This post contains opinion and analysis
Alberta has prided itself on being Canada’s energy provider. There is a romantic imagery of the Alberta roughneck as being the identity of this province. Stickers, signs, and t-shirts are circulated promoting that “We Love Alberta Oil”. People from across this country have to come to Alberta for the opportunities that the oil patch provided.
But like the Great and Powerful Oz, Alberta is also hiding a secret behind the curtain… abandoned and orphaned wells. Not just one or two but more like 73,000 abandoned including over 15,000 drilled before 1964. While many of these abandoned wells were capped and left in a “safe and secure manner” and overseen by a “responsible owner”, time and advancing technologies may require that owner to remediate a well. However, with ownership dissolving and asset being sold, a considerable number of wells have been orphaned to the province.
The Orphan Well Association (OWA) still has a list of over 3,400 wells that need to be cleaned up. There are greater fears that current economic conditions will cause many of the current number of 93,000 inactive wells (not producing nor abandoned) to be orphaned to the OWA.
Today (April 17), the federal government announced a $1.7 billion-dollar program to help clean up these orphan wells. While heralded as a job creation program to help out a struggling industry being hit hard by both COVID-19 and a slump in global oil prices, it’s now highlighting the real problem; the lack of corporate responsibility in producing these assets.
The mere creation of the Orphan Well Association, back in 1994, demonstrated that there was already a trend with oil producers to create a company, generate profits from the drilling for oil and gas, then abandon the wells when no longer profitable onto the province and the province’s taxpayers. In the last 25 years, all that has increased is the number of wells needing to be reclaimed and remediated.
It wasn’t until January of 2019 that the Supreme Court of Canada ruled that bankruptcy was not sufficient grounds for not paying for environmental clean-up costs of uneconomic oil wells. This decision impacted how many O&G producers operated as this was not a line item in the ledger they could walk away from. Further, the ripples of this decision would be felt via investors being less likely to support smaller companies.
The orphan well issue may be one area where oil companies are taking advantage of Alberta taxpayers but it’s not the only one. It was reported in January of this year that unpaid taxes, owed to rural municipalities by oil producers, was now exceeding $173 million dollars.
… and how is our UCP government responding to this dirty little secret?
First, they gave oil producers a significant tax break shortly after being elected into office which has been estimated to be in the neighborhood of over $6 billion dollars a year. Second, they invested another $1.5 billion dollars into a pipeline company with a subsequent $6 billion loan guarantee which is already starting to look like a bad investment. Let’s also not forget the horribly ineffective Canadian Energy Centre (aka Energy War Room) and their $30 million-dollar a year operating budget to promote Alberta oil interests abroad. Meanwhile, the government has only offered a $100 million-dollar loan to the Orphan Well Association.
Billions given to the organizations making the mess while only loaning money to the agency tasked to clean up the mess.
Meanwhile, the corporate funded Canadian Association of Petroleum Producers (CAPP) are lobbying the federal government to freeze the carbon tax and delay climate change regulations. The industry, on the whole, is not suffering because new climate change regulations nor a relatively new carbon tax. This suffering is not the fault of the federal government, global investors, OPEC+, oil wars, nor environmentalists.
The industry is suffering because they have built an unsustainable business model where profits can only be earned when oil prices are high, corporate taxes are low, and corporate responsibilities (like well remediation and municipal taxes) can be dumped onto taxpayers. Now they have a willing partner to continue this model in the Alberta government.
Albertans will rise to this challenge like they do every other one put in front of them. What they need to understand is that the people responsible for this dilemma do not reside in Ottawa but rather Calgary (unless they have already left the province with their fortunes).
Mark Taylor is a former petroleum engineer who worked in the oil patches of southeast Saskatchewan and northwest Alberta as well as downtown Calgary. He’s also done a bunch of political stuff too.