Alberta's oil well clean-up plan puts pressure on small producers

Wed Apr 6, 2016 1:00am EDT
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By Nia Williams and Euan Rocha

CALGARY, Alberta, April 6 (Reuters) - Regulations aimed at ensuring tens of thousands of inactive oil and gas wells dotting the Alberta landscape are properly reclaimed could be a death knell for some producers already crippled by weak energy prices.

The Alberta Energy Regulator's (AER) updated Licensee Liability Rating (LLR) program came fully into force last August just as oil prices tumbled below $40 a barrel for the first time since 2009.

It is already being blamed for helping sink one producer and more could follow, according to industry insiders.

The "polluter pays" policy makes companies put down a deposit if their production revenues are deemed insufficient to cover the estimated cost of cleaning up their oil wells at the end of their producing life. That cost can range from roughly C$60,000 to over C$300,000 a site, depending on well depth, location and other factors.

While the policy is aimed at ensuring the broader energy industry and tax-payers are not left footing the bill, it has squeezed small firms, which typically have a higher proportion of tapped-out wells, to the point where some continue to operate loss-making assets just to avoid having to pay security deposits for inactive wells.

"It's devastating, it's the final thing that pulls the rug right out from all the weak companies. You're forced to produce wells that are uneconomic just to keep your LLR positive," said Tim Veenstra, an engineering consultant with privately-held Crimson Oil & Gas.

Calgary-based Crimson, together with Northpine Energy which it bought last year, produces just under 500 barrels a day from around 200 wells, Veenstra said, including several that are producing at a loss and 39 inactive wells.

The AER said it tries to help companies experiencing difficulties, but producers have to be able to clean up their own wells.   Continued...