Number of new stranded oil, gas wells in Alberta on pace to hit 12,000, regulator says

Alberta’s Orphan Well Association stands to inherit 12,000 new sites from bankrupt oil and gas companies, more than doubling the number of wells, pipelines and facilities left stranded by operators.

The escalation of the number of sites with no owner underscores the dramatic downturn that has hit Alberta energy producers over the past few years. But it also highlights regulatory holes that, for decades, let operators off the hook and able to walk away without cleaning up their mess.

Ultimately, the Alberta Energy Regulator will decide what sites land with the OWA. It stays in contact with insolvency professionals to monitor possible bankruptcies in the oil patch, keeping a watchlist of companies circling the drain so they can track wells, pipelines and other assets that might end up without an owner.

AER spokesman Shawn Roth told The Globe and Mail the 12,000 figure is in line with the regulator’s monitoring, but stressed not all of them involved in an insolvency will necessarily end up orphaned.

Some companies monitored by the AER will successfully restructure and go on to fight another day, assets intact. Even when a company does go bust, their assets are sometimes scooped up by rivals looking to expand their footprint. Ember Resources Inc., for instance, acquired more than 1,100 wells and other facilities that belonged to Trident Exploration Corp., after the gas company abruptly ceased operations in 2019, leaving a $329-million bill to clean up 4,700 wells.

Mr. Roth said the AER views adding inventory to the OWA as a “last resort,” and works to ensure companies who profited from their wells and pipelines are responsible for cleaning up their mess – the heart of the “polluter pays” principle.

The OWA is funded via a levy on oil and gas producers, but in recent years has received $535-million in government loans to hasten the cleanup of orphaned wells across Alberta.

In 2017, the then-NDP government floated a $235-million loan at 0-per-cent interest, giving the OWA a decade to pay it back. The current United Conservative Party government threw in another no-interest $100-million loan in 2019, to be repaid by 2028. The federal government spotted the OWA an additional $200-million this year as part of its pandemic response. The details of that loan – interest, maturity – will be hammered out this fall.

Government cash injections tend to chafe opponents, who say the loans amount to taxpayers picking up the cleanup bill on behalf of industry.

For Nina Lothian, fossil fuels director with the Pembina Institute, a green energy think tank, the prospect of another 12,000 wells landing on the OWA is worrisome.

“It will make it even harder to manage that inventory without relying on the public purse,” she said, the industry’s total liabilities are estimated at $29-billion, but the AER only holds $226-million in security.

Still, there is no doubt the taxpayer-funded loans have increased the speed with which OWA reclaims wells.

A few years ago, the association was cleaning up around 300 wells annually, estimates OWA projects lead David Marks. Last year, that number was closer to 2,000.

“Could we do 3,000? Probably. We’d just have to bring on more folks,” he said in a recent interview.

As of Oct. 1, the OWA had 10,894 sites on its books, 973 of which had been reclaimed. The list includes wells, pipeline segments and other oil and gas facilities at various stages of the cleanup process.

The association plans to start or continue decommissioning work this year on around half of the 2,674 wells on its abandonment list. More than 3,500 sites are already into the reclamation stage, with 30 per cent of them at final vegetation monitoring – the last step in the cleanup process.

“For the longest time – probably every month – we were getting many hundreds of wells and sites coming into our system,” Mr. Marks said in the recent interview. But that seems to have slowed down, he said, since the start of a $1-billion federally funded site cleanup program, operated by the province. The program aims to create both jobs in the energy sector and environmental benefits in the form of cleaner land.

The OWA can’t access cash from the program, but receivers working on insolvencies can. The result is that sites that once would have been dumped on the OWA if nobody buys them in an insolvency sale have a shot at being cleaned up before they ever land with the association.

As the federal-provincial program funds site cleanup around the province, the OWA is trying out new methods for more timely, cheaper reclamations.

Take a pilot program near the Southern Alberta hamlet of Carseland, where a single firm is overseeing all site reclamation work on around 40 wells, from clearing and plugging wells right through to the eventual reclamation certificate.

Carseland farmer Drewe Nelson said the pilot was a welcome surprise for the tight-knit community; many locals hadn’t seen a lease payment for wells on their land in years, and were excited for the program to begin.

“It looked like something was going to be done, so pitter-patter, let’s get at 'er, right?” he told The Globe.

When the pilot started a couple of years ago, Mr. Nelson recalled, “you had to stand out of the way” for the amount of workers and equipment buzzing around.

Cleanup was moving along at a blistering pace and there was a general feeling that the pilot would be a success because fully reclaimed sites were in great shape, he said.

But all of that screeched to a halt this spring when COVID-19 hit.

“You were seeing things happening and seeing the results. Now, you’re going, ‘Well, where is everybody?’ ” he said.

“If it had continued on, we’d have been done by now,” he said, but he estimates around half of the sites remain “in limbo.”

Mr. Nelson suspects the pilot is playing second fiddle to the new provincial cleanup program funded through Ottawa, but OWA executive director Lars DePauw told The Globe the work slowdown was primarily because of a wet spring.

Mr. DePauw said his association is reviewing how the pilot program has worked out, but so far it has been happy with the results.

Ms. Lothian with the Pembina Institute said those kinds of creative solutions are important, but it’s crucial that regulations are also tightened. “We’ve had decades where this problem was building and we didn’t address it, and now it’s come home to roost,” she said.

Although the OWA and AER are independent bodies, they are governed by provincial rules. The Alberta government made a series of changes over the summer to close loopholes that did little to stop companies from dumping their sites on the OWA and walking away.

The regulator is in the midst of fine-tuning how those new rules will unfold on the ground – and how that happens will determine the success of those policy changes, Ms. Lothian said.

“I’ll put in a plug for transparency around some of this as well," she said. “Because of the consequence to taxpayers, both Albertan and Canadian, there needs to be a bit more transparency around how these policies are developed and how the details in the final decisions are being made.”

The new liability management framework introduces mandatory well cleanup rules, overhauls a system that assesses companies' fiscal health before granting them regulatory approval for wells, and allows farmers and ranchers to demand well reclamation on their land.

The problem of inactive oil and gas wells has been “festering for 60, 80 years,” Alberta Energy Minister Sonya Savage told The Globe at the time. “But it can’t continue. It’s causing too much uncertainty.”

But for Ms. Lothian, the changes omitted two key points: no limits on how long a company has to clean up a well once it stops producing, and not requiring oil and gas companies to post full security on their wells.

She acknowledged the full security part is difficult given the current economic context, but said doing so “would secure Alberta against the risk of being on the hook down the road for cleanup.”

Editor’s note: An earlier version of this story stated the OWA’s liabilities are estimated at $29-billion, when that number is in fact the industry's total liabilities estimate.

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