29 - Orphan Wells...Who Bares their Cost?
Updated: Apr 9, 2019
Oil & Gas drilling has been active since almost 150 years. During this period, thousands of wells were drilled, produced, and abandoned. While most wells can be attributed to an owner, or an entity that once was the owner, many others could not. The reason is that these wells were drilled by entities that went bankrupt, defunct, or simply abandoned the industry or moved jurisdictions.
Such wells, which are referred to as orphans, pose a challenge to regulators who are no more capable of assigning abandonment and restoration liability to any business entity.
Orphan wells are common in countries with strong private Oil & Gas sector, such as Canada and the U.S.A.
What is an Orphan Well?
As per the Orphan Well Association (OWA), an orphan well is a well or associated site that has been investigated and confirmed as not having any legally responsible and/or financially able party to deal with its abandonment and reclamation responsibilities.
The OWA scope also includes pipelines segments and production facilities.
As of September 13th 2018, there are 9,485 wells, sites, pipeline segments, and facilities that are considered orphan in the province of Alberta, Canada
Who pays the cost of Orphan Wells?
In Alberta for instance, the cost of abandoning orphan wells is bared by the Oil & Gas industry as a whole. The Alberta Energy Regulator (AER) collects an annual levy called the Orphan Fund Levy from all active oil and gas producers in the province. It then remits these funds to the OWA, who in turn manages the abandonment, remediation and restoration of orphan assets.
We will be happy to share more details on this post, so please don't hesitate to contact one of our team members.
If you enjoyed the post, please share it with your community.