Inactive and orphaned well numbers are growing in parallel with a prolonged energy recession in Alberta since 2014. Rural landowners are the ones who have this infrastructure on their land and have to live with these uncertainties.
This page aggregates resources and information for Albertan landowners with inactive, suspended, abandoned or orphaned wells on their property.
Below are summaries of recurring liabilities topics that relate to Alberta landowners, including relevant provincial regulations, court cases and organizations.
Alberta has had a rapidly growing liabilities problem since a downturn in the oil and gas market began in 2014. In January 2020, the UCP government announced it would complete a full review of how liabilities are managed in Alberta, initially expected to be completed in the first quarter of 2020.
On July 30, 2020, the Government of Alberta releases its new Liabilities Management Framework, which is intended to address the growing number of orphan and inactive wells. This is a needed update to liabilities management, as the previous system allowed thousands of wells to become inactive or orphaned and did not provide landowners with proper support.
As announced, the framework will include:
As of January 2021, the details of how this framework will be implemented have not been announced. Questions about how landowners will be involved and consulted are still outstanding. Multiple directives will need to be updated in order to operationalize this new framework. Currently being updated is Directive 020: Well Abandonment, as well asDirective 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals, for which the AER is accepting feedback until Feb. 14, 2021.
Bill 12 — the Liabilities Management Statutes Amendment Act — was tabled in the Alberta Legislature on March 31, 2020.
This act expands the responsibilities for the Orphan Well Association (OWA) to include the ability to operate, maintain or sell an orphaned facility, and allows the Alberta Energy Regulator (AER) to start the bankruptcy process for a company.
This policy is important because it addresses concerns that the OWA did not have the power to manage orphaned wells that were still active in a safe way, or manage issues with remediation, reclamation, and abandonment. Better management of licenses from bankrupt companies will mean increased safety and efficiency of cleanup for landowners.
Bill 12 received assent and came into effect as the Liabilities Management Statutes Amendment Act on April 2, 2020.
The Orphan Well Association was created in 2001 to manage the abandonment of oil and gas sites, and to complete associated reclamation work when these sites no longer had a company fiscally or legally responsible for them. The organization was initially meant to catch the few sites that slipped through the cracks, however since the 2014 oil price downturn, it has played an increasingly large role in abandonment and reclamation.
As of Jan. 1, 2021, the OWA has 2,852 sites to decommission and 4,014 sites reclamation, compared with 2,983 orphan wells for abandonment and 3,284 sites for reclamation in April 2020. Many expect the inventory to grow as impacts of the COVID-19 pandemic and associated global market crash continue.
The OWA is intended to be funded by industry through an annual levy imposed by the Alberta Energy Regulator, where licensees pay according to the proportion of wells they own.
In 2017, the Alberta government loaned the OWA $235 million, to help deal with an inventory that had reached 2,000 orphaned wells. The loan was meant to speed up the rate at which these sites were properly abandoned and reclaimed. However, the oil price downturn beginning in 2014 led to a sharp increase in the orphan inventory. The number of new wells that came under the OWA’s jurisdiction increased by 81 per cent in 2017 alone, leaving more landowners with orphans on their properties and no clear path to reclamation.
In February 2020, the Government of Alberta extended its loan to the OWA, adding another $100 million to the 2017 loan, bringing the total loan to $335 million. This was announced in Budget 2020, under ‘A Blueprint for Jobs’, signaling the intention to create jobs by cleaning up liabilities while also increasing the number of orphan wells being addressed.
In May 2020, in light of the coronavirus, the Alberta government delayed the annual orphan levy collection from oil and gas companies, pegged at $65 million for 2020, by five months. This was during the same period that the OWA received $200 million in COVID response funding from the federal government.
Since 2017, while the oil and gas industry has paid $185 million through the annual levey, the OWA has received the majority of its funding - a total of $535 million - via loans from taxpayer dollars and the clean up of orphans has now been mostly paid for with public money.
The Redwater Energy Corp., was established in 2009 with headquarters in Okotoks. The company declared bankruptcy in 2015, with 91 licenses under the AER, of which around 20 were for wells that were still active and producing oil.
In reviewing the company's assets and obligations (such as bank loans that still needed to be paid) upon bankruptcy, the receiver decided to take possession of only those 20 licenses for the active wells, meaning the remaining properties would simply be left ownerless, and eventually fall to the Orphan Well Association to clean up.
