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 

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.”

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

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.

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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 | TheTyee.ca

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.”

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 thecanadianpress.com 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.

Follow @Leth_Herald on twitter
Lethbridge Herald

By Letter to the Editor on January 30, 2019.

Our provincial NDP government is clearly attempting to ram as much solar and wind power as possible onto our electrical grid before likely losing this spring’s election. They are doing this using an auction format to give the process the appearance of competitiveness. After each auction, Rachel and others gleefully announce that the successful green bidder’s kilowatt hour prices are becoming very close to what existing conventional generators are paid. That exaggeration wouldn’t be true even if the power provided by these new intermittent and unreliable sources was remotely similar to that from existing sources. The many hidden costs surrounding green energy are rarely discussed.

A few details must be understood to fairly compare solar/wind power to what is called “base-load” generation (coal, gas, hydro, nuclear). Base-load power is constantly and reliably available to customers 24/7 and efficiently utilizes transmission line capacity because it typically provides at least 90 per cent of its name-plate capacity when required. Solar and wind generators, by comparison, can’t be relied upon to provide any needed power at a point in time. Every night, solar production dies completely as well as supplying minimal output in Alberta’s winters or on cloudy days. An average of 15 per cent of name-plate capacity is typical of annual solar output in Alberta.

Wind power is similarly unreliable and averages 25 per cent of its designed output throughout the year. But both require an overbuilt transmission and infrastructure capacity to occasionally handle 100 per cent of their maximum output. As a result, green power transmission assets are severely under-utilized through the course of the year. This represents huge, wasteful fixed costs charged to our energy bills. Check one of your recent electrical statements to see how these fixed charges already exceed kWh costs.

And one last critical point is that as new expensive wind and solar generators are built, not one kW of existing generation can be retired because it has to be there as a backstop for times when green energy produces next to nothing as it often does. This effectively is a pointless, politically motivated duplication of electrical generation assets that will cost us dearly!

Lynn Thacker

Bow Island

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

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

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

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

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

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

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

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

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

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

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

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

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

Follow @TimKalHerald on Twitter

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The Narwhal
Sharon J. Riley
Alberta investigative reporter

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

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

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

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

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

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

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

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

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

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

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

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

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

‘Kicking the can down the road’

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

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

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

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

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

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

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

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

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

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

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

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

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

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

‘Continually releases greenhouse gases’

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Public money for an industry problem

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

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

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

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

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

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

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

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

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

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

‘Rosy picture’

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

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

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

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

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

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

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

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

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

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

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

Rolling average that ‘has never rolled’

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

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

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

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

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

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

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

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

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

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

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

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

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

“It is that far gone.”

Calculation of liabilities wildly off-base

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

He pulls out his calculator to do a quick estimate.

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

‘Get rid of it’

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

“Everything.”

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

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

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

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

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

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

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

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

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

‘What do you do?’

All of this leaves landowners like Ronald Huvenaars feeling vulnerable.

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

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

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

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

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

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

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

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

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.”

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