Oil and Natural Gas 101: Orphan Wells

How Alberta’s petroleum industry ensures wells with no owners are properly reclaimed.

Every company that explores for and develops oil and natural gas resources is financially responsible for safely managing each well they drill and any associated facilities such as pipelines. This responsibility includes all stages of a well’s life cycle: exploration, development and operation, as well as end-of-life activities including abandonment and reclamation. (Abandonment means permanently sealing a well and taking it out of service, while reclamation is the safe and environmentally regulated return of land back to a self-sustaining, equivalent landscape).

When a well is no longer productive, the operating company is required by law to permanently seal the well, remove equipment and reclaim the site. Regulatory requirements are documented under various government acts such as Alberta’s Oil and Gas Conservation Act (OGCA) and a host of technical regulations and directives under the Alberta Energy Regulator (AER).

Tough times mean more orphan wells

Abandoned, inactive and suspended wells have an identifiable owner – the licensee – and these wells are financially managed by the licensee through to abandonment and reclamation. To protect against licensees that become bankrupt, the AER collects an annual levy (the Orphan Well Levy) from all active oil and natural gas producers and remits these funds to the Orphan Well Association (OWA). The resulting Orphan Well Fund is intended to protect Albertans from paying abandonment and reclamation costs associated with failed companies that have undischarged end-of-life obligations. Since the OWA was founded, the organization has collected $374 million from industry to abandon and reclaim wells left by defunct operators.

Challenging economic conditions have led to a number of producers either filing for or nearing bankruptcy. This has resulted in a significant inventory of orphan wells that have become the responsibility of the OWA. The number of orphan wells has grown since 2013, and in 2017 the Government of Alberta announced a $235-million loan to the OWA to speed up the abandonment and reclamation of orphan wells (the OWA started repaying this loan in 2019).

In March 2020, the Government of Alberta announced a further loan of up to $100 million to the OWA, to further accelerate the association’s immediate efforts by abandoning an estimated additional 1,000 wells and creating up to 500 direct and indirect jobs in the oil services sector.

Reducing the orphan well inventory

As of March 23, 2020 the OWA reported:

  • Wells to be abandoned: 2,789
  • Abandoned sites to be reclaimed: 3,331
  • Facilities to be abandoned: 233
  • Pipeline segments to be abandoned: 4,113

The OWA assumes responsibility for wells of defunct owners. It assesses properties and undertakes work to ensure the continued safety of the public and environment. Projects are prioritized by evaluating site factors such as the presence of contaminants, landowner concerns, regulator concerns, and proximity to urban development. Over the past five years nearly 2,400 wells have been successfully abandoned by the OWA.