Orphan wells in Alberta, Canada are inactive oil or gas well sites that have no solvent owner who can be held legally or financially accountable for the decommissioning and reclamation obligations to ensure public safety and to address environmental liabilities.
The 100% industry-funded Alberta Energy Regulator (AER)the sole regulator of the province's energy sectormanages licensing and enforcement related to the full lifecycle of oil and gas wells based on Alberta Environment Ministry requirements, including orphaned and abandoned wells. Oil and gas licensees are liable for the responsible and safe closure and clean-up of their oil and gas well sites under the Polluter Pays Principle (PPP) as a legal asset retirement obligation (ARO). An operator's liability for surface reclamation issues continues for 25 years following the issuance of a site reclamation certificate. There is also a lifelong liability in case of contamination.
Once the current environmental legislation was in place, and the industry-led and industry-funded Orphan Wells Association (OWA), was established in 2002, some orphan wells became the OWA's responsibility. OWA's Inventory does not include legacy wells which are more complex, time-intensive and costly to remediate. Following the 2014 downturn in the global price of oil, there was a "tsunami" of orphaned wells, facilities, and pipelines resulting from bankruptcies.
As of March 2023, oil and gas companies owe rural municipalities $268 million in unpaid taxes; they owe landowners "tens of millions in unpaid lease payments". Original owners of what are now orphan wells "failed to fulfill their responsibility for costly end-of-life decommissioning and restoration work"; some sold these wells "strategically to insolvent operators". Landowners suffer both "environmental and economic consequences" of having these wells on their property. OWA funding is underfunded by at least several hundred million. The total estimate for cleaning up all existing sites is as much as $260 billion. Remediation is paid for through federal and provincial bailouts, a PPP violation.
Current overview
In 2017, of the estimated 450,000 AER oil and gas registered wells in the province, 150,000 were no longer producing but were not remediated, and 92,000 were inactive with no set value. A 2021 Alberta Liabilities Disclosure Project report, "The Big Clean", that accessed AER data through a Freedom of Information (FOIP) request, estimated that Alberta had 300,000 unreclaimed wells and that it would cost from $40 to $70 billion to clean them up. This cost estimate does not include unreclaimed pipelines and pumping stations. The ALDP, an independent, nonpartisan research organization that provides "government-level data" on liabilities related to the oil and gas industry in Alberta, seeks solutions towhat they describe asa "growing liabilities crisis".
Unreclaimed wells are inactive wells that may be orphaned or legally-licensed. Some unreclaimed wells may have been sealed off, while some have begun or completed remediation or reclamation of the well site. Under current AER regulations, it is legal for operators to leave well reclamation suspended indefinitely, this is not the case in some oil producing states, such as North Dakota. Daryl Bennett, who represents landowners through both My Landman Group and Action Surface Rights "in disputes involving resource companies", said that there were 170,000 unreclaimed sites that require cleaning. These unreclaimed wells were licensed by the province to oil and gas operators under Alberta's mineral rights provision, by which landowners only have surfacenot below the surface mineral rightsand have no right of refusal to prevent a well being drilled on their property. When the wells were producing, landowners benefitted, as operators pay an annual fee to lease and access the site. When operators go bankrupt or simply cannot be relocated, landowners are left with these aging wells with no recourse. By 2001, there were about 59,000 farms with at least one well on their property. By 2023, wells and pumpjacks dot the landscape across much of rural Alberta with a well for almost every .
In 2019, the Intergovernmental Panel on Climate Change (IPCC) warned that methane gas leakage from abandoned oil and gas wells represented a serious risk to climate change and recommended the monitoring of these wells. Canada began to monitor methane leakage from abandoned wells at that time.
It is uncertain how many of the roughly 300,000 inactive wells belong to the various classifications that describe oil and gas wells in Alberta. The oil and gas industry refer to wells that have been sealed as "abandoned", or to be exact, "responsibly abandoned". The Narwhal says that this has led to "countless confusing headlines." There are numerous inactive well sites that are neither sealed nor officially designated as orphans by AER. The annual inventory of the OWA does not include orphaned wells that AER has identified but not transitioned into orphan status. The OWA is also not responsible for wells that were orphaned prior to its establishment in 2002. These wells are the responsibility of the regulatory and ministerial bodies, the AER and the Department of Energy. A 2021 Office of the Auditor General (OAG) report said that the regulator and ministry failed to prioritize sites and rejected responsibility for funding and cleaning well sites "even when evidence showed otherwise."
The January 2022 Parliamentary Budget Office (PB0) report on the cost of cleaning Canada's orphan oil and gas wells said that, in spite of the 1.7 billion federal money provided during the pandemic, the cost of cleaning up orphan well sites nationally will require funding sources from industry, the provinces, and the federal government. By January 2022, Alberta had given about 50% of the allocated funding to viable energy companies, not companies "with an acute financial risk."
