Pilot project to clean up oil wells taps into province’s cherished energy royalties.

By Alex Boyd
Staff Reporter
Monday, February 20, 2023

SHOULDICE, Alta.—The section of pipe jutting out of the field has begun to decay, a small patch of gravel the only evidence of where a pumpjack once bobbed like a giant metal bird, drawing more crude oil from the ground with each dip of its head.

Every day it produced, every day a truck would take the products of its labour away.

That was, until the day its owner could no longer pay the bills — and so took the equipment they could and walked away.

“This particular well is in Never Neverland,” says Kelly Nelson, the farmer in whose field the well languishes, occupying a fenced patch of land about the size of two city lots. Besides the well itself, there’s a section of piping and a towering storage container that’s turned to rust.

“That’s a well that is abandoned. Nobody’s looking after it,” she says, sounding resigned. As far as she knows, it’s not on the radar of the provincial regulator or the association designed to deal with so-called orphan wells.

It’s an example of what might be the biggest problem looming over the oil industry in Alberta that most non-Albertans have never heard of.

As this province’s oil industry grew, it became quite common for an oil company to show up and announce it would be putting equipment in someone’s field, their yard or their town.

Saying no wasn’t an option. That’s not hyperbole. In Alberta, about 80 per cent of the mineral rights in the province are owned by the Crown, so when an oil company is granted the rights to explore, there isn’t much a landowner can do.

The boom and bust nature of the oil industry has left this province littered with aging equipment. It’s been left behind by companies that went bankrupt, judged it cheaper to just keep paying the rent required for wells or that simply abandoned it. It’s detritus that gets in the way of farmers and risks contaminating the ground and the air.

The cost of cleaning up 10,000 orphan wells in Alberta and Saskatchewan will, by 2025, reach $1 billion, according to a parliamentary budget report released last year.

It’s a number that critics have criticized for being too low — and for not including the 7,400 wells that are abandoned but not fully orphaned, or the 225,000 wells in the two provinces that are inactive, but whose future is uncertain.

Now, Alberta Premier Danielle Smith is championing a new program to speed cleanup of the equipment left behind.

The new provincial $100 million pilot project, called the Liability Management Incentive Program, would reward companies who clean up wells that are at least 20 years old by giving them a future royalty credit, which would mean they’d have to give less of their future profits back to the province. It’s drawing fire for essentially paying companies to do what they’re already legally obligated to, and for using royalties, the financial bounty meant to compensate all Albertans for the exploitation of their natural resources.

There is a social contract upon which modern Alberta is built.

It’s an understanding that stretches back to a farm outside Leduc in 1947, when the province’s first major oil discovery took place with an unexpected gush of oil and a fireball that shot 15 metres into the air. (A museum in Leduc devoted to that moment still opens its doors most days from 9 a.m. to 4 p.m.)

Yes, oil can be hard on the environment in general and tough on landowners specifically, but in return for the imposition of equipment on private land and tailings ponds in the boreal forest, the industry agrees to clean up its own messes and has gushed billions of dollars into government coffers in the form of royalties, money that helps fuel low taxes, high social spending and a quality of life that many Albertans would argue is the envy of the country.

Oil makes up a huge part of the Alberta budget, from the oilsands in particular. Right now, the war in Ukraine and fears of an oil shortage have the industry booming — thanks to a combination of those higher prices and projects reaching maturity, at which point they pay a higher rate. The Alberta government said last fall that oilsands royalties this year are expected to reach north of $20 billion, a number that is almost double what was initially forecast, and would set a new record. When you consider that total revenue for the year was initially predicted to be almost $63 billion, the outsized importance of oil is clear.

Yet, there’s a saying in Alberta that goes something like this: God grant me another boom, and we promise not to piss it away again. But with a tsunami of new royalty revenue on the way, some are worried Alberta is about to do just that.

Landowners are often quick to point out that they’re not anti-oil. Indeed, it can be hard for many to speak out, given how ubiquitous the industry is here. Grinding one’s teeth about well cleanup can be taken as criticism of your sister or your neighbour’s livelihood.

At Nelson’s farm, the orphan well is just a short drive from her house. It’s been about five years since the company that owned it went bankrupt and walked away. Now, it’s a chunk of land that grows nothing but weeds that threaten nearby crops, an obstacle around which Nelson’s son must maneuver hulking farm equipment, and a potential risk to a creek nearby.

