Sustainable ideas needed to finally address well-site cleanup liability
No more taxpayer-funded failures, writes
Columnist Danielle Smith is seen by many as the leading voice for compassionate conservatism in Alberta, but she gets it wrong in advocating for royalty credits as the solution for the province's massive unfunded well cleanup liability. (“Royalty credit key to cleaning up old well sites,” Smith, July 9)
She correctly states that more than 300 Alberta junior oil and gas companies have more liabilities than assets and find it impossible to borrow money from banks.
Smith also recognizes that these companies' liabilities arise from the need to clean up the well sites they operate and that these liabilities were inherited.
She describes these juniors as the ones left standing in a game of musical chairs orchestrated by other companies that profited from 60 years of production.
Smith's advocacy is based on her comparison of two proposals to accelerate well cleanup. One in a recent report from the Alberta Liabilities Disclosure Project calling for an independent, non-profit agency (the Reclamation Trust) to take over those junior oil and gas companies whose liabilities exceed their assets. The acquired companies' revenue would be used to clean up the companies' inactive wells.
The Rstar proposal is from the Sustaining Alberta Energy Network and involves the government issuing royalty credits on new wells to incent financially stressed operators to pay for the cleanup of their inactive well sites.
The ALDP proposal was summarily dismissed by Smith as nationalization that wouldn't work in practice. In her view, SAEN'S proposal is a better alternative and presents Jason Kenney with an opportunity to forge a legacy as the Alberta premier who solved the multibillion-dollar well cleanup liability problem.
The Freehold Owners Association is a notfor-profit organization that represents tens of thousands of individual Albertans who are the descendants of pioneer settlers and own subsurface oil and gas rights.
In June, the association wrote to the Alberta government expressing concern with the Rstar proposal. We noted that the Alberta government had already spent hundreds of millions of dollars supporting the supposedly industry-funded Orphan Well Association, paying unpaid oil and gas industry municipal taxes and compensating surface owners for unpaid industry surface lease payments. We asserted that the Rstar proposal was just another Alberta taxpayer-funded program dressed up as a job creator.
Reducing royalties on producing wells has the same effect as direct grants or loans from the government — the Alberta public pays.
The association was concerned that the Rstar proposal would encourage the abandonment and reclamation of shut-in shallow gas wells on our members' mineral rights — wells tied in for production and representing the province's “greenest” hydrocarbon resource.
Last month, Energy Minister Sonya Savage responded to the association's concerns in a letter stating that the government had rejected the Rstar proposal because it “does not align with the province's royalty regime or our approach to liability management and upholding the polluter-pays principle.”
SAEN and Smith are presumably aware of this, which leads the association to question their agenda.
Although the nationalization concept underlying the Reclamation Trust may be too much for free enterprise Albertans, Smith ignored all of the other recommendations in the ALDP report, including stopping the dumping of abandonment and reclamation obligations by financially strong operators on financially weak ones; using the lookback features of the Environmental Protection and Enhancement Act to go after the dumpers; stopping handouts to industry with public funds; collecting abandonment and reclamation obligations costs before companies become insolvent; stopping lending public money to the OWA and requiring it to collect its full levy from industry. The association supports these recommendations, all of which address the abandonment and reclamation obligations problem.
Our group is concerned that SAEN and Smith may be attempting to convince Kenney to overturn the decision to reject the Rstar proposal presumably made by Savage, the only Alberta energy minister in 30 years to have at least tried to address the well-site liability issue.