Number of orphan wells in Alberta will soon double as controversial oilpatch bankruptcy settled

Alberta's orphan well woes are about to swell following the end of a controversial court case involving some of the biggest names in the Canadian oilpatch.

The province's Orphan Well Association (OWA) is tasked with cleaning up oil and natural gas wells that no longer have an owner, something that is often caused by a company going bankrupt.

The OWA already has an inventory of about 1,600 wells in need of closure and reclamation. That workload is expected to more than double as the bankruptcy of Sequoia Resources is finally settled — a court case that has been followed closely by many because of its broad implications for landowners, industry and taxpayers.

With Sequoia, the OWA is expecting to inherit 1,800 to 2,000 more wells, in addition to the company's other infrastructure, such as pipelines. The estimated clean-up cost of the Sequoia properties is about $200 million.

As a result, the OWA now expects it will likely need more than a decade to clean up Sequoia assets, with a scheduled completion around 2036. That timeline could increase further if other oil and natural gas companies go bankrupt.

The bankruptcy trustee, PricewaterhouseCoopers (PWC), is expected to seek court approval to sell some of the Sequoia assets that still have value in November, said OWA president Lars DePauw. Everything else will be considered to be abandoned and handed over to the OWA, he said.

"There's a lot of additional infrastructure," DePauw said. "We're getting a pretty significant portion of the wells, and with that comes facilities and pipelines and road infrastructure. That's all part of that."

Sequoia went bankrupt in 2018, but most of its natural gas wells have sat idle as the court battle dragged out.

And many landowners have been waiting for those aging wells to be cleaned up. An open house was held this summer to give some rural residents an update on when reclamation work might actually begin.

"It's been a tough situation for the landowners," DePauw said. "A lot of people are looking forward to these sites being removed from their land and being able to put them back into productive use."

The Sequoia bankruptcy hearings attracted attention from big-name companies such as Cenovus Energy and Canadian Natural Resources. They, along with other companies, are affected because they pay into the OWA to clean up orphan wells. In court filings, those companies warned there could be industrywide consequences if similar deals as those that helped build Sequoia are allowed in future.

The OWA's budget has steadily increased in recent years in anticipation of the Sequoia assets, which has resulted in higher levies charged to industry.

And taxpayers have increasingly covered some of the cost to clean up aging wells, including the federal government's $1.7-billion commitment in 2020, which also aimed to provide stimulus for the oilfield service sector when oil prices crashed after the pandemic began.

Part of the reason for the lengthy bankruptcy court battle was the controversial way Sequoia was built —  and how quickly it failed.