Abandoned oil wells have been a problem in Alberta for decades.
Successive provincial governments, mostly conservative, couldn’t find the resolve to get these deserted operations cleaned up. In many cases, they were orphaned by companies that went bankrupt, leaving a mess behind on the property of some poor farmer who was given no choice when the government approved the site for exploration and development.
It’s been a quiet shame in the province for years – one few have wanted to talk about, especially anyone in the oil and gas industry. Just in a recent four-year period alone, the number of orphan wells soared to 5,279 in 2019 from 705 in 2015 – a 648 per cent increase, according to the United Conservative Party government.
Now the issue has taken centre stage thanks to Alberta Premier Danielle Smith, who is attempting to sell a new plan to get the defunct well infrastructure removed: Give oil companies boasting record profits taxpayer money to do the job.
Needless to say, the proposal is not going over well in many quarters. There are several unseemly aspects to what the government is pitching as a “pilot project.”
For starters, under the plan (known as the Liability Management Incentive Program) oil companies that clean up these abandoned wells can take advantage of up to $100-million in “royalty credits” on future production. In other words, monies normally turned over to the government in the form of royalties would go into the pockets of these oil companies instead.
Which means, this proposal would reward those oil companies in the strongest fiscal position at the expense of those not currently in production.
The companies’ responsibility for cleanup falls under the “polluter pays” principle. Dead wells are supposed to be safely decommissioned by the Orphan Wells Association, an organization to which the oil and gas industry pays into. But the OWA has clearly not met its commitments and no one, including the Alberta Energy Regulator, whose job is to govern the activities of this sector, has held it to account.
Ms. Smith issued a statement Wednesday that said there are approximately 83,000 inactive wells in Alberta, about 20,000 of which were drilled before 1980 and have been inactive for more than 20 years. Those are the ones her proposed project is apparently designed to target.
Some are also concerned Ms. Smith is fronting a plan with which she is, umm, extremely familiar. Before she became Premier, she was a lobbyist for a consortium proposing exactly this idea, known then as RStar. In other words, she was being paid to try and get this very plan put in place. Her past association with a policy many believe is not in the province’s best interests makes many rightly uncomfortable.
Before becoming Premier, Ms. Smith was lobbying for a $20-billion tax-credit scheme. It was rejected by then-premier Jason Kenney and his then-energy minister Sonya Savage, who is now Ms. Smith’s Minister of the Environment. Talk about awkward.
Then there is this, which maybe is the most disturbing aspect of this story of all.
A report from the Parliamentary budget officer released in January, 2022 showed that $500-million that the federal government gave Alberta as part of a 2020, $1-billion commitment toward the closing of orphan wells largely went to big energy companies now swimming in cash. A year ago, Sen. Paula Simons of Edmonton looked into how the money was spent and was flabbergasted to discover that not a single well was cleaned up with that half billion dollars in grant money.
Not a single one. Who’s to say Ms. Smith’s plan won’t also turn into a giant multimillion-dollar boondoggle?
As mentioned, there are not many thrilled with Ms. Smith’s plans, including some in the oil and gas industry who believe, rightly, that it reflects poorly on them. A recent report from Scotiabank warned the plan could “perpetuate negative views against the energy industry.”
The Premier has clearly been unnerved by the widespread negative reaction. The NDP Opposition, in particular, has had a field day highlighting the “corporate welfare” ethos underscoring her cleanup strategy.
In a news release issued under her name this week, the Premier played up the fact that the project is merely in a fact-finding phase, and that caucus and government will take the feedback and make a “final decision on whether and how to proceed” (emphasis mine).
My guess is that decision has already largely been made. And this terrible idea will never see the light of day.