What is an orphan well?
As you might guess from the name, an orphan well is an oil or natural gas well that no longer has an owner who is legally responsible, or who can financially manage the well. This can happen when a well’s owner goes out of business.
Why are orphan wells an issue?
In Canada, regulations require that wells that have reached the end of their productive life must be properly abandoned. (It’s not quite what it sounds: in oil and natural gas parlance, “well abandonment” means you remove the well equipment and associated facilities, and seal off the well hole using concrete: this ensures the well is not a safety or environmental hazard.) After abandonment, the land around the well must be reclaimed—that is, the land is returned to a natural state. This can include actions such as restoring soil that was removed, and replanting grasses and trees. In the case of an orphan well, some of this abandonment and reclamation work may not have been completed.
What is the Orphan Well Association?
In Alberta, the Orphan Well Association (OWA) takes care of orphan wells. It ensures these wells are safely abandoned, and that the land is reclaimed according to government regulations.
The OWA is a non-profit organization that operates under the delegated legal authority of the Alberta Energy Regulator (AER). OWA is funded by the oil and natural gas industry through an orphan well levy on oil and natural gas companies operating in the province.
The intervention of the OWA is a last resort when it comes to orphan wells.
Other oil and natural gas producing provinces in Canada (BC and Saskatchewan) have similar funding mechanisms to ensure industry, rather than taxpayers, pay costs related to the closure of energy facilities.
I’ve heard about the ‘Redwater’ case. How does it relate to orphan wells?
The intervention of the OWA is a last resort when it comes to orphan wells. If an oil and natural gas company goes bankrupt, the AER first uses monies generated through bankruptcy proceedings to fulfill that company’s remaining regulatory and environmental obligations. This includes the abandonment and reclamation of its non-productive wells.
However, a recent court judgement in Alberta, commonly called the Redwater case, has thrown this process into doubt. The court decided based on federal bankruptcy law that monies generated through bankruptcy proceedings could be used to pay creditors prior to the fulfillment of environmental cleanup obligations.
The Redwater decision has the potential to shift the abandonment and reclamation of many more wells to the OWA. This ultimately could jeopardize the sustainability of the Orphan Well fund. The AER has initiated an appeal of the case to the Supreme Court of Canada.