Alarm raised over rising number of orphan wells
More sites abandoned amid downturn, sparking call for better cleanup rules
Alberta posted a big spike in the number of oil and gas wells abandoned by industry in recent months, sparking renewed calls to fix what a landowners’ group says is a broken system of cleaning up old wells.
Low commodity prices have resulted in an “unprecedented number of corporate failures,” which has ballooned the inventory of so-called orphaned wells without owners financially capable of cleaning them up, according to an industry association.
The Orphan Well Association, the group that assumes responsibility for non-producing wells before plugging them and restoring the surface with funds from industry, had a list of 770 wells to be plugged and sealed at the end of March.
Just three months later, the tally ballooned to more than 1,100, a 45 per cent spike.
Similarly, the association had an inventory of 540 well sites in need of surface restoration as of March 31. By the end of June, there were 744, a nearly 40 per cent jump.
“Everybody understands that the inventory is going to go up,” said Brad Herald, chairman of the Orphan Well Association, adding the group will be able to handle a big increase of wells in need of cleanup.
“We’ve been in this program for a couple of decades and we’re not going anywhere.”
Should the Orphan Well Association receive a bigger influx of wells to clean up, officials will assess the risks of each one and schedule remediation efforts according to their priority, with safety being a top concern, said Herald, who’s also a vice-president at the Canadian Association of Petroleum Producers.
“Not every well would have to be abandoned (plugged and sealed) in the first year, as long as they are in a safe state.”
The association plugged a record 185 wells in the last fiscal year after doubling its total budget to $30 million, but it was not enough to keep up with demand.
The inventory still grew by 63 wells in 2015-16.
“This has been a problem they’ve known about since the late 1980s,” said Barry Robinson, a lawyer at Ecojustice in Calgary, referring to an earlier oil price rout.
“There’s been a number of programs and they never quite addressed the real issue, which is that companies will go bankrupt, so you want to be holding money upfront so when they disappear you’ve got the money to do the cleanup.”
Robinson said the Alberta Energy Regulator’s rules have historically not required that oil and gas companies set aside enough money to pay for well remediation.
He believes operators should place in security sufficient funds to clean up wells before they start drilling. Private landowners’ groups warn the cost of cleaning up the ever-growing inventory of orphaned wells is so high that taxpayers may have to be saddled with part of the bill.
Under the current funding model, the Alberta Energy Regulator collects an orphan fund levy and other fees from upstream oil and gas companies, and sends the funds to the Orphan Well Association for cleanup work.
In the last fiscal year, wells were plugged and sealed at an average cost of $60,900 each.
“The system is broken,” said Daryl Bennett, director of Action Surface Rights and a partner in a company that represents landowners dealing with industry.
“There’s not enough money in the system to clean up everything ...
“Industry should pay as much as possible, and the taxpayer should pick up the remainder.”
The NDP government said it supports the principle of “polluter pay,” which means industry is responsible for any cleanup costs linked to its operations. In a statement, the government said it is reviewing its approach to oil and gas liabilities to set a long-term plan to manage historic, current and future liabilities.
“Our ultimate goal is to have this issue addressed in a responsible way, one that protects Albertans and keeps our province competitive and investor-friendly,” the government said in its statement.