Regina 鈥� When an oil or gas well is finally put out of commission, never to be used again, and done so properly, it is 鈥渁bandoned,鈥� in industry lingo. And to that end, the province of Saskatchewan has seen a substantial increase in the number of abandonments in recent years.
On March 9, Energy and Resources Minister Bronwyn Eyre told a press conference in the Legislature in Regina, 鈥淪askatchewan鈥檚 oil and gas companies have responsibly completed a record number of oil and gas well abandonments in 2019, and into 2020.
鈥淥ur province has seen a total of 2,030 well abandonments completed between April 1, 2019 and Feb. 29, 2020. This represents an increase of more than 40 per cent compared to 2018-19 and 240 per cent compared to 2016-17,鈥� Eyre said.
Abandonments should not be confused with 鈥渙rphan wells,鈥� which are wells that are not in production, have not been properly abandoned, and whose ownership has essentially left them as someone else鈥� problem. This can happen when companies become insolvent, for instance.
Eyre said, 鈥淎bandonment, in this context, is the opposite of walking away. An abandoned well means a well that is no longer supporting oil and gas development and has been decommissioned to a safe, environmentally sound condition.鈥�
鈥淭his impressive increase in well abandonments demonstrates the clear commitment between industry and government to manage the entire life cycle of our provincial wells, to ensure the safe retirement of unused oil and gas infrastructure, to protect our environment, landowners and the public.鈥�
She highlighted that oil and gas operators, not taxpayers, pay for this decommissioning.
This is in contrast to Alberta, which, on March 2, that province鈥檚 government offered a $100 million loan to decommission approximately 1,000 orphan wells. This follows a similar loan of $235 million in 2017.
Eyre attributed the increase in well abandonments to collaboration between the Ministry of Energy and resources and industry working groups to develop a revised directive on well abandonment requirements which came into effect last July, which streamlined and clarified procedures for obtaining regulatory approvals for abandonment operations.
鈥淚n Saskatchewan, wells must be cleaned up in a way that ensures there鈥檚 no contamination of geological formations, fresh water, or the surface environment,鈥� she said.
In recent years, some Saskatchewan oil producers had suggested federal and provincial governments should expend money on well abandonments as a way to boost lagging activity levels for the oilfield services sector, similar to what Alberta recently announced for orphan wells.听
Eyre replied, 鈥淲e have a very different landscape, in Saskatchewan, here, in terms of orphan wells than is currently the case in Alberta.
鈥淭he orphan well fund, everyone should know, is something that comes into play when there鈥檚 an insolvency. In Saskatchewan鈥檚 case, versus Alberta鈥檚, we鈥檝e spent $28 million 鈥� that鈥檚 not taxpayers 鈥� that鈥檚 from industry, since the creation of the orphan well fund in 2010, cleaning up about 560 wells. My understanding is there are about 175 inactive wells currently in the province. That鈥檚 a very manageable inventory, compared to Alberta鈥檚, which are somewhere around the 3,000 well mark. So a very different situation between the two provinces, a very manageable inventory here. So we feel, at the moment, it鈥檚 a different scenario than Alberta.鈥�
She added, 鈥淚 think there鈥檚 a sense in, in industry, that they want to manage their inventory of inactive wells. They want to manage their liability for the long-term heath of the sector, which includes all aspects of the challenges.鈥�
Eyre pointed out there are four phases in the life cycle of a well. Initially it鈥檚 in production. Then it becomes inactive. It becomes formally 鈥渋nactive鈥� after a period of 12 months of not being in production. The next phase is abandonment, followed by remediation.
鈥淚t鈥檚 not that oil wells are only about production. They鈥檙e also about remediation. That鈥檚 just the natural process, and the cycle of the sector,鈥� she said.
Asked about how liability ratios have pushed Alberta companies into insolvency, which resulted in more orphan wells, she replied, 鈥淚 want Saskatchewan people to be assured that the life cycle of wells in this province are being managed. And that the wells are being cleaned up. That鈥檚 the most important part of the announcement today.
鈥淚n terms of the liability, we have an unfunded liability, right now, in the province of Saskatchewan, of zero. So that, again, is a positive number, because we鈥檝e collected some $100 million in security deposits to prevent against liability by companies. That said, the overall liability of companies in the province of Saskatchewan has dropped by about $40 million. Again, a positive number. And it鈥檚 all about the asset versus liability ratio. We collect more security deposits when there鈥檚 a greater risk of liability. Right now we鈥檙e well covered and under control in that area,鈥� she concluded.
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Definitions
These definitions were presented in a May 18, 2017, Government of Alberta press release regarding a $235 million loan to that province鈥檚 Orphan Well Association.
- Orphan:听a well or facility confirmed not to have anyone responsible or able to deal with its closure and reclamation.
- Inactive:听a well or associated facility where activities have stopped due to technical or economic reasons. Not all sites in this category are orphaned. Many may be reopened and produce again at a later date.
- Abandoned:听a site that is permanently dismantled (plugged, cut and capped) and left in a safe and secure condition.
- Remediation:听the process of cleaning up a contaminated well site to meet specific soil and groundwater standards.
- Reclamation:听the process of replacing soil and re-establishing vegetation on a well site so it can support activities similar to those it could have supported before it was disturbed.
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