in B.C.,” the commission said in an email.

Starting this spring, the orphan tax will be eliminated and replaced by a new liability levy that will be phased in over three years.

The levy will provide “the entire estimated $15 million per year required to sustain the orphan fund” by 2021-22, the commission said.

But Werring said the liability levy won’t fix the problem any more than the orphan fund did, due to the sheer volume of the wells that needs to be managed.

“It’s a massive liability all around, it doesn’t matter how you look at it,” he said. “Somebody at the end has to pay for this.”

Fracking pond order still outstanding

There is no record that the fracking pond leak has been stopped or the site assessed for soil and groundwater contamination and remediated.

Asked if the order regarding the leaking fracking pond has been followed, the oil and gas commission responded only that it is engaged in the receivership proceedings of Ranch Energy and that a sales process — which will result in some assets being purchased by another party — is not complete.

“The Commission will continue to review any potential sale to ensure attention is given to the obligations for the assets, as well as minimize risk to public safety, the environment, and orphan fund,” it wrote.

“This includes existing obligations for the storage of frac waters. The Commission continues to monitor conditions on the ground to ensure the protection of public safety and the environment.”

Asked about estimated clean-up costs for Ranch’s fracking pond, the commission said the bill for decommissioning the storage pond will vary “depending on the method used to dispose of waters.”

“If the Commission is required to take action to complete any works, including actions on any of the assets to protect public safety and the environment, cost estimates will be gathered and reviewed prior to executing any required works.”

Werring pointed out that inactive oil and gas wells and fracking storage ponds operate on Crown land, with permits from the province.

“Somebody went bankrupt and there’s an environmental liability out there. Who’s going to pay for it? In the end it will probably be the taxpayers.”

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Information obtained by The Narwhal reveals that oil and gas companies owe the Alberta government more than $20 million in unpaid land rents accumulated since 2010 — and annual payments by government on behalf of delinquent companies have increased 840 per cent between 2010 and 2017.

When oil and gas companies drill wells on private property, they enter into a contract with landowners to pay an annual fee — rent for the land.

However, when companies don’t pay, landowners can apply to a government tribunal — called the Surface Rights Board — that steps in and pays the rent using taxpayer money. The government is supposed to recoup that money from the companies, so taxpayers aren’t footing the bill.

“The vast majority of operators [whose rents are being paid by taxpayers] are in bankruptcy proceedings, receivership or insolvent,” Mike Hartfield, spokesperson for the Surface Rights Board, told The Narwhal.

The Narwhal reported in January that Alberta recouped less than two per cent of all money paid on behalf of delinquent oil and gas companies in 2017 .

The new data obtained through a freedom of information request spans eight years and shows that not only is this practice the norm, but the problem is getting steadily worse.

A bombshell of a piece from @sharonjriley. “If people are worried about 3,000 [current orphan wells] then they won’t know what hit them with 80,000 coming.” https://t.co/btj8RU1Sca #ableg #abpoli #cdnpoli #oilandgas

— The Narwhal (@thenarwhalca) February 12, 2019

Rent recovery applications up 580 per cent

The government documents reveal that of the money paid on behalf of delinquent oil and gas companies, less than two per cent has been recouped during the past decade.

The number of applications from landowners for what’s known as rent recovery has increased 580 per cent since 2010.

In 2016, less than half a per cent — just $15,000 — was recovered from companies. In 2007, just $312 was recouped.

In total, oil and gas companies currently owe the Alberta government more than $20 million in unpaid land rents accumulated since 2010.

The amount the Alberta government has paid in land rents on behalf of delinquent oil and gas companies has been steadily on the rise in recent years, with more than $20 million paid since 2010. Less than two per cent of that money has been recouped from companies.

Not (yet?) orphans

The wells in question are not orphans. These are wells owned by companies that are still in operation — but are just (way) behind on their bills. In these case, landowners apply to Alberta’s Surface Rights Board to be compensated for the rent they’re owed by delinquent companies.

Orphan wells are different. They’re wells left behind when a company formally declares bankruptcy, and are taken over by the Orphan Well Association.

Lars De Pauw, executive director of the Orphan Well Association, talked to The Narwhal about the influx of new orphan wells added to the association’s inventory.

“We are well funded,” he said in an interview in November, noting that the association is primarily funded by industry. “Industry to date has contributed over $314 million.”

“This is a substantial amount that companies have paid for other company’s missteps.”

Companies pay into the orphan fund based on a formula set by the Alberta Energy Regulator that’s based on their share of the estimated total cost of clean up in the province.

But it isn’t technically just industry funding the Orphan Well Association. The Alberta government has given the association at least $30 million in grants since 2009, and announced that it planned to loan the organization $235 million in 2017. Last year, the federal government also said it would allocate $30 million to the cause.

The association’s inventory currently includes more than 3,000 wells that need to be properly sealed and another 1,500 that are sealed but still need more reclamation work. The inventory doubled between 2015 and 2018, according to its annual report.

Many of the wells the Alberta government has been picking up the tab for aren’t orphans yet, but given that companies are defaulting on payments, they soon could be.

‘They won’t know what hit them’

Many of the wells the Alberta government is picking up the tab for are inactive — no longer producing any oil or gas.

“You hear newspaper articles with the alarm that we have 3,000 orphan wells and how this is such a big number,” Lucija Muehlenbachs, an associate professor of economics at the University of Calgary, told The Narwhal. “And of course it’s scary that it’s growing at a fast rate.”

“But in comparison to the number of inactive wells, this is, like, peanuts,” she said.

