Old oil and natural gas wells pockmarking the Prairies is a problem that has been growing for years.
Of some 600,000 wells in Alberta and Saskatchewan, a little more than a third currently produce oil and gas, according to a new report from the Parliamentary Budget Officer. Several hundred thousand sit inactive, or decommissioned and abandoned – but far from fully remediated. In Alberta, there are twice as many wells awaiting eventual cleanup as have been officially registered as such.
Then there’s the problem of “orphan” wells. Former owners went bust, leaving previously profitable oil and gas assets to rot – sometimes leaking potent greenhouse gases such as methane. The PBO counted 8,600 orphan wells in Alberta in 2020, up more than tenfold over a decade. In Saskatchewan, the number quintupled in five years, to 1,500.
The way things are supposed to work is according to the polluter pays principle. It’s simple: The people who profit from pulling resources from the ground should assume the costs, too. They’re supposed to pay on the back end, to make sure no mess is left behind. But for many thousands of orphan wells on the Prairies, that hasn’t been the case, despite attempts to improve laws and regulations over the years. The result is privatized profits and socialized liabilities. They get the oil; you pay for the cleanup.
This week, the PBO took a stab at quantifying the scale of the problem. It estimated the cost of cleaning up orphan wells at $361-million in 2020, and up to $1.1-billion by 2025, an estimate based on potential corporate failures among owners of inactive wells.
And that’s a low-ball estimate, because the PBO didn’t try to estimate the full cost. Its numbers are understated, by the PBO’s own admission. It didn’t tally the cost of remediation, which includes dealing with contaminated soil and which can be an expensive part of the process. Plugging a wellhead with concrete is one thing. Remediation is trickier – especially because many wells are on farms. The PBO said it didn’t estimate remediation costs because data is sparse.
This sort of ballparking is typical of trying to put a number on the problem of old oil and gas wells. There’s an absence of exact figures. The Alberta Energy Regulator has estimated the liabilities of a full cleanup of all wells in Alberta at $30-billion. The Alberta Liabilities Disclosure Project, a coalition that includes landowners and academics, pegs it at $70-billion. (And neither includes the vast operations of the oil sands.)
Yet the province of Alberta holds a security deposit from industry of just $237-million. That’s clearly not enough.
Canada has at least started to confront the issue. In April, 2020, as part of pandemic emergency spending, Ottawa sent $1.7-billion to Alberta, Saskatchewan and British Columbia to “clean up orphan and/or inactive” wells. Orphans have no owner. Inactive wells do. Alberta, which got $1-billion, chose to spend on inactive wells of companies that were struggling at the time. The PBO found that about half of the money it could tally went to companies not in dire straits. Canadian Natural Resources, the country’s most valuable oil company, got more than $100-million.
In Saskatchewan, which also spent on inactive wells of current owners, the goal was cleaning up 8,000 sites.
For orphans in Alberta, the province and Ottawa have handed $535-million of cheap loans to the Orphan Well Association, which industry is supposed to fund. The good news is that at least the public money to clean up private messes has made a difference. Alberta is whittling down its population of orphans.
The importance of the PBO report, even though it underestimates liabilities, is to swivel a light back on the issue of old wells. In 2018, a Globe and Mail investigation found numerous problems in this area, including a lack of regulatory oversight. Alberta thereafter tightened some rules and pushed industry to do more – but not much more. And Alberta still refuses to implement timelines for cleanup, unlike jurisdictions such as B.C. and Texas.
With oil near US$90 a barrel and predictions of record revenue and cash flow for the industry in 2022, now is an ideal time to demand more of oil companies. Amid a commodity price windfall, there are big outstanding liabilities which have gone unpaid for years, and looming future liabilities, which will have to be paid one day. There’s no time like the flowing cash flow present to tackle the challenge.
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