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Repurposing: Another Tool to address Alberta’s Backlog of inactive and abandoned oil and gas sites?

Written by David McGillivary, Lorne Rollheiser, and Natasha Tames, Gowling WLG

The current path to land use reclamation of legacy oil and gas sites in Alberta is often a long one, imposing specific requirements on regulatees during the suspension, abandonment, remediation and reclamation stages of the process.   Companies often hold wells in abandonment status to avoid or delay clean-up costs and many such companies are struggling financially.  Despite having undergone reform, this regime has resulted in approximately 97,000 inactive wells, 71,000 abandoned wells, and 2950 orphan wells.

However, there are potential land uses that should be considered in respect of assessing (or reassessing) the status of these wells and associated infrastructure within the reclamation process.  These new and emerging land uses may represent alternative solutions with a number of environmental and economic benefits.  Some potential land uses that may result from repurposing include:

  1. Geothermal power generation:

Thousands of the inactive and orphan wells in Alberta have been identified as having appropriate proximity to existing infrastructure and having heat properties that could be used in electricity generation, industrial heat, or as direct heat sources.  Progress in this industry continues to be made and momentum appears to be increasing with Alberta’s 7 October 2020 announcement of its intention to “clear hurdles to the development of clean geothermal energy”[1].

  1. Exploration and extraction of other substances (such as hydrogen, helium or lithium) using legacy oil and gas infrastructure:

Another alternative that may transform old wells from liabilities to productive assets is the combination of existing technologies in oil extraction that have been altered and applied to extract hydrogen in a near zero-emissions process.  As an example, Proton Technologies continues to develop its process for hydrogen production[2], a two-step process of heating the reservoir to create free hydrogen and extracting pure hydrogen gas.  Proton continues to test and refine its technologies and has described its patented combination of heating reservoirs with Oxinjection wells and harvesting the hydrogen with Hygeneration wells. Both types of wells adapt existing equipment to a new purpose.

Subject to the growth of the hydrogen economy, these technologies have the possibility of being quickly implemented utilizing existing infrastructure, minimizing land use burdens.

  1. Carbon Capture and Storage (“CCS”):

Inactive or abandoned wells and associated infrastructure may also be repurposed to assist with carbon emission reductions through the application of CCS technology. The use of wellsites (with the appropriate technical alterations) for CCS is appealing as another tool to assist in confronting climate change. However, repurposing wellsites for CCS presents certain risks and repurposing activities are likely to be carefully scrutinized on a case-by-case basis to minimize risks and to ensure the integrity of a potential storage reservoir.

The increased use of CCS in Alberta also gives rise to potential spinoff commercial opportunities for the use and marketing of carbon dioxide as a commodity.  Carbon dioxide has some potential for use and marketability in support of climate change goals including through the displacing of products with higher life cycle emissions or in connection with products that have a permanent carbon retention component. [3]

  1. Production of biogas/upgrading into renewable natural gas for distribution through existing pipeline networks or for power generation:

The production of biogas, which may then be modified to produce renewable natural gas (“RNG”), represents a further opportunity for the repurposing of inactive or abandoned oil and gas sites and associated infrastructure.  Biogas primarily consists of methane (~60%) and carbon dioxide (~29%) and arises from the breakdown of organic matter generated from agriculture, forestry, landfill, or wastewater operations in an oxygen starved environment. This process is often done through use of an anaerobic digestor or by thermochemical means such as gasification. Biogas has a number of practical and commercial uses, including as a fuel source for farming operations and as a feedstock for power generation.  Upgrading biogas to RNG (i.e. increasing the methane content to 95-99%) results in a renewable equivalent to conventional natural gas.  RNG produced from biogas can be comingled with conventional natural gas, shipped, and stored using existing conventional natural gas infrastructure, often requiring few to no alterations.

Conclusion

The above options for land repurposing each give rise to potential environmental and economic benefits. From an environmental perspective, each is consistent with public policy objectives for the reduction of GHGs, advancing energy transition and decarbonization, and reducing the need to utilize undisturbed or valuable agricultural land for future development while awaiting regulatory closure on legacy oil and gas sites with uncertain timelines. Economically, repurposing turns a long-standing liability into an asset, supports economic diversification, and creates opportunity for collaboration and growth across a number of different industries and sectors.

However, each of the land uses discussed for site repurposing also entails certain risks from the application of new or emerging technologies to existing, aging infrastructure. Furthermore, the use of sites that are not fully reclaimed brings the prospect of unknown or lingering environmental issues.  Broad acceptance and investment in repurposing as an alternative to standard reclamation processes likely requires further dialogue among industry (across multiple sectors), government, and thought leaders to determine how repurposing initiatives may proceed as an additional option for handling Alberta`s backlog of inactive and abandoned wellsites and associated infrastructure to environmental and economic advantage for the province and the country. Some issues that warrant additional consideration include:

  • With reforms to Alberta`s liability management framework underway, is there a willingness on the part of government and regulators to accept repurposing as an alternative to full fledged reclamation? If so, what requirements apply for a site to be considered eligible for repurposing? How is liability in such cases to be managed and allocated?
  • What, if any, legislative modernizations or reforms are warranted to facilitate repurposing of sites for the land uses discussed above? Considerations may include streamlining of regulatory requirements and oversight, site access issues, and development of royalty and rental regimes.
  • What, if any, financial incentives or funding opportunities are needed to make repurposing projects economical?

