Study finds abandoned oil and gas wells place unfair burden on landowners, taxpayers

U OF C STUDY
Canadian Press
May 20, 2021 | 6:03 AM

CALGARY — A report from the University of Calgary says the costs of Alberta’s growing stock of abandoned and inactive oil and gas wells are falling unfairly on landowners and taxpayers.

Braeden Larson of the university’s School of Public Policy says the scope of the problem is growing rapidly.

He says more than half of all oil and gas wells in the province no longer produce but haven’t been cleaned up. 

Over the last six years, the number of inactive wells has quintupled and those wells are staying quiet for longer — more than half have been inactive for more than a decade. 

Larson quotes earlier research suggesting more than 10 per cent of inactive wells leak.

Fewer landowners are getting the rent they’re owed, and taxpayer-funded settlements increased twelve-fold between 2014 and 2018. 

Larson says government well cleanup programs tend to favour what’s convenient for industry.

He says Alberta should consider increasing penalties for offending companies and putting time limits on well cleanup. 

The Canadian Press

Farmers taking oil company to court

By Jensen, Randy on November 11, 2020.

Tim Kalinowski

Lethbridge Herald

[email protected]

A class-action lawsuit to be filed against a Calgary-based oil company on behalf of farmers who have not been paid their annual surface lease fees could set a precedent for the rest of the province of Alberta.

Guardian Law Group will be launching the class action against AlphaBow Energy Ltd. in the name of farmer Wilf Kautz on behalf of all farmers who have not been paid their annual surface lease payments by the company.

Guardian associate Mathew Farrell says enough is enough; AlphaBow Energy made a legally binding agreement to pay farmers their surface rights lease fees and it is time it paid.

“Farmers have always been not the priority when it comes to payments from oil companies because they are the little guy,” he says, “and their negotiating power is less than it should be. And that is especially true because it is not unusual for them not to have a choice when it comes to whether or not they are going to let this oil company on their lands. They essentially either get strong-armed and in some cases taken to the Surface Rights Board to secure access to their properties, and now they are not even getting paid the amounts they are supposed to be paid as agreed by the oil companies.”

Farrell acknowledges in many cases oil companies have been defaulting on the municipal taxes, and thus far the Kenney government has failed to intervene in that situation. Farrell was asked what chance does he think Guardian Law Group has in making AlphaBow Energy pay given the prevailing political winds and the economic downturn the industry has faced this year?

“Things were bad at the start of the oil crisis; especially when they were hit with double whammy of the trade war between the Russians and Saudi Arabia and a collapse in demand because of COVID,” he acknowledges.

“Oil prices are certainly not in their heyday now, but they are making money now. Prices are at about $35 a barrel and have been for months; so the notion that oil prices are so low it is physically impossible to pay, number one, is not something which is supported by the facts, and number two, more fundamentally, you made a deal, and you are supposed to be honouring that deal. It’s not fair to be downloading your debts onto these individual farmers.”

As for the political currents flowing through the situation, Farrell says the law simply does not care.

“Politicians are looking at this from a political perspective,” he explains, “and they are looking at it very practically going: Is it going to make us look good to make these oil companies do what they ought to do? Judges don’t look at things that way. They are not going to look at it and go ‘Is this going to make me look good? Do I have to curry favour with the oil companies?’ They don’t. They are going to be looking at what’s right, what’s fair, and what’s legal. And here, from a legal perspective, the law is on the side of the individual landowner because there is a clear agreement that says you are supposed to pay.”

Farrell admits it may take a while for the class action to wind its way through the court system, and he acknowledges it might just be the beginning of several more class-action lawsuits against other oil companies who are also not paying their surface leases to farmers.

“We’re picking them off one by one,” he says. “In this case there is a whole bunch of people who this oil company is doing this to, and the class-action lawsuit allows them all to gang up together and say, ‘This isn’t right.’ At this stage, one person is blowing the whistle, but many will be hearing the call, and it is entirely possible more people will come out of the woodwork and say ‘this is happening to me, too, but it’s a different company.’ Sometimes these things have a tendency to snowball.”

Farrell says any farmer affected by non-payment of surface leases by AlphaBow Energy Ltd. should contact Guardian Law Group. The Guardian Law Group website address is http://www.guardian.law.

The Herald sought comment from AlphaBow Energy Ltd. on the impending class-action lawsuit.

“AlphaBow’s response is that we will wait to see the details of the lawsuit and govern ourselves accordingly,” said the company’s Chief Operating Officer Rick Ironside in a statement released to the media late Tuesday afternoon.

