Martin Olszynski is an associate professor at the University of Calgary’s faculty of law.
Despite Alberta Premier Jason Kenney’s campaign promises, the province’s overall economy has yet to find its footing.
The one exception, though, may be the panel industry.
Ranging from regulatory red tape in the oil and gas sector, to the recently completed blue-ribbon panel on government spending, and one that is now hearing from Albertans about getting a “fair deal" within the Canadian federation, these are boom times in boardrooms and for the committees that occupy them.
In light of this, I hope that there’s room for one more panel at the party – one that could provide much-needed information around a potential financial time bomb down the road, but not so far down as some may assume.
The Calgary Herald estimates that Alberta is home to 93,000 inactive and orphaned oil and gas wells. While many of those wells are owned by financially viable companies, an increasing number are not. This represents a “looming financial and environmental crisis” reminiscent of the 2008 subprime mortgage crisis, according to an investigation last year from The Globe and Mail. "A growing proportion [of inactive wells] are owned by companies that can least afford to clean them up … when their commercial life ends.”
When that happens in Alberta, those inactive wells become the responsibility of the Orphan Well Association (OWA), which is primarily funded by an industry levy that is increasingly understood as insufficient. The OWA’s chief executive credits a provincial $235-million loan for enabling it to reclaim about 1,200 wells since 2017, bringing the current inventory down to 3,406 wells – but more wells in need of reclamation are on the way.
One of the primary barriers to a clear understanding of the problem appears to be the absence of a credible and transparent assessment of cleanup costs. Based on its recent experience, the OWA suggests that average costs range between $27,000 and $34,000 a well. Critics, such as the Alberta Liabilities Disclosure Project, dismiss those numbers as primarily based on easy-to-cleanup wells, and point to internal Alberta Energy Regulator (AER) estimates that suggests the costs could potentially rise to $210,000 a well, which would add up to a staggering $100-billion in total liabilities. Those same estimates also looked at oil-sands mines and provincial pipelines, which could bring the number up as high as $260-billion.
While the regulator sees these numbers as a “worst-case” scenario, neither the province nor the industry have yet seen fit to provide the public with more detailed and credible estimates.
With respect to the oil sands, the AER’s Mine Financial Security Program (MFSP) currently reports total liabilities at $31.39-billion, but holds only $1.47-billion in security – which is proportionately less than was held by the AER back in 2015 when Alberta’s Auditor-General first raised concerns about the MFSP. The Auditor-General warned that the province (i.e., taxpayers) “may have to pay a potentially substantial cost for this work to be completed.”
The Auditor-General’s concerns, supported by ensuing reports, include the fact that MFSP numbers are based on reports submitted by oil-sands companies, do not require supporting documentation, are rarely audited, and do not reflect the uncertainty in the effectiveness of proposed measures (such as water-capping).
The province itself has acknowledged that inactive and orphaned wells pose a threat. In late November, it sent a letter to federal Finance Minister Bill Morneau, asking for additional money to assist in the reclamation effort. Ottawa already provided $30-million in 2017, so how much more help can the province ask for, especially since the industry is legally responsible? It’s nearly impossible to answer that without knowing the scope and magnitude of the problem, and we simply don’t have that information. That’s where a panel could come in.
Albertans may be suffering from panel fatigue. But bearing in mind the assumptions underlying some of those other initiatives, it’s hard to imagine a problem in more desperate need of resolution. Alberta’s public debt is currently around $80-billion, and the estimates we have suggest that this debt could double or even triple within a generation. And while it is likely too late for some portion of Alberta’s inactive wells, it is not too late to prevent the same from happening with respect to the oil sands.
For Albertans contemplating their future, an independent inquiry into the extent of the oil and gas sector’s underfunded environmental liabilities requires champions – especially since getting a solid grip on the scale and potential solutions for the issue seems like basic due diligence. A clear and credible assessment, as well as potential regulatory responses, should be everyone’s priority.
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