As cleanup costs mount, oilpatch may be forced to pay deposit before

Alberta’s premier is floating the idea of making oil and gas companies pay a deposit before they can drill a new well, a requirement which hasn’t been in place in decades and has often been resisted by industry.

The provincial government is looking at ways to address the large number of old oil and gas wells which require cleanup.

To help prevent the problem from increasing further, Danielle Smith said companies should set aside some money up front, suggesting $10,000 per well, while speaking at an industry event this week.

“They’ve got to put a little bit of money aside so that by the time it’s at its end of life, the money is there to be able to clean it up,” said Smith, during a question and answer session on stage in front of 800 people at the Canadian Association of Energy Contractors event in downtown Calgary.

If a company paid a $10,000 deposit, the amount would grow and compound with interest over time, Smith said, so when the well is no longer producing oil or natural gas, “the money would be there” to help cover reclamation costs. 

“I hope that we can find a way to get to a resolution on that,” said Smith, as conversations with industry continue.

Industry pushback

Currently, there are nearly 250,000 old wells and other infrastructure that are inactive or marginally producing any oil or gas. 

At the same time, the Orphan Well Association (OWA) has a record-high number of wells in need of cleanup. The OWA is an industry-funded group responsible for the reclamation of wells that no longer have an owner after a company goes bankrupt.

Smith’s suggestion of a deposit is not a bad idea, said Shaun Fluker, professor of law at the University of Calgary.

However, he’s skeptical the proposal will ever become reality.

“Quite frankly, I’m not personally going to get too excited,” said Fluker. “Until I see something tangible in that regard, I just think those comments are hot air.”

Alberta previously had a legal requirement that a company had to provide a deposit when applying for a new well licence, but the requirement was rescinded in 1986.

Fluker co-wrote a 2023 research paper on the issue, which described the orphan and inactive wells as a “made-in-Alberta failure.”

“There are other instances between then and now where industry has pushed back against programs that would probably have prevented us from being in the mess we’re in today,” said Fluker. “Every time the province backs down.”

Some oil and gas industry groups have opposed such policies by arguing they will cause financial hardship on some smaller companies and cause an increase in bankruptcies.

“We have to wait for an official announcement…