The Current

Who should pay to clean up abandoned oil wells? Farmers say they're left with someone else's mess

The Supreme Court case on abandoned oil wells in Alberta pits provincial environmental laws against federal bankruptcy laws. Industry watchers say billions of dollars are at stake.
A case before the Supreme court could decide who is responsible for oil wells that are abandoned by bankrupt operators. (CBC)
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When an oil company folds and abandons a well, who is responsible for the cleanup?

Almost 150,000 of these so-called "orphan wells" are scattered across Alberta. As the problem gets worse, many farmers say they've been left to clean up someone else's mess.

"A lot of these wells, the company has gone bankrupt and they've just walked away," said Daryl Bennett, a surface rights advocate who farms in Taber, Alta.

"Some farmers are having food safety problems," he added, asking "is it safe to farm around these sites?"

The question isn't just a vexing one for farmers. A case before the Supreme Court has caught the interest of environmentalists, oil companies and the government, as well as banks and creditors.

An orphan well in Alberta, before being reclaimed. The group that reclaims wells, the Orphan Well Association, has a large backlog. (Orphan Well Association)

The Redwater case

Redwater Energy went bankrupt in 2015; it had 80 oil and gas wells, most of which were inactive. The main lender, ATB Financial, and the receiver wanted to sell the company's 20 good wells, and use the proceeds to pay off debtors.

The Alberta Energy Regulator (AER) stepped in, insisting that any money raised be spent to clean up these abandoned wells.

When the receiver refused, the case went to court — twice. The receiver won both the first hearing and the appeal, but this week the fight reached the Supreme Court.

The case has the potential to set a precedent across the entire country, deciding who cleans up the mess when companies go under.

After oil prices slumped in recent years, there was a spike in bankruptcies. (Larry MacDougal/Canadian Press)

Clean-up can take decades

There is an organization already in place to deal with the cleanup, said CBC reporter Kyle Bakx. It's called the Orphan Well Association.

Oil and gas companies fund the group through levies, but when oil prices slumped a few years ago, there was a spike in bankruptcies.

"With that came a spike in abandoned wells," Bakx said, "and so the inventory for the Orphan Well Association has tripled in the last few years."

Some of these wells haven't produced oil or gas in decades, he said.

"Having them sit around can be dangerous. Those wells need to be regularly observed, maintained and eventually cleaned up or they can be toxic."

The cleanup cost can vary, he said, pointing to a case in southern Alberta where efforts to reclaim a well have been going on for 12 years.

"They've been trying different techniques and nothing seems to be working," he said. "It's still leaking oil."

With such a backlog, many wells can sit abandoned for decades.

"It's not as easy as just sending out a crew and in a day it's done," he said.

An abandoned oil well near Three Hills, Alta. In some cases farmers are being chased with the unpaid bills of oil companies. (Tracy Johnson/CBC)

Farmers can't refuse 

The impact on farmers goes beyond contaminated land, said Bennett.

Landowners left with abandoned wells can be refused mortgages, or find themselves facing demands for payment on the well operator's bills, he said.

They can become tied up in the bankruptcy proceedings, and face legal costs in trying to secure any money owed to them.

When an oil company wants to drill on your land, farmers cannot refuse.

"You can't stop them," he said.

"They have the right to get a right of entry order and you really have no say in the matter, on who the company is, or when they're coming on."

Bennett wants companies to be required to put money aside when times are good, which can be used later if it enters bankruptcy. 

"If you're going to drill a new well, you might have to put up a bond of $250,000 dollars that sits there, that's safe from the banks, and it will remain attached to that well until reclamation occurs."

Alberta's premier says as much as possible has to be collected from bankrupt companies to cleanup abandoned wells. 0:45

Banks 'need protection'

Banks should be protected because they are the ones taking the risk, said Sarah Hawco, president of the 180 Group, a business consulting firm in Calgary.

Hawco is an insolvency specialist. She said that legislation is designed to create workable solutions for all the stakeholders involved, giving no priority to any single one.

She argued that without the risks that banks take, there would be no catalyst for economic development.

"The banks need to be protected because they took the initial risk, and made the loan to fund the economy, to fund the operations," she said.

Bennett disagreed, arguing that the farmers left with abandoned wells have little say — but bear the long-term consequences.

"There is something sticking out of the ground that it is unsafe, that the farmer has to farm around," he said.

"It may be there for another 20 or 30 years."

"It's not like both sides can terminate the problem. There still is a problem for the landowner."

Listen to the full conversation at the top of this page, where you can also share this article across email, Facebook, Twitter and other platforms.


This segment was produced by The Current's Ines Colabrese and Kori Sidaway. 

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