Delays, confusion and little work as Alberta government disburses $1B to clean up old wells
Alberta government overwhelmed with response to well cleanup program, energy industry leaders say
A wildly popular government stimulus program aimed at providing work for thousands of oil and gas workers — and keeping oilfield service companies afloat — is being criticized for not approving funds fast enough, being too confusing, and having the unintended consequence of halting cleanup activity in the interim.
The federal government announced the $1.7 billion program in April and handed over responsibility of disbursing the funds to the British Columbia, Alberta and Saskatchewan governments. There are tens of thousands of inactive oil and gas wells across western Canada and the stimulus spending should help reduce the environmental risk associated with having so many wells sitting idle.
The Alberta government received the bulk of the money and has initially offered to fund the full amount to clean up a well, up to $30,000.
With government money up for grabs while oilpatch spending has been sparse, industry reaction to the program has been substantial. When the first phase of Alberta's program launched on May 1, Scott Darling said he had seven people working on submitting applications, including himself.
"It was confusing and frustrating at putting stuff in but, you just say, this is people's livelihoods, we got to keep at it," said Darling, president of Calgary-based Performance Energy Services and Production, about the application process.
"So we stayed up all night and put them in, and then right through the weekend and then through the next week as well."
In total, he's submitted about 2,800 applications and, to this point, only received four approvals and 126 rejections.
Reduced spending from companies
As industry players compete for the government funding, oil and gas producers aren't spending any of their own money to clean up wells. As a result, reclamation work has dried up completely, which is the opposite of what the stimulus program was meant to achieve.
"It froze the industry, especially the abandonment industry. You can't blame [oil and gas producers] when they want to wait and see if they can get maybe even just a piece of this," said Darling. "So it just put a stop, a complete end to it."
Darling cut his staff from about 100 employees down to about 60. On any given day, roughly 20 are actually working in the field.
"It's been incredible, especially the layoffs again. You know you're laying off really good people now and you're hoping that they'll still be around at the end of this, when we do start getting back to work," he said.
So far, the Alberta government said it has approved about $64 million in applications for its $1 billion well clean up program.
"It's been a little slow getting from application to award," said Kevin Neveu, CEO of Precision Drilling, during an investor conference event earlier this week.
The government has been overwhelmed by the response from industry, said Neveu, as everyone from surface remediation businesses, service rig companies, and fencing suppliers are trying to access the program.
"I think they expected this to be big, but had no idea how many applications would come in. And that seems to be bogging down the award process," he said.
Precision Drilling has only received a few approvals so far, said Neveu, although he is confident the company will eventually get its share of the funding — and he still thinks the programs in western Canada will have a meaningful financial impact on the industry.
Alberta's program may not provide an immediate boost in activity for the oilfield service sector because when an application is approved, the company has until the end of 2022 to complete the work.
In addition, those in the industry say there are delays when different applications for the same well are processed at different times. For instance, a company will receive approval to clean up the wellhead and the land, but the well must first be remediated below the surface. If the subsurface application has been approved, the other work has to wait.
'Delays and challenges'
"Government contracts are very different than how industry does contracts and so there have been a lot of delays and challenges," said Elizabeth Aquin, the interim CEO of the Petroleum Services Association of Canada.
"Companies actually are frustrated because they are only now beginning to get the contracts."
Industry officials want Alberta to increase the speed of awarding funding and better communication with companies about the program.
WATCH | PSAC on the need for Alberta's government to organize approvals for well closures:
For instance, there are questions about who pays for cost overruns above the $30,000 limit and whether companies who are not approved for the first and second phase of Alberta's program need to resubmit applications for subsequent phases.
Sonya Savage, Alberta's energy minister, was not available for an interview. However, her spokesperson said improvements to the program are being made.
"Phase 1 of the program was intended on delivering grant funding to some of the most simple and straightforward applications," Kavi Bal said via email.
"Decisions on future rounds are currently being finalized based on industry and stakeholder feedback. Alberta Energy is looking at different ways to maximize the flow of grant funding through a fair process."
Bal said any cost overruns on a cleanup project are the responsibility of the oil and gas producer, not the government.