Pincher Creek MPC rejects wind project

Follow @LethHerald on twitter
December 1, 2018.
Tim Kalinowski
Lethbridge Herald -PINCHER CREEK
[email protected]

In a case which could have implications for the provincial government’s ambitious targets for renewable energy generation, the Municipal Planning Commission for the MD of Pincher Creek, which has one of the largest densities of wind farms in southern Alberta, rejected the proposed Windy Point Wind Project earlier this month after about 80 local landowners said enough was enough.

“There’s two issues,” said Bill Trafford, president of the Livingstone Landowners Group which led the charge against Windy Point. “When you see a beautiful windmill turning on a green pasture, it looks great, but the problem is these wind farms are creating linear disturbances through environmentally sensitive areas. Even though they bury the line, they are still having to get access to them by building roads and so on.

“Secondly, the transmission you need behind it is significant,” he added. “In the case of Pincher Creek, the companies are saying now that we have built all these windmills, let’s have a big transmission line across Highway 22 and up into the hills to join up with their line coming down from Calgary. So it is kind of a case of what looks good on the front page of a newspaper with the picture of windmill turning and a headline about renewable energy doesn’t really tell the story. You are actually in this area, because of the overbuild, sacrificing the environment for the sake of the environment.”

Trafford said the proposed Windy Point Project poked a sleeping bear, and has awakened it.

“We (the LLG) are not fed up with the windmill companies per se,” Trafford stated. “What we are actually disturbed about is the provincial government has actually issued a target of 30 per cent renewables by 2030, but the problem is that is a very aggressive target. The only way it can be met is through wind, and the only way to get there is to build as much as you can in an area like Pincher Creek.”

And these concerns are not falling on deaf ears, confirmed MD of Pincher Creek deputy reeve and MPC vice-chair Rick Lemire.

Lemire expected the Windy Point decision to be appealed, but admitted the feedback received from so many local landowners opposed to the project weighed heavily in the MPC’s deliberations.

“It’s time to step back, pause and take a look forward to what we need to do here with wind going forward with our MD’s (land use) bylaw,” agreed Lemire. “There was a lot of feedback from residents in regards to cumulative effects of having so many wind farms in one area, the flicker, the shadowing of the blades, the visual, the noise, the light impact, and on them being put on native grass as opposed to cultivated grass. There was a lot of people saying ‘let’s stop (windmill development) for now, review and see what we have, and review our approval process.’”

Marc Stachiw, president of the Alberta Wind Energy Corporation which had applied to build the Windy Point Project, confirmed in an email to The Herald that his company was exploring its options to make an appeal. Stachiw also confirmed his company was aware of the Livingstone Landowners Group’s criticisms.

“We are aware of concerns raised by the Livingstone Landowners Group, including concerns over expansion of the electrical transmission grid,” he stated. “It is worth pointing out that the proposed Windy Point Project does not require or trigger any new transmission lines development. Furthermore, all turbine ‘tie-in’ cables will be situated underground, thus greatly reducing the environmental and visual impacts of the project.”

Stachiw said the economic benefits of such a project should speak for themselves.

“The Windy Point Wind Farm will have the potential to add approximately 150 construction jobs, and long-term operations and maintenance jobs during the life of the project,” he stated. “In addition, the project will provide indirect jobs and opportunities for local businesses and will significantly add to the tax base of the municipality, all while providing safe and renewable energy for future generations of Albertans.”

Follow @TimKalHerald on Twitter


 

The story of Alberta’s $100-billion well liability problem. How did we get here?

The Narwhal
Sharon J. Riley
Alberta investigative reporter

Landowners once promised a fair share for hosting oil and gas infrastructure on their properties say Alberta’s liability management system is broken. They’re worried the regulator has long been propping up the industry by exaggerating profits and underestimating the costs of cleanup — often leaving landowners with a tangled mess of wells, rusty pipes and contaminated soil.

In the middle of snow-speckled fields just off the Crowsnest Highway near Taber, Alta., rusting barrels dot the landscape, among storage tanks and lines of pipe. Soft plastic tape that has peeled off pipes ripples in the cool October breeze.

This site is now classified as an orphan, ever since the company that owned it, Neo Group, went bankrupt three years ago. The site is entirely surrounded by crops — mostly potatoes.

Daryl Bennett, who was born and raised in Taber — his family homesteaded in the area in 1903 — gets out of the vehicle to look around. He’s a director of a local group called Action Surface Rights, which describes itself as “dedicated to helping fellow landowners understand and navigate the maze of government and industry processes.”

He points out the site’s wellhead and flare stack, listing possible hazards: soil contamination, dust, issues with farming, invasive weeds. Then he gestures to the adjacent field, full of potatoes.

“If there’s a leak and it gets into the potato crop, it’s going right there into the French fry factory,” he says.

The site is on a list of facilities under the management of the Orphan Well Association entitled “Orphan Wells to be Abandoned,” where it has languished for at least two years. The list currently contains 2,000 wells that have yet to be properly sealed — known in the industry as “abandoning” — and whose owners are now bankrupt.
Daryl Bennett Taber Orphaned Wells

Daryl Bennett at an orphan site near Taber, Alberta, left behind by a bankrupt company. The emergency number posted at the site was no longer working. “Who do you call?” Bennett wondered. Photo: Theresa Tayler / The Narwhal

Beyond the barrels and pipes, there are likely other hazards below the surface. Data shows the total depth of the well at the Taber facility is 407 metres, so the risks reach far below ground level.

The problems facing farmers are numerous, Bennett tells The Narwhal. Farmers must ensure their irrigation systems can pass over wells without hitting them, farm around the roads that lead to wellsites, deal with the dust and weeds that come with disturbed soil, and worry about contamination of their crops — and they often face long, paperwork-filled fights to claim the annual rent they’re owed by energy companies.

Before he climbs back into the vehicle, Bennett wanders over to the entrance of the site and looks at the now-defunct company’s sign, still hanging prominently on a small shed. “In case of emergency, please call,” it reads, listing a toll-free number for the bankrupt company.

The Narwhal called the toll free number listed and was met with an automated message stating, “the number you have reached has been changed.”

“If there is a problem, who do you call?” Bennett asks. “There’s nobody there.”

‘Kicking the can down the road’

Bennett is part of a movement of landowners concerned the government — and the Alberta Energy Regulator in particular — is not only struggling to deal with Alberta’s long-standing well issue, but that the organization is propping up a beleaguered industry without requiring the necessary assurances that wells will be cleaned up in the future.

Critics worry that not only are orphan wells already sitting neglected in farmers’ fields across the province, but that a whole new wave of inactive wells are poised to be thrust onto the Orphan Well Association — and that, increasingly, taxpayers may be forced to shoulder the bill.

It has been estimated that at the current rate of spending, it would take 177 years to clean up the province’s inactive, suspended, abandoned and orphan wells.

Daryl Bennett, a director with Action Surface Rights. Bennett has spent years trying to make sure his neighbours are fairly compensated by the companies that drill wells on their land. Photo: Theresa Tayler / The Narwhal

Bennett sees no shortage of possible hazards at orphan sites like this one, including soil contamination, dust, issues with farming and invasive weeds. Photo: Theresa Tayler / The Narwhal

In theory, there is a system designed to ensure wells are cleaned up once companies are done with them, ensuring there is money available for proper reclamation, even if companies go bust.

