When the oil stops: 16×9 takes a closer look at old wells in Canada
Nobody likes it when a party ends. But, after all the guests have left, someone has to clean up the glasses, spilled chips and mop the floors.
The same reasoning applies to Alberta’s oil and gas industry and the over 400,000 wells they have drilled.
“Oil is so prevalent here and oil seems to last forever,” says Alberta landowner Doug Lemke, “but, certainly, that’s not true.”
The relationship between landowner and oil company is an old one, forged over the past century as exploration for Alberta’s riches enveloped the province onto private land, like Lemke’s.
It’s a beneficial relationship, too. The oil company makes money from profits. The province makes money from royalties. The landowner makes money from rent paid by the oil company, usually a few thousand dollars a year.
The process can seem a little unbalanced. If a company wants to drill on private land, there isn’t much a landowner can do. Since the province owns the rights to resources and the landowner only owns surface rights, if a company wants to drill they just have to ask the province for a “right of entry” and, if its granted, a well is drilled.
Doug Lemke has multiple wells on his property. Not such a big deal to him. He rents out most of his 65 acres as pasture land, using a small section of the land for a weekend home. The income from the well sites are an extra bonus.
Wells take up a few acres, sometimes up to a dozen or so, and there can be multiple wells or pipelines on a single property. They can also bring in ten or twenty thousand dollars a year in total. Not bad, when everything is going according to plan.
But when it doesn’t, it can quickly turn into a headache.
“You kind of find out…that you’re kind of the last little guy on the totem pole,” says Lemke.
When the company that owned one of his wells went bankrupt in 2013, Lemke was left with a well on his land with no owner. And he wasn’t getting paid for it. He applied to the Surface Rights Board to try and recoup missed payments, but they denied his application, saying that money owed before the bankruptcy could not be paid because the company was in bankruptcy protection.
WATCH BELOW: What happens when a company doesn’t pay?
“So we were kind of… up the creek without a paddle, shall we say,” he said. Lemke was caught up in multiple legal interpretations of the Surface Rights Act and the Federal Bankruptcy and Insolvency Act- which is as dull as it sounds- but has a lasting impact on the landowner.
“And it just seemed to me to be a bit of a kind of circle jerk process,” Lemke says.
He says that if companies can’t afford to stay afloat in the industry, a volatile industry at that, the landowner should still be guaranteed compensation.
If Lemke isn’t going to get paid his annual lease, at least in the foreseeable future, because the company went bust, he would like to see the well taken care of. “How do I get the land back? To where it’s land. And not an oil company lease,” he asks.
The oil company is like a “friend of a friend” at a party. A friend of yours vouches for his friend “Bob”, and, in good faith, you let “Bob” join in the fun. But if “Bob” kicks a hole in your wall, it is expected that he would pay for it. Or, worst case scenario, the friend who brought him.
What if “Bob”, or in this case the oil company, has no money? If the company is broke then who will pay to clean up oil wells like the ones on Lemke’s land?
Since the company is bankrupt, those wells are now called “orphans”.
Industry predicted orphan wells could become a problem and created the Orphan Well Association (OWA) in 2002. Each company would pay a levy into a fund that would pay to clean up and reclaim land, so landowners wouldn’t be out any money. The Alberta Government topped up the fund by $30 million in 2008.
“That’s what I seem to do is I seem to pick up the garbage… we clean up after the oil and gas companies,” says Pat Payne, manager of the Orphan Well Association.
But the problem is, it can take decades for a well on the OWA’s list to get cleaned up. And their numbers recently quadrupled to 704 wells, on top of any reclamation sites already in progress. Industry did double their budget to $30 million a year, but they are stretched to capacity.
“I think we’re doing the best we can with what we have and what we’re really seeing is things take time,” says Payne.
That means Lemke, and his dozens of neighbours who have wells owned by the same bankrupt company, will have to wait, and watch the wells that sit on their land rust. A daily reminder of a relationship that might have more give than take, and one blow out of a party to clean up after.
16×9’s “When the Oil Stops” aired Saturday, Oct. 31 at 7 p.m.
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