Alberta attempts to tackle its abandoned well problem

Over the next month, the government of Alberta and the Alberta Energy Regulator (AER) are going to take another crack at solving the province's orphan well problem.

Beginning Wednesday night, industry, landownersand other stakeholders will meetto try improve a system that has seen a sharp increase in the number of defunct wells in Alberta.

It's not an easy problem to solve, but it is an important one.

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Over the past twoyears, as the energy industry suffered through a profound downturn, Alberta's abandoned and orphaned well problem has been thrust into the spotlight.

Lexin and Redwater

The number of orphaned wells skyrocketed from 162 in 2014, to1,411 in April.There are more than 80,000 inactive wells in the province, and more than 65,000 wells that have been plugged but need to be dismantled and reclaimed.

Recently, the Alberta Energy Regulator was on the losing side of the Redwater Energy court case, which ruled that bankrupt energy companies can have their operating wells sold to pay back creditors, leaving the defunct wells behind for the regulator to clean up.

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The regulatoris also dealing with the suspension of the now defunctLexinResources, which itself had more than a thousandwells that are currently the responsibility of the Orphan Well Association an organization supported by industry dollars that manages wells left behind by bankruptcompanies.

Opposing sides

Alberta manages its oil and gas wells through a system that attempts to calculate the value of a well, based on how much it producesand the cost of reclaiming it at the end of its life. Based on those calculations, each company is then assigned a ratio, called the licensee liability ratio, or LLR. If a company's LLR falls below one, it has to pay a deposit to the regulator.

It's a system that environmental groups describe as lacking because there is too little incentive for companies to clean upold wells. The groupsare calling for deposits before wells are drilled and tight timeline on reclamation after a well becomes inactive.

For its part, industry has found the LLR system onerous in recent years, as the production value of its wells has fallen, many companies have had to pay substantial deposits to the AER in a time when they are struggling to survive.

Some landowners are frustrated with defunct wells sitting on their land for decades, while others are happy to collect the annual lease payments on those inactive wells.

First meeting

In a letter to participants, the Alberta government said that it wants to improve the system to:

• Fully reflect full life-cycle resource development.
• Be financially sustainable over the long-term.
• Requireenvironmental outcomes be met.

The meetings begin this afternoon in Niskuand finish on June 14thin Calgary.

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