Oil companies bucking their commitments

April 11, 2016


By Jennifer Blair

AF Staff

Farmers are struggling to get oil companies to pay their leases and complete reclamation work on abandoned wells

There’s a wet spot originating from an oil well in Anthony Bruder’s pasture that his cows won’t drink from.

“I’ve seen cows walk up to it, sniff it, and then walk a half-mile to the other end of the field to drink from the lake,” said Bruder, who farms near Twin Butte.

“If the cows won’t drink out of a puddle, there’s something wrong with it.”

Bruder suspects the well — drilled in the 1950s “back when technology wasn’t that great and the environment wasn’t on anybody’s mind” — is contaminated. But for many oil and gas companies struggling through Alberta’s most recent economic downturn, reclamation work isn’t in the budget.“

The government has ordered the company to do the Phase 2 environmental assessment, where they’re supposed to come out and take soil samples,” said Bruder.“

That was supposed to have been done by Nov. 30, 2015. And nothing has been done. We’re sitting here and waiting for the Alberta Energy Regulator to basically force the order they gave the company.”

This is the latest chapter in a long saga for producers like Bruder, who has seen his oil leases change hands several times over the last two decades.

“Each company that gets in here is a little smaller and has less money,” he said. “We’re sitting here now with a company that never did have enough money to do reclamation.”

Getting paid for his leases, both about 10 acres, has been another ongoing challenge for Bruder.

“In four of the last five years, we’ve had to go to the Surface Rights Board and have it force the company to pay us,” said Bruder. “It’s a fight every year.”

Board ‘Swamped’

But Bruder isn’t alone in that fight. In the last year, the Surface Rights Board has received more than 750 new applications from producers who haven’t been paid for their oil leases.

“The Surface Rights Board is being swamped,” said Daryl Bennett, a partner in My Landman Group. “There have been some companies that have just chosen not to pay any rentals, and now we anticipate them receiving thousands of applications for these rentals.”

Applications to recover unpaid lease rents can take up to six months to process. Board staff take care of simple cases, but more complex ones go to a hearing, resulting in another six-month delay. Following the hearing, it can take a year to get a decision, with another two-month delay in getting paid.

“Some landowners could easily see more than a two-year time period before they recover any of these monies,” said Bennett.

“They have streamlined the process in some ways, but we are still seeing six-month delays or more even getting a response that the Surface Rights Board has received our application.”

For bankrupt oil companies, producers have to go through that process every year.

“We’re in discussions with the board to make that process a little more efficient and effective from the landowners’ standpoint,” said Bennett. “The board has adjusted the recurring application to make it less onerous.”

Many larger oil and gas companies have asked landowners to drop their rents as much as 50 per cent due to the poor economic conditions, he added.

“Almost all of the bigger companies are asking for rent reductions, and it’s going to get worse, especially the longer oil stays down,” he said. “But when oil prices were really high, these same companies weren’t sending these same landowners suggestions they increase their rentals by 50 per cent.

“It seems like the oil companies think that the landowners should have to subsidize them during these tougher economic times.”

Well Reclamation

But the real problem, said Bennett, lies in reclaiming these well sites once operators go bankrupt.

“These wells can take up to $1 million to reclaim,” he said. “The Orphan Well Association doesn’t have the funds needed, and where the funds are going to come from is unknown.”

The association saw “quite a jump” from 2014 to 2015 in the number of orphan wells in the province, said Brad Herald, the association’s chair. The association is funded by oil and gas companies and acts as a “safety net” to take care of well abandonment and reclamation for defunct operators.

“We went from 160 up to 700,” said Herald, who is also vice-president of Western Canada operations for the Canadian Association of Petroleum Producers.

“In response to the increase in inventory we’ve got, industry took the budget from $12 million to $30 million. We’ve seen more than a doubling in the budget in the last couple of years.”

But that’s just a “drop in the bucket” compared to what’s needed, said Bennett.

“The orphan well levy is basically a tax on solvent operators, so you’re having all the big guys having to pay for the reclamation of the bankrupt operators, and often, those guys didn’t put any money into the pot to take care of reclamation,” said Bennett.

“It’s basically a system where the last man standing has to take care of everybody else. That’s not fair.”

The “system is broken,” he said, and won’t be fixed until the price of oil goes back up.

“The orphan well funding process is broken because they’re not requiring them to provide the proper amount of money,” he said.

“This is not the time to ask those companies to increase their deposits. They simply don’t have the money. But when times improve, the government should be looking at this system and requiring industry to deposit the money necessary to reclaim these lands.”

Bruder agrees.

“If the government would have had the balls to enforce its own regulations on the industry, we wouldn’t be in the situation we’re in right now,” said Bruder.

“Companies would have made sure they had a pile of money sitting aside to do these reclamation projects they knew they had to do, and we wouldn’t be in the situation we’re in right now.”

The situation has got worse because of the downturn, said Bruder, but he was “fighting through this when oil was $100 a barrel.”

“These companies never thought they had to do what they were supposed to do and were never forced to do what they were supposed to do,” he said.

“They got away with it the whole damn time, so what difference does it make to them?

“If you sit back and hope the company is going to do the right thing, you’re going to be sitting there for a long time.”

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