The city is likely to go the debt-financing route to pay for the shut-in of shallow gas wells it has planned to close in.--NEWS FILE PHOTO
cgallant@medicinehatnews.com
City petroleum managers are diving into how Medicine Hat’s plan to abandon 2,000 gas wells could benefit from a billion-dollar federal fund to clean up oil patch liabilities.
Local administrators told the News on Monday that they feel the city’s program is advanced (some actual work begins next week), but they are unsure how the city’s relatively stable economic position may help or hamper chances at grants outlined by the province.
Qualifying for even the lowest rung of financial assistance could mean up to $12 million for the city related to its wells in Alberta, plus the potential of further grants in Saskatchewan.
Brad Maynes, the City of Medicine Hat’s energy commissioner, said Monday that local administrators are embarking on a $125-million program to close 2,000 unproductive, money-losing wells, and are “actively engaged … to lower the financial burden to residents.”
“If we have the opportunity is available to us, we’ll work with our (contractors) to get applications in as soon as possible,” said Maynes, who stressed more details are needed about the provincial program that opens on May 1.
“We’re fortunate in that we’ve put quite a bit of work in already for an accelerated program. We’ve done a lot of work that a number of companies will now to have to start.
“We’ve been at it for the better part of two years – we’re basically ready to go.”
On Friday, Alberta Energy Minister Sonya Savage released an overview of how the province would deploy $1 billion in federal funds to help close down inactive wells and erase abandonment liabilities. The province hopes the plan will create 5,300 jobs in the oil services sector, cleaning up inactive wells while helping stabilize balance sheets of small to medium producers.
A first $100-million phase will be opened on Friday, targeting well sites where operators are in most financial trouble and service companies most need work.
Future phases will include provisions for alleviating landowner concerns, regional economic considerations, or the ability to approve large batches at once, thereby lowering costs through economies of scale. Those phases are expected to be announcement between May 15 and June 15.
Coun. Phil Turnbull, the chair of council’s energy committee, told the News on Monday that the city will take care of its well liabilities, but needs recognition of its unique situation and help with the effort.
“We can’t walk away, we’re trying to do the right thing, and trying to follow all the rules. If anyone should be getting help from (other) governments, it’s us.”
While the City of Medicine Hat continues to make all surface payments and, despite losing $31 million in 2020, is at no risk of insolvency. Maynes said work on 800 wells in southeast Alberta could proceed quickly.
The city plans to begin abandoning 1,200 wells in Saskatchewan next month. It is also awaiting on an initial announcement from that province about how it will apply it’s $400-million share of the $1.7 billion federal fund.
Last week when Medicine Hat city councillors approved a financial plan for the abandonment program for city wells, they also expressed hope that new funds could help offset the cost to abandon 2,000 well-closures over the next three years.
“We’re being responsible (on well liabilities), and it only makes sense that we’re being responsible with the public purse on costs,” Coun. Julie Friesen said this week.
To this point, relief for beleaguered oil and gas producers has been mostly in the form of increased loans to the industry-funded Orphan Well Association. The city however, cannot in practical terms, access help from the OWA, which takes over wells left by bankrupt companies.
In the new program, announced on April 24, grants could be awarded on a sliding scale, ranging from 25 to 100 per cent of cost, dependent on the company’s financial situation, but to a maximum of $30,000.
Specific to the Medicine Hat’s $125-million program, the working estimate for cost per well is abut $62,000.
With 800 of the wells in Alberta, and assuming a 25 per cent grant, the total benefit would be about $12.4 million, or about 10 per cent.