This led to a legal question about whether a trustee should be required to take control of all assets - not just the valuable wells - and be responsible for both selling, as well as abandoning and reclaiming them, before paying off other debts, such as bank loans.
On May 17, 2016, the Alberta Court of Queen’s Bench ruled that the trustee isn’t required to care for any liabilities from the bankrupt operator, meaning the clean up of inactive wells was left as the last priority. Several organizations, concerned this would lead to an increase in orphans, including the Orphan Well Association and the Alberta Energy Regulator, appealed the decision.
On January 30, 2019, the Supreme Court of Canada overturned this legal decision, which meant the trustees working with insolvent companies could no longer avoid legislated closure activities.
This is welcome news for landowners with inactive wells on their properties, which will now be prioritized over paying back banks in the case of bankruptcies. It does not necessarily mean, however, that there will always be enough funds to abandon and reclaim all of a bankrupted company’s assets.
Bill 7 — the Responsible Energy Development Amendment Act — was introduced in the Alberta Legislature in May 2020.
The bill allows the Government of Alberta to intervene in AER processes and establish time limits on energy project approval times. It also allows the government to establish time limits for any part of the approval process. This could potentially limit landowners’ and concerned parties’ ability to submit their concerns and have their voice heard due to restricted timeframes and sped up processes.
Bill 7 received assent and came into effect as the Responsible Energy Development Amendment Act on June 26, 2020.
On April 17, 2020 the federal government announced $1.72 billion to clean up wells in B.C, Alberta and Saskatchewan as a part of COVID-19 relief, including a $200 million loan for the Orphan Well Association (OWA) and $1 billion for addressing Albertan wells.
The money was meant to breathe life into Alberta’s struggling energy sector with the added bonus of cleaning up orphan and inactive wells throughout the province, and preventing them from falling into the orphan inventory if their owners become insolvent during this unpredictable time.
On April 24, 2020, Alberta announced the Site Rehabilitation Program, which will administer $1 billion in federal COVID-19 response funding. The program provides grants to oil field service companies for abandonment and reclamation of oil and gas sites throughout Alberta. The funding is being made available through six phases, with application periods from May 1, 2020 through to March 31, 2022. Additionally, landowners are able to nominate specific sites for clean up. Once nominated, sites are put onto a list that contractors can choose from.
On May 1, 2020, Grant period 1 opened, making $100 million available for oil and gas sites across Alberta to be properly abandoned and/or reclaimed. Landowners were able to nominate sites to be put onto a list contractors could then chose from. Contracts of up to $30,000 per application, per closure activity will be granted until May 15, 2020. While this is an important first step, there is a concern this is not enough money to clean up an individual site, as the AER estimates costs between $29,000 and $176,000 to plug and reclaim a site.
Grant period 2 began May 21, 2020 and closed June 18, 2020, making another $100 million available for sites where owners were no longer paying rents due to landowners. Applicants were able to apply for full closure of sites that fell under Section 36 of the Surface Rights Act, which deals with unpaid annual rentals, and landowners were able to nominate sites on their land.
Of the initial $200 million made available during Grant periods 1 and 2, only $84 million was approved. Grant period 1B then opened to re-evaluate applications that were initially declined during the first two periods. No new applications were accepted.
Grant period 3 opened July 17, 2020 and will close on March 31, 2021, with $100 million in funding available. Up to $139,000 will be available per license. In this phase, as with all others, licensees cannot apply for funding – oil field services contractors must contract with them.
Grant period 4 opened Aug. 7, 2020 and also closes March 31, 2021, with another $100 million in funding available specifically to licensees who have submitted Area Based Closure (ABC) plans. Oil field service contractors must contract with qualified licensees, and only those contractors can apply for funding. Up to 50 per cent of project costs are eligible, with the exception of licensees engaging Indigenous oil field services companies, in which case up to 100 per cent of costs can be recovered.
Finally, the Government of Alberta has announced that Grant periods 5 and 6 will open Feb. 1, 2021 and close the following year, on March 31, 2022.
For Grant period 5, $300 million in funding will be available to licensees that produced oil or gas in 2019 and spent corporate funds on abandonment and reclamation work in 2019 or 2020.
For Grant Period 6, a total of $100 million will be available, with $85 million earmarked for First Nation Reserves and $15 million for Metis Settlements, to ensure well sites in Indigenous communities are properly abandoned and reclaimed. These communities will approve the sites, and work with licensees and contractors to approve spending. Once completed, they will inform the government as to which sites are eligible for funding, and how much funding should be made available.
