Alberta Energy Regulator’s former CEO grossly mismanaged public funds to create international centre: auditor

Former CEO displayed ‘reckless and wilful disregard’ for the proper management of public funds, report says.

Tony Seskus · CBC News · Posted: Oct 04, 2019 1:03 PM ET | Last Updated: October 4

Jim Ellis, shown in an old promotional photo, grossly mismanaged public funds while president of the Alberta Energy Regulator and the now-defunct International Centre for Regulatory Excellence, according to the Office of the Public Interest Commissioner. (Alberta Energy Regulator)

Alberta’s energy regulator wrongfully used its resources to establish an international centre outside its mandate, while its former CEO displayed “reckless and wilful disregard” for the proper management of public funds, according to investigations by three different provincial government watchdogs.

The damning reports by Alberta’s auditor general, public interest commissioner and ethics commissioner centred on the creation and operation of the now-defunct International Centre for Regulatory Excellence, or ICORE.

The Alberta Energy Regulator (AER), which is funded by a levy charged to the energy sector, oversees the province’s massive energy sector and is expected to ensure the safe and environmentally responsible development of the industry.

It established ICORE in 2017 as a separate, external entity that would offer training to regulators around the world.

In findings released Friday, both the auditor general and public interest commissioner found this was outside the AER’s mandate and that public money was spent inappropriately on ICORE activities.

Alberta Ethics Commissioner Marguerite Trussler, left, Public Interest Commissioner Marianne Ryan and Auditor General Doug Wylie, shown at a Friday news conference in Edmonton, shared findings from their respective independent investigations into the activities related to the AER and ICORE. All found the Alberta Energy Regulator wrongfully used its own resources to establish an international centre outside its mandate. (Jason Franson/The Canadian Press)

“AER engaged in activities outside of its mandate and public money was spent inappropriately on ICORE activities,” read the report from Alberta Auditor General Doug Wylie.

He estimated the total financial impact of ICORE activities on the AER totalled $5.4 million, though $3.1 million was recouped. The AER is still out of pocket $2.3 million, according to the audit.

Wylie also concluded that ICORE activities lacked a credible benefit to the AER.

‘Gross mismanagement’ by former CEO

The Office of the Public Interest Commissioner report levelled some of its strongest criticism at Jim Ellis, who was president and CEO of the AER and president of ICORE.

“His actions demonstrated a reckless and wilful disregard for the proper management of public funds, public assets and the delivery of a public service, which … constitutes gross mismanagement,” the report said.

Ethics Commissioner Marguerite Trussler’s report also found that Ellis had a conflict of interest “in that he furthered his own interest and improperly furthered the private interest of three other employees.”

“The primary motivation behind ICORE not-for-profit was to provide future employment for Mr. Ellis and others.”

However, Public Interest Commissioner Marianne Ryan told reporters during a news conference that there was no evidence to suggest Ellis benefited personally from a financial perspective.

The matters did not reach the threshold to refer them to the solicitor general for potential criminal charges, she said.

Ryan added that her report  is not a condemnation of the AER as a whole. “It was employees of the AER that brought this matter to my attention and assisted with the investigation,” she said.

Controls to monitor expenses at first ‘non-existent’

The auditor general’s report also found that controls and processes to protect against potential conflicts of interest failed and that oversight from the AER’s board was ineffective.

Alberta Auditor General Doug Wylie’s report also found that controls and processes to protect against potential conflicts of interest failed and that oversight from the AER’s board was ineffective. (CBC)

“Controls to track and monitor expenses related to ICORE activities were at first non-existent and then poorly implemented,” the report states. “The tone at the top at AER did not support a strong control environment or compliance with policies.”

Wylie’s report said a “culture of fear” at the AER stifled concerns regarding ICORE activities, with a number of staff interviewed by his office saying that employees who expressed complaints felt at risk of losing their jobs.

The culture at the AER stifled concerns regarding ICORE activities, Wylie said. A number of staff interviewed by his office used the phrase a “culture of fear” and said employees who were vocal about expressing complaints were at risk of losing their jobs.

AER sued ICORE in 2019

A recent CBC News investigation found a close and complicated relationship between the AER and ICORE, including the involvement of Ellis.

Several key figures who were involved with ICORE, including Ellis, are no longer associated with either organization. Ellis resigned from his post at the beginning of 2019. Ellis could not immediately be reached for comment Friday.

Also earlier this year, the AER sued ICORE and received a default judgment in its favour for $2.6 million for money it said it was owed for the development and delivery of training materials.

    Alberta Energy Regulator CEO Jim Ellis to resign in January

The results of the provincial investigations come at a time when the energy regulator is under scrutiny from the provincial government.

In September, Energy Minister Sonya Savage announced her department was launching a review of the AER and appointed an interim board of directors to set its future direction.

Savage and Environment Minister Jason Nixon issued a joint statement Friday on the results of the investigations, saying they “cannot condemn the practices noted in these reports strongly enough.”

