The Parliamentary Budget Officer (PBO) is warning that the problem of Canada’s abandoned oil wells is worsening and the cost to clean them up could exceed $1 billion by 2025.
In a report released Tuesday, the PBO raised its forecasted cost to clean up oil wells abandoned by energy producers across Canada to $1.1 billion from $361 million previously.
Oil and natural gas producers are required to decommission inactive well sites, but if the operator becomes insolvent or bankrupt, the well is abandoned and considered “orphaned.”
Ninety-one per cent of onshore conventional oil and gas production in Canada takes place in Alberta and Saskatchewan, according to the PBO report. Only 35% of wells in Alberta and 39% of wells in Saskatchewan are active, the lowest share ever.
As part of its COVID-19 response, the federal government in Ottawa allocated $1.7 billion to Alberta, Saskatchewan and British Columbia to help fund orphan well cleanups – which is in excess of the PBO’s cost estimate.
Regulators have also implemented a new “polluter pays” program, where oil and gas companies must pay a security deposit before drilling a new well to cover some of the liability associated with the end of life clean-up.
But the report noted the security deposits collected by Alberta as of October 2021 totaled $237 million and the estimated cost of clean-up was pegged at $415 million for that year – a gap of $178 million.
The report warned if this continues, there’s a risk that government coffers could come up short for clean-up costs. As of 2020, there were a combined 17,500 orphaned and abandoned wells in Alberta and Saskatchewan.