The oil and gas industry’s failure to keep up with lease payments to landowners has been called a ‘broken social contract’
TABER, Alta. — The failure of oil and gas companies to meet their lease and tax obligations continues to fuel unrest in rural Alberta.
Many farmers and ranchers with oil and gas extraction sites on their property are not receiving payments from leaseholders and in other cases the companies have arbitrarily reduced payments.
The downturn in oil and gas prices has forced many companies into receivership and bankruptcy and increased the inventory held by the Orphan Well Association, which is tasked with site reclamation. Other companies that still operate functioning wells have halted lease payments or paid lower-than-agreed amounts.
Concern among landowners was evident Feb. 12 at the annual meeting of the Action Surface Rights Association, one of several similar groups in the province that represent landowners’ property rights.
ASRA director Daryl Bennett outlined the failure of oil and gas companies to meet their obligations, failure of the Surface Rights Board to adequately address complaints, failure of the Alberta Energy Regulator to enforce the rules and failure of Alberta’s UCP government to recognize and address the issues.
“I don’t think the UCP caucus fully understands the extent of the problem,” Bennett said in an interview.
“They’ve had a lot of people come in and they’re starting to understand the problem, but they’re caught in a tight place with the amount of money that the (oil and gas) industry puts in the provincial coffers. They want to stimulate the economy. They want to keep these guys drilling. They want to keep as many of these operators floating as possible.
“Landowners have a little bit different perspective. They’re dealing with a lot of these operators that are purposely causing the problem and taking advantage of the system, and some of these guys we don’t want on the land anymore.”
The ASRA last month issued a news release suggesting landowners shut off the electricity and valves at sites on their properties until the responsible companies pay their lease fees as agreed.
The suggestion was widely criticized by the Canadian Association of Petroleum Producers and by the Alberta Farmers Advocate as being ill-advised and unsafe.
No landowners followed the suggestion, according to the ASRA.
Landowners can appeal to the SRB for compensation if lease payments aren’t made, but Bennett estimated the board has a backlog of about 4,500 cases to handle and appears to be under government pressure to reduce payments to landowners as a way to reduce spending because they come out of general revenue.
As well, the Alberta Energy Regulator, which is tasked with oversight of energy company activity, laid off about 200 people in recent days, a move likely to hamper its operations and ability to respond to landowner complaints.
“In Alberta today we have a broken social contract,” Bennett told the group.
In return for expropriated land used for oil and gas sites, landowners are entitled to lease payments as compensation for adverse effect. Failure to pay in effect breaks the contract, he said.
“The reason why we got into this situation is there’s no effective timeline requiring these companies to reclaim these wells. There are rules on the books but they’re not enforced. So in many cases we’re dealing with wells that are up to 40 years old that still have not even been suspended in some cases and reclaimed in a number of cases.”
Many wells drilled by larger companies in better economic times were sold to smaller companies, which in turn sold to still other companies, said Bennett. The result is a “last man standing” situation.
“It goes from weaker hands to weaker hands until finally the last guy’s just trying to get a few barrels a day. He doesn’t have the resources to reclaim it. They end up going bankrupt or they just walk away. That’s not how the system was put in place.”
There are about 200,000 active wells in Alberta and another 170,000 abandoned and suspended sites. The Orphan Well Association has 3,496 wells on its list that need decommissioning and about 2,900 sites awaiting reclamation, according to OWC executive director Lars De Pauw. About 4,200 pipeline segments require decommissioning as well.
“This problem has been building for quite awhile,” he said.
In 2012, the OWC had very few sites on its list for decommissioning or reclamation. That changed drastically starting in 2014 when oil and gas prices tumbled.
However, De Pauw told those at the ASRA meeting that reclamation of wells continues even as more sites are added to the OWA list.
Abandoned energy sites create a number of problems for landowners, said Bennett. Uncontrolled weeds spread to nearby farmland. Land contamination from hydrocarbons is an issue and conditions might be put on mortgages if that contamination is deemed an environmental hazard by lenders.
In some cases farmers use oil and gas company lease payments to make their own mortgage payments, so companies’ failure to pay creates financial stress.
“We’re going to have to be a little more aggressive and stand up for our rights,” Bennett told those at the meeting.
The group passed a number of resolutions aimed at the provincial government and energy regulators. Reclamation timelines are needed, it said, as is the need for government to hold companies responsible for landowner compensation and payment of municipal taxes owed.