“We note that all of the stakeholders in the Province of Alberta need to work together to solve the problems that are systemic and have evolved from fundamental changes to the business of natural gas in the western Canadian sedimentary basin. Many years of ongoing low natural gas prices have created a circumstance where producers can no longer withstand the burdens of municipal property taxes based on unrealistic asset values that cannot be appealed on a reasonable basis, ever increasing surface lease rentals and ongoing asset retirement obligations.”

“Companies like AlphaBow,” he concludes, “are doing everything we can to manage and survive these burdens and the recent COVID-19 pandemic has only made matters worse.

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Alberta picked up $8 million tab for land rent left unpaid by oil and gas companies in 2019

Data obtained via a freedom of information request shows taxpayers are footing the bill for delinquent companies’ payments to private landowners, to the tune of nearly $30 million since 2010

Sharon J. Riley

May 22, 2020

6 min read

The Alberta government failed to recoup more than $8 million in land rents it paid to landowners on behalf of oil and gas companies last year, data obtained by The Narwhal via a freedom of information request reveals.

Industry paid back just $302,000, or less than four per cent of what was owed in 2019 — a continuation of a trend that has seen companies rack up nearly $30 million in rent debt to the government since 2010.

“If companies can’t afford to pay landowners to operate on private land, that’s a flashing red light that something is terribly wrong,” Regan Boychuk of the Alberta Liabilities Disclosure Project told The Narwhal.

“There’s no effort afoot to solve this problem,” he added.

Companies are supposed to pay rent to landowners when they drill a well on their land. If a company doesn’t pay, a landowner can apply to the Government of Alberta’s Surface Rights Board for compensation. The government is then tasked with recouping that money from delinquent oil and gas companies.

But data shows it is seldom successful.

Since 2010, Alberta oil and gas companies have racked up nearly $30 million in debt to the Alberta government in this way.

Data obtained through freedom of information requests shows only $638,000, or just over two per cent, has been recovered over that period.

The total amount paid out by government to landowners on behalf of delinquent oil and gas companies has skyrocketed in recent years, increasing 1,183 per cent since 2010. Data: Surface Rights Board / FOIP request with Alberta Environment and Parks. Graph: Carol Linnitt / The Narwhal

Meanwhile, the amount paid out by the government for land rent on behalf of delinquent oil and gas companies has increased 1,183 per cent since 2010.

At the same time, the province’s Orphan Well Association has been loaned more than half a billion dollars in recent years and in April the struggling conventional oil and gas industry in Alberta has been handed $1 billion in grants from the federal government to plug and clean up inactive wells languishing on the landscape, to be administered by the provincial government.

The Government of Alberta is currently accepting applications for the second phase of the $1-billion grant package, with $100 million earmarked specifically for the cleanup of sites owned by companies for which taxpayers have had to pay their land rent. For accepted wells, the government will now also pay for 100 per cent of well plugging and cleanup.

“We have to start asking the question, ‘why can’t they pay basic bills?’ ” Boychuk said. “And that leads to some uncomfortable answers about the future of the industry.”

In 2019, less than four per cent of the more than $8.4 million paid out by government on behalf of delinquent oil and gas companies was recouped, leaving taxpayers to cover the rest of the bill. Data: Surface Rights Board / FOIP request with Alberta Environment and Parks. Graph: Carol Linnitt / The Narwhal

‘Gaming the system’

There are more than 336,000 oil and gas wells across Alberta, according to the provincial government. Many of them are on private land. 

If a company fails to pay the annual rent they have agreed on, the landowner can apply for a “recovery of rentals” from the Surface Rights Board, as per the Surface Rights Act, and receive their compensation from Alberta’s general revenue fund. That’s taxpayer money.

The Narwhal reported last year that the tab for taxpayer money paying land rent on behalf of oil and gas companies was already $20 million. It’s now grown by close to $10 million, according to data provided to The Narwhal by the Surface Rights Board. 

This is supposed to be a temporary fix, as the government is then meant to recoup taxpayers’ money by tracking down the company and collecting the funds. 

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When an application is addressed, the board will try to contact the company and order them to pay. If that doesn’t work, the board directs the Minister of Environment and Parks to pay the landowner out of the government’s general revenue. (Alberta Environment and Parks and the Surface Rights Board did not reply to requests for an interview by publication time.)

To Daryl Bennett, a farmer and director with the landowner group Action Surface Rights, who has spent years trying to help landowners get the payments they’re owed, the government’s efforts are seldom enough.

“In the past, there’ve been cases where they just didn’t try,” he said. In those cases, barring a company from the site will have little effect, as the well is likely inactive anyway

Bennett said he believes companies have learned that skipping out on land rent can be a way to cut their costs.

