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Canada B.C. Auditor calls delay in rules for well cleanups ‘not acceptable’

British Columbia’s oil and gas regulator has yet to set rules to force companies to fully clean up thousands of idled wells nearly a year after legislation was passed giving it authority to do so, despite growing liabilities estimated at up to $3-billion.

B.C. Auditor-General Carol Bellringer said Thursday that this means the BC Oil and Gas Commission (OGC) has no mechanism to force companies to clean up inactive sites, which no longer pump oil and gas but have yet to be restored to their predrilling state. Their number in B.C. has soared to 7,474 from about half that level a decade ago, representing a major financial burden for the industry, Ms. Bellringer said. The province also faces a glut of wells with no solvent operator. Known as orphans, their number has swelled to 326, from 45 only four years ago.

Both Alberta and Saskatchewan have seen similar spikes but neither has taken legislative steps to address the issue.

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B.C. Premier John Horgan’s NDP government introduced legislation last May giving the OGC powers to set cleanup timelines, but there is no binding regulation to enforce the law.

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“Without knowing how they’re going to do it, it’s still a gap. And that regulation is an important one," Ms. Bellringer told reporters on Thursday.

"It is something that would involve a great deal of dialogue and there will be various views on how stringent it needs to be, but not having it at all is just not acceptable.”

OGC head Paul Jeakins told The Globe and Mail in December that new regulations would be in place by May, though it is unclear how aggressive they will be. The OGC estimates costs to clean up sites are as high as $3-billion.

The regulator insisted in a statement Thursday that it is committed “to ensuring operators decommission and restore well sites in a timely manner." But it also said pending changes would “provide flexibility to achieve cost-efficient restoration” of dormant sites, meaning new rules could fall short of hard timelines sought by environmental groups and landowner advocates.

Ms. Bellringer’s audit is the first in nearly a decade to examine the way the province manages inactive sites. It amounts to a stark illustration of the financial costs faced by the energy industry and governments more than four years after oil and gas prices plunged, triggering scores of corporate bankruptcies and rendering tens of thousands of wells and related infrastructure uneconomic.

A six-month Globe investigation last year showed about 20 per cent of all oil and gas wells in B.C., Alberta and Saskatchewan are inactive, and that there are 54,147 more idle wells in those three provinces than there were in 2005. Liabilities tied to such sites are likely to be much higher in Alberta, where nearly 90,000 wells are languishing, including many for decades.

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The energy industry insists it cannot afford mandatory limits at a time when even the sector’s largest companies are facing weak prices owing to pipeline bottlenecks.

In Alberta, Energy Minister Margaret McCuaig-Boyd has said the province’s NDP government is studying timelines and targets to reduce a backlog of inactive wells that has climbed to 89,217.

But she has not indicated when they might take effect. That’s despite a favourable ruling from Canada’s top court earlier this year that said oil and gas companies can’t walk away from cleanup obligations, even in bankruptcy cases.

The province’s Auditor-General, Doug Wylie, is also looking at the overall regime for managing oil and gas liabilities, but his findings are unlikely to be made public before an imminent spring election.

In its audit of B.C.'s system, Ms. Bellringer’s office found annual payments by industry into a dedicated cleanup fund for orphan sites have not kept pace with soaring liabilities.

For example, the OGC collected around $1.5-million annually in the three years up to October, 2018, even as a string of bankruptcies pushed liabilities into the range of $73-million to $104-million.

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The regulator also overstated the financial health of companies even as their balance sheets deteriorated. That meant it collected security deposits that vastly underestimated restoration costs, in one case by $53-million.

In a statement, B.C. Minister of Energy, Mines and Petroleum Resources Michelle Mungall acknowledged that more work is needed but insisted the province had already taken action to address the problem. The OGC reiterated Thursday that it has implemented changes to collect more money from industry.

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