Province reveals program to clean up 8,000 oil wells

Federal funding of up to $400 million to be used, creating 2,100 energy sector jobs

Saskatchewan will use up to $400 million in federal money to remediate as many as 8,000 inactive wells and facilities, supporting an estimated 2,100 energy sector jobs in the province.

Bronwyn Eyre, Saskatchewan’s minister of energy and resources, has long hinted that such a program was on its way. But Friday was the first time she revealed details about how it will help tide service companies through a catastrophic economic reality.

The Accelerated Site Closure Program will access the cash over two years pending a final agreement with the federal government, starting with a first phase of $100 million. Prime Minister Justin Trudeau announced the funding on April 17 as a way to keep people working while protecting the environment. Alberta, which received a larger share of the $1.7 billion pot, has already revealed its program.

Saskatchewan oil and gas service companies have pointed to punishing economic conditions since oil prices dipped under the twin weight of a pandemic and an international price war. They depend on oil producers for work, but those companies are cutting production in the face of calamity.

Mark Scholz, president and CEO of the Canadian Association of

Oilwell Drilling Contractors, said conditions remain “absolutely brutal” in the oilpatch. He said the money is needed, and fast.

“This pool of money and the work that’s going to be generated from it could be the only work that’s available to service companies for the duration of the year,” he said.

In Scholz’s view, the new program will have “a huge impact” on struggling companies.

“Its going to be incredibly advantageous to the industry and also for our workforce,” he said.

Eyre promised a program that is both “straightforward and streamlined.” It will come in phases, with the first step sending $100 million directly to service companies. Operators will nominate inactive wells, and the Saskatchewan Research Council will procure services from eligible service companies to abandon and remediate them.

Abandonment involves cleaning out the bore on an inactive well that is no longer producing, sealing the formation off with cement and then cutting and capping the well casing. Reclamation means restoring the surrounding area to something akin to its pre-production state.

The government estimated that the program will support approximately 2,100 full-time equivalent jobs. It intends to “prioritize Saskatchewan-based service companies.” Eyre said Saskbuilds will use its procurement tools to “make sure that Sask-based companies take advantage of the program and get the work.”

But NDP economy critic Trent Wotherspoon was not convinced that money will stay in Saskatchewan.

“We don’t have much faith in the Sask. Party when it comes to local procurement,” said Wotherspoon.

He said “past behaviour is a good predictor of future behaviour” and pointed to a 2016 report in the Leader-post that found 40 cents of every dollar spent to clean up orphaned oil wells was going to Alberta.

Eyre said it would be fine for service companies to have “an Alberta-based head office” and still secure funds under the new program.

“If that company has bricks and mortar here in Saskatchewan, they have workers in that office who would be eligible,” she said.

She said the first phase of the program, worth $100 million, will begin “as soon as we can get this organized and out the door.” She hopes the next phase will follow in close succession.

“As soon as Phase 1 is rolled out we will definitely be formulating and gearing up for Phase 2,” said Eyre. “We want it to be before winter of course, which is a major factor here in the province.”

There are more than 40,000 inactive wells in the province, according to the Minister of Energy and Resources, as well as 2,000 inactive facilities that receive oil and gas for storage, processing or shipment. About 160 wells are “orphaned,” meaning there is no solvent company responsible for remediating them.

Eyre agreed with the federal government that the program will have environmental benefits. But she rejected any notion that inactive wells are a plague on the province.

“Let’s be clear, leaking wells do not dot the landscape here in Saskatchewan,” she said.

The program announced Friday will not immediately tackle orphaned wells, at least in its first phase. Eyre said the inventory has been kept “manageable” through previous efforts by industry.

Nominations for the 8,000 wells and facilities will be spread across producers based on their share of the total liability for inactive wells in the province. Eyre said producers nominating wells will have to be in good standing, keeping up with payments for levies, royalties and taxes. That means the program “doesn’t reward bad behaviour,” according to the minister.

She said it will help producers improve their balance sheets by taking inactive well liabilities off their books.

This pool of money and the work that’s going to be generated from it could be the only work that’s available for the duration of the year.