Orphan Well Clean-Up Fund Is Another Giant Pay-the-Rich SchemePrime Minister Justin Trudeau announced on April 17 that the federal government will provide $1.7 billion in funding to clean up abandoned oil and gas wells in the oil-producing provinces -- Alberta, British Columbia and Saskatchewan to "keep people working" during the COVID-19 pandemic. A small number of these wells are typically called orphan wells. The government also said it will make a $750 million public fund available to reduce methane emissions in the energy sector. The fund includes $75 million to help the offshore industry cut emissions in Newfoundland and Labrador. The Issue of Orphan and Inactive WellsThousands of inactive and abandoned oil wells are scattered throughout Alberta, Saskatchewan and BC, an environmental liability that will cost billions of dollars to reverse. During the last crisis, beginning in 2014 when the imperialist-dictated market price for oil fell dramatically, many companies -- such as Lexin Resources, Redwater Energy, Houston Oil and Gas, and Trident Exploration -- simply walked away from thousands of oil wells. The environmental liabilities were transferred to the public treasury with some going to Alberta's industry-led and funded Orphan Well Association. Orphan oil and gas wells are those abandoned by developers who have disappeared, gone bankrupt or declared they no longer have the financial means to pay for proper decommissioning of the wells. According to Finance Canada, there are about 4,700 orphan wells in Alberta, 600 in Saskatchewan and 350 in British Columbia. Alberta has another 94,000 inactive wells, that are no longer productive but not cleaned up, and there are a further 36,000 inactive wells in Saskatchewan and 12,000 in BC. An amount for the cleanup for the wells has not been regularly deducted from gross income while the wells are producing or not enough is deducted and put aside. To clean up a well after its productive life ranges from $100,000 to millions of dollars, depending on the size and complexity of the well. A problem with the current method of hydraulic fracturing for both oil and natural gas is that the start-up investment is larger than for conventional wells and the period of production is far shorter, as little as six months for oil wells in some cases. This makes the ratio much narrower between new value from production and the price to bring the exhausted well back to acceptable environmental standards. The Narwhal magazine highlights this problem with research showing that fracked wells regularly have a much shorter lifespan than conventional wells, which might be plumbed for 20 years while fracked wells typically only last six months to three years. The Narwhal says a big problem with the fracking boom is the sheer number of wells that will be lying dormant after being plumbed. A lot of those wells actually belong to companies that are entirely solvent yet refuse to do the necessary environmental remediation. The energy sector is not communicating the true impact of the number of wells that are already out there that require attention. Restoring oil and gas wells is a multi-year process. First, wells need to be decommissioned, or sealed with cement. Full reclamation involves cleaning up contamination, and restoring the land to pre-activity conditions. "Decommissioning an inactive well reduces the likelihood that oil, methane gas and saline water will move up through the well into freshwater aquifers, surface water, the ground or the atmosphere," wrote former BC Auditor General Carol Bellringer in a special report. "While the upstream oil and gas industry is an important component of BC's economy, it introduces environmental risks that result in financial liability," Bellringer's report noted. "Potential contamination from oil and gas activities can affect ground and surface water quality, air quality, human health, wildlife and livestock; if operators do not restore their inactive sites in a timely manner, environmental risk and resulting financial liability will remain." Regarding the orphan and inactive wells fund for energy companies, Prime Minister Trudeau said, "This is an opportunity for us to make sure that Albertans are getting to work cleaning up their province." The government also said that private companies in the sector that are still engaged in production can avail themselves of the $73 billion wage subsidy program. The program will pay 75 per cent of workers' wages, up to a certain amount. Energy firms can also apply for lines of credit through the Business Development Bank of Canada and Export Development Canada, which currently allows for loans between $15 million and $60 million to cover operating costs. The federal government is also backing loans of up to $40,000 for businesses that have a payroll between $20,000 and $1.5 million a year. Up to $10,000 of the interest-free loan is non-repayable. To date, 220,000 loans worth $8.8 billion have been approved. Cleaning up orphan and inactive wells using the $1.7 billion will employ 5,200 workers until the money is exhausted, the government suggests. The funding could help improve balance sheets of energy companies by removing some of their environmental liabilities, meaning they could then borrow more funds. The Alberta Example
