Court ruling alone won’t fix ‘orphan’ well crisis

A Supreme Court ruling that puts cleanup ahead of creditors is a step forward — but won’t “make too much difference” to landowners with abandoned wells, says a director with the Alberta Surface Rights Federation.

“The landowners are still going to be in a situation where they have to deal with contaminated land for maybe 20 to 30 years,” said Daryl Bennett, who farms near Taber. “But at least it’s probably not going to blow up in their face.”

In a 5-2 ruling overturning lower court decisions, the Supreme Court said “bankruptcy is not a licence to ignore rules” when it comes to abandoned oil wells. The Jan. 31 decision involving insolvent producer Redwater Energy said the cleanup of inactive wells takes precedence over creditors.

The ruling means the Alberta Energy Regulator will be able to obtain any remaining assets of a bankrupt energy company for well cleanup.

“The Alberta Energy Regulator has first claim on them to make sure that the wells are safe,” said Bennett. “So they will be capped, valves shut off, all that type of stuff.”

But the ruling, on its own, doesn’t begin to fix the overall situation, he said, saying the problem is twofold.

The first is that “there’s usually not a lot of money left over when a company goes bankrupt” and, secondly, there is already a huge backlog of so-called “orphan” wells.

As of January, Alberta had 3,127 orphan wells — sites requiring cleanup that had no financially responsible owner, according to the Orphan Well Association, which is funded by levies paid by Canadian oil producers.

And that number could grow exponentially.

An investigation by the Globe and Mail last year found about 20 per cent of the 610,696 oil and gas wells in Alberta, B.C., and Saskatchewan were inactive. Almost two-thirds of these 122,456 idle wells have been shut off for more than five years, said the newspaper, which came up with the figures after a six-month-long search of court records along with corporate and government documents.

However, Bennett says that number is low.

“In Alberta, we have 160,000 wells that should be getting reclaimed with no enforced timeline,” he said. “Some of them have been sitting there for 35 to 40 years.”

He said he also constantly gets calls from landowners who are no longer receiving lease payments from financially stressed energy companies and don’t know what to do.

But the list of problems caused by abandoned wells goes far beyond that, he said.

“The landowner still has a lot of problems because they’re dealing with a site that may be contaminated. It may not be safe to grow food,” said Bennett. “If it’s grass or dryland crops, it might not be a big deal. But if it’s specialty crops, there may be food regulations that prevent you from growing the food on that contaminated lease.”

Lenders also don’t want to offer mortgages on contaminated land and some landowners are also dealing with builder liens placed by contractors owed money by the energy company.

Farming around abandoned wells brings yet another set of issues, he added.

“Who do you call if there are weeds? If there are wellheads sticking out in the middle of your land and nobody is taking care of it? You may run into it with expensive farm equipment.”

Following the Supreme Court ruling, the Alberta Energy Regulator said it is reviewing “what it means for the AER and Albertans.” But it said it can now “align our plans with the court ruling as we continue to build a new liability management framework,” adding it’s “steadfast in our belief that the public should not be on the hook for the closure and reclamation costs of insolvent licensees.”

But Bennett wants the provincial government to take charge of the issue — and act.

“We want the government to enforce some guidelines on when those wells have to be reclaimed,” he said. “If you abandon a well, it should be reclaimed in five years. But it’s not enforcing any of those guidelines.”

In a news release following the court ruling, the Orphan Well Association said “we have been scaling up our decommissioning and reclamation program over the last year as a result of the increase in industry funding through the annual orphan levy as well as the loan (of $235 million) from the Alberta government. We expect to decommission (abandon) over 700 wells in our current fiscal year (ending March 31). This is a threefold increase in activity compared to last year and we plan to increase our activity in 2019 as well.”

– With files from Reuters