Should Taxpayers Be On The Hook For Cleaning Up Saskatchewan's Abandoned Oil and Gas Wells?

Saskatchewan Premier Brad Wall

Saskatchewan Premier Brad Wall announced Monday he asked the federal government for $156 million to help fund oil and gas well cleanup efforts. In a press release he said the program “will stimulate economic activity and job creation while at the same time delivering environmental benefits.”
 
But Saskatchewan already has a fund in place for dealing with so-called “orphan wells,” or wells that have been left behind by companies or individuals who are no longer financially able to pay or legally responsible. Since 2009 the province has collected payments from wells in operation, and if the well doesn’t meet a particular threshold for financial stability the province may demand a refundable deposit as a guarantee. As of last fall that fund held $11.4 million in payments, up a million dollars from the previous year, plus another $45 million in refundable deposits.
 
The Alberta NDP government said in a statement on Tuesday that the province — despite having about seven times as many orphan wells as Saskatchewan — will not seek federal money because “industry should continue covering costs related to remediating abandoned wells.”
 
So why does Saskatchewan need $156 million now?

Some workers have been laid off, some are job-sharing, some doing things like taking Fridays off without pay,” says Kathy Young, chief of communications for the provincial government. “The funds will help these people stay employed.”
 
The province’s oil and gas industry has shed 1,900 jobs in the past year, according to government statistics, and Wall’s plan would put 1,200 of them back to work.
 
Young would not say exactly what the money would be used for. She says the Ministry of the Economy came up with the $156 million number based on an estimate of 1,000 well clean-ups, which are typically funded by industry. 
 
The health of the orphan wells fund depends on the health of the industry. Since the money is collected incrementally from well owners, a downturn and the ensuing bankruptcies can mean the province is left holding the bag for cleanups that haven’t yet been paid for.
 
“If [oil and gas firms] have the ability to pay, the fund is fine,” says Judy Ferguson of the provincial auditor’s office. “If there is a risk to their ability to pay, the province is at risk, financially.”
 
As of last November the fund was reporting that it had just $5 million in unfunded liabilities, or work that needed to be done that was not covered by money the province had already collected.
 
In the same budget report, it claimed that in 2014-2015 it had cleaned up 58 orphan wells and a number of other sites, all of which cost $1.7 million. The province has 100 left to go, according to Young — and last year it expected to complete about 70 of them.
 
It is not clear, however, how many new orphan wells have appeared since the oil downturn prolonged and intensified. It’s also unclear whether wells that are orphaned within a year of breaking ground are included in the province’s figures; companies get a break on their payments for the first year. Young declined to comment on these wells.
 
Among the proposed purposes for the federal funding, the provincial government said in its press release that it wants to fund “environmental site assessment, the safe removal and disposal of old equipment, the remediation of oil and salt water spills, the restoration and re-contouring of the site, and the re-vegetation of the land.” It is unclear which of these procedures are already required by the language of the existing legislation, and Young has also refused to answer questions about this.
 
In Alberta, the Petroleum Services Association of Canada is preparing a similar pitch to the provincial government, despite Notley’s statement that taxpayer dollars would not be used to fund reclamation.
 
“There’s ways to do it with industry in conjunction with the government where we don’t go after the taxpayers,” says association president and CEO Mark Salkeld, saying he wants to explore “partnerships” with the government that would tap into an as-yet undetermined pool of money.
 
“We just like the whole concept,” he says. “If you’re going to spend money on infrastructure — if they’ve got money to spend putting people back to work again — well, then we can put people back to work again.”
 
He says the petroleum service association’s proposal should be ready in two weeks, and that he is “a bit miffed” that Saskatchewan beat it to the punch.
 
“It’s such a great idea,” he says. “We wish we were first to it.” 

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