“It’s just the way the system is — the way the law is. If companies don’t pay, the government is supposed to step in,” Bennett told The Narwhal. “A lot of companies have learned to game the system and take advantage of it.”

“It’s the business. When times are good, it’s good,” he said. “When it’s not, then they easily socialize the losses.”

“They’re just abusing the system to cut payments to landowners and kick the can down the road for years,” Bennett said.

Daryl Bennett of landowner group Action Surface Rights. Photo: Theresa Tayler / The Narwhal

Companies ‘just don’t have the money’

Boychuk points to a number of other bills many oil and gas companies have been struggling to pay in recent years, from municipal taxes to levies owed to the Alberta Energy Regulator. 

“A lot of those companies just don’t have the money,” Bennett said, noting that this was a problem prior to the COVID-19 pandemic, too.

“Even before the pandemic, a bunch of them were hoping that the oil price would rise enough that they could sell their stuff to somebody and get their money out of it. They were already underwater,” he said.

Then the pandemic hit, flattening demand at the same time a global supply glut pushed benchmark prices into negative numbers.

Jay Averill, media relations manager for the Canadian Association of Petroleum Producers, told The Narwhal that current events have forced many oil and gas companies into financial hardship.

“Since the middle of March over $8.6 billion in capital expenditure cuts have been announced in the Canadian upstream oil and gas sector,” Averill said in an emailed statement. “This is in response to the low commodity prices resulting from the global economic slowdown caused by the COVID-19 pandemic along with the oil price war between Saudi Arabia and Russia.”

Others, like Boychuk, point to a longer-term trend of reduced profitability in the oilpatch, noting it’s not just the pandemic that has pushed companies into the red. Either way, unpaid bills have been increasingly falling on taxpayers, often the same people most affected by the volatility of the industry.

“It’s a catch-22 situation,” Bennett said. “If you force [companies] to pay, they go bankrupt. Then they don’t pay anything and you lose all the jobs and everything else.”

New head of Alberta Energy Regulator wants to rebuild confidence in leadership

Laurie Pushor comes into the role with some criticism from opposition critics in both Saskatchewan and Alberta

The Canadian Press · Posted: May 02, 2020 8:59 AM MT | Last Updated: May 2

The newly-appointed chief executive officer of the Alberta Energy Regulator says he wants to rebuild confidence in the industry and the regulator. (Government of Saskatchewan)

Like a sports coach coming off a disappointing season, the new head of the agency that regulates Alberta’s heavily challenged energy industry knows he’s got some work to do.

“One (goal) is rebuilding confidence in the leadership internally,” Laurie Pushor said in an interview.

“Confidence in the public and government and the industry that we are a good team of people and that we’re doing our best and that we’re open to continuing to improve.”

Pushor, two weeks into the job, replaces Jim Ellis as boss of the Alberta Energy Regulator. Ellis left last November after investigators found serious mismanagement, misuse of about $2.3 million and a “culture of fear” among whistleblowers.

“Improvement will include continuing to strengthen transparency and continuing to strengthen accountability for our performance,” Pushor promised.

Pushor also comes into the role under a cloud of doubt, say opposition critics from both Saskatchewan and Alberta. 

He was a central figure in a Saskatchewan government land-deal scandal that cost taxpayers millions of dollars — and the subject of a scathing audit — prompting an RCMP investigation. 

That’s not the only challenge he and the energy regulator face.

There’s an enormous backlog of abandoned and orphaned wells that will cost someone billions to clean up. There are difficult relationships between the regulator, First Nations and landowners.

And there’s the industry itself for which profits and reserves are declining.

Don’t count Alberta out yet, said Pushor. Notwithstanding the uncertainties of COVID-19 and international oil price wars, there’s still money to be made, he said.

“If you look at recovery rates and the innovation that industry is applying to known reserves, not only might we not be presiding over an industry in decline, but you might see a bit of a renaissance in conventional production.”

Rebuilding trust with First Nations is another priority for Pushor. In his previous job as Saskatchewan’s deputy minister of energy and resources, he worked with a traditional knowledge-keeper, he said.

“He is relentless in reminding me that it’s about relationships,” said Pushor, who promises plenty of face-to-face time with Indigenous leaders.

“If you’re not in a relationship, you’re not going to be able to move things forward. We, as the regulator, need to be in a good relationship with First Nations.”

Pushor wants the same kind of contact with landowner groups, who have often been critical of how industry uses their land and treats them.

“It’ll start with three or four of the larger groups out there that have organized. I look forward to catching up and understanding their issues and seeing what can be done to move things ahead.”