The CAPP says that most of their member companies pay taxes and clean up their own wells and that the bankruptciesone of the prime factors in the increase in orphan wells. were the result of the "lagging effects of this multi-year downturn for the oil and gas sector." The increase in the number of insolvencies and wells with no solvent owner was the result of the "largest oil price declines in modern history" in 2014 to 2016 and the longest decline in oil prices since the 1980s.
As of 2022, most orphan wells were still not remediated. Farmers and ranchers suffer both "environmental and economic consequences" as the wells on their land, which are licensed as active, are not. They face decades-long challenges including land devaluation because of orphan wells, and contamination, and loss of compensation from bankrupt companies. Insolvent operators owe landowners "tens of millions" in unpaid surface rights lease payments, and/or transfer costs, such as taxes onto the landowners. These delinquent operators owe municipalities $268 million in unpaid taxes Rural Municipalities of Alberta (RMA) says this represents an increase of 261%, since 2018—despite industry recording multi-billions in profits. This will result in service cuts or tax increases at the municipal level. The level of unpaid taxes reported in was "unprecedented" and presented a "unique challenge that has not been experienced by municipalities in Alberta before."
Starting in March 2022, the industry experienced the "largest 23-month increase in energy prices since the 1973 oil price" following the Russian invasion of Ukraine. The increase in the price of oil resulting record profits for Canadian oil companies, with some of them earning billions. In Alberta, Canadian Natural Resources, Cenovus Energy, Paramount Resources and Whitecap Resources earned a combined net income approximately $5 billion in the fourth quarter alone of the fiscal year 2022.
The OWA funding is "grossly inadequate" by at least several hundred million. The total estimate for cleaning up all existing sites is as much as $260 billion. Taxpayers have paid the difference through federal and provincial bailouts in the form of grants and loans, a PPP violation.
Concerns have been raised about the "murky practice" of offloading liabilities strategically to smaller, junior operators with insufficient funds that are likely to face future insolvency. This practice allows original owners of what are now orphan wells to avoid paying for costly end-of-life decommissioning and restoration work for which they were responsible. Many of these wells become orphan wells. In this way, companies misuse the bankruptcy process to keep their valuable assets. The OWA says as owners shirk their responsibility the collective becomes responsible for the liabilities. Fifty percent of the delinquent wells are owned by small companies that have insufficient finances but are still able to produce and collect revenue. There is a direct correlation between these abandoned wells' environmental liabilities, unpaid taxes, and unpaid surface payments to landowners.
The AER has the authority to enforce the rules. The RMA says that the AER "props" up small companies to avoid increasing the already concerning number of orphan wells which results primarily from bankruptcies. The AER says that it is the RMA's role to collect taxes. A lawyer representing Action Surface Rights, a landowners group, Christine Laing, called on the AER to use the power it has more often and in a timely fashion to "protect the public interest".
The International Institute for Sustainable Development (IISD), which was established in 1990 during the premiership of Brian Mulroney as part of Canada's contribution to the 2002 Rio Earth Summit, drew attention to ways in which Canadian producers have failed on ESG issues.
Context
The province's oldest inactive well has been dormant and unreclaimed since June 30, 1918.
Some of the legacy sites were in operation in the 1920s or earlier, and have no known operator and no "financial security to cover the cleanup costs."
Canada's oil production in 1946 was only of oil per day. By 1956, Alberta was producing per day.
In 2012, the OWA only had 14 classified orphan wells; in 2013 there were 74; in 2014 there were 162; in 2015 there were 705; in 2024 there were 2,647.
The average cost of reclamation/remediation (R/R) site services in 2015 was $180,000 per site and range from $20,000 to $1 million. This provides work during downturns in the oil industry.
Prior to 2017, the energy industry paid $15 million a year into the Orphan Fund Levy. It doubled to $30 million in 2017.
Between 1955 and 2017, approximately 580,000 wells were drilled in Canada, according to a Natural Resources Canada (NRC) report on wellbore integrity in the oil and gas industry in Canada. Of these, 400,000 were in Alberta and the NRC anticipated that there would be 100,000s more drilled.
The New Democratic Party (NDP) provincial government began consulting with the energy industry in 2017 to "introduce new rules that might limit a multi-billion-dollar public liability for reclaiming about 80,000 inactive wells around Alberta."
The C.D. Howe Institute report estimated that the social cost of orphan wells, including those incurred by financially insolvent firms, could be more than $8.6 billion.
In 2017, the federal government provided Alberta with a one-time grant of $30 million for "decommissioning and reclamation" which the province used to "cover the interest on a $235 million repayable loan".
As of 2018, 37.8% of all inactive wells89,217had been inactive for up to 5 years; 29.8% had been inactive for 5 to 10 years; 16% from 10 to 15 years; 8.2% from 15 to 20 years; 3.9% from 20 to 25 years; and 4.5% had been inactive for over 25 years.