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Alberta faces paying for orphan wells Upstream companies shrug off embarking on clean-up; Kenney government under pressure to tackle the multi-billion-dollar challenge Gary Park for Petroleum News
In a sudden joining of forces against their bread-and-butter industry, Alberta farmers, landowners and taxpayers are openly seething against the upstream petroleum sector’s refusal to pay the costs of cleaning up abandoned oil and gas wells.
One new study by the Alberta Energy Regulator, AER, estimates that 97,000 wells haven’t been properly closed and another 71,000 have been closed but not properly reclaimed. The agency expects another 6,014 wells will be added to the tally this year.
The Alberta Liabilities Disclosure Project, ALDP, paints an even more alarming picture, figuring a cleanup would involve 300,000 wells and cost C$70 billion.
The University of Calgary’s School of Public Policy said landowners have received the short end of the stick, watching their property values decline as the number of abandoned and inactive wells has soared.
The study said many companies have simply stopped paying rent to landowners, leaving the public to pick up the tabs.
In 2018, the Alberta Surface Rights Board, which adjudicates disputes between landowners and energy companies, ordered C$6.4 million in payments from general government revenues, a 10-fold increase from 2014.
Rural Municipalities Alberta says the amount of unpaid property taxes from the oil patch has tripled since 2019 to C$245 million.
AER sees large number of leaking wells The AER also found that about 10% of inactive wells and 7% of abandoned wells are leaking.
The regulator’s Chief Executive Officer Laurie Pushor said his agency is not about to start collecting municipal property taxes or rent owed to landowners, but it is beginning to collect information from producers about unpaid taxes and lease payments.
He said the AER is also taking steps to ensure companies better manage inactive and orphan wells.
The AER joined the call for action, declaring it will soon require oil companies to spend a specified amount each year on environmental activities.
In addition, it said that should companies want to pick up new wells as a cheap source of revenue or secure the transfer of an asset, the cash owed by those wells in property taxes and to landowners will determine whether or not such initiatives get the green light.
When Pushor took the helm at the AER 15 months ago he promised to focus on rebuilding confidence in an organization tarnished by scandal.
Jobs from concentrated cleanup The ALDP said a concentrated cleanup presents a unique chance to create 10,000 industry-funded jobs but conceded that a concrete plan is required to enable oil workers to take advantage of those opportunities.
Parkland Institute, a research group based in the University of Alberta, said much of the C$1.7 billion (C$1 billion of which was tagged for Alberta) funded by the Canadian government last year may have simply replaced money that energy companies would have spent anyway.
Megan Egler, author of a Parkland report, found that in 2019 Alberta’s petroleum industry spent about C$340 million on remediation, but that amount increased to only C$363 million after the federal funding was announced.
Her research showed that almost 25% of the C$800 million that has been distributed has so far gone to just five financially strong companies. One of them, Canadian Natural Resources, got more than $100 million.
Egler noted that funding was not distributed on the basis of which wells had been unreclaimed the longest, or which posed the greatest environmental threat.
“The cleanup of the sites relieves both the defaulting owners and the government from paying compensation to landowners,” her report said.
Egler estimated that each of the 1,700 jobs created so far in Alberta took almost C$190,000 per worker in subsidies, which is C$41,000 more than similar work done by the Orphan Well Association.
Assets vs liabilities When Alberta started coming to grips with the historic problem of cleaning up its own mess it was noted that every well, whether or not it is actively producing, has a deemed asset value and an estimated liability value.
The ALDP report showed assets of C$142 billion and liabilities of C$30 billion, of which the healthiest 45 companies have 17.36 times more in asset values than liabilities, whereas 276 licensees in the worst financial shape have C$39 million in assets and C$701 million in liabilities, with no hope of raising the money needed for their cleanup work, let alone paying property taxes and leases.
A group calling itself Sustaining Alberta’s Energy Network, SAEN, has suggested one alternative could involve a lower royalty credit to accelerate cleanups. That would over a long time pay 100% of the cleanup costs.
But so far the Alberta government has shown no desire to explore the idea, suggesting it hopes eventually to pass the problem on to a future government. And that could happen as soon as April 2023 if Premier Jason Kenney’s growing unpopularity in the polls sees him defeated in the next provincial election by the New Democratic Party lead by Rachel Notley.
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