B.C., Sask. tighten rules for cleanup of oil, gas wells

CALGARY — Companies buying energy assets in Saskatchewan and British Columbia are facing higher deposit costs for environmental remediation after a precedent-setting court case in Alberta that dealt with abandoned oil and gas wells.

In a letter sent last month to operators of wells, pipelines and other energy assets in Saskatchewan, the provincial Ministry of Economy warns that all applications to transfer government licences for wells as part of sales transactions will be treated as “non-routine” from now on.

“All licence transfer applications will be reviewed in detail and [the ministry] will consider all relevant factors in calculating transfer deposit requirements,” it said. “In addition to increased deposit requirements, [the ministry] may incorporate additional conditions with licence transfer approvals which may impact the decision to proceed with certain transactions.

“In particular, licence transfers involving a high percentage of potentially uneconomic infrastructure will be very closely reviewed and deposit requirements set accordingly.”

In an email, spokesman Phil Rygg of the B.C. Oil and Gas Commission said it is also requiring security deposits for certain assets being sold in cases where deposits would not have previously been required.

“This decision is applied on a case-by-case basis,” he wrote.

Regulators in Western Canada are watching closely after a ruling from the Alberta Court of Queen’s Bench in May granted the receiver for bankrupt producer Redwater Energy the right to sell the private company’s best assets, thus gaining the best payback for its creditors, and disclaim or abandon inactive assets for which estimated environmental cleanup costs were higher than resale value.

The receiver had advised the Alberta Energy Regulator that of the 127 wells, pipelines or other infrastructure for which Redwater Energy held licences, it would only take possession of about 20.

Over the summer, the number of orphan wells in Alberta has ballooned by 500 to more than 1,280. The Redwater decision has added to the rising count of orphan wells, but it’s unclear by how much, given industry hardship.