A new federal report pegs the cost of cleaning up orphaned Canadian oil and gas wells at $1.1-billion by 2025, but does not account for the massive cost of completely returning sites to their natural states.
The report by the independent Parliamentary Budget Officer, released Tuesday, underscored the pricey problem of dealing with the growing number of inactive wells that end up with no owner – so-called orphan wells – when a company shuts down or goes bankrupt.
Cleaning up wells that lay dormant was at the heart of a $1.7-billion federal grant to Alberta, Saskatchewan and British Columbia in 2020. The report set out to analyze whether that figure was enough. While the PBO factored in many of the risks associated with inactive wells, some of which are owned by companies still in operation, it mainly focused on orphan wells, because of the risk that the cleanup of those sites could become a provincial or federal liability.
The PBO estimated that at a national level, the cost of cleaning up Canada’s orphan well inventory was $361-million as of 2020. That cost is expected to rise to $1.1-billion by 2025 as more wells become orphaned.
The estimate doesn’t include offshore operations or the oil sands, which are expected to continue producing for some time.
But the report was criticized by some who keep a close eye on the cost of cleaning up Canada’s oil and gas industry.
Regan Boychuk is a researcher with the Alberta Liabilities Disclosure Project (ALDP), a group of landowners, researchers, academics and environmental groups that has long pressured regulators and government to address the growing problem of energy companies walking away from the environmental messes they are legally bound to clean up.
He has been analyzing the cost of cleaning up Alberta’s wells for years, and on Tuesday called the PBO report “misleading and confusing.”
The report fails to account for the significant cost of remediation (the final steps in environmental cleanup and returning land to its pre-drill condition), and its estimates about the number of inactive wells that are likely to become orphans grossly undershoots the true scale of the problem, he told The Globe and Mail.
In a 2021 report, the ALDP estimated the cost of cleaning up Alberta’s thousands of oil wells at $70-billion.
That research is cited in Tuesday’s report, but Mr. Boychuk said the PBO ignored swaths of data about the magnitude of the orphan and inactive well issue, particularly around remediation.
“You might expect it from Alberta officials” who are firmly on the side of the oil and gas sector, he said, but after two years of conversations with the PBO he had anticipated more fulsome data from the office.
“I expected better, but it’s more of the same,” he said, adding that omitting remediation costs from the report is “simply dishonest.”
The PBO acknowledges in its report that failing to include remediation makes its estimates lower than the total costs of returning the site to a natural state. But it says that because hard data are sparse and remediation bills vary so wildly from one site to another – depending on factors including the depth of a well, the extent of contamination and the surrounding landscape – it excluded that cost.
Martin Olszynski, an associate professor of environmental law at the University of Calgary, also says the PBO report grossly underestimates the extent of the problem.
“Most bizarrely, it acknowledges that it does so, but then just sort of shrugs off those important limitations and lingering uncertainties,” he said.
“On its face, then, you get the impression that everything is reasonably under control, but then reading between the lines … shows the opposite is true. I worry most people won’t do that careful reading.”
Alberta’s share of the federal funding supports its Site Rehabilitation Program, aimed specifically at inactive wells – not orphan wells.
The PBO noted in its report that half of the funds doled out by Ottawa to Alberta went to large oil and gas companies such as Canadian Natural Resources Ltd., Torxen Energy, Cenovus Energy Inc., IPC Canada Ltd. and Imperial Oil Ltd.
If that trend of allocating funding to financially viable companies continues, it notes, “it’s possible that the funding set aside would not be sufficient to clean up all of the inactive orphan wells into the future.”
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Emma Graney