Liabilities resources for landowners

Information for Albertans with inactive, suspended, abandoned or orphaned oil and gas infrastructure on their property Inactive and orphaned well numbers...

canola field with pumpacks and oil tanks

Information for Albertans with inactive, suspended, abandoned or orphaned oil and gas infrastructure on their property

updates page buttonInactive and orphaned well numbers are growing in parallel with a prolonged energy recession in Alberta since 2014. Rural landowners are the ones who have this infrastructure on their land and have to live with these uncertainties.

This landing page aims to aggregate resources and information for Albertan landowners with inactive, suspended, abandoned or orphaned wells on their property.

Below are summaries of recurring liabilities topics that relate to Alberta landowners, including relevant provincial regulations, court cases and organizations.

We also summarize recent updates and developments chronologically, so that landowners can quickly find out what's happening as it relates to clean-up efforts, regulations and new resources.

Alberta Real Estate FoundationThese pages were prepared with the support of the Alberta Real Estate Foundation.

Liabilities by topic

Liabilities Management Framework

Alberta has had a rapidly growing liabilities problem since a downturn in the oil and gas market began in 2014. In January 2020, the UCP government announced it would complete a full review of how liabilities are managed in Alberta, initially expected to be completed in the first quarter of 2020.

On July 30, 2020, the Government of Alberta releases its new Liabilities Management Framework, which is intended to address the growing number of orphan and inactive wells. This is a needed update to liabilities management, as the previous system allowed thousands of wells to become inactive or orphaned and did not provide landowners with proper support. 

As announced, the framework will include:

  • Licensee Special Action: The Alberta Energy Regulator will provide “practical guidance and support for individual or distressed operators, helping them to manage and maximize their assets, and maintain their operations.”

  • Licensee Capability Assessment System: which will replace the current Licensee Liability Rate (LLR) system. The Alberta Energy Regulatory will assess whether operators have the ability to operate profitably, and abandon and reclaim all of their sites – which they are legally required to do – before obtaining regulatory approvals.

  • Inventory Reduction Program: sets a target that companies need to spend on closing their oil and gas sites. The targets will be over a 5 year rolling period. Landowners will be able to nominate sites for this program. 

  • Addressing Legacy and Post-closure Sites: Brings together a panel of experts who are tasked with solving the problem of legacy and post-closure sites, or sites abandoned and reclaimed before current standards were put in place.

  • Expanding the Mandate of the Orphan Well Association: the changes made under the Liabilities Management Statutes Amendment Act (Bill 12) are part of this new framework

As of January 2021, the details of how this framework will be implemented have not been announced. Questions about how landowners will be involved and consulted are still outstanding. Multiple directives will need to be updated in order to operationalize this new framework. Currently being updated is Directive 020: Well Abandonment, as well asDirective 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals, for which the AER is accepting feedback until Feb. 14, 2021.

Liabilities Management Statutes Amendment Act (Bill 12)

Bill 12 — the Liabilities Management Statutes Amendment Act — was tabled in the Alberta Legislature on March 31, 2020.

This act expands the responsibilities for the Orphan Well Association (OWA) to include the ability to operate, maintain or sell an orphaned facility, and allows the Alberta Energy Regulator (AER) to start the bankruptcy process for a company. 

This policy is important because it addresses concerns that the OWA did not have the power to manage orphaned wells that were still active in a safe way, or manage issues with remediation, reclamation, and abandonment. Better management of licenses from bankrupt companies will mean increased safety and efficiency of cleanup for landowners.

Bill 12 received assent and came into effect as the Liabilities Management Statutes Amendment Act on April 2, 2020.

Orphan Well Association

The Orphan Well Association was created in 2001 to manage the abandonment of oil and gas sites, and to complete associated reclamation work when these sites no longer had a company fiscally or legally responsible for them. The organization was initially meant to catch the few sites that slipped through the cracks, however since the 2014 oil price downturn, it has played an increasingly large role in abandonment and reclamation. 

As of Jan. 1, 2021, the OWA has 2,852 sites to decommission and 4,014 sites reclamation, compared with 2,983 orphan wells for abandonment and 3,284 sites for reclamation in April 2020. Many expect the inventory to grow as impacts of the COVID-19 pandemic and associated global market crash continue.

The OWA is intended to be funded by industry through an annual levy imposed by the Alberta Energy Regulator, where licensees pay according to the proportion of wells they own.

In 2017, the Alberta government loaned the OWA $235 million, to help deal with an inventory that had reached 2,000 orphaned wells. The loan was meant to speed up the rate at which these sites were properly abandoned and reclaimed. However, the oil price downturn beginning in 2014 led to a sharp increase in the orphan inventory. The number of new wells that came under the OWA’s jurisdiction increased by 81 per cent in 2017 alone, leaving more landowners with orphans on their properties and no clear path to reclamation.

In February 2020, the Government of Alberta extended its loan to the OWA, adding another  $100 million to the 2017 loan, bringing the total loan to $335 million. This was announced in Budget 2020, under ‘A Blueprint for Jobs’, signaling the intention to create jobs by cleaning up liabilities while also increasing the number of orphan wells being addressed.

In May 2020, in light of the coronavirus, the Alberta government delayed the annual orphan levy collection from oil and gas companies, pegged at $65 million for 2020, by five months. This was during the same period that the OWA received $200 million in COVID response funding from the federal government. 

Since 2017, while the oil and gas industry has paid $185 million through the annual levey, the OWA has received the majority of its funding - a total of $535 million -  via loans from taxpayer dollars and the clean up of orphans has now been mostly paid for with public money.

Redwater bankruptcy case

The Redwater Energy Corp., was established in 2009 with headquarters in Okotoks. The company declared bankruptcy in 2015, with 91 licenses under the AER, of which around 20 were for wells that were still active and producing oil.