But if you were to go downwards, beneath the gravel and the crop stubble and the layer of soil, you would enter the domain of the Alberta government, and by extension, the world of oil and gas.

For a long time, Nelson says, many wells were welcomed, when oil companies maintained their equipment, sprayed for weeds and paid their annual rent — usually a few thousand dollars — on time. There was a time, she says, when some of her fields were dotted with the red lights of pump jackets at nighttime.

And most of the almost 20 wells on her land now are operational or in line for cleanup — but not all.

“It’s for the ‘greater good,’” says Nelson, who’s a councillor of the county of Vulcan, making air quotes with her hands. “But you know, they’re not going to go into city and drill next to your house.”
Kelly Nelson pictured at her farm near Shouldice, Alberta.

Environmental law in Alberta is based on the idea of what’s known as polluter pay, which means that whoever makes a mess has to clean it up. Oil companies are legally obligated to clean up their own wells, but don’t always do it.

There is the Land and Property Rights Tribunal, which hears disputes between operators and landowners, and a body called the Orphan Well Association, funded by oil companies, which is working to clean up wells with no other owner.

Still, landowners are often left holding the bag. Sometimes the well gets passed from company to company, sometimes paying rent on the site is cheaper than reclaiming it, and sometimes the producer goes out of business.

It’s a problem that has infuriated many landowners.

“Society put the rules in place, that industry could take our land, force their way on, exploit the resources for the benefit of all society,” says Daryl Bennett, a farmer near Taber, Alta., and director of a landowner group called Action Surface Rights.

“On condition that they would pay for the annual income inconvenience, and then pay to clean it up.”

Oil companies are granted a lot of leeway. Landowners aren’t able to say no to an operator looking to put a well on their land. You can try to negotiate nicely. One surface rights advocate says he’s seen people ask for a drill to be put in the corner of their field, or even across the road, away from water or specialty crops such as potatoes or canola.

Often companies accommodate, but sometimes they don’t, dotting fields with equipment and putting up fences that, in one case, separated cow from calves, or, in another, herds from water. Roads built to access wells can track in invasive weeds or chemicals can seep into land long after they stop producing.

There have been other recent efforts to speed the cleanup. During the pandemic, when oil prices had sunk, the federal government announced a billion dollars to help with cleanup, in a move that was partially billed as a job generator at a time of economic uncertainty.

But the premier has argued a fresh approach is needed.

“I suppose we could keep on doing things the way we’ve always done them and get the same result,” she told reporters earlier this month.

“I’ve been following the case of abandonments and suspended wells and the long-term liability of sites going back to the ’50s and ’60s and ’70s that have not been in active service that are still not cleaned up. So that’s just not tolerable to me. I think that we owe it to the landowners to make sure that those sites get cleaned up.”

The new provincial program has a relatively narrow focus — it doesn’t tackle orphan wells such as the one on Nelson’s land. Furthermore, given the fact that credits are applied to future activity, it will only be appealing to companies that are currently producing and therefore, critics say, arguably already able to pay for their own cleanup, particularly as oil prices spike to a generational high.

The proposal has sparked serious criticism, and not just from the freshman premier’s expected political opponents. Scotiabank has warned that the plan could give the whole industry a black eye. In a report, the bank pointed out that major oilsands players would financially benefit, and that the program goes against a core capitalist principle — that companies pay for their own messes.

The backdrop to the debate is the fact that, thanks to factors such as the war in Ukraine, Alberta has never produced more oil.

“It’s corporate socialism,” says Duane Bratt, a professor of politics at Calgary’s Mount Royal. “The profits go to private companies, and the costs go to the taxpayers. That’s great for industry.”

“If I was an oil company, why would I do any cleaning up right now? I would just ignore that and wait for more money to flow through,” he adds. “There’s a real moral hazard to what the government is doing.”

The use of provincial royalties to fund the program has also hit a nerve. While the appropriate level royalties has been debated for decades, what’s clear is that they’re seen as belonging to Albertans. “This is a sale of a depleting resource that’s owned by the people. Once a barrel of oil goes down the pipeline, it’s gone forever. It’s like a farmer selling off his topsoil,” storied Alberta premier Peter Loughheed said, decades ago.

“We get our pound of flesh,” then premier Ralph Klein countered in 2006.

Muddying the waters is the fact that before Smith was premier, she was a lobbyist for this exact program, then called RStar, raising uncomfortable questions for some about her motivations.

“I mean, if she was premier of Alberta, and was being paid by these companies to bring in our RStar, that is corruption, and she would have to resign,” Bratt says.

