California has an orphan well problem. Here’s what Alberta can learn from it

Alberta’s inventory of orphaned wells in need of decommissioning has swelled to 3,406. File photo courtesy Alberta Energy Regulator

The well is currently sitting idle on Popowich’s property about an hour-and-a-half drive east of Edmonton, which he had planned to sell to fund his retirement. But so-called “orphan wells,” which have no financially-viable owner, can leak, presenting an environmental risk that has proved a tough sell.

“We got screwed,” Popowich said in a phone interview. “Who wants to deal with a well that’s in limbo because the regulator hasn’t done a good job?”

Meanwhile, regulators in California have successfully compelled Exxon Mobil, which sold a batch of offshore orphan wells to a company that later went bankrupt, to help the state plug and clean up the site. Though the state’s approach to orphan wells has been deeply flawed in the past, it’s now taking strident steps to address them, an approach Popowich said Alberta could learn from.

“There’s no political will to fix it (in Alberta),” Popwich said. “It’s just, keep kicking the can down the road and let it stumble along.​​​​

In most North American jurisdictions, the owner of an oil or gas well that is done producing is responsible for plugging it, decommissioning it and returning the land to its original state. Wells become orphaned when their owners go bankrupt and shut down, leaving the cleanup costs at risk of falling to taxpayers.

To minimize this risk, many states and provinces compel oil and gas companies to pay a security deposit up-front — often referred to as a security bond — that is set aside for cleanup.

In California, the amount set aside has turned out to be nowhere near enough, prompting calls for urgent action. The state hasn’t properly tracked the issue and the amount of up-front security deposits it has collected is US$500 million short of the estimated cleanup bill. Even the Exxon case will leave some costs to the state.

But California’s problem pales in comparison to the one facing Alberta, which has more relaxed security deposit requirements and has declined to go after previous well owners.

The province’s orphan wells could cost a staggering $8 billion to clean up, the C.D. Howe Institute found in 2017, when Alberta had fewer orphan wells than it does today. The province currently holds a fraction of that, about $200 million, in security bonds, for all wells, orphan and not.

California has an orphan well problem. Alberta’s is worse.

“California has the guts to go after these companies,” said Lucija Muehlenbachs, an economist at the University of Calgary who studies oil and gas liabilities.

“I don’t know if Alberta has the same guts to do that.”

The Alberta government has promised to unveil new rules around well management early this year but has given no indication what the new requirements could include. The office of Alberta Energy Minister Sonya Savage didn’t respond to a request for comment. MORE

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