Alberta has pledged to impose cleanup timelines on energy companies in a major policy shift to reduce growing financial and environmental risks tied to tens of thousands of idled oil and gas wells across the province.
Energy Minister Margaret McCuaig-Boyd said on Monday she has also told the Alberta Energy Regulator to beef up oversight of energy companies’ financial health. But she stopped short of committing to legislative changes that would give the provincial regulator greater powers over corporate takeovers where the buyer has insufficient funds to meet cleanup obligations.
“We absolutely are looking at targets and timelines" to ensure companies meet their cleanup obligations, she said in an interview. “Because for too long, operators were allowed to just punt these things down the road until the point there were no operators left to be responsible for them.”
The commitment comes after a six-month Globe and Mail investigation published this weekend that revealed about 20 per cent of all oil and gas wells in British Columbia, Alberta and Saskatchewan are inactive, and that there are 54,147 more idle wells in those three provinces than there were in 2005. Such wells no longer produce oil and gas, but have not been plugged.
Another 84,569 wells have been abandoned, many of them for decades. Those wells have been filled with cement and capped because there is no profit left in them, but companies have not yet reclaimed the sites and restored the surrounding land to its original state.
The Globe investigation also detailed a brisk trade in distressed wells and other facilities, in which major companies routinely offload properties saddled with hefty cleanup obligations onto smaller players with scant ability to pay for remediation. The deals were approved even in cases where purchasers didn’t meet the Alberta regulator’s test for financial fitness.
The deal-making has flourished since oil prices crashed in 2014, aggravating concerns over unfunded liabilities as a string of corporate bankruptcies punted hundreds of millions of dollars in cleanup costs onto the wider industry and the public.
Neither Saskatchewan Energy Minister Bronwyn Eyre nor B.C. Energy Minister Michelle Mungall were available for an interview by deadline on Monday.
Last year, Alberta’s NDP government loaned the industry $235-million to accelerate cleanup of defunct wells. Such wells have no solvent operator; their number in Alberta alone has swelled to 4,349, up from 545 in 2014. Ms. McCuaig-Boyd said the provincial loan has accelerated cleanup of more than 2,400 wells while creating 1,600 jobs.
Alberta’s pledge to tighten cleanup regulations risks antagonizing an industry beset by weak prices. Some of the sector’s biggest companies have called for government relief to address export bottlenecks that have led to steep discounts on much of the province’s heavy oil.
The province has asked Ottawa to subsidize the purchase of rail cars to transport oil under a three-year plan estimated to cost about $3-billion. Meanwhile, a supply glut and low prices have stung Western Canada’s natural gas industry.
Ms. McCuaig-Boyd would not say when the province would introduce cleanup timelines, but the commitment comes amid a wider policy review to address the glut of dormant wells and future industry liabilities the provincial regulator has pegged as high as $260-billion. That review was supposed to be completed by the end of 2017.
She said she has directed the Alberta Energy Regulator (AER) to improve mechanisms to assess company’s finances to stop major companies offloading cleanup obligations. But she blamed successive provincial governments for failing to address mounting liabilities tied to unprofitable wells and other infrastructure.
“They’ve allowed it to grow over a number of years," she said. "That’s why this isn’t a simple solution and we need to take the time to make sure we’re closing the loopholes that we need to and, really, monitoring corporate health is one of the biggies, so companies aren’t allowed to continue to do this.”
There are several stark differences between how regulators in Western Canada and the United States manage idle wells and the transfer of energy assets.
Alberta, Saskatchewan and B.C. focus on a company’s asset-to-liability ratio when determining whether to allow a firm to acquire energy assets. So do many states, such as North Dakota, Nevada and Pennsylvania, but they also look at the company’s debt and the amount of inactive wells involved in the transfer.
Security-deposit rules also differ. States such as California and Texas require security bonds from all producers, while Alberta, Saskatchewan and B.C. only request deposits from firms that fall below their financial stress tests.
Many U.S. states require companies to seek continuing approvals and post security bonds to keep wells inactive. In some cases, they have to show evidence that the wells could be returned to production, if commodity prices improve. Alabama and Nevada require operators to put a well back into production or begin cleaning it up within two years.
University of Calgary economics associate professor Lucija Muehlenbachs has studied Alberta’s inactive wells. Her predictive modelling, released last year, showed that most of the province’s idle wells would remain dormant even if oil prices rose an astronomical 200 per cent.
The AER, itself, found that less than 0.1 per cent of wells that had been idle for more than 10 years were brought back online in 2016 and 2017.
“The longer a well is inactive it is even less likely to be reactivated,” Ms. Muehlenbachs said.
“It is troubling when I read about 122,000 inactive wells,” she added. “What is the loss of the land? What is the methane emissions from these inactive wells? What’s the water contamination risks?”
Data analysis by Chen Wang