On the cusp of a major fracking boom, B.C.’s Oil and Gas Commission is already struggling to keep up with the ballooning cost of cleaning up inactive and, at times, contaminated sites that have grown by 48 per cent in the last two years

Nearly 400 kilometres north of Fort St. John is a large, leaking fracking pond owned by Ranch Energy Corporation, a Calgary-based company that went into receivership last year leaving 700 gas wells in B.C. and a sea of debt.

The storage pond is filled with 113,000 cubic metres of sludge and water that may be contaminating soil and groundwater through a documented leak in its outer lining, according to the B.C. Oil and Gas Commission.

Twenty months ago, the commission issued an order to Predator Oil BC Ltd., the company that sold Ranch the wells, to empty the pond and test for contamination.

But nothing has been done. Ranch’s receiver, Ernst & Young, says it’s an expense the estate cannot afford.

The story of Ranch — pieced together by The Narwhal from a review of receivership documents and B.C. Oil and Gas Commission documents — highlights some of the mounting financial and environmental problems created by B.C.’s fracking industry.

And that’s even before a fracking blitz gets underway in the province’s Peace region, already covered by thousands of wells, to supply gas for the $40 billion LNG Canada project that will ship liquefied natural gas overseas.

Fracking, or hydraulic fracturing, involves the injection of large amounts of water and proprietary chemicals into the ground to release gas.

Three oil and gas companies went belly-up last year

When companies like Ranch become insolvent, the provincial government is left holding much of the substantial clean-up bill for the industry equivalent of a dine and dash.

Ranch was just one of three companies operating in B.C. that went belly-up last year, leaving a forecast $12.3 million deficit in the B.C. Oil and Gas Commission’s orphan site reclamation fund, according to the commission’s annual service plan.

Demands on the reclamation fund will “continue to impact the Commission’s ability to balance its budget,” the plan states.

It notes that 300 to 500 Ranch wells could still be designated as orphans, leaving the commission responsible for additional clean-up costs it estimates at $40 million to $90 million — but with less than $14 million budgeted for the orphan fund over the next year.

“Given the uncertainty about the timing of these orphan designations, there is no provision built into the financial plan,” the commission duly noted.

Ranch also owes $1.88 million to the B.C. ministry of finance, $478,000 to the B.C. Transportation Financing Authority, $93,000 to BC Hydro, $7,500 in carbon taxes, and almost $500,000 more to the government for various unpaid bills, receivership documents show. (B.C.’s finance ministry said it could not disclose the nature of the outstanding bills due to privacy concerns.)

Redwater ruling only helpful in certain circumstances

Ecojustice lawyer Barry Robinson told The Narwhal that the recent federal Supreme Court Redwater ruling — which found that insolvent or bankrupt companies must fulfil environmental obligations before paying back creditors — is only of limited assistance when it comes to cleaning up inactive wells and associated infrastructure such as Ranch’s fracking pond.

“This doesn’t resolve the problem,” said Robinson, who has spent almost a decade working on issues related to inactive oil and gas wells. “This doesn’t let the provinces wash their hands and say ‘well, it’s all good now.’ ”

“The problem is that often by the time the company’s gone bankrupt there are pretty empty shelves and there’s not a lot of money in there,” said Robinson.

“Often, even if the environmental order comes first there’s not enough money to meet it, to carry out the work.”

John Werring, a senior scientist and policy analyst with the David Suzuki Foundation who trekked more than 10,000 kilometres in B.C. to document fugitive methane emissions from gas wells, said potential contamination of groundwater and impacts on wildlife and vegetation are some of the main concerns associated with leaking fracking ponds.

He pointed to his field work in the Montney formation in B.C.’s Peace region, one of the largest shale gas resources in the world, where he saw other fracking ponds that appeared to be leaking.

“In particular, animals like moose and caribou are attracted to what they call mineral licks. They would be around these areas where we saw leaks,” Werring said.

“The smell was terrible. We took samples of the water and found there were high volatile organic compounds. Downstream of the slope where these ponds were leaking all the vegetation was dead.”

Werring pointed out there is “absolutely no information” on the effects of leaking frackwater ponds on groundwater.

Oil and gas commission left in a pickle when companies become insolvent

The paper trail for the leaking storage pond offers a revealing glimpse of some of the issues faced by B.C.’s oil and gas commission as it struggles to pay for massive clean-up costs related to the fracking industry and deal with urgent safety and environmental issues left behind by insolvent companies.

