June 14th, 2024

Provincial well subsidy could be moot for Medicine Hat

By COLLIN GALLANT on February 18, 2023.

This closed natural gas well, located within yards of the spraydeck and washrooms at Central Park in Medicine Hat, is scheduled to be permanently plugged and remediated this year as the city proceeds with abandoning wells.--News Photo Collin Gallant

cgallant@medicinehatnews.com@CollinGallant

With its own abandonment program well underway, the City of Medicine Hat is interested in a potential provincial subsidy program to plug sites and reduce environmental liability, but officials are not yet sure how it would work or if it would fit with the city’s plans.

That comes as new reports show the city was one of the prime beneficiaries of a federally-funded general well-cleanup program administered by the province over the last two years.

Utility division head Brad Maynes said Thursday that the city’s natural gas production business is not planning new drilling that would benefit from the new program being developed by the Alberta Energy ministry.

It would reportedly provide an offset of some well closure costs in the form of royalty credits. Active companies could use those to reduce costs of future production at other sites.

“There’s a potential opportunity for the city to take advantage, however as it’s currently laid out it’s not a recuperation of costs, but a credit on new production,” Maynes told council’s utility and infrastructure committee meeting.

“It generates new revenue for the province, new economic activity through drilling of wells, and then the royalty credit flows through.

“It’s too early to tell … however, we are currently not in a growth phase as it pertains to adding new royalty-generating assets. Unless we (drill new wells) in the future it may be hard to take part in the program.”

The provincial government led by Premier and local MLA Danielle Smith has said that a new $100-million pilot program, now known as the Liability Management Incentive Program, is being developed to help speed up reclamation efforts of wells which she says have lingered decades.

Critics, academics and even some in the oilpatch have said the program sends the wrong message and challenges the province’s long-standing “polluter-pays” principles that requires them to be fully responsible for long-term liabilities.

Work is well advanced on three quarters of the wells in the city’s self-funded well abandonment program, according to a presentation to committee this week.

Reports state grants could already cover up to one-sixth of the costs.

On Thursday, the Canadian-based investigative journalism outlet, the Narwhal, stated it had analyzed Alberta’s separate Site Rehabilitation grant program and found Medicine Hat has received $26 million toward its efforts. That’s generally in line with previous statements from city gas officials.

According to the report, Canadian Natural Resources received $172 million in the initial outlays from the $1-billion fund provided to Alberta by Ottawa during the pandemic to stabilize oil activity.

Cenovus received $66 million, followed by the city, then Suffield block operator IPC Alberta with $18 million, according to the report that covers payments up to the end of 2022. Other companies with major operations in the southeast that placed in the top-10 recipients were Canlin Energy ($16.1 million) and Pine Cliff Energy ($9.8 million).

The reporting covers only the first phases of the eight-phase program, and is not verified by the News.

In Sept. 2021, the News reported the city had secured $18 million in a program block targeting closures in environmentally sensitive areas. City officials said at the time those funds, plus $4 million in city spending, would reduce the closure liabilities in the Manyberries oil field by about 60 per cent.

At the same time, city manager of environment and intergovernmental relations, Kevin Redden, told the News the city was previously awarded an additional $3.5 million from the Alberta program.

Other payments totalling $2.5 million were received from the Government of Saskatchewan, which had its own $400-million program, for work done by the city on its well sites in that province.

City well closure progress

The city had about 3,600 wells in its inventory when it announced a major abandonment program in 2019 to permanently close marginal or uneconomic, low-production gas wells.

In at update earlier this month, Maynes said only 