Budget officer finds $1B orphan well liability by 2025; critics claim underestimate
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
CTVNews.ca Top Stories
Most of Canada to receive emergency alert test today
The federal government will test its capacity to issue emergency alerts today, with the exception of Ontario, where the test will take place on May 15.
'A huge difference': These adults born in the '90s partnered with their parents to buy homes in Ontario
An Ontario woman said it would have been impossible to buy a house without her mother – an anecdote that animates the fact that over 17 per cent of Canadian homeowners born in the ‘90s own their property with their parents, according to a new report.
OPINION No reunion between Prince Harry and the King signifies a setback for royal unity
Prince Harry, the Duke of Sussex, has made headlines with his recent arrival in the U.K., this time to celebrate all things Invictus. But upon the prince landing in the U.K., we have already had confirmation that King Charles III won't have time to see his youngest son during his brief visit.
Northern Ont. woman makes 'eggstraordinary' find
A chicken farmer near Mattawa made an 'eggstraordinary' find Friday morning when she discovered one of her hens laid an egg close to three times the size of an average large chicken egg.
How Drake and Kendrick Lamar's rap beef escalated within weeks
A long-simmering feud between hip-hop superstars Drake and Kendrick Lamar reached a boiling point in recent days as the pair traded increasingly personal insults on a succession of diss tracks. Here’s a quick overview of what’s behind the ongoing beef.
NEW For their protection, immigrants critical of China and India call for speedy passage of Canada's foreign interference legislation
Canadian immigrants threatened by hostile regimes are urging parliamentarians to quickly pass the 'Countering Foreign Interference Act' so they can feel safe living in their adopted home.
Ontario man devastated to learn $150,000 line of credit isn't insured after wife dies
An Ontario man found out that a line of credit he thought was insured actually isn't after his wife of 50 years died.
Spanish prosecutors recommend 2nd investigation into Shakira's taxes be thrown out
Spanish state prosecutors recommended Wednesday that an investigating judge shelve a probe into another alleged case of tax fraud by pop star Shakira.
Stormy Daniels describes meeting Trump during occasionally graphic testimony in hush money trial
With Donald Trump sitting just feet away, Stormy Daniels testified Tuesday at the former president's hush money trial about a sexual encounter the porn actor says they had in 2006 that resulted in her being paid to keep silent during the presidential race 10 years later.