Watchdog considers time limit for cleanup of Alberta orphan wells
The head of Alberta’s energy watchdog is concerned about the growing number of orphan wells in the province and says changes are coming to help tackle the problem.
Such steps might include putting firm timelines in place on when petroleum producers must clean up inactive oil and gas wells, something the province lacks today.
“There’s going to have to be some policy changes here. We don’t have enough within the regulatory system to do what we need to do going forward,” Alberta Energy Regulator CEO Jim Ellis said in an interview.
“I’m not going to speculate what that looks like right now because we’re working with it, but there is going to have to be some changes — and everybody knows it.”
It’s been a busy three months for the regulator as it has taken action on two legal fronts this year — in the high-profile cases of Redwater Energy Corp. and Lexin Resources Ltd. — while it also addresses the broader issue of dealing with aging energy infrastructure.
In the regulator’s new three-year strategic plan, one of its goals is to complete a risk assessment of all energy-related assets in the province by March 2018.
Ellis wants to ensure the agency understands the state of all infrastructure, from thousands of oil wells and gas plants to more than 430,000 kilometres of pipelines.
It is also keeping an eye on the growing number of orphan wells, which lack an owner to pay for the cleanup.
“What we’re seeing is something we didn’t anticipate seeing. Obviously, the systems we have in play are not designed to deal with a large number of companies moving through insolvency — and that’s a fact,” he said.
“So, do we sit and observe it, or do something? I think the answer is we’re going to have to do something.”
Low commodity prices have hammered the oilpatch over the past two years, triggering at least 18 bankruptcies by Canadian producers since 2015, according to recent data from law firm Haynes and Boone LLP.
The province operates on a polluter-pay principle, leaving companies responsible for cleaning up their own properties.
So-called “orphan” wells don’t have an active owner to pick up the bill, making them the responsibility of the Alberta Orphan Well Association (OWA).
But the non-profit group, funded annually by a $30-million industry levy, is falling behind. The number of orphan wells shot up from 162 two years ago to 768 last spring, according to AER data.
By late March, after the energy watchdog pushed embattled producer Lexin Resources into receivership, the OWA had almost 1,400 wells in its inventory to be abandoned, along with another 1,000 under its care and custody tied to Lexin’s case.
Other forces are exacerbating the problem.
Alberta lacks timelines that set out when producers must complete downhole wellbore abandonment and surface reclamation.
A recent University of Calgary report found these provincial rules mean Albertans “are exposed to the risk of thousands of inactive wells becoming a hazardous threat to public safety.”
A court decision last year over Redwater Energy, a bankrupt oil and gas firm, has further complicated matters.
An Alberta Court of Queen’s Bench justice ruled money generated from the sale of the energy company’s assets don’t have to be used to pay for environmental liabilities.
The AER and provincial government worry this could trigger more wells ending up as orphans, while receivers and trustees choose which assets to keep to maximize the value for secured creditors.
After losing a provincial appeal on the Redwater case, the AER decided late last month to seek leave to appeal the matter to the Supreme Court of Canada.
Aside from the liability issues, the AER’s three-year goals include reporting later this spring on the use of water by industry — such as in fracking operations — reducing the number of significant pipeline leaks and spills by two per cent, and finding $100 million in efficiencies this fiscal year.
But the No. 1 public issue will come on the energy infrastructure and liability front.
In light of the Redwater decision, the issue “is very high on our radar screen,” said Ellis.
A former deputy minister of energy and environment, he said setting timelines for cleaning up wells will be examined as the regulator and government look at various options.
“There are jurisdictions around the world that have this. We don’t have that; that’s one area we should be looking at,” he said.
“So as you come in (and produce) there would be a timeline for you to have to reclaim, you just can’t hold it for years and years and years.”
A spokesperson for Energy Minister Marg McCuaig-Boyd said the government is working on a plan to review oil and gas liabilities and develop a new approach toward managing it. Details are expected in the near future.
The Canadian Association of Petroleum Producers, the industry’s main lobby group, says the liability system needs to change, although it wants to see the matter examined carefully and in a balanced fashion.
“Everybody sees all of the rationale for an evolving system,” says CAPP vice-president Brad Herald, who is also chairman of the Orphan Well Association. “We need to do an integrated review.”
Meanwhile, the AER is using its regulatory tools to try to “stunt” the growth in the number of orphan wells, but Ellis emphasized the Orphan Well Association wasn’t created to handle the influx it’s seeing.
“It’s not set up to deal with the dumping of non-producing wells and the facilities that go with them. That’s not what it was designed to do. That’s why the funds aren’t there to handle that.”