$235M loan issued to help with orphan well cleanup
NDP government will lend funds to group tasked with shutting old oil and gas sites
Alberta’s NDP government is trying to speed up the cleanup of old, orphaned oil and gas wells with a $235-million loan.
The province announced legislation Thursday that will allow it to lend the money to the Orphan Well Association. The industry-funded, not-for-profit group manages the shutting and cleanup of oil and gas sites where there is no longer anyone legally responsible for those tasks, often because a company has gone out of business.
“The number of orphaned wells in Alberta is a growing problem that has been made much worse by the collapse in oil prices,” Alberta Premier Rachel Notley said at a rural property north of Calgary.
A well was first drilled on the land just outside Carstairs in 1980 and passed through 10 different owners over the years. It was orphaned in October 2015. A storage tank and pumpjack still remain even though nothing is being produced.
Notley said $30 million earmarked in the recent federal budget will cover the interest costs of its loan, which it expects to be repaid over 10 years.
“By using this funding from the federal government to backstop a loan this large, we’re able to get much more favourable rates than the Orphan Well Association could access on its own,” she said.
The repayment will come out of the association’s existing levy.
Its budget is set to double from $30 million to $60 million in the 2019-20 fiscal year.
The idea came up when Prime Minister Justin Trudeau met Notley, other provincial officials and the industry in February 2016.
The province estimates the loan will help create up to 1,650 new jobs over the next three years.
Work could begin as early as the summer.
As of March, the Orphan Well Association had a list of 2,084 wells to be dealt with.
It closed 185 last year.
To date, industry spent $250 million to reclaim 600 sites, said association chair Brad Herald.
“The government of Alberta’s assistance will accelerate that work, returning properties to their original state at a much faster pace.”
In Alberta there are 83,000 inactive wells, which are no longer producing but not necessarily orphaned.
There are another 69,000 abandoned wells, which have been plugged, cut and capped so they’re safe.
The Petroleum Services Association of Canada lobbied for government funds to accelerate the decommissioning of dormant wells.
It initially asked Ottawa for $500 million in infrastructure spending, but later amended its request.
PSAC president and CEO Mark Salkeld welcomed the loan, especially while costs are low and workers are available.
“The funding and strategies announced today will go a long way in helping PSAC members retain and rehire employees, keep equipment active and at the same time ramp up the efforts required to take care of oil and gas wells that no longer have owners.”
The move helps address the major environmental risk that comes with having so many neglected wells, said Nikki Way, an analyst at the Pembina Institute, an environmental think-tank.
“It’s a positive step in addressing the problem of orphan wells and we look forward to seeing more proactive rules to ensure that there are adequate funds collected in the future.”
By using this funding from the federal government to backstop a loan this large, we’re able to get much more favourable rates ...