When it comes to cleaning up wells, Pushor acknowledges he’s got some work to do to grasp the legal ins and outs. Critics have long pushed for a legislated timeline for dealing with old infrastructure and say that the province’s calculations on whether a well owner has the wherewithal for cleanup are antiquated.

Pushor asks for a little time to dig into those issues.

“The government’s the policymaker,” he said. “They’re going to give us the framework they want us to operate in.”

There’s an inevitable tension between business, environmental and public concerns, Pushor said.

“That tension is real and it should be. What makes a regulator effective is ensuring that tension is balanced.”

Critics say Pushor’s involvement in the Saskatchewan scandal should have disqualified him from the position, and that checkered past will make it difficult for the AER to restore its reputation.

Pushor believes the public still has faith in the AER, despite its internal and external problems.

“Confidence in the industry and the regulator, while they may have eroded somewhat, remains relatively stable. But we can always do better and we should.”

Orphan wells cleanup funding ‘a subsidy to industry,’ says Alberta farmer

Daryl Bennett is grateful for the $1.7M fund, but says companies that abandoned the wells should foot the bill

CBC Radio · Posted: Apr 17, 2020 6:02 PM ET | Last Updated: April 17

The federal government says it will employ thousands of people to clean up abandoned oil and gas wells — but an Alberta farmer says the companies responsible for the mess should be the ones footing the bill. 

Prime Minister Justin Trudeau announced on Friday $1.7 billion to clean up orphaned and abandoned oil and gas wells in Alberta, Saskatchewan and British Columbia, which he estimates will help create 5,200 jobs in Alberta alone.

“Our goal is to create immediate jobs in these provinces while helping companies avoid bankruptcy, and supporting our environmental targets,” Trudeau said.

Taber, Alta., farmer Daryl Bennett, a surface rights activist representing landowners across the province, has long had an orphan well on his property. Here is part of his conversation with As It Happens guest host Piya Chattopadhyay.

What do you make of the federal government ponying this $1.7 billion up? 

Let’s make no mistake. It’s a subsidy to industry.

Industry should have put the money aside to do this. So there’s lots of executives of those companies that have left with millions of dollars of profits or more, and now they’ve left the taxpayer to foot the bill. 

But society has benefited from the cheap oil and gas development, and it was taken on condition the landowners’ lands would be reclaimed. So since society allowed the system to be abused, society has a responsibility to make sure these wells are cleaned up. 

How far does the $1.7 billion go?

Well, they haven’t really announced exactly how that money is being spent. We’re assuming that they might be trying to put some of these sites into renewable energy. Some of the counties might be getting some money. 

But if it all went to reclaiming wells, you’re probably looking at an average $100,000 to $200,000 per well. So it’ll do some wells, but it’s certainly not going to solve the problem.

Prime Minister Justin Trudeau announced $1.7 billion to clean up orphan wells in Alberta, Saskatchewan and British Columbia, and aid for rural businesses and people working in the arts and culture sectors.

What are your fellow landowners saying about today’s announcement?

There’s lots of landowners that are happy that these wells will be cleaned up. They’ve been an eyesore on their lands. They’ve had weeds around them. They’ve been a safety hazard, a food safety hazard. So they do like seeing them get reclaimed. 

Now, you say this money is coming from taxpayers, but the oil and gas companies that abandon the wells aren’t rushing to clean them up. So how else was the problem going to be solved?

Industry was supposed to pay a levy sufficient to reclaim these wells. So, you know, a lot of these companies have gone bankrupt. They’ve privatized the profits and they’ve left. And now it’s left to the taxpayer or the remaining companies to to pay for the cleanup.

So the system was supposed to ensure that the polluter paid. That system was abused. It was not enforced. And now it’s left to the taxpayer.

You used the word “abused” there. … What exactly do you mean by that? 

A lot of these sites have sat there for 30, 40 years. Our landowner associations have been telling government that this was a problem waiting to happen for 20 years. And so they didn’t enforce any timelines on when these wells should be reclaimed.

So these companies now have learned that they can abuse a system. They don’t have to pay the landowner. They don’t have to pay the property tax. And now it appears they don’t have to pay to reclaim the land either.

That’s a pretty good business model when you’re allowed to suck the resources out and not have to pay any of the environmental or social liability costs for doing so.

With more job losses and companies going bankrupt, more orphan wells, what can your province, the province of Alberta, do to force these companies to take responsibility for these abandoned wells?

They probably can’t do anything now with the low oil prices. A lot of them aren’t even paying the property taxes. They’re not paying the orphan well levies. They’re not paying the annual rentals. They don’t have the money.

If they were forced to pony up the money, they’d all go bankrupt. So it’s a catch- 22 situation. The horse is out of the barn.

