Orphan well cleanup could cost $1.1B by 2025: Budget watchdog
BNN Bloomberg
Canada’s orphaned oil wells problem is going from bad to worse, and a new report estimates the cost of cleaning them up could rise to $1.1 billion by 2025, posing a threat to government balance sheets.
Canada’s orphaned oil wells problem is going from bad to worse, and a new report estimates the cost of cleaning them up could rise to $1.1 billion by 2025, posing a threat to government balance sheets.
In a report released Tuesday, the Parliamentary Budget Officer (PBO) forecasted the cost to clean up oil wells abandoned by energy producers across Canada over the next three years. The newly projected figure is up from $361 million in 2020.
Oil and natural gas producers are required to decommission inactive well sites, but if the operator becomes insolvent or bankrupt, the well is abandoned and considered “orphaned” – and it’s a growing problem in the oil-rich provinces of Alberta and Saskatchewan.
Ninety-one per cent of onshore conventional oil and gas production in Canada takes place in those two provinces, according to the report. Only 35 per cent of wells in Alberta and 39 per cent of wells in Saskatchewan are active, the lowest share ever.
“The growing inventory of orphan, inactive, and plugged wells constitutes a fiscal risk due to the rising costs associated with clean-up, insufficient amounts of security being held to cover closure expenses, and a growing number of companies with a lack of financial capacity to meet closure obligations,” the report said.
As part of its COVID-19 Economic Response, the federal government allocated $1.7 billion to Alberta, Saskatchewan and British Columbia to help fund orphan well cleanups – which is in excess of the PBO’s cost estimate.