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

This article was republished with the permission of Gowling WLG.  It was originally posted on the JWN Energy website.

About the Authors

David McGillivary is an associate in Gowling WLG’s Advocacy Group. He focuses his practice on multiple facets of administrative law, with an emphasis on energy and environmental regulation, as well as Indigenous law.
Lorne Rollheiser is a partner at Gowling WLG and the head of the firm’s Oil and Gas Industry Group in Calgary, Alberta.
Natasha Tames is an associate in the Advocacy Department in Gowling WLG’s Calgary office. She practises in the areas of commercial litigation, insurance and professional liability.

Saskatchewan’s Accelerated Site Closure Program Announces New Details

Written by Brad Gilmour, Keely Cameron, Stephanie Ridge, and Kassandra Devolin, Bennett Jones

On June 26, 2020, the Saskatchewan Ministry of Energy and Resources (the Ministry) released new details regarding its Accelerated Site Closure Program (ASCP). The ASCP will administer $400 million in funds from the federal government’s COVID-19 Economic Response Plan for Canada’s Energy Sector. The ASCP will distribute funds to Saskatchewan-based service companies completing abandonment and reclamation work in the province.

The June 26, 2020 update was included within the Ministry’s ASCP Questions and Answers document, which is updated regularly and provides key instructions on the operation of the ASCP.

Phase 1 Funding Allocation Complete

As of May 29, 2020, the $100 million available in Phase 1 had been completely allocated. Licensees were notified of their allocated funding amount via email on June 1, 2020.

Licensee Nomination Process Opens

With funding allocation amounts in hand, licensees can now proceed to nominating wells and facilities through the Integrated Resource Information System (IRIS). On June 26, 2020, the Ministry provided further guidance regarding the nomination process, including a supplemental guide and online training module. The Ministry recommends these resources are reviewed prior to completing applications on IRIS.

Notably, the ASCP does not require licensees to nominate their projects on a first come, first serve basis. The funding allocated to licensees in Phase 1 will remain with the licensees until the amount is used or the program ends in December 2022.

The Ministry has also provided templates which can be uploaded into IRIS during this process, including a preferred vendor and site nomination template. The site nomination template is intended to be used on a project basis, allowing licensees to nominate specific stages of work within a project. Licensees can also substitute, remove or add wells during the nomination process. With regards to preferred vendors, licensees are able to select service companies on a project basis.

Eligible Service Company Pre-Qualification is Ongoing

Eligible service companies may pre-qualify to bid on area-based work packages once procurement contracts tendered to nominated sites have been released. The Ministry will issue a Business Associate (BA) code to all prequalified service companies. Licensees will be able select their preferred vendors within the system on the condition they have a BA code. Service company codes will be updated throughout the process, and a current listing is available on the ASCP website.

There are three additional updates of note with regard to eligible service companies.

  1. Contractors have not yet been selected for the ASCP. Contractors can apply through SaskTenders and their eligibility will be determined based on the program’s criteria. The Ministry also clarified that companies and vendors listed on the Saskatchewan Industrial & Mining Suppliers Association Inc. website are not prequalified for the ASCP by virtue of being included on that list. Similarly, the vendor pre-qualification process for the orphan fund program is applicable only to the orphan fund program. Contractors will need to apply for the ASCP separately.
  2. Pre-qualification period opened on June 15, 2020. Service companies may now apply for ASCP eligibility by completing a Request for Service Qualifications (RFSQ) on SaskTenders.
  3. Generally, only bidders require pre-qualification. The Ministry has confirmed that businesses supporting ASCP activities, such as subcontractors or small, individually staffed companies that do not intend to bid on area-based work packages offered for bid, are not required to apply for pre-qualification or complete the RFSQ. However, companies must still be Saskatchewan based and otherwise eligible to receive ASCP funds.

Notwithstanding, the Ministry has identified that companies delivering services (as opposed to supporting their delivery) in the following major service areas are expected to prequalify for the RFSQ:

  • well decommissioning activities, including service rig operations, wellsite supervision, coil tubing, wireline, fluid hauling and disposal, cut and cap, pressure testing, cementation and service maintenance, downhole tools; and
  • remediation and reclamation activities, such as initial environmental assessment (i.e., Phase 1), detailed site assessment, environmental contracting (i.e., heavy equipment, transport and waste disposal).