They should have addressed this a few years ago when oil was $100 a barrel, but they didn’t. And now the money’s not there. And subsequently, it’s left to the taxpayer to foot the bill. 

Oil and gas has seen a steep downturn even before COVID-19 came along. Is the orphan well problem about to get worse? 

Yes, it is about to get worse. 

The prime minister says this project will put 5,200 people back to work in Alberta alone. The Canadian Association of Petroleum Producers is expecting about 10,000 jobs to be created out of this announcement today. How big of a deal is that announcement in Alberta? 

It’s huge for Alberta. Our economy is way down. A lot of workers in these oil companies have been put out of work. Now they’ll at least have a job and they’ll be able to pay taxes.

What kind of workers do you expect will be doing the cleanup?

Well, that’s interesting, because we’ve heard that a lot of the contractors that put the wells in are now the ones being hired to take the wells out. And we do know there are some abuses in the system. And we’ve let the Orphan Well Association know that some of that is occurring. 

But it’s a lot of the oil service companies that have had to lay off people that will now be able to hire them back and put them to work in reclaiming these wells.

How soon do you expect crews to be on your property cleaning up that orphan well of yours?

The Orphan Well Association has been doing a very good job.

They were about to run out of money in the next two years because the provincial money was going to run out and they’re just wondering what they’re going to do.

So this $1.7 billion will allow them to continue to operate as they have been, and to do a little bit more than they have been doing.

Written by Sheena Goodyear with files from CBC News. Interview produced by Jeanne Armstrong. Q&A has been edited for length and clarity.

Alberta landowners and legal experts criticize well cleanup bill

By Bob Weber The Canadian Press

Posted April 8, 2020 1:34 pm

Updated April 8, 2020 10:52 pm

Landowners and legal experts say Alberta’s hastily passed bill to help clean up the province’s huge stockpile of abandoned energy facilities harms property rights without addressing why the problem exists in the first place.

They say the United Conservative government, which passed the bill in three days in an emergency session last week — despite the fact the problem is decades old, is using the COVID-19 crisis to make legislation without consulting the people it affects.

“This has very little to do with COVID,” said Regan Boychuk of the Alberta Liabilities Disclosure Project, a watchdog group of landowners and policy analysts.

“It wasn’t possible for landowner or opposition politicians to digest or analyze, let alone meaningfully respond, in three days. One has to assume that was the objective.”

Nigel Bankes, a professor of resource law at the University of Calgary, also criticized how quickly the bill became law.

“This was rammed through in a most inappropriate way,” he said.

Alberta Energy spokesman Kavi Bal said the approach was needed in anticipation of even more bankruptcies in the oilpatch caused by a combination of the global pandemic and the recent collapse in oil prices.

READ MORE: ‘Ticking time bomb:’ Alberta group wants aging oil wells to be election issue

“It is unfortunate that some have taken relief measures brought forward in order to keep people employed and politicized them in a time of crisis,” he said in an email.

The bill’s purpose is to help the province deal with more than 10,000 wells, well sites, pipeline segments and other facilities that haven’t been cleaned up by Alberta’s energy industry. The problem dates back decades, but has accelerated in recent years due to low oil prices.

The bill gives the group responsible for abandoned sites new powers.

The Orphan Well Association  will be able to enter private property to do reclamation work. It will also be able to take over abandoned wells and operate them.

READ MORE: Alberta needs better rules to ensure polluters clean up wells: Orphan Well Association

Bankes said some of those powers “fill a number of holes” in previous bills.

The association can now oversee land reclamation in addition to well clean-up, he said. Allowing it to operate facilities may be a public safety benefit in the case of, for example, toxic sour gas wells.

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The bill also requires operators to take steps to prevent facilities from damage.

“It’s a step in the right direction,” Bankes said.

But the bill still contains no timelines for companies to clean things up, as is common in other jurisdictions, said Bankes. It also doesn’t do enough ensure companies have enough money to repair the damage they’ve done.

“We should actually be requiring wells that aren’t in production for a long period of time to be properly abandoned and the well site reclaimed,” he said.

“We’re not being proactive enough to demand security up front to cover liabilities.”

Dwight Popowich, who owns land in southern Alberta with energy facilities on it, said giving government officials more power to enter his property erodes his rights. He said allowing the Orphan Well Association to operate wells without making lease payments to landowners isn’t right.

“It’s not a lease any more, it’s forced expropriation.”

Boychuk said the bill also politicizes well clean-up by giving cabinet discretion over priorities. He also warns the bill will cost municipalities millions in unpaid property taxes when they are written off in bankruptcy.

Bal said the bill is one part of an overall package on the energy industry.