But critics worry the system has been perverted to the point that the Alberta Energy Regulator is now propping up the province’s oil and gas companies through accounting systems that exaggerate assets and underestimate liabilities by using outdated information — meaning companies are able to drill new wells despite questions around their ability to pay for their eventual cleanup.

“They’re putting the best spin on it,” farmer and Action Surface Rights chairman Ronald Huvenaars told The Narwhal of the regulator’s methods. “If you went to an accountant and had it audited, there’s no way an accountant would ever sign off on that.”
Ron Huvenaars abandoned wells Alberta

Farmer and Action Surface Rights chairman Ronald Huvenaars on the driveway of his family farm, When Pigs Fly Farms. Photo: Theresa Tayler / The Narwhal

Ron Huvenaars abandoned well

Huvenaars stands beside active infrastructure on his family farm. Increasingly, he’s worried that companies in Alberta aren’t taking into account the costs they’ll have to pay to clean up wells like this one when they reach the end of their productive life. Photo: Theresa Tayler / The Narwhal

As one briefing paper published by the University of Calgary put it, “This type of system works well during an oil boom but not so well during an oil bust.”

The trouble is, the Alberta Energy Regulator is still acting like it’s in an oil boom.

“It’s just kicking the can down the road,” Huvenaars said. “It’s kind of like a snowball, it’s getting bigger and bigger as it rolls.”

And that, he said, leaves landowners feeling powerless when it comes to industry activity on their land.

‘Continually releases greenhouse gases’

Conventional wells are drilled through layers of earth — soil, layers of rock, groundwater aquifers — to reach a pocket of oil or gas within a rock formation. When they’re successful, the deposits are tapped and brought back to the surface — through a steel pipe that runs the depth of the well, surrounded by concrete — without contaminating any of the layers above.

Once the well’s productive life has ended, a company can choose to suspend the well (temporarily take it out of service), decommission it completely by fully sealing it off (known as abandoning), or leave it to sit, unsealed, indefinitely. A well becomes an “orphan” if the company that owns it goes bankrupt, whether it is safely sealed or not.

Alberta has no time frames on when a well should be properly sealed and reclaimed, unlike other jurisdictions — deadlines on properly sealing a suspended well range from six months to 25 years in the United States.

When things go awry at an inactive well, there’s risk of explosion, soil and water contamination and release of air pollutants, according to Jodi McNeill, a policy analyst with The Pembina Institute. And then there are the emissions.

“When something hasn’t been plugged, it just continually releases greenhouse gases into the atmosphere,” McNeill said.

As long as the companies that hold the licences to these wells stay financially afloat and honour their cleanup obligations, this isn’t necessarily a significant risk to landowners, Bennett told The Narwhal.

One of his concerns is the implications of the Supreme Court’s upcoming decision on the Redwater case — due out this fall. If the lower court’s decision is upheld, it would allow the creditors of bankrupt companies to collect what they’re owed before any money is used for cleanup of the company’s liabilities.

In essence, the decision could make cleanup the last priority when distributing any funds a company might have left — a substantial concern for landowners waiting for wells on the property to be cleaned up, and a big potential bill for taxpayers.

The regulator, an appellant in the case, is similarly concerned, saying in February, “If this decision is upheld by the Supreme Court of Canada, we — and every other regulator in Canada — will no longer be able to hold companies accountable for cleaning up their mess.”

A gas well on the horizon. Since 2009, the Alberta government has given the Orphan Well Association more than $30 million in grants and moved to loan the organization $235 million in 2017. Photo: Theresa Tayler / The Narwhal

But critics worry that the regulator is already struggling to do just that.

Documents obtained by The National Observer revealed that a top official with the regulator estimated that cleanup of conventional oil and gas wells would cost the province at least $100 billion — a number, it noted, is “expected to grow.”

How that number got to be so big is of no surprise to people familiar with how the regulator works.

“The [regulator’s] system is not achieving anything,” said Keith Wilson, a lawyer who has been working on these sorts of cases for thirty years.

“If anything, it’s creating a false sense of comfort that this problem is being addressed — and we know it’s not.”

Public money for an industry problem

The huge price tag is due, in part, to the large number of wells in the province. A report from the C.D. Howe Institute estimates that there are roughly 450,000 wells in the province — a well for every 1.4 square kilometres in Alberta.

It’s estimated that at least a third, 155,000, of those wells are no longer producing, but have not been reclaimed, representing a financial liability for the company that owns them. If the company goes bankrupt, the cleanup responsibility is shouldered by the Orphan Well Association.

The Orphan Well Association brought in just $30 million from the orphan fund levy, collected from industry, in 2017. Since 2009, the Alberta government has given the Orphan Well Association more than $30 million in grants and moved to loan the organization $235 million in 2017.

The federal government has similarly siphoned public money to clean up after bankrupt companies. Last year, it announced it would allocate $30 million to efforts to clean up orphan wells in Alberta.

Last year, the industry-managed Orphan Well Association reported more than $30 million in total expenditures. In that year they abandoned (the term used to refer to plugging, or sealing, a well) just 232 wells.

In total, just over 600 orphan sites have obtained reclamation certificates over the years, meaning they have been sealed and the sites have been deemed to have been remediated.

There are more than 2,000 wells in the Orphan Well Association’s inventory that have not been sealed, and more than 1,100 that need to be reclaimed. (The Orphan Well Association did not respond to The Narwhal’s requests for an interview.)
Abandoned Orphaned Wells Taber Alberta

Abandoned Orphaned Wells Taber Alberta

An orphan well near Taber, Alberta. Bennett was surprised to find that the pressure on the well was still high. It has yet to be safely sealed. Photo: Theresa Tayler / The Narwhal

In theory, wells shouldn’t end up in the hands of financially unstable companies, because the permissions for and transfer of Alberta’s wells are regulated by the Alberta Energy Regulator, a corporation at arm’s length from government meant to oversee all energy projects in the province.

But, critics worry, the regulator’s system isn’t working.

‘Rosy picture’

There are two primary mechanisms the regulator uses to collect money from companies to fund cleanup of wells left behind by defunct operators.

The Orphan Well Levy is calculated by determining a company’s share of total industry liabilities, using a program called the Licensee Liability Rating. Money paid into this levy is used to fund the Orphan Well Association’s annual cleanup efforts.

The other mechanism is known as the Liability Management Rating system. In this system, a company’s assets (essentially an estimate of the money it makes from oil and gas production) are measured against its liabilities (the cost to seal and clean up all its infrastructure) to establish a ratio. If the company’s ratio of assets to liabilities is less than one — if it has more liabilities than assets — it must pay a security deposit to the regulator.

In theory, this system should ensure that financially unstable companies would have already paid a deposit to cover cleanup costs before ending up in the red.

Crucial to the calculation of a company’s assets is the company’s reported production in the previous year, multiplied by what’s known as the “industry netback,” which is essentially a measure of gross profit.

This could be a reasonable calculation of a company’s assets if updated regularly, but The Narwhal found the regulator still uses profitability numbers that haven’t been updated in nearly a decade.

Keith Wilson is adamant this is very problematic. “The [system] is supposed to be a responsible measure of the ratio of the company’s liabilities to their assets,” Wilson, the lawyer, told The Narwhal.

“It’s obvious to anyone who takes even the most superficial examination of the [regulator’s] program that it grossly overvalues the assets and equally grossly underestimates the liabilities.”

The result, he added, is “a rosy picture that has no bearing to the true risk to the taxpayer and to landowners.”

