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.

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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.


 

Farmers play waiting game as flooding delays seeding

 

Tim Kalinowski
Lethbridge Herald
[email protected]
April 18, 2018

During this time last year, local farmer Colten Bodie was seeding his land, but this year’s unusual weather and overland flooding will cause delays. He estimates about 40 per cent of his farmland in Lethbridge County is underwater.

While in the short term overland flooding in local districts is a threat to infrastructure and property, for farmers the recent flooding means losing a good portion of their spring seeding season.

“The flooding has been pretty substantial,” says Colten Bodie, one of several farmers near Wilson Siding dealing with flooding at the moment. “The frost is still in the ground, and being that we have had so much snowfall, nothing is soaking in and everything is running off. We do have some land where the water isn’t draining away or is draining onto our land. There is going to be a couple hundred acres we can’t seed because of it.”

Bodie says his family started seeding by April 22 in 2017, but May 22 might not be an unrealistic start date this year, depending on how things go weather-­wise the next few weeks.

“Based on temperature, soil and the amount of water we have on the ground, we are a couple weeks away yet,” he said. “And it will be interesting to see where we end up. Me and a couple of buddies are actually taking bets on when we are going to start. We’ll also have to see what we can and cannot seed on the dryland acres, where a lot of that water is flowing into our land.”

On a more positive note, irrigated acres are substantially easier to drain, says Taber Irrigation District manager Chris Gallagher, but the irrigation season will definitely be delayed as TID works to clear out ice-choked canals.

“We have not yet set a start-up date,” confirmed Gallagher. “That means farmers have got lots of water on their land, and it’s going to be a delayed start-up (for seeding). We do understand there are some crops that do need early water, especially sugar beets and canola, and we know there is going to be some demand to have water sooner. But we are indicating to them we expect to be delayed this year, and to expect that seeding will need to be delayed also. They should be checking with us to confirm start-up dates for water supply before they seed.”

TID has obtained permission to allow its members to pump out standing water in their irrigated acres once canal flows return to stable and manageable levels.

“Our major focus is getting free-flow to the river so we can safely match our (rising) reservoir levels,” Gallagher states. “The next step then is to address our farmers who have ponded water on their fields. We have obtained a blanket approval from Alberta Environment so that any TID member on our assessment rolls can obtain written permission from us to start pumping across their (irrigated) fields into our works. We are looking at maybe a week from now we will be able to start pumping out those fields where needed. We can’t start pumping out those fields until we are sure our canals can handle it.”

Gallagher says it has been a challenging spring for all local irrigation districts, but he hopes the flood concerns will soon recede and their farmers can get back into their fields before too long.

“For our district we are now kind of out of the woods for inflow unless the forecast changes. The vast majority of the snow that was on the land has melted. The ground is still saturated, however, so sometimes we do find some diurnal cycles where when the temperature gets up during the day the water starts to seep out of the soil and then into our canal systems. But we are not finding the surges we had previously.

“However,” he cautions, “we know our neighbours to the east and to the north are still having some issues (in Vauxhall and Bow River Irrigation District). We are working with them to take some of their water into our Horsefly reservoir to relieve some of the pressure as that water moves east.”

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Overland flooding in area results in other concerns

Dave Mabell
April 18, 2018
Lethbridge Herald

[email protected]

While southern Alberta crews continue the battle against overland flooding, officials have issued warnings about additional dangers.

Landowners who depend on cisterns and wells which have been flooded are being warned not to use the water – but to consider it contaminated. Owners are, meanwhile, being asked not to pump water off their land if it’s likely to affect their neighbours adversely.

The “local state of emergency” has been lifted in Lethbridge but remains in effect in the hard-hit M.D. of Taber.

In Taber, M.D. officials have given notice to anyone who moves or alters barricades placed to keep drivers out of danger. Police may lay charges, they point out.

“I don’t think there’s anyone here who has seen this kind of overland flooding,” says Derrick Krizsan, chief operating officer for the M.D. “We have about 100 roads closed.”

Apart from damaging homes, buildings and roadways, he points out the floods will mean a serious delay in spring planting.

“Specialty crops here are usually planted by May 1.”

Water levels have been dropping in the municipality’s southwest corner, Krizsan reports – good news for producers in the Barnwell and Cranford areas. But there’s still plenty of snow to melt in the M.D.’s northern areas – Hays, Enchant and Vauxhall – as well as east to Grassy Lake.

That could take three to seven days to melt.

“It’s really quite variable.”

And there are still ice jams in the St. Mary River Irrigation District’s main canal east of Taber, he adds.

As soon as conditions are dry enough – and the threat of more flooding has passed – Krizsan says the M.D. will be sending gravel trucks and graders to repair damaged roads.

Both the county and the MD are posting updated lists of road closures on their websites.

The M.D. has also issued a heavy load ban, restricting trucks to 75 per cent of their usual load on gravel routes to reduce damage to their water-softened road structure.

A mandatory evacuation order had been considered a possibility around Taber, but officials say that won’t likely be required. Some rural residents left their homes voluntarily, however.

In Lethbridge, county officials say the situation was improving Tuesday.

No new road closures were announced since 9 a.m. Tuesday and floodwaters were receding “in most areas of concern.”

Some county roads remain closed, however, and drivers are advised to use caution on roads that have been softened or are covered with water.

County officials also remind residents who have flood damage to document that damage with photos, dates and details for their insurance company.

Alberta Health Services also offers information for residents affected by floodwater, at https://myhealth.alberta.ca/alberta/pages/What-do-i-do-if-my-private-water-well-has-flooded.aspx

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