“This legislation is about protecting existing jobs and setting the stage for job creation during a time when it’s needed the most,” he wrote. “(It’s) part of larger package that includes a full suite of policies to address the issue of orphaned and abandoned wells.”

Alberta to give $100-million loan to decommission orphan wells

Lauren Boothby

Edmonton Journal

Updated: March 2, 2020

Alberta is offering a $100-million loan to decommission 800 to 1,000 orphan wells, a move that is expected to create 500 direct and indirect jobs in the oil services sector.

The investment to the Orphan Well Association (OWA) will help the non-profit start 1,000 environmental site assessments that aim to return the land to its condition before the wells were built. The details on the loan will be finalized by April 1.

Premier Jason Kenney said the funds will provide a “lifeline” to oilpatch workers hit by layoffs.

“This is a very important announcement about getting oilfield workers back to work right now when we need it, there is more investment coming into the oilpatch. And we believe there’s a path forward through pipelines,” Kenney said at Savanna Well Servicing in Leduc on Monday morning.

In 2017, Alberta gave the OWA an interest-free $235-million loan to clean up orphan wells across the province. The Financial Post reported in December that there are still more than 15,000 wells drilled before 1964 that have not been remediated. The OWA sent a letter to the Alberta Energy Regulator in January, saying the province’s rules around reclaiming abandoned oil and gas wells are inadequate.

Lars De Pauw, executive director of the association, said at the news conference Monday the organization has about 6,500 abandoned sites in its inventory. He said the loan will help speed up reclamation and reduce the impact to landowners hosting abandoned wells.

Energy Minister Sonya Savage said the $100-million loan is an example of how the government is ensuring the oil and gas industry can be successful and responsible.

“Meeting their obligations includes bearing the cost of cleaning up inactive and orphaned wells. Because of recent challenges, orphan wells are becoming a growing concern in Alberta. And to be frank, it’s a situation that needs to be addressed,” she said. “Our government recognizes the pressing need to turn the tide on growing oil and gas liabilities.”

Savage said the funds would also create indirect jobs with suppliers, equipment and service providers, mechanics, and concrete manufactures, as well as local businesses as cleanup crews visit different communities. She also reiterated the government’s plans to release a suite of new laws that would address orphan wells in the next few weeks.

Irfan Sabir, NDP’s critic for energy and natural gas, said he’s glad to see funding to clean up wells, but questions the party’s decision to frame the investment as a job-creating tool.

“It’s not a long-term solution. They’re saying they will create 500 direct and indirect jobs, but since they took office we have lost 50,000 jobs,” he said. “I think they need to invest more in diversification, of creating, refining, opening new markets so Alberta can get back to work.”

Major oil and gas investment to be announced this month

Last week, Kenney hinted the province may invest in a major oil and gas project. On Monday, he said details on that project would be announced by the end of the month that show “the government of Alberta’s commitment to getting pipelines built, the key part of infrastructure for the future.”

[email protected]

@laurby

Unpaid bills: Are rural Albertans growing tired of carrying the freight for delinquents in the oilpatch?

There are calls for consolidation as some companies fail to pay their taxes

Kyle Bakx · CBC News · Posted: Jan 30, 2020 4:00 AM ET | Last Updated: January 30

Sequoia Resources remains in receivership after ceasing operations in March 2018. (Kyle Bakx/CBC)

There is no denying how much the oilpatch has provided Alberta over all these years — the jobs, tax revenue, government royalties and economic activity — a benefit to nearly every corner of the province, no matter how remote.

It’s oil and gas funding community centres and arenas. It’s oil and gas revenues helping pave rural roads. It’s oil and gas building the tallest office towers in Western Canada.

At least, until recently.

The prolonged downturn in prices has taken the shine off the industry and affection for the sector is also taking a hit.

Last week, rural towns and municipalities announced they are owed $173 million by oil and gas companies in unpaid taxes.

There’s also the revelation the Alberta Energy Regulator is purposely collecting a lower amount from some companies to prevent more of them from going bankrupt. The security deposits are supposed to help cover the cost of cleaning up old oil and gas wells, if those companies fail and no one buys the assets.

On both fronts, some argue, Albertans are giving industry a subsidy. 

Raising taxes, slashing services

With the outstanding tax balance, many rural towns and counties are faced with raising taxes on other businesses and homeowners and slashing services. The regulator’s shortfall in security deposit increases the likelihood more government money will be needed in the future to clean up wells.

The situation has some people wondering whether it’s time for a reckoning for Alberta’s delinquent oilpatch companies. 

Make no mistake, the majority of companies are paying their bills and are spending money every year to properly reclaim their oil wells. 

