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The Alberta government plans to relax a rule that requires energy companies seeking to buy viable wells from bankruptcy proceedings to first pay all the failed producer’s outstanding taxes.
“I have informed the Alberta Energy Regulator and the Orphan Well Association that my office will be amending the order in a way that will protect the value of productive assets and ensure that they can be acquired by responsible operators,” said Energy Minister Brian Jean in an email.
“We believe that a significant minority of the assets sent to the (association) in the recent past will be found attractive by industry.”
In March 2023, Jean’s office issued an order to the energy regulator requiring it to consider whether an energy company’s tax payments were up-to-date before the company’s licences could be transferred to another owner.
The move was in response to concerns from rural municipalities over growing tax arrears from companies that were struggling or had entered receivership. That unpaid bill totalled $251 million at the end of 2023, which doesn’t include the amount written off.
The order was intended to plug a leak in municipal budgets and keep wells from being transferred from one shaky operator to another.
But an April 11 letter from the regulator’s staff to CEO Laurie Pushor identified “unintended consequences.”
That letter, released under Freedom of Information laws and provided to The Canadian Press, says requiring prospective buyers to pay the entire tax bills of bankrupt companies was stopping those buyers from purchasing potentially profitable wells.
It says the order would increase the number of wells held by the Orphan Well Association, which cleans up old wells for which no owner can be found. That, in turn, would increase the annual levy paid by industry to the association.
“If the (order) continues to be applied as written … there is a high risk that any sales processes contemplated will either not be initiated or will not be successful in transferring assets to new parties,” the letter says.
“This is expected to result in premature abandonment of resources … that could have otherwise remained in production by new parties and contribute to the future municipal tax base.”
In his email, Jean said he also intends to move on Alberta’s vast and growing problem of wells, pipelines and other energy facilities that need to be cleaned up.
“Our ministry will be leading a broad multi-prong consultation with industry, rural municipalities and landowners this fall to work on solutions to increase reclamation and promote responsible development of legacy oil and gas assets in central and southern Alberta,” he said.
Orphan Well Association head Lars DePauw said the current order is closing viable wells and failing to clear tax arrears. He said requiring producers to clear all tax debt for all wells of a bankrupt company just to acquire the assets that interest them is driving buyers away.
“Why shouldn’t they be allowed to produce those wells?” he said. “There’s no way those taxes are going to be covered.
“Abandoning those assets prematurely is a lose-lose,” DePauw said.
Paul McLauchlin of Rural Municipalities Alberta said he understands concerns about viable wells being “sterilized” behind a wall of unpaid taxes.
But changes to the order aren’t going to get those taxes paid, he said. Nor is it going to speed well cleanup.
“We find it quite concerning that the most important thing seems to be production, where the most important thing should be companies paying their taxes,” he said.
He said the Orphan Well Association could run wells itself and use the proceeds to fund remediation.
Jean’s email contained few details. Much will depend on what they are, said Drew Yewchuk of the University of Calgary’s Public Interest Law Clinic, which follows oilpatch liability issues.
Yewchuk said the regulator should ensure any wells sold from bankrupt companies have enough remaining oil and gas to produce a profit, pay taxes and fund cleanup.
“When the value of the oil and gas is worth less than the cost of closing the well, the well is a net liability,” he said.
“When a well can only be operated at a loss, it should go to the Orphan Well Association, and industry can clean it up.”
This report by The Canadian Press was first published July 15, 2024.
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