For both Grant periods 5 and 6, projects are eligible for grants up to 50% of costs, unless the contract is with an Indigenous oil field service company, in which case 100% of costs can be recovered.
A chronological list of updates and developments to help landowners quickly find out what's happening as it relates to clean-up efforts, regulations and new resources.
On June 8, 2021 the Alberta Energy Regulator (AER) announced that it will be setting mandatory annual targets for oil and gas operators to meet in terms of funds spent on closure work (e.g., land reclamation, decommissioning abandoned wells). Although an important first step towards addressing the growing liabilities issue in the province, the spend targets mapped out so far are too low to effectively turn the tide in a timely manner.
The AER has stated that every year, on July 31, industry-wide targets for a five-year period will be shared. Targets that are “forecasted” may be changed depending on economic factors, as opposed to “set” targets that will be permanent. Mandatory spend amounts for individual operators will also be set by the AER and will be available each year on July 31 for companies to access. Funds spent under the Site Rehabilitation Program will not count towards the set targets. The AER has stated that more information on this program will be available in fall 2021.
The industry-wide mandatory spend target for 2022 will cover 1.4% of the total cost to clean up oil and gas facilities ($422 million). This spend target is approximately equivalent to standard annual clean-up spending by the sector as-is, and represents a “business as usual” scenario.
It is unlikely the industry-wide targets will make a tangible difference. To effectively tackle this issue each operator must cover the equivalent of 5% of their estimated total liabilities costs every year. This type of spend target will ensure that operators effectively address their current liabilities over 20 years without the risk of liabilities growth outpacing clean-up.
The AER released an updated version of Directive 67: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals as a part of the Liabilities Management Framework. The updated directive states that operators are required to provide additional financial information at the time of license application and through the lifecycle of the asset. This is meant to help the AER assess the ability of operators to meet their liability obligations.
Last day to submit feedback on the updates to Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals. The feedback form can be found on the AER’s website.
The Globe and Mail reported that, after a two-year investigation stemming from landowner complaints, the AER found reclamation certificates had been falsely issued for almost 60 wells near Jenner, Alta., 25 km east of Calgary. The wells are owned by Aeraden Energy Corp., while the reclamation was certified by CEPro Energy & Environmental Services Inc.
As we head into a new year, details on previously announced policies — such as the Liabilities Management Framework (see post from July 30, 2020) — have yet to be released. It remains to be seen how this, as well as newly implemented acts (previously Bills 7 and 12) will affect anyone with an oil and gas site on, or near, their land.
Multiple directives will need to be updated in order to operationalize new policies. Currently, Directive 020: Well Abandonment is in the process of being updated as well as Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals, for which the AER is accepting feedback until Feb. 14, 2021.
Landowners should additionally watch for the AER to release directives related to the Liabilities Management Statutes Amendment Act (Bill 12) and the Liabilities Management Framework, which will define regulations around these policies and will give a clearer picture of how those with oil and gas infrastruture on their land, or near their land, will be impacted.
While the AER completes these policy updates, the Alberta government will continue to allocate $1 billion in grants under the Site Rehabilitation Program, with the stated goal of enabling significant clean-up of inactive wells.
Landowners can continue to nominate sites for cleanup.
While these policies and dollars take effect, the effects of the oil price downturn, aggravated by the pandemic and global financial situation, will likely continue to impact oil and gas licensees, and there is still concern about wells being orphaned in the coming year.
As of Jan. 1, 2021, the OWA has 2,852 sites to decommission and 4,014 sites to reclaim. The organization has received increased financial support from both federal and provincial governments, as well as being able to collect the full orphan fund levy in 2020, although this was delayed by five months.
The Government of Alberta has announced Grant periods 5 and 6 of the Site Rehabilitation Program will open Feb. 1, 2021 and close the following year, on March 31, 2022.
For Grant period 5, $300 million in funding will be available to licensees that produced oil or gas in 2019 and spent corporate funds on abandonment and reclamation work in 2019 or 2020.
For Grant period 6, a total of $100 million will be available, with $85 million earmarked for First Nation Reserves and $15 million for Metis Settlements, to ensure well sites in Indigenous communities are properly abandoned and reclaimed. These communities will approve the sites, and work with licensees and contractors to approve spending. Once completed, they will inform the government as to which sites are eligible for funding, and how much funding should be made available.
For both Grant periods 5 and 6, projects are eligible for grants up to 50 per cent of costs, unless the contract is with an Indigenous oil field service company, in which case 100 per cent of costs can be recovered.
