Alberta faces growing backlog of abandoned oil and gas wells

As Alberta's energy companies struggle through a prolonged bout of low prices, more and more are walking away from their oil and gas wells, leaving a little-known industry group to clean up the mess.

Alberta's Orphan Well Association is now responsible for 704 wells, up from 164 last year, according to Pat Payne, the association's manager.

"Industry is not doing as well, and it's due to the low commodity prices, low price of oil, low price of gas and declining production," Payne said. "Declining reservoirs [are] catching some of the companies and they're not able to survive."

When a company walks away from a well, it is capped off, but thousands of metres of tubing remain underground and can still transport remaining oil or gas to the surface.

"There is often some level of contamination with these older sites, and the costs really escalate quickly," said Jason Unger of Edmonton's Environmental Law Centre. He wrote a 2013 report arguing for a faster pace in reclaiming abandoned wells. "The longer sites sit abandoned and unreclaimed, there is ongoing risk." he said in an interview.

Unger's report notes that, over time, abandoned wells become more prone to failures that can lead to ground and surface water contamination, and threats to plants and animals in the area. The report also points to the economic costs of leaving a site abandoned for years.

"Once production has ceased from a well, the land effectively remains sterilized from other uses," the report states.

Who pays?

While the number of orphan wells has dramatically increased over the past year, the problem is not a new one. Thousands of wells have been shut down and abandoned over decades of drilling in Alberta. As long as the company that drilled the wells remains in business, the site remains its responsibility.

When a company goes bankrupt or where it ceases operations and its owners can't be found, the well and its cleanup costs are handed over to the Orphan Well Association, a non-profit organization that operates under the direction of the Canadian Association of Petroleum Producers and Alberta's Energy Regulator.

Oil and gas companies operating in Alberta pay into an orphan well fund that helps pay the cleanup costs, which can be substantial.

Pat Payne said that remediating a site where there has been little disturbance or contamination can cost under $50,000 and take two to three years. But where there has been considerable contamination that figure can jump to more than $1 million and the work can take 10 years to complete.

Last year, industry contributed $15 million to the fund. But this year, as the number of orphan wells has quadrupled, the industry levy has doubled to $30 million.  

Brad Herald, who is a vice-president with the Canadian Association of Petroleum Producers, and director of the Orphan Well Association, said the calculations of how much companies have to pay are done on a monthly basis, and vary by company based on a number of factors. A key element is how much the company holds in assets and its ability to pay future cleanup costs.

About 800 companies that are licensed to drill in Alberta pay into the fund.

"This program protects the taxpayer from any liability for those orphan wells. It's an industry-supported program and it scales with the needs of the program," Herald said.

The OWA handles an average of 43 sites per year, but with so many new sites added to its inventory, it is hoping to complete 150 this year.

But Jason Unger said that taxpayers are not necessarily off the hook. In the downturn of 2009, the OWA was faced with a growing backlog of abandoned wells. The Alberta government topped up the fund to the tune of $30 million.

Unger said the new pace of well abandonment is leaving a backlog that will take years to clear up.

"The question becomes, if [increased levies are] not going to be effective to cover a lot of these liabilities … what are some other measures we need to take?"