Alberta Under Pressure for Oil Industry ‘Subsidies’ as Well Cleanup Costs Soar

With cleanup and restoration costs for “orphaned” oil wells in Alberta set to double, the provincial government faces mounting pressure to hold oil and gas companies accountable on a number of fronts.

To highlight the adverse effects of provincial policies that subsidize the oil and gas industry while offering it lenience on taxes, the Rural Municipalities of Alberta (RMA) launched a new campaign dubbed “below the drill.” It urges the province to restore financial stability for Alberta’s towns by reversing these policies, describing them as little more than “handouts” to the oil industry.

“We understand the importance of supporting the industry, but these policies seem to be designed solely to cut costs for oil and gas companies, without consideration of how they may erode the very communities that help drive Alberta’s economy,” RMA President Paul McLauchlin said in a news release last week.

The campaign comes on the heels of statements from the provincial government that it won’t rule out using tax dollars to bail out companies. Alberta’s Energy Minister Brian Jean told The Canadian Press last month the industry “might need help from public finances to live up to its legal obligations, as well as lower municipal tax burdens and a lighter regulatory approach.”

Settlement Highlights Cleanup Challenges

As municipalities lament their lost tax revenues, a recent court settlement points to the extent of the clean-up problem facing Alberta—and tactics oil companies employ to avoid financial liability.

CBC News reports that Calgary based Perpetual Energy sold its aging oil and gas properties to the hastily-created Sequoia Resources for one dollar. Sequoia then declared bankruptcy, and bankruptcy trustee PricewaterhouseCoopers (PwC) later sued Perpetual, “arguing the energy company knew the assets would sink Sequoia.”

Under the terms of the settlement pronounced in March, Perpetual agreed to pay C$30 million to the Orphan Well Association (OWA) “without any party admitting liability, wrongdoing, or violation of law, regulations, public policy, or fiduciary duties.”

The clean-up cost for the Sequoia wells was estimated at $200 million, CBC News reports, adding that the 1,800 to 2,000 wells to be handed off to the OWA would almost double the association’s inventory.

Perpetual created a third company, Rubellite Energy, before the settlement was reached, and moved the majority of its assets there. The companies (Perpetual and Rubellite) share the same CEO and office address, but the move effectively shielded Perpetual’s assets from the grasp of PwC.

With the settlement behind them, those companies are now merging back together, assuming approval later this month at a special shareholders meeting.

‘Polluter Pay’ At Risk

Premier Danielle Smith specifically named the Sequoia/Perpetual court case when she told reporters last week “there has been an idea that liability could just be carried forward to the next purchaser with no dollars following it.”

Smith said the government is looking to change the rules around “how much money companies need to set aside to address the eventual clean-up costs of oil and gas wells.”

The OWA is an industry-funded, non-profit organization that “closes oil and gas sites in Alberta that do not have a financially viable or responsible owner,” its website states.

“We make sure people and the environment are protected from these sites and ensure that the people of Alberta do not have to pay for the oil and gas sector’s liabilities,” the OWA says.

But a March, 2023 report from Alberta’s Auditor General found the Alberta Energy Regulator had only just begun “implementing a process” to review the OWA’s funding and sustainability. One of the key findings of the report was that the “risks to the ‘polluter pays’ principle have increased in recent years.”

Martin Olszynski, Chair in Energy Resources and Sustainability at the University of Calgary, said a disproportionate number of inactive wells belong to some of Canada’s most profitable oil and gas companies. Three out of five of Canadian oil and gas companies with the greatest revenues are among the top five with the greatest number of inactive wells, with Canadian Natural Resources Ltd. “way out front,” Olszynski wrote in a recent LinkedIn post.

“Consider that next time Minister Brian Jean or Premier Danielle Smith propose to use public money to deal with oil and gas liabilities.”

He added that conventional infrastructure liabilities are estimated between $30 and $90 billion, with another $30 billion for pipelines. Unconventional liabilities related to oil sands, are estimated to be “between $46-$130 billion.”

Concerns Over Industry Accountability

New documents recently obtained by The Globe and Mail indicate oil sands mining companies won’t be expected to cover more of their skyrocketing liabilities.

The documents relate to the Mine Financial Security Program (MFSP), which collects payments from oil sands companies to ensure taxpayers are not left cleaning up their messes.

“Oil sands mining companies have added just $1 to the pot since 2010, because they’re not required to post additional reclamation security payments until they reach the point where they have less than 15 years of oil reserves remaining,” the Globe reports.

Yet, changes to the rules expected to be announced this coming week aren’t going to address that issue, according to the documents obtained by the Globe.

Ryan Fournier, press secretary for Environment Minister Rebecca Schulz, disputed there was a lack of necessary action, telling the Globe in an email the changes to the program “make it stronger.”

“Oil sands are still relatively young in their lifecycle,” wrote Fournier. “They are covering their liabilities, just mostly through collateral, not cash and bonds. In the coming years, the oil sands will provide more financial security, as required by the program.”

Some changes will restrict companies from using offsite mine reserves as collateral, but Olyszynski told the Globe this “won’t address a fundamental design flaw: It essentially allows oil companies to avoid posting security when their economics are good, and only requires cash later when they are much more likely to be financially distressed.”

Contamination Report Emerges

In Northern Alberta, the mostly Indigenous community of Fort Chipewyan discovered first-hand the impact of contamination from oil and gas when it looked for better options for evacuation during wildfires.

Water levels in Lake Athabasca and on the Athabasca River made it difficult to reach Fort Chip by barge or boat, reports Fort McMurray Today, so the community asked that its main boat dock be dredged to improve access.

Transport Canada rejected the plan without explanation. When one of the contract bidders asked questions, the federal government sent a report detailing multiple sources of contamination. The 2017 report, which community leaders say had not been shared before, detailed two petroleum spills reported by Petro Canada in the late 1980s.

Sample sites had high levels of arsenic, mercury, lead, polycyclic aromatic hydrocarbons (PAHs), uranium, and other cancer-causing hydrocarbons. The amounts in some areas were above normal health thresholds for humans, wildlife, and plants.

The dock is near a playground, beach, and an intake for the municipality’s water treatment plant.

The leadership of the Athabasca Chipewyan First Nation, Mikisew Cree First Nation, and Fort Chipewyan Métis Nation “want the federal government to clean up the area, conduct further environmental testing, and ‘hold those that lied to us to account’,” Fort McMurray Today writes.

Meanwhile, clean energy projects are still waiting on clarity from the provincial government around the definition of “pristine viewscapes”. An op-ed in the Globe and Mail last week noted that Alberta continues to lose investment and the confidence of developers following a seven-month moratorium on renewable energy first enacted last year.

Now, wrote Pembina Institute Executive Director Chris Severson-Baker, clean energy developers are looking to other provinces for opportunities.

“Almost everywhere they look they see an open door. In Alberta, it feels like they’ve been shown the door.”