Disgruntled Albertans by the hundreds shelled out $60 a head recently to hear from Joe Oliver, Ted Morton, Brett Wilson and other prominent Canadian conservatives. The topic: How the province can gain more autonomy, be it in Canada or out.
The “Value of Alberta” conference was structured around the beef that the oil-patch province has sent hundreds of billions of dollars more to Ottawa than it gets in return. With Alberta’s economic bust stretching into its sixth year, it’s stirring old feelings of Western alienation.
On that same day, across town, another discussion about the value of Alberta took place, this one focused on the other side of the ledger. That is, tallying costs that keep mounting as a result of underfunded liabilities tied to aging oil and gas wells and the vast tailings ponds from oil sands mining.
University of Calgary associate law professor Martin Olszynski led the proceedings, showing estimates that cleaning this up will cost $60-billion to $230-billion. At times, his examples of the scale of the problems generated audible gasps, even though the issues are gaining public understanding.
This is not part of the rallying cry for Premier Jason Kenney’s United Conservative Party government and its confrères as they assert that Alberta’s wealth generation is underappreciated in the rest of Canada, and that the federal Liberals dismiss its concerns. But it’s become apparent that the wealth has been generated, at least partly, while low-balling the costs of cleanup.
Not nearly enough money has been put aside for decommissioning as operations age out. And the number of spent wells keeps increasing as the industry’s capacity to pay falls. Some oil and gas companies say they can’t afford to pay their taxes, with budgets in small communities taking a hit. Rural Municipalities of Alberta reported the industry has $173-million in tax arrears, double the sum of a year earlier. It does not bode well for producers to meet their decommissioning obligations.
Alberta has about 90,000 idle oil and gas wells, and it is unknown how many could ever be restarted. Companies have no time limit for keeping a well suspended without decommissioning it. To prevent thinly financed companies from acquiring wells that they would have little wherewithal to clean up, the Alberta Energy Regulator (AER) has promised a new system by the end of March for approving the transfer of wells between companies.
The current system is fraught with risk. The number of orphan wells – those whose owners have gone bankrupt – is ballooning, and the industry association charged with cleaning them up is underfunded. According to the Orphan Well Association (OWA), 3,406 orphan wells are waiting to be decommissioned, up almost fivefold in five years.
The provincial Auditor-General has launched a probe of the problem. Mr. Kenney has called on the federal government to help fund the cleanup. That would follow a $235-million provincial loan in 2017.
A much larger future cost is the cleanup of more than a trillion litres of fluid tailings from oil sands extraction. Regulators have granted approvals for mining projects based on the likelihood that technology will be developed to reduce and eventually clean up the toxic lakes. The industry’s best minds are working on solutions, but they are still in the experimental stages.
AER regulations require operators to submit tailings-management plans, and that the holding lakes be ready to be reclaimed within a decade of a mine closing. The regulator has a financial security program aimed at protecting taxpayers from closing costs, but the program has collected about $1.4-billion from energy companies to deal with a potential liability estimated at more than $30-billion, according to Mr. Olszynski.
It remains true that Canada’s federal transfer systems push more money out of Alberta than they bring in. From 2007 to 2018, Alberta sent $263-billion more to Ottawa than it received in transfers, according to an estimate by University of Calgary economist Trevor Tombe. A large part of that is because of the province’s high gross domestic product, even during tough times.
An accurate accounting of value, however, requires large provisions for costs to be included in the books as the bills come due.
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