“But what happens when she was paid prior to becoming premier, and is now implementing it?”

Paul McLauchlin, the president of the Rural Municipalities of Alberta and reeve of Ponoka, Alta., spent much of the pandemic raising the alarm about what he estimates is the quarter billion dollars in unpaid taxes the oil industry owes towns and villages across the province — and arguing for policy changes to address those debts, changes that have largely not come to pass.

He marvels at the speed at which this new policy was enacted in comparison. His organization sent representatives to a recent meeting with the energy minister at which the program, which is technically still a pilot, was presented as “pretty much a done deal.”

“A lot of this is frustration on … is this the best way to address the issue?”

He points out that the province has the Alberta Energy Regulator, a body he argues has dropped the ball in not dealing with these issues sooner. An environmental scientist by trade with several wells on his own land, he points out that this question has hung over the province for decades, and it’s time for Alberta, if not the rest of the country, to have a real reckoning with the cost of an industry that has contributed so much.

“It’s a crucially important conversation, because this is really about the future of Alberta. I don’t see oil and gas going away in Alberta, but I definitely see it changing, and this is the time to make good decisions,” he says.

Looking out over the fields where, once the last crusts of snow finally melt, her family will begin planting crops such as peas and canola, Nelson gestures with frustration at the patch of land where, technically, she’s not even allowed to mow the grass or control the weeds.

“I don’t think most people realize that, as farmers, we care so much for the land,” she says. “We have to have them on here and we can deal with that. You know, whatever. When the company is running, it’s fine.

“But when this happens, then we become concerned, because how can we clean this up? We’re not allowed to touch anything, we don’t get a say.”

Alex Boyd is a Calgary-based reporter for the Star. Follow her on Twitter: @alex_n_boyd

Story by Joel Dryden • February 14, 2023 5:00 a.m.

CBC News

With the Alberta government facing pushback to its plan to give oil and gas companies a royalty break to clean up old well sites, questions are mounting about how the program will function and who, ultimately, will pay for it.

The proposed pilot project dubbed the Liability Management Incentive Program, previously known as RStar, has in recent days garnered criticism from economists, landowners, analysts and the Opposition NDP.

Late last week, it also drew a warning from analysts with Scotiabank, who wrote in a report that though the program could benefit some producers, it had the potential to generate "negative public sentiment toward the sector."

"Moreover, we also believe the program goes against the core capitalist principle that private companies should take full responsibility for the liabilities they willingly accept," the report reads.

The province has said that the program, which would involve $100 million in royalty breaks, is still in development and no final decisions have been made. Producers pay royalties to the province for extracting resources that the province owns on behalf of all Albertans.

Oil companies largely appear to be reserving comment on the proposed plan. On Monday, a spokesperson with Cenovus said the company was assessing the program.

"We'll determine how it may affect our plans after we've seen more details," the Calgary-based company wrote in a statement to CBC News, adding it's about halfway through its well site reclamation inventory target.

Between 2019 and 2021, Cenovus said it received 1,455 reclamation certificates from the Alberta Energy Regulator.

In a statement sent Tuesday morning, Canadian Association of Petroleum Producers (CAPP) senior special advisor Brad Herald said that there had been a "dramatic acceleration" in well cleanup.

"Industry, orphan well funds, the federal government and provincial governments have all played key roles in updating liability management policies and policy supports to make this happen," Herald wrote.

"We look forward to the consultation process with the Alberta Government on their proposed Liability Management Incentive Program and will work to ensure the momentum built in the reclamation of legacy sites in Alberta continues."

Opposition has suggested lobbying a 'huge concern'

Kathleen Ganley, the NDP's energy critic, has called it a "huge concern" that Smith had lobbied for an oil well cleanup bailout prior to re-entering politics.

Over the weekend, Smith told her audience on a province-wide radio show that governments of the past shared the blame for wells that hadn't been cleaned up effectively.

"Because we're targeting it so closely on the worst wells, we're looking at sites, for instance, that have been inactive for 20 years that were drilled prior to 1990, so these are kind of the worst of the worst sites," Smith said, arguing regulators had failed to require cleanup from companies in the past.

Andrew Leach, an economics professor at the University of Alberta, said Monday the premier's comments suggest industry was prepared to leave liabilities on the landscape indefinitely.

"When the premier comes out and says, 'This is reclamation that would not have otherwise happened,' that's a big shot across the bow to the industry," Leach said.

