The Surface Owner’s Burden: Landowner Rights and Alberta’s Oil and Gas Well Liabilities Crisis

Abstract

Inactive and unreclaimed oil and gas wells pose financial, environmental and health risks to Alberta landowners. The province needs to develop stronger policies that will ensure landowners are fairly compensated and well sites cleaned up. The law requires Alberta landowners to lease the surface of their land for oil and gas development in exchange for financial compensation and land reclamation at the end of the lease. However, there are approximately 97,000 inactive wells in Alberta that haven’t been properly closed and 71,000 abandoned wells requiring clean-up. Low oil prices have resulted in insolvency for the operators of these wells and the Alberta Energy Regulator predicts 2021 will see another 6,014 wells become inactive. As of March 25, 2021, 54.8 per cent of all currently inactive oil and gas wells on the province’s list have been inactive for more than five years while 29.2 per cent have been so for more than a decade. When well operators default on their obligation to maintain the wells, landowners cannot collect timely compensation, and are required to apply to the Surface Rights Board to receive fair compensation from the provincial government. Landowners must shoulder the burden of the risks to their properties and livelihoods during this period. The problems are then compounded by increased potential for contamination, unequal treatment as an unintended consequence of site clean-up programs and difficulties seeking a remedy. Policy responses the province can take fall into two main categories: addressing the root problem of long-term inactive and unreclaimed wells and improving the protections of surface owner rights. To address long-term inactive and unreclaimed wells, the province could impose more severe financial penalties on the owners of incompliant wells, in addition to the interest that has accumulated during the period in which they failed to properly compensate the landowner. Furthermore, new policies on surface rights and liability management, drafted through engagement and consultation with landowners, must provide incentives or disincentives for operators to stop abandoning wells indefinitely, including regulations that should specify a time limit by which an inactive well must be cleaned up, and the land properly reclaimed. To improve the protections of surface owner rights, landowners need improved access to information on the recourse open to them, including compensation rates and decision-making by the Surface Rights Board, which mediates between well owners and landowners. Landowners also need to have relevant information available to them on the risk status of the well on their land and be provided with a risk assessment framework relevant to their site-specific concerns. Reclamation activities also require greater oversight, to ensure the land is returned to the capabilities it possessed prior to the well site being established. The Alberta Energy Regulator, which oversees surface leases, has reportedly conducted field audits for only three per cent of sites that were certified as reclaimed between 2014 and 2018. Property development and value, risks to crop farming and an inability to remedy their concerns about orphan wells have forced landowners for too long to live with an untenable situation. With the expected increase in inactive and unreclaimed wells, it is vital that the governance of surface rights and well liabilities be strengthened. The province owes landowners respect for their property rights and timely, fair access to recourse and compensation. Otherwise, Alberta landowners will continue to be unfairly burdened with financial and other costs that affect not only their ability to earn a living from their land, but also damage their trust in industry and government.