$235 million to accelerate the cleanup of oil and gas wells left behind by bankrupt producers after a prolonged downturn crippled many operators.
The industry-funded Orphan Well Association will use the loan to clean up a third of its inventory of inactive sites, which could translate into remediating roughly 700 wells.
The group will repay the loan through higher levies from industry, while a $30-million injection from Ottawa is expected to cover interest costs.
Speaking on a farm north of Calgary where a company had walked away from a well three years ago, Premier Rachel Notley said the funding addresses a big industry problem while putting people to work during a muted recovery that isn’t creating scores of jobs.
Notley said the funding deal is in line with the government’s polluter-pay philosophy, which means the industry that benefited from production must be responsible for the cleanup.
“The agreement will put people to work as early as this summer and will go towards cleaning up orphaned wells over the next three years,” Notley said. “In fact by the end of this summer, you won’t be able to tell that there was even a well here.” Alberta has seen rising numbers of abandoned oil and gas wells dotting the landscape during the downturn, driving up the inventory of wells in need of cleanup to nearly 2,100.
The Orphan Well Association charges industry an annual levy to cap and seal old wells and return the landscape to a natural state, but the $30-million yearly budget has not been enough to keep up with demand.
The group plans to increase the spending envelope to $60 million in the 2019-2020 fiscal year, which means oil and gas companies will have to pay more as the industry grapples with the mess left by bankrupt operators.
Lexin Resources Ltd., a Calgary natural gas producer, is among the failed companies that are driving up the inventory of wells in need of cleanup, after the Alberta Energy Regulator forced Lexin into receivership earlier this year.
Industry officials believe the inventory will grow even further after the Alberta Court of Appeal upheld an earlier ruling that found the money raised by selling the assets of bankrupt energy producers should go to their creditors instead of cleaning up their wells.
The province’s energy regulator is seeking an appeal of the Redwater Energy case at the Supreme Court of Canada, in the hopes of setting a precedent that would divert more money to well cleanup.
Notley called the $235-million loan a good first step to address Alberta’s well inventory, but the government and energy regulator are conducting a wider review to identify measures designed to prevent the stockpile from growing much further.
Brad Herald, chairman of the Orphan Well Association, said the latest downturn has exposed gaps in the system, which his group wants to address. “All we want to see is that the changes are done in a predictable way and the effects of them are managed so they’re not draconian,” Herald said. “We want to see a system where the public does not accrue costs from our business.”
Source: Calgary Herald