OILPATCH WATCHING FEDERAL BUDGET
Funding for orphan well cleanup could boost employment, protect environment
A new federal budget will be unveiled Wednesday in Ottawa, sparking renewed hopes and expectations in Alberta of assistance aimed at tackling the growing number of orphan wells in the province. Premier Rachel Notley said Tuesday she will be looking for progress on infrastructure issues within the Liberal government’s second budget, as well as assistance to deal with water supply matters for First Nations and help for the oilpatch.
“Certainly, we’ve indicated that Alberta is struggling and we need some support, particularly in our oil and gas sector,” the premier told reporters. But what can Ottawa do to help the energy industry, which is grappling with global factors such as oil prices that have sunk back below US$50 a barrel, growing competition from shale oil plays in the United States and an oilfield services sector mired in a funk for a couple of years?
One answer is the accelerated cleanup of orphan wells, which have grown in number since the oil-price crash in 2014 and the ensuing bankruptcies of some producers.
The number of abandoned wells with no corporate owner has soared from 720 back in January 2016 to more than 2,600 wells this month.
The Alberta Orphan Well Association, a non-profit group that decommissions such oil and gas wells, is now faced with a big backlog. The hope is some type of federal loan for the association could speed up the process.
“Given the uncertainty in the past two years, the service industry is not out of the woods,” said Doug McNeill, chairman of the Petroleum Services Association of Canada (PSAC), which has championed the idea.
“This is a great way to get people back to work doing something that needs to be addressed . . . Hopefully, the timing is right.”
The NDP government recently discussed the issue with federal officials and even mentioned it in the throne speech earlier this month.
“We’ve been talking to the federal government about a program where we could administer loans to companies to reclaim orphan wells,” Cheryl Oates, the premier’s spokeswoman, said in an interview.
“Although they have not committed to that, we’ve had good discussions so we hope to see something in the budget.”
A spokesman for federal Natural Resources Minister Jim Carr declined Tuesday to speculate on what would be included in the budget.
The idea of using federal funds to tackle orphan wells first surfaced last spring amid a steep downturn in the oilfield services sector, where 33,000 jobs disappeared over a brutal two-year span. PSAC initially proposed federal grants to help pay for additional well remediation as a way to create jobs, retain skills in the industry and to tackle a growing environmental headache. The idea failed to gain traction because of concerns it would be seen as a government bailout.
A revamped recommendation from PSAC to have Ottawa provide up to $500 million in loans — instead of direct grants — to the Orphan Well Association to expedite work has the support of the Notley government.
The independent Orphan Well Association, which declined to comment Tuesday, is funded by an annual $30-million industry levy. It uses the money to pay for downhole wellbore abandonment and surface reclamation. Last year it tackled 185 orphan wells, but added 258 new ones to its working list.
The issue also speaks to the broader environmental challenge about what Alberta will do with thousands of oil and gas wells that have been drilled over the decades and are now sitting in suspension, with no government time limit on how long wells can be left inactive.
According to the Alberta Energy Regulator, the number of inactive oil and gas wells in the province has increased by almost 8,000 in the past two years, to more than 82,000.
“The bigger issue is these things aren’t getting cleaned up as quickly as they need to,” said Trevor McLeod, director of natural resources policy for the Canada West Foundation.
While PSAC has pushed for government action, the reaction in other segments of the oilpatch has been more lukewarm.
“Our view would be that the industry is managing the problem,” said Gary Leach, president of the Explorers and Producers Association of Canada. “We’d be concerned about forcing money into a measured process that could drive up costs.”
As for the rest of the budget, the oilpatch is concerned about potential increases in taxes on capital gains, changes to the treatment of stock options and to flow-through shares used by resource-based companies.
Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors, hopes the budget instead addresses competitiveness issues and changes in the United States that have attracted more oilpatch investment to places such as Texas.
‘The biggest risk I see is the United States really taking future investment off the table in Canada,” he said.