“Our government was elected on a promise to reform the AER, which is precisely why we have already taken action, launching a review of the AER in August and replaced the board in the same month,” the statement said.

The recommendations contained within these reports will inform the Alberta government’s review of the AER, they said, noting that they expect the agency’s interim board to implement the reports’ recommendations.

Among the recommendations outlined in the three reports:

    Corporate governance throughout Alberta agencies, boards and commissions needs to be strengthened.

    AER staff need to be made aware of and sufficiently trained on the whistleblowing process.

    The AER should evaluate whether any additional funds expended on ICORE activities are recoverable.

In statement, the interim board of the AER said it will take the recommendations seriously and implement any required actions “in order to enhance public confidence” in the regulator.

“While ICORE was originally established to provide training to AER employees and support information-sharing across jurisdictions, it is clear now that a small group of senior leaders used AER resources in a way that is unacceptable,” the regulator said in a statement. “These individuals are no longer employed at the AER.”

AER overhaul a dangerous game

By Lethbridge Herald Opinion
September 11, 2019

Grant Sprague and Bev Yee, Alberta deputy ministers of energy and environment respectively, are very capable senior bureaucrats. Here’s hoping they bring to bear all their skills for the review of the Alberta Energy Regulator.

They should keep in mind that the review ought not to be the witch hunt the current political framing suggests it is.

Increasingly, investors look to ensure they capitalize on energy companies that take seriously those considerations related to environment, social and governance.

That should serve as a reminder not to toss out the baby with the bathwater as the United Conservative Party seeks to erase anything vaguely associated with the thinking of the previous NDP government.

Alberta energy politics are becoming hateful and divisive. And instead of constructively and collectively understanding the complex restructuring with which it must grapple, the industry has become fractious and fragmented. So we find answers to complex issues are distilled down to naively simplistic solutions.

There are elements of the sector that simply adore a bogeyman. There’s plenty to be had if you subscribe to the UCP thesis that everything wrong in energy is someone else’s fault.

The Alberta Energy Regulator (AER) is merely the latest culprit the UCP is handing to those in the sector looking for something to hang in effigy.

Want a scapegoat for energy sector travails? The UCP has a closet full ready to trot out: other provinces, other Canadians, foreign interests, liberal politicians.

One key driving force behind the review, suggests Alberta Energy Minister Sonya Savage, is the time it takes to process an application. She points to other jurisdictions like Texas, which she argues processes things exponentially faster.

Implicit in her argument is that this is attractive to investors. To a point it may be, but the minister’s advisers would do well to get in front of her the other side of the Texas story: about investment leaving in droves and about looming environmental debacles, particularly involving water.

One thing increasingly binds investors together: an expectation that companies with which they place capital understand and respond to environment, social and governance imperatives. And they expect solid and robust regulatory frameworks within which firms operate in order to safeguard their capital.

AER is a world-class regulator. In recent times, it has introduced a broad spectrum of improved services designed precisely to solve the very problems of which it has been accused. It has been tackling red-tape challenges for years.

Two recent innovations come to mind: the OneStop process that simplifies applications dramatically and the Integrated Decision Approach, which reflects a long-range understanding of an application.

Regulatory dynamics are a two-way street. Many companies that have hacked staffing in recent years need to assess the quality of their regulatory requests. Remember: garbage in, garbage out.

Good regulators are creatures of the sector and society. So AER ought to mirror regulatory and socio-economic realities.

Has the AER’s staffing grown in recent years?

It has changed, largely in response to the increasingly complex environment in which it’s expected to function – an environment that bears little resemblance to even 15 years ago. For example, when AER was created, it took on the Environmental and Sustainable Resource Development Department functions. Yet its staffing has remained relatively flat for the last several years.

The UCP is desperate to appease certain elements of the industry. But destroying AER’s ability to balance environmental and fiscal imperatives could actually set Alberta’s recovery back dramatically.

Weaken the regulatory framework at your peril. Sloppy regulation begets sloppy industrial operation. And sloppy industrial operation begets sloppy reputation and social unrest. And the kind of capital you want driving the sector loathes sloppy reputations and the risk it brings.

For Sprague and Yee, and the interim board, this will be a delicate task. Deputy ministers must be, of course, political creatures to be effective in their roles. Here’s hoping they help their political masters guide a reasonable and rational review that keeps front and centre a regulator’s role in a robust economy.

And here’s hoping the UCP resists its political impulse to toss people and process under the nearest conveniently rolling bus.

Perhaps most important will be the stakeholder input. It ought to guide the review to stay away from the UCP temptation to bring the AER closer to political will.

Remember the great line from the Joni Mitchell song Big Yellow Taxi: “You don’t know what you got ’til it’s gone.”

Bill Whitelaw is president and CEO at JuneWarren-Nickle’s Energy Group and former publisher of The Lethbridge Herald. Distributed by Troy Media.