There is a debate in Alberta about whether to give industry a break or find a way to make companies pay. (Kyle Bakx/CBC)

Still, there are black sheep — mainly smaller oil and gas companies.

They are behind on their bills and teetering on the edge of going belly up.

With so much uncertainty surrounding future oil or natural gas prices, maybe some of these smaller companies won’t last, regardless of whether they are subsidized or not.

Opinions are pretty split. On a provincial CBC Radio call-in show on the oilpatch tax issue, half of the people demanded companies pay up, while the other half said the industry deserved a break.

Time to purge

The tax shortfall is throwing municipal budgets into a tailspin.

The Municipal District of Taber in Southern Alberta is owed more than $2 million from oil and gas companies, which represents close to 10 per cent of its budget.

As a result, the municipality has laid off workers, halted the replacement of equipment, and scrapped plans for road improvements and a recreation centre. There’s no money for anything new.

Of the 44 oil and gas producers operating in the municipality, 15 did not pay their taxes.

“Some of them are actually bankrupt and out of business, but some are just choosing not to pay because there is nothing to force them to pay,” said Reeve Merrill Harris on CBC Radio’s The Calgary Eyeopener.

“If you’re a viable, active company, taxes shouldn’t be an option. They should be something that has to be paid.”

Other municipalities are also raising taxes.

That’s got rural landowners complaining about a “triple whammy” of grief with the oilpatch.

Many farmers aren’t getting the full payment from energy companies to use their land, taxes are going up as municipalities aren’t getting paid, and, if they have a geriatric well on their property, they don’t know when it will get cleaned up.

That’s why there is talk in some rural communities of getting rid of the deadbeats.

Landowner Dwight Popowich doesn’t buy the argument that oilpatch companies need a break.

“In my mind, it’s time to consolidate the industry, get the weak players out of the system, get the resource back in the hands of financially stable companies. That’s our problem,” said Popowich, who owns land near the town of Two Hills.

The inactive natural gas well on Dwight Popowich’s land has not produced anything since 2012. The owner has since ceased operations. (Kyle Bakx/CBC)

If a small company can’t afford to pay bills, nor afford its eventual cleanup costs, maybe it shouldn’t still be operating, critics say.

The industry is receiving other assistance too. The provincial government introduced a 35 per cent municipal tax break for shallow natural gas producers. The province also lowered the corporate tax rate.

The financial hand-holding of the industry needs to end, according to former Alberta Liberal leader David Swann.

“What other industry, what other corporation is getting this kind of treatment?” he said. “We are just propping them up year after year and ignoring the fact that they are an industry on the way out.”

A reckoning on tax burden

For the oilpatch, the tax issue isn’t anything new. The problem surfaced more than a decade ago and companies have argued for years that their municipal tax bills are escalating too quickly.

Canadian Natural Resources, the largest oil and gas producer in the country, previously said its property taxes swelled five times more than its revenues from 2004 to 2014.

CNRL, of course, still has healthy profits. In the latest quarter, it posted earnings of $1.23 billion, compared with $1.35 billion a year earlier.

It’s the smaller companies that are at higher risk of going belly up.

These companies have employees, investors and suppliers, and are often spending money in parts of the province with limited economic activity.

During the downturn of the last five years, the oilpatch’s pain has been felt across many other sectors, such as rural hotels, for instance.

Before demanding these companies pay their taxes and full deposits to the regulator, some argue the financial fallout should be considered.

In 2019, Trident Exploration ceased operations. Over the last five years, several oil and natural gas producers have closed their doors. (Kyle Bakx/CBC)

The whole sector is already under enough stress and there’s no need to add more pressure, according to Brad Herald, with the Canadian Association of Petroleum Producers.

Forcing companies into bankruptcy would have repercussions.

“That’s challenging for the workers and communities involved where they operate,” he said.

There’s no need to add more financial pressure on the oilpatch, according to Brad Herald, with the Canadian Association of Petroleum Producers. (Kyle Bakx/CBC)

The industry points out that the value of oilpatch assets has declined over the last five years, but taxes haven’t.

“There has to be a meeting of the minds,” said business commentator Deb Yedlin on The Calgary Eyeopener. “The formula that exists today is not reflective of the reality.”

Although the issue may not be new, it seems to be getting worse.

Some in the oilpatch say municipalities should reconsider how much companies are charged in taxes.  Others argue a reckoning has already happened in the oilpatch as the downturn has claimed dozens of companies.

What happened in Texas?

A historical case study from Texas shines some light on what could happen when oil and gas companies are forced to pay up.

In 2001, the state’s regulator decided to increase the amount industry owed as security toward eventual cleanup of oil and gas wells.

Small companies were upset, arguing it would drive them out of business.

