Lindy Couillard, Managing Director of Skye Asset Retirement, in Calgary, Alta. on March 24.Amir Salehi/The Globe and Mail
Skye Asset Retirement is an Alberta company doing a small part of the heavy lifting needed to reduce the backlog of inactive oil and gas wells that has left the province with massive environmental liabilities.
Skye acquires the licences for spent wells from energy companies and gets cash from those operators to take the cleanup liabilities off their hands. Then it puts its sister company, 360 Engineering & Environmental Consulting Ltd., to work plugging the wells and reclaiming the land. It earns a return by keeping the costs to do the work below the cash amount it received and deals with any environmental risks through its own insurance.
Skye is a “ClosureCo,” focused on the cleanup of mature oil and gas assets. An Alberta government panel led by a special adviser to Premier Danielle Smith has suggested employing the model on a much larger scale – just one of several options to deal with the problem of companies that can’t, or won’t, spend the money to complete the abandonment and reclamation work they are required to do.
The Globe and Mail first reported details from a draft report of the Mature Asset Strategy process last week. Some of the recommendations suggest public support to help the industry, prompting critics to say they go against the polluter-pay principle. But Energy and Minerals Minister Brian Jean has said taxpayer money won’t be used to clean up old wells.
“Because we are one of the tools that we think the industry can use, we were participants in those working discussions,” said Lindy Couillard, Skye’s managing director.
Skye has so far acquired wells from well-funded companies looking to supplement their in-house cleanup efforts or spend more than their annual mandatory quotas, Ms. Couillard said. “What I tell people is, we are a pilot model, because what we don’t want, obviously, is to exacerbate this issue.”
Its most recent deal was last fall with an international producer, and it has an inventory of fewer than 20 wells to clean up – a tiny fraction of the inactive, economically marginal and decommissioned wells that dot the Alberta landscape.
The mature asset report tallies the number at 274,215, more than half of those licensed. Estimates to clean them up vary wildly, from $33-billion to hundreds of billions of dollars. The talks were aimed at finding ways to deal with the problem before companies go bankrupt and their wells go onto the books of the industry-funded Orphan Well Association.
The 71-page draft includes the proposal for setting up a ClosureCo as well as a HarvestCo, which would seek to maximize the production of any remaining oil and gas from the assets to fund the cleanup. The government could offer regulatory and financial supports with the aim of “engaging the financial sector” to participate, the report suggests.
This is where things get murky. The draft says there is some interest among investors in such a special-purpose entity. But it also describes the difficulties that small oil and gas companies have trying to attract capital, blaming a host of reasons, including weak natural gas prices and net-zero policies among investors.
Ms. Couillard said it is difficult to say whether the government could sanction a ClosureCo for struggling producers without providing public guarantees, partly because the companies do not have the ability to raise money. “I think that would be tough, because they are already struggling from a cash flow perspective. It would be hard to pay the upfront costs,” she said.
In many cases, large companies initially drilled the wells and sold them off to financially weaker producers over the years. The industry pays a levy to fund the cleanup of those that no longer have a solvent owner, but that system has failed to arrest the problem.
Setting up new public entities ignores the fact that the assets have already generated wealth for their successive owners, said Martin Olszynski, chair in energy, resources and sustainability at the University of Calgary faculty of law. Any plan that does not involve individual companies or their industry paying for well abandonment and reclamation amounts to a form of public support, Prof. Olszynski said.
“It’s government apparatus, and it’s letting companies walk away from things that they are obliged to pay for,” he said.
An Energy and Minerals Department official did not respond to a request for comment.
Alberta’s rural municipalities have struggled with this issue for years, and its association hoped for stricter enforcement systems to recover unpaid taxes and surface leases to emerge from the discussions.
At the end of last year, unpaid taxes among municipalities totalled $253.9-million. About $100-million is owed by companies that are still operating, Rural Municipalities of Alberta president Kara Westerlund said.
“That is what’s incredibly concerning to us, because they know there’s just no mechanisms in place to force them to pay those taxes,” Ms. Westerlund said.
The Alberta government and RMA announced on Monday they would form a joint working group explore possible solutions to ensure the municipalities receive the taxes the industry owes them.