Rising number of orphaned wells are estimated to cause the industry levy to jump to $45 million this year
By Kate Ayers
The increasing number of abandoned wells in Alberta has surpassed what the industry-supported clean-up fund can handle. And these reclamation costs could be passed onto Alberta taxpayers if the province’s energy regulator loses an upcoming Supreme Court appeal.
At a court hearing earlier this month, the question arose as to whether creditors or site clean-up would take precedence when oil companies go under, according to a CBC article today.
Lower court rulings have sided with creditors, sparking the Alberta Energy Regulator (AER) and Orphan Well Association (OWA) to fight back. They worry bankrupt oil companies will leave polluted sites as problems for the industry-backed orphaned well fund.
If the appeal is lost, the orphan well fund may not be able to cover all the reclamation costs. The necessary work could cost billions, according to the regulator.
“We do know there is a potential for the fund to be depleted or underfunded and those costs – the costs to deal with surface rights issues – falling to the public or to the landowners,” Lewis Manning, a lawyer for the Canadian Association of Petroleum Producers, told the court on Thursday.
In Alberta, oil companies pay a levy, contributing to a fund that helps clean up polluted oil sites and abandoned infrastructure. But since the first lower court hearing in 2016, energy companies have abandoned 1,800 AER-licensed sites. In total, they amount to over an estimated $110 million in liabilities and 3,700 wells, according to the article.
The 2017 levy was $30 million, doubling the 2014 levy of $15 million. This year, the levy is estimated to soar to $45 million.
But the OWA cannot complete the work ahead unless industry levies continue to climb.
“Of course, we’ll try and perform the work that we can but, frankly, on a balance sheet basis, we’re insolvent,” Ken Lenz, a lawyer representing the OWA, said at the hearing.
Losing the appeal would be a big blow to AER and OAW. Such a result could cause a “significant increase” in the need for clean-up of abandoned wells when creditors disclaim them, Lars De Pauw, executive director of the OWA, said to CBC.
“Right now, the oil and gas industry has been committed to paying those levies,” De Pauw said after the hearing.
“But there is a risk that if this becomes too big of a problem, and they can’t do it, then it comes basically back to the public, which is really what we want to prevent.
“I think that’s what everyone who was on the appeal was trying to prevent as well.”
Previous Farms.com coverage on abandoned oil wells and reclamation can be found here.
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