The landscape surrounding Huvenaars’ family farm is beautiful — and dotted with wellsites. There are 450,000 wells in Alberta, one for every 1.4 square kilometres. Photo: Theresa Tayler / The Narwhal

Ron Huvenaar farm

The land surrounding Ron Huvenaars’ farm. Photo: Theresa Tayler / The Narwhal

Rolling average that ‘has never rolled’

Alberta’s “industry netback” — the standardized measure of a company’s gross profit, used to calculate a company’s financial standing — was set in 2015, but the actual figures used in the calculation of the netback are based on data from 2008 to 2010, according to Melanie Veriotes, a spokesperson for the Alberta Energy Regulator.

In essence, this means the regulator is calculating a company’s assets by using a measure taken from a time when oil prices reached nearly 150 USD per barrel and when natural gas prices followed a similar trend.

Oil prices declined after the 2008 global recession (and subsequently began to recover in 2010), but the average real monthly benchmark oil price (for WTI crude, commonly used as an industry benchmark) over the three years was still over 80 USD per barrel.

In contrast, the average real monthly oil price from 2015 to 2017 was significantly lower — at under 50 USD per barrel.

Oil prices are not explicitly included in the calculation of industry netback, but Veriotes confirmed that “oil prices indirectly influence the industry netback.”

“Oil prices are low today and have been for the last three years,” Lucija Muehlenbachs, an associate professor of economics at the University of Calgary, told The Narwhal by e-mail.

“If more recent data were used, this would make the industry netback much lower.”

Essentially, the Alberta Energy Regulator is allowing oil and gas companies to assume much higher profits than they currently receive — a practise the industry website Daily Oil Bulletin refers to as “providing some relief,” acknowledging that “a recalculation of this value using a more realistic netback would push many producers into negative… territory.”

Veriotes told The Narwhal that industry netbacks are updated “if the values have changed and as priorities allow.”

This doesn’t sit well with Regan Boychuk, a founder of Reclaim Alberta, a group advocating for the cleanup of inactive wells as a job creation program.

He is adamant that the netback was intended to be a regularly updated rolling average, as stated in the regulator’s own rules.

“The regulator has never updated the netback,” he told The Narwhal. “The three-year average has never rolled.”

“If industry had to pay even tiny deposits towards its cleanup obligations, many many companies would collapse,” he added.

“It is that far gone.”

Calculation of liabilities wildly off-base

Critics say the exaggeration of profits alone is a huge problem, one with big implications for the regulator’s ability to ensure industry cleans up its well sites.

For decades, landowners have argued that this is a crucial part of the social contract — that companies pay for the messes they make.

“As parents we teach our children that before they go to the next box of Lego, they need to clean up the last box of toys,” Wilson, the lawyer, told The Narwhal.

Why, he wondered, shouldn’t industry do the same?

The system’s flaws, critics say, mean it’s increasingly feasible that taxpayers will end up on the hook for a larger share of cleanup costs as more companies declare bankruptcy and the Orphan Well Association struggles to keep up.

And, as it turns out, the problem isn’t just that assets are exaggerated by the regulator.

There’s another important number: the liability estimate. This is the estimate of the total cost to fully seal off and clean up a company’s wells — and it’s essential to the regulator’s balance sheet.

The ratio of assets to liabilities is crucial to whether a company can take on new wells, whether it is required to pay a security deposit against the cost of cleanup and the amount it will have to pay into the orphan well fund.

Yet the regulator’s liabilities numbers, too, can be wildly off-base.

Cleanup costs are calculated based on the Alberta Energy Regulator’s estimates from 2015. These numbers have been criticized for failing to take into account variation in site condition and for being much lower than actual costs.

Ronald Thiessen, a researcher at the University of Calgary, has spent years analyzing available data on reclamation costs of Alberta’s wellsites. He found that cleanup costs for at least 60 per cent of wellsites exceed the regulator’s estimates.

According to Thiessen, one of the biggest contributors to cost is the amount of contaminated soil that must be dug up, loaded onto trucks and driven away. Salts present big challenges around wellsites, he said, and leaked oil and gas can also be a problem.

The regulator uses average cost estimates for reclamation to establish a company’s total liabilities, based on geographic area. The regulator’s estimates of the costs to clean up wellsites range from $16,500 in the grasslands to $42,125 in the high alpine; the average estimate across the seven geographical areas is $28,321.

Thiessen’s research, though, found that the median cost of cleaning up an orphan well in Alberta is nearly double the regulator’s estimates, at $53,000 per site.

He recommends the regulator raise its estimates of reclamation costs, which he acknowledges would mean a greater cost to companies in the former of the deposits they would need to pay.

“Taking an average and applying it to any given site is dangerous,” Thiessen told The Narwhal.

Jodi McNeill of the Pembina Institute agrees. “There are a lot of concerns about the formulaic way in which assets and liabilities are calculated,” she said. “Both the asset and liability side are not being representative of true site-based liabilities.”

Sharon J. Riley Abandoned Wells Alberta

Bennett and Narwhal journalist Sharon Riley visiting an orphan well near Taber, Alberta. Farmers must ensure their irrigation equipment will pass over wells like these. Photo: Theresa Tayler / The Narwhal

She’s also concerned that the regulator doesn’t take into account larger cleanup costs for the outliers — the sites with huge cleanup bills.

“[The system] can’t account for cases where a wellsite can have especially big problems,” she said. “We’ve seen wellsites that have a cost of $2 or $3 million to clean up.”

When The Narwhal asked Melanie Veriotes, a spokesperson for the regulator, if it planned to update its figures, she said by e-mail “regardless of which assessment tools we use, companies are responsible for the costs associated with cleaning these sites. None of these calculations change that fundamental premise.”

“We are working to update our liability management program,” Veriotes added, noting that the regulator is “reviewing our processes to better understand what is working well and what needs to change.”

Wilson, the lawyer, is adamant that the average cost to clean up a site is much higher than the regulator’s estimates — or Thiessen’s research.

“I get criticized by people in the industry when I say that the average reclamation cost is $300,000,” he told The Narwhal.

“They say, ‘you’re nuts, it’s way higher.’ ”

Thiessen agrees that the average cleanup cost could be much higher than what his research found, but, he noted, “a larger, more representative and publicly available dataset is required,” — something industry hasn’t released.

Wilson points out that even if the average cost to clean up a wellsite was $53,000, the total bill to clean up Alberta’s wells is still enormous.

He pulls out his calculator to do a quick estimate.

“Error!” he says, laughing when his calculator can’t compute the figure, “Error! The number’s just crazy big.”

‘Get rid of it’

Wilson was asked what was wrong with the regulator’s rating system at a conference earlier this year. His answer was clear.

“Everything.”

When asked how to fix the system, Wilson replied, simply, “get rid of it.”

Politically though, that’s tricky. “The current government is in a political competition with its nearest rival, the [United Conservative Party], as to who can project better a pro-industry image,” Wilson told The Narwhal.

Some worry that tweaks to the system could mean a financial disaster, pushing more companies to bankruptcy — and more wells on to the Orphan Well Association, which can’t afford to clean up its current inventory.

There’s also the possibility, according to Muehlenbachs, the economics professor that “fear for the industry [or] fear of what this says of the industry,” might stop the regulator from making any substantive changes.

The idea of propping up companies doesn’t sit well with landowners who have to live with the wells on their land.

And if the Redwater decisions stands, which many believe it will, Action Surface Rights worries it could incentivize companies to walk away from liabilities.

