Group cleaning up old oil wells says Alberta government rules inadequate
The industry-funded Orphan Well Association made the criticism in a letter to Alberta's energy regulator
EDMONTON—A group tasked with cleaning up thousands of abandoned energy facilities in Alberta says the province’s rules for ensuring polluters reclaim their wells before selling them off are inadequate.
The industry-funded Orphan Well Association made the criticism in a letter to Alberta’s energy regulator, which is considering a proposed transfer of hundreds of toxic gas wells, pipelines and other facilities from an energy giant to a much smaller company.
“The (association) has seen a dramatic increase in the number of orphan properties over the last several years and we believe part of the issue stems from a historically inadequate assessment of the transfer risks,” says the letter from association head Lars DePauw.
“The (association) believes that the current regulatory system for assessing the overall financial viability of asset transfers is not adequate and needs to be augmented.”
Shell Canada has agreed to sell 284 sour gas wells, 66 facilities and 82 pipelines in the southern Alberta foothills to Pieridae Energy, a Calgary-based company with a market value less than the price of the assets and a stock price under $1.
The Alberta Energy Regulator must rule on the licence transfers at a time when the inventory of energy facilities abandoned by bankrupt companies grows.
The number of wells transferred to the association sits at 3,400. Alberta has budgeted more than $70 million for cleanup by 2023—a more than 50% increase in otherwise belt-tightening times.
“We believe that the applications represent an extraordinary situation in the current Alberta market,” the association said in the Dec. 5 letter.
Pieridae has said it will retain Shell employees who are expert in handling sour gas. It also said the transaction meets provincial rules that stipulate a purchaser’s assets must be at least twice its liabilities before licence transfers are approved.
Regan Boychuk of the Alberta Liabilities Disclosure Project, a group of academics and landowners who have filed concerns about the Pieridae transfer, said those measurements are not credible.
Assets are calculated on the basis of the average industry profit per barrel of oil. That figure—now $37—hasn’t changed since 2010, when oil sold for about $100 a barrel.
That average is supposed to be recalculated every three years, said Boychuk.
“The regulator has never followed its own policy,” he said. “It is not a proper accounting of the cost of this type of work.”
Concerns about the transfer are shared by at least two major energy companies.
“Pieridae has been operating at a loss since it began operations,” said a letter from Cenovus to the energy regulator. “Material uncertainties exist around their ability to continue as a going concern.”
“Pieridae Energy Limited (has) limited on-hand financial resources to address the current and future liabilities associated with operating the assets,” said Canadian Natural Resources.
“If the licence transfers are allowed, there is a high probability that Pieridae will be unable to respond to circumstances should any operational, health, safety or environmental problems arise.”
Both companies said the association could get stuck with a $500-million bill if Pieridae is unable to clean up.
Worries about safety and cleanup are echoed by 14 area landowners.
“This looks like the old shell game,” wrote Michael O’Keefe of Cochrane.
Sharon Rubeling of Rocky Mountain House points out Pieridae is partly financed through a Toronto company behind a previous asset transfer that eventually left hundreds of wells orphaned.
She adds that Albertans are already invested in Pieridae through loans from AIMCo, which administers public pensions in Alberta. AIMCo also owns five million shares in Pieridae.