Alberta’s premier is considering the implementation of a deposit requirement for oil and gas companies before they commence drilling new wells. This proposal aims to address the growing issue of old oil and gas wells in need of cleanup. Speaking at an industry event in Calgary, Danielle Smith suggested that companies should allocate $10,000 per well upfront to ensure funds are available for reclamation once the well reaches the end of its lifespan.
The concept involves companies depositing $10,000 per well, with the amount accruing interest over time. This approach would create a financial reserve to cover reclamation costs when the well ceases production. Smith expressed hope for a constructive resolution through ongoing discussions with the industry.
The industry currently faces approximately 250,000 inactive or minimally productive old wells and infrastructure, with a surge in orphan wells awaiting cleanup overseen by the Orphan Well Association (OWA). While some experts, like University of Calgary law professor Shaun Fluker, view the deposit suggestion favorably, skepticism remains regarding its practical implementation.
Despite Alberta previously mandating well deposit requirements until 1986, subsequent industry opposition led to its removal. Fluker’s research underscores the challenges posed by orphan and inactive wells, attributing the situation to industry resistance against preventative initiatives.
While the proposal has garnered mixed reactions from industry stakeholders, some advocate for higher contributions to the OWA through increased annual fees, promoting faster orphan well reclamation. The OWA’s funding primarily relies on an annual levy determined by the Alberta Energy Regulator (AER), which was raised to $135 million two years ago.
The AER has been proactive in enacting regulatory reforms to mitigate the orphan well crisis, with potential additional measures outlined in a report commissioned by the provincial government. One of the report’s recommendations emphasizes the necessity of companies providing a deposit before initiating new well drilling to facilitate closure funding mechanisms and third-party liability models.
