Western Canada: Alberta under fire for plan to reward companies for following through on obligations to clean up wells

Good morning. It’s James Keller in Calgary.

Alberta’s abandoned oil and gas wells have become an intractable problem, with some sitting idle for decades and no clear path to cleaning them up. Estimates of the sum of money it would take to resolve the issue have ranged from more than $1-billion to many times that amount.

The province’s abandoned wells have fuelled persistent complaints that oil and gas producers have ignored their legal obligation to clean them up, and that the provincial government isn’t making them.

Premier Danielle Smith’s United Conservative Party government is now turning to a new strategy to address the issue: handing out billions in royalty credits to entice producers to clean up their wells, even though they are already legally required to do so. The proposal was previously known as the RStar program.

The plan has prompted criticism from the government’s political opponents, rural governments, environmentalists, and even a major bank. A former member of the UCP caucus, Drew Barnes, described the plan as a “government boondoggle.”

Alberta is looking at launching a pilot program that would provide oil and gas companies with royalty credits to offset legally required abandonment and reclamation expenses. That would mean oil companies would pay a lower royalty rate on new fossil fuel production until they have paid off the cost of reclaiming older, inactive sites.

The exact details are still being worked out.

Before she was premier, Ms. Smith pitched the idea as a lobbyist with the Alberta Enterprise Group, arguing then that $20-billion in credits would create 366,000 jobs and $8.5-billion in royalties.

She has hired a former lobbyist named Kris Kinnear to work in her Southern Alberta office. Mr. Kinnear was previously a lobbyist with the Sustainable Alberta Energy Network, which has pushed the credit idea for years.

The Bank of Nova Scotia warned against the well cleanup royalty credits this week. In a research note, the bank said the program could “perpetuate negative views against the energy industry” and be used as an example of a new fossil fuel subsidy.

Scotiabank noted that the biggest beneficiaries of the potential program would be Canadian Natural Resources, Ltd., Cenovus, Whitecap and Paramount, adding it’s unlikely the pilot program would lead to increased drilling activity.

In their last quarterly reports, those companies recorded a combined net income of nearly $5-billion.

Ms. Smith defended the proposal, which she said would target “the worst wells in Alberta.” After so long without any progress, she argued, it’s time to try something new.

Other critics have said the plan flies in the face of the polluter-pay principle, arguing that it’s wrong to pay profitable companies to do what they are legally required to do.

Provincial and federal governments have spent more than $1-billion to address the environmental reclamation of old oil and gas wells, including loans to the Orphan Well Association and a $1-billion federal grant in 2020.

This is the weekly Western Canada newsletter written by B.C. Editor Wendy Cox and Alberta Bureau Chief James Keller. If you’re reading this on the web, or it was forwarded to you from someone else, you can sign up for it and all Globe newsletters here.