The premier of Alberta has suggested the implementation of a new policy that would require oil and gas companies to provide a deposit before commencing drilling operations on new wells. This proposed requirement, which has not been enforced for decades and has faced opposition from the industry, aims to address the significant number of inactive oil and gas wells in need of cleanup in the province.
During an industry event in Calgary, Danielle Smith proposed that companies should allocate a deposit of $10,000 per well upfront to ensure funds are available for reclamation when the well reaches the end of its productive life. She emphasized the importance of setting aside money to cover cleanup costs, stating that the deposited amount would accumulate interest over time.
Smith expressed her hopes for a resolution on this matter through ongoing discussions with industry stakeholders.
Challenges and Responses
Currently, there are nearly 250,000 inactive or minimally productive wells and associated infrastructure in Alberta. The Orphan Well Association (OWA), responsible for reclaiming wells abandoned by bankrupt companies, is facing a surge in the number of wells requiring cleanup.
While some experts, like Shaun Fluker from the University of Calgary, view the deposit proposal positively, there are doubts about its feasibility. Fluker, co-author of a research paper on the issue, highlighted historical industry resistance to similar measures and expressed skepticism about the proposal’s potential implementation.
Past regulations in Alberta mandated a deposit for new well licenses until 1986 when the requirement was repealed. Fluker underscored industry pushback against preventive programs that could have averted the current situation with orphaned and inactive wells.
Several oil and gas industry groups have raised concerns about the potential financial impact on smaller companies and the risk of increased bankruptcies due to such deposit requirements.
Alternative Perspectives
Some regions, like North Dakota, enforce a minimum bond of $50,000 USD per new well, contrasting with Smith’s proposed $10,000 deposit. Critics, including Dwight Popowich, chairman of the Polluter Pay Federation, argue that the suggested amount is insufficient to address the extensive cleanup needs. Popowich emphasized the lack of timelines for reclamation work and called for higher annual fees from the industry to expedite orphan well cleanup efforts.
While the OWA is primarily funded through an industry levy determined by the Alberta Energy Regulator (AER), there are expectations of levy increases due to the rising number of orphaned wells.
Recent regulatory changes by the AER aimed at reducing the orphan well count may be further supplemented by recommendations from a government-commissioned report, which includes input from various stakeholders including Indigenous groups and landowners. One of the report’s suggestions pertains to the establishment of deposit requirements for new well drilling to ensure adequate closure funding.
