An orphaned well in a field near Red Deer, Alta., in May, 2023.GEOFF ROBINS/Getty Images
An Alberta government panel is proposing a series of actions to deal with the massive cleanup bill for aging and uneconomic oil and gas wells, some of which would see taxpayers backstop activities that the industry has long been responsible for, a leaked document shows.
The recommendations include establishing special-purpose companies to acquire mature wells, produce the remaining hydrocarbons and use the cash flow to fund cleanup, and also setting up an insurance fund financed by the industry but guaranteed by taxpayers.
The options, and numerous others, are detailed in a draft report of a process to create what the province calls a “mature asset strategy” to deal with a massive backlog of wells that remain on the books of producing companies but are no longer profitable. A copy of the confidential report, dated Jan. 28, was obtained by The Globe and Mail.
Today, companies are legally required to plug spent wells and reclaim the land. But ballooning underfunded cleanup liabilities have fuelled significant friction between the industry, government and rural municipalities, which say they are owed $253.9-million in unpaid taxes from energy companies.
When companies go bankrupt, their wells can be transferred to the Orphan Well Association, an industry-funded group tasked with cleaning them up. The OWA has received millions of dollars in loans from the Alberta and federal government in recent years to shore up its operations.
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The mature asset report tallies the number of marginal, inactive or decommissioned oil and gas wells in the province at 274,215, more than half of all those licensed. Estimates to clean them up vary wildly, from $33-billion into the hundreds of billions of dollars.
The 71-page report blames the woes of smaller, thinly financed companies that own the wells largely on outside factors. They include weak natural gas prices; high regulatory costs; a shift in investor focus to the oil sands and liquids-rich gas; and environmental, social and governance requirements and net-zero investment policies that have restricted their access to capital.
Critics who have reviewed the draft say many of the recommendations amount to giveaways to a dwindling part of the industry, and are an affront to the polluter-pay principle. The recommendations also fail to address ways for municipalities and landowners to recover unpaid taxes and surface rents, they say.
It is difficult to understand how the industry can say that it was blindsided by rapid and unexpected changes to justify releasing companies from cleanup obligations, said Drew Yewchuk, a former staff lawyer with the University of Calgary’s public interest law clinic who has studied the issue extensively.
“Everyone always knew this was a non-renewable resource. Nothing about this was really surprising. Even relative to knowledge of climate change and decarbonization – decarbonization has happened slower than it could have plausibly been expected, so they’ve actually had luck, not shocking bad luck,” Mr. Yewchuk said.
Alberta Premier Danielle Smith has in the past come under fire for proposing using the public purse to deal with the problem, and her government has not ruled out using taxpayer dollars to help clear the backlog.
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David Yager, a former energy executive who serves as special adviser to Ms. Smith, led the mature asset process through five months of meetings with representatives from energy companies, industry associations, government ministries and agencies, rural municipalities as well as experts from various disciplines.
In the report, Mr. Yager, who is also an Alberta Energy Regulator director, acknowledged that “the trust has been broken” between the industry, landowners, municipalities and government as resource wealth has been taken for granted and individual rights rival or surpass what he terms “the greater good.”
Alberta Energy and Minerals Minister Brian Jean declined to comment on the details in the draft, and will wait to review the final report, said Josh Aldrich, spokesman for the minister. The government will keep communicating with municipalities, landowners, oil companies and others as it decides on its next steps, he said.
“Most companies pay their taxes, but Alberta’s government understands why municipalities and others are frustrated by overdue property taxes owed by some oil and gas companies, and shares their frustrations. That’s why Alberta’s government has taken multiple steps to address this issue,” Mr. Aldrich said in a statement.
Under the special-purpose entity proposal, the province would set up a company it calls ClosureCo to acquire old assets for cleanup so they would not be passed to the OWA. Another entity, called HarvestCo, would seek to maximize production from the assets to fund cleanup. The government could offer regulatory and financial supports with the aim of “engaging the financial sector” to participate, the report says.
Another proposal is an insurance fund for environmental problems that emerge after a site has been reclaimed. The fund would be financed by contributions from companies with well licences, and ultimately backstopped by taxpayers.
In addition, the province could set up sinking funds attached to individual wells or asset portfolios to finance cleanup obligations, as well as use carbon markets to provide incentives to shut down and clean up high-emission sites, the report suggests.
Other proposals include seeking changes to the Companies’ Creditors Arrangement Act to favour producers in bankruptcy cases, and saving cleanup costs by covering partly reclaimed sites with solar panels.
The report recommends establishing a “rapid and transparent process” to address unpaid municipal taxes, and strengthening collaboration with municipalities. It also suggests re-establishing a quasi-judicial tribunal to address stakeholder concerns.
Paul McLauchlin, reeve of Ponoka County in central Alberta, and former president of the Rural Municipalities of Alberta association, said the process offers little in the way of new concrete measures for municipalities to recover what they are owed.
Mr. McLauchlin, who participated in the discussions, said his county has written off $6.5-million in taxes and surface leases owed by oil and gas companies.
“I think this is just another continuance, another scheme, on behalf of the industry, that’s going to basically create the same scenario again. I think it’s shady. I think, literally, the industry needs to pay their bills, and I think the government, quite honestly, needs to regulate.”
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