September 23rd, 2019

City to abandon the majority of its gas wells

By Collin Gallant on September 11, 2019.

NEWS PHOTO COLLIN GALLANT
The City of Medicine Hat is prepared to close down the majority of its low-production shallow gas wells over the next three years in response to low prices and bleak outlook, it was announced on Wednesday. A sign denotes an abandoned gas well near the eastern end of Balmoral Street in Medicine Hat in this file photo.

cgallant@medicinehatnews.com
@CollinGallant

The City of Medicine Hat will shut-in almost all of its remaining shallow natural gas wells, it was announced on Wednesday, with the “new normal” rock bottom commodity prices cited as the reason.

About 2,000 wells owned by the 100-year-old municipally-owned exploration and production company are scheduled to be shut-in and the sites reclaimed over the next three years, according to energy commissioner Brad Maynes.

That would leave about 600 wells that produce oil or higher volumes of natural gas, including in the Northeast field, an historic zone acquired by the city from the federal government in the 1900s.

“We’ll always be the Gas City,” Maynes stated in a release, saying that over the past 40 years, the city coffers have benefitted from $600 million in gas income. 

“It’s an integral piece of our history, and the City’s oil and gas accomplishments will leave a lasting legacy for generations.” 

However, the division hasn’t produced a profit for years once abandonment liabilities are considered.

The current four-year budget predicts losses of about $30 million each year.

“A sustained pricing recovery in natural gas is not expected in the foreseeable future,” said Maynes. “We have shown financial prudence in our efforts to regain profitability, and fortunately the City had the foresight to set aside funds for our abandonment and reclamation obligations.” 

Natural gas prices are currently one-tenth where they were in 2008, due largely to the advent of shale gas exploration. In 2015, the division embarked on a four-year program to add oil assets and cut costs on shallow gas production.

About 100 employees work in division that, in late 2016, moved 1,000 low volume wells in Saskatchewan off its books in a deal with Canadian Natural Resources for little cash consideration, but to reduce long-term abandonment liabilities.

That left CMH Prodco with about 2,600 wells. Gas for local utility distribution will not be affected.

There is no cost estimate attached the accelerated shut-down program.

Two years ago city finance officials set aside $135 million from reserves to account for the long-term abandonment projects that can take five or more years to be certified as reclaimed, at which point local taxes and surface rights payments cease.

Earlier this summer, the provincial government announced minor property tax abatement for struggling conventional natural gas producers with ministers stating that the sector of the oilpatch was in crisis.

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