Landowners and farmers could be left holding the bill following the bankruptcy of yet another Alberta energy company.
Calgary-based natural gas producer Sequoia Resources Corp. ceased operations last month, abandoning a number of aging oil and gas wells that need to be sealed and cleaned up.
“With Sequoia, there are 3,000 wells — 700 abandoned and then around 2,300 that are active or will need some remediation on top,” said Daryl Bennett, a farmer and director of the Alberta Surface Rights Federation. “They don’t have a dime in deposits with the regulator for reclamation.”
In theory, there should be money set aside for that work, but that didn’t happen in this case because of exemptions from provincial regulators, said Bennett.
“They granted Sequoia nine exemptions for not having to put money on deposits or make LLR (the province’s Licensee Liability Rating Program) deposits for when they went bankrupt,” he said. “If you turn 3,000 wells over to the Orphan Well Association, you’re probably looking at, at least $500 million in reclamation costs.”
Both taxpayers and landowners will ultimately be hit with the fallout, he predicted.
“There are a lot of companies that are going to be in that situation as well,” added Bennett, who farms grain and canola near Taber.
There are currently 150,000 wells in the province that are abandoned or inactive, with no timeline to clean them up — some of them have been sitting for 40 years, said Bennett.
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“There are 186,000 active wells. But when (a provincially appointed panel) did the royalty review, they said that only 20 per cent of them were paying royalties,” he said. “About 104,000 wells really aren’t productive and they are going to be dumped as well.”
And that situation could get worse, depending on the outcome of a legal dispute (known as the Redwater case) that is currently before the Supreme Court of Canada. The bankruptcy trustees winding up failed energy company Redwater Energy want to sell the corporation’s remaining assets to pay off its debts. Lower courts have ruled that can happen, but the Orphan Well Association has asked the Supreme Court to overturn those rulings and instead order money be set aside to remediate its orphaned wells.
If the Supreme Court upholds the lower court rulings, the flood of abandoned wells will increase, said Bennett.
“Redwater, if that stands, will encourage industry to dump those 300,000 wells onto the Orphan Well Association and onto the taxpayer,” he said. “Industry estimates to clean up all the wells existing in Alberta would be $80 billion to $300 billion,” said Bennett.
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That will thrust more farmers into the messy, drawn-out process of dealing with abandoned wells, he added.
“They have to go to the Surface Rights Board to get their payment — there is a two-year delay there. A lot of them can’t get mortgages on the land because the land is contaminated.”
As well, he said, the Orphan Well Association doesn’t do a good job of taking care of weeds, and that there may be safety issues because there is a lot of sour gas. There can also be food safety issues if the land is contaminated.
And the wells are a constant cause of worry, particularly in winter, he added.
“A lot of valves on the wells froze (this winter),” said Bennett. “If these guys go bankrupt and walk away, who is going to make sure all those valves or properties are shut off? The casing might be cracked.
“There are just a lot of problems that these landowners have to deal with. You have a hazardous site on your land and no one is responsible for it.”
But the executive director of the Orphan Well Association said a substantial amount of remediation is taking place. Currently, the association is drawing on an interest-free $235-million loan from the province, said Lars De Pauw, who is based in Calgary.
“On top of that, there’s still the annual orphan levy that comes from the oil and gas industry,” he said. “The loan is being repaid by the industry as well, so all that funding is coming from industry. The total is close to $400 million over the next three years.
“Right now we won’t be able to close all of them, but we’ll make a significant reduction in those numbers of orphan wells.”
De Pauw said that, so far, he hasn’t received calls from farmers with Sequoia Resources’ wells on their property and his organization won’t be dealing with the company’s wells until they are officially determined to be orphans. But once that happens, landowners have to apply to the surface rights board to obtain unpaid rent.
“It’s not just the same as just receiving their cheque,” he said. “They have to go through a lot of other steps. Other than having to deal with the nuisance of it, we’re able to progress those through to a reclamation certificate.”
The sheer number of orphan wells has delayed that process. The Orphan Well Association’s backlog includes about 1,800 sites that need to go through the abandonment process and about 1,100 left to reclaim.
This will take the organization three to four years to do, he said.
“We are always looking at our inventory from a risk management perspective, said De Pauw. “Risk is the sites that have been in our inventory the longest — those are the areas that we deal with first.”