Bennett is worried that companies will “come in and milk the resource as much as they can and abscond with millions of dollars.”

“They privatize the profits and then they bugger off and socialize the losses.”

Journalist Sharon Riley discusses well liabilities with landowner Daryl Bennett in the Taber Tim Hortons. Photo: Theresa Tayler / The Narwhal

‘What do you do?’

All of this leaves landowners like Ronald Huvenaars feeling vulnerable.

Huvenaars’ dad started a farm in 1964. For years, the family raised hogs, though these days they focus mostly on crops — renting out land for potatoes; producing seeds for Dupont. The land for the family’s farm, When Pigs Fly Farms, is dotted with shelters for the bees that pollinate canola.

Ron Huvenaar

Huvenaars poses in front of silos on his family farm, When Pigs Fly Farms, which produces seeds for Dupont. Photo: Theresa Tayler / The Narwhal

And then there are the wells. In 1985, an oil and gas company approached Huvenaars’ dad about drilling a well on the family farm. His dad agreed.

“It was kind of one of those things where it’s like well, they’re gonna do something anyways,” Huvenaars told The Narwhal, noting that the economy was tough at the time. “There was no money in farming and if you could create a little extra cash, it was enough to keep things going.”

But things have changed. Huvenaars says there’s no way he’d allow another well on his land without a fight.

Action Surface Rights is adamant that the inherent trust between landowners and industry is eroding — and concerned that the way the regulator is enforcing the rules don’t help matters.

But for Huvenaars, there’s little he can do when it comes to the two wells on his land, other than hope for the best. For many landowners, there’s a feeling of powerlessness when it comes to dealing with industry.

“It’s there,” Huvenaars said. “So what do you do?”

The truth about dairy farming in Canada

by Kyle Edwards
Oct 4, 2018

With producers predicting more than $1 billion in losses and demanding compensation, we took a hard look at the state of the industry—here and across the border

The morning after the U.S. and Canada reached a deal to save NAFTA, the Dairy Farmers of Canada put out a press release under the headline: ‘Dairy Farmers’ livelihood sacrificed again.’ On Wednesday, in another release, the DFC put a number on the combined cost to them of the USMCA and other recent trade agreements: “At the farm gate alone, this represents an annual loss of $1.3 billion for farmers,” it said, adding that the deals have “displaced 18 per cent of our homegrown high-quality milk.”

The new deal gives American farmers’ tariff-free access to 3.6 per cent of Canada’s dairy market. America will soon be able to send hundreds of millions of dollars of more product into this country. It also abandons Class 7, a scheme that governed the price of certain ingredients like skim milk powder and proteins—to the advantage, American farmers complained, of Canadian producers.

Conservative leader Andrew Scheer accused that Trudeau’s Liberals “backed down” when it came time to protect Canadian dairy farmers, while the NDP’s Jagmeet Singh said the new deal “betrayed” producers by “eroding supply management.” On Tuesday, Chrystia Freeland told the CBC that dairy farmers will be compensated for losses. That did not seem to soften the tone of producers, who voiced their displeasure on social media. “A handful of dollars doesn’t replace the livelihood of dairy farmers,” tweeted the DFC.

USMCA will mean more American labels on Canadian shelves, which is an unnerving reality for an industry that has been largely protected by supply management. But does this really sacrifice Canadian dairy farmers, as the DFC argues? And are they really in such a precarious position? Here’s what the country’s dairy industry really looks like.

How big is Big Milk in Canada?

Dairy farming is unquestionably important to Canada. It’s one of the largest agricultural sectors in the country and contributes roughly $19.9 billion to the country’s GDP annually, according to the DFC, a number that includes both farms and processing plants. There are 10,951 dairy farms (reported by the Canadian Dairy Information Centre, a government-industry web resource) and a little more than 400 processors across the country providing jobs to more than 100,000 people. Nearly a million dairy cows and about 450,000 heifers live on the farms.

Former Liberal MP Martha Hall Findlay, now the president and CEO of the Canada West Foundation, a public policy think tank in Calgary, suggests that the rate of consolidation is higher in supply-managed industries than it is in other sectors, which has forced more and more family farms to merge into larger ones. When supply management was introduced in the 1970s, there were roughly 145,000 producers in Canada. Today, dairy farmers make up just six per cent of all Canadian farmers.

How much does a dairy farmer earn?

The average dairy producer’s net worth is nearly $5 million, and in 2016, the average producer earned an income of about $160,000, even after operating expenses had been paid, according to the most recent numbers available from Statistics Canada. Compared to the average total income of individuals in 2016, which was $43,500, dairy farmers seem to do quite well.

RELATED  ‘A huge disappointment:’ A dairy farmer reacts to the USMCA

The U.S. dairy industry is more than 10 times larger than Canada’s, with nearly 50,000 farms. According to the USDA, in 2018, the average net cash farm income for American dairy farmers is projected to be US$144,100, a significant drop from about US$240,000 in 2017. The American numbers fluctuate from year to year due to changes in the price of milk. But on the whole, U.S. dairy farmers do not seem to fare a whole lot worse than their Canadian counterparts.

How big are these farms?

The number of Canadian dairy cows per farm has been steadily rising over the years. In 2016, the average producer had 85 cows, a 12 per cent increase since 2011. Canada is often compared to Wisconsin, one of the largest dairy producing states in the U.S., alongside California and New York, where there are about 9,500 dairy farms. They average 134 cows apiece.

What will be the impact of the USMCA?

The DFC tweeted that the deal is subjecting the industry to a death by “1,000 cuts,”while another group, the Dairy Processors Association of Canada, estimated that the additional market access will result in $2 billion worth of losses over the course of implementation. Findlay believes that the DFC’s estimate is overstated, saying the messages from the dairy industry are simply part of a “negotiation tactic for compensation.”

RELATED: The USMCA explained: Winners and losers, what’s in and what’s out

“Let’s be really clear,” she says. “This is not giving away 3.6 per cent of the market; this is merely opening up 3.6 per cent of the market to competition.” But ultimately, when it comes to dairy, the agreement was far from a clean-cut win for Canadians, Findlay adds. Lost in the rhetoric is the fact that dairy production in Canada, and exports from this country, are inherently limited by the supply management system, which is oriented around meeting domestic requirements. The U.S., meanwhile, can walk away knowing it forced Trudeau to accept a provision that forces Canada to monitor its global exports of milk protein concentrates, skim milk powder and infant formula: If certain thresholds are exceeded, then Canada must charge an export tax. “Hence the win-win for Americans and the lose-lose for Canadians,” Findlay says. “We keep shooting ourselves in the foot.”


 

Alberta dairy farmer explains why he’s disappointed with NAFTA replacement

By Kyle Benning
Videographer Global News

Conrad van Hierden says he is feeling a little sour following the Canadian government’s announcement that they have reached a deal to replace the North American Free Trade Agreement (NAFTA).

The dairy farmer from Fort Macleod says he is sick of being used as a pawn after learning of the new trade agreement, which allows U.S. dairy producers greater access to the Canadian market.

“It seems like the dairy industry has been making more concessions than they’ve been getting out of it — and this one even more so,” he said on Monday.

READ MORE: NAFTA talks: Where negotiators conceded and where they stood firm on USMCA

His feelings match those of the Dairy Farmers of Canada, who says similar trade deals like Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP) have hampered their role in Canada’s milk market.