After delaying collection of the annual orphan fund levy (see May 13, 2020), the AER has now issued a directive prescribing a levy of $65 million, with payment from licensees due Oct.15, 2020.
Grant period 4 of the Site Rehabilitation Program opened Aug. 7, 2020 and will close March 31, 2021, with another $100 million in funding available specifically to licensees who have submitted Area Based Closure (ABC) plans. Oil field service contractors must contract with qualified licensees, and only those contractors can apply for funding.
Up to 50 per cent of the cost of projects is eligible, with the exception of licensees engaging Indigenous oil field services companies, in which case up to 100 per cent of costs can be recovered. Landowners may see a boost to collaborative closure work in their region leading to faster and more efficient work, possibly seeing parts of the closure process expedited on their land.
Alberta has had a rapidly growing liabilities problem since the price downturn began in 2014. In early 2020, the UCP government stated it would complete a full review of how liabilities are managed in Alberta, initially expected to be completed in the first quarter of 2020. On July 30, 2020, the new Liabilities Management Framework was announced, which is intended to address the growing number of orphan and inactive wells.
This is a needed update to liabilities management, as the previous system allowed thousands of wells to become inactive or orphaned and did not provide landowners with proper support. However, this is early in the process, and the details of how this framework will actually be implemented have not been announced. Multiple directives will need to be updated in order to operationalize this new framework. Currently being updated is Directive 020: Well Abandonment, as well as Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals.
Grant period 3 of the Site Rehabilitation Program has opened and will close on March 31, 2021, with $100 million in funding available. Up to $139,000 will be available per license. In this phase, like all others, oil field services contractors must contract with licensees.
Of the initial $200 million made available as part of Alberta’s Site Rehabilitation Program during grant periods 1 and 2, only $84 million was approved. Grant period 1B is meant to address this by re-examining declined application from the first two periods. No new applications are being accepted, only previously rejected ones.
Bill 7 received assent and came into effect as the Responsible Energy Development Amendment Act. (See May 27, 2020 post for more details)
Bill 7 — the Responsible Energy Development Amendment Act — was introduced in the Alberta Legislature. The bill allows the Government of Alberta to intervene in AER processes and establish time limits on energy project approval times. It also allows the government to establish time limits for any part of the approval process. This could potentially limit landowners’ and concerned parties’ ability to submit their concerns and have their voice heard due to restricted timeframes and sped up processes.
Grant period 2 of Alberta’s Site Rehabilitation Program opened May 21, 2020, and closes June 18, 2020. This period makes $100 million available for sites on land where owners were no longer paying rents due to landowners. Applicants are able to apply for full closure of sites that fall under Section 36 of the Surface Rights Act, which deals with unpaid annual rentals, and landowners can nominate sites on their land.
The Alberta government has indefinitely delayed collection of the annual orphan fund levy from oil and gas companies, which would have totaled $65 million. During 2020, the OWA has received $200 million in additional funding from the federal government, which means that since 2017, the OWA has now received the majority of its funding from taxpayer dollars.
Grant period 1 of Alberta’s Site Rehabilitation Program was launched, making $100 million of the $1 billion program available for oil and gas sites across Alberta to be properly abandoned and/or reclaimed. Landowners are able to nominate sites to be put onto a list for contractors to choose from. Contracts of up to $30,000 per application, per closure activity will be granted until May 15, 2020. While this is an important first step, there is a concern this is not enough money to clean up an individual site, as the AER estimates costs between $29,000 and $176,000 to plug and reclaim a site.
Alberta has announced the Site Rehabilitation Program, which will be used to administer the $1 billion in federal COVID-19 response funding (see April 17, 2020 post). The program provides grants to oil field service companies for abandonment and reclamation of oil and gas sites throughout Alberta. The funding will be made available through six phases, with application periods beginning May 1, 2020 through to March 31, 2022. Landowners will be able to nominate sites for clean up.
The federal government has announced $1.72 billion to clean up wells in B.C, Alberta and Saskatchewan as a part of COVID-19 relief. $200 million of this is an repayable loan to the Orphan Well Association (OWA), bringing the total loan amount to $535 million. Additionally, $1 billion is being allocated for cleaning up Albertan wells.
The money is meant to breathe life into Alberta’s struggling energy sector with the added bonus of cleaning up orphan and inactive wells throughout the province. The hope is to prevent them from falling into the orphan inventory if their owners become insolvent during this unpredictable time.
