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Orphan Wells Association (OWA) is an independent, non-profit organization led by the oil-industry that was established in 2002[1] with a mandate to protect public safety and to manage the "environmental risks of oil and gas properties that do not have a legally or financially responsible party that can be held to account."[1]: 2  These properties include orphaned wells, pipelines, and facilities.[2] The OWA was created in response to environmental legislation.[1]: 2 [3]

History

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The Orphan Well Association was established in 2002 through a collaboration between the Government of Alberta, the oil and gas industry and the province's regulators.[1]: 2 

A significant factor in OWA's history was the Supreme Court of Canada's landmark decision in Orphan Well Association v. Grant Thornton Ltd. (Redwater)[4] that in the case of bankruptcy, the "regulatory imperative of safe decommissioning should have precedence over secured creditors in the event of a licensee’s insolvency."[1]: 2  This benchmark ruling led to changes in the way in which bankruptcies were handled when orphan properties were at stake.[4] Prior to the 2019 SCC ruling, bankrupt energy companies were able to avoid paying for their abandoned wells[5] which resulted in an increase in OWA's inventory. The SCC clarified that in the case of a bankruptcy, a company's first priority is to fulfil its environmental obligations—not as a debt—but as a duty to "citizens and communities."[6]

Factors contributing to orphan designation

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The OWA said that one of the factors that contributed to the significant increase in the number of orphaned properties by 2017, was what they called the "lower for longer change in market pricing" which resulted in insolvencies, including "high-profile" bankruptcies.[1]: 3  Another factor was aging out of decades-old properties in a "maturing industry".[1]: 3  In the fiscal year 2017/2018 there were approximately 30 companies that were insolvent in the province's "regulatory jurisdiction".[1]: 3  In 2017, not all of the properties previously owned by distressed companies were designated as orphaned as there was a possibility of future sales and/or Working Interest Partners (WIP).[1]: 3 [a]

Mandate

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The OWA mandate is to protect "public safety and manag[e] the environmental risks of oil and gas properties that do not have a legally or financially responsible party that can be held to account" by safely decommissioning sites and facilities and restoring the "land similar to its original state".[1]: 2  While the name suggests that the industry is only responsible for oil and gas wells, their mandate also includes "pipelines and production facilities" that have been designated as "orphaned", which refers to sites and facilities that have no solvent, legal operator who is responsible for clean up.[1]: 2  This includes operators who either cannot or will not fulfill their obligations.[7] OWA's mandate it to decommission these "orphans" and to restore the land similar to its original state.[1]: 2 

The OWA manages the potential environmental and public safety risks that these orphaned properties represent. It also maintains an inventory, and oversees the decommissioning, remediation, and reclamation of these sites.[1]: 2  The OWA's mandate includes the management of the "decommissioning (abandonment) of upstream oil and gas 'orphan' wells, pipelines, facilities and the remediation and reclamation of their associated sites."[8]

Orphaned properties present a problem in enforcing the polluter pay principle. However, the OWA acknowledges the oil and gas industry's social contract to ensure ensure that "environmental risks are mitigated and disturbed sites are restored" and that the "costs are not borne by tax-payers".[1]: 2 

Large Facility Liability Management Program (LFP)

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The OWA is also responsible for orphaned pipelines and orphan facilities, which now includes the newly-established Large Facility Liability Management Program (LFP).[9] The LFP operates with separate financing from orphan wells and has its own levy set at $3 million a year. By 2022, its first project—decommissioning the Mazeppa Gas Plant pumping station facilities south of Calgary—was almost completed.[9]

Successful recommissioning and reclamation

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In its first 19 years, the OWA only decommissioned 1,400 orphan wells and reclaimed 800 sites.[1]: 2 

Prior to 2015, the OWA was working on about 43 sites a year.[10] In 2015 the goal was to increase that number to 150 a year.[10]

Types of reclamations

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High-priority, complex, and expensive reclamations include the safe decommissioning of wells with potentially dangerous levels of leaking fugitive gas emissionssuch as hydrogen sulphide or methane gas, especially those located near residential areas that are densely populated.[1]: 3–4 

The OWA considers land restoration in rural Alberta as low impact, less difficult on the spectrum of OWA's clean up responsibilities.[1]: 3–4  The estimated remediation cost of sites with not much "disturbance or contamination" was under $50,000 in 2015.[10] It would take from two to three years to remediate. Other more contaminated sites could cost over $1 million and it could take a decade to complete remediation.[10]

