A Made-in-Alberta Failure: Unfunded Oil and Gas Closure Liability

Alberta policy on inactive and orphan oil and gas wells is a massive regulatory failure characterized by a historical lack of transparency, excessive regulatory discretion, and regulatory capture — three deficiencies long since identified and understood in the scholarship as undermining the effectiveness of environmental laws and policies. The current policy to deal with the problem, the 2020 Liability Management Framework, fails to address these structural problems and is consequently unlikely to substantially reduce inventories of orphan and inactive assets. It is equally unlikely to uphold the polluter-pays principle, which states that the entity that pollutes the environment is responsible for cleaning it up. It is time for an independent and transparent public inquiry to examine Alberta’s mishandling of the inactive and orphan well problem and to recommend a regime that will effectively meet this challenge. The inactive and orphan oil and gas well problem is an immense environmental and financial crisis that has been unsuccessfully dealt with by various policies over several decades. Approximately 230,000 drilled wells in the non-oil sands sector need to be abandoned and reclaimed, while 90,000 others that have been abandoned still await reclamation. The industry has continually delayed this closure work, resulting in a current liability estimate of at least $60 billion—and quite possibly double that amount. This liability is largely unfunded as industry has not set aside enough (or any) money to pay for it, while successive governments over many decades have failed to require industry to post security in any meaningful amounts. In the absence of significant and immediate legal and policy reforms, the coming years and decades will see the enormous environmental, social, and economic costs of this regulatory failure fall on the province’s taxpayers. The new Liability Management Framework’s components include mandatory spending to reduce the inactive inventory, assessment of licensee risk and capacity, and an orphan program. On their face, these are steps in the right direction. However, persisting high levels of secrecy, discretion, and nearly exclusive industry influence put the framework’s goals in doubt. Under the new framework, the Alberta Energy Regulator (AER) will not disclose financial information on licensees or even the general state of the oil and gas industry. The new framework also still relies heavily on AER discretion to trigger closure obligations and fails to legislate timelines or quotas for closure work. Provisions for external scrutiny are minimal, impeding meaningful democratic oversight. Finally, the framework perpetuates historic industry influence in its design and implementation, which to date has resulted in a singular focus on minimizing industry’s costs at the expense of reducing environmental risks and protecting the public purse. Albertans have watched for decades as the problem of orphan and inactive assets has burgeoned into an environmental and financial crisis. They deserve a full accounting for the policies that have led to this state of affairs and they need unimpeded access to all of the relevant facts and information so that they can better understand the policy choices facing them as residents and taxpayers in the province.