With the Alberta government having to roll back its plan to give oil and gas companies a license fee to clean up old wells, questions are mounting about how the program will work and who will ultimately pay for it.
The proposed pilot, dubbed the Liability Management Incentive Program, formerly known as RStar, has drawn criticism from economists, landowners, analysts and the opposition NDP in recent days.
Late last week, analysts at Scotiabank also warned, writing in a report that while the program could benefit some producers, it had the potential to create “negative public sentiment towards the sector”.
“Furthermore, we also believe that the program violates the fundamental capitalist principle that private companies should take full responsibility for the liabilities they willingly enter into,” the report said.
The province has said the program, which would include $100 million in royalties, is still in development and no final decisions have been made. Producers pay royalties to the province for mining resources that the province owns on behalf of all Albertans.
Oil companies seem largely reluctant to comment on the proposed plan. On Monday, a Cenovus spokesman said the company was reviewing the program.
“We will determine how this may affect our plans after we see more details,” the Calgary-based company wrote in a statement to CBC News, adding that it has about half of its inventory target for well site reclamation have achieved.
According to Cenovus, between 2019 and 2021 it received 1,455 recovery certificates from the Alberta Energy Regulator.
In a statement sent Tuesday morning, Brad Herald, Senior Special Advisor to the Canadian Association of Petroleum Producers (CAPP), said there had been a “dramatic acceleration” in well cleaning.
“Industry, orphan well funds, the federal and provincial governments have all played key roles in updating liability management policies and providing political support to make this happen,” the Herald wrote.
“We look forward to the consultation process with the Alberta government on their proposed liability management incentive program and will work to ensure the momentum that has been built in Alberta’s legacy site reclamation continues.”
The opposition has suggested lobbying for a “big cause”.
Kathleen Ganley, the NDP’s energy critic, has called it “great concern” that Smith had lobbied for a bailout to clean up oil wells before returning to politics.
Over the weekend, Smith told audiences on a national radio show that past governments shared the blame for wells that weren’t cleaned effectively.
“Because we target it so closely at the worst wells, for example, we look at sites that have been dormant for 20 years and were drilled before 1990, so these are the worst of the worst sites,” Smith said, arguing that the Regulators have failed in the past to require companies to clean up.
Andrew Leach, an economics professor at the University of Alberta, said Monday the PM’s comments suggest the industry is prepared to leave liabilities to the landscape indefinitely.
“If the PM comes out and says, ‘This is a reclamation that wouldn’t have happened otherwise,’ that’s a huge blow to the industry’s bow,” Leach said.
“Because it’s essentially saying, ‘You oil and gas producers are going to fail in your legal obligations to Albertans.'”
Although the program is unrelated to oil sands, Leach added that such an approach would have future implications for other pressures on the landscape, such as massive oil sands tailing ponds and site reclamation.
During a press conference Monday to discuss Alberta’s TIER fund, Sonya Savage was asked about comments she had made during her tenure as secretary of energy that the RStar program would not fit into Alberta’s royalty structure and violated the province’s polluter-pays principle .
Savage acknowledged those comments, but noted that the pilot was under discussion and directed questions about the pilot to the current Department of Energy.
The Minister of Energy met with landowner groups
Leach added that there are questions about how the program will work and who will be covered.
“Are we talking about wells that are literally orphans from a regulatory perspective, or are we talking about wells that are still operator-owned?” he said.
In response to a request for comment requiring clarification on which sites might qualify for the pilot, a spokesman for Energy Secretary Peter Guthrie said such details would be made available once development of the pilot program was complete.
“Secretary Guthrie was very aware that stakeholders would be involved in this process and we are doing just that,” Gabrielle Symbalisty wrote in an email.
“This pilot program will target some of the oldest sites in the province that have not produced oil and gas for many years. Our goal is to reduce the inventory of inactive and abandoned wells and create jobs across Alberta.”
Guthrie was instructed to develop such a targeted program as part of his mandate letter last fall. Guthrie met with landowner groups Thursday to discuss the project.
Daryl Bennett, director of the Action Surface Rights Association and the Alberta Surface Rights Federation, said the meeting lasted about two hours and included staff from the Alberta Energy Regulator.
Bennett said he did not attend the meeting, but two representatives from the group did.
In an interview, Bennett said it was one of the organization’s best meetings to gain access to the minister.
“I’ll be honest, from the landowner’s perspective, we want the wells to be cleaned,” he said.
“And the original social contract was that society could take our land, expropriate it, extract resources, with a guarantee that you’re going to clean up the mess,” Bennett added, noting that the organization prefers industry to pay for it .
“But if they don’t make it, the taxpayer has some responsibility. But in times of record profits, I think the taxpayer should insist that the industry pays a little more.”
In Vulcan County, where hundreds of ownerless wells need to be rehabilitated, there is confusion as to why taxpayers have to foot the bill to clean up the mess the oil companies have made, Reeve Jason Schneider said.
“We’re going on about seven years where we’ve had companies that operated without paying their taxes,” he said.
“Well, it’s a small number of them, but between these companies and companies that have retired from their liabilities, we’re over $9 million worth of taxes that haven’t been collected.
“I think we’re a little disappointed to see the province move so quickly on this RStar program to grant tax credits when they’ve been ignoring communities like ours for the past seven years.”