Alberta oil and gas producer cleanup cost estimates set too low, coalition says

By Dan Healing
The Canadian Press         

Canadian Natural Resources Ltd. chairman Murray Edwards, left, prepares to address the company’s annual meeting in Calgary on May 9, 2019. The Alberta Liabilities Disclosure Project says the province’s largest oil and gas companies are underestimating how much it will cost to clean up thousands of oil and gas wells drilled over past decades.

Canadian Natural Resources Ltd. chairman Murray Edwards, left, prepares to address the company’s annual meeting in Calgary on May 9, 2019. The Alberta Liabilities Disclosure Project says the province’s largest oil and gas companies are underestimating how much it will cost to clean up thousands of oil and gas wells drilled over past decades.

An Alberta coalition that says oil and gas producers are lowballing how much it will cost to clean up their well sites is being accused by the head of the Alberta Orphan Well Association of overstating those numbers.

The Alberta Liabilities Disclosure Project, a coalition of landowners, environmentalists and others, on Thursday published a list of producer companies with estimates of how much it would cost each to remediate its Alberta oil and gas properties if the job had to be done immediately.

Those costs are much higher than the companies estimates because they are assuming they will have decades of cleanup time, the coalition said, while calling on the province to release independently verified estimates of liabilities.

“When companies report their liabilities at discounted rates, without also reporting what it would cost to do the cleanup today, it makes them look — on paper — healthier than they are,” said Regan Boychuk, the ALDP’s lead researcher.

    “But their numbers assume the companies have decades they may not actually have.”

The cost estimates from the coalition seem much higher than actual costs his organization incurred to clean up 800 inactive oil and gas wells last year, said Lars DePauw, executive director of the OWA, an organization funded by industry that steps in to clean up wells when their owners either can’t or won’t.

“With all the work we did last year, the average cost on the abandonment side, or decommissioning, as we call it, was $34,000 per well and $27,000 to reclaim a site,” he said.

    “I don’t know how they came up with their numbers.”

Boychuk said in an interview his group’s assumed average cleanup cost per well is $229,000, a number based on an internal Alberta Energy Regulator study obtained through freedom of information law.

The numbers given by DePauw may be accurate but they are for cleaning up “cheap, easy, quick wells,” such as shallow gas wells with no associated hazardous gases, he said.

DePauw, in response, said OWA’s job list last year included a mixture of both simple and complex wells, pointing out that the OWA did as many cleanups in one year as it has in the past 20 years.

Cleanup costs were far below targets set by the Alberta Energy Regulator, he said, thanks to growing expertise and the use of area-based programs that allow for greater efficiency.

Calgary-based Canadian Natural Resources Ltd. was singled out by the coalition as facing by far the largest bill at $11.9 billion to clean up 73,000 oil, gas and bitumen wells in Alberta.

In its news release, the coalition adds that is “more than double the $5.3 billion in worldwide asset retirement obligations reported in CNRL’s audited financial statements.”

However, in its Annual Information Form submitted to Canadian regulators in March, CNRL reports its undiscounted worldwide ARO is $12.3 billion.

When asked about that, Boychuk said the coalition worked with a U.S. specialist who consulted American regulatory filings, which didn’t include the undiscounted amount. He said many companies reduce their apparent liability by spreading it out over decades.

He said CNRL should be “applauded” for reporting the undiscounted estimate as many companies do not, but noted the number for all of the company’s assets in Africa, the North Sea and oilsands mining almost matches his group’s estimate for its Alberta wells alone.

Other companies on the coalition’s top 10 list include Husky Energy Inc. (second highest at $2.17 billion), IPC Alberta Ltd., Imperial Oil Ltd., Torxen Energy Ltd., Obsidian Energy Ltd., Cenovus Energy Ltd., Canlin Energy Corp., Paramount Resources Ltd. and Taqa North Ltd.

Husky spokesman Mel Duvall says the company used accepted industry practices to estimate its worldwide abandonment liabilities as of the end of 2018 at $2.4 billion, with the majority of those costs related to properties in Alberta and Saskatchewan.

    “We take our asset retirement obligations seriously and abandon and reclaim in excess of 1,000 wells a year,” he said.

In April, the coalition estimated the total cost to clean up all of Alberta’s oil and gas wells was $40 billion to $70 billion.

In an email, the AER said its official energy cleanup estimate of $58.65 billion is split into $28.35 billion for coal and oilsands mines and $30.2 billion for oil and gas wells, facilities and pipelines.

It says the total security held for mining as of June 2018 is approximately $1.46 billion and the total for oil and gas is about $224 million.

© 2019 The Canadian Press

Limited Partnership Provides Valuable New Revenue for Piikani Nation


News Releases

June 4, 2019

CALGARY, ALBERTA — (Globe Newswire – June 4, 2019) – A recently approved limited partnership provides the Piikani Nation the opportunity to make an equity investment in the transmission infrastructure that crosses their land and delivers a valuable new revenue stream for the First Nation.

