It’s no secret that orphan oil and gas wells in Alberta have been a growing environmental concern for quite some time. Farmers and rural municipalities have been struggling to cope with derelict equipment and the hazards that come with it, but little has been done to mitigate this problem. Alberta Premier Danielle Smith has recently announced a pilot project based on a proposal from lobbyists: the RStar program, which would give $20 billion to oil companies to “incentivize” cleanup of the abandoned wells that litter the province.
The United Conservative Party (UCP) has always been a staunch advocate for Alberta oil and gas, but despite being so friendly with the industry, the previous UCP government under Kenney rejected the RStar proposal. Ex-UCP MLA Drew Barnes denounced the program in February, calling it “corporate welfare.” Now renamed the “Liability Incentive Management Program”, Premier Smith is poised to implement this same project. The question is, why is Smith pushing strongly for this program now?
Orphan wells plague rural communities
Orphan wells have been an environmental concern in Alberta for years. Orphaned wells (or, indeed, currently active wells) if not properly sealed, risk leaking toxic chemicals into the environment, affecting wildlife, vegetation, livestock, and local communities. In many cases, rural communities rely on groundwater which these wells run a serious risk of contaminating.
One such well in Redwater, Alberta was found to be leaking sour gas—a toxic, flammable combination of hydrogen sulfide and methane that can cause serious health effects ranging from headaches and nausea to permanent eye damage and even death. One especially serious health risk is cancer; for instance, the community of Fort Chipewyan in northern Alberta experiences disproportionately high cancer rates, which some doctors have linked to contamination from the Athabasca oil sands. In Redwater, Farmer William Romaniuk explained that this wasn’t the first time a gas leak from inactive wells affected him, and noted, “I was worried that my cattle might asphyxiate”.
While abandoning a well is not strictly legal in Alberta, a significant number of abandoned or orphaned wells have been deemed “non-compliant”, and no consequences have been faced by their owners. A report from the University of Calgary in 2021 found a total of 97,000 “zombie wells” that have not been properly sealed. The oldest “inactive” well (not sealed or remediated) in Alberta has existed since the First World War. Legislation limiting the amount of time a well can be inactive before “abandonment” (permanent sealing of the well) is essentially nonexistent today. Legislation passed in 1997 briefly imposed a five-year limit, which saw some success in decreasing inactive wells; however, this limit was terminated due to industry pressure, and was replaced by the “Licensee Liability Rating Program” in 2002. Since then, the number of inactive wells in Alberta has been increasing. By comparison, inactive wells in the state of Texas must be sealed after just one year.
The Financial Post reported in 2021 that there were 93,805 inactive oil wells in Alberta that were at risk of becoming orphaned, alongside 3,406 existing orphan wells. The Alberta Liabilities Disclosure Project reports thatthe cost of cleaning up these wells could reach $1.1 billion by 2025, while the number of orphan wells is expected to grow by 35 per cent per year. Rob Wadsworth, previous vice president of the Alberta Energy Regulator (AER), has estimated that the cost of cleaning up Alberta’s oil wells, oilsands, equipment and pipelines altogether could amount to a quarter of a trillion dollars or more.
Fraudulent business practices
When a well is reclaimed, that means the abandoned well has been properly dealt with according to the province’s environmental standards. This includes removing all drilling equipment, thoroughly sealing the well, disposing of and replacing contaminated soil, and removing any other hazards from the area. However, in reality, these regulations are not always followed. Reclamation certificates or license transfers are often approved by the AER’s OneStop program, an automated system which allows these wells to change hands. While OneStop might speed things up, it also lets dishonest actors slip through the cracks.
For example, in 2021, the Alberta Energy Regulator conducted an investigation into the Aerdan Energy Group and the CEPro Energy & Environmental Services Group, a firm which had signed off on the reclamation of 59 wells in a southern hamlet of Jenner, all of which were owned by Aerdan Energy.
Despite reports affirming that Aerdan’s abandoned wells had been cleaned up, the AER’s investigation found that, in fact, practically nothing had been done to reclaim the sites and the reports were deliberately fraudulent—even using false photographs as evidence of clean-up. Despite this being such an egregious case of fraud and endangerment, the AER only issued Aerdan and CEPro a warning letter calling the issue “very serious” and cancelled the reclamation certificates. No other legal action was taken. No financial compensation was given to landowners, and no efforts for cleanup were made by said companies. To add insult to injury, the farmers and landowners on whose land Aerdan had been drilling had not seen lease payments owed to them by the company for years.
