Confronted daily with news about hard times in the oilpatch, the impact of the federal carbon tax and the political battles over adding pipeline capacity to move western oil, it's easy to forget about a hugely expensive legacy the energy industry is creating.

A report last year by provincial auditor Judy Ferguson noted that the number of inactive oil and gas wells in Saskatchewan had ballooned by 90 per cent between 2005 and 2017. The Ministry of Energy and Resources (MER) pegged the future cost of abandonment (capping) and reclamation at $4 billion.

Even though the ministry points to several programs it says will ensure the energy industry picks up the tab — annual levies on the industry toward an Oil and Gas Orphan Fund and the government's Licensee Liability Rating (LLR) program, which requires a security deposit from higher-risk licensees — there's little reason for confidence.

Tens of thousands of wells

Saskatchewan currently has more than 30,000 inactive oil and gas wells scattered around the province — MER provided a figure of 35,868 wells that includes oil and gas, water source, storage cavern and potash production — as well as 31,057 abandoned and 609 orphan sites requiring work.

Of the orphan sites — wells whose owners are unknown, insolvent, or no longer operating the province — 240 need to be capped and have the sites remediated to a pre-drilling standard. The other 369 orphan wells have been abandoned and the site remediated, but need more growing seasons to ensure that the reclamation was successful.

Saskatchewan faces a looming problem involving the oil and gas industry that has been its bread and butter for decades. - Sarath Peiris

Based on former premier Brad Wall's 2016 request to the federal government for $156 million to clean up 1,000 wells, the capping and restoration of these orphan wells could cost as much as $37 million.

According to the orphan fund's 2017-18 annual report, it had about $11 million as of March 31, 2018. The LLR program also held $104 million in security deposits paid by operators whose asset value falls below their cleanup liability.

In addressing the long-term cleanup cost projection of $4 billion, MER estimates the current value of oil and gas wells and facilities in Saskatchewan at $14.5 billion.

It may seem like a lot of money. But as the orphan fund annual report notes, while the number of risky licensees in the LLR has held steady at around 200 since 2007, the number of companies with a good rating has steadily declined to about 140 from nearly 300.

The Alberta Liabilities Disclosure Project has found data that show the abandonment and reclamation of 300,000 active and inactive well sites could cost as much as $70 billion in that province. (Todd Korol/Reuters)

Coupled with the industry trend toward larger companies off-loading wells at pennies on the dollar to smaller operators with less financial stability, the potential for trouble is huge. Picking up the tab would fall to all industry players required to pay ever-rising mandatory levies to the orphan fund, and to taxpayers who will serve as the backstop if things go further south.

Although Alberta's energy regulator had pegged the potential future liability for cleanup of oil and gas wells at less than $20 billion, the Alberta Liabilities Disclosure Project, an association of landowners, researchers and environmentalists, has found data that show the abandonment and reclamation of 300,000 active and inactive well sites could cost as much as $70 billion.

Regulatory framework is lax

While Saskatchewan's $4 billion estimate could be accurate because its system is somewhat different from Alberta's, we shouldn't be complacent.

At the bottom of it all is the weak regulatory approach taken by western provinces that place no restrictions at all on how long companies are allowed to let oil and gas wells remain inactive.

While American states such as Texas and North Dakota have stringent rules that require operators to either restart inactive wells within 12 months or cap and reclaim the sites, Saskatchewan, Alberta and British Columbia have only progressed so far as talking about developing such requirements.

Asked how many wells in Saskatchewan have been inactive for five years or more, MER responded with a statement that said the "data isn't currently available, as wells can be reactivated at any time." The reality is only a minuscule number of licensees ever reactivate inactive wells.

Although MER says it is considering imposing a time limit before abandonment and remediation is required, it said "there's no evidence that the length of time that a well is inactive is an indicator of environmental or safety risk."

This despite concerns in the auditor's report that, "Inactive wells may leak methane and may increase risk of contamination of surface and groundwater," and that contaminated sites could threaten wildlife habitat and interfere with agricultural activity. The auditor also pointed to the potential of flooding or soil erosion from contaminated sites could release chemicals into the environment.

Despite MER assurances, Saskatchewan faces a looming problem involving the oil and gas industry that has been its bread and butter for decades. Addressing it must begin requiring the industry to abandon and reclaim inactive well sites within 12 months.

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