Budget officer finds $1B orphan well liability by 2025; critics claim underestimate

An inactive well in Alberta is shown in this file photo.

The parliamentary budget officer has found the cost of cleaning up orphaned oil and gas wells in Alberta and Saskatchewan already dwarfs the money collected from industry to pay for it.

But critics immediately called Yves Giroux's projected price tag of $1 billion by 2025 a massive underestimate of the industry's total environmental liability.

“It's a great disappointment,” said Regan Boychuk of the Alberta Liabilities Disclosure Project, a group whose research was cited in Giroux's report.

“They left out the most expensive part.”

The report considers about 10,000 wells in Alberta and Saskatchewan that are considered orphans - those with no viable operator capable of addressing their environmental liabilities. It says the cost of cleaning up those wells is currently $361 million and will rise to $1.1 billion by 2025 as the number of orphan wells grows 35 per cent a year.

Industry has paid only about $237 million in security deposits, the report says.

It adds the federal government has already devoted $1.7 billion to orphaned and abandoned well cleanup and says about half of that has been given to 10 viable energy companies, including giants such as Canadian Natural Resources Ltd. and Imperial Oil.

But the report is careful to mention it doesn't include cleanup of pipelines or other energy infrastructure. It doesn't include oilsands.

It doesn't include 7,400 wells that are considered abandoned but not yet orphaned. If it had, the report says current liability would more than double to $801 million.

It also doesn't include liability from the 225,000 wells in Alberta and Saskatchewan that are considered inactive or plugged. Nearly two-thirds of all wells in those provinces no longer pump, the highest percentage ever, and most wells declared inactive never start again.

As well, the report only considers the cost of tidying up the land surface and removing equipment. It doesn't consider the cost of remediating ongoing contamination from underground chemicals or leakage.

“The exclusion of remediation will understate the total cost of well cleanup,” the report says.

There isn't enough data on such cleanups to make a meaningful estimate, said Giroux.

“The data is very limited on this. The reclamation costs can vary greatly from one well to another.”

The report estimates the cost of plugging and reclaiming a well to be about $78,000. That's less than half the estimate from the Alberta Liabilities Disclosure Project.

Boychuk said the report's focus on orphan wells is misleading. Legislation already exists to force industry to fund cleanup of those wells, he said, and it's all the other wells and infrastructure not yet classified as orphaned that are the threat.

University of Calgary energy economist Lucija Muehlenbachs agreed.

“That's just a teeny, teeny, teeny, teeny fraction.”

She said that cleaning up orphan wells was part of the bargain industry made with the Alberta public.

“The deal was for any company that goes bankrupt, industry as a whole was going to clean up the mess,” she said. “That's the reason we collected very few security deposits.”

Now, she notes the report concludes taxpayers are going to have to foot at least part of the bill.

Boychuk criticized the report for only looking at publicly traded companies and for using the same methods used by the Alberta Energy Regulator to determine a company's financial health and define an orphan well.

He said there are 8,000 wells belonging to hundreds of companies bankrupt in all but name that aren't included in the report's calculations.

“There is no number in that report that is reliable and credible and defensible.”

The report points out there are other environmental costs to unreclaimed wells on the landscape.

Those wells are estimated to release the equivalent of 545,000 tonnes of carbon dioxide every year. As well, Alberta's energy regulator says about 10 per cent of inactive wells and seven per cent of abandoned wells leak. Farmers and ranchers also complain about poor weed control contaminating their crops and pastures.

Alberta Energy spokeswoman Jennifer Henshaw said the province recently introduced a program requiring energy companies to spend at least $422 million next year on cleanup and remediation of old wells.

“These funds go directly to the oilfield service companies ... not the licensees of the inactive wells,” she wrote in an email. “The program has accelerated the cleaning up of inactive sites and has created more than 1,900 jobs.”

Analysts have concluded that program will take at least 25 years to clean up the current problem, without any new wells being added.

Alberta New Democrat energy critic Kathleen Ganley said the report adds weight to the argument that the province should require industry to increase its cleanup spending - especially as it enjoys current high prices.

“I do think it probably can be increased, especially at this time,” she said. “We have the ability to use the money to keep Albertans working and I think that's where our focus should be.”

Jay Averill of the Canadian Association of Petroleum Producers said industry has already contributed more than $500 million over the years to clean up orphan wells. He said the industry supports recent government efforts to quicken the pace of such work.

“These programs are supporting accelerated closure of upstream sites in Western Canada, and ... will help to reduce the inventory of inactive and orphaned upstream sites over the coming years.”

This report by The Canadian Press was first published Jan. 25, 2022