IN NORTH DAKOTA, CLEANING UP ORPHANED OIL WELLS HAS BEEN A PAINFUL PROCESS. CANADA HAS BARELY STARTED.
U. S. STATE LEARNED THE HARD WAY TO PLAN FOR OIL-WELL REMEDIATION. NOW IT’S CANADA’S TURN
On fertile land, surrounded by nodding pumpjacks that light up at night under the torches of flared natural gas, Donald Sundhagen has a relatively unusual problem for a farmer in North Dakota.
On his property is an orphaned oil well that was neglected for more than two years, left behind by Rio Petro Ltd., and it is causing a major headache for the American farmer. “They just packed up and left,” he said of the company.
The North Dakota Industrial Commission’s Oil and Gas Division spent $ 87,000 from its well remediation fund in October to plug the well on farmland that Sundhagen’s family has owned since the 1940s, leaving him annoyed by the hassle but relieved his land has been partly cleaned up.
Although the well has been plugged, he’s waiting for crews to arrive and clean up the surface, where there are still pieces of equipment lying around, ditches scarring his farm and contaminants possibly in the soil where he would otherwise be growing wheat, bar- ley or sunflowers.
“It probably never will be the way it was,” Sundhagen said.
The orphaned well on his property on his farm is a relative outlier in North Dakota and the last one to be plugged in the state. But a 40-minute drive north of his grain farm and across the border in Saskatchewan, which produces half as much oil as North Dakota, the situation Sundhagen has been dealing with is more common. The problem is even worse next door in Alberta.
In addition to hundreds of unplugged orphan wells in Alberta and Saskatchewan, which will cost millions of dollars to clean up over the course of many years, there are tens of thousands of inactive wells that also need to be dealt with. Canada’s energy industry, it seems, just doesn’t clean up after itself as well as North Dakota does. The U.S. state’s success stems from an acknowledgement that boom times can turn to bust in a hurry, so it’s best to regulate clean-up accordingly.
There is a growing fight between Canada’s oil industry and farmers who expect it to pay the cleanup costs for those wells. One lawsuit underway in Alberta seeks to exempt the creditors of a bankrupt company, Redwater Energy Corp., from paying the cleanup costs for its orphaned wells.
And the Alberta Farmers Advocate Office this week released an advisory warning that energy companies are trying to avoid paying the full rent amounts for surface leases as they suspend production at a growing number of wells.
Graham Gilchrist, a consultant who helps Alberta farmers resolve disputes about surface disturbances and orphaned wells on their properties, said there is “a growing wedge between the number of inactive wells that are reclaimed and should be reclaimed” in the province.
Multiple calls have been made for federal funding to fix the orphan wells — those whose owner has gone bankrupt — as well as inactive wells, where the owners have stopped producing but have yet to clean the property up.
Saskatchewan Premier Brad Wall asked the federal government for $ 156 million to remediate 1,000 nonproducing wells in his province, while the Petroleum Services Association of Canada asked for $ 500 million to begin cleaning up “more than 75,000 inactive wells requiring downhole wellbore abandonment and surface reclamation.”
Ottawa did not provide funding for orphaned or inactive well clean-up programs, but Alberta Energy Minister Marg McCuaig-Boyd said her government is considering new ways to fix the problem and improve funding for any liabilities in the province. There are roughly 77,600 inactive wells in Alberta, and some 20,000 suspended wells in Saskatchewan.
“With the current downturn in the international price of oil, we are interested in finding ways to strengthen our system to ensure that all historic, current and future liabilities are managed appropriately,” McCuaig-Boyd said in an email.
By contrast, North Dakota’s top oil regulator, Lynn Helms, said the state currently has no unfunded liability when it comes to either orphaned or inactive wells.
“The goal when (the state remediation fund) was formed was to make sure that the state never had to go to the citizens and ask for money to clean up after this problem,” he said.
The last time there was more than one orphan well in North Dakota was 2011, when there were two.
The state has kept a lid on the number of unplugged orphaned wells even as North Dakota has become t he second-largest oil-producing state in the U. S., rising to more than one million bpd in 2014 from less than 200,000 bpd in 2007, in large part due to the widespread adoption and use of hydraulic fracturing in the Bakken shale formation, which lies beneath the state.