"Because she's essentially saying, 'You oil and gas producers are not going to meet your legal obligations to Albertans.'"

Though the program has nothing to do with oilsands, Leach added that such an approach had future implications for other liabilities on the landscape, such as massive oilsands tailing ponds and site reclamation.

During a press conference held Monday to discuss Alberta's TIER fund, Sonya Savage was asked about comments she had made during her time as energy minister stating that the RStar program wouldn't fit within Alberta's royalty structure, and would violate the province's polluter-pays principle.

Savage acknowledged those comments, but noted the pilot project was under consultation and directed questions around the pilot project to the current energy ministry.

Energy minister met with landowner groups

Leach added that questions loom about how the program will work and who will be covered.

"Are we talking about wells that are literally, from a regulatory perspective, orphans, or are we talking about wells that are still owned by operating entities?" he said.

In response to a request for comment requiring clarification over which sites could qualify for the pilot, a spokesperson for Energy Minister Peter Guthrie said such details would be made available when development of the pilot program is complete.

"Minister Guthrie was very clear that stakeholders would be engaged as part of this process and that is what we're doing," wrote Gabrielle Symbalisty in an email.

"This pilot program will target some of the oldest sites in the province that have not produced oil and gas for many years. Our goal is to shrink the inventory of inactive and orphaned wells and create jobs across Alberta."

Guthrie was instructed to develop such a targeted program as a part of his mandate letter last fall. On Thursday, Guthrie met with landowner groups to discuss the project.

Daryl Bennett, director of Action Surface Rights Association and the Alberta Surface Rights Federation, said the meeting lasted around two hours, and included staff from the Alberta Energy Regulator.

Bennett said he didn't attend the meeting but two representatives of the group did.

In an interview, Bennett said it was one of the best meetings the organization has had in terms of receiving access to the minister.

"I'll be frank, from a landowner perspective: we want the wells cleaned up," he said.

"And the original social contract was society can take our land, expropriate it, extract resources, with a guarantee you're going to clean up the mess," Bennett added, noting the organization prefers industry pays for it.

"But if they're unable to do it, then the taxpayer does have some responsibility. But at a time of record profits, I think the taxpayer should be insisting that industry pays a little bit more."

In Vulcan County, where hundreds of wells with no owners need to be cleaned up, there is confusion surrounding why taxpayers could be left footing the bill to clean up the messes oil companies made, said Reeve Jason Schneider.

"We're going on about seven years, where we've had companies that have operated without paying their taxes," he said.

"Now, it's a small number of them, but between those companies and companies who walked away from their liabilities, we're over $9 million worth of taxes that haven't been collected.

"So I guess we're a little disappointed to see the province move so quickly on this RStar program to give tax credits, when for seven years, they've been ignoring municipalities like ours."

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By The Canadian Press on February 11, 2023.

EDMONTON – Alberta’s premier is rejecting Opposition claims her planned $100-million pilot project for cleaning up old oil wells was influenced by her United Conservative party leadership campaign, arguing that federal money to get the job done missed many of the province’s worst sites.

Speaking on her province-wide radio call-in show Saturday, Danielle Smith noted the worst wells have been inactive for decades and repeated her argument that government shares some of the blame for the fact regulators let companies off without fulfilling their responsibilities.

Smith said many of the companies that left those wells without cleaning them up aren’t around anymore.

“Because we’re targeting it so closely on the worst wells, we’re looking at sites, for instance, that have been inactive for 20 years that were drilled prior to 1990, so these are kind of the worst of the worst sites,” Smith told listeners Saturday after being asked about the NDP’s claims the program is linked with her leadership fundraising.

“Now we’re left with somebody holding the bag that may not have been responsible for the initial liability. We have regulators who allowed for those transfers to occur. We have regulators in the past who didn’t require cleanup.”

“I think we have to take some of the responsibility as government for the fact that we didn’t manage it the way that we should have historically.”

NDP Energy critic Kathleen Ganley said Friday it’s a “huge concern” that before Smith re-entered politics, she lobbied for an oil well cleanup bailout that she made a government priority when she became premier.

The sources of the $1.3 million Smith raised for her leadership campaign last year have not been revealed, and her office has not responded to requests to address questions about how her campaign fundraising has affected her governing priorities.

The Liability Management Incentive Program proposes to give $100 million in royalty breaks to companies that fulfil their legal obligations to restore old oil and gas wells. A royalty is the price Alberta charges a company to develop a resource.