“It’s great to see that this Piikani Nation option agreement has finally come to fruition,” said Chief Stanley Grier, Piikani Nation. “In order for AltaLink to build the transmission line, they had to consult the Piikani Nation people, and more importantly our traditional knowledge keepers who were entrusted to verify important sacred traditional and burial sites related to Piikani Nation lands.”

An application from AltaLink and the Piikani Nation (through its nominee) for the new limited partnership – PiikaniLink L.P. – to acquire AltaLink’s transmission assets on the Piikani Nation’s land was approved by the Alberta Utilities Commission (AUC) on November 13, 2018. The parties completed the commercial arrangements effective June 1, 2019 through the Piikani’s investment of 51 per cent of the equity portion of the transmission line and associated substation equipment acquired from AltaLink.

During consultation for the Southwest 240 kV project, AltaLink worked closely with the Piikani Nation to reach an agreement that allowed the new transmission line to cross First Nation land.

“This partnership is a win-win for the people of the Piikani First Nation and for all Albertans because we were able to save millions of dollars for Alberta electricity ratepayers by building a lower cost project,” said Scott Thon, President and CEO of AltaLink. “At the same time, the Piikani Nation is provided with the opportunity to invest in the transmission line on their land and create a consistent ongoing revenue source for their people for years to come.”

The investment provides the Piikani Nation an opportunity to earn a regulated rate of return while AltaLink will continue to maintain and operate the transmission line as general partner of the PiikaniLink L.P.

“I’m very proud of the partnership we have created with AltaLink, my acknowledgement to all of those that have helped solidify this relationship,” Councilor Doane Crow Shoe said. “Piikani looks forward to the long term benefits alongside AltaLink. It is my hope that this collaboration will improve how Indigenous communities can be a part of the evolving energy sector.”

About the Piikani Nation

The Piikani Nation is a proud member of the Blackfoot Confederacy (Siksikaitsitapi) which consists of Kainai, Siksika and Amskapi Piikani. The Piikani Nation has retained its culture, heritage and language by incorporating Piikanissini, which is the way of life for the Piikani. Piikani sets out its inherent values and principles of the Akaa Piikani, the ancient Piikani people.

Piikani engages in a variety of development functions within their reserve lands and traditional territory. PiikaniLink L.P. is a component of Piikani’s Energy Strategy that will foster future renewable energy for long term economic sustainability and resource development for the Piikani Nation.

About AltaLink

Headquartered in Calgary, with offices in Edmonton, Red Deer and Lethbridge, AltaLink is Alberta’s largest electricity transmission provider. AltaLink is partnering with its customers to provide innovative solutions to meet the province’s demand for reliable and affordable energy. A wholly-owned subsidiary of Berkshire Hathaway Energy, AltaLink is part of a global group of companies delivering energy services to customers worldwide.



Media Relations

Tawnya Plain Eagle
Editor, Piikani Nation NewsPiikani Resource Development Ltd.
Phone: 587.777.2845
Email: [email protected]

Media Relations

Robin Boschman
Manager, Corporate Communications
AltaLink Management Ltd.
Phone: 403.267.2166
E-mail: [email protected]  

Renuwell Project

ASRA has been greatly concerned

Action Surface Rights Members,

As you are well aware, ASRA has been greatly concerned with the proliferation of inactive and Orphan Wells over the last couple of years. In fact we intervened at the Supreme Court of Canada in the Redwater affair to make sure that any leftover assets of Bankrupt Operators went to reclaim surface leases first before money went to pay off bank loans.

We have also been concerned about the types of surface leases that landowner have been signing for large Solar and Wind projects as the content of those leases are not regulated and Industry Operators are not currently required to utilize land agents in their dealings with landowners.  Many of those types of surface leases contain clauses highly detrimental to landowners.

ASRA is currently supporting Renuwell Solutions and the MD of Taber as they partner to investigate the potential of putting small scale solar projects on abandoned, or orphaned, surface lease sites.  This feasibility study is funded by a grant from Alberta’s Municipal Climate Change Action Centre (“MCCAC”) and will attempt to navigate the requirements that the Alberta Energy Regulator, the Orphan Well Association, Alberta Environment and the Surface Rights Board may impose on these types of projects.  A template will be developed, which other municipalities can also use, to satisfy the various regulatory agencies requirements and to obtain the needed distribution power company’s approval.

These types of projects will likely benefit landowners by securing annual lease payments by eliminating the requirement  to make annual applications to the SRB, paying some municipal taxes, lowering power costs for irrigation (and possibly reducing electrical distribution and transmission costs as well), preserving agricultural land, providing a more secure power supply, allowing more time to remediate contaminated surface leases and utilizing existing lease access roads, power connections and surface disturbances.  It has been projected that a 2.5 acre solar site could provide enough electricity to run 30 quarter section pivots.
These small solar projects will result in much lower disturbance that large industrial scale projects and we do not think that neighbouring landowners will see any increase in noise and light pollution, weed issues, traffic and dust, fire threats, glare, interruption of farm use of roads, environmental/wildlife problems or reclamational issues.  They will be hooked up to the existing power grid and will not require new transmission lines or substations.