As oil prices collapsed and have remained stubbornly low for nearly two years, however, Williston’s population has shrunk by 10.9 per cent, the state’s oil production has begun to fall and the number of inactive wells in North Dakota is rising, to 1,658 in March from 1,334 in December. But that count is a fraction of the suspended and inactive wells in Alberta and Saskatchewan.
According to Sundhagen, North Dakota’s rapid development has brought a mix of responsible companies to the state as well as companies that do “low-budget, substandard work that leave this mess behind.”
“It costs a lot of money to reclaim the land and some companies will go as long as they can possibly go,” he said, but North Dakota has a useit-or-lose-it policy in place.
If a well has not produced any oil or gas in 12 straight months, North Dakota’s industrial commission requires the owner of the well to either start pumping or plug the well. If the state doesn’t get a response from the producer, it calls the company’s bond, levies fines and plugs the well itself.
Helms said his state’s 12-month time limit was put in place after previous oil booms in the state went bust, and legislators learned some “hard lessons.”
The worst situation he has encountered since 1998, the year he became the director of the state’s oil and gas division, was in 2001 when there were 20 orphaned wells at once, with another 67 problem wells on a blanket bond held by a bankrupt bond-assurance company. “Suddenly, overnight we were looking at a rapidly growing problem,” Helms said. He agreed that his problem seems small in comparison to the situation north of the border.
There is no time limit in Saskatchewan on how long a company can let a well sit idle before the owner is required to either start pumping oil and gas from it or plug it and clean up the land.
Similarly, Jil Macdonald, vice-president of closure and liability at the Alberta Energy Regulator ( AER), said there is currently no defined time limit in the province to either fix or activate inactive wells. She added that the regulator is currently looking for feedback from the public on implementing a time limit — although any such change would need to be mandated by the government.
Mark Salkeld, chief executive of industry association Petroleum Services Association of Canada, said he is in favour of imposing stricter requirements for cleaning up old wells in Canada, including adding new cleanup deadlines. If a deadline was imposed, he said, “we wouldn’t have so much of a backlog.”
He said that a time limit for inactive wells could keep people employed in the oilfield service industry through commodity price downturns as cleanup crews, and that his organization’s request for $500 million to clean up inactive well sites was not intended as a bailout but as a way to put people back to work. “I’m a taxpayer and I don’t want my tax dollars bailing out oil companies,” Salkeld said.
Alberta’s Orphan Well Association lists 693 orphaned wells in the province, and another 533 wells that were orphaned and are now in the process of being capped and the surface area returned to its original state. “We’re not done until we restore the land,” the association’s manager Patricia Payne said, noting the wells under reclamation are monitored for years.
A report from the Saskatchewan Oil and Gas Orphan Fund shows 233 orphaned sites, 132 of which have been plugged since 2010.
The province has managed to drive its unfunded orphan-well liability down to $5 million from $40 million in 2009. A spokesperson for Premier Wall said the province’s request for $156 million was reasonable, given that it is providing $ 570 million in equalization payments to other provinces even though oil prices are low.
Told how many orphaned wells dot the landscape in Alberta and Saskatchewan, Sundhagen pointed out that Rio Petro, the company that left behind the orphaned well on his property, was Canadian.
He said three Rio Petro representatives drove south across the Canadian border to convince him that their company would operate according to the environmental rules in place in Canada, which they said were more stringent than those in North Dakota.
In the end, the company left him with a problem that is more common north of the border than in his state.
“They’re not supposed to do this,” Sundhagen said. Calls to a Calgary-area number previously belonging to Rio Petro were not returned.
Sundhagen’s frustrations are only mounting as he waits for crews to come clean up the earth around the well on his land. But just like the orphaned well problem, his current situation is also more common in Canada than in North Dakota.
In addition to the 693 orphaned wells and 77,600 inactive wells in Alberta, there are 72,700 wells just like Sundhagen’s — plugged but not fully remediated — in the province, and there’s no set timeline to clean up the surface.