Progress has been slow, but Alberta farmers should soon see work being done to remove abandoned oil and gas wells.
In May, Ottawa put up $1.72 billion to clean up orphan or inactive oil and gas wells, pipelines and facilities in Alberta, Saskatchewan and B.C., with Alberta using its $1-billion share to create the Site Rehabilitation Program. As part of the federal funding, the Orphan Well Association also received a loan of $200 million (on top of a provincial loan of $100 million in March).
“We probably haven’t done as much as I would have liked in the field, but we’re expecting that once the crops start coming off, the level of activity will start going up quite a bit through winter into breakup,” said Lars DePauw, the association’s executive director.
“Next year, we’re planning for another very busy year — about the same size of program that we had this year. It’s going to be very busy, and that’s positive for the service community that’s working with us.”
The program offers grants of between 25 and 100 per cent of total project costs up to $30,000, to be paid directly to the oilfield service companies doing the work. So far, $198 million in funding has been approved by the Site Rehabilitation Program (which is separate from the Orphan Well Association funding) and allocated to 306 Alberta-based service companies, creating an estimated 948 jobs, an Alberta Energy official said in an email.
“The program will create thousands of much-needed direct and indirect jobs right away, keeping oilfield service companies going during these difficult times,” the official said.
Slow rollout ‘frustrating’
But for some oil and gas service providers, the program hasn’t been as quick or responsive as hoped.
“We put in a lot of applications like a lot of service providers in Alberta, and we’ve got some back that have been approved, which is great, but no boots on the ground yet,” said the owner of a Calgary-based oilfield service company who asked not to be named for fear of jeopardizing its funding.
“It was exciting when they rolled it out, but all of a sudden, we’ve just hit a roadblock. It’s been a slow process.”
It took the company five people working 10-hour days for three days to submit around 930 applications, and of that first batch, only about a dozen were approved, said the owner, who also has operations in B.C. and Saskatchewan.
“There is a lot of work there if they do approve it, but not at the rate we’re going now. To us, it’s definitely slowed things down a lot,” he said, adding his company is already doing work in Saskatchewan under its Accelerated Site Closure program. “It’s frustrating.”
Other service providers he knows either haven’t heard back or have had their applications rejected as well, he added.
“I know they say they’ve put 300-and-some service companies to work, but we’re not sure who or where.”
He suspects the attempt to launch quickly backfired.
“They rolled it out too fast, thinking they were going to have boots on the ground in May,” he said.
“It’s 2-1/2 months later, and if there are any, it’s not any I know of, anyway.”
For his applications, there seemed to be “no rhyme nor reason” as to why they were rejected — “the explanation was very vague.”
And in some cases, the criteria seem to be applied arbitrarily, he added. Officials at one company he knows applied even though they thought they wouldn’t get approved as the company produces too many barrels of oil a day to meet the criteria.
“But they did get accepted,” he said. “It was confusing for us to try to figure out how they were processing applications.”
In other cases, the program approved later-stage projects without approving the work that needed to be done first in earlier stages of the cleanup process.
“It is discouraging talking to some of these companies that are saying they’ve got reclamation or remediation approved. I said to them, ‘How is that, when the wells need to be abandoned first?’” he said.
“And they say, ‘That’s what we’re trying to figure out too, because the down-hole stuff got rejected.’ It’s kind of backwards.
“They wanted to be the first to the table with this, but I think they hit a few stumbling blocks.”
30,000 applications in 14 days
Admittedly, demand for funding far exceeded program capacity after its launch, said the Alberta Energy official.
“The Site Rehabilitation Program was ambitiously developed and launched in under two weeks, and the initial response to the program was significant, with more than 30,000 applications received in just 14 days,” said the official. “The first phase of the program was designed to accept the most straightforward and simple projects. Instead, we saw a rush to submit applications, the majority being out of scope.”
Additionally, reviewing applications is “skilled, complicated work,” given the regulatory requirements, so each application and associated contract had to be “thoroughly reviewed and vetted.”
“That’s why, from the outset, we decided to stage the program in $100-million increments — ensuring the responsible distribution of funds while providing us with room to adjust as we move forward,” the official said, adding the review process has been streamlined and more staff hired to review applications.
Alberta Energy has also formed an industry advisory panel that meets weekly, as well as an Indigenous roundtable, to provide feedback to improve the program.
“The program is being refined and improved as each grant period is launched,” said the official. “Companies that have not yet been approved for funding are encouraged to apply in current and future grant application periods. There is still lots of work left to be done.”
The delays are understandable, but still difficult to work around, said the oilfield service provider.
“We were one of the smaller ones that put in 900 applications — some companies put in 2,500. When you have an influx of that many applications, it’s probably pretty overwhelming,” he said.
“I know they were up against the ropes trying to pump out some work right away, but I think they should have taken an extra month even to figure out the process. This has just slowed it down, and it’s cost us a lot of money.”
His company has seen a 75 per cent drop in manpower compared to a year ago, and with these delays, the problem is only going to get worse before it gets better — especially since the jobs were priced for the summer months.
“It takes a little more to do the work in the wintertime, so if they approve them and the jobs don’t start till November or December, our profit margins aren’t there,” he said.
“It’s definitely hurt us. We’ve had to downsize even more. We have to make sure that when we do get the work, we have the cash flow to go to work again.”
And for companies that have “put everything on hold” to wait for this funding, it could ultimately come too late.
“With a lot of service providers, it could mean bankruptcy,” he said. “Anybody who had reserve funds has definitely chewed through them in the last three months.
“Some of the service providers that I’ve talked to are already bankrupt because there was no work and it didn’t come in fast enough. It’s sad to see.”
But the Orphan Well Association expects to keep its program going at “a high degree of pace,” said DePauw.
“We have a very sizable budget for this year and next year,” he said. “Our program this year will be about 80 per cent larger than it was last year. It’s quite an increase.”