Under provincial and federal law, the licensee (well owner) is supposed to be held responsible to pay for cleanup; but when a company goes bankrupt, their wells are orphaned, and there is no longer a legally responsible licensee to pay for the cleanup. These wells then become the responsibility of the Orphan Well Association (OWA), which is supposed to care for them until the well has been properly sealed and approved by the regulator. The OWA operates by the so-called “polluter pays” principle, meaning the oil industry as a whole is compelled to pay the “Orphan Fund Levy” to fund the care of orphaned wells. But recently, the OWA has been overwhelmed by the proliferation of these orphan wells; while primarily funded by levies collected from oil and gas producers, the association has also had to take hundreds of millions of dollars in interest-free loans from both the federal and the provincial governments.
The inadequate funding of the OWA comes from a deliberate underestimation of how much money should be levied from oil and gas corporations. The Orphan Fund Levy is determined using an amount proposed by the Canadian Association of Petroleum Producers (CAPP) and The Explorers and Producers Association of Canada (EPAC), both advocacy groups for oil and gas—and the final number is then approved by the AER. The OWA’s board of directors is represented by three members of CAPP, two from EPAC, and one “honorary, non-voting member” from Alberta Environment and Parks. The AER neglected to name EPAC and CAPP in their most recent bulletin regarding their decision on the amount to be collected for the Orphan Fund Levy in the fiscal year of 2021/22, likely to obscure how significant corporate influence is over the decision. The AER’s lax enforcement of the polluter pays principle has made finding proper funding for the OWA impossible.
The Orphan Fund Levy was only introduced in the 1990s under the Alberta Oil and Gas Conservation Act. Previously, oil companies had to put up a security deposit on new wells to ensure clean-up. The levy was implemented as a way to keep corporations from paying out of pocket, and to keep shareholders happy. A speech from John Nicol, Alberta’s energy regulator at the time, explains: “…as regulators, we are well aware that regulation is not always the most efficient way of getting things done.”
The oil barons have found a creative loophole to evade their liabilities. They can get rid of their unprofitable wells without having to pay for the cleanup.
While the AER has qualifications for the “financial health of the applicant, licensee”, their policy has not been put into practice. The AER has even admitted that its Liability Management Rating program is “not an accurate measure of whether a company will be able to address its regulatory and liability obligations.” This allows for all kinds of loopholes to be exploited. Shortly before a well becomes inefficient or unproductive, oil companies will sell off old wells or create shell companies bound for financial insolvency to transfer their drilling licenses to in order to shirk responsibility. Smaller independent companies will buy multiple wells for as cheap as one dollar, and will salvage whatever profits can be made until the company inevitably files for bankruptcy. In 2020, Shell Canada attempted to sell 284 sour gas wells, 66 facilities and 82 pipelines to the Calgary-based company Pieridae Energy, whose stock value is below one dollar. If a license transfer to an insolvent company goes through, what’s left behind is dangerous, derelict equipment and toxic wells, the sheer volume of which has been overwhelming the OWA’scapacity to seal them. Thankfully, the 2020 Shell-Pieridae deal was not approved by the AER, but the fact that Shell even attempted to push this through is indicative of how confident oil and gas corporations are in their ability to cheat the system. Another notable example occurred in 2018, when Manitok Energy sold unproductive wells to Tantalus Energy, who then transferred any remaining profitable assets to Persist Energy. Both Manitok and Tantalus filed for bankruptcy shortly afterwards, leaving the orphaned wells to the OWA. Persist Oil & Gas Inc., however, persists. These schemes are no accidents; this represents a cold, calculated plan by the oil barons to relegate their liability to someone else. It’s blatant fraud, and the regulator, despite having the legal capability to prevent this, continues to rubber-stamp these license transfers.
While the AER has investigated the worst excesses of these clearly underhanded and fraudulent practices, many companies have slipped through the cracks with stamps of approval from the regulator. Along with irresponsible management of funds and an alleged “culture of fear” within the regulating body, any serious criticism of Alberta’s oil and gas industry is often met with harsh pushback from public, corporate, and top-down leadership within the AER, as if enforcing provincial law were treason!
The RStar scam
So what is Alberta premier Danielle Smith’s solution to corporations neglecting to pay for their orphaned wells? In a time when oil and gas profits have hit record highs, she wants to give them tax breaks to “incentivize” cleanup. Essentially, this legislation is offering free royalties to companies to do what they are already legally obligated to do! This proposal, now named The Liability Incentive Management Project, had previously gone by the name of RStar—a project so ridiculous that even Jason Kenney’s energy minister Sonya Savage rejected it when it was first proposed by Smith while working as president for the Alberta Enterprise Group.
Smith’s ties to corporate oil lobbying run deep. She has also worked closely with Kris Kinnear, founder of the Sustaining Alberta’s Energy Network (SAEN), whose goal is to give “a platform to the small and midsized Oil & Gas producers”. It’s no coincidence that Smith replaced Savage with Peter Guthrie, who is also a strong advocate for this RStar initiative. Smith herself has said that she “loves” the RStar proposal, and it seems the pilot program has a very real chance of being implemented, despite widespread criticism. It’s fair to say that most Albertans don’t “love it.” Even Scotiabank has criticized the pilot program, saying that it “goes against the core capitalist principle that private companies should take full responsibility for the liabilities they willingly accept” and acknowledges that RStar could “hurt the sector’s reputation.” In reality, while Scotiabank says the program violates core capitalist principles, if Scotiabank had the opportunity to funnel billions of state dollars into their bottom line, they’d take it just the same as the gas producers have.
