Well site cleanup needs a carrot

Using a stick has only kicked the problem down the road

I'm going to stick with writing about Alberta's well site cleanup problem this week.

David Spiers from the Freehold Owners Association doesn't like the proposal I'm backing, which is to give a royalty credit to companies that decommission and close old sites. He says it is a taxpayer-funded program dressed up as a job creator, that it has the same effect as direct grants or loans from government, and he is concerned it would hurt his members who own mineral rights, by prematurely closing shallow gas wells that are tied in for production.

I'll deal with Spiers' last concern first, because he's right to be worried about closing down good wells, just because they are the low hanging fruit. The problem is, that's what's happening now.

I've talked to several CEOS and it seems everyone is doing the down hole abandonment because it's cheap and easy to do. No one is tackling tough surface reclamation problems.

Why not? Because the regulators (I'm still trying to pinpoint if this is an Energy department issue or an Environment issue) won't issue reclamation certificates to allow these companies to achieve closure and get these sites off their books.

I recently spoke to one energy company owner who reclaimed a site in the 1990s. The farmer has been producing hay on it every year since, but the company can't get a reclamation certificate. That means he still pays surface access payments, he still pays municipal property taxes and it remains a liability on his balance sheet. That's not fair either.

The program I am backing would turn the reclamation problem around, and encourage energy companies to tackle their worst sites first.

Last time, I wrote about a flare pit and gas well on the property of Sustaining Alberta's Energy Network founder Kris Kinnear. A flare pit was a government-approved method for managing the storage and disposal of oilfield wastes and the flow of gas. As environmental practices changed, the regulator banned their use. A graduate paper examined 436 sites and found that the sludge in 42.3 per cent of them contains a variety of chemicals that pose a hazard to workers, wildlife, groundwater and surrounding vegetation. As Kinnear says, “I wouldn't want my horse or my kids to fall into that pit.”

We've been digging into the lineage of the site and discovered it was drilled by Shell in 1962 and transferred to Exxonmobil. It was a gusher — producing 117 billion cubic feet of gas and generating $365 million of gross revenue, of which $204 million was profit and $61 million went to government in royalties.

Here's the problem. When properties change hands in Alberta you have to take the good wells with the bad ones. It's been described to me like the 2008 asset backed commercial paper crisis — which packaged a bunch of bad mortgages into a mix to mitigate risk and which ultimately fell apart.

Loyal Energy now owns the site on Kinnear's land. As it is producing just a dribble of gas, Loyal is going to have to use revenues from other sites to pay for the cleanup. Or, more likely, Kinnear worries it will never be cleaned up and will permanently devalue his property.

I think Loyal should be allowed to clean the site and get a royalty credit. Spiers may think this is a subsidy, but I think Loyal is the injured party here. We are asking them to take on 100 per cent of the cleanup cost after we have enjoyed all the benefits. We can be mad Exxonmobil didn't have a dedicated money pot to transfer along with the site to pay for the cleanup, but the government creates the policy. They weren't asked to.

The three-part plan we are proposing is this. One, allow a company to earn royalty credits when they clean up well sites. Two, issue an interim reclamation certificate once they've done the surface cleanup so they can get it off their books and improve their corporate financial health. Three, transfer these reclaimed sites to the stewardship of the industry-funded orphan well association with a modest insurance premium in case any of them need to be revisited.

We can't keep doing things the same way and expect different results. We have tried to use the stick and the problem keeps getting kicked down the road. If we want to solve this problem, we need to use a carrot.