In a 2017 paper, Muehlenbachs reported there were 80,000 inactive wells in the province — wells that her research found were very unlikely to ever produce again, even if prices increased.

In its most recent annual report, the Orphan Well Association reported “the increase in orphan properties is expected to continue,” noting that dozens of companies in Alberta were insolvent at the time.

“If people are worried about 3,000 [current orphan wells],” Muehlenbachs added, “Then they won’t know what hit them with 80,000 coming,” noting that not all inactive wells will necessarily become orphans.

“If people are worried about 3,000 [current orphan wells] then they won’t know what hit them with 80,000 coming.” — Lucija Muehlenbachs, economics professor

If companies are struggling to pay the rent owed to landowners, 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, they’ll end up on the ever-growing list of the Orphan Well Association. In the meantime, the Alberta taxpayer foots their land rent bills.

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

More costs could ‘fall to the public or to the landowners’

Questions remain about whether the Orphan Well Association can handle any more increases in its inventory.

“We do know there is a potential for the fund to be depleted or underfunded and those costs… [could fall] to the public or to the landowners,” Lewis Manning, a lawyer for the Canadian Association of Petroleum Producers told the Supreme Court of Canada last year.

(De Pauw of the Orphan Well Association told The Narwhal he was optimistic the association is finding new ways to minimize costs and increase efficiencies, a sentiment the organization echoed in a recent press release).

Manning was in court as part of the Redwater case — which recently resulted in the decision that paying reclamation costs takes priority over repaying creditors.

The ruling applies only to companies that have declared bankruptcy — and only helps if the company has any assets left over.

The government data The Narwhal obtained shows that Alberta’s environmental liability problem is not limited to already bankrupt companies. Many more companies are apparently already in such a precarious financial situation that they aren’t paying even the most basic of expenses — including the compensation owed to landowners.

As Muehlenbachs noted, many people assume that the Orphan Well Association is paying the expenses of wells when companies can’t or won’t.

But, she added, “this is a clear case where Albertans at large are paying.”

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

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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.

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Saskatchewan Premier Brad Wall announced Monday he asked the federal government for $156 million to help fund oil and gas well cleanup efforts. In a press release he said the program “will stimulate economic activity and job creation while at the same time delivering environmental benefits.”

But Saskatchewan already has a fund in place for dealing with so-called “orphan wells,” or wells that have been left behind by companies or individuals who are no longer financially able to pay or legally responsible. Since 2009 the province has collected payments from wells in operation, and if the well doesn’t meet a particular threshold for financial stability the province may demand a refundable deposit as a guarantee. As of last fall that fund held $11.4 million in payments, up a million dollars from the previous year, plus another $45 million in refundable deposits.

The Alberta NDP government said in a statement on Tuesday that the province — despite having about seven times as many orphan wells as Saskatchewan — will not seek federal money because “industry should continue covering costs related to remediating abandoned wells.”

So why does Saskatchewan need $156 million now?

“Some workers have been laid off, some are job-sharing, some doing things like taking Fridays off without pay,” says Kathy Young, chief of communications for the provincial government. “The funds will help these people stay employed.”

The province’s oil and gas industry has shed 1,900 jobs in the past year, according to government statistics, and Wall’s plan would put 1,200 of them back to work.

Young would not say exactly what the money would be used for. She says the Ministry of the Economy came up with the $156 million number based on an estimate of 1,000 well clean-ups, which are typically funded by industry.

The health of the orphan wells fund depends on the health of the industry. Since the money is collected incrementally from well owners, a downturn and the ensuing bankruptcies can mean the province is left holding the bag for cleanups that haven’t yet been paid for.

“If [oil and gas firms] have the ability to pay, the fund is fine,” says Judy Ferguson of the provincial auditor’s office. “If there is a risk to their ability to pay, the province is at risk, financially.”

As of last November the fund was reporting that it had just $5 million in unfunded liabilities, or work that needed to be done that was not covered by money the province had already collected.

In the same budget report, it claimed that in 2014-2015 it had cleaned up 58 orphan wells and a number of other sites, all of which cost $1.7 million. The province has 100 left to go, according to Young — and last year it expected to complete about 70 of them.

It is not clear, however, how many new orphan wells have appeared since the oil downturn prolonged and intensified. It’s also unclear whether wells that are orphaned within a year of breaking ground are included in the province’s figures; companies get a break on their payments for the first year. Young declined to comment on these wells.

Among the proposed purposes for the federal funding, the provincial government said in its press release that it wants to fund “environmental site assessment, the safe removal and disposal of old equipment, the remediation of oil and salt water spills, the restoration and re-contouring of the site, and the re-vegetation of the land.” It is unclear which of these procedures are already required by the language of the existing legislation, and Young has also refused to answer questions about this.

In Alberta, the Petroleum Services Association of Canada is preparing a similar pitch to the provincial government, despite Notley’s statement that taxpayer dollars would not be used to fund reclamation.

“There’s ways to do it with industry in conjunction with the government where we don’t go after the taxpayers,” says association president and CEO Mark Salkeld, saying he wants to explore “partnerships” with the government that would tap into an as-yet undetermined pool of money.

“We just like the whole concept,” he says. “If you’re going to spend money on infrastructure — if they’ve got money to spend putting people back to work again — well, then we can put people back to work again.”

He says the petroleum service association’s proposal should be ready in two weeks, and that he is “a bit miffed” that Saskatchewan beat it to the punch.

“It’s such a great idea,” he says. “We wish we were first to it.”

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