User:Oceanflynn/sandbox/Orphan wells (Alberta)

Orphan wells in Alberta, Canada

Orphaned wells in Alberta refer to abandoned sites that have been been permanently taken out of production. By February 2018, there were 1,800 orphan wells that had been licensed by Alberta Energy Regulator (AER) with combined liabilities of over $110 million. From 2014 to 2018 the industry-led organization's Orphan Well Association's (OWA) inventory, increased from 1,200 to over 3,700. According to the C. D. Howe Institute, from 2012 to 2017, the increase in insolvencies has led to an increase in the number of orphan wells from 100 to 3,200. In 2017 there were 450,000 wells registered in Alberta with about 155,000 "no longer producing but not yet fully remediated". In their 2017 report, the C.D. Howe estimated the cost of clean up of orphan wells was as high as $8 billion. Oil and gas industry companies have Asset retirement obligations (ARO), a legal obligation associated with the retirement of its operations.

Background
In 2015, two Alberta courts found in favour of the oil and gas company Redwater Energy's receiver against the AER. Redwater had filed for bankruptcy as a result of the "oil price collapse" and the AER wanted to recuperate funds from the any sales Redwater made, to "help pay to clean up after Redwater's inactive wells as required by provincial regulations". By going into bankruptcy, Redwater avoided paying for its Asset retirement obligations (ARO).

In May 2016, the Court of Queen's Bench of Alberta (ABQB) in 2016 ABQB 278, "confirmed that the federal Bankruptcy and Insolvency Act supersedes the provincial requirements that companies must clean up wells." "B]ankrupt companies can avoid their liabilities and leave them as a public obligation."

On July 14, 2016 the Alberta Energy Regulator - following consultations with "consultations with First Nations, local communities, environmental groups and industry itself" - issued Directive 85 with new guidelines and a phased-in approach on oil sands producers' management of their tailings ponds. Under Directive 85 "fluid tailings" must be "ready to reclaim" within ten years of the closing of an oil sands mine.

An April 5, 2017 article in the Financial Post reported that the AER was "suing insolvent" Lexin Resources Ltd., a "relatively small natural gas producer in southern Alberta" to "recover money it is allegedly owed." The Aer claims that, "It is not open for a licensee, when times get tough, to transfer the burdens associated with holding AER licenses to the AER and/or the OWA." Lexin Resources Ltd owned "1,514 well licenses — many in partnership with 51 other energy companies." Once abandoned they fall under the management of industry-led agency, the OWA, which would double the number of OWA wells. Grant Thornton, Lexin's court-appointed receiver According to the Post, fifty-one companies, including Canadian Natural Resources Ltd., Exxon Mobil Canada, and Husky Energy, who own some of Lexin Resources Ltd. assets, may share the responsibility for Lexin's AROs.

On April 25, 2017 the Court of Appeal of Alberta (ABCA) dismissed the AER and OWA's appeal in a landmark decision, affirming the May 2016 decision of the Court of Queen's Bench of Alberta in favour of Redwater Energy Corporation's receiver, Grant Thornton Limited, in Redwater's bankruptcy proceedings. The ABCA found that Grant Thornton Limited "entitled to disclaim Redwater's non-producing oil wells and sell its producing ones".

In late February 2018, CBC News and CP reported that Sequoia Resources Ltd, an oil firm that had purchased "licences for 2,300 wells" in 2016 from Perpetual Energy Inc., had notified AER that it was ceasing operations "imminently" and were unable to maintain "almost 200 facilities and nearly 700 pipeline segments". Sequoia Resources Ltd had defaulted on its "municipal tax payments" could reclaim all of its properties. According to The Star, after Sequoia Resources Ltd filed for bankruptcy protection in March "without decommissioning and cleaning up 4,000 wells, pipelines and other facilities", as required of all oil companies,

In a AER presentation in February 2018, the AER's "vice-president of closure and liability" said that in "a hypothetical worst-case scenario", unfunded cleanup liabilities would amount to $260-billion based on "internal AER calculations". The oil industry's "accumulated environmental liability" estimate of $58.65 billion was the amount that the AER had publicly reported. Of that cost, "tailings ponds make up the largest but unknown portion of this AER estimate".

On February 15, 2018 the Supreme Court of Canada held a hearing centering on Alberta's lower courts' findings in favour of Redwater Energy's creditors, to determine if Canada's bankruptcy laws are in conflict with Alberta's regulatory regime — and if those federal laws are paramount to the province's environmental rules".

By February, 2018, there were 1,800 abandoned or orphan wells—sites that had been licensed by AER with combined liabilities of over $110 million. From 2014 to 2018 the industry-led organization's Orphan Well Association's (OWA) inventory, increased from 1,200 to over 3,700.

On August 7, 2018 PricewaterhouseCoopers, the trustee for Chinese investors who purchased Sequoia Resources Ltd in 2016, launched a lawsuit against Perpetual Energy Inc. in an "unprecedented bid to void" the 2016 sale of Perpetual Energy Inc.'s subsidiary called Perpetual Energy Operating Corp. (PEOC) now known as Sequoia Resources Ltd to Chinese investors. An article in The Globe and Mail said that this appears to be the "first attempt by a bankruptcy trustee in Alberta to have a previous oil and gas transaction unwound." It could "introduce major new risks to the [oil and gas] industry’s ability to buy and sell assets and could also deliver a severe blow to Perpetual." The law suit alleges that Perpetual and its CEO Susan Riddell Rose "knew the deal would sink the buyer". Perpetual says that "the claim is without merit".

In a public statement released on August 8, 2018, AER CEO Jim Ellis, who had been CEO since AER's creation in 2013, took the "unusual step" of admitting that the Sequoia "situation has exposed a gap in the system" that needed to be fixed and "raised questions" about how to proceed in the future..

In an October 29, 2018 article in the Globe and Mail Jeffrey Jones reported that Shanghai Sinooil Energy Corp and its subsidiary Shanghai Energy Corp made a statement of claim against 12 people including former Shanghai Energy CEO Wentao Yang and COO Kevin Richmond in a in a Calgary court. They were accused of falsified documents and diverting money to Sequoia Resources Ltd. Jones wrote that Sequoia Resources Ltd "with links to China's ruling Communist Party" "was set up to acquire aging gas assets with high abandonment liabilities, starting with a package of wells purchased from Perpetual Energy in 2016".

On November 1, 2018 AER CEO Jim Ellis apologized for failing to report "that cleaning up after the province’s oil and gas industry would cost $260 billion". On November 2 he announced his retirement as CE0.

A 2018 joint investigation by the Toronto Star, Global News, National Observer, and four Journalism Schools—Concordia University, Ryerson University, University of Regina and University of British Columbia—revealed that the clean up cost for " oilsands mining operations facilities" was about $130 billion. The investigation, which resulted in the series, The Price of Oil, was undertaken by "the largest ever collaboration of journalists in Canada".