Alberta to pilot oil and gas royalty breaks for legally required well cleanup

The Alberta government is moving ahead with a plan that would give oil and gas companies a tax break for meeting their legal obligations to clean up old well sites, inviting a select group of landowner organizations to a meeting to discuss a pilot project.

On Thursday, Alberta Energy Minister Peter Guthrie is scheduled to host those groups to discuss “a concept for a royalty credit program to incent accelerated oil and gas site closure,” indicates a government document that outlines the proposed pilot program, obtained by The Canadian Press.

That pilot program, previously known as RStar and now called the Liability Management Incentive Program, would issue $100 million in credits that qualified companies could use to apply against royalties earned from new production. Credits would be earned by cleaning up well sites that have been inactive for at least 20 years.

Opposition New Democrat energy critic Kathleen Ganley said there should be a conversation about the pilot project happening with the public.

“They’re taking public money and giving it to oil companies to do work they are already legally obligated to do and they’re doing it at a time of high oil prices,” Ganley said.

The idea has been widely panned by economists, environmentalists, rural municipalities and analysts within Alberta Energy. Critics call the program risky, opaque and a violation of the polluter-pay principle.

“For some reason, we’re incentivizing future royalties to eliminate liabilities when profits are high,” said Paul McLauchlin of Rural Municipalities Alberta. “It’s very confusing to a lot of people.”

Alberta landowners dealing with the 170,000 unreclaimed sites on their properties aren’t crazy about the idea but need to get those wells cleaned up, said Daryl Bennett of Action Surface Rights, which will attend the meeting.

“It’s somewhat regrettable that the taxpayer is left to fund these programs and that royalties will be reduced,” Bennett said. “However, landowners are dealing with lots of abandoned wells. It’s kind of a catch-22 situation that was never in the social contract.”

Not all landowners groups have been invited to the meeting with Guthrie.

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Dwight Popowich of the Polluter Pay Federation said his group made repeated requests to attend the session, but have instead been told to meet with department officials.

“If you happen to be a dissenter of any kind, you definitely won’t be invited,” he said.

Alberta Energy spokeswoman Gabrielle Symbalisty said further consultations are planned.

“Indigenous groups, municipalities, industry associations, oil and gas companies, landowners and other groups have been asked to provide feedback on the proposed criteria,” she said in an email.

The government document says the program is still in development, and no final decisions have been made.

However, some feel the United Conservative Party government has already made up its mind.

“It’s moving a lot faster than we expected,” said McLauchlin, who has had what he described as “some engagement” on the pilot project.

The proposal has been pushed for years, including by Premier Danielle Smith when she was a business lobbyist. A former RStar lobbyist now works in Smith’s Calgary office. The program was part of Guthrie’s mandate letter when Smith named him to cabinet.

“I very much get the feeling the fix has been in on this program,” said Ganley. “It sounds to me like this (program) was always going to go forward.”

Other suggestions to address Alberta’s huge abandoned well program exist.

“They could say, ‘You’re not allowed to drill anymore unless you clean up a well,”’ Bennett said.

Timelines are another option, said Popowich.

“If a well is shut for 12 months, you’ve got 18 months to clean it up,” he said. “Most jurisdictions have that timeline. Alberta has none.”

McLauchlin said other taxes on oilpatch activity have been lifted and wonders why further incentives are needed at a time of record industry profits.

“This is designed by industry,” he said. “The engagement with landowners is going to be a day, and then the pilot’s going to roll out.

“This (program) hasn’t been built from the ground up on what is the big picture liability conversation.”

A wider conversation on the issue is needed, Ganley said.

“At minimum, the UCP should be talking to not just friends and insiders, but to the entire public.”