With Alberta still in a slump, some oil industry players have an idea to get people back to work

This story was originally published on Jan. 9.

It's now 2½ years into the oil price downturn and, by most measures, Alberta is still in a rut.

The economy is expected to come out of recession this year and oil prices are showing some strength, but there are still 215,000 people without a job, and as of December, more than 14,000 of them had been out of work for more than a year.

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At the same time, the province is dealing with an ongoing problem of abandoned and inactive oil and gas wells, which count in the tens of thousands. The Orphan Well Fund, which reclaims wells as a last resort in the case of bankruptcy, has seen its inventory of defunct wells skyrocket to nearly 1,400, from 162 in 2014.

The pitch

Investment banker Ian Thomson, along with the Petroleum Services Association of Canada (PSAC), is pitching an idea to the federal government he thinks can help put people back to work — inject some capital in the junior oilpatch and make a dent in the number of inactive wells in the province.

Thomson and PSAC want the federal government to consider including in the next budget what they call a Sustainable Environmental Energy Investment (SEEI) fund for smaller oil and gas companies. 

For every dollar invested in one of these companies, 47.5 cents could be spent on drilling and exploration, but the rest must be used to clean up old wells. 

It was the first time I'd ever got hate mail from around the world — people saying the industry is looking to get bailed out.- Mark Salkeld, Petroleum Services Association of Canada

The reason the idea needs government support is that it's structured as a flow-through fund.

Individual investors would be able to write off the full investment against their taxes, which means lost tax revenue for provincial and federal coffers.

These kinds of funds have been used for decades to promote development of Canada's natural resources. They are quite attractive to investors but less so to the government.

As the vice-president of investment banking with Acumen Capital, Thomson has seen capital dry up for the companies he works with. He acknowledges that there would be a cost to taxpayers, but says that based on research done for the mining industry, the cost is limited.

"The estimates based upon publicly available data suggest that for the $450 million we expect to see invested, the forgone tax revenue would be $37.8 million."

Previous requests failed

This time last year, Mark Salkeld, the president of PSAC, went to Ottawa with a different proposal. He asked for $500 million in infrastructure money to decommission and clean up old wells. The idea was that oil services workers could get back to work, get off EI, and the wells would get cleaned up.

The idea ultimately didn't fly with government because it let the industry off the hook for cleanup costs. 

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"It was the first time I'd ever got hate mail from around the world — people saying the industry is looking to get bailed out," said Salkeld. "That was a hard lesson learned."

The SEEI is not a subsidy, he says. "It's an incentive that all industries get from government to help create jobs and support industry. At the end of the day, it puts PSAC member companies back to work, which was our driving motivation back then and still is."

Abandoned well problem sticky

The inactive and abandoned well problem is a sticky one for a number of reasons. For energy companies in a downturn, it's usually a better use of capital to drill new wells, which will generate cash flow, than to reclaim old wells.

As well, landowners are often quite happy to keep receiving lease payments for wells on their land and can be resistant to wells being reclaimed. Salkeld said that he was surprised a year ago to hear from landowners who were opposed to his request for federal funds to do well cleanup.

• Alberta looks at different ways of making sure companies clean up old wells
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The head of one of the companies that would be eligible for the investment is interested. Phil Hodge, chief executive of Pine Cliff Energy, says he would have to hash out the economics of the proposal before committing to it, but he's happy the issue is being raised.

"I applaud an effort to attract capital into industry to deal with environmental issues," said Hodges.

"I'm hopeful that this will open up a dialogue to discuss some of these issues with industry, landowners and government."

Thomson and Salkeld have made their pitch to the federal government, as well as the provincial governments in Saskatchewan and Alberta. 

"We've had lots of positive signals, federally and provincially, but I know they've got a lot more to deal with than some oil guy saying lets get people back to work," Salkeld said.

Does the oilpatch need a subsidy?

One obvious criticism of the investment is that it is effectively a subsidy to the energy industry, from a federal  government that has promised to phase out such subsidies.

Keith Stewart of Greenpeace said the best way to create lasting jobs is to invest in green energy.

"A new subsidy to oil companies would simply prolong the transition to the new new green energy economy, which is why Canada and other G7 nations have committed to ending fossil fuel subsidies by 2025."

That will likely be one of the questions that the provincial and federal governments will be considering as they review the idea ahead of the coming spring budgets.

The office of Alberta Energy Minister Marg McCuaig-Boyd said in a statement that it had met with PSAC. 

"Our primary goal is to ensure that Albertans are protected from the financial, environmental, health and safety risks associated with energy development while also keeping Alberta a competitive place to invest."