According to Ranch’s receivership documents, Ernst & Young spent $580,000 last year to fix 23 “regulatory deficiencies” and issues of non-compliance in B.C.

Those included what the receiver described as a “major environmental and safety issue” related to a leak of an undisclosed substance from a pressure safety valve and spool piece on a cooler, the subject of an apparent July 30, 2018 order issued by the oil and gas commission.

“The issue was significant and needed to be addressed immediately,” documents from the receiver note.

Ernst & Young committed a further $270,000 to “rectify regulatory deficiencies,” most of which it said arose prior to Ranch’s insolvency in July 2017.

But the receiver balked at picking up the unknown tab to comply with the oil and gas commission’s order to remedy the leaking fracking pond, declining a suggestion from the commission that it cover the cost of trucking out contaminated liquids from the fracking storage pond.

It determined that “the cost to do so would be significant and constitutes an expense that the estate cannot afford.”

The commission’s order to deal with the fracking pond was issued on July 14, 2017, when the regulatory agency noted the pond’s outer liner was leaking and leaked liquid was being pumped back in.

“Emptying all materials from the Site will facilitate inspection of the leak for contamination of soils and the environment,” said the order, issued to Predator.

The commission ordered the removal of “all the liquid, sludge and waste residue from the frac water storage site,” to be disposed of at approved facilities, giving until October 31 of that year to comply.

The commission also ordered the company to submit an environmental site investigation report by August 2018 “to determine the presence and extent of potential contamination in the soil and groundwater at the Site.”

The company was given a further six weeks to “ensure that any contaminated soils, if present at the Site, are removed or otherwise remediated…”

Commission asks receivers to clean up leaking pond

To complicate matters, Predator holds the permits for the Ranch well sites because Ranch was not qualified to hold the permits under B.C.’s regulatory regime. And given Ranch’s insolvency, “there is no real likelihood of the permits ever being transferred from Predator BC to Ranch,” according to an October report from Ernst & Young.

So Predator is still listed on the B.C. Oil and Gas Commission’s website as the permit holder for Ranch operations, including for the leaking fracking pond.

The Oil and Gas Commission did not answer a question from The Narwhal, sent last Friday, asking if all nine orders to Predator listed on the commission’s website, including orders related to safety issues, refer to wells and infrastructure that were owned by Ranch.

On September 27, 2018, the oil and gas commission asked Ernst & Young to implement plans to address problems at the fracking pond, giving the receiver only two weeks to respond, according to receivership documents.

Ernst & Young advanced a proposal to deal with the frack pond issues in what it called “an economically feasible manner, given constraints associated with winter conditions.”

The commission then suggested “that the Receiver should truck the liquids out of the Frac Pond…”

At that point, Ernst & Young replied that while the estate could not afford that expense it was willing to continue working with the oil and gas commission to address the issue.

‘Who’s going to pay for all of this?’

The B.C. Oil and Gas Commission declined a request from The Narwhal for an interview, asking for questions to be emailed.

In response to those questions, the commission said the Redwater ruling gives it and other regulators “another tool to ensure companies are held responsible for cleaning up and restoring their sites.”

But B.C. budget and Ranch receivership documents suggest the deficit in the orphan site reclamation fund could climb much higher, further impeding the commission’s ability to balance its budget, if Ranch wells are designated as orphans or other companies become insolvent.

Orphan wells are designated by B.C.’s oil and gas commission when a permittee or former permit holder cannot be identified or is insolvent.

“Suddenly there is no viable entity that has responsibility for that well,” Werring explained.

An abandoned fracked gas well, on the other hand, is owned by a company that holds the lease to the land and has pumped out all the gas.

“When the well is finished pumping and there’s nothing left to come out of it, and the company wants to close that well, there’s a procedure called abandonment where they have to go out and remove all the surface infrastructure,” Werring said.

“They cut the well head off, they fill the well with cement, they cap it and they bury it a metre underground and then they scarify all the earth around it and then replant it to make it come back to a semi-natural state.”

Werring’s research showed that less than six per cent of all abandoned wells in B.C. are on sites that have been reclaimed and replanted.

“Most of the wells that are abandoned still have infrastructure on site — well heads, buildings, things like that that need to be dealt with,” Werring said. “There are a lot of these wells out there that are not properly abandoned. So there’s a huge liability there that now falls on the Crown.”

