PBO estimates that the cost of orphan well clean-up will reach $1.1 billion by 2025

The Parliamentary Budget Officer (PBO) today released an independent estimate of the cost of cleaning Canada’s orphan oil and gas wells. The wells are mainly located in Alberta and Saskatchewan. Plugging wells protects underground and surface waters and avoids greenhouse gas emissions.

Provincial regulators require oil and natural gas companies to close inactive well sites. In cases where there is no known, financially viable operator capable of addressing the environmental liabilities associated with closing their wells, these wells are deemed orphaned. In Alberta, the number of orphaned wells has increased from 700 in 2010 to more than 8,600 in 2020, while in Saskatchewan it has increased from roughly 300 wells in 2015 to 1,500 in 2020. Most of this growth occurred in the last 5 years, with an average growth rate of 35 per cent per year. We estimate that more than 10,000 wells could become orphaned over the next five years, resulting in a total of almost 18,000 wells that would be deemed orphaned.

“As the number of orphan wells increase, so does the expected cost for cleaning up environmental liabilities. Our estimated cost of cleaning oil and gas wells, on a national level, is expected to rise from 361 million in 2020 to 1.1 billion by 2025” says Yves Giroux, PBO. “

In 2020, the federal government provided $1.7 billion to the governments of Alberta, Saskatchewan and British Columbia to fund the clean-up of inactive oil and gas wells, which suggests there should be sufficient funds to cover the liability. However, recent experience indicates that close to half of the funds in Alberta were disbursed to clean up wells owned by companies that are financially viable. If this trend of helping viable companies persist, existing funding could be insufficient to clean up wells that are orphaned.

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