AER enforcement sparks questions over orphan wells

Liberal Leader Swann worries province may end up helping to fund remediation

The operator of 16 sour gas wells located south of Calgary sent a blunt letter to the Alberta Energy Regulator last month that caught the attention of the watchdog agency.

Lexin Resources Ltd. told the AER that because of its dispute with the regulator “and your actions, we are not sure we will be able to continue to provide proper health and safety overview and measures for the sour wells, particularly beyond Feb. 15, 2017,” it stated.

Sour gas, which contains hydrogen sulphide and is potentially lethal, is no trifling matter.

And sour gas wells located close to a large city are of particular concern.

One of the wells is less than two kilometres from the Auburn Bay neighbourhood, while another is just four kilometres from the city’s south hospital. So the AER took action. On Wednesday, it announced the suspension of all 1,380 Lexin wells, along with its facilities and pipelines.

“Lexin requested the AER orphan its sour gas well licensed assets and permit it to resume production and operations on its other assets. This is totally unacceptable,” AER vice-president Mark Taylor told reporters.

“A licensee does not have the right … to select which obligations it’s willing to fulfil.”

The case has broad ramifications, not just for the company but also the industry and Alberta’s Orphan Well Association.

Lexin did not return calls from the Herald, but the AER released an environmental protection order issued to the company, as well as other documents detailing its interaction with the producer dating back to last summer.

The regulator cited a number of issues.

On Oct. 25, 2016, for example, it issued an order requiring the company to address a hydrocarbon spill at its Mazeppa sour gas plant south of Calgary, but Lexin hasn’t complied, according to agency documents.

The AER pointed out the company laid off all but six of its employees in June to manage the entire operation.

The company has failed to pay the Orphan Well Association more than $1 million in associated fees and levies. The non-profit association collects money from producers through an annual $30-million levy, using it to plug and seal abandoned wells that don’t have an owner.

Finally, Lexin owes more than $70 million in security deposits for its end-of-life obligations, according to the regulator.

Aside from suspending the licences, the environmental protection order issued to the company and an affiliated entity, LR Processing Ltd., requires them to deal with environmental concerns at its Mazeppa sour gas plant.

Following an order last summer from the regulator, Lexin shut the facility and replaced the sour gas with sweet gas. All of the company’s sour gas wells south of the city are shut in and there are no immediate concerns to the environment or public safety, Taylor added.

Such enforcement action isn’t unprecedented, but the size and complexity of the case certainly is.

For example, the AER says it conducted 276 inspections of the producer’s sites last year.

The steps won applause from past critics of the energy regulator, such as the Pembina Institute and Liberal Leader David Swann, although they had other concerns.

“It’s certainly welcome that they’ve taken a strong stance,” said Swann. “The bigger question is how much more liability will we be facing as a public.”

Swann wonders whether the regulator should have acted faster and what this will mean for Alberta’s orphan well fund.

The Orphan Well Association already has an inventory of more than 1,500 wells and not enough money to remediate them quickly.

He worries at some point, the number of abandoned wells across Alberta will grow so large the province may have to help pick up some of the tab.

As part of the regulator’s action, the Orphan Well Association has taken over “care and custody” of Lexin’s wells and facilities for the time being.

But did the AER move fast enough?

While Andrew Read of the Pembina Institute wants to see quicker enforcement action taken, the chair of the Orphan Well Association disagrees.

Brad Herald, who is also a vicepresident of the Canadian Association of Petroleum Producers, views this as an example of the AER carefully following its rules and regulations.

“They have to follow due process,” he said. “The AER stepped in when it felt it was appropriate.”

The Orphan Well Association will review all of the AER’s files on the Lexin wells and get site inspections done. Some wells could join the orphan well inventory, although Herald doesn’t know how many that will be.

The regulator believes the vast majority of the wells will not need to be suspended or abandoned.

But cases like this — and the financial woes some producers have endured during the oil price downturn — will most surely put more abandoned wells into the group’s lap.

The number has grown by 120 per cent in the past year. Herald said the association expects it will likely have to raise the industry levy in 2018-19.

So give the AER credit for taking action and staying on top of a complex case.

But a close eye must also be kept on the number of orphan wells climbing in the province. This issue isn’t going away anytime soon.

A licensee does not have the right … to select which obligations it’s willing to fulfil.