Renuwell and the MD of Taber are hosting a series of Open Houses (see attachment) the last week of May in various communities in the Taber area and we would appreciate it if you could either attend an Open House or respond to this email by detailing any concerns that you might foresee about these types of small solar projects being placed on abandoned, or orphaned, surface leases sites.

Thank you,

Daryl Bennett
Director Action Surface Rights Association 

Farmers call for strong political response to expanding trade obstacles for Canada

By Andy Blatchford
The Canadian Press
April 9, 2019

Canola farmers whose livelihoods have been targeted by China in its feud with Canada say it’s time for the federal government to be aggressive at the political level in its fight against a growing number of agricultural trade barriers around the world.

Several producers told two parliamentary committees Tuesday that China’s recent rejection of Canadian canola-seed shipments is only the latest trade disruption that’s hurt the country’s agriculture sector.

They reminded MPs in Ottawa about a number of major trade obstacles faced by Canadian agricultural exporters in faraway markets like India, Italy, Vietnam and Saudi Arabia.

“Canada can feed the world but not if our government does not act strongly on our behalf, removing non-tariff trade barriers, enforcing existing trade agreements and removing political roadblocks,” Alberta canola farmer Stephen Vandervalk told the House of Commons agriculture committee.

Citing concerns about pests, China has rejected canola-seed imports from Canada and has suspended the licences of two major Canadian exporters.

The moves to cut off the critical Canadian export have been widely viewed as China applying economic pressure on Canada in response to the December arrest of senior Huawei executive Meng Wanzhou in Vancouver at the behest of the United States.

Any extended canola dispute with China, which imported $2.7 billion worth of canola seed from Canada last year, would deliver a painful economic blow to producers, the supply chain and the wider Canadian economy.

The price of canola has fallen since the dispute started last month. The late-winter timing of the disruption has been particularly difficult because it’s forced many farmers to suddenly rethink the planting decisions vital to their businesses.

On Tuesday, producers made it clear to MPs at the committees that even with the urgency around the China conflict, the pain is not only about canola. Canadian farmers, they said, are staring at other big trade hurdles in world markets.

Several of the witnesses mentioned issues that have affected Canada’s durum wheat exports to Italy, wheat sales to Vietnam, pulse exports to India and feed-barley shipments to Saudi Arabia.

Saskatchewan grain farmer Mehgin Reynolds (who is seeking a Conservative party nomination) told MPs that, for instance, her four-year crop rotation includes lentils, barley, canola and durum wheat — all products that face obstacles on foreign markets.

“The frightening reality is that almost every crop being grown in Canada is currently struggling with one trade barrier or another,” Reynolds said.

The Liberal government has insisted it wants to find a scientific solution to the canola dispute, in keeping with China’s insistence that the problem is tainted seeds.

The Liberals have established a working group that includes officials from Richardson International Ltd. and Viterra Inc. — the two exporters that have had their licences to sell canola revoked by China — and representatives from the governments of Alberta, Manitoba and Saskatchewan. Agriculture Minister Marie-Claude Bibeau has requested to send a delegation of experts to China to examine the issue. She’s said officials are exploring options to support farmers by expanding existing programs.

Canola producer Mark Kaun told the committee it’s time for the Canadian government to start playing “hardball.”

“There’s a pile of imports that come into this country from China — and maybe some of their ships should sit and wait in the water,” Kaun said. “Canadian canola is contaminated — it’s contaminated with political dirt and bureaucracy.”

“This is a political issue plain and simple. Political problems need political solutions,” agreed Vandervalk, who’s also vice-president representing Alberta with the Western Canadian Wheat Growers Association.

“If we must play the game of grain inspections, so be it. But in the meantime Canadian grain farmers are the ones paying the price for the political failings.”

Cleanup of Alberta’s Abandoned Oil Wells Could Cost $70 Billion

If companies can’t pay, taxpayers could be on the hook.

Photo by Larry MacDougal / THE CANADIAN PRESS

Scattered across Alberta are more than 300,000 oil and gas wells. About 167,000 of them are inactive and abandoned wells that a coalition of landowners, researchers and former regulators call a “ticking time bomb” that will eventually leak, polluting farmlands, forests, waterways and even playgrounds.

Oil and gas companies are legally required to clean up these wells through a reclamation process, but there is no timeline for when they have to do so. And an increasing number of companies can’t pay the cleanup cost.

Ahead of next week’s provincial election, the coalition called the Alberta Liabilities Disclosure Project has released internal documents from the Alberta Energy Regulator that show the estimated cost of cleaning up these wells is between $40 and $70 billion.

