Alberta’s oil and gas industry will get a $235 million government loan to accelerate the clean up of wells and sites confirmed not to have anyone responsible or able to deal with their closure and reclamation.
The funding is expected to create 1,650 new jobs in the province over the next three years and has widely been praised by industry, environmental and surface rights groups, but is it enough?
In her comments during the funding announcement Thursday, Alberta Premier Rachel Notley said the number of orphan wells in Alberta is a growing problem, “a problem that has been made much worse by the collapse in oil prices,”
The loan, repayable over 10 years, will go to the industry-funded Orphan Well Association, which last year closed only 185 wells of its 2,084 well inventory (as of March 2017) slated to go through closure activities: 1,394 to be abandoned, 690 to be reclaimed.
Of Alberta’s estimated 180,000 active wells, 83,000 are considered inactive and 69,000 are abandoned.
Earlier this year, the University of Calgary’s School of Public Policy questioned the rationale behind Alberta’s current policy allowing so many inactive oil and gas wells.
Some of Alberta’s 83,000 inactive wells have been inactive for decades and the vast majority will never be reactivated, irrespective of how dramatically commodity prices or technology improve.
“Producers routinely keep non-producing wells in a state of ‘inactive’ suspension and refuse to rule out the possibility that someday oil prices or technology, or both, will change significantly enough to make those wells profitable again,” said the paper's author, Lucija Muehlenbachs, an assistant professor of economics at the U of C.
The current backlog of orphaned wells and sites is partly an outcome of inactive well regulations.
“The longer a well is inactive, the higher the likelihood that its owner may no longer be around to arrange and pay for its official abandonment, a process whereby wells are permanently sealed using regulated methods that insure they cause no environmental damage,” Meuhlenbachs said at the time.
In 2016, the Alberta Energy Regulator took steps to counter the province’s orphan well challenge and increased the orphan well levy from $15 million to $30 million annually. But even this industry funding level is deemed inadequate, according to Meuhlenbachs.
“Even if industry kept up this yearly rate of spending, it would take approximately 177 years to pay for deemed liabilities now totalling $36 billion,” she said.
So the Government’s $235 million boost marks an import milestone in tackling orphan wells and it comes with much needed jobs for Alberta’s oilfield workers, but without additional regulatory measures, the battle may be far from won.