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Cleaning up orphan wells to cost $1.1 billion: Parliamentary Budget Office

Current federal funding adequate for dormant oil and gas well reclamation
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Oil and gas well reclamation includes decommissioning of roads and replanting of trees.

Cleaning up dormant and orphan oil and gas wells in Western Canada will cost taxpayers about $1.1 billion by 2025, which is less than what the federal government has budgeted for the clean-up, according to the Parliamentary Budget Office (PBO).

However the PBO warns that public funding for dormant well reclamation could fall short, if provincial governments continue to provide grants to oil and gas companies that are still financially viable for well reclamation.

In a brief summary of the status of dormant and orphan oil and gas wells in Canada, the PBO estimates that Alberta and Saskatchewan has the lion’s share of the reclamation work to do.

Of the $1.1 billion in federal funding that is expected to be spent between now and 2025, the allocation for B.C. is just $120 million, compared to $1 billion in Alberta and $400 million in Saskatchewan.

The PBO estimates the spending on oil and gas well reclamation will rise from $361 million in 2020 to $1.1 billion by 2025. The federal government earmarked $1.7 billion for oil and gas well reclamation in 2020. The funding was part of federal pandemic recovery spending.

Given the downturn that occurred in the oil and gas sector as a result of the pandemic, especially in Alberta, the funding was intended to put idled oilfield workers back to work by accelerating the reclamation of dormant and orphan wells.

“At face value, the $1.7 billion allocated by the federal government through the Covid-19 Economic Response should be sufficient to cover the estimated clean-up of inactive oil and gas wells in the medium term,” the report states.

“However, current provincial allocations give rise to an outstanding risk in the medium-term that the projected liability could persist if funding continues to be allocated to firms that do not have acute financial risk.”

The PBO seems to be warning that a federal program that was intended to place a temporary liability on the public purse could become permanent, if provincial governments continue to grant public funding dollars to financially viable companies for dormant well reclamation.

Only about 36 per cent of the oil and gas wells drilled in Alberta and Saskatchewan are active. In Alberta, the number of orphan wells has increased from 700 to 8,600 over the last 10 years, the PBO report notes.

In B.C., there are an estimated 8,527 dormant wells – i.e. wells that have run dry and been abandoned. Of those, 770 are considered orphan wells. Orphan wells are those that were owned by companies that went bankrupt.

In 2019, the BC Oil and Gas Commission (BCOGC) implemented a new levy intended to cover the future costs of orphan well reclamation.

In 2020, when the federal government allocated B.C. $120 million for well reclamation, the B.C. government announced it would accelerate dormant well reclamation.

"The program, over two years, will be able to clean up 2,000 wells, which is a pretty big number," said Bruce Ralston, minister of Energy, Mines and Petroleum Resources.

As of February 2021, the B.C. government said the first $50 million disbursement for dormant well applications had resulted in 139 site reclamations, and had announced a second intake of $50 million for applications for well reclamation.

nbennett@biv.com

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