The Kenney government wants Ottawa’s help — and some money as well — to deal with the growing number of abandoned oil and gas wells in the province, while creating jobs in the process.

If the battling governments are truly looking for places to co-operate, this looks like a sensible place to start.

Distroscale

In a letter sent Monday to Finance Minister Bill Morneau, Alberta is seeking federal assistance to “accelerate the reclamation of abandoned oil and gas wells.”

Finance Minister Travis Toews spoke with his federal counterpart Monday and pressed the issue.

“Ultimately, we would like funding from the federal government to assist us as a province in cleaning up our orphan wells,” Toews told reporters at the legislature.

“It would create jobs in much-needed regions of the province.”

Toews didn’t put a price tag on the request but noted Alberta’s Orphan Well Association is facing a growing backlog of such wells that require downhole wellbore abandonment and surface reclamation, but don’t have an active owner to pick up the bill.

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The tab instead falls to the non-profit association, which is funded by an annual industry levy.

Energy Minister Sonya Savage has asked Natural Resources Minister Seamus O’Regan to support the idea and explore the idea of federal approval of flow-through shares, or some similar tax instruments, to speed up well reclamation work.

“Flow-through shares could also be part of the solution,” Savage said in a statement. “This would help oil and gas companies to raise funds for reclamation and (it) gives additional financial flexibility to address abandoned well sites.”

Federal officials didn’t comment on the matter Monday.

The pitch to the Trudeau government is being made as the number of orphan wells have ballooned in Alberta in the wake of a gruelling five-year industry downturn.

According to the Orphan Well Association, there were 3,406 orphan wells slated for abandonment at the beginning of this month, almost a five-fold increase since March 2015.

What’s also disconcerting is the number continues to grow, even as the industry’s annual funding to the association has ramped up to $60 million this year from $15 million five years ago.

However, the failure of petroleum producers such as Lexin Resources Ltd. and Trident Exploration Corp. has added more unwanted wells to the list. Earlier this month, Calgary-based Houston Oil & Gas Ltd. went into receivership, which could potentially bump up the number of orphan wells by more than 1,000

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This isn’t the first time Ottawa has been asked to help on this issue.

In May 2017, the former provincial government announced it would lend the Orphan Well Association $235 million to accelerate reclamation work, with interest on the loan covered by a $30-million federal grant.

However, the environmental liability problem has continued to mushroom.

Association chief executive Lars De Pauw said the provincial and federal financial assistance has made a difference, allowing the group to decommission about 1,200 wells between May 2017 and September 2019.

“Unfortunately, we had a lot more coming in from other insolvencies,” he said. “Companies are having a hard time out there. There are still insolvencies happening.”

There are also an estimated 93,000 inactive wells in Alberta, meaning they haven’t produced oil or natural gas for six to 12 months. According to the Alberta Energy Regulator, this count has increased by about 11,000 in the past five years due to “company insolvencies, low commodity prices and a maturing producing basin.”

What can be done to tackle this issue?

Photo by Supplied / Postmedia/File

The Petroleum Services Association of Canada (PSAC) has proposed provincial and federal governments support the creation of a Resource Environmental Tax Credit, structured as a flow-through share program, to help producers raise funds to close inactive wells, while offering tax benefits to investors.

It estimates the program could raise about $700 million over three years and lead to 7,000 well sites being closed, while creating 5,750 direct and indirect jobs.

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“This would bring in investment money from outside,” said PSAC chief executive Gary Mar.

“The economic activity that will be created will more than offset whatever your foregone (tax) revenues are in this, because you’re keeping these companies in business.”

Proponents say it would generate employment in the sector during a difficult period and also protect the capacity of the sector to do more remediation and industry work when activity levels improve.

PSAC projects the number of wells drilled in Western Canada will fall by 10 per cent next year.

“A lot of these people in the oilpatch on the services side have effectively thrown in the towel … and this work has to be done,” said Ian Thomson, president of Blade Energy Services, which provides well-decommissioning services.

“Having skilled personnel in place is of the utmost importance, and having steady work is the key to that.”

The idea of Ottawa putting money towards cleaning up orphan wells also has the support of some environmentalists, although they want to see more details on how the flow-through shares would work.

“It shouldn’t be done in a way that ends up being a subsidy for oil and gas,” said Keith Stewart, senior energy strategist for Greenpeace Canada.

The bottom line is Alberta has a growing problem with orphan wells. The federal government is looking to build bridges in Western Canada.

Finding common ground on issues such as cleaning up the environment and creating jobs during tough economic times seems like a good place for both governments to start working together.

Chris Varcoe is a Calgary Herald columnist.