That’s much higher than the regulator’s publicly disclosed number of $18.5 billion for the cleanup of oil and gas wells, excluding steam-assisted oil sands production.

The coalition is calling on all political parties to commit to releasing independently verified estimates of Alberta’s environmental liabilities, if elected.

“For decades, we’ve looked the other way as the number of aging oil and gas wells threatening farm lands and drinking water continues to grow,” Regan Boychuck, lead researcher for ALDP, said in a news release. “The Alberta Energy Regulator hasn’t come clean on how much it will actually cost to deal with this mess, but our new data raises the floor of the debate. We need the government to tell Albertans the truth, so we can make a plan to deal with this ticking time bomb.”

The NDP has promised in its platform to “implement clear timelines for when companies need to clean up their abandoned oil and gas wells and require them to justify delays in reclaiming sites.”

Jason Kenney’s UCP platform says the party would create “a framework to reclaim abandoned wells in Alberta.” The party says it will “streamline” the process for abandonment and reclamation to “reduce costs” and “increase the rate” at which wells are abandoned. It also says it will work with AER and industry to ensure liabilities are covered without discouraging new investment. The party also promises to ask the federal government to provide tax incentives to encourage reclamation.

In their platform, the Alberta Liberals propose an “oil patch cleanup bond” to make companies pay, and say they will set timelines for reclaiming well sites.

In 2018, the Toronto Star, National Observer and Global News obtained an internal presentation from the regulator that estimated the cleanup cost of all mining, oil and gas wells and pipelines at $260 billion—much higher than the AER’s public estimate of $58 billion.

The regulator later walked back that number, saying it was “based on a hypothetical worst-case scenario” and it was trying to “hammer home” the liability message to the oil and gas industry.

Follow Hilary on Twitter.

Alberta’s Mega Oil and Gas Liability Crisis, Explained

A Supreme Court ruling now forces firms to clean up abandoned wells before paying creditors. That doesn’t solve much.

By Andrew Nikiforuk
4 Feb 2019 |

How will Alberta find the billions of dollars needed to clean up its inactive pipelines, wells, plants and oilsands mines as the oil and gas industry enters its sunset years? Photo: Premier of Alberta Flickr.

A Supreme Court of Canada ruling that bankrupt oil and gas companies must clean up their abandoned wells before paying creditors might sound like good news, but it doesn’t solve a growing crisis in Western Canada’s aging oil patch.

Just how will an increasingly indebted industry, hobbled by low energy prices and rising costs, find the up to $260 billion needed to clean up its inactive pipelines, wells, plants and oilsands mines as it enters its sunset years?

To date permissive provincial regulations have created the problem by only requiring industry to set aside $1.6 billion for the job.

That potentially leaves more than $200 billion in unfunded liabilities for taxpayers.

Technically the 5-2 court decision will make it easier for provinces to prevent insolvent companies from selling assets to pay creditors while dumping the cleanup bill onto taxpayers.

That’s been a big problem in Western Canada, where lower provincial court decisions have allowed bankrupt firms to pay off banks first and ignore their cleanup obligations under provincial laws.

As a result, a number of firms in Alberta walked away from more than 1,800 inactive wells and dumped more than $110 million worth of liabilities onto the lap of the provincial regulator over the last three years.

The province’s Orphan Well Association, a non-profit supported by annual $30-million industry levies to prevent taxpayers from footing the cleanup bill, is now so overwhelmed that it was rescued with a $300-million loan from the province and federal government.

The Orphan Well Association handled 74 orphan wells (properties with no legal or financial owner) in 2012. Now it has a backlog of 3,000 wells, with each well averaging $300,000 for plugging and reclamation.

“The court decision doesn’t solve the underlying problem,” noted Regan Boychuk, an independent researcher with campaign group Reclaim Alberta who has tried to highlight the scale of the problem and advocates for an independent reclamation trust funded by security deposits and solvent oilsand companies to address the liability crisis.

“The industry is not making enough money to pay for these liabilities. Outside of the oilsands sector, companies aren’t making much profit and are losing money.”

Keith Wilson, an Edmonton property rights lawyer who represents landowners, says the court decision still leaves huge unfunded liabilities that could fall on taxpayers.

“It is a known fact that the oil and gas industry has made some of the biggest profits in commerce in history. The money was there, but the companies never put some aside to deal with their liabilities and governments allowed them to do that with their eyes wide open,” said Wilson.

Finding the money to retire aging wells and pipelines is not just an Alberta nightmare, but also a global challenge.

For example, the cost of decommissioning ocean platforms, pipelines and wells in the North Sea — an estimated $46 billion Canadian in 2017 — will exceed Britain’s remaining tax revenues from the industry.

According to the Financial Times, Wood Mackenzie, an energy research group, has forecast that the cleanup of North Sea oil infrastructure (some 250 fixed installations, 3,000 pipelines and 5,000 wells) will become a “significant annual expenditure for government rather than a provider of income.”