It’s an interesting coincidence that the SAEN de-registered as a lobbying group shortly after Smith became premier. It seems so brazen for the new government to push policies which the premier was paid to lobby for only a year ago, yet it happened. To call a spade a spade: this is corruption. Mark Dorin of the Polluter Pay Federation (PPF) told the Red Deer Advocate: “So, we’re giving away the assets owned by the citizens of Alberta for free to oil companies so that they can pay for their cleanup. So, it may as well be tax dollars.” The facts don’t lie, and it’s obvious that Smith is working in favour of the oil barons she was paid to represent not so long ago. Members of the PPF and other advocacy groups had asked to attend a consultative meeting with Peter Guthrie and the AER on February 9th regarding the RStar proposal, but were denied. It seems outspoken critics of this program are being deliberately left out, even if they might have personal interest, as in the case of Dorin, who is dealing with an orphaned well on his own land.
The estimated cleanup cost of drilling for oil in Alberta is astronomical, but the question is: who will pay? Oil and gas companies already owe rural municipalities and landowners almost three hundred million dollars in taxes. If a private landowner doesn’t pay taxes, the government might confiscate their land rights. But if an oil company neglects to pay taxes, or reneges on the terms of a private lease, the Alberta government shrugs their shoulders and gives them a break. Why is it that oil and gas companies are so easily able to skirt the law in Alberta? With oil and gas being the historic driving force of the province’s economy, the UCP government has done everything they can to try to bring back the good old days of the “Alberta advantage”. By giving favourable treatment and massive handouts to these oil companies, they are shifting the financial burden of the future onto the shoulders of the working class, who will be forced to pay with further cuts to healthcare and education.
Capitalism can’t solve this crisis
Why is the government ignoring such overt fraud and corruption? In the end, a capitalist government will always serve the needs of the ruling class. The UCP has always considered themselves the champions of oil and gas. That RStar violates “core capitalist principles” is not a roadblock if it’s what the industry wants. Proponents of RStar claim that it will help to create jobs for Albertans, but the creation of these jobs comes at the expense of royalty revenues which could be put towards social programs like healthcare, housing, disability and the like. Besides, plenty of job opportunities exist already—these orphaned wells need to be cleaned up one way or the other! But who pays—the oil companies, or the working class? Despite the fact that oil and gas companies are currently seeing record profits, the UCP has no issue placing the financial burden on the workers. PPF’s Mark Dorin has said, “… in my view, [RStar is] against the law. The laws of Alberta are that the polluter alone cleans up and that you compensate the landowner until the site is restored to its condition and returned back to the landowner.” These laws might be printed on paper, but they have no relationship with reality.
The working class must fight back
While the UCP touts that RStar might help small producers clean up their wells, the project ultimately serves the interest of the largest oil barons operating in Alberta. This plan could allow for as much as $20 billion in royalties to be taken away from state funds, only to add to the already massive profits which large oil and gas companies have seen in the past few years. Despite oil companies’ legal obligation to pay for the cleanup of abandoned wells, the AER turning a blind eye to corporate negligence has allowed the proliferation of orphaned wells all across rural Alberta. The “Liability Management Incentive Program” amounts to paying criminals not to commit more crime.
The solution to the mess oil and gas companies have left behind is to nationalise the industry! If private corporations aren’t capable of fulfilling their legal obligation to clean up their own messes, then even under bourgeois law, the logical solution is to expropriate these companies and seize their assets. As the Alberta government and the AER have proven unwilling to do much of anything, the working class of Alberta should seize the initiative. The demand to nationalize the oil industry without compensation should be put forward by every workers’ organization. Instead of these record profits going into the pockets of the capitalists, they should be used to clean up these orphan wells and invest in green energy.
Only a democratic plan of energy production controlled by the working class can solve the problem of orphan wells in Alberta. While Cenovus, Suncor, and Imperial Oil are beholden to their shareholders and their profits, the working class, if it controlled the commanding heights of the economy, would only be beholden to itself and its future. It’s clear that capitalism can only quench the thirst for profits on the part of the oil barons through fraud, corruption, and robbery. Heavy industry such as oil and gas affects everyone on the planet, particularly the working class. The workers must unite and expropriate the industry! To consolidate all of these private companies spewing waste into the ground into one democratically controlled entity would be to free ourselves from the wrath and political control of the oil barons, and would allow us to get to work cleaning up their mess and building a better future.
