Calgary

Alberta looks at different ways of making sure companies clean up old wells

Alberta has nearly 150,000 abandoned and inactive oil and gas wells scattered all over the province. The Alberta Energy Regulator is now warning companies that it can force executives to personally pay for well clean-up if their company goes bankrupt.

The AER warns that it could go after directors and executives to ensure proper reclamation

Tony Bruder stand next to a gas well that has been dormant for 60 years. The Alberta Energy Regulator is looking at ways to ensure more wells aren't abandoned. (Tracy Johnson/CBC)

As Alberta struggles with its abandoned well problem, the province's energy regulator is looking at different ways to ensure the inventory of old wells doesn't get much larger.

Earlier this spring, the Alberta Energy Regulator released a bulletin reminding the directors and most senior executives of energy companies they can be personally responsible for well clean-up if their company goes bankrupt.

The timing of that release probably wasn't a coincidence. There are nearly 150,000 scattered across the province, some that have been dormant for 60 years or more. While the problem has been going on for as long as there has been energy development in Alberta, a recent court decision changed the game.

'How do you punish someone for basically a market downturn?' - Ryan Zahara , Blakes , Cassels & Graydon

In the case of Redwater Energy, the Alberta Court of Queen's Bench ruled that when an energy company goes bankrupt, lenders need to be paid back before wells are cleaned up. With more companies facing insolvency, there's concern on the part of landowners and regulators that the abandoned well problem in Alberta is about to get worse.

The AER bulletin in April was was not a new rule, but rather a well-timed prompt, said David Bish, a partner with law firm Torys.

This paratially disassembled oil well sits on land owned by Dave Smithers. The company that owns it is insolvent. (Tracy Johnson/CBC)

"There's that reminder to everyone that it can still look to directors and officers," said Bish. "And it has a variety of tools that it can deploy to do that."

Directors and officers includes the board of directors of a company, as well as the top executives, such as the chief executive officer and chief financial officer.

The AER has long had the ability to formally name, or blacklist an officer or director of an energy company, under the Oil and Gas Conservation Act, but it has only done so in cases of malfeasance, said Ryan Zahara, a partner with Blakes, Cassels and Graydon in Calgary.

"Certain of the parties they've taken that step against have been viewed as egregious offenders," said Zahara.

Environmental protection orders are an option

The AER also has the ability to use an environmental protection order to impose personal liability.

EPOs have been used in Ontario. In the case of Northstar Aerospace, a court found that directors and officers were personally responsible for the clean-up of a contaminated site because the contamination happened under their watch. Those directors were told to pay $15 million.

The question being asked in the energy industry is whether that will happen here, given that the recent run of insolvent companies is connected to the two-year long drop in energy prices.

"How do you punish someone for basically a market downturn? A specific individual, when they may have been compliant with the rules," said Zahara.