Why farmers' frustration with orphan wells doesn't end with Supreme Court ruling

Grain farmer Kelly Nelson can count seven idle oil and gas wells on her family property near the village of Milo in southern Alberta.

Some of the wells haven't stirredfor five years or more. One of the well owners just flat out disappeared, she says.

"I couldn't even begin to foresee when they will be out there to clean the mess up," Nelson said.

With thousands of inactive and orphan wells in the province, Nelson's frustrations aren't unique. And the Supreme Court of Canada's decision on Thursdaythat energy companies must clean up old wells even in bankruptcywon't do much if anything to ease them.

• Supreme Court rules energy companies must clean up old wells even in bankruptcy

Yes, the ruling means energy companies must fulfil their environmental obligations before paying back creditors shouldthey skid intoinsolvencyor go bust.

That's good news for the Alberta EnergyRegulator (AER), which argued its environmental rules should come first.

The Canadian Association of Petroleum Producers (CAPP) was also pleased, having argued on the industry's behalf that theassets from a bankrupt company should go toward abandonment and reclamation costs first.

But for landowners like Nelson, the outcome may barely register. The most pressing issue is the one right in front of them.

Marg McCuaig-Boyd

6 years ago

Duration 3:29

Alberta government reacts to SCC Redwater decision

Speaking to CBC News ahead ofthe court's ruling, Nelsonsaid the outcome didn't really matter.

"There's still so many wells out there, and the costis going to be exorbitant," she said, referring to the number of orphan wells in Alberta.

Indeed, the province has seen the number of orphaned oil and gas wells balloon since 2014.

Five years ago, the Orphan Well Association (OWA), the industry-funded organization that cleans up orphan wells,said there wereless than 200 wells to be reclaimed.

As of this week, there are 3,127 wells that need to be plugged or abandoned, and a further 1,553 sites that have been abandoned but still need to be reclaimed.There are nearly 90,000 inactive wells across the province.

Landowners and others are concerned about their impact on crops, water and the environment.

Nobody who I dealt with on this file jumped up and down and did a fist pump.- ChristineLaing, lawyer representing Action Surface Rights group

"Nobody who I dealt with on this file jumped up and down and did a fist pump,"said lawyer ChristineLaing, who represented thelandowners group, Action Surface Rights, at the Supreme Court last year.

"It puts them back in the position they've been in for decades trying to get their needs met at the provincial level."

The oil and gas industry has been the economic backbone of the province for decades, but critics say the regulatory system has simply not been robust enough over that time.

"The chickens are kind of coming home to roost for us today," said Jodi McNeill ofthe Pembina Institute.

Laing believesthe court's decision said the provincial regulatorhas the power to act in a bona fide way to protect the public interest.

"The trouble is it hasn't been doing so nearly as often as it should be," she said.

"And it should change its approach so that it can do that earlier and better."

The challenge for regulators,landowners and industry is to find ways to prevent the list oforphan wells from growing and dealquickly with those already on the books.

For its part, the Alberta Energy Regulatorsaid Thursday that it hasimproved rules that give it more discretion on who can hold a well licence, requiringcompanies to provide more financial information.

The regulator is also introducing a new program that could see more inactive wells retired. Part of the idea is to focus on areas where there are density of wells requiring abandonment, making the effort more efficient and cost effective.

Tristan Goodman says the Redwater decision shows the current orphan well system is working.

6 years ago

Duration 0:46

The president of EPAC says the majority of companies are taking care of their old oil and gas wells.

Still a long way to go

Brad Herald, vice-president of Western Canada operations at CAPP,can seeprogress.

The industry contributed $45 million in levies in 2018 to the Orphan Well Association to payfor the clean-up of old wells and other infrastructure.

"We still got two months in our year before [fiscal] year-end, but we're on track for around 800 abandonments," he said."That's probably three times as many as we did last year."

But for critics of the system including landowners and farmers there's still a long way to go.

For some, the solution lies in requiring companies to put money up front, like a bond, before being allowed to drill a well. Others say strict timelines should be implemented for dealing with inactive wells.

"Alberta law does not have a mandatory time-frame for oil and gas companies to abandon and reclaim wells," said Fenner Stewart,an assistant professor of law at the University of Calgary.

"If it had, the massive inventory of un-reclaimed wells would not have existed when the floor fell out of the oil price, and we probably would not have been in this mess in the first place."

North Dakota's approach

There are jurisdictions that have both bonds and timelines, like North Dakota.

There, the bond on single well is $50,000 US. After a well stops producing economically, the operator has six months to plug it or get it back into production. If it is plugged, the company has one year to complete reclamation.

If the operator cannot pay or no longer exists, the well sites are reclaimed using the bond plus money from an abandoned well fund that's financed by fees, permits, forfeited bonds or other moniesfrom petroleum companies or appropriations.

Between 2017 and 2019, 438 wells in North Dakota were plugged and reclaimed. All but five of those wellswere done by the operators. The small remainder was handled by the fund.

Those solutions aren't necessarily a fit for Alberta. Regulators would need to consider the implicationson an industry stilllimping from the downturn and now perhaps worried about how banks respond to the Supreme Court's ruling.

I hope that whatever comes of it that both sides can sit down and re-look over the whole legislation, the acts and everything elseand work something outbecause something has to change.- Kelly Nelson, grain farmer

But the pressure for the provincial government and the regulator to do more won't stop now.

"I hope that whatever comes of it that both sides can sit down and re-look over the whole legislation, the acts and everything elseand work something out because something has to change," Nelson said.