Report calls for time limits on inactive oil and gas wells in Alberta

This aerial photo shows a oilsands mine facility near Fort McMurray, in Alberta, Canada. (Jeff McIntosh / THE CANADIAN PRESS)

CALGARY -- Concerns on the growing liability of idle oil and gas wells in Alberta has a researcher at the University of Calgary calling for limits on how long companies can wait to reclaim them.

A report out Wednesday by Lucija Muehlenbachs at the university's School of Public Policy says that most of the roughly 80,000 inactive wells in the province likely wouldn't be restarted, even if oil prices or technology significantly improve.

"Looking at what we're seeing in the data of wells moving in and out of activity, it's very rare," Muehlenbachs said.

Oil and gas producers partially close off or suspend wells rather than go ahead with a sometimes costly reclamation because they could be worth producing from again in the future.

But Muehlenbachs's research found that even if oil prices were to double, only about 12 per cent of oil wells would be reactivated. And if a technology breakthrough were to increase reserves five-fold, only about 10 per cent of oil wells and six per cent of gas wells would likely be restarted.

The report finds that most wells aren't fully reclaimed to avoid the cost of doing so, and with no time limit on how long they can remain on standby, there's a risk that companies might not be around in the future to pay for those liabilities.

"This is an accumulation of liability," said Muehlenbachs. "If they're allowed to leave them inactive, then why not just leave them inactive forever?"

The orphan well fund, which manages wells where the owner has gone bankrupt or can't be found, has already gone from 162 wells waiting to be formally abandoned in early 2015 to 1,590 as of Wednesday.

Many other jurisdictions also don't have limits on formally abandoning and reclaiming a well, but about a third of American states have a limit ranging from six to 300 months with possible extensions, Muehlenbachs noted.

Gary Leach, president of the Explorers and Producers Association of Canada, said just looking at the raw data on inactive wells doesn't give the full story. Some wells aren't reclaimed because they're in a producing field, or companies may use them to hold rights on productive formations.

Leach said companies pay taxes on those wells, and they're still closely regulated, so it should be up to producers to decide when they want to close them off permanently.

"As long as we have a robust regulatory framework that keeps suspended wells in a safe state, ultimately it should be up to the parties that invested in that well to make the decision," he said.

Brad Herald at the Canadian Association of Petroleum Producers said industry could be open to some kind of time limit on inactive wells, but it depends on the details.

"It's in everybody's interest to see the numbers come down," he said. "How you do that is the critical piece."

Herald said industry's found it can reclaim wells much more efficiently if done in blocks, so it might not make as much sense to set hard deadlines for particular wells.

Wells more than ten years old also see their risk rating go from low to medium, increasing costs and the incentive to decommission them, he added.

Mark Salkeld, president of the Petroleum Services Association of Canada, said he supports clearing the backlog of older wells, especially if it puts his members to work.

"There's producers where they're just paying for the licensing fee every year, kind of kicking the can down the road, and I would like to prevent that, or at least address that," he said.