Alberta attempts to tackle its abandoned well problem
As province's orphan well problems worsen, it tries again to fix the problem
Over the next month, the government of Alberta and the Alberta Energy Regulator (AER) are going to take another crack at solving the province's orphan well problem.
Beginning Wednesday night, industry, landowners and other stakeholders will meet to try improve a system that has seen a sharp increase in the number of defunct wells in Alberta.
It's not an easy problem to solve, but it is an important one.
- Alberta Energy Regulator tries to stem tide of orphan wells
- $30M in federal budget for orphan wells welcomed by premier
Over the past two years, as the energy industry suffered through a profound downturn, Alberta's abandoned and orphaned well problem has been thrust into the spotlight.
Lexin and Redwater
The number of orphaned wells skyrocketed from 162 in 2014, to 1,411 in April. There are more than 80,000 inactive wells in the province, and more than 65,000 wells that have been plugged but need to be dismantled and reclaimed.
Recently, the Alberta Energy Regulator was on the losing side of the Redwater Energy court case, which ruled that bankrupt energy companies can have their operating wells sold to pay back creditors, leaving the defunct wells behind for the regulator to clean up.
- Bankrupt energy firms add to Alberta's abandoned well problems
- Report calls for Alberta to put a time limit on inactive oil and gas wells
The regulator is also dealing with the suspension of the now defunct Lexin Resources, which itself had more than a thousand wells that are currently the responsibility of the Orphan Well Association — an organization supported by industry dollars that manages wells left behind by bankrupt companies.
Alberta manages its oil and gas wells through a system that attempts to calculate the value of a well, based on how much it produces and the cost of reclaiming it at the end of its life. Based on those calculations, each company is then assigned a ratio, called the licensee liability ratio, or LLR. If a company's LLR falls below one, it has to pay a deposit to the regulator.
It's a system that environmental groups describe as lacking because there is too little incentive for companies to clean up old wells. The groups are calling for deposits before wells are drilled and tight timeline on reclamation after a well becomes inactive.
For its part, industry has found the LLR system onerous in recent years, as the production value of its wells has fallen, many companies have had to pay substantial deposits to the AER in a time when they are struggling to survive.
Some landowners are frustrated with defunct wells sitting on their land for decades, while others are happy to collect the annual lease payments on those inactive wells.
In a letter to participants, the Alberta government said that it wants to improve the system to:
- Fully reflect full life-cycle resource development.
- Be financially sustainable over the long-term.
- Require environmental outcomes be met.
The meetings begin this afternoon in Nisku and finish on June 14th in Calgary.