The only growing business in the oilpatch: dead wells

In the middle of a farmer's field, the rumble of machinery can be heard half a kilometre away.

There aren't any tractors or combines in sight. Instead a collection of cement and water trucks and other equipment surround a large service rig.

The crew would much rather be busy drilling new oil and gas wells, but with the oilpatch stuck in a seemingly endless downward spiral, the rig hands are just happy to get a cheque.

Much of the work is like this: decommissioning old wells. 

"The last three months have been pretty good. Things are picking up a little bit," said Jonathan Hofer, a 26-year-old who began working on the rigs when he was 15.

"When I first started working on the rigs, you were busy all the time. Now, if you get two weeks in a month or sometimes one week, you do pretty good," he said.

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Cleaning up old wells is the only growing business right now in the oilpatch in Western Canada. Still, the rise in business is somewhat limited and is just enough to help keep some small oilfield service companies in business.

Without it, many more of the firms would go belly up.

"I joke the only thing worse than being in the service rig business is being in the drilling rig business right now," said Scott Darling, president of Performance Energy Services. About 70 of the 100 people employed at the business are focused on decommissioning old wells.

"We can move our service rigs to do abandonments, so it's very lucky that way. It's tougher on the margins, people don't want to spend money on the dead horses, but it helps us get through these tough times," he said.

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The growth potential for decommissioning wells is substantial considering there are about 93,000 inactive wells in Alberta and 139,000 across Western Canada. Some of those wells may once again produce oil and gas if commodity prices improve, although most sit idle until they're eventually cleaned up.

"There are a few more people getting into it," Darling said of the decommissioning sector.

"It is a bit bittersweet. This is the end of the life for these wells and it's not big enough of a business to sustain the whole energy services sector. There's still a lot of people out of work."

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One telling statistic reflecting the state of the oilpatch in Western Canada — this year more old wells will be commissioned than new wells will be drilled. 

As of Oct. 9, there have been 3,666 wells abandoned this year, according to the Alberta Energy Regulator. Meanwhile, the Petroleum Services Association of Canada (PSAC) projects about 2,425 wells to be drilled in the province.

By comparison, 5,777 total wells were drilled in Alberta in 2009.

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The growth in decommissioning is in part fuelled by an increase in funding by the Orphan Well Association (OWA). The group is tasked with cleaning up old wells, pipelines and facilities that can't be sold when an energy producer goes bankrupt. The Alberta government loaned the OWA $235 million. The money began flowing at the start of 2018 and will continue into 2020.

The industry-funded OWA said the financial boost from the government loan has made a "substantial" difference as nearly 800 wells were cleaned up this past year, a figure which has increased steadily from 50 wells in 2014.

A Supreme Court of Canada ruling has also added a degree of urgency.

Banks are hesitant to loan money or extend credit following the court's decision to prioritize environmental cleanup over the interests of lenders and other secured creditors. That's why some oil and gas companies don't want to have a hefty amount of abandonment liabilities on their books.

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Some oil and gas wells are much easier to decommission than others, depending on the geology and how long ago they were drilled. For those reasons, the cost to an oil and gas producer can vary between $100,000 and $500,000.

The eventual price tag isn't always known until the decommissioning work begins. That's why some oil and gas companies can be wary of cleaning up wells, especially considering the financial struggles of the industry.

Oil and gas producers are also sometimes required to do further remediation work after a well is decommissioned to ensure the land is properly remediated.

No wonder some companies have lacked motivation in the past to clean up old wells, pipelines and other infrastructure, said David Yager, an oilpatch consultant and policy analyst.

"What's it going to cost? I don't know. When are we going to get a reclamation certificate? I don't know. That's pretty hard to get spending approval for an unknown amount of money for an unknown period of time," he said.

Considering how many inactive wells there are across Western Canada and the ongoing downturn in the sector, Yager said government and industry should ramp up the cleanup.

"There's quite a backlog of work out there," he said. "It's got to be done anyway, might as well do it now. Prices are down, labour is available. It's a very good time to do this." 

Yager is hopeful the provincial government will relax some of the regulations about abandonment work, which he described as often lacking common sense.

"The good news is Alberta is extremely rigorous with regulations. The bad news is it might be an obstacle to getting the work done," he said.

Some companies have been able to clean up more wells without increasing the amount of money they spend by becoming more innovative.

"There's a lot of technology in abandonments and reclamation that you can utilize," said Steve Laut, executive vice-chair at Canadian Natural Resources, the country's largest oil and gas producer.

"You try to get a bunch of wells to be done at the same time, in the same area," he said. "It's all about being effective and efficient and getting more of that liability off the books."

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The oilfield service industry has lobbied the federal government for a type of investor tax credit or resource credit to spur decommissioning work.

"It's a win-win because cash is injected into the system, the environment is cleaned up, and some of those many unemployed oilfield workers can get back to work doing something that is very important in our society," said Garnet Amundson, president of Essential Energy Services.

Amundson and members of PSAC weren't able to convince the federal government after pitching the idea in Ottawa last year. Still, he's hopeful provincial or federal leaders will take action.

"For the sake of the government, our citizens and the industry, we need to find a way to address this proactively. It would also be really good for the reputation of Canada, frankly."