In reviewing the company's assets and obligations (such as bank loans that still needed to be paid) upon bankruptcy, the receiver decided to take possession of only those 20 licenses for the active wells, meaning the remaining properties would simply be left ownerless, and eventually fall to the Orphan Well Association to clean up.

This led to a legal question about whether a trustee should be required to take control of all assets - not just the valuable wells - and be responsible for both selling, as well as abandoning and reclaiming them, before paying off other debts, such as bank loans. 

On May 17, 2016, the Alberta Court of Queen’s Bench ruled that the trustee isn’t required to care for any liabilities from the bankrupt operator, meaning the clean up of inactive wells was left as the last priority. Several organizations, concerned this would lead to an increase in orphans, including the Orphan Well Association and the Alberta Energy Regulator, appealed the decision. 

On January 30, 2019, the Supreme Court of Canada overturned this legal decision, which meant the trustees working with insolvent companies could no longer avoid legislated closure activities. 

This is welcome news for landowners with inactive wells on their properties, which will now be prioritized over paying back banks in the case of bankruptices. It does not necessarily mean, however, that there will always be enough funds to abandon and reclaim all of a bankrupted company’s assets.

Responsible Energy Development Amendment Act (Bill 7)

Bill 7 — the Responsible Energy Development Amendment Act — was introduced in the Alberta Legislature in May 2020.

The bill allows the Government of Alberta to intervene in AER processes and establish time limits on energy project approval times. It also allows the government to establish time limits for any part of the approval process. This could potentially limit landowners’ and concerned parties’ ability to submit their concerns and have their voice heard due to restricted timeframes and sped up processes.

Bill 7 received assent and came into effect as the Responsible Energy Development Amendment Act on June 26, 2020.

Site Rehabilitation Program

On April 17, 2020 the federal government announced $1.72 billion to clean up wells in B.C, Alberta and Saskatchewan as a part of COVID-19 relief, including a $200 million loan for the Orphan Well Association (OWA) and $1 billion for addressing Albertan wells. 

The money was meant to breathe life into Alberta’s struggling energy sector with the added bonus of cleaning up orphan and inactive wells throughout the province, and preventing them from falling into the orphan inventory if their owners become insolvent during this unpredictable time.

On April 24, 2020, Alberta announced the Site Rehabilitation Program, which will administer $1 billion in federal COVID-19 response funding. The program provides grants to oil field service companies for abandonment and reclamation of oil and gas sites throughout Alberta. The funding is being made available through six phases, with application periods from May 1, 2020 through to March 31, 2022. Additionally, landowners are able to nominate specific sites for clean up. Once nominated, sites are put onto a list that contractors can choose from.

On May 1, 2020, Grant period 1 opened, making $100 million available for oil and gas sites across Alberta to be properly abandoned and/or reclaimed. Landowners were able to nominate sites to be put onto a list contractors could then chose from. Contracts of up to $30,000 per application, per closure activity will be granted until May 15, 2020. While this is an important first step, there is a concern this is not enough money to clean up an individual site, as the AER estimates costs between $29,000 and $176,000 to plug and reclaim a site.

Grant period 2 began May 21, 2020 and closed June 18, 2020, making another $100 million available for sites where owners were no longer paying rents due to landowners. Applicants were able to apply for full closure of sites that fell under Section 36 of the Surface Rights Act, which deals with unpaid annual rentals, and landowners were able to nominate sites on their land. 

Of the initial $200 million made available during Grant periods 1 and 2, only $84 million was approved. Grant period 1B then opened to re-evaluate applications that were initially declined during the first two periods. No new applications were accepted.

Grant period 3 opened July 17, 2020 and will close on March 31, 2021, with $100 million in funding available. Up to $139,000 will be available per license. In this phase, as with all others, licensees cannot apply for funding – oil field services contractors must contract with them. 

Grant period 4 opened Aug. 7, 2020 and also closes March 31, 2021, with another $100 million in funding available specifically to licensees who have submitted Area Based Closure (ABC) plans. Oil field service contractors must contract with qualified licensees, and only those contractors can apply for funding. Up to 50 per cent of project costs are eligible, with the exception of licensees engaging Indigenous oil field services companies, in which case up to 100 per cent of costs can be recovered. 

Finally, the Government of Alberta has announced that Grant periods 5 and 6 will open Feb. 1, 2021 and close the following year, on March 31, 2022.

For Grant period 5, $300 million in funding will be available to licensees that produced oil or gas in 2019 and spent corporate funds on abandonment and reclamation work in 2019 or 2020.

For Grant Period 6, a total of $100 million will be available, with $85 million earmarked for First Nation Reserves and $15 million for Metis Settlements, to ensure well sites in Indigenous communities are properly abandoned and reclaimed. These communities will approve the sites, and work with licensees and contractors to approve spending. Once completed, they will inform the government as to which sites are eligible for funding, and how much funding should be made available.

For both Grant periods 5 and 6, projects are eligible for grants up to 50% of costs, unless the contract is with an Indigenous oil field service company, in which case 100% of costs can be recovered

Media coverage of liabilities issues

2021

  • Energy firms misled Alberta regulators on cleanup of well sites (Jan. 14, 2021) — Globe and Mail
    Close to 60 natural gas well sites near the hamlet of Jenner, in southern Alberta, are supposed to have been shut down, cleaned up and the land returned to its natural state. Instead, scattered equipment, holes in the earth, dead vegetation and divots deep enough to swallow the wheel of a pickup truck dot the landscape, evidence of what one regulator called a “really serious case of falsification of documents.”

2020
2019
2018

Quick links and guides

Landowners’ Guide to Oil and Gas Development (2016)

Landowners' Primer: What you need to know about unreclaimed oil and gas wells (2019)

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