“A lot of these wells are dangerous. They could deteriorate, fall apart, cause major environmental problems. Unless somebody fixes them it could be an ongoing liability not just from a financial perspective but from an environmental perspective. The question comes down to, ‘Who’s going to pay for all of this?’ “

B.C. orphan well sites increase by 48 per cent in last two years

According to an affidavit from James O’Hanley, the oil and gas commission’s vice-president of applications, filed as part of Ranch’s receivership proceedings, B.C. has 326 designated orphan well sites, of which 310 require further restoration.

That number has climbed from March 2017, when there were just 220 designated orphan sites, according to the B.C. Oil and Gas Commission’s service plan.

Restoration costs vary from site to site but the average cost to abandon and reclaim a site is approximately $370,000, Hanley said in his affidavit.

At that price, it would cost $114.7 million to reclaim the 310 well sites already designated as orphans.

But only $13.9 million has been earmarked for the next fiscal year to carry out decommissioning and restoration activities on orphan sites, according to the oil and gas commission’s budget documents.

And Ranch’s 300 to 500 potential orphan wells are not included in the designated orphan sites because the commission is waiting to see how many of the company’s 700 B.C. wells will be sold by the receiver, the commission said.

At the average clean-up cost cited by Hanley, Ranch’s potential orphan sites could add another $111 million to $185 million to reclamation costs — considerably higher than the figure cited by the commission in its service plan.

“The orphan well fund is a drop in the bucket compared to the liability out there and what needs to be fixed,” Werring pointed out.

Pace of orphan site restorations very slow

The oil and gas commission’s service plan also reveals the glacial pace of orphan site restorations in B.C. even as the number of sites rapidly increases.

In 2017-18, the commission restored six orphan well sites. In 2018-19, it forecasts that it will restore just three, noting that other sites have work underway.

The number of certified restorations is expected to increase over the next few years, with a target of 25 sites restored in 2021-22.

The oil and gas commission confirmed in an email that there have been no designations of orphan wells due to Ranch’s insolvency as of yet, because the company’s receiver has “undertaken a process to facilitate sales of Ranch’s assets.”

“The Commission will continue to regulate all assets owned by the company and take steps as required to protect public safety and the environment,” it said.

The commission also pointed out that it is changing how funds are collected for the orphan site reclamation fund. In the past, the commission has collected funds from industry permit holders for the orphan fund to deal with the costs of abandonment, remediation and reclamation of sites.

The system differs from Alberta’s, where those costs are managed by the Orphan Well Association, not by the province’s oil and gas regulator.

“We are continuing our work to enhance our comprehensive liability management plan to address ongoing environmental and financial liabilities associated with oil and gas sites, including the timely restoration of orphan oil and gas sites in B.C.,” the commission said in an email.

Starting this spring, the orphan tax will be eliminated and replaced by a new liability levy that will be phased in over three years.

The levy will provide “the entire estimated $15 million per year required to sustain the orphan fund” by 2021-22, the commission said.

But Werring said the liability levy won’t fix the problem any more than the orphan fund did, due to the sheer volume of the wells that needs to be managed.

“It’s a massive liability all around, it doesn’t matter how you look at it,” he said. “Somebody at the end has to pay for this.”

Fracking pond order still outstanding

There is no record that the fracking pond leak has been stopped or the site assessed for soil and groundwater contamination and remediated.

Asked if the order regarding the leaking fracking pond has been followed, the oil and gas commission responded only that it is engaged in the receivership proceedings of Ranch Energy and that a sales process — which will result in some assets being purchased by another party — is not complete.

“The Commission will continue to review any potential sale to ensure attention is given to the obligations for the assets, as well as minimize risk to public safety, the environment, and orphan fund,” it wrote.

“This includes existing obligations for the storage of frac waters. The Commission continues to monitor conditions on the ground to ensure the protection of public safety and the environment.”

Asked about estimated clean-up costs for Ranch’s fracking pond, the commission said the bill for decommissioning the storage pond will vary “depending on the method used to dispose of waters.”

“If the Commission is required to take action to complete any works, including actions on any of the assets to protect public safety and the environment, cost estimates will be gathered and reviewed prior to executing any required works.”

Werring pointed out that inactive oil and gas wells and fracking storage ponds operate on Crown land, with permits from the province.

“Somebody went bankrupt and there’s an environmental liability out there. Who’s going to pay for it? In the end it will probably be the taxpayers.”

Fracking operations near Farmington. B.C. Photo: Garth Lenz / The Narwhal