Licensee Responsibilities Elaborated

The Ministry has also provided further information regarding the role of licensees in the ASCP. Notably, licensees are encouraged, to the greatest extent possible, to nominate routine wells. This is defined as projects which are routine from a regulatory perspective, with the overall intent being to decrease the time spent processing applications. Where non-routine projects are nominated, licensees are advised to submit infrastructure projects where there are no known or foreseeable issues which could increase costs or project duration. A general expectation of the ASCP is that nominated projects may be completed in a timely manner and in accordance with expected costs.

As part of the ASCP, licensees will also be expected to follow applicable regulations and directives with regard to abandonment and reclamation. Licensees will be responsible for updating IRIS with all relevant reporting requirements.

Moving Forward

At this time, the Ministry has not announced its plans for next phases, including criteria for distribution or the funds available. The Questions and Answers indicates additional details will depend on the execution and initial results of Phase 1 of the ASCP.


About the Authors

Brad Gilmour is head of the firm’s regulatory department and co-head of the environmental department. His practice focuses primarily on environmental, energy, regulatory and aboriginal law.

Keely Cameron is an experienced legal counsel with a solid business background. She has a proven track record for finding innovative solutions and generating value. Keely helps clients on both commercial litigation, insolvency and regulatory matters.

Stephanie Ridge has a general regulatory law practice with an emphasis on environmental, Aboriginal, and regulatory law. She has experience with matters and proceedings before the National Energy Board, Alberta Energy Regulator, and Alberta Utilities Commission.

Kassandra Devolin is a Summer Student a Bennett Jones.

 

Supreme Court of Canada to hear Alberta’s “orphaned” oil wells case

By – Michael Nowina and Glenn Gibson, Baker McKenzie

On November 9, 2017, the Supreme Court of Canada granted the Alberta Energy Regulator and the Orphan Well Association’s request for leave to appeal from the decision in Grant Thornton Ltd. v. Alberta Energy Regulator, 2017 ABCA 124.  By granting leave, Canada’s highest court will weigh in on the Alberta Court of Appeal’s determination that secured creditors in a bankruptcy should be paid before environmental claims arising from abandoned oil and gas wells.

Map of all Orphan Wells in Alberta

As described in our previous blog post, on April 24, 2017, a majority of the Alberta Court of Appeal determined that certain sections of the Oil and Gas Conservation Act and Pipeline Act were inoperative to the extent that they conflicted with the Bankruptcy and Insolvency Act (BIA). Under the appellate decision, a bankruptcy trustee or receiver is not required to satisfy the environmental remediation obligations in priority to other creditors.  On the other hand, the dissenting judgment noted concerns that the effect of the majority decision would be to create an incentive for corporations to avoid the end-of-life obligations of wells by using insolvency laws and shift the environmental remediation costs onto the public and other oil and gas producers.

 Leave to the Supreme Court

Leave to the Supreme Court will only be granted where the court is of the opinion that the question raised by the case is of public importance or one that ought to be decided by the Supreme Court. In their leave application, the Orphan Well Association and the Alberta Energy Regulator identified the following issues to be clarified by the Supreme Court:

(a) Given the exclusive jurisdiction of provinces to regulate their natural resources, whether regulatory obligations created by provincial legislation conflict with or frustrate the scheme of priorities set out in the BIA?

(b) Whether select provisions of the BIA enable a receiver or trustee to pick and choose which provincial laws it will comply with?

(c) Are end-of-life obligations associated with oil and gas development also duties owed to the public?

The Minister of Justice and Solicitor General of Alberta intervened in the leave application. In supporting the leave application, the Province of Alberta’s position on leave was that the majority decision of the Court of Appeal interfered “with critical provincial regulatory functions in a manner that is inconsistent with the constitutional division of legislative powers and the balance of confederation.”

The Supreme Court granted a motion to expedite the appeal, and it will likely hear the appeal in the first half of 2018. The Supreme Court’s decision is an opportunity for the court to clarify the interaction of federal insolvency laws with the province’s jurisdiction to regulate natural resources as well as whether the public and other oil and gas producers ought to bear the burden of environmental remediation. The decision will have significant implications for the oil and gas industry, lenders, and regulators across the country. We will continue to provide updates on the status of the hearing as it becomes available.

This article was originally published on the Baker McKenzie website.

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About the Authors

Michael Nowina is a member of the Firm’s Dispute Resolution and Global Financial Restructuring & Recovery practice groups. Mr. Nowina has a diverse civil litigation practice, with a focus on fraud recovery, insurance defence and insolvency law. Mr. Nowina has appeared before all levels of courts in Ontario and regularly appears on matters on the Commercial List in Toronto.

Glenn Gibson is a member of Baker McKenzie’s Litigation & Government Enforcement Practice Group in Toronto. She joined the Firm in 2015 as a summer student and completed her articles of clerkship in 2017.  Glenn acts for various clients on contractual disputes, jurisdictional disputes, commercial class actions, matters involving fraud and commercial arbitration. She is a contributor to www.canadianfraudlaw.com, www.globalarbitrationnews.com, and the Baker McKenzie International Arbitration and Litigation Newsletter.