Federal funding will create jobs during the coronavirus crisis and help clean up environmental liabilities, but puts taxpayers on the hook for costs that were supposed to be paid by the oil and gas industry

Calling orphan and inactive wells an issue that has been “festering for years,” Prime Minister Justin Trudeau announced a federal investment of $1.7 billion into the cleanup of old oil and gas wells in Alberta, Saskatchewan and B.C. on Friday.

He estimated the cash infusion would create 5,200 jobs in Alberta alone, getting Albertans back to work “cleaning up their province.”

The program was developed in partnership with the Alberta government and municipalities, Trudeau said, adding the funding would help companies avoid bankruptcy.

Orphan and inactive wells, he said, can be “detrimental not only to our environment, but to people’s health.”

He noted that farmers and landowners have long struggled to grow crops in areas where wells have contaminated the soil.

“Just because we’re in a health crisis doesn’t mean we can abandon the environmental crisis,” he added.

While more money for cleanup is viewed as a win for landowners and the environment, it also raises questions about whether the “polluter pays” principle is being flouted. It was always the intention that companies that profited from wells would pay for their eventual cleanup — not the taxpayer.

As orphan wells become something of a go-to for politicians looking for ways to infuse cash into a struggling economy, we wanted to take a step back and look at what got us here. Hot tip: it wasn’t the pandemic.

What is an orphan well anyway?

An orphan well is one that no longer has a legal or financial owner.

Most often, an oil and gas company that has gone bankrupt has left behind a long list of wells that were never properly decommissioned or cleaned up — and someone has to pay for that. In the meantime, the well, or pipeline or other related facility, becomes an “orphan.”

But even without an owner, it still needs to be properly plugged and reclaimed, according to provincial rules.

Inactive, orphan, reclaimed, abandoned — what does it all mean?

An inactive well is any oil or gas well that is no longer producing but has not yet been permanently sealed off — a process with a terribly confusing name: abandoning.

In what is a rather significant terminology fail, an “abandoned well” is not the same as an “orphan well.”

In fact, “abandoning” a well or pipeline has literally nothing to do with whether it’s an orphan or not.

An “abandoned well” is one that has been properly plugged and is no longer producing oil or gas. Remember, an orphan well is one whose “parent” company has walked away, leaving it to others to clean it up.

An orphan well could be abandoned, but not necessarily, to the confusion of pretty much everyone (apparently including Trudeau, in Friday’s press conference). So don’t be surprised if you see the term misused all the time, whether by journalists, politicians or anyone on social media with an opinion.

You can think of “abandoning” as essentially sealing a well to prevent it from releasing toxic gases or other substances. A well is often hundreds of metres deep, so a heavy concrete plug needs to be put in place to fully cap it off.

Then there’s the chance a well has leaked and contaminated the ground around it. Cleaning that up is called remediation.

But that’s not where the work stops. As part of drilling and operating, the footprint of a well can be significant. Forest may have been cut down or agricultural land dug up, soil has often been compacted and structures have been put in place on the surface.

All of that needs to be put back to something resembling the way it was before. That’s known as reclamation. And once that’s done, a reclamation certificate needs to be applied for.

Then, once the abandoning, the remediation, the reclamation and the certifying is done, the site is officially “closed.”

It takes years to fully close a well — and there are no required timelines for when any of the work has to be completed.

How many orphan wells are there in Alberta?

As of the end of March, Alberta’s Orphan Well Association reported its inventory included 2,983 orphan wells that need to be abandoned, 3,284 orphan well sites that need to be reclaimed and another 935 orphan well sites that have had reclamation work done but are not yet certified.

These numbers have increased substantially in recent years. In 2013, the Orphan Well Association had just 387 orphan sites in its inventory of sites that needed to be reclaimed. That’s a 750 per cent increase in seven years.

But a lot of the concern about orphan wells comes not just from the current inventory, but from the potential for thousands more to be added to the list.

According to the Government of Alberta, there are an estimated 343,000 oil and gas wells in the province. Approximately half of those are no longer producing, some of which have been properly abandoned, while others are sitting in a state of temporary suspension.

Either way, once a well is no longer active, it’s no longer making the company any money.

In fact, it does the opposite. Oil and gas companies have to pay costs associated with sites they’re no longer using.

For example, they’re supposed to pay rent to the landowner where the well is located, as well as taxes to the local government. (Hint: it has been more and more common in recent years that companies don’t pay landowners or their tax bills)

All of this means an inactive well can be a costly burden to a company, especially one that’s already struggling financially.

This is where the concern comes in — as oil prices slump and Alberta is poised for major economic hurdles, will more and more companies walk away from all those inactive wells, leaving orphans behind?

Previous reporting from The Narwhal revealed the Alberta Energy Regulator has privately projected that the number of inactive wells in Alberta could double by 2030, to 180,000.

Is the orphan well crisis unique to Alberta?

No.

The problem has been intensifying in oil and gas-producing jurisdictions across North America, from Alberta to Wyoming to Texas.

The Narwhal reported earlier this year that B.C., not traditionally thought of as a major player in the world of oil and gas drilling, was also anticipating a massive uptick in orphan wells as a result of an increase in fracking (hydraulic fracturing involves blasting huge quantities of freshwater, mixed with chemicals, underground to release oil and gas trapped in rock).

The number of orphan wells in B.C., for example, has increased by 770 per cent since 2016. The latest stats indicate B.C. has 346 orphan wells. Saskatchewan also has hundreds of orphan wells in its inventory.

