Oil and gas services sector will benefit from Accelerated Site Closure Program
The struggling oil and gas services sector in Saskatchewan was given a reprieve with Friday’s unveiling of details of the Accelerated Site Closure Program (ASCP).
Funded through $400 million pledged by the federal government, the newly announced provincial strategy aims to clean up 8,000 inactive wells and facilities across the province. The initial phase of the program will allocate up to $100 million for abandonment and reclamation work at inactive oil and gas wells and facilities.
“This is important environmental work and its important for long term energy development,” explained Energy and Resources Minister Bronwyn Eyre while announcing the program on May 22.
“This is important work, work that former Premier Brad Wall first proposed to the federal government in 2016 to get the oil and gas sector back to work.”
The program is anticipated to support the creation of approximately 2,100 full time equivalent jobs in the service sector. The program will access up to $400 million over two years through the Federal COVID-19 Economic Response Plan. ASCP funding will be rolled out in several phases, but the initial phase will be up to $100 million paid directly to Saskatchewan service companies that are contracted for abandonment and reclamation work.
“The primary goal of phase one was the quick start to get that funding out the door as quickly as possible and provide that immediate relief to the sector.”
Eyre explained that operators will nominate wells that they want cleaned up using the Integrated Resource Information System (IRIS) online registry.
“The Ministry of Energy and Resources will then assign them a portion or proportion of funding based on that company’s share of total provincial inactive wells and facilities.”
From those nominated wells, the Saskatchewan Research Council, who are administering the program, will procure services from eligible service companies to carry out the work and to advance funding to them directly. Saskbuilds will help ensure that funding benefits Saskatchewan companies, with project participating service companies needing to be located in the province, employing Saskatchewan residents, paying provincial taxes, and sourcing their supplies from Saskatchewan based businesses.
“The idea is to make sure that smaller companies also receive a share of the funding and that the program is as administratively streamlined and simple as possible.”
She noted that Sask Builds has procurement and supplier development expertise and will be ensuring that Saskatchewan based companies take advantage of the program and do the work. The SRC and Sask Builds will also be pre-qualifying some Saskatchewan service companies to speed up the application process.
“With the freeze on so many capital budgets, companies weren’t going to be undertaking a lot of major abandonment work this year, at least in the short term, except for environmental safety reasons or where the well was causing issues with production. As we move into other phases we are going to look at the company’s ability to contribute, but this phase was about rolling the relief out as soon as we could. And it’s going to help companies too because it does lower that corporate liability, it reduces their inventory of inactive wells and the number of wells they will have to clean up in the future. So it strengthens their balance sheet, helps them to raise financing because these liabilities are removed from their outstanding obligations,” Eyre explained.
“The economies of scale that we expect from this model will also drive down abandonment costs going forward, likely, which is a positive aspect to this.”
Additionally, companies must meet a series of qualifications in order to access funding.
“We’re going to require that companies are current on all taxes, they have to be in good standing on the Oil and Gas Admin Levy, the Orphan Well Levy, Oil and Gas Royalties, Mineral Disposition, Crown Lease rentals, and you can only nominate wells for this program if your payments to landowners are current and taxes owing to the rural municipalities are current.”
Saskatchewan has considerable experience in work of this sort. In 2019, Saskatchewan oil and gas companies cleaned up over 2,000 wells, an increase of 40 per cent from 2018, and a 240 per cent jump since 2016. This work was funded by oil and gas companies.
Additional work has been completed by companies through their contributions to the Orphan Well Levy.
“Since we started the Orphan Well Fund in 2010 the Ministry has overseen the cleanup of about 560 orphan well sites at a cost of $28 million. But that was paid for by companies paying into the Orphan Well Fund.”
Eyre noted that service companies are suffering as a result of the impacts of COVID-19 on the broader oil and gas industry, a significant drop demand for both oil and gas, plus the ongoing fall out from the OPEC+ price war. So while the funding is appreciated, more support is needed in the oil and gas industry.
“This program supports that end (abandonment and end of well production) but doesn’t address current production, which is what operators in the province, and other provinces, are so desperately trying to hold onto. And the federal loan programs that have been announced aren’t of great assistance to most Saskatchewan companies. So again we continue to review and analyze other options and monitor the markets and the state of the sector. We hope that there isn’t more production shut in, but again it’s in a bit of a state of flux.”