Opinion: Sub-categories of oil well abandonment are important
is Saskatchewan's Minister of Energy and Resources
In his article “Oil well cleanup too slow in Saskatchewan” (March 2), Sarath Peiris blurred important lines between abandoned, inactive and orphan wells and painted an imprecise picture of well remediation efforts in the province.
The oil and gas sector, like forestry and mining, is obligated to take into account future site closure liabilities. If every oil and gas company in Saskatchewan were to go out of business tomorrow, the total cleanup bill for their wells would be about $4 billion. But that liability, normally retired over decades, is offset by almost $13 billion in industry assets. The Saskatchewan oil and gas sector is also unique in that it pays for 90 per cent of the regulatory costs associated with site clean-ups.
In recent years, the Saskatchewan energy sector has also generated around $4 billion annually in new investment — which, in turn, generates royalties (almost $700 million last year) for hospitals and highways, social services and schools. That’s crucial context.
There are also important distinctions between inactive wells (about 40,000 in Saskatchewan), abandoned, or cleaned up wells (just under 40,000 since drilling began in the province), orphan wells (590), and who pays for what.
Inactive wells are marginal and not currently in production, but could eventually resume. For example, operators temporarily shut in up to 30 per cent of wells last year, simply to save costs. Marginal wells are also increasingly in demand for the production of lithium, used in electric cars.
Abandoned wells are plugged and cleaned up. In Saskatchewan, this is paid for not by the taxpayer, but by oil and gas companies. Even before the severe sector challenges of 2020, Saskatchewan had a strong abandonment record. In 2019, more than 2,000 wells were abandoned — an increase of 240 per cent since 2016.
Orphan wells are the result of company insolvency. In 2010, our government launched the Orphan Well Fund (OWF), which companies pay into. Since then, 669 orphan well sites have been cleaned up (at a cost, borne by the OWF, of $32.3 million). Going into COVID-19, the OWF had an unfunded liability (as in debts greater than assets) of zero. Saskatchewan has also collected $109 million in security deposits from energy companies, before they start drilling, to protect against future insolvency.
Our commitment remains clear: to ensure that every orphan well in Saskatchewan is cleaned up.
The Ministry of Energy and Resources has robust abandonment regulations in place and is currently in the process of further enhancing liability management programs. Since 2017, we have invested almost $3 million in enhancing regulation, including more staff, inspections, audit powers and penalty provisions to address liability for potential environmental damage. Our field workers run a 24/7 operation, and an anonymous, toll-free line is in place for people to contact the regulator with concerns.
The sub-categories of abandonment are technical, but important. The danger in not adequately detailing the distinctions is that confusion and clichés result.
Saskatchewan can be proud of the integrity of its abandonment and regulatory regimes, as well as its oil and gas sector, which employs more than 30,000 people.
Bronwyn Eyre is Saskatchewan’s Minister of Energy and Resources.
In his article “Oil well cleanup too slow in Saskatchewan” (March 2), Sarath Peiris blurred important lines between abandoned, inactive and orphan wells and painted an imprecise picture of well remediation efforts in the province.
The oil and gas sector, like forestry and mining, is obligated to take into account future site closure liabilities. If every oil and gas company in Saskatchewan were to go out of business tomorrow, the total cleanup bill for their wells would be about $4 billion. But that liability, normally retired over decades, is offset by almost $13 billion in industry assets. The Saskatchewan oil and gas sector is also unique in that it pays for 90 per cent of the regulatory costs associated with site clean-ups.
In recent years, the Saskatchewan energy sector has also generated around $4 billion annually in new investment — which, in turn, generates royalties (almost $700 million last year) for hospitals and highways, social services and schools. That’s crucial context.
There are also important distinctions between inactive wells (about 40,000 in Saskatchewan), abandoned, or cleaned up wells (just under 40,000 since drilling began in the province), orphan wells (590), and who pays for what.
Inactive wells are marginal and not currently in production, but could eventually resume. For example, operators temporarily shut in up to 30 per cent of wells last year, simply to save costs. Marginal wells are also increasingly in demand for the production of lithium, used in electric cars.
Abandoned wells are plugged and cleaned up. In Saskatchewan, this is paid for not by the taxpayer, but by oil and gas companies. Even before the severe sector challenges of 2020, Saskatchewan had a strong abandonment record. In 2019, more than 2,000 wells were abandoned — an increase of 240 per cent since 2016.
Orphan wells are the result of company insolvency. In 2010, our government launched the Orphan Well Fund (OWF), which companies pay into. Since then, 669 orphan well sites have been cleaned up (at a cost, borne by the OWF, of $32.3 million). Going into COVID-19, the OWF had an unfunded liability (as in debts greater than assets) of zero. Saskatchewan has also collected $109 million in security deposits from energy companies, before they start drilling, to protect against future insolvency.
Our commitment remains clear: to ensure that every orphan well in Saskatchewan is cleaned up.
The Ministry of Energy and Resources has robust abandonment regulations in place and is currently in the process of further enhancing liability management programs. Since 2017, we have invested almost $3 million in enhancing regulation, including more staff, inspections, audit powers and penalty provisions to address liability for potential environmental damage. Our field workers run a 24/7 operation, and an anonymous, toll-free line is in place for people to contact the regulator with concerns.
The sub-categories of abandonment are technical, but important. The danger in not adequately detailing the distinctions is that confusion and clichés result.
Saskatchewan can be proud of the integrity of its abandonment and regulatory regimes, as well as its oil and gas sector, which employs more than 30,000 people.
Bronwyn Eyre is Saskatchewan’s Minister of Energy and Resources.
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