Trudeau claims that the goal of the federal funding is to create immediate jobs in the three provinces, while helping companies avoid bankruptcy. The Alberta government has already budgeted more than $70 million for cleanup using similar rationales. In reality, government funding from both levels is just another giant pay-the-rich scheme and in any case is totally inadequate. Instead of holding the energy monopolies responsible to clean up their own messes and enforcing the principle upheld by the people that "polluter pays," those in power are using public funds to pay for the cleanup. And the claim of "creating jobs" is totally disingenuous in the face of Alberta Premier Jason Kenney's funding cuts to Alberta school boards that has resulted in the layoff of up to 25,000 education workers. The quoted numbers of orphan wells in Alberta vary. A December 28, 2019 Financial Post article said that Alberta's Orphan Well Association had about 3,406 orphan wells on their "clean-up list," which are typically on the properties of rural landowners. The large number of orphan wells is mainly due to the fact that energy companies have been allowed to simply walk away from their responsibilities for clean-up by declaring bankruptcy, and many of them continue to do so. Noteworthy is that there are another 94,000 inactive oil and gas wells in Alberta, some or all of which could eventually become orphaned. The Alberta Energy Regulator (AER), the provincial government body whose supposed mandate is to ensure provincial oil and gas development takes into account the protection of the environment, estimates the total cost of cleaning up after Alberta's oil and gas industry could be $260 billion. The AER, which is funded by industry and chaired by the former CEO of the Canadian Association of Petroleum Producers, actually functions to streamline the approvals process for energy development. Rex Tillerson, CEO of ExxonMobil and former U.S. Secretary of State, lauded the AER's work as "decreasing duplication and costs and increasing efficiency." The AER has a liability management system that is supposed to ensure energy companies that are allowed to drill have sufficient financial assets to pay for cleanup later on. If the company's assets are inadequate to meet environmental liabilities, the AER can collect and hold a security deposit in case the company walks away from the cleanup. Evidence shows that the deposits collected over the years have been grossly inadequate and improperly calculated. Currently, the province's own estimate of the eventual cleanup bill for every oil and gas well in Alberta is $30 billion, while the AER only holds $227 million in financial security deposits. This shortfall is put down to bungling on the part of the AER when in actuality it is just standard operating procedure in order to cater to the needs of the monopolies. Alberta's Orphan Well Association was created in 2002 "to manage the environmental risks of oil and gas properties that do not have a legally or financially responsible party that can be held to account." Its board of directors includes representatives from the AER, the provincial government, and the Canadian Association of Petroleum Producers, whose vice-president is the Chair. The Orphan Well Association maintains an inventory of orphan wells and collects funds to oversee the decommissioning of wells, however, like the AER, its current funds are nowhere near enough to pay the costs of clean-up. That is because the levies on the potential polluters have always been minuscule compared to the predictable costs of cleaning up after them. Some suggest that the orphan well problem has been created by the failure of the previous government to take action, the collection of inadequate deposits from the monopolies, and the failure to set a time limit for owners to deal with inactive wells. All this is true but neglects to mention that the root cause of all these deficiencies is that Alberta's governments operate as the salesmen for the energy industry and have done so for decades. The people demand an end to pay-the-rich schemes like the new orphan well fund and an increase in investments in social programs and public services to meet the needs of the people and to activate the economy to serve them. The pandemic is very damaging to the people's interests but it is also an opportunity for a new direction and aim for the economy. Canadians must fight for an economy that serves the people and not the rich and that humanizes the social and natural environment. (The Narwhal, news agencies, BC Auditor General Carol Bellringer's Audit of Compliance and Enforcement of the Mining Sector)
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The funds from
the federal program will be delivered by the
Alberta government. The program will cover between
25 and 100 per
cent of the cost of cleanup, depending on the
company's "ability
to pay." It can be used to close wells, remove
abandoned
pipelines, and conduct environmental site
assessments. On April
24, it was announced that, beginning May 1,
Alberta oilfield
services companies can apply online for grants in
$100 million
increments. A second $100 million increment will
be released May
15 to June 15. In a nutshell, the federal
government's orphan well
program is paying the clean-up costs incurred by
the oil and gas
companies, often foreign-owned, that have made
mega-profits over
many years by exploiting Alberta's labour and
natural
resources.