Updated: Report by Lucija Muehlenbachs calls for time limits on inactive oil and gas wells in Alberta, “This is an accumulation of liability.” Where’s the AER? Passing the Buck.

The Report: 80,000 INACTIVE OIL WELLS: A BLESSING OR A CURSE? by Lucija Muehlenbachs, February 2017, Volume 10, Issue 3, University of Calgary, The School of Public Policy

Report calls for Alberta to put a time limit on inactive oil and gas wells, Report recommends change to rules allowing old oil or gas wells to sit inactive forever by Tracy Johnson, February 9, 2017, CBC News

Inactive oil and gas wells remain an intractable problem in Alberta, but a report released this week suggests the solution is probably not that complicated. Alberta could [But it’s obvious that Alberta doesn’t want to. If Alberta wanted to, responsible action would have been initiated decades ago, or the problem would have been prevented in the first place] simply follow in the steps of Texas and North Dakota and impose a time limit on how long a well can sit idle.

The province is sprinkled with old wells, more than 150,000 in varying degrees of decline.

Some have been orphaned, meaning their owners are out of business and can’t [or are too greedy to, using bankruptcy to walk from costly clean up] clean up the problem; tens of thousands more have been abandoned and plugged with concrete, but not fully reclaimed; and 82,546 are inactive, meaning no more oil or natural gas is being produced, but the wells haven’t been plugged and could, at least theoretically, be brought back to life.

Tony Bruder has one such well on his land. It’s been sitting inactive since his grandparents owned the land in the 1950s. The owner of the well has changed multiple times, but has never been motivated to clean it up, in part because there are no time limits in Alberta as to how long a well can sit dormant.

 

It is often more economical to continue to pay lease rates to a landowner than to pay to plug and reclaim a well, the cost of which can be tens or hundreds of thousands of dollars. [And, if the wells are leaking, one hell of a lot more]

It seems obvious that the well on Bruder’s land is never going back into production, but how many other wells in Alberta are in the same situation?

Higher oil prices not the answer

An economist at the University of Calgary has produced a report that tries to calculate what it would take to get those wells back to work. Lucija Muehlenbachs found that even if oil prices were to increase by 200 per cent, only 12 per cent of the inactive wells would be brought back into production.

 

They’re allowed to be inactive because you don’t want to cut off the productive life of these wells,” said Muehlenbachs. “In case prices go up or in case technology changes, something that allows them to be reactivated.”

But she found that “prices could skyrocket or recovery rates could increase and still we don’t see a lot of them being reactivated.”

Tighter timelines in U.S.

Across the border in the United States, there are no jurisdictions that allow inactive wells to sit indefinitely. In Texas, the limit is six months, although companies can apply for unlimited extensions. In North Dakota, which does not have an abandoned well problem, the limit is 12 months and companies can apply for just one extension of up to two years. 

Inactive wells are regulated by the Alberta Energy Regulator. However, in a statement, the AER said that time limits are not under its control, but are the responsibility of the provincial government. [AER, WORLD CLASS LIAR & PASS THE BUCKER]

Report calls for time limits on inactive oil and gas wells in Alberta by Ian Bickis, The Canadian Press, February 8, 2017, CTV News

CALGARY — Concerns on the growing liability of idle oil and gas wells in Alberta has a researcher at the University of Calgary calling for limits on how long companies can wait to reclaim them.

A report out Wednesday by Lucija Muehlenbachs at the university’s School of Public Policy says that most of the roughly 80,000 inactive wells in the province likely wouldn’t be restarted, even if oil prices or technology significantly improve.

“Looking at what we’re seeing in the data of wells moving in and out of activity, it’s very rare,” Muehlenbachs said.

Oil and gas producers partially close off or suspend wells rather than go ahead with a sometimes costly reclamation because they could be worth producing from again in the future.

But Muehlenbachs’s research found that even if oil prices were to double, only about 12 per cent of oil wells would be reactivated. And if a technology breakthrough were to increase reserves five-fold, only about 10 per cent of oil wells and six per cent of gas wells would likely be restarted.

The report finds that most wells aren’t fully reclaimed to avoid the cost of doing so, and with no time limit on how long they can remain on standby, there’s a risk that companies might not be around in the future to pay for those liabilities.

“This is an accumulation of liability,” said Muehlenbachs. “If they’re allowed to leave them inactive, then why not just leave them inactive forever?”

The orphan well fund, which manages wells where the owner has gone bankrupt or can’t be found, has already gone from 162 wells waiting to be formally abandoned in early 2015 to 1,590 as of Wednesday.

Many other jurisdictions also don’t have limits on formally abandoning and reclaiming a well, but about a third of American states have a limit ranging from six to 300 months with possible extensions, Muehlenbachs noted.

Gary Leach, president of the Explorers and Producers Association of Canada, said just looking at the raw data on inactive wells doesn’t give the full story. Some wells aren’t reclaimed because they’re in a producing field, or companies may use them to hold rights on productive formations.

Leach said companies pay taxes on those wells, and they’re still closely regulated, so it should be up to producers to decide when they want to close them off permanently.
“As long as we have a robust regulatory framework that keeps suspended wells in a safe state, ultimately it should be up to the parties that invested in that well to make the decision,” he said.

Brad Herald at the Canadian Association of Petroleum Producers said industry could be open to some kind of time limit on inactive wells, but it depends on the details.
“It’s in everybody’s interest to see the numbers come down,” he said. “How you do that is the critical piece.”

Herald said industry’s found it can reclaim wells much more efficiently if done in blocks, so it might not make as much sense to set hard deadlines for particular wells.
Wells more than ten years old also see their risk rating go from low to medium, increasing costs and the incentive to decommission them, he added.

Mark Salkeld, president of the Petroleum Services Association of Canada, said he supports clearing the backlog of older wells, especially if it puts his members to work.

“There’s producers where they’re just paying for the licensing fee every year, kind of kicking the can down the road, and I would like to prevent that, or at least address that,” he said. [Emphasis added]

This entry was posted in Global Frac News. Bookmark the permalink.