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Alberta Energy Regulator CEO Laurie Pushor says the agency is not about to start collecting municipal property taxes or rent to landowners when it comes to unpaid bills by oil and natural gas producers.
That’s not the regulator’s mandate.
However, for the first time, the AER is beginning to collect information from producers about unpaid municipal property taxes and landowner lease payments, two areas of mounting concern.
The regulator is also taking steps to ensure companies better manage the thousands of inactive and orphan wells scattered across the province, an issue that has spread with a downturn in commodity prices in recent years.
“There’s been an ongoing awareness that something needs to give, and I can tell you that as an organization … we’re better equipped and would expect to see progress in this space,” Pushor said in an interview Thursday.
According to a University of Calgary report, the province has nearly 100,000 inactive oil and natural gas wells that haven’t been closed, with another 71,000 that have yet to be reclaimed — and more are coming.
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Last July, the province announced initiatives to address mounting concerns about industry liability issues.
It includes establishing mandated five-year rolling spending targets for companies for well reclamation work, and putting a new system in place to gauge the financial capability of producers to meet their obligations.
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“This is a robust program,” said Tristan Goodman, head of the Explorers and Producers Association of Canada. “It will give clarity to producers and investors.”
Industry groups support the changes, noting old wells left when a company fails can end up with the Alberta Orphan Well Association, an industry-funded group that has the responsibility to clean them up.
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“We have seen some failures, as there was some stress in our industry over the last five years,” said Canadian Association of Petroleum Producers vice-president Brad Herald, who is also chair of the Orphan Well Association.
“There are some reasonable improvements here that manage that risk.”
Time will tell just how effective the changes will be, but it is clear problems surrounding inactive and orphan wells have ballooned since oil prices crashed last decade.
The OWA reports it had 2,689 orphan well sites on its decommissioning list as of May 1, compared to just 768 five years ago. There are another 4,943 sites awaiting reclamation today.
The federal government agreed last year to provide $1.7 billion to clean up orphan and abandoned wells across Western Canada, including $1 billion in Alberta.
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That’s not the only pressure point the AER is trying to address.
Earlier this month, a study by the University of Calgary’s School of Public Policy concluded the province “needs to develop stronger policies to ensure landowners are fairly compensated and well sites are cleaned up.”
It noted almost 55 per cent of inactive wells have been sitting idle for more than five years, with more than 5,000 inactive for at least two decades.
“The root cause of landowners being affected is these long-term inactive and unreclaimed oil and gas wells,” said report co-author Braeden Larson.
“It’s already a huge problem.”
In Alberta, landowners are required to lease the surface of their land for oil and gas development, and receive financial compensation through lease payments.
If the landowner doesn’t receive the fee, they can apply to the provincial Surface Rights Board for payments. Larson noted board payments increased almost 12-fold between 2014 and 2018.
Meanwhile, a survey by the Rural Municipalities of Alberta found unpaid bills from oil and gas companies have increased by 203 per cent since 2019, to about $245 million this year.
With changes made last month, the AER is now able to collect information about arrears in municipal property taxes and unpaid rent, which it will examine when assessing the financial capability of a producer.
“It’s not our role nor do we have a mandate to collect taxes,” said Pushor.
“We will use that information to inform our work, in terms of transferring licences or holding a company in good standing.”
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So will it make any difference?
Regan Boychuk of the Alberta Liabilities Disclosure Project sees it as “window dressing” to fix the issue. “It’s not going to tip the scales or result in any enforcement,” he said.
However, the new measure is starting to have an impact, with some producers talking to local municipalities about setting up payment schedules, said RMA president Paul McLauchlin.
The decision by the regulator to collect such data is a “step in the right direction” to dealing with a growing issue, he said.
“It is not perfect, it doesn’t answer everything, but we are happy … this is a big deal to us.”
As for reducing the number of inactive wells, which haven’t produced for at least six months, one of the next steps will see the regulator set mandated spending levels for companies to clean up such old assets.
Starting next year, producers will be given targets on how much they must spend, in the range of four to five per cent of their inactive well environmental liabilities, Pushor said. More details will be unveiled later in the year.
“We will work to establish what their liability is, that will inform what four or five per cent represents, and then we will expect to see proper reporting,” he added.
University of Calgary economist Lucija Muehlenbachs, who has examined the inactive well issue, said spending targets are less rigid than creating firm timelines on when an inactive well must be cleaned up, a measure used in other jurisdictions.
“It sounds like a flexible regulation that at least starts the ball rolling on cleanups,” she said.
“It has the potential to clean up more wells at a lower cost.”
Chris Varcoe is a Calgary Herald columnist.
Varcoe: AER boss says more scrutiny ahead for unpaid oilpatch taxes, lease payments - Calgary Herald
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