Increase in inactive oil and gas wells could cost Saskatchewan $4B in future cleanup: auditor

Since 2005, inactive oil and gas wells have increased by almost 90 per cent in Saskatchewan, and the provincial auditor says the government has some work to do.

Auditor Judy Ferguson issued a report today that estimated the overall future cleanup cost of the province's inactive wells at $4 billion. 

"You've got an increased number of oil and gas wells because of the downturn in the economy in part, and then you've got this Redwater case happening. Are you really sure your programs are protecting the public enough to make sure that the industry continues to pay?" asked Ferguson after releasing the report.

She's referring to an Alberta court case, now before the Supreme Court of Canada, which will set a precedent on who is on the hook for orphaned wells after a company goes bankrupt.

The provincial energy regulator argues that proceeds from the selloff of Redwater's remaining goods should help to pay for cleanup of its inactive wells. 

Currently in Saskatchewan, cleanup responsibility lies with the company. If they can't be found, or no longer exist, the cost can be covered through the province's Orphan Fund.

The fund sits at $11.6 million, and the industry contributes to it every year, each company contributing a sum based on its own total liabilities.

'They are liabilities'

While Ferguson estimates future cleanup costs of Saskatchewan's inactive wells at $4 billion, one researcher believes the price tag will be far more.

In her research, University of Regina geography and environmental studies professor Emily Eaton found there were over 24,000 inactive wells in Saskatchewan in 2017.

"They are liabilities. In fact, I would say every oil and gas well in Saskatchewan is a liability," she said

"Eventually, the oil industry will be wound down across the world and we're going t have to deal with decommissioning and remmediating the land association with all these wells."

There are over 110,000 wells in the province, she said, and she believes the ministry's approach to holding companies accountable is "inadequate."

In addition to the Orphan Fund, the provincial government also attempts to mitigate risk with the Licensee Liability Rating program.

Every licensee with wells and facilities in the oil and gas sector has their licensee liability rating calculated each month by the ministry. If their rating exceeds a certain number, they do not have to pay a levee.

These security deposits are held, so funds are available to clean up inactive wells should the companies become insolvent or bankrupt. The Ministry of Energy and Resources has a fund of $134.7 million for this purpose.

According to Eaton, the measure isn't enough. She argues every oil and gas company should be leveed before beginning projects, since all wells will eventually have to be cleaned up.