Reducing Alberta’s Oil & Gas Liabilities via Timelines on Well Abandonments

Old, inactive oil and gas wells in Alberta present significant economic and environmental risks to the province. It will cost billions of dollars to abandon and reclaim these sites while contamination currently threatens drinking water, soil, and wildlife. Currently, licensees may leave their oil and gas sites in an inactive1 state indefinitely to avoid paying for abandonment and reclamation activities to clean up the sites. New policy is required to hold licensees accountable for their end-of-well-life obligations. The scale of this problem is massive. There are over 90,000 inactive wells in the province, with 2019 marking another record year for Alberta’s inactive well inventory. Year-after-year growth of the inactive well inventory has been occurring over the past two decades and shows no sign of decreasing, let alone stabilizing. While the Alberta Energy Regulator is responsible for the safe, efficient, orderly, and environmentally responsible development of the province’s oil and gas resources, it has been unable (or unwilling) to bend the near-linear growth of the inactive well inventory. Current policies and regulations are not controlling the continued growth in the inactive well inventory and new solutions are required. Placing mandatory timelines on the abandonment of wells in Alberta has been recommended since at least 1989; however, these timelines have never been implemented. In this report I explore the effects that timelines on the abandonment of wellsites in Alberta would have had on both the inactive well inventory and the total oil and gas liabilities in the province. I present three hypothetical scenarios where differing abandonment timelines were implemented in 2004. By evaluating the production and injection dates of all of the oil and gas wells in Alberta, I calculate when each well became inactive and what effects that timelines on abandonment would have on each well. After assigning abandonment and reclamation liabilities to each well, I calculate the difference in total liability for the province between each abandonment timeline scenario and the status quo. If a five-year abandonment timeline was implemented in 2004, the current total liability for wellsites in Alberta would be reduced by approximately one-fifth, even if exemptions for wells with future production capability were permitted. In addition, the continued expansion of the inactive well inventory would have been completely prevented, resulting in approximately 54,000 fewer inactive wells compared to Alberta’s current inventory. While three- and one-year abandonment timelines would have resulted in an even smaller inactive well inventory and greater reductions in total liability, they are less flexible and would likely be criticized as overly prescriptive. Policy and regulation should recognize that wells may become inactive for reasons other than reservoir depletion and be designed to prevent the stranding of provincial resources from premature abandonment. This study demonstrates that timelines on well abandonment would have been an effective policy to prevent the continued growth of the inactive well inventory and greatly reduce the current well liabilities in the province if they were fully implemented in 2004. I recommend that exemptions to the abandonment timelines should be permitted if the inactive well has future production capability that demonstrates a value larger than that to abandon and reclaim the wellsite. There is no doubt that strict timelines on abandonment would present costs to oil and gas companies operating in Alberta; however, licensees must bear these costs eventually to prevent them from falling to the public and the non-profit Orphan Well Association that is funded by industry levies. Timelines on well abandonment may also help licensees with future planning and budgeting. If licensees cannot afford to fulfill their end-of-well-life obligations, then one should question if the Alberta Energy Regulator should allow them to operate at all. The time to act is now. Implementing timelines on abandonment may present short term pain, but the long-term benefits of increased public and environmental protection are substantial. Bending the growth curve of inactive wells in Alberta is necessary to stem the growing liability issue in the province.

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