This investigation is an example of what can be revealed when you tug on a thread.
In this case, the thread was our reporting on a new breed of buyer in the oil patch, one that emerged in early 2017 as the collapse in prices took a heavy toll on energy companies.
Backed by Chinese money, a cottage industry sprang up to amass oil and gas assets from Calgary-based companies that needed to raise capital or had already become insolvent. We found that the activity, which had involved billions of dollars’ worth of deals, bore similarities to the rush of offshore investment in Vancouver’s real-estate market.
To learn about the buyers and a growing roster of middlemen, Globe and Mail reporters Jeffrey Jones, Jeff Lewis and Nathan VanderKlippe spoke to oil executives, lawyers and investment bankers. They even plunked themselves down in the lobby of one Chinese-backed company until someone agreed to speak to them through an interpreter.
Mr. Lewis drove to a residential address on the outskirts of Calgary that was listed as the headquarters of a striking number of the firms. Finding no one at the large but seemingly neglected house, he knocked on the door of a neighbour to glean some information. He was greeted by pro wrestling legend Bret (the Hitman) Hart. Mr. Hart said he knew nothing of the owners and suggested making inquiries at a nearby liquor store. It was a dead end.
The Globe and Mail turned to corporate registries and regulatory filings to show, in an article published in May, 2017, how a handful of groups were buying up distressed assets at a time when the Canadian industry, battered by weak oil and gas prices, was only too happy to sell.
The story didn’t end there. In the ensuing months, the same corporate names kept reappearing in acquisitions of oil and gas wells, some with the same managers and directors. Their ultimate ownership was often difficult to track. At least one of the companies, we found, was a subsidiary, several times removed, of the government of the People’s Republic of China. Others used funds routed through the British Virgin Islands. We also found that it wasn’t just overseas money being funnelled into distressed assets; there was also brisk deal-making by domestic buyers.
In March, 2018, one of the companies with ties to the suburban Calgary home, Sequoia Resources, collapsed into receivership, leaving creditors, including several municipalities and the Alberta Energy Regulator, out millions of dollars – the AER in the form of unfunded cleanup costs for thousands of oil and gas wells. There were warning signs of Sequoia’s perilous financial state. But the regulator kept approving deals – and sometimes broke its own rules – as better-financed energy companies offloaded their unwanted wells and associated environmental obligations.
Sequoia’s collapse propelled The Globe to take a deeper look at the trade of aging wells in Western Canada. We conducted dozens of interviews, visited farmers and municipal offices in Alberta and Saskatchewan and pored over company reports and documents obtained through the courts and freedom of information laws. Globe data journalist Chen Wang analyzed the databases of oil and gas wells in Alberta, Saskatchewan and British Columbia to piece together, among other things, how many wells have changed hands since the oil-price crash and who has been trading the distressed assets. In all, the records contained more than 600,000 wells, of which 20 per cent are inactive. The Globe’s analysis offers the most comprehensive look at activity in Western Canada’s oil patch.
Through these threads, we found more Sequoias and a weak regulatory environment that has failed to curb many questionable deals. At the same time, the number of inactive, abandoned and orphaned wells in Western Canada that require cleanup and reclamation has ballooned to more than 210,000. A financial and environmental crisis could be looming if companies that recently acquired thousands of aging wells keep going bust. As one frustrated Saskatchewan farmer told editor Renata D’Aliesio: “It’s too easy for these people to buy a company or properties and not worry about the liability.… We will have a big mess – until the government comes in and cleans it up.”