They were right, although it wasn’t necessarily a bad thing.

University of California San Diego economics professor Judson Boomhower crunched the data and concluded small companies were largely bought up by larger companies. 

Oil and gas production remained steady and the sector’s environmental performance improved with fewer of the smaller players.

His findings were released last year in the American Economic Review.

A similar outcome could happen in Alberta, said Boomhower. One big difference, though, is the province’s large number of inactive oil and gas wells. If smaller firms go belly up, some of those wells may become orphans.

“There is a huge population of idle wells [in Alberta], so I do think that is a risk you have to take seriously,” he said.

Alberta has about 94,000 inactive wells and 3,400 orphan wells. (Kyle Bakx/CBC)

The risk of more orphans begs the question whether the wells were likely to become orphans in the next few years anyway, or whether some of the wells would likely have been properly reclaimed by operators.

Alberta has an industry-funded association that handles orphan wells, the Orphan Well Association, which is already underfunded and has a backlog of sites. Still, government money already has been spent to help with the growing backlog of wells, pipelines and facilities needing cleanup.

That’s why the Texas case study provides some useful insight, but the impact of a reckoning for unpaid bills isn’t clear, for the environment or rural Alberta.

Alberta’s farmers’ property rights under attack by the energy industry and the UCP government

Click here to read the Press Release

Group cleaning up old oil wells says Alberta government rules inadequate

8 hrs ago

The Canadian Press

EDMONTON — A group tasked with cleaning up thousands of abandoned energy facilities in Alberta says the province’s rules for ensuring polluters reclaim their wells before selling them off are inadequate.

The industry-funded Orphan Well Association made the criticism in a letter to Alberta’s energy regulator, which is considering a proposed transfer of hundreds of toxic gas wells, pipelines and other facilities from an energy giant to a much smaller company.

“The (association) has seen a dramatic increase in the number of orphan properties over the last several years and we believe part of the issue stems from a historically inadequate assessment of the transfer risks,” says the letter from association head Lars DePauw.

“The (association) believes that the current regulatory system for assessing the overall financial viability of asset transfers is not adequate and needs to be augmented.”

Shell Canada has agreed to sell 284 sour gas wells, 66 facilities and 82 pipelines in the southern Alberta foothills to Pieridae Energy, a Calgary-based company with a market value less than the price of the assets and a stock price under $1.

The Alberta Energy Regulator must rule on the licence transfers at a time when the inventory of energy facilities abandoned by bankrupt companies grows.

The number of wells transferred to the association sits at 3,400. Alberta has budgeted more than $70 million for cleanup by 2023 — a more than 50 per cent increase in otherwise belt-tightening times.

“We believe that the applications represent an extraordinary situation in the current Alberta market,” the association said in the Dec. 5 letter.

Pieridae has said it will retain Shell employees who are expert in handling sour gas. It also said the transaction meets provincial rules that stipulate a purchaser’s assets must be at least twice its liabilities before licence transfers are approved.

Regan Boychuk of the Alberta Liabilities Disclosure Project, a group of academics and landowners who have filed concerns about the Pieridae transfer, said those measurements are not credible.

Assets are calculated on the basis of the average industry profit per barrel of oil. That figure — now $37 — hasn’t changed since 2010, when oil sold for about $100 a barrel.

That average is supposed to be recalculated every three years, said Boychuk.

“The regulator has never followed its own policy,” he said. “It is not a proper accounting of the cost of this type of work.”

Concerns about the transfer are shared by at least two major energy companies.

“Pieridae has been operating at a loss since it began operations,” said a letter from Cenovus to the energy regulator. “Material uncertainties exist around their ability to continue as a going concern.”

“Pieridae Energy Limited (has) limited on-hand financial resources to address the current and future liabilities associated with operating the assets,” said Canadian Natural Resources.

“If the licence transfers are allowed, there is a high probability that Pieridae will be unable to respond to circumstances should any operational, health, safety or environmental problems arise.”

Both companies said the association could get stuck with a $500-million bill if Pieridae is unable to clean up.

Worries about safety and cleanup are echoed by 14 area landowners.

“This looks like the old shell game,” wrote Michael O’Keefe of Cochrane.

Sharon Rubeling of Rocky Mountain House points out Pieridae is partly financed through a Toronto company behind a previous asset transfer that eventually left hundreds of wells orphaned.

She adds that Albertans are already invested in Pieridae through loans from AIMCo, which administers public pensions in Alberta. AIMCo also owns five million shares in Pieridae.  

This report by The Canadian Press was first published Jan. 15, 2020

— Follow Bob Weber @row1960 on Twitter

Bob Weber, The Canadian Press