Fri. Feb 23rd, 2024

The good financial health of the oil sector alleviates the problem of orphan wells

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There are many, many abandoned oil wells in Alberta.


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Alberta insolvency experts say it is increasingly rare to see oil and gas companies go bankrupt in the province. An encouraging trend for orphan wells.

A bankrupt company can abandon its assets, such as its oil wells, facilities or pipelines. Capital which, if not liquidated, must be cleaned in order to avoid any environmental or safety risk.

If we don't have receiverships, the number of orphaned [wells] will decrease dramatically, said Lars DePauw, the chief executive of the Orphan Well Association, an industry-funded organization.

The association counts 1987 orphan wells to be decommissioned in Alberta. Depending on its size and complexity, decommissioning a well costs an average of $35,000 while remediating a site costs an average of $24,000.

Insolvency lawyers explain the decline in the number of bankruptcies by the high price of raw materials, including oil.

A situation that is the polar opposite of those experienced in the industry between 2014 and 2018, where many companies went out of business, leaving orphaned wells behind, mentions Lars DePauw.

According to lawyer Josef Kruger of the firm Borden Ladner Gervais LLP, the conflict between Russia and Ukraine was a game-changer for companies that were in difficulty during this period.

Lars DePauw expects recent regulatory changes surrounding orphan wells to stem this problem in Alberta.

The industry will effectively have to pay $700 million annually starting in 2024 for the cleaning and remediation of old wells.

The The new framework also means that oil and gas producers seeking licenses for new wells will be scrutinized more closely to ensure they meet their responsibilities.

With information from Paula Duhatschek

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