Restart unlikely for most inactive oilpatch wells: study

A new report from the University of Calgary says there should be time limits on how long oil and gas wells in Alberta can be kept on standby because of the growing liability overhang.

Oil and gas producers partially close off, or suspend, wells rather than go ahead with a sometimes costly reclamation because the wells could be worth producing from again in the future.

The report by Lucija Muehlenbachs at the university’s School of Public Policy, however, says that most of the roughly 80,000 inactive wells in the province likely wouldn’t be restarted even if oil prices or technology significantly improve.

“Looking at what we’re seeing in the data of wells moving in and out of activity, it’s very rare,” Muehlenbachs said.

Her research has found that even if oil prices were to double, only about 12 per cent of oil wells would be reactivated. And if a technology breakthrough were to increase reserves five-fold, only about 10 per cent of oil wells and six per cent of gas wells would likely be restarted.

The report finds that most wells aren’t fully reclaimed to avoid the cost of doing so, and with no time limit on how long they can remain on standby, there’s a risk that companies might not be around in the future to pay for those liabilities.

“This is an accumulation of liability,” said Muehlenbachs. “If they’re allowed to leave them inactive, then why not just leave them inactive forever?”

The orphan well fund, which manages wells where the owner has gone bankrupt or can’t be found, has already gone from 162 in early 2015 to 1,395 as of last December.

Many other jurisdictions also don’t have limits on formally abandoning and reclaiming a well, but about a third of American states have a limit ranging from six to 300 months with possible extensions, Muehlenbachs noted.

Mark Salkeld, president of the Petroleum Services Association of Canada, asked the federal government last year for hundreds of millions of dollars to help clear the backlog of inactive wells and put members back to work.

He said that while it’s more for producers rather than his members to weigh in on, he’s not against putting a time limit on wells and supports more active clearing of especially older wells.