Canada’s struggling oil industry leaves thousands of wells abandoned, without enough money for cleanup

Canada’s struggling oil industry leaves thousands of wells abandoned, without enough money for cleanup

Canada’s struggling oil industry leaves thousands of wells abandoned, without enough money for cleanup

Under provincial law, oil and gas companies are responsible for plugging defunct wells and restoring the environment to its pre-drilling state. When the operators are bankrupt or insolvent, the wells are transferred to the industry-funded Orphan Well Association, which is tasked with decommissioning them.

As the energy sector has struggled, the association’s inventory has ballooned, from 162 wells in 2014 to 3,406 today — the rusting and cobwebbed vestiges of a bygone era.

And the number could skyrocket, soon. Last year, both Trident Exploration Corp. and Houston Oil & Gas bit the dust, leaving behind a combined 6,100 wells and a $307.9 million cleanup bill. Wells that can’t be sold will be added to the inventory.

Albertans worry that many of the province’s 90,000 inactive wells — those that are no longer pumping, but haven’t been plugged — could become orphans, too, as their operators struggle.

In its 2018-19 annual report, the Orphan Well Association said it cost an average of $25,500 to decommission a well, but acknowledged that some cost more. Lars DePauw, the association’s executive director, says it cleaned up more than 800 sites last year.

The province loaned the association $176.3 million in 2017; the federal government provided $22.5 million of that loan. Now Kenney’s government is asking Ottawa for more help.

Alberta, unlike several U.S. jurisdictions, does not require companies to post upfront security deposits for cleanup before drilling, or impose mandatory timelines for cleaning up inactive sites. Lucija Muehlenbachs, an economist at the University of Calgary, said this incentivizes operators to keep them inactive to avoid the costly cleanup. Few are put back into production, she said, even when energy prices rebound. And struggling operators sometimes sell their high-liability wells to smaller companies, who are also strapped for cash.

The industry-funded Alberta Energy Regulator, an arms-length watchdog agency of the provincial government, has a system that’s supposed to ensure that companies that drill have the financial wherewithal to clean up their wells in the future. If a company’s estimated assets are less than its estimated liabilities, it is supposed to put up a security deposit.

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