The Alberta government is considering a controversial plan that would provide incentives to oil and gas companies to clean up their wells, but critics say it amounts to a royalty giveaway that would essentially compensate industry for work it is mandated to do.
Alberta Energy Minister Peter Guthrie told The Globe and Mail this week that details of a new site liability program haven’t yet been finalized, but the government is looking at something along the lines of the RStar program – an idea Danielle Smith floated to the United Conservative Party government before she became Alberta premier.
Ms. Smith laid out the details in a July, 2021, letter to then-energy minister Sonya Savage, when Ms. Smith was president of the Alberta Enterprise Group, a non-profit business advocacy organization. She championed the idea on behalf of her members and the Sustaining Alberta Energy Network, an organization representing junior oil, gas and energy service companies that had pushed the program for nearly two years.
According to the letter, RStar would piggyback on an existing Alberta drilling credit that allows oil and gas companies to pay a 5-per-cent royalty rate until they’ve recovered the cost of drilling, as opposed to the royalty formula that would otherwise apply.
RStar would extend that 5-per-cent rate, allowing companies to apply it to new production until they have paid off the cost of reclaiming the older, inactive sites on their books.
It would present “a new approach to address the issue of decommissioning and closing inactive wells,” Ms. Smith wrote, that would “create a pathway for junior oil and gas companies to clean up existing wellsite liabilities, improve corporate health, improve profitability and become compliant with all their financial obligations.”
Developing a pilot program to “effectively incentivize reclamation of inactive legacy oil and natural gas sites and enable future drilling” was one of the many tasks assigned to Mr. Guthrie in his mandate letter from the new premier.
He told The Globe he would like to have program details finalized by Christmas so the province can meet with industry and stakeholders in the new year. Ultimately, he’d like a new program ready by March 1, 2023.
“If it turns out it’s not something that industry’s interested in, if it turns out it’s not something they think is necessary or warranted, of course we wouldn’t go ahead,” he said.
But the idea in the form floated by Ms. Smith has raised the hackles of rural municipalities, which are already owed hundreds of millions of dollars in unpaid taxes by oil and gas companies.
Rural Municipalities of Alberta members broached the subject repeatedly with Mr. Guthrie at the recent RMA convention in Edmonton, critical of what they say is a program that would essentially reward oil and gas companies for something they’re already supposed to do: clean up their own messes.
“Alberta’s current law is polluter pay, so why should we as taxpayers have to contribute, especially for oil and gas companies that are again in profitable territory?” Barb Shepherd, Reeve of Lacombe County, asked Mr. Guthrie during a ministerial forum.
RStar seems like a “complex method of transferring oil wealth from the citizens of Alberta to oil companies,” she added, to cheers and applause from her fellow RMA members.
“Why should we – or would we – want government dollars to support or assist these companies to clean up their own mess? To me, it’s equivalent to royalty-free oil and gas.”
Kneehill County councillor Ken King voiced similar concerns, and said the province should direct money directly to rural municipalities to help stimulate local economic activity and infrastructure investment.
Mr. Guthrie replied that the program would increase economic activity and stimulate jobs in rural municipalities by bringing energy service contractors to small towns for reclamation work.
But Andrew Leach, an economics professor at the University of Alberta, who last year spoke with Ms. Smith about the proposal, said the RStar program would see cash spent on reclamation instead of other government priorities like education or health care, which would also create jobs.
“Fiscally, it’s not probably the most responsible use of funds,” he said.
He also doubts whether the program would even help small, financially strapped companies that are unable to execute their reclamation duties.
“No one’s going to loan them $1-million to spend [on reclamation] now that they can recover $300,000 worth of RStar credit, so the only people that benefit from this are the companies that have a lot of accumulated reclamation work to do and that have the cash do it – which aren’t the ones that we should be really worried about,” he said.
RMA president Paul McLauchlin added that large companies with the means to pay for reclamation work could potentially game the program unless there are strict controls in place. He also questioned the notion of using future royalties to address current liabilities.
“We don’t want these companies to go bankrupt, but at the same time, at the high price point right now we’d sure like them to allocate their resources not into share buybacks and dividends, but actually into liability reduction,” he said.
Still, he said, “If it’s designed properly, I would support it 100 per cent, because I think it addresses a need.”