One of Canada’s largest oil industry groups is calling on the Alberta government to provide tax relief for low productivity wells to prevent them from turning into orphans.On April 8, the Explorers and Producers Association of Canada (EPAC) wrote Municipal Affairs Minister Ric McIver and urged the UCP government to stem “unsustainable” property tax increases that place undue pressure on operators of mature — and marginally economic — oil and gas wells..“The government of Alberta has failed to resolve an unsustainable cost structure being imposed on mature assets that will result in the premature demise of a key economic driver across rural Alberta,”EPAC President Tristan Goodman.That in turn results in higher rates of bankruptcy and by extension, greater numbers of orphan wells that taxpayers inevitably pay to clean up.The letter notes that the current assessment model has been in place since 2005 and was supposed to be updated in 2020. EPAC complains implementation of a new one is another four years away.At stake is the future economic viability of smaller producers in rural areas, which are caught in a bind between the need to raise additional revenues while maintaining an industry which has sustained a plethora of small towns for decades.By attempting to wring more from less, they will inevitably choke the golden goose that laid the basis of their prosperity.“The Government of Alberta has failed to resolve an unsustainable cost structure being imposed on mature assets that will result in the premature demise of a key economic driver across rural Alberta,” wrote EPAC president Tristan Goodman..Without “urgent” action, Alberta is likely to see gas producer bankruptcies being declared, similar to the situation in 2019 where multiple producers went bankrupt and directly cited unsustainable taxation costs as the driver for the loss of rural jobs, government revenues and increased provincial liability for orphaned and abandoned wells.To wit: in 2019 junior oil and gas producer Trident Exploration abruptly shut down and forced the Alberta Energy Regulator to take over nearly 4,700 wells. Also in November of that year Calgary-based Houston Oil & Gas went broke leaving behind 1,264 wells, 41 facilities and 251 pipelines costing $80 million to clean up.“This has been a serious, ongoing problem for many years that will keep escalating if left unaddressed,” EPAC said. “This is out of alignment with Alberta’s commitments to become the most competitive jurisdiction for investment and growth in Alberta’s oil and gas production.”.There are literally hundreds of thousands of old oil and gas wells that have been drilled since the 1950s. As oil patch activity has moved in the oil sands or technologically challenging unconventional shale plays, many have been left to languish under prohibitive cost regimes.Left to their own devices, they’ll continue to produce at low rates almost in perpetuity. But without some kind of financial incentive to keep them in production, they’ll either be shut in or left for abandonment.It’s a problem that has created what the Alberta Energy Regulator estimates is a $33 billion price tag to clean them all — a figure critics say is far too low.In 2022, oil and gas producers spent nearly $700 million to clean up hundreds of old wells across Alberta but that presumes that they’re still in business. If they go bankrupt, the cost inevitably passes to taxpayers.On background, association officials told the Western Standard a certain degree of economic viability of those wells is largely predicated on price. But they insist the government needs a mature asset strategy for lower productivity wells that allows them to remain in production and continue to generate revenue without becoming public liabilities.“It is imperative for the well-being of rural communities and the provincial economy that these issues are promptly and effectively addressed,” it said.
