Alberta’s self-anointed “Gas City” is turning off the taps of more than 2,000 producing wells due to weak market conditions.
After an extensive four-year process to find efficiencies and new opportunities in a depressed oil and gas market, the City of Medicine Hat has decided to accelerate abandonment and reclamation of uneconomic gas fields.
“We’ll always be the Gas City. It’s an integral piece of our history, and the city’s oil and gas accomplishments will leave a lasting legacy for generations,” said Brad Maynes, commissioner of energy and utilities.
“Over the past 40 years, the city’s oil and gas assets provided over $600 million to the city coffers. We can’t overlook that success.”
The decision to roll back activity was not taken lightly by city officials.
“We have worked hard for years to make the division profitable again, but this is a market phenomenon happening across North America — this is the new normal,” Maynes said.
In 2015, the city commenced a growth strategy to improve profitability of the Natural Gas and Petroleum Resources (NGPR) division. The strategy involved the exploration for new oil assets, the disposition of non-core assets, and the evaluation of alternate revenue streams — primarily helium and lithium.
Some early success was experienced with the growth strategy, but oil and gas discoveries were not found in the quantities required, low gas prices impacted the sale of natural gas assets, and the financial risk associated with the production of helium was too significant for a municipality to take on.
“Our exploration program found some oil and some gas and even helium — just not enough of it,” Maynes said. “And a sustained pricing recovery in natural gas is not expected in the foreseeable future.”
As a result NGPR will commence an accelerated abandonment and reclamation of its uneconomic gas fields over the next three years beginning this fall. By the end of 2022 it is expected that over 2,000 currently producing wells will be abandoned.
“We have shown financial prudence in our efforts to regain profitability, and fortunately the City had the foresight to set aside funds for our abandonment and reclamation obligations. We will continue to look at ways of bringing down our reclamation costs while still being responsible stewards of the environment,” Maynes said.
As activity decreases, there will be a staffing impact in NGPR. The city is working to redeploy affected staff where possible. Over the next few years, remaining NGPR staff will focus on reclamation efforts and continuing oil field production as well as the still-profitable Northeast gas field. A small commercial team will continue to explore options for additional financial improvement.
“I want to thank all of our dedicated NGPR employees and consultants who have worked so hard over the last four years to find efficiencies in our business and comb the area for new discoveries. I also want to thank current and past city council for their support in our drive to return profitability to our city’s gas division,” Maynes said.
Residential and business gas supply will not be affected by these decisions, and steps are being taken to ensure a continued flow of supply for decades to come, the city said.
The matter will be discussed further at the next city council meeting on Sept. 16 at 6:30 p.m.