The U.S.-Mexico-Canada Agreement (USMCA) was struck on Sunday night.

“In the long run, there’s going to be a lot more American products on our shelves and our consumers will have to go through that,” van Hierden said.

Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland are championing the deal, calling it a victory for the middle class and for Canadian businesses.

“We have always just focused on the reality that this is a good deal for everyone and we’ve always believed that we were going to get here,” Freeland said.

At a news conference on Monday, Freeland said dairy producers will be fully and fairly compensated.

READ MORE:  Quebec dairy farmers claim USMCA spells disaster for their industry

She added the government has already started working on that compensation package, but didn’t release any details.

So far, van Hierden isn’t impressed with the plan.

“We’re not for sale as a dairy industry,” he said. “We don’t want to be put up and get cash back for something we’re not doing.

“We work hard but we want to have a fair return for our investments. So fair trade is always better than using one commodity to make an agreement happen.”

READ MORE: Canadians shouldn’t bet on lower dairy prices under new trade deal: experts

van Hierden says he believes the new agreement could result in revenue losses of up to 15 per cent and said it will prevent a lot of Alberta dairy farmers from investing further in their business.


 

Alberta milk producers slam new North American trade agreement: ‘What do I do now?’

By Kaylen Small
Online Journalist
Global News

Under the newly-negotiated U.S.-Mexico-Canada Agreement (USMCA), American dairy producers will get expanded access into the Canadian market.

Alberta Milk said the province’s more than 520 dairy farms will now be told to produce less milk, resulting in a smaller paycheque.

Mike Southwood, general manager of Alberta Milk, is disappointed with the new trade agreement.

He said dairy producers have already given up access under Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP) and Comprehensive Economic and Trade Agreement (CETA).

“That statement, ‘A death by a thousand cuts’ — that’s what it feels like,” he said. “We’ve got support for supply management but at the same time, it’s slowly eroding around the edges.”

Supply management means farmers meet Canadian requirements for dairy production. With more access being granted to Canadian dairy markets under the deal, processing jobs will be lost and quotas on farms across the country will be reduced, Southwood said.

“Dairy is a very perishable product, so it needs to come off the farm every two days,” he explained.

Specialty products could easily come from outside of Canada now, Southwood added.

“We need border protection, otherwise, surplus product that happens in the U.S. today comes flooding in,” he explained. “It doesn’t benefit the consumer because the retailer sets the price, not the producer.”

READ MORE: Canadian dairy farmers slam new trade agreement, say it will have ‘dramatic impact’

Milk producers are hoping for stability but the new trade agreement will affect how small family farms operate, Southwood said.

“Those impact directly at home when you start taking three, four or five per cent out of their income, potential income long term,” he said. “Not only a one-shot deal, this erosion is long term. This access is as long as that agreement’s in place.”

“Dairy is a very perishable product, so it needs to come off the farm every two days,” said Mike Southwood with Alberta Milk.

Over the past five years, the Alberta milk industry has experienced 20 per cent growth, Southwood said.

“That now erodes that growth, and as farmers try to adapt to increasing costs and changes on their farms, that growth is what keeps them motivated and going,” he said.

“We’ve got a lot of farmers saying, ‘What do I do now?’”

“We hope Canadians will look closely to see where it’s processed and buy the Canadian product… Our understanding is fluid milk right through to cheese is acceptable under the new agreement.”

READ MORE: Alberta dairy farmer explains why he’s disappointed with NAFTA replacement

Deron Bilous, Alberta’s Minister of Economic Development and Trade, has heard concerns from dairy producers but is satisfied with the new trade deal.

“What we are pleased to hear from the federal government is that there will be compensation to dairy and poultry farmers… We wanted to ensure that our supply-managed producers are going to be compensated and so we’ll be working with the federal government to ensure that moves as speedily as possible.”

“We’re glad to see that, at least, the federal government has acknowledged [dairy producers’] significance and importance and are putting forward a compensation package,” Bilous added.

In the energy sector, positive changes are afoot, Bilous said. Under NAFTA, Canada had to set aside a certain amount of oil production to be sold into the U.S. That quota has been lifted, which Bilous said will give companies here greater control over where to sell.

“Our products will find the best markets and the best dollars,” he said.


 

Canadian dairy farmers slam new trade agreement, say it will have ‘dramatic impact’

By Staff The Canadian Press
October 1, 2018

WASHINGTON – Canadian dairy farmers are panning the renegotiated trade pact between Canada, the U.S. and Mexico, saying the deal will undercut the industry by limiting exports and opening up the market to more American products.

Dairy Farmers of Canada issued a terse statement soon after the agreement was announced late Sunday, following 14 months of difficult negotiations between the parties.

READ MORE: Read the full text of the new United States, Mexico and Canada Agreement

The organization says the newly minted U.S.-Mexico-Canada Trade Agreement, or USMCA, will grant greater market access to the domestic dairy market and eliminate competitive dairy classes, which the group says will shrink the Canadian industry.

The lobby group says the measures will have “a dramatic impact not only for dairy farmers but for the whole sector,” adding that it fails “to see how this deal can be good for the 220,000 Canadian families that depend on dairy for their livelihood.”

Details on the deal remained sparse, but U.S. administration officials say it provides increased access to Canada’s dairy market for U.S. producers and limits the American impact of Canada’s controversial supply management system for dairy and poultry products.

Prime Minister Justin Trudeau would only say it was a “good day for Canada” as he left a late-night cabinet meeting in Ottawa that capped several days of frenetic long-distance talks that included Foreign Affairs Minister Chrystia Freeland and U.S. Ambassador David MacNaughton.

U.S President Donald Trump praised the deal, saying in a tweet this morning that negotiators had crafted a “wonderful new trade deal with Canada,” that “solves the many deficiencies and mistakes in NAFTA, greatly opens markets to our farmers and manufacturers, reduce trade barriers to the U.S. and will bring all three great nations closer together.”

READ MORE: Factbox: Here are key details of the new North America free trade deal

The deal appears to preserve the key dispute-resolution provisions – Chapter 19 – which allow for independent panels to resolve disputes involving companies and governments, as well as Chapter 20, the government-to-government dispute settlement mechanism.

A side letter published along with the main text of the agreement exempts a percentage of eligible auto exports from the tariffs. A similar agreement between Mexico and the U.S. preserves duty-free access to the U.S. market for vehicles that comply with the agreement’s rules of origin.


RCMP, Alberta government say plan to fight rural crime is paying off

Lauren Krugel
AIRDRIE, Alta.
The Canadian Press
Published September 4, 2018

The Alberta government and RCMP say rural property crime fell by 11 per cent in the first half of this year thanks to a new policing strategy that targets the most prolific offenders.

In March, the province announced $10-million in funding to hire more RCMP officers in rural areas, civilian support staff and Crown prosecutors.

“Six months later, the numbers are in and the evidence is very encouraging,” Justice Minister Kathleen Ganley said Tuesday.

“RCMP have recorded a noticeable decrease in property crime. The rural crime plan is working.”

The property crime statistics do not include fraud, mischief and arson.

Between July 2017 and July 2018, there was a 25 per cent drop in rural property offences.

There were 2,358 fewer thefts in Alberta year-over-year. Since February, when district-level crime reduction units were set up, police have made more than 500 arrests representing more than 1,600 charges.

Supt. Peter Tewfik, who is in charge of the Alberta RCMP’s crime reduction strategies, said that means police are nabbing the right suspects.

