by Mark Lowey

09-12-04

The petroleum industry and energy regulators are grappling with a growing problem -- thousands of inactive oil and gas wells and other oil- and gas-field facilities that have yet to be properly shut down or abandoned. There are at least 42,000 inactive oil and gas wells and another 7,000 inactive oil- and gas-field facilities scattered across Alberta still awaiting proper abandonment to ensure they present no risk to the public or the environment, speakers told a conference in Calgary.

There are also increasing concerns about another 116,000 wells that have already been abandoned, and the condition of some 300,000 km of pipelines in the province, the Canadian Institute's Well and Pipeline Abandonment conference heard.

Regulators have approved the abandonment of about 116,000 wells. However, some of these wells are so old or improperly sealed that experts say they could be leaking natural gas to the surface or seeping gas downhole, which could potentially contaminate groundwater.

“If the cementing of the well surface casing and the production casing and the abandonment procedures have not been done well, then we could have a huge problem down the road,” said conference speaker and environmental lawyer Richard Secord, with the Edmonton firm of Ackroyd, Piasta, Roth & Day.

The Alberta Energy and Utilities Board (EUB) considers a well properly abandoned when it has been closed permanently with a downhole plug, cemented to seal both the surface and downhole to prevent any oil or gas escaping, and the wellsite reclaimed. The number of inactive wells continues to grow steadily and is predicted to keep growing, said Kary Cuthill, president and CEO of Calgary-based Lionhead Engineering and Consulting, which provides abandonment services to the industry.
Up to now, companies haven't been required to properly abandon their inactive wells within a certain time, Cuthill told the conference. The day the conference started, however, the EUB issued a new directive requiring companies to properly abandon their wells -- many of which have been inactive for more than 25 years -- within certain timeframes and to specific standards.

All inactive wells in the province must be inspected and categorized as being either high-risk, medium-risk or low-risk in terms of their potential to impact public safety and the environment, the EUB says. All high-risk inactive wells must be properly abandoned by the end of next year, except for critical sour gas wells that have to be properly abandoned within six months, the directive says.
All medium- and low-risk wells must be properly abandoned to the standards for each well category by Dec. 31, 2006. Starting Dec. 31, 2007, inactive low-risk wells that are left inactive for 10 consecutive years after the first year of inactivity must be properly abandoned to the more stringent standard applied to medium-risk wells.

“Those requirements will cost money,” said David Pryce, vice-president of Western Canada operations for the Canadian Association of Petroleum Producers (CAPP). “Our view would be to make sure the requirements are reasonable and cost effective and they're actually meeting a need.”
Lawyer Secord said the new EUB directive is a good step toward addressing the problem, providing there are enough adequately trained well-abandonment service firms to do the job. But the EUB also has to get a handle on the quality of the jobs done on the 116,000 wells that have already been abandoned, he said. Secord said some of his landowner clients have videotaped wells that were supposedly properly sealed and abandoned, yet have gas bubbling up through the wellhead at the surface.
“For the last seven years, I've had concerns about what the future holds for our children,” he said.

Paul Bothwell, a staff specialist at the EUB, told the conference that the regulator is hiring more staff to deal with the backlog of inactive wells and other abandonment issues. The EUB has also begun an assessment of selected abandoned wells to determine if they present any significant risks, he said.
Each well to be abandoned must be first tested for gas flow to the surface, Bothwell said. Companies are also required to report and repair any well leaks to the surface or gas that migrates off the wellsite.

Despite recent record earnings in the industry, the proportion of wells being properly abandoned has declined compared with the number of new wells being drilled. In 2001, more than 2,200 wells were abandoned compared with over 15,000 new wells drilled, according to EUB figures. But last year, only about 1,160 wells were abandoned compared with 18,350 new wells.
Each year, the EUB also has to do the abandonment job itself on between 10 to 12 so-called orphan wells where the companies that owned them no longer exist or have gone bankrupt. Oil and gas companies pay into funds to cover the costs of properly abandoning these wells as well as orphaned oilfield waste-management facilities.

The EUB, through its licensee liability rating or LLR program, requires each company to pay an annual levy, which is based on comparing each firm's assets with how much it would cost to abandon all its wells and related facilities. If the EUB deems that the risk ratio between assets and liabilities is too high, the regulator requires the company to pay an annual security deposit to ensure there'll be sufficient money to cover the costs of abandoning all its wells and facilities.
A few small operators, who have only a couple or a few wells, have complained that the LLR program threatens their livelihood. They say the program forces them to pay a steep levy or a security deposit each year, because the cost of abandoning their facilities is often greater than the value of those few assets.

But Howard Fedorak, a manager with the EUB's LLR program, says the program treats all licensees equally.
“The way for big or small companies to reduce their levies or avoid paying security deposits is to reduce their liabilities by abandoning facilities that have outlived their usefulness,” Fedorak told the conference. “The LLR program itself doesn't put anybody out of business.”
The EUB has drafted a proposed new LLR program for large facilities, such as natural gas-processing plants and oilsands mines, to ensure there is sufficient money in the future for their proper abandonment. The regulatory board is also looking at a similar program for power plants and electricity transmission lines.

Peter Miller, a lawyer for Imperial Oil, says the industry, EUB, government and other stakeholders all have to work together to ensure that funds are set aside, starting now, to pay for the abandonment of large facilities.
“As Western Canada's oil and gas industry winds down over the next 30 years, the costs of properly shutting down and reclaiming large facilities shouldn't be left only to the major firms that will likely be the last remaining operators,” Miller told the conference. “A new structure needs to be put in place to pay for the proper abandonment of large facilities, but it has to be done carefully and the risks must be shared equitably,” Miller said. “We can't be stupid and cripple our whole economy because we have a fear of something in the future.”

Source: Business Edge