Levy charged to Alberta oil companies too low to cover orphan well costs, says report

A new report is warning the annual levy charged to Alberta oil companies to fund the cleanup of orphaned oil and gas wells remains too low to keep up with the rate of surrendering.

The report written by Drew Yewchuk, formerly a staff lawyer with the University of Calgary's Public Interest Law Clinic, says this year's levy rate combined with low rates in previous years is leading to an estimated funding shortfall of $1.2 billion.

The levy funds the Orphan Well Association, a non-profit entity overseen by industry and regulator officials and tasked with reclaiming wells that are orphaned when oil and gas companies go bankrupt.

The association says it has more than 3,700 wells on its books that need to be decommissioned and reclaimed, which could cost more than $860 million.

Dwight Popowich's alfalfa farm near Two Hills is among the properties with infrastructure that has yet to be decommissioned.

"We don't know if this thing is leaking or not," he said. "We don't know if this thing is going to blow up one day as we go beside it with a tractor and ignite this thing. We don't know. It is sitting there with nobody looking after it."

Popowich said he was told it will take 10 to 12 years for crews to begin cleaning up the well on his land, due to the Orphan Well Association's lack of funding.

"We know the importance of oil and gas to this province, but don't take advantage of us. And that is exactly what is happening," said Popowich.

Yewchuk's report says the $144 million in levies the Alberta Energy Regulator (AER) recently approved to be collected this fiscal year continues the trend of underfunding for the Orphan Well Association.

"The AER's traditional approach has been catastrophic failure," said Yewchuk.

"Before setting the levy each year, the AER should be holding a public hearing. It should take submissions from the public and those who will be impacted, including land owners and rural municipalities, and issue a decision with reasons explaining how the levy was set and how it ensures the sustainability of the orphan fund," he said.

Since the association will also need to repay more than $300 million in federal and provincial government loans over the next 10 years, Yewchuk says Alberta's orphan well situation will only get further out of hand.

A spokesperson for the energy regulator says it hasn't seen the report and was unable to comment on it.