Fewer oilpatch companies going bust could spell relief for Alberta's orphan well woes

It's yet another sign of the times for Alberta's thriving oil and gas sector. 

After several years of persistently low commodity prices driving a wave of corporate insolvencies, bankruptcy professionals in the province say it's become increasingly rare to see these companies fail. 

The financial rebound is providing relief for the province's orphaned-well problem. Fewer companies becoming insolvent means fewer companies abandoning their assets, which can become environmental and safety hazards. 

When a single company fails, it can result in thousands of oil and gas wells, in addition to hundreds of facilities and pipelines, that no longer have an owner. If those wells and other assets can't be sold, they need to be cleaned up.

"If we're not having receiverships, the number of orphans go down dramatically," said Lars DePauw, executive director of the Orphan Well Association, an industry-funded organization.

It costs around $35,000 on average to decommission a well and $24,000 on average to reclaim a site, it says, with costs varying depending on the size, age and complexity of the well.

The organization currently has an inventory of 1,987 orphan wells for decommissioning.

The trend is a tricky one to quantify. The federal Office of the Superintendent of Bankruptcy tracks bankruptcies and proposals, but these are often less common in the oil and gas sector than receiverships and filings under the Companies' Creditors Arrangement Act.

Multiple insolvency lawyers and professionals who spoke to CBC News all pointed to the same trend: a decline in oil and gas insolvencies, largely driven by high commodity prices.

It's a significant change from an era that began in 2014, when a downturn in the oilpatch drove a wave of insolvencies and a rise in orphaned wells. The situation peaked in 2018, DePauw said, but even in subsequent years, many companies were struggling.

"Before this turn of fortune for the oil and gas companies, we were babysitting a number of oil and gas companies trying to stave off foreclosure," said Josef Kruger, a longtime Calgary insolvency lawyer with the firm Borden Ladner Gervais LLP.

"A lot of these companies were not going to survive. Then came the Ukraine war and things changed completely."

The resulting uptick in commodity prices has led to recent record-breaking profits, which companies have used to return money to shareholders and pay down debts at a breakneck pace.

"There's a real mind shift with a lot of the executives we talk to ... 'We do not want to employ nearly as much debt as we ... once had,'" said Jeremy McCrea, managing director of energy research with the firm Raymond James.