“Our crime reduction units specialize in targeting the criminals who hurt our communities the most,” he said.

“These are individuals who present a constant threat to the safety of Albertans. Our crime reduction units are committed to identifying and apprehending these targets.”

The RCMP is working with analysts to pinpoint crime hotspots so the Mounties know where their resources are best used. Tewfik said they are also benefiting from technology such as automated licence– plate readers.

Property owners, who have expressed frustration at how long it takes RCMP to respond to calls in rural areas, have sparked a debate over whether they should have the right to take matters into their own hands.

The issue came to the fore earlier this year when Edouard Maurice was accused of firing at suspected thieves on his rural property south of Calgary. Dozens of supporters applauded in court in June, when the Crown withdrew charges that included aggravated assault and alleged firearms.

Tewfik said he’s been at town-hall meetings where rural residents have complained about being targeted repeatedly by criminals.

He said he understands the frustration, but property owners shouldn’t try to take on a criminal themselves and should instead report all crimes.

“Even though people feel like there might not be a point in reporting crime, they have to understand that if we don’t have an understanding of where the crime’s taking place, our intelligence can’t work to proactively direct patrols in areas that we’re having problems.”


 

Notley pulling Alberta out of federal climate plan after latest Trans Mountain pipeline setback

Hours after a stunning Federal Court of Appeal decision in which Ottawa’s approval of the contentious Trans Mountain pipeline expansion was overturned, Premier Rachel Notley addressed Albertans about the latest hurdle to come before the project and dropped a political bombshell of her own.

“Signing on to the federal climate plan can’t happen without the Trans Mountain pipeline,” she told reporters at a new conference Thursday evening. “Today I’m announcing that with the Trans Mountain halted and the work on it halted, until the federal government gets its act together, Alberta is pulling out of the federal climate plan and let’s be clear, without Alberta, that plan isn’t worth the paper it’s written on.”

Notley said Alberta signing onto the plan was always contingent on the Trans Mountain pipeline project going forward.

READ MORE: Trans Mountain pipeline court decision ‘a real sad day for Alberta,’ says energy expert

“Albertans are angry. I’m angry,” she said. “Albertans have done everything right and we have been let down.”

On Thursday morning, a panel of three judges said the National Energy Board’s review of the Trans Mountain pipeline expansion proposal was so flawed that the federal government could not use it as a basis for its decision to approve the project.

READ MORE: Federal court quashes Trans Mountain expansion; Ottawa forging ahead with purchase

The court also ruled the federal government did not sufficiently engage in meaningful consultations with First Nations before approving the project.

Notley said she spoke with Prime Minister Justin Trudeau earlier in the day where she laid out two specific demands: the federal government should file an appeal through the Supreme Court of Canada as soon as possible and Trudeau should call an emergency session of Parliament to “assert its authority” and to fix the NEB consultation process, which was criticized in Thursday’s court ruling.

“Successive federal governments created the mess we find ourselves in… now Ottawa needs to fix it,” Notley said.

“When Alberta’s economy is held hostage, Canada is not working, so the time for Canadian niceties is over.”

At one point in the news conference, Notley said the current political and legal atmosphere in Canada renders it “practically impossible” to build a pipeline to tidewater.

Notley said Trudeau reaffirmed his commitment to ensuring the project goes ahead but did not provide a concrete answer on how or if he would follow through on her demands.

In 2015, Alberta’s economy was rattled by a sudden collapse in global oil prices.

Since winning the Alberta election later that year, Notley and her NDP government have made getting more oilsands bitumen to tidewater a priority while also working to diversify the province’s economy and to develop a plan to address the threat posed by climate change.

Notley said she has no plans to drop her government’s climate action plan, including the carbon tax, and indicated her record on the climate change file is something she’s proud of.

“[Before the NDP was elected] we had no climate change plan in Alberta,” she said. “We had no plan to diversify our energy sources — we had none of that.”

Notley said she believes the federal government has a duty to amend its consultation process with Indigenous people on pipeline matters and that she believes a new and amended consultation process could potentially be completed by early 2019.

READ MORE: Kinder Morgan moving to suspend construction on Trans Mountain pipeline project following ruling

“It is a crisis,” she said of the situation. “Our ability to transport our most valuable commodity is subject to the whims of the White House and the U.S. government. Let’s not kid ourselves. This is a threat to Canadian sovereignty and Canadian economic security.”

READ MORE: Trans Mountain pipeline decision: Experts discuss what could happen next

© 2018 Global News, a division of Corus Entertainment Inc.


 

Trans Mountain pipeline court decision ‘a real sad day for Alberta,’ says energy expert

By Spencer Gallichan-Lowe
Online journalist
Global News

Reaction to the Federal Court decision to quash the Trans Mountain expansion pipeline project from Alberta stakeholders was swift on Thursday.

“It’s a real sad for Alberta and for Canada in terms of what it’s going to mean for our economy,” said Richard Masson, executive fellow at the school of public policy at the University of Calgary and former CEO of the Alberta Petroleum Marketing Commission.

“This kind of delay in terms of getting a pipeline built means we are selling oil at prices that are very discounted from what we should be getting.”

Opposition Leader Jason Kenney will talk about the decision at 1:30 p.m. MT., which will be live streamed.

Premier Rachel Notley is also expected to speak to the ruling Thursday.

Kinder Morgan Canada Limited — the company charged with building the pipeline — said they are reviewing the decision and are suspending construction “in a safe and orderly manner.”

“We remain committed to building this project in consideration of communities and the environment, with meaningful consultation with Indigenous peoples and for the benefit of Canadians,” the company said in an email. “The court decision was not a condition of the transaction between KML and the federal government.”

The Explorers and Producers Association of Canada (EPAC) expressed “deep dismay at this devastating decision” in a news release.

“It’s hard to conceive of a project that could have had more layers of review, consultation and approvals at the NEB and the federal cabinet,” the EPAC release said. “To have a court panel review all that work and conclude years later that it wasn’t enough will give any project proponent a reason to doubt the wisdom of investing in Canada.”

EPAC said it represents about 160 companies in the oil and gas sector in Canada.

A summary of the FCA’s decision in Tsleil-Waututh Nation et al. v. Attorney General of Canada et al. (pertaining to the Trans Mountain pipeline) is available at the following link: https://t.co/sJVJr2nYuS

— Federal Court of Appeal (@FedCourtApp_en) August 30, 2018

Meanwhile, the Rainforest Action Network, a U.S.-based environmental protection organization, welcomed the court’s decision.

“This is a great victory for Indigenous communities everywhere fighting against destructive projects being imposed upon their territories,” said Patrick McCully, climate and energy program director in a news release. “It signals that governments, corporations, and funders must all respect Indigenous peoples’ right to free, prior and informed consent.”

The Canadian Taxpayers Federation (CTF) described the ruling as an “unfortunate temporary setback” and encouraged the government to keep the project moving forward in line with the court decision.

“We urge the Trudeau government to act quickly to begin a corrected consultation process in accordance with the court’s ruling that it be ‘brief and efficient while ensuring it is meaningful’ in order to minimize cost to Canadian taxpayers,” a CTF news release said Thursday.

Alberta Party caucus leader Rick Fraser expressed his “strong disappointment” in the court’s decision.

“This is getting ridiculous,” Fraser said in a news release. “Albertans have been watching this project run into delay after delay, and for a project that is this important to our provincial economy, that is simply unacceptable.”

