Dishing with DKG: What to do about the oilpatch's abandoned wells

This is a new conversation series by Donna Kennedy-Glans, a writer and former Alberta cabinet minister, featuring newsmakers and intriguing personalities. This week: oilpatch veteran Jim Reid.

Everyone knows that Alberta has thousands of no-longer-active wells, facilities and pipelines that need attention. I wanted to know more and came up with one man: Jim Reid, a retired rig hand in Edmonton who knows precisely what’s required to not only drill and operate wells, but to motivate industry to abandon infrastructure and reclaim sites.

Wearing a short-sleeved blue golf shirt on a warm winter day in Alberta, Jim has the look of a relaxed retiree enjoying time with his family. But when talk turns to what he knows best, oil field operations, this man pulls no punches. While he agrees that lots of companies follow the rules, to get their attention, you need to hit them in the pocketbooks.

Jim borrows his wife’s iPad to FaceTime with me in Calgary, and then recaps his career highlights in Alberta’s oil patch. In 1969, Jim started working for Chevron in oilfield operations; in 1980, he was recruited to the Energy Resources Conservation Board (ERCB) to manage its field operations group; and in 2007, he moved to Nabors Drilling, to head up the rig construction team.

I can’t resist asking Jim if he has held onto any shares of Chevron, his first employer. Days earlier, the company announced a $75 billion stock buyback (that’s roughly 20 per cent of the company’s stock value, at current prices). He chuckles, until the moment he realizes I’m not joking. (His shares are sold.)

This guy knows exactly what’s at stake in an oilfield. The 67-day blowout of Amoco’s Lodgepole sour gas well happened under his watch as regulator, and he and other ERCB staff stationed nearby at Drayton Valley had to act decisively that entire time, to save lives. Forty years on, Jim’s voice still quivers recounting the crisis.

I ask him what’s to be done to clean up inactive well sites in the province.

“There are shut-in wells and there are orphan wells, and not a lot of people understand the difference between them,” Jim explains. Inactive wells go by many names — orphans, shut-in, non-producing, abandoned — and sloppy semantics makes it confusing to decipher the extent of the backlog.

Put simply, orphans are wells that have no solvent owners to pay for cleanup costs; the industry self-insures these risks through the orphan well program, funded by levies on hydrocarbon companies. Jim isn’t convinced that the fund is sufficiently robust to fund the potential liability. “The downhole abandonment process isn’t usually that complicated,” Jim comments, “but reclamation can take years, and is expensive, especially with contaminated sites.”

An abandoned well is one that a hydrocarbon company decides it doesn’t want to produce, or keep producing, usually because the economics don’t make sense. And this is where things get tricky. Once an older well’s production is suspended, the well is rarely re-entered and companies can be inclined to put off incurring cleanup costs by keeping the abandoned well in inventory.

Exactly how big a problem is this backlog of orphan and abandoned wells for the province of Alberta? Jim isn’t certain but in 2018, the Alberta Energy Regulator pegged cleanup costs of well sites in the province at $58.65 billion.

Recognizing we could spend a lot of time debating numbers, Jim and I agree to just assume it’s in the “public interest” to figure out how this messy legacy isn’t inherited by next generations. Jim has kids and grandkids living in the province, as do I, and that fact gives us skin in this game.

“There’s always been a push to make companies abandon their uneconomic wells,” Jim observes, “and industry does a great job, but they aren’t in the business of spending money and they aren’t going to do it without some push. This carrot-and-stick thing is BS, as far as I’m concerned.”

Alberta’s Minister of Energy, at the direction of Premier Danielle Smith, is doing exactly that — piloting a strategy, dubbed R-Star, to offer up sizable bouquets of carrots, in the form of royalty credits, to energy companies that clean up their inactive well sites.

What solvent company wouldn’t like being rewarded for compliance with their legal obligations? Dollars spent to clean up well sites translate to credits the companies can use against future well royalty obligations. No government money is required to grease the wheels, proponents pitch; the only hit would be to Albertans’ royalty revenues.

In 2021, the Alberta Enterprise Group hired Danielle Smith to be its president, in which role she advocated for the R-Star program. Then, the Ministry of Energy rejected the program because it violated the polluter-pay principle.

Jim agrees with the ministry’s reasoning and if he had his way, he’d sharpen the stick: “If a well is shut-in but not abandoned by a company, to get around licence obligations, and it hasn’t produced in a year, the regulator should be able to issue an order and tax the shut-in well until the site is reclaimed.”

Donna Kennedy-Glans is active in the energy business and a multi-generational family farm. Her latest book is Teaching the Dinosaur to Dance: Moving Beyond Business as Usual (2022).

CORRECTION: An earlier version of this story inaccurately described the roles of Murray Edwards, now board Chair of Canadian Natural Resources Limited, and Danielle Smith within the Alberta Enterprise Group (“AEG”). Ms. Smith was previously AEG’s president and lobbied in that capacity. AEG indicates that Mr. Edwards was not a founder of AEG and that Canadian Natural Resources Limited was not a member when Smith was its president. This story has been updated.

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