An interesting bill has been proposed and debated in the Alberta legislature April 1, 2020 – Bill 12, the Liabilities Management Statutes Amendment Act 2020. Bill 12 is proposed to support economic activity in the energy sector considering job losses due to COVID-19 and the recent oil price wars. According to Jason Nixon, Alberta government house leader…
“We continue to prioritize the health, safety, security and economic interests of all Albertans during this unprecedented time. We know there is a tremendous amount of stress being felt in the province. To combat this, we are proposing two bills that include decisive actions to protect Albertans and ultimately help reduce the spread of this virus, and a third bill to support jobs in the energy sector.“
If passed, Bill 12 will enable government to clarify and expand authority for the Orphan Well Association to manage orphan well sites. The Orphan Well Association is primarily funded by the Alberta Oil and Gas Industry and is a nonprofit organization that cleans up wells abandoned by companies that go insolvent or become bankrupt. Bill 12 proposes changes that are greatly needed to keep well remediation work in the province continuing as producers continue to be negatively impacted by the dramatic drop in oil prices drop and by the COVID-19 pandemic. It dovetails with the recent March 2nd loan announcement made by Premier Jason Kenney.
“Government has provided an additional $100 million to the Orphan Well Association. With this proposed legislation, we are aiming to help the association accelerate the cleanup of orphaned wells and associated infrastructure. Fast-tracking this work will boost employment in our oil services sector and protect jobs during these challenging economic times,” said Jason Nixon, Alberta government house leader, who is also minister of environment and parks.
Bill 12 would amend two pieces of provincial legislation both the Oil and Gas Conservation Act and the Pipeline Act and have a strong impact on job protection. In the first part, the bill is going to expand the roles and responsibilities of both the Orphan Well Association and the Alberta Energy Regulator to help reduce the number of orphan wells in Alberta and to keep and create jobs. It should also accelerate cleanup of sites that the bankrupt oil companies have left to the OWA. With the pandemic prompting the Alberta government to restrict gatherings of 15 people or less, the work should be able to safely proceed on some of the oil and gas cleanup projects. If approved by the legislature, the changes would also allow the OWA to produce oil from the orphaned viable wells while it is attempting to find a buyer.
“Not knowing how long the process will take to find buyers, this is an excellent way to ensure producible wells are kept onstream and gives the OWA the powers it needs to produce viable wells until buyers do return to the market place. The producing companies will see their fees paid under the OWA being used to generate profit rather than just as an expense. This is a breath of fresh air – using oil and gas discerning eyes at the AER level to continue to produce the top tier wells rather than letting them lie dormant, or worse yet, abandoned” says Larry Buzan P. of BuzanLC Consulting & Sustaining Alberta Energy Network (SAEN).
The OWA could also bring in other companies – perhaps operators with staff already working in the area to run the wells for them in a cost-effective manner. In addition, the OWA could also operate pipelines – again, perhaps accessing companies who also operate in a cost-effective manner in the area of the affected pipelines.
“This ability to bring in contract operators may even lead to start up or enhance facilities and get them running again. Folks are waiting to work out there – in a safe isolated manner – in order to produce wells and abandon those that will never make the cut. Part of operating means we would expect the AER to shut in wells due to poor (summer) pricing and this will now be available through the contract marketers they could hire. Multitude tiers of orphaned wells and facilities – the top tiers would be producible again- wells and facilities that could have been shut-in for years while they wait for the market to rebound” says Buzan.
Should the legislators approve Bill 12, the OWA would be able to use an orphan well fund not just for cleanup but also to cover the cost of the operation of the oil wells and infrastructure which is preferable to having them shut in. The changes would also allow the OWA to go to court to apply for an insolvency professional to take responsibility for the wells. The most recent figures on the OWA website, there are 2789 Orphan wells and 4113 Orphan pipeline segments across Alberta.
As mentioned previously in this article, the Alberta government dedicated a $100,000,000 loan to the OWA to accelerate well reclamation work. The OWA estimated the loan will allow them to decommission 1000 wells and start assessment of 1000 more sites and create 500 jobs. Certainly the loan provision and Bill 12 are two instances of positive government action to create a growth environment for the Alberta Oil and Gas Industry.
Good news in this economy.
You can read Bill 12 – The Liabilities Management Statutes Amendment Act Here
Maureen McCall is an energy professional who writes on issues affecting the Energy Industry. She is currently serving on the Board of Directors of the Petroleum Joint Venture Association