In Calgary, the city’s mayor added his voice to the seemingly growing chorus of disappointment from country’s oil and gas centre.

“To say I’m disappointed in this decision and related delay to the Trans Mountain pipeline expansion is an understatement,” said Mayor Naheed Nenshi in an email to Global News. “This pipeline is a critical piece of infrastructure for our nation, and it will provide important benefits to our economy from coast to coast.”

#FCA quashes the #TMEX approvals. Marine shipping illegally excluded and consultation “well short of the mark set by SCC.” TWN is pleased that the FCA has recognized our inherent governance rights. Join us for further comment and to hear what comes next at 9:30am at CRAB park.

— TsleilWaututh Nation (@tsleilwaututh) August 30, 2018


 

The Redwater Decision – Why citizens may soon be liable for more oil and gas industry messes

By Michael Ganley
June 26, 2018

All across this province, from the banks of the Peace River to the barley fields of Lethbridge County, 155,000 holes have been drilled in the ground that share four characteristics: They were made to release oil and gas from the Earth’s crust; they’ve produced as much hydrocarbon as they’re going to; the land around them has not been returned to its pre-drill-bit state; and they have not yet been rendered safe. In many cases, the holes and the fractured cracks around them have not yet been filled with cement as required. There may still be road access to the wellhead. In some cases the detritus of drilling operations rusts in place: oil tanks, separators, dehydrators and the like.

Most of these exhausted wells are still owned by one company or another. Generally the company will continue to pay the landowner a small yearly lease fee rather than pony up $100,000 or more to do a proper reclamation. This simple economic decision means most companies carry an inventory of old wells along with their producing ones.

Within this 155,000 number is a smaller but growing subset of wells that have no viable company to oversee a cleanup. Their last owner went broke. Recently estimated to number about 2,900, they’re known as orphan wells because the former owner left their care to other industry players and, potentially, to the public.

All of these wells pose a series of risks: to nearby homes and communities from released gas and explosions; to the local environment from water and soil contamination; and to the global environment from leaking greenhouse gases. Their kind has been around since the earliest days of the oil and gas industry, and mostly they haven’t made it onto the public’s radar. Companies paid the yearly lease fees and did some reclamation. Any wells that did come from bankrupt companies were managed by the Orphan Well Association (OWA), a non-profit unique to Alberta that remediates abandoned wells, pipelines and other oil and gas facilities. The association is funded in part by fees levied on all oil and gas companies and in part from any remaining assets of bankrupt companies, which are sold to pay the cleanup bills.

But two factors have recently clashed to turn these wells—particularly the orphans—into an urgent story. The first is the evisceration of the oil and gas industry since 2014, which has caused a lot of bankruptcies and foisted more wells on the OWA than it can manage. The second involves two matters of law that are central to determining whether or not the public will be on the hook for the cleanup. Over the last couple of decades, the federal government has made changes to the Bankruptcy and Insolvency Act (BIA) which, according to a decision of the Alberta Court of Queen’s Bench, allow creditors of bankrupt companies to jump in front of the provincial oil and gas regulator when it comes to divvying up bankrupt companies’ assets. Then there’s the doctrine of federal paramountcy, which boils down to the question whether a court may strike down a provincial law that frustrates the purpose of a federal law. In this case, should federal bankruptcy law trump Alberta’s rules around abandoned wells, or vice versa?

A time of reckoning is at hand for the province’s regulatory regime that oversees old wells and the protection of the environment.

That question was answered in the Court of Appeal’s April 2017 decision in Orphan Well Association v. Grant Thornton Ltd., better known by the name of the company at the centre of the dispute, Redwater Energy. Redwater was a relatively small oil and gas producer when it went bankrupt in 2015. It owned 127 wells but only about 20 of them were still valuable producers. The remainder were in various stages of decline or had stopped producing altogether but still needed to be capped and the surface reclaimed. The court ruled (in a split decision) that the federal law did trump the provincial.

This means Redwater’s orphaned wells—and those of many other bankrupt companies—pose risks to the established order, to the industry that might have to share in the cost of cleaning them up, and ultimately to the public, who could end up backstopping the operation. Redwater was appealed to the Supreme Court of Canada, which heard the case on February 15, 2018, and reserved its decision to spring or summer. Regardless of which way that decision goes, a time of reckoning is at hand for the province when it comes to the regulatory regime that oversees old wells, the assignment of bankruptcy risk and the protection of the environment.

It’s fair to say the regulations governing oil and gas exploration in Alberta have become exponentially better than they were in the wildcatting days of the 1960s and 1970s, when virtually no provision was made to ensure environmental liabilities would not be foisted on the public or on other industry players. Over a number of iterations, the arc of the rules has been to increase protection of the public interest, but it’s also fair to say we’ve a long way to go.

The industry is overseen by the Alberta Energy Regulator (AER), which issues a separate licence for each of the 450,000 oil and gas wells in the province and imposes conditions on licensees for the operation, disposition and eventual shutting-in of the properties. Those end-of-life obligations include cementing-in various formations deep underground, “capping” the well and restoring the surface to its original condition.

The C.D. Howe Institute took a crack last September at gauging the total cost of Alberta’s well liabilities. It estimated that the reclamation cost just for the wells orphaned at the time would be between $129-million and $257-million. Then the institute applied a financial stress test on still solvent companies and found the potential exposure ranges from $338-million to $8.6-billion, depending on future bankruptcy rates and well cleanup costs. Those numbers are set to climb steeply after the March bankruptcy of Sequoia Resources, which had licences for 2,300 wells.

Those numbers are why an unlikely alliance appeared before the Supreme Court in February to argue against the creditors. Environmentalists, the OWA, the AER, the Canadian Association of Petroleum Producers (CAPP), and the governments of Alberta, Saskatchewan and BC have all taken the position that bad wells should not be split from the good ones. They all know that the decision of the Supreme Court threatens to upend the regulatory system that has governed oil and gas development in the western provinces for decades.

Few people are paying attention. Lawyers are aware of the change, but the AER and industry have continued to play by the old rules.

Darren Baumgardner has been down and up the rabbit hole that is abandoned wells a few times over the years. The Edmonton businessman lives on 40 acres about 10 minutes’ drive west of the city. On one corner of his property sits an oil and gas well drilled in the early 1970s, together with the 600-metre road that was built to access it. The well was still producing when Baumgardner bought the property in 2001, but it was in decline. It stopped producing in 2013, but the company that owns the lease on his property prefers to pay him $3,500 a year rather than take the steps needed to fully remediate the land. He understands why. “If you have an orphan well that would cost you $250,000 to clean up, and you’re 50 years old, and your other option is to continue to pay me $3,500 per year.… Even your kids would be better off to pay the $3,500.”

Baumgardner is no anti-oil crusader—he even considered buying the well himself and re-fracking it to see if he could make a bit of money. But no deal was made, and when the owner came to him and said the company wanted to shut the well in and reclaim the land, Baumgardner had almost no negotiating power. “They have a half-mile of road on my farm going back to the well,” he says. “Just to reclaim that road, which has two feet of rock to be picked up and moved, I got a quote for $80,000. They said they were quoted $20,000.” Again, there was no resolution, and the well and road still sit on his property, both literally and figuratively. They’re on a prime part of his land and are driving down its market value. “The only way to fight would be to go to court,” he says, “which takes forever.”