A recent report even charged that Britain’s Oil and Gas Authority has underestimated the cleanup cost — now pegged at $130 billion — and that the final cost will probably come in at $140 billion.

At least half of that will be borne by taxpayers, suggest critics, despite legislation saying the industry must clean up its own messes.

The scale of the problem is even greater in Alberta, as a public presentation by a senior official with the Alberta Energy Regulator revealed last year.

Robert Wadsworth, the regulator’s vice-president of closure and liability, laid out the cost of cleaning up aging oil and gas infrastructure during a talk to the Petroleum Historical Society last Feb. 28.

Wadsworth’s presentation indicated the full cost of cleaning up old gas plants, inactive wells, aging pipelines and oilsands tailing ponds wasn’t $58 billion — the official number usually cited by Alberta officials — but probably closer to $260 billion. That’s three times the provincial debt of $71 billion.

Wadsworth also said the liabilities are underfunded and the collection of security funds from industry is “insufficient.”

When news outlets revealed the contents of Wadsworth’s presentation last year, Alberta’s regulator reacted strongly.

In a public statement the regulator, which is funded solely by industry, apologized for any confusion that the $260-billion estimate may have created.

It said the estimate was based on a “hypothetical worst-case scenario” and “was created for a presentation to try and hammer home the message to industry that the current liability system needs improvement.”

“Using these estimates was an error in judgment and one we deeply regret,” added the regulator statement.

Canada’s Ecofiscal Commission, a group started by economists in 2014 to help put a price on pollution, noted that the regulator might not have endorsed the $260-billion figure but “hasn’t disavowed it either.”

“Regardless of whether the $260 billion was a good estimate of the worst-case scenario,” wrote lead researcher Jason Dion with the commission, “the [regulator] clearly believes there is a risk of costs exceeding its official estimates. Albertans deserve to know more.”

That appears to be what Wadsworth tried to do with his presentation. His analysis had everything to do with Alberta’s flawed system for dealing with liabilities in the oil patch.

Wadsworth’s presentation said taxpayers could be on the hook for $260 billion given two basic problems: the lack of a targeted program with timelines to retire inactive wells and “increasing unfunded liability.”

Unlike many U.S. jurisdictions, neither Alberta nor B.C. has any specific requirements to clean up wells in a timely fashion while companies are still solvent. (Both provinces now say they are working on regulations to impose timelines on well site cleanup after decades of regulatory inactivity.)

Alberta also requires no specific security deposits for inactive oil and gas well cleanups.

Wadsworth characterized the system for monitoring liabilities as “deeply flawed.”

Alberta’s Liability Management Rating program, for example, has kept track of growing liabilities compared to assets for about 800 companies in the oil patch for nearly two decades, but it doesn’t collect money for cleaning up liabilities until the companies are “already showing declining financial capacity,” said Wadsworth.

In 2005, for example, it calculated that more than 33,000 inactive wells and 9,322 unreclaimed facilities created a liability of $9.4 billion, with a $20-million security deposit. The same program has watched as liabilities have grown exponentially. There are now more than 80,000 inactive wells and related liabilities worth $31 billion, with a security deposit of $226 million.

“With no timelines for cleaning up inactive wells, the government has incentivized companies to do nothing,” said Wilson.

Saskatchewan has the same problem. It has 24,000 inactive wells that will cost at least $4 billion to plug and reclaim, but industry only has a $134-million fund to do it.

The Alberta Energy Regulator also has little confidence in the unaudited numbers in its program because the liabilities are reported by industry.

Fixing these flaws with bigger security deposits and timely abandonment measures should have happened decades ago under Alberta’s Conservative governments, but no politician acted on the problem.

“Historically, even though we have known these programs were flawed, there have been no proactive changes made. Why has there been no political will to make changes?” Wadsworth asked in his presentation.

“We can continue down our current path until the impacts are felt by the public… or we can start to implement the numerous changes that we now know need to be made,” he said.

In his presentation, Wadsworth also broke down Alberta’s growing liabilities.

Using data from the National Energy Board, he calculated that reclaiming 400,000 kilometres of pipelines under provincial lands represented a $30-billion liability. (Unreclaimed pipelines can contaminate groundwater with toxic compounds, cause land subsidence, lower land values and make it impossible for farmers to obtain credit.)

Cleaning up more than 400,000 wells (only about half are active and most are producing a marginal 10 barrels of oil a day) would cost $100 billion. (Inactive wells can leak methane, radon and carbon dioxide to the atmosphere or groundwater.)

The oilsands, including nearly 200 square kilometres of toxic tailing ponds and mountains of sulphur, presented the highest liability of $130 billion, according to Wadsworth’s presentation.

The total liability of $260 billion, said Wadsworth in his presentation, was a “rough estimate” and was expected to grow as more data becomes available.

Alberta’s orphan wells have become a liability crisis.

The liability nightmare for cleaning up oil and gas infrastructure extends to other provinces and states.

