Regina – Following their initial testimony to the Senate Transport and Communications Committee on May 1, which was looking into Bill C-48, the Oil Tanker Moratorium Act, Senator Mike MacDonald got into a discussion with Matt Cugnet, president of Valleyview Petroleums, and Brian Crossman, field supervisor and partner with Independent Well Servicing, about suspended wells.
Here is there exchange, where Cugnet and Crossman explain some of the thinking around whether or not a well should be abandoned. According to Cugnet, it has a lot to do with the price of oil. Note, this testimony took place before Trident Exploration shut down operation in Alberta, transitioning 4,700 wells to the care of the Alberta Energy Regulator (AER).
Senator Mike MacDonald: I have seen photos of the current oil fields in southern California which are like a moonscape. There are about 1,500 tailing pounds there. It’s probably the worst environmental mess in the U.S. It’s still there. How does that compare to how we handle stuff in Canada? How many abandoned wells would we be finishing off and taking back to natural state in Canada annually?
Brian Crossman: I would have to check. I know some guys in the government that could tell me. A lot of the companies do it all on their own volition. As good corporate citizens, they abandon the wells when they become uneconomical. Basically they are cemented off down low. The casing is cut off and capped at surface. They do leak tests and everything to make sure there’s nothing coming to the surface. Eventually they take it all out and you can’t ever tell the oil well was ever there.
Senator MacDonald: You have seen a marked difference in the way governments inspect and regulations are applied when it comes to recovering abandoned wells and restoring them to a natural state.
Crossman: In Saskatchewan, and Matt Cugnet can tell you this, we are up against it quite a bit compared to Alberta. The average number in Alberta is 20 barrels a day, and I think we are around six. We are as regulated as they are in Alberta. Small producers like Matt Cugnet and some other fellows I know definitely have a tougher time economically but they still do it. They still put the effort in and the money in. They are glad to do it because they are happy to be producing oil in Saskatchewan and contributing to Canadian taxes.
Matthew Cugnet: I will speak to that. I guess it’s how much time you have. I could go on about this for a week. There are 475,000 wellbore penetrations in Western Canada. You would have to check with the government for the exact number but of those about 160,000 are abandoned. Depending on the period of time, the government promotes it. One of the steering committees I am on right now is Wellbore Abandonment and Reclamation.
There’s a divide within industry in what we call our historical wells, which can become orphan wells. They were drilled prior to the advent of regulation or legislation concerning cleanup in pre-1970s. Those are most persistent and hardest to abandon and remediate. I do not know how long everybody is in Regina, but I would encourage them to drive past the University of Regina campus. There’s actually an abandoned well on campus.
Senator MacDonald: Is this an old well?
Cugnet: It was drilled in 1978 during the energy crisis.
Senator MacDonald: I am just curious. Why are the old ones more difficult?
Cugnet: Part of it is the construction techniques at the time. Our industry faces an ongoing study. The oldest wells in Canada were drilled in 1860 in Petrolia, Ontario, Lambton Country. I do not think a lot of people know that. Stony Point and Albert Shale in New Brunswick have original oil wells. In Gaspé, Quebec, there’s oil leaking into the St. Lawrence. The techniques and methods for the original wells were brought up from West Virginia by water well drillers looking for salt. There are wells going back to 1300 AD drilled for salt in China. There’s evidence of doing oil. The Seneca Nation in upstate Pennsylvania actually drilled wells for oil used as a tonic or a liniment. There’s evidence of bitumen refining in the Akron field and La Brea tar pits in California. It leaked to surface and the Natives there used it to waterproof wicker containers to carry water through the desert.
It’s an ongoing industry in that we have learned to extract and utilize these resources, but prior to the 1950s there wasn’t enough of a working understanding of cementing techniques and casing. We will drill a well now by law and cement all the potable groundwater off. We will then drill an additional 1,500 to 2,000 metres underneath. The construction guidelines of the Government of Saskatchewan are continually updated as information points come in. There are non-cemented wells with no surface casing at Turner Valley, Alberta, from 1914. Those are the wells that cause issues. In addition to not having containment of potable water from brine water, they also do not adequately cement to prevent corrosion. As that wellbore corrodes, it collapses in on itself.
My worst abandonment was $785,000. We were on it for 31 days. My quickest one was 2.5 hours, which was a well drilled in 2010 that was non-productive. As I say, we have abandoned between 25 and 35 wells at Valleyview in the last six years. The longer the well produced, the more likely it may have had a discharge of a spill. The surface reclamation, depending on the history of the well, can be from six months to four years. Independent environmental experts come in to assess the sites. They take ground sampling to look for brine contamination or hydrocarbons. Then the site is restored for growth and vegetation. As I say, that process is ongoing.
The last four years have been awful for the oil and gas industry. The receivership and bankruptcy rates throughout Alberta have skyrocketed. When a company is fiscally insolvent, its wells become property of an orphan well committee in Alberta and Saskatchewan. It’s currently entirely funded by industry, but what happens when 2,100 wells get dumped on the working committee? If you go to industry for payment, it’s too much all at once. There’s a feeling that these problems are mounting, but the wells sit suspended or inactive. It’s like a surge. It just takes a certain amount of time for the working committee to work its way through it.
The Government of Alberta mandated that the orphan well committee had 210 abandonments last year. Saskatchewan traditionally had under 10 orphan wells. I think we surged to about 45, and of those 45 we are down to about 20. A certain portion of the cleanup work is done each year to help spread out costs. Additionally, one of the problems we as an industry face is that a lot of people just do not understand what we do or why we do it. Today’s suspended well might be the productive well tomorrow at $110 a barrel. A large company may have a well that makes 10 barrels a day. By the time they pay for their office in Calgary, their staff, their pension and their overhead, they won’t make any money at $52 a barrel. At Valleyview we may be able to make money on that well, but when it goes to $30 a barrel we won’t. We will shut or suspend that well. To an outside person from the oil industry, there is a sitting well there that has potential for liability or damage. If oil goes to $110 a barrel, or in our case if we can get the extra $21 a barrel that an American producer gets for a similar quantity, all of a sudden that well is more productive. Maybe we get Mr. Crossman in. There are new completion techniques. There is new perforating. We try another zone. There are wells that we have that were sitting for 25 years. If somebody proved there was oil in a different stratum, we would go back in to re-perforate it and it would be producing successfully.
It’s a very tough problem for the government to manage. They want to encourage us to abandon them, but once they are sealed up with cement there’s no opportunity for them to generate revenue. It’s really a balancing act between the competing interests.