An orphaned well sits in a field near Red Deer, Alta., on May 24, 2023.GEOFF ROBINS/Getty Images
The oil and gas sector in Alberta spent close to $770-million to clean up inactive wells in 2023, but the industry is not doing anywhere near enough to address the full scale of environmental liabilities around the province, according to one expert.
Combined with the cash from the government’s site-rehabilitation program and the industry-funded Orphan Well Association, spending on cleaning up inactive wells surpassed $1-billion in 2023. But that massive outlay barely made a dent, reducing the number of inactive wells in the province by only about 5 per cent, according to the Alberta Energy Regulator’s annual liability monitoring report released Thursday.
The oil and gas sector in Alberta is required to spend a certain amount each year on cleaning up inactive wells and pipelines. Last year, the AER set that number at $700-million.
But the scale of environmental liabilities in the province dwarfs the spending quota set by the AER, says Martin Olszynski, an associate professor and Chair in Energy, Resources and Sustainability at the University of Calgary Faculty of Law.
The AER has attached a $33.3-billion price tag to the cost of cleaning up the province’s hundreds of thousands of oil and gas wells, but Prof. Olszynski believes that number is off by a huge margin.
Indeed, internal AER documents suggest the province’s environmental liability could be nearly triple the estimate the agency announced earlier this year. Those documents pegged the total cost of well cleanup to be about $88-billion.
Prof. Olszynski said the industry isn’t spending enough to tackle the problem, and would like the AER to force the sector’s hand.
“The point is the AER has no plan to get that money for those liabilities from profitable companies,” Prof. Olszynski said.
He pointed to Canadian Natural Resources Ltd., which has about 20,000 of Alberta’s 80,000 inactive wells.
The company is making “making money hand over fist” right now, he said, “but when are you ever going to be able to start chipping away at that massive liability they have?”
Prof. Olszynski would instead like to see the AER require that a company put enough money aside to cover reclamation costs when it is issued a well licence. And he would like the regulator to institute a time limit on how long companies have to clean up a well once it is no longer active.
“It can’t just be applied against when your company is distressed, because that’s just backwards. That’s counterproductive. You’re just going to spiral out those companies into more distress, and then they’re not paying their taxes or not paying their vendors, and it becomes essentially a zero-sum game between unpaid vendors, service providers, municipalities and landowners,” he said.
“This isn’t rocket science.”
While the vast majority of oil and gas companies met spending requirements in 2023 set by the AER, 54 of them didn’t. Mostly smaller companies, they represented a mere $5-million in missed quotas.
Anita Lewis, the regulator’s senior adviser of liability management, said companies that don’t meet their cleanup obligations and other regulatory requirements are monitored through a licensee management program. It will take compliance action that can include anything from a warning letter to having the Orphan Well Association step in and take over management of their sites.
However, she said the AER doesn’t share data on how many of the small companies that are failing to meet their cleanup quotas are also deemed at high risk of struggling to meet their financial obligations.
Such companies have a total of about $2-billion of environmental liabilities on their books. The remainder is held by companies deemed to have low or medium financial risks.
Editor’s note: This article previously included a headline that incorrectly referred to orphan wells. This version has been updated to refer to inactive wells.