Advocates of the current system—with the AER doing most of the regulation and the industry-funded Orphan Well Association taking care of any messes—say it provides a reasonable balance between competing interests. They support the AER’s appeal of the Redwater decision to the Supreme Court. “We welcome the high court’s deliberation and decision,” says Brad Herald, vice-president of western Canadian operations at CAPP. “The balance that was in the system between the credit community, landowners, the oil and gas industry and the government has been upset by the lower court determinations.”

That balance was struck primarily through two policies. The AER collects the industry levy that’s funnelled to the OWA to deal with orphan wells. The levy was set high enough to deal with the number of orphaned wells being created when the general market for oil and gas was good, but has not stood up well through the low prices of the last few years.

The second way the AER has managed old wells is with the Liability Management Rating (LMR), which requires companies to provide a bond if their financial strength falls below a set asset-to-liability threshold. Companies with more liabilities than assets were required to post a bond to bring them back to even.

At the time of Redwater’s bankruptcy, producers were playing by these rules and by court decisions affirming them and holding that the AER was not a “creditor” under the Bankruptcy and Insolvency Act, because it wasn’t trying to collect money owed, but instead trying to protect the public interest. Thus the regulator wasn’t subject to the priority provisions of the BIA, which grants the first money to secured creditors. That reasoning was cemented in law by the Alberta legislature, and an entire system of regulations grew up around those rulings, including the AER’s liability ratio and the rules surrounding orphan wells. The players in the oil and gas sector—including the lenders—therefore determined their risks and rewards based on those rules, apportioning liabilities as among the operators, the lenders and the public.

The federal government amended the BIA in 1991 and in 1997, however, and a 2012 decision by the Supreme Court signalled to anyone who was paying attention that the old rules governing the Alberta system were at an end. The problem, says University of Calgary law professor Fenner Stewart, is that few people were paying attention. “Some lawyers took note of this change, but the AER and the oil and gas industry continued to play by the old rules,” he says. “The AER’s well reclamation program and the ratio system—it’s all predicated on the idea that [the public] has first priority over well assets.”

For a while, times were good and few companies were going bankrupt, so nobody noticed the discrepancy. Then something happened that nobody predicted—hydraulic fracturing. “Oil was supposed to be $200 a barrel by now,” Stewart says, “and we’d stop paving the streets in Calgary with asphalt because it’s too expensive and we’d just move to gold instead.” But fracking did happen, the price of oil and gas went in the toilet and investments in the oil and gas sector suddenly didn’t look so good. Cue the effort to unload the worst of the liabilities.

One irony of the appeal to the Supreme Court is the role of a publicly owned bank, ATB Financial. ATB was Redwater’s principal creditor and petitioned the company into bankruptcy in the first place. The Court of Appeal’s decision makes clear that ATB was fully aware of Redwater’s environmental liabilities before lending it money. The bankers even had a third-party engineering report done on their estimated cost; ATB took these liabilities into account when determining the interest rate and other terms of the loan. Nonetheless, Redwater’s receiver, Grant Thornton Ltd., has chosen to pursue this case to have those liabilities hived out of the company. The consequences don’t sit well with CAPP’s Herald. “We see the financial community as the gatekeeper to that risk,” he says. “They’re in a terrific position to look into the balance of risks and to adjust their interest rates accordingly.” In a statement, ATB welcomed the certainty which the Supreme Court decision will give, “so all parties understand the rules of how assets are distributed in the case of a bankruptcy, and can conduct their business accordingly.”

In light of the Alberta Court of Appeal’s decision in Redwater, both the AER and the provincial government have taken steps to close some loopholes and tighten some requirements. The AER in 2016 doubled the liability management ratio required, meaning companies now need twice as many assets as liabilities to avoid having to post a bond. It has also worked with the provincial government to prevent operators who have a record of disclaiming liabilities from getting their hands on new well licences.

The provincial government, for its part, has loaned $235-million to the OWA to clean up orphan wells, although that amount is already insufficient in light of the Sequoia bankruptcy. Energy Minister Margaret McCuaig-Boyd has also pressured the federal government to amend the BIA to ensure that the public and responsible industry operators are not left with the environmental burden of irresponsible operators. The response McCuaig-Boyd got from Ottawa—essentially, to monitor the situation—was “not the response I’d hoped for,” she says.

McCuaig-Boyd’s department is also conducting a review of the entire system. “We know Albertans are anxious,” she says. “Redwater has shown how Albertan communities and industry are exposed to the risk of being forced to pay for inactive wells. This clearly violates Alberta’s polluter-pay principle.”

The Supreme Court decision in Redwater, whenever it is delivered, will inevitably look backward, at a former framework and at how it interacted with the BIA. Equally important for Albertans is the path forward, and how we ensure that no similar risks fall to the public—or to solvent industry players—in the future.

In its September report, the C.D. Howe Institute recommended a regulated combination of bonds and insurance for companies seeking new licences. Under the plan, a company would be required to post a bond to ensure some money is available to clean up the well at the end of its life. The value of the bond would be less than the expected cleanup cost, to recognize the public interest in encouraging economic activity and to allow the little guys a chance to get into the game. The institute also recommends mandated insurance for inactive and suspended wells. The idea is that the cost of premiums would prompt more companies to clean up more wells in timely fashion.

Minister McCuaig-Boyd wouldn’t commit to any of those recommendations, deferring to an upcoming report on the situation being prepared by her department. “There are a lot of good ideas out there,” she says. “We just have to make sure we find what works best for industry, what works best for Albertans and what’s doable.”

Environmental groups such as EcoJustice Canada, which had intervenor status at the Supreme Court hearing, call for full securitization of environmental liabilities. U of C’s Stewart, however, says a full bonding requirement would be prohibitively expensive for many smaller companies and would be considered by many in the industry as government caving in to Big Oil, because only the biggest companies could afford it. “The oil and gas industry has a long history of wildcatters and a mythology of the small business owner who can make it rich,” he says. “A 100 per cent bond would be spun as the provincial government in the back pocket of Big Oil. It’s prohibitive.”

Many Albertans hope the Supreme Court puts things back as they were. “We had a system that was working quite well.”

CAPP’s Herald agrees that the full securitization cure could be worse than the disease. “It would mean a lot of dead capital—in the multiple billions of dollars,” he says. He’s hoping the Supreme Court overturns the Court of Appeal and puts things back as they were. “We had a system that was working quite well, which involved the two parts: the liability management regime and the deposits. That system was continuing to evolve, but it worked quite well.”

As if the fate of thousands of abandoned and orphaned wells weren’t enough for a single court decision, Redwater will have repercussions for all kinds of contentious areas of federal–provincial interaction. That includes the construction of interprovincial pipelines, an issue that hits close to home for Albertans. BC has taken steps to delay Kinder Morgan’s expansion of its Trans Mountain pipeline, which would triple the amount of bitumen that can be carried from Alberta to a marine terminal at Burnaby. The federal government has constitutional jurisdiction over the pipeline and has approved it. If federal paramountcy means the BIA trumps Alberta laws at issue in Redwater, then it follows that the Kinder Morgan pipeline—duly approved by the federal government—will be built despite opposition from both the government of BC and the City of Burnaby.

But that’s a battle for another day. For now, we await the Supreme Court decision in Redwater. Then, whatever the result, it will fall to elected officials, industry and the public to ask whether Albertans are getting the results we want from the systems we’ve built up around the exploitation of our natural resources—and if not, what we’re going to do about that.

Michael Ganley is a former editor of Alberta Venture. He’s now project manager with Edmonton’s Ketek Group.