Alberta cracking down on its abandoned oil wells problem
Alberta has been dealing with a surge of abandoned wells since a 2016 court ruling allowed bankruptcy trustees to not take ownership of unprofitable wells and simply dump them on the province to clean up
Risk & Compliance
Technology / IIoT
Oil & Gas
EDMONTON—Alberta’s energy regulator wants to keep bad operators out of the oilpatch to reduce the ballooning number of bankrupt companies who have walked away from unprofitable wells.
“We will be requiring more information at the time a person or a company applies for licence eligibility,” Jim Ellis, head of the Alberta Energy Regulator, said Wednesday. “We’ll have more discretion to deny licence applications where the applicant poses a risk to the public or to the environment.”
Alberta has been dealing with a surge of abandoned wells since a 2016 court ruling allowed a bankruptcy trustee to cut unprofitable wells loose from the tally of company assets. A Queen’s Bench judge and the Alberta Court of Appeal have found that federal bankruptcy law supercedes provincial environmental rules.
That case is now before the Supreme Court.
Since the so-called Redwater decision, more than 1,800 wells representing more than $100 million in liabilities have been abandoned.
The regulator will now examine the histories of companies—as well as their directors—applying for licences to drill a well. Staff will look for evidence of poor regulatory compliance or non-payment of bills such as taxes, royalties and other industry levies.
“Those are indicators of past poor performance and we’re going to have a look to ensure that these are companies that aren’t going to continue that.”
The regulator won’t have the power to examine an applicant’s books, although it does require companies to meet a certain asset-to-liability ratio.
Ellis said the problem lies in federal legislation, as well as a three-year downturn that has left many good-faith operators in dire straits. But he said closing what he called a loophole will help.
“I don’t want to (suggest) that we’ve got a huge issue, that we’ve got hundreds and hundreds of companies doing this.”
He said the changes should reduce the number of failing companies transferring good assets to a new entity and abandoning the bad ones.
“Nobody saw us in a low cycle for three years. Our systems weren’t designed for what we’re seeing right now so we’re having to close these loopholes.”
Ellis said the regulator is considering applications from “a couple” of companies that have directors who have had previous problems.
He also said the regulator could possibly revoke licences retroactively. The agency is working with the government on a requirement for potential drillers to post a bond before moving ahead, he added.
Energy Minister Margaret McCuaig-Boyd said Alberta’s current licence requirements of a provincial address, some insurance and $10,000 no longer suffice.
“While we wait for the Supreme Court to hear a challenge to the Redwater case, we’re here today to tell those operators who would circumvent their responsibilities that enough is enough,” she said.
Abandoned wells are left to the industry-funded Orphan Well Association to be cleaned up.
Brad Herald of the Canadian Association of Petroleum Producers welcomed Wednesday’s announcement.
“It’s time to put an end to companies that can walk away from oil and gas infrastructure without following through on their commitments to clean up sites,” he said.
“This decision will reduce the cost pressures on Alberta’s oil and gas sectors by helping to mitigate risk to the health of the Orphan Well Association.”