A report released in 2018 by Saskatchewan’s provincial auditor noted the number of inactive wells in the province increased by nearly 90 per cent between 2005 and 2017, to about 30,000.

What is the Orphan Well Association we keep hearing about?

Alberta’s Orphan Well Association is a not-for-profit organization that is theoretically — aside from government loans and grants — funded entirely by industry.

It takes over responsibility for cleanup when no company is legally or financially responsible for a well (or related pipeline or facility).

According to the association’s most recent annual report, it spent nearly $90 million on cleaning up and sealing orphan wells, pipelines and related facilities in the fiscal year that ended in 2019 — almost three times the amount spent the previous year.

The Orphan Well Association is overseen by a board of directors made up of industry representatives from the Canadian Association of Petroleum Producers, Cenovus, Canadian Natural Resources Limited (CNRL), and others, as well as one government official and one representative of the Alberta Energy Regulator.

Who’s supposed to pay to clean up orphaned wells?

The short answer: industry.

The idea is that all companies pay into the orphan well fund, to make a “kitty” of sorts available for when companies go bankrupt, or otherwise walk away from their liabilities.

The idea is that “good neighbours” in the industry fund the cleanup for insolvent companies, according to the Orphan Well Association’s chair, Brad Herald, who is also a member of the executive of the Canadian Association of Petroleum Producers.

In theory, this fund should be enough money to fund orphan well cleanup in the province.

In reality, it’s not.

Has the Orphan Well Association received government money before?

Just last month the Alberta government announced a $100 million loan to the Orphan Well Association.

At the time, COVID-19 was only just beginning to make waves in North America, and Alberta Premier Jason Kenney was increasingly embittered about the trends he was seeing in the oil and gas industry.

“It frustrates me that I think we’re doing everything that we reasonably can to get this economy moving again,” he told reporters.

“And yet we’re being sideswiped by global events that are beyond our control,” he added, referring to the pandemic and the global supply glut.

Kenney’s loan to the Orphan Well Association was not the first time public funds have been offered up.

Since 2009, the Alberta government has given the Orphan Well Association more than $30 million in grants, and the province loaned the organization $235 million in 2017.

In 2017, the federal government also allocated $30 million to the cleanup of Alberta’s orphan wells — much of this money was used to cover the interest on the $235 million loan from the provincial government.

The payback of those loans hinges on the ability of the association to get on top of its inventory. One day, it hopes to pay back loans with the money it brings in through industry levies.

It was not clear from the Prime Minister’s announcement exactly how the $1.7 billion to clean up orphan and inactive wells would be distributed, and how much would go toward the Orphan Well Association.

How much work has actually been done to clean up orphan wells?

In 2018, 93 well sites — of the thousands of orphan well sites in the association’s inventory —were “closed,” meaning they are no longer part of the association’s inventory, they have received a reclamation certificate or equivalent and rent is no longer due to landowners.

According to its most recent annual report, the Orphan Well Association had successfully decommissioned just over 2,000 orphan wells and reclaimed around 800 sites in its 17 years in operation.

How much does it cost to clean up old wells?

The Alberta Energy Regulator estimates it can cost $12,800 to $134,177 to plug a well, and $16,500 to $42,155 to reclaim the site.

As The Narwhal has previously reported, a researcher at the University of Calgary found that actual reclamation costs can easily be 60 per cent higher than the regulator’s estimates.

Others have said the numbers may be far higher — in the hundreds of thousands of dollars.

Could orphan well cleanup follow public health guidelines during the pandemic?

Currently, Alberta’s public health rules restrict gatherings of more than 15 people, encourage physical distancing of two metres and restrict businesses to those considered to be essential services.

There is a long list of “petroleum, natural gas and coal” jobs that are considered to be essential services in Alberta. There’s little doubt that, at least for the time being, reclamation work could continue on orphan wells. “Environmental services for agriculture, mining, oil and gas,” are all currently considered to be essential services by the Government of Alberta.

Minister of Environment and Parks Jason Nixon said at a press conference that it was his government’s goal to “keep people working… in the oil and gas industry where safe and within the requirements the chief medical officer has set out.”

“We believe we can do that on lots of projects,” he added.

Can farmers really not grow crops on fields where there are abandoned or orphan wells?

In his announcement Friday, Trudeau urged Canadians to “think of the farmer who can’t grow anything on his land because of the abandoned well a few steps away from his home.”

Indeed, there are a number of risks, and common complaints, that landowners experience when a well is left to sit on their property for years.

Those include soil contamination, dust, invasive weeds and possible leaks if wells have not yet been properly plugged.

The impact on a farmer’s ability to grow a crop depends on a myriad of factors — the maintenance record of the company operating the well and how much care was taken to not disturb soil during drilling, for example. Some farmers report still being able to farm very close to old wells.

Others aren’t so lucky. As one farmer told The Narwhal last year, an old well site on his property is known locally as “the spot where nothing grows.”

But it’s not just wells that can pose problems for farmers. When The Narwhal visited farmers attempting to grow crops atop pipelines, there were numerous concerns about how the soil compaction and possibility of leaks made crops dramatically less productive when grown atop buried oil and gas infrastructure.

And earlier this year, The Narwhal reported that the Alberta government has also long had internal concerns about the legacy of oil and gas wells — even long after they’ve been reclaimed.

That leaves questions about whether the federal government’s $1.7 billion investment will be able to erase the legacy of the old oil and gas wells dotting the province, where there’s a well for approximately every square kilometre of land.

Like what you’re reading? Sign up for The Narwhal’s free newsletter.