Just about every oil- and gas-producing state in the U.S. has reported a growing backlog of abandoned wells left by bankrupt operators with insufficient funds for cleanup.

Energy Industry Legacy: Hundreds of Abandoned Wells Leaking Methane in Alberta Communities

A recent study found that current security bond amounts are lower than the average cost of plugging orphaned wells in 11 of the 13 states analyzed.

Inadequate funding, said the researchers, meant that “the state must draw on other revenues to cover the costs of plugging, and the public must bear the environmental cost of wells that remain unplugged due to a lack of state funds.”

Unlike Alberta, most U.S. states require companies to pay a cleanup bond before they are allowed to drill. But the bond amounts, which ranged from $10,000 to $100,000, are too low to cover the cost of plugging and reclamation.

In B.C., the Oil and Gas Commission holds only $100 million for the eventual cleanup of 27,000 wells and pipelines, a job that could cost billions.

Like Alberta, B.C. uses the same Liability Management Rating program in which operators don’t pay any security monies for reclamation until their deemed liabilities exceed their deemed assets — a system that ignores the rising volatility of oil and gas prices.

To date the B.C. regulator has collected $100 million, largely in the form of letters of credit. The B.C. auditor general is currently investigating the program.

Even the program’s 2017 annual report expresses doubt about the program’s adequacy given the impact of low prices on companies.

In Alberta, the biggest obstacle to reforms remains the province’s divisive and oily politics, says Edmonton lawyer Wilson.

“The NDP and the United Conservative Party are now in competition for being the biggest cheerleaders for industry. The NDP won’t do anything because they are afraid that the UCP will use it as an example that they are against the oil and gas industry,” he said.

As a result, neither party is serving the best interests of the environment or taxpayers, said Wilson.

Last year, Alberta Premier Rachel Notley responded to Wadsworth’s calculation of a $260-billion liability by saying the situation couldn’t be addressed immediately.

A Bold Clean-Up Plan for Alberta’s Giant Oil Industry Pollution Liabilities

“It’s a problem that has accrued over, I guess now we’d be talking 47 years, but it’s not one that happened overnight and, unfortunately, it’s not one that we can fix overnight,” she told reporters.

Wilson said the problem is “not only monumental but complicated.”

“If the government implemented a five-year timeline for cleaning up nearly 200,000 inactive wells, a large part of the industry would go bankrupt.”

Alberta has only two options remaining, said Boychuk, who has asked the province’s auditor general to investigate the regulator for its handling of oil patch liabilities.

“We can either have a jobless, revenue-less crash into bankruptcy where industry walks away from a gargantuan mess with their pockets stuffed full of profits from our resources, or we can have a transition where insolvent producers are put out of business and remaining production funds, largely from the oilsands, are used for a necessary cleanup that could employ thousands of workers in the energy sector for decades.”

Owners must deal with old oil wells: high court 

Canada Press
3 days ago

OTTAWA – The Supreme Court of Canada says the trustee for a bankrupt Alberta energy company cannot simply walk away from unprofitable wells on agricultural land without having to clean up.

The high court’s 5-2 ruling overturns an Alberta Court of Appeal ruling that upheld a 2016 decision in the Alberta Court of Queen’s Bench that effectively allowed a bankrupt energy company to sever its connection with unprofitable and unreclaimed wells when the company’s assets were sold off to creditors.

The Supreme Court ruled Thursday that the bankruptcy trustee, Grant Thornton Ltd., cannot walk away from its end-of-life obligations to render abandoned wells environmentally safe.

© Provided by The Supreme Court of Canada is shown in Ottawa on January 19, 2018. The Supreme Court of Canada is set to rule today on whether energy companies can walk away from unprofitable wells on agricultural land without having to clean up behind them. THE CANADIAN PRESS/Sean Kilpatrick

The ruling turned on the conflict between federal bankruptcy law and provincial jurisdiction over the environment and energy sector.

Chief Justice Richard Wagner, who wrote of behalf of the majority, said that a key section of the federal bankruptcy law “does not empower a trustee to walk away from the environmental liabilities of the estate it is administering.”

Wagner said Parliament might want to re-examine the provision “given the confusion caused” in this case.

Alberta’s provincial energy regulator ordered the trustee for Redwater Energy Corporation to comply with end-of-life requirements to render the abandoned properties environmentally safe.

The company’s trustee did not comply, and filed its own counterclaim that included a challenge to the regulator’s action, citing the paramountcy of federal bankruptcy law.

Since the case went to court, an estimated 1,800 wells representing more than $100 million in liabilities have been abandoned.

Alberta’s energy regulator and the Orphan Well Association, an industry-funded group that cleans up wells that have been left unreclaimed, appealed the ruling to the high court.

A group with the support of thousands of farmers also wanted to see the high court reverse the decision.

The Action Surface Rights Association intervened in the case because it believes rights of landowners have been overlooked in the case.