As cleanup costs rise, the oilpatch may be forced to pay deposits before drilling new wells.

Alberta’s premier is considering requiring oil and gas companies to pay a deposit before drilling a new well, a requirement that has not been enforced for decades and is often opposed by the industry.

The provincial government is considering ways to address the large number of old oil and gas wells that require cleanup.

Speaking at an industry event this week, Danielle Smith said that to help prevent the problem from worsening, companies should set aside some money already, suggesting $10,000 per well.

“They have to put a little bit of money aside so that when it gets to the end of its life, the money will be able to clean it out,” Smith said during a question-and-answer session on stage in front of 800 people at a Canadian Association of Energy Contractors event in downtown Calgary.

If a company pays a $10,000 deposit, the amount will grow and compound with interest over time, so when the well is no longer producing oil or natural gas, “the money will be there” to help cover reclamation costs, Smith said.

“I’m hopeful we can find a way to resolve this,” Smith said as talks with the industry continued.

industry pushback

Currently, there are approximately 250,000 old wells and other infrastructure that are inactive or marginally producing oil or gas.

Additionally, the Orphan Well Association (OWA) has a record-high number of wells requiring cleaning. OWA is an industry-funded group responsible for reviving wells that are left without an owner after a company goes bankrupt.

Shawn Fluker, a law professor at the University of Calgary, said Smith’s deposit suggestion isn’t a bad idea.

However, he doubts that this proposal will ever become a reality.

“Obviously, I’m personally not going to get too excited,” Fluker said. “Until I see something concrete in that regard, I think these comments are just thin air.”

There was previously a legal requirement in Alberta that a company had to provide a deposit when applying for a new well license, but this requirement was repealed in 1986.

Fluker co-wrote 2023 research paper on the issue, which described orphaned and inactive wells as “failures built into Alberta.”

“There are other examples between then and now where the industry has taken action against programs that might have prevented us from getting into the mess we’re in today,” Fluker said. “Every time the province backs down.”

Some oil and gas industry groups have opposed such policies. their argument is They will create financial hardship on some small companies and lead to an increase in bankruptcies.

“We will have to wait for the official announcement before providing any comment,” Elizabeth Besson, a spokeswoman for the Canadian Association of Petroleum Producers, said in an emailed statement regarding the prime minister’s comments.

Landowner says $10K isn’t enough

Some jurisdictions, such as North Dakota, require companies pay a bond At least US$50,000 for each new well.

Dwight Popovich, president of the Polluter Pay Federation and a landowner with an orphan well, said Smith’s proposal is too little, too late, and does not address the large number of wells that need to be cleaned.

Popovich says $10,000 is a small amount and there is still no deadline to force companies to do the reclamation work.

He said, “To me, it’s just smoke and mirrors. That’s what she’s doing here. There’s a problem, she admits there’s a problem, but you can’t exactly fix it.”

He wants the industry to contribute higher annual fees to fund OWA, so orphan wells can be cleaned up much faster.

OWA is funded largely through an annual levy set by the Alberta Energy Regulator (AER) and paid by the oil and gas industry. Two years ago the levy was increased to $135 million.

OWA officials have said they expect AER will increase the levy again due to increase in the number of orphans.

The AER has made regulatory changes in recent years in an effort to curb the number of orphan wells.

Further changes could include 21 recommendations listed in a report that was commissioned by the provincial government and released in April. The report includes consultation with indigenous groups, landowners and industry among other stakeholders.

The initiative was led by David Yager, Special Advisor to the Prime Minister.

Recommendation No. 16 of the report points to requiring companies to pay a deposit before drilling a new well: “Enable asset-attached closure funding mechanisms and establish a working group for a third-party end-of-life liability model,” the report says.