Alberta’s mess of old oil and natural-gas wells has festered for years. Through good times and bad, many of the companies that drill for carbon have a habit of leaving inactive wells behind.
There are 94,000 inactive wells in Alberta. The number has more than doubled since the early 2000s.
Lax oversight has allowed the inactive well count to surge, but most, for now, have a solvent corporate owner. The danger for taxpayers is orphan wells – the ones no one owns. Orphan wells are the detritus of corporate bankruptcies. Because of hard times in Alberta, their number is way up. In 2014, there were 162 orphan wells. Today, there are 3,406.
Most of the orphans sit on private land, such as the middle of farmers’ fields. If not properly closed down and sealed up, they can leak and damage the surrounding area.
The cost of cleaning up a single well is around $60,000; multiply that by all of Alberta’s orphans and the bill is more than $200-million.
Last week, Alberta’s auditor-general launched an investigation into what has gone wrong. “Environmental liability is a huge area of risk for government,” the A-G’s office said.
The scale of the problem has been clear for some time. In late 2018, The Globe published an investigation, titled “Hustle in the Oil Patch.” It detailed corporate transactions in which tens of thousands of inactive Western Canadian wells were sold to companies with questionable finances.
Alberta has rules in place, but they are not strong enough. In theory, the industry operates on the principle of polluter pay, meaning that those exploiting a well today are on the hook for the cost of cleaning it up and closing it down tomorrow. In practice, the province lacks timelines for the cleanup of old wells and does not require cleanup money upfront if it deems a company’s books adequate.
Measuring a well owner’s financial health can be problematic, and its financial condition can change quickly. Result: The industry-funded Orphan Well Association is now overwhelmed.
- How The Globe analyzed thousands of inactive well sites
- Hustle in the oil patch: Inside a looming financial and environmental crisis
- In Western Canada, surge of inactive wells a brewing ‘disaster’
- Untangling the hustle in the oil patch
The provincial government has promised new rules by the end of March.
Answers are available. North Dakota, the second-largest oil producer in the United States, has no orphan wells. The state government has been dominated by Republicans for decades; it nevertheless requires bonds before drilling and has timelines for remediation at the end of a well’s life.
Alberta can also look west to British Columbia, which has a robust new regime.
B.C.’s auditor-general last year warned of multibillion-dollar cleanup costs and highlighted almost 7,500 inactive wells. B.C.'s orphan-well count had jumped to 326 in 2018 from 45 in 2015. The provincial regulator lacked the power to force companies to clean up.
When the report landed, the B.C. government had already moved to increase the money companies had to pay into an orphan well fund. It thereafter imposed timelines on the industry for dealing with old wells – a first in Western Canada. The new levy should ensure that industry pays for its messes; the province has said the new timelines will see at least 10,000 old wells restored by 2036.
To avoid taxpayers being on the hook, regulators need to ask for money up front and insist on timelines on the back end. But even as Alberta considers new rules, Energy Minister Sonya Savage this month said she is not favourable to imposing timelines on the industry.
Meanwhile, the province, last November, asked Ottawa for a taxpayer bailout of the orphan-well problem. That may be necessary to deal with the mistakes of the past but, to prevent a repeat, reform is needed.
Given Alberta’s long inaction, taxpayers will likely be on the hook for some costs. Public money has already been spent. The Alberta NDP in 2017 loaned the Orphan Well Association $235-million and Ottawa covered $30-million in interest costs.
The biggest concern is the years ahead. The oil and gas business is still struggling, but Alberta can’t afford to be lax. The inexorable rise of inactive wells has to stop.
Alberta’s United Conservative Party government has focused on stoking increased investments in the oil business. While doing so, it has to ensure that the industry is assuming the full cost of cleaning up its messes. It can learn from B.C. and North Dakota.