Analysts with Scotiabank said in a report that the proposal “goes against the core capitalist principle that private companies should take full responsibility for the liabilities they willingly accept.”

An Independent legislature member and former member of the UCP caucus, Drew Barnes, has called the plan “corporate welfare.”

Smith on Saturday praised the federal government’s Site Rehabilitation Program which provided $1 billion for well-site recovery, but she noted the program is about to end and that it missed the worst sites.

She said flare pits — which she described as pools of water where waste materials were just thrown in — are the biggest problem and have sat in some cases for 40 to 60 years. She said they’re not being cleaned up because “it’s a huge environmental liability expense companies are worried that they’re not going to be able to get the signoff on it.”

Landowners, she said, are left with the unremediated sites.

“The reason I advocated for this program when I first heard about it was because I feel so passionately about landowner rights. I feel so passionately that this has been a long-term problem. No one’s ever found a way to address it,” Smith told listeners.

Bob Weber
The Canadian Press
Posted: Feb 08, 2023 11:17 AM MST | Last Updated: February 8

The Alberta government is moving ahead with a plan that would give oil and gas companies a tax break for meeting their legal obligations to clean up old well sites, inviting a select group of landowner organizations to a meeting to discuss a pilot project.

On Thursday, Alberta Energy Minister Peter Guthrie is scheduled to host those groups to discuss "a concept for a royalty credit program to incent accelerated oil and gas site closure," indicates a government document that outlines the proposed pilot program, obtained by The Canadian Press.

That pilot program, previously known as RStar and now called the Liability Management Incentive Program, would issue $100 million in credits that qualified companies could use to apply against royalties earned from new production.

Credits would be earned by cleaning up well sites that have been inactive for at least 20 years.

Opposition New Democrat energy critic Kathleen Ganley said there should be a conversation about the pilot project happening with the public.

"They're taking public money and giving it to oil companies to do work they are already legally obligated to do and they're doing it at a time of high oil prices," Ganley said.

The idea has been widely panned by economists, environmentalists, rural municipalities and analysts within Alberta Energy. Critics call the program risky, opaque and a violation of the polluter-pay principle.

"For some reason, we're incentivizing future royalties to eliminate liabilities when profits are high," said Paul McLauchlin of Rural Municipalities Alberta. "It's very confusing to a lot of people."

Alberta landowners dealing with the 170,000 unreclaimed sites on their properties aren't crazy about the idea but need to get those wells cleaned up, said Daryl Bennett of Action Surface Rights, which will attend the meeting.

"It's somewhat regrettable that the taxpayer is left to fund these programs and that royalties will be reduced," Bennett said. "However, landowners are dealing with lots of abandoned wells. It's kind of a catch-22 situation that was never in the social contract."

Not all landowners groups have been invited to the meeting with Guthrie.

Dwight Popowich of the Polluter Pay Federation said his group made repeated requests to attend the session, but have instead been told to meet with department officials.

"If you happen to be a dissenter of any kind, you definitely won't be invited," he said.

Alberta Energy spokesperson Gabrielle Symbalisty said further consultations are planned.

"Indigenous groups, municipalities, industry associations, oil and gas companies, landowners and other groups have been asked to provide feedback on the proposed criteria," she said in an email.

The government document says the program is still in development and no final decisions have been made.

However, some feel the United Conservative Party government has already made up its mind.

"It's moving a lot faster than we expected," said McLauchlin, who has had what he described as "some engagement" on the pilot project.

The proposal has been pushed for years, including by Premier Danielle Smith when she was a business lobbyist. A former RStar lobbyist now works in Smith's Calgary office. The program was part of Guthrie's mandate letter when Smith named him to cabinet.

"I very much get the feeling the fix has been in on this program," said Ganley. "It sounds to me like this (program) was always going to go forward."

Other suggestions to address Alberta's huge abandoned well program exist.

"They could say, 'You're not allowed to drill any more unless you clean up a well,"' Bennett said.

Timelines are another option, said Popowich.

"If a well is shut for 12 months, you've got 18 months to clean it up," he said. "Most jurisdictions have that timeline. Alberta has none."

McLauchlin said other taxes on oilpatch activity have been lifted and wonders why further incentives are needed at a time of record industry profits.

"This is designed by industry," he said. "The engagement with landowners is going to be a day, and then the pilot's going to roll out.

"This (program) hasn't been built from the ground up on what is the big picture liability conversation."