Les Leyne: Orphan wells pose big risk for taxpayers

Les Leyne mugshot genericA draft copy of an auditor general’s report estimates there is a $2.8-billion liability in restoration costs from B.C.’s oil and gas wells, thousands of which are now inactive.

It’s technically the responsibility of the industry, but it looks as if taxpayers will be covering a significant part of the tab.

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Auditor general Carol Bellringer is scheduled to release an audit of the Oil and Gas Commission’s management of non-operating oil and gas sites today.

A draft copy of the document obtained by the Times Colonist concludes in part that the commission had “not effectively managed the environmental and financial risks of non-operating oil and gas sites.”

It states that the commission is taking steps to mitigate the impacts of orphan wells. But funds collected from drilling companies to cover restoration costs of those wells during the three-year period studied were inadequate.

Legislation was passed last year to rectify shortfalls in oversight and new measures are in progress. But it will take a significant makeup effort.

The draft audit says there are clear requirements for how to decommission and remediate wells that are no longer active. But there are no triggers to ensure that operators are doing so.

So the wells can be shut down for years without being restored.

“Operators are not required to decommission or restore wells, unless the OGC explicitly orders them to do so to address specific safety or environmental issues on a case-by-case basis.”

The number of inactive wells has almost doubled since 2007, to 7,474. Inactive means they are at least temporarily shut down, but not yet formally decommissioned. Another 3,198 wells are designated as decommissioned but not yet restored.

That’s a total of 10,672 wells that are no longer in service, but have not been restored. Restoring means sealing the well bore with concrete to protect water quality and remediating the site.

Auditors were told by the commission that some operators choose to leave wells in a suspended state indefinitely while continuing to pay surface leases, because it’s cheaper than paying to fully decommission them.

The estimated operator liability of all oil and gas wells in B.C. is $2.8 billion, the audit says. The number of restored wells is 4,329.

The industry is expected to cover the cleanup costs under the polluter-pay principle. But the funding mechanism didn’t keep up. The commission collected inadequate funding from operators to cover the cost of restoring orphan wells.

It lists the example of Terra Energy, which went bankrupt in 2016, leaving 175 new orphan wells in B.C. Fully restoring them is estimated to cost $54 million, but the company left only a $952,000 security deposit, the draft report states.

Another company, Quattra Exploration, went bankrupt, leaving an $18-million restoration liability for 75 wells, and no security on hand to cover it, according to the draft copy.

In just the past two years, the number of officially designated orphan wells has increased from 34 to 307, due mostly to the financial downturn in the industry and the gas glut in North America.

The commission took on an additional $33 million in liability and will need up to $104 million more to cover restoration.

Meanwhile, the designated fund to cover those costs — the Orphan Fund — was bringing in $1.5 million a year for the past few years. Recent changes and others to come are expected to raise that level in coming years.

The draft copy is incomplete and subject to change before the final version is released today. But it’s the second independent assessment of the oil and gas industry that raises numerous questions.

An independent scientific study of hydraulic fracturing for the energy ministry was also leaked two weeks ago. The panel concluded it could not make any pronouncements on fracking because there is so little data about all the impacts.

Now it appears the auditor general is finding that, although recent changes have been made, those wells could cost the public much more than anyone expected.

lleyne@timescolonist.com

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