Vol. 25, No.02 Week of January 19, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Cleanup on grand scale

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Alberta faces an estimated $58.6B liability for thousands of abandoned wells

Gary Park

for Petroleum News

The Alberta government hopes to untangle the most complicated feud between the energy industry and landowners no later than March 31 when Energy Minister Sonya Savage unveils “an entire suite of policies dealing with well licenses and liabilities” that will set a new course to clean up the mess created by abandoned wells.

The overhaul will cover “everything from licensing to operations, to transfers of licenses, to abandonment and reclamations, to the orphan wells ... and even to post-closure and legacy sites,” she told the Calgary Herald.

Without going into detail, she said the package will involve the role of the Alberta Energy Regulator, AER, the province’s industry controlling agency, along with “some regulatory and policy changes.”

450,000 wells drilled

The scope of the challenge is captured in a few statistics and cost estimates stemming from the drilling of 450,000 oil and gas wells over the past century whose end-life cleanup - in the absence of fixed timelines on remediation - has mostly been left to whatever sense of corporate and community responsibility has been taken on by the companies involved.

As a result, the AER now estimates there are 93,000 inactive wells in Alberta, 11,000 of them accumulating in the past five years amidst a collapse in commodity prices, company bankruptcies and a maturing producing basin.

In late 2018, the AER pinned the liability for cleanup at C$58.6 billion, a drastic revision from the estimate of C$260 billion including oil sands mining remediation that an AER vice president disclosed during a public presentation.

In 1964 the Alberta government started requiring companies to obtain reclamation certificates, of which 6,077 wells are still active today, 5,487 have suspended production without being cleaned up and 3,695 have been plugged, which the industry and government rate as “abandoned,” but not remediated.

Farmers, ranchers and their attorneys accuse oil and gas companies of failing to perform their duty, raising concerns about the current total of inactive wells they suggest will completely overwhelm the AER and the Alberta government.

Investor confidence issue

While she does not favor fixed timelines, Savage insisted the government is determined to restore investor confidence by ensuring environmental responsibilities are managed in “an appropriate time frame.”

Canadian Association of Petroleum Producers Vice President Brad Herald said the industry’s main lobby organization supports “increased stringency for companies to retire their end-of-life obligations. That has to be done with some sensitivity to the economic challenges of today.”

Martin Olszynski, a professor of environmental law at the University of Calgary, said two measures are required to ensure the financial burden of the abandoned wells does not land on the public: Timelines for closure and sufficient bonding at the outset.

The Alberta government of Premier Jason Kenney has made overtures to the Canadian government to employ some of the thousands of engineers and others who have been laid off during the industry downturn to help with the cleanup. So far there has been no response from Prime Minister Justin Trudeau.

Kenney has also suggested funds could be raised from flow-through shares that could involve oil-field service companies selling shares to investors, with the proceeds tagged for orphan-site cleanup.

Many observers suggest that a failure by the two governments to find common ground will only compound a growing environmental disaster.

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