Alberta oil and gas companies drilling new wells should have to give counties a $50,000 bond for each well, according to some county councillors.
“That would stop the fly by nighters,” said Francis Spruyt, County of Camrose, Alta., councillor.
It would be the best way to ensure companies don’t cease activity on unprofitable wells and leave liability costs behind, like equipment removal and land restoration, said Spruyt at the Alberta Surface Rights Federation annual meeting. There are over 40 such wells, called orphan wells, in his county in the Armena area.
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Since they were abandoned by Jim Glover of Big Valley Energy Corporation in the late 1980s, the county stopped getting tax money from the wells. However, under provincial tax laws, the county has to pay education tax on the abandoned wells until the site has been cleaned up. Spruyt estimates the county has lost $300,000 in the Big Valley fiasco that left oil and salt contamination spills.
The provincial government is paying for the cleanup, expected to cost $2.5 million, but the province hopes to recoup that money from Glover.
If it can’t, the province will go after the industry. That’s what the orphan well fund is for, explained an Alberta Energy and Utilities Board member at the March 2 meeting. Once government officials have exhausted all means to collect money from a company owner, it applies to the industry fund generated from annual levies.
The fund is budgeted at $3.5 million for the 1999-2000 fiscal year, said David Sandmeyer, committee member for the Canadian Association of Petroleum Producers. As well, $5 million is set aside for unexpected problems.
Spruyt doesn’t think the fund is adequate and feels a $50,000 bond would better safeguard counties from effects of orphaned wells. Gawney Hinkley, county councillor from Ponoka, agrees. He thinks the bond should be held in trust by the municipality until a reclamation certificate is granted by government. That would be the most effective way to ensure a Big Valley situation doesn’t happen again, he said.
But Sandmeyer stresses there will always be a $5 million surplus in the fund in addition to the yearly budget. A bond is unnecessary and too much of a hardship for the industry, he added.
“The reason posting a bond would be such a terrible burden on industry is some of these wells will produce for 40 years and to put up a $50,000 bond to be held by the municipality would be an onerous increase in the cost of doing business.”
Most oil companies follow government reclamation legislation and the province would ultimately lose if industry has to put out billions for bonds, said Sandmeyer. There are about 60,000 active wells in Alberta, he noted.
“It would result in less oil and gas exploration and development activity, fewer royalty payments to the crown and it might even affect the value of the lease bonuses that companies might be willing to bid to acquire the rights to bid in the first place.”
Province should hold trusts
And if a bond were ever seriously considered, they shouldn’t be held in trust by municipalities but by the province he said.
Producers with orphan wells on their land can apply to the Surface Rights Board to get their annual lease payments that would have come from the oil company.
In the fiscal year that ends at the end of March, the board paid out $852,636 to producers for wells on behalf of companies that abandoned wells or couldn’t make payments.
