The Alberta Energy Regulator (AER) continues to prioritize the interests of the oil and gas industry at the expense of Alberta taxpayers by deferring its responsibility for insolvency applications to the industry-controlled Orphan Well Association.
A recent article by Drew Yewchuk and Shaun Fluker published in the University of Calgary Law Blog discusses an internal AER memo obtained through a freedom of information request and shows how the AER has allowed the Orphan Well Association to manage bankruptcy applications for oil and gas corporations to create orphaned assets.
Declaring oil and gas infrastructure as orphaned is needed for the infrastructure to become the responsibility of the Orphan Well Association, which carries out closure work (i.e., decommissioning and reclamation), that is — in theory — paid for by industry through the Orphan Well Fund levy. This levy is intended to uphold the polluter pays principle, which means that clean-up costs are to be paid for by the polluting industry, rather than taxpayers.
The fund is controlled by the Orphan Well Association, and it is used to pay for clean-up costs when the licensee of the orphaned asset becomes insolvent (or bankrupt). As more companies go bankrupt and the inventory of orphaned assets grows, so too should the levy on the oil and gas industry to ensure that sufficient funds are available to cover closure costs.
However, since the orphan fund is controlled by the Orphan Well Association, and its board is made up almost entirely of representatives from the oil and gas industry (e.g., Canadian Association of Petroleum Producers, Pathways Alliance, Canadian Natural Resources Limited, Ember Resources, Paramount Resources, and the AER), this means that the Orphan Well Association is incentivized to keep the inventory of orphaned assets down to minimize costs incurred to their companies through the Orphan Fund levy.
To put it another way, oil and gas industry representatives have been given control of how much their companies must pay into the orphan well fund by choosing when to initiate bankruptcies and emphasizing selling inactive infrastructure to new licensees who will fail to carry out closure.
Industry control means that the Orphan Well Association will likely put corporate profits over cleanup obligations, and the AER has willingly allowed this to happen, putting Alberta taxpayers at risk for massive cleanup costs that should be paid for by industry.
The AER memo shows how the Orphan Well Association encourages the transfer of assets from bankrupt corporations to new licensees, even if new licensees are unable or unlikely to perform closure work themselves. This kept the inventory of orphan assets down, along with the Orphan Fund levy, protecting the profits of O&G companies while pushing cleanup to some unspecified future date.
As things stand, more than 300,000 sites across Alberta will need to be reclaimed. According to a March 2023 report from Alberta’s Auditor General, cleanup costs range anywhere from $30 billion to $60 billion (if pipelines are included). Yet the AER continues to find novel ways for the oil and gas industry to delay or avoid closure and reclamation work.
Instead of managing orphan and inactive oil and gas infrastructure in a way that minimizes costs and risks to the public and the environment, the AER has allowed the Orphan Well Association to minimize the costs to the industry, while maximizing the risk to Albertans, the environment, and our future.
Phillip Meintzer is a conservation specialist with the Alberta Wilderness Association.