Home Business of Energy Finding a Home for Orphan Wells

Finding a Home for Orphan Wells

Experts point to different initiatives meant to drive down inventories

Mazeppa gas plant. Photo courtesy of the Orphan Well Association.

The orphan well landscape in Alberta is expected to turn the page in 2023 after several years of “heavy lifting” by industry and government, say experts.

A recovery in oil and gas prices, regulatory changes and some industry muscle directed at closing orphan sites are being credited with making a significant impact on inventories in the province.

“We’ve made some tremendous progress. Obviously, we’re not done yet, but … we’re going to be through the bulk of these sites in the next five years,” says Lars De Pauw, president of the Orphan Well Association (OWA), a not-for-profit, industry-funded organization that works to decommission and reclaim the wells, facilities and pipelines left behind by defunct oil and gas companies.

As of Jan. 1, 2023, 3,240 orphan sites have been identified for decommissioning, comprised of 2,565 orphan wellbores and 330 orphan facilities. This compares with 3,022 orphan sites – 2,326 orphan wellbores and 315 orphan facilities – at the same time last year. These numbers include the 1,432 wellbores and 182 facilities that were designated as orphans during 2022.

Meanwhile, the number of sites to reclaim sits at 6,640 sites, which compares with 5,421 in 2022. De Pauw notes 44 per cent are currently in vegetation monitoring only or final certification phase, meaning most of the work has already been completed.

Since beginning operations in 2002, the OWA has receive reclamation certificates for 1,642 sites, including 364 in 2022 alone. De Pauw expects to see a material increase in the number of annual reclamation certificates in 2023 and beyond based on the number of sites in the final stages.

“Alberta’s government is doing more work than ever with the Orphan Well Association to clean up orphan wells and sites,” says, Scott Johnston, press secretary to Alberta’s Minister of Energy.

Johnston adds it’s not just wells, either. In 2021-22, the OWA started closure work on the first-ever orphaned large facility, the Mazeppa Gas Plant, through the Large Facility Program, an additional program managed by the OWA that is financially separate from well closures, with its own industry levies and funding.

Founded in 2002, the OWA is primarily funded by the annual orphan fund levy, which is paid by the oil and gas industry in Alberta. De Pauw explains that the levy, which is forecasted to increase from $72 million to $135 million for the 2023-24 fiscal year, is based on estimated abandonment and reclamation activities for the upcoming year.

The levy is set by the Alberta Energy Regulator (AER) in consultation with the OWA, Canadian Association of Petroleum Producers and Explorers and Producers Association of Canada.

Between 2018 and 2021, the province also loaned the OWA $335 million to stimulate economic activity and employment, along with helping clean up orphan wells. The loan will be repaid by 2031 with funding from industry levies.

De Pauw notes OWA’s approximately 30-person team oversees a group of about two dozen prime contractors that safely decommissions and reclaim orphan well sites. These prime contractors also work with subcontractors, of which there are approximately 1,600 currently within the province.

Experts note there are, in fact, two different kinds of wells that commonly get confused. First, an orphan well is a regulatory definition that the AER puts on a license when, after a review, it is determined there is no viable party to perform the required closure work.

“An orphan well in Alberta is a specific term meaning that the owner of the well is no longer around, so it’s left to the OWA to decommission and reclaim,” says Lucija Muehlenbachs, associate professor in the Department of Economics at the University of Calgary.

While the bulk of orphan wells come from insolvency processes, De Pauw says there are some situations when a company has fulfilled its regulatory obligations to the standard of the day. Yet that standard has changed, and the company no longer exists. De Pauw notes this is common with wells that were drilled before Alberta was a province.

The other type is an abandoned well site that is permanently dismantled – either plugged or cut and capped – and left in a safe and secure condition. It also includes removing all the on-site infrastructure. These are also often referred to as decommissioned sites.

Johnston says companies must follow the AER’s strict requirements, primarily set out in Directive 020: Well Abandonment, to ensure the public and environment are protected before, during and after a well is abandoned.

Looking ahead, De Pauw says he is not concerned about managing the future demand of orphan wells.

“As far as what we’re able to see right now with the increase in commodity prices is, we don’t foresee any new receiverships in the near future – nothing as imminent as what we saw four to five years ago,” he says.

Muehlenbachs, however, exercises caution when looking at the larger picture.

“A lot of people focus on the current number of orphan wells, but those numbers are relatively small in comparison to the inactive wells in the province,” she says.

Inactive wells are defined as those that have not produced oil or gas, injected fluids or disposed of waste for six or 12 months, depending on the type of well and its potential risks to the public or environment. The AER reported more than 156,000 inactive wells in 2022.

“In many cases, the likelihood of reactivating an inactive well is really low, meaning those decommissioning steps are not taking place,” says Muehlenbachs.

That said, she also points to recent regulatory changes, which include annual mandatory spending minimums with the intent of reducing inactive inventory.

“Having a mechanism that forces companies to do more clean-up is a step in the right direction,” says Muehlenbachs.

Further, the province initiated a Site Rehabilitation Program (SRP) in 2020 that is designed to reduce oil and gas liabilities by providing grants to oilfield service companies so they can perform well, pipeline and oil and gas site cleanup work over a three-year period.

“The new framework is being implemented in stages to provide producers with the necessary time to plan moving forward in the short and longer terms,” says Johnston.

“Several of the framework elements are in place, including a new program to assess the financial health of companies, a way for the regulator to assist licensees to meet their obligations, a mandatory annual closure spending targets for industry, and enhancements to accelerate the clean up of orphan wells.

“This framework will contribute to a healthy economy and environment by setting clear expectations throughout the lifecycle of oil and gas projects and helping ensure industry will be able to bear the costs of site clean-up.”

Johnston notes they are already reporting some “extremely encouraging” numbers from the SRP program, with more than 30,000 wells targeted.

“The breakdown on that is, more than 20,500 wells have been approved for abandonment and more than 12,300 have been approved for reclamation,” he says.

As companies submit invoices for work being done, they are reimbursed from the partnered federal money that is administered by the province. That includes a targeted $133 million to abandon and reclaim inactive oil and gas sites within Indigenous communities.

Overall, De Pauw is encouraged by industry at large, which he believes acknowledge the importance of addressing orphan wells in the province.

“There is a recognition that’s part of the social license to operate in the province as a collective,” he says. “We’ve been at this for a long time, and a magic silver bullet is not going to solve it.. It’s going to involve a lot of work that will help along the way.”