Screen capture from Government of Canada website, accessed April 2020.https://www.canada.ca/en/department-finance/economic-response-plan.html#industry (see Energy section)
As of April 15, 2020, the OWA has an inventory of 2,983 orphan wells for abandonment and 3,284 sites for reclamation, according to the Government of Alberta. Many expect the inventory to grow as the effects of the COVID-19 pandemic and associated global market crash are felt.
Screen capture from Government of Alberta website, accessed April 2020. https://www.alberta.ca/oil-and-gas-liabilities-management.aspx
Bill 12 received assent and came into effect as the Liabilities Management Statutes Amendment Act. (See March 31, 2020 post for more details)
Bill 12 — the Liabilities Management Statutes Amendment Act — was tabled in the Alberta Legislature. This bill expands the responsibilities for the OWA and allows the AER to apply to start the bankruptcy process for a company. This policy is important because it addresses concerns that the OWA did not have the power to manage wells that were still active in a safe way, or manage issues with remediation, reclamation, and abandonment. Better management of licenses from bankrupt companies will mean increased safety and efficiency of cleanup for landowners.
In March 2020, the first wave of COVID-19 hit Alberta and Canada. The government shifted attention away from policies such as those intended to assess liabilities in Canada. Further to this, as the global economy slowed, there is growing concern the decrease in oil demand will cause the Albertan oil industry to suffer, and lead to more orphan and inactive wells.
In February 2020, the Government of Alberta extended its loan to the OWA, adding $100 million to the previously announced loan to the organization, bringing the total loan to $335 million. This was announced in Budget 2020, under ‘A Blueprint for Jobs,' signaling the intention to create jobs by cleaning up liabilities and speed up the number of orphan wells being abandoned and reclaimed.
The Rural Municipalities Association of Alberta conducted a member survey and found that around $173 million in property taxes owed to municipalities by oil and gas companies. It was noted that rural communities have few options to recover unpaid property taxes from a bankrupted company.
This suggests the issue of insolvent oil and gas companies is having effects beyond landowners and now municipal coffers are coming up short — a shortfall that will likely be passed back to taxpayers, since municipalities are not legally allowed to run a deficit.
Houston Oil & Gas starts the bankruptcy process. The company held about 1,400 licenses, mostly in southeast Alberta and the estimate of abandonment and reclamation costs is over $81 million.
Trident Exploration has gone into receivership. The company had 4,400 licensed sites, many in central Alberta, which were all left to the AER, including 1,500 active wells. The company’s abandonment and reclamation costs were estimated at just under $330 million.
The Alberta Liabilities Disclosure Project (ALDP) launched. The independent and non-partisan initiative aims to hold the Alberta government accountable for collecting and disclosing data and information about oil and gas liabilities. Anyone cansign on to show support for the initiative.
The Supreme Court of Canada overturned a legal decision in the Redwater case. This outcome means the trustees working with insolvent companies could no longer avoid legislated closure activities if they so chose.
This is welcome news for landowners with orphaned wells on their properties, which will now be prioritized over paying back banks. It does not necessarily mean, however, that there will always be enough funds to abandon and reclaim all of a bankrupt company’s assets.
The Toronto Star, National Observer and Global News co-authored a story suggesting the total cost of Alberta’s oil and gas liabilities is around $260 billion, significantly more than the public estimate of $60 billion from the AER. It should be noted this is total clean-up value, if all liabilities were to be addressed simultaneously.
Sequoia Resources has declared bankruptcy. The company owned 2,300 wells in the Hazelbluff area north of Edmonton, and Camrose/Big Bend and Bruce areas southeast of Edmonton.
The Alberta government introduced legislation in order to loan the OWA $235 million, to help deal with an inventory of 2,084 orphaned wells. The loan is meant to speed up the rate at which sites are abandoned and reclaimed. The oil price downturn that started in 2014 has led to a sharp increase in the orphan inventory. The number of wells that needed to be abandoned, and later reclaimed, increased 81 per cent in 2017. This has left more landowners with orphaned infrastructure on their properties and no clear path to reclamation.
The Pembina Institute updated its Landowners’ Guide to Oil and Gas Development, which helps landowners navigate energy development on their property, from the point at which a company first expresses interest in drilling to how reclamation should occur.
See media stories on issues around oil and gas liabilities in Alberta.
Janetta McKenzie
c: 587-328-2040
e: janettam@pembina.org
Alex Burton (Mountain Time)
c: 825-994-2558
e: alexb@pembina.org
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