The total cost of cleaning up liabilities resulting from the financial distress of Houston Oil & Gas Ltd., Calgary-based junior oil and gas producer, was estimated by OWA in 2019 at $81.5 million.[7] In August 2019, the AER revoked licenses for Houston's wells that produced natural gas containing "toxic hydrogen sulphide".[7]

OWA funding

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OWA's primary funding source is through an annual Orphan Wells Levy collected by the Alberta Energy Regulator (AER). The amount of the levy is prescribed by the AER, in consultation with the Canadian Association of Petroleum Producers (CAPP) and Explorers and Producers Association of Canada (EPAC). It is based on the "estimated cost of decommissioning and reclamation activities for the upcoming fiscal year".[11]

In 2009, the government of Alberta gave a grant of $30,000 to OWA to help with the "growing backlog of abandoned wells" during the oil and gas industry's cyclical downturn.[10]

In 2017, the provincial government leveraged a $30 million dollar federal grant into a nine-year interest free $235 million repayable loan to the OWA.[1]: 2 [12]

Overall funding in 2020/2021 was $392.2 million compared to $136.8 million in 2019/2020.[13]: 7  This significant increase was due to substantial interest free loans from the federal and provincial governments—$117 million loan from Alberta and $200 million as part of the federal COVID-19 Economic Response Plan.[13]: 7  As of 2021, OWA had repaid $61 million.[13]: 6 

OWA funding is underfunded by at least several hundred million.[14] The total estimate for cleaning up all existing sites is as much as $260 billion.[14] Critics say that the annual Orphan Wells Levy decided by the industry and set by AER is too low to cover the actual size of the problem.[15][11][16]

Management and staff

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Representatives from the Alberta provincial government, the AER and Alberta Environment and Parks (AEP), Canadian Association of Petroleum Producers (CAPP), and the Explorers and Producers Association of Canada (EPAC) serve on the OWA's board of directors.[8] Pat Payne, a civil engineer has been the face of OWA since 1997.[10] Brad Herald is the Chair of the OWA and is also CAPP vice-president.[17][13]: 6  Lars De Pauw, an environmental engineer, has been the OWA executive director since July 2017.[13]: 5  In 2021, OWA added new positions—Corporate Controller, Team Lead Decommissioning, Team Lead Land, Stakeholder Relations and Support Services, and Team Lead Environment.[13]: 4 

OWA Inventory

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The OWA's inventory of orphaned properties was 74 by March 2013, the end of the 2012/2013 fiscal year. This increased to 1,778 in 2017.[1]: 3  From 2015 to 2017, the inventory doubled.[1]: 3 

OWA's Inventory does not include legacy wells[18] which are more complex, time-intensive and costly to remediate.[19]

See also

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Notes

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  1. ^ A "Working Interest Partner" (WIP) is also legally accountable for clean up. OWA says that most WIP do fulfill these financial and legal obligations
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  • "Upstream Oil and Gas Liability and Orphan Well Inventory". Alberta Government. 2021. Retrieved February 11, 2023. Definitions of Orphan, Inactive, Abandoned, Remediation, and

Reclamation

  • "Orphan Inventory". Orphan Well Association. February 1, 2023. Retrieved February 11, 2023.

Citations

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  1. ^ a b c d e f g h i j k l m n o p q r s t OWA Annual Report 2017/18 2018.
  2. ^ OWA Annual Report 2021/22 2022.
  3. ^ OWA's annual report is by fiscal year from April 1, 2017 to March 31, 2018.
  4. ^ a b Riley 2019.
  5. ^ Dachis, Shaffer & Thivierge 2017, p. 8.
  6. ^ OWA Annual Report 2018/19 2018.
  7. ^ a b c CP 2019.
  8. ^ a b OWA 2019.
  9. ^ a b OWA Annual Report 2021/22, p. 4.
  10. ^ a b c d e f Reith & Stewart 2015.
  11. ^ a b AER levy 2021 2021.
  12. ^ Boothby 2020.
  13. ^ a b c d e f OWA Annual Report 2020/21 2021.
  14. ^ a b Cosbey 2022.
  15. ^ Yewchuk & Wray 2022.
  16. ^ Boychuk et al. 2021.
  17. ^ Clancy 2017.
  18. ^ OWA Inventory 2020.
  19. ^ Morgan 2019.

References

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[[Category:Athabasca oil sands [[Category:Abandoned buildings and structures [[Category:Oil wells [[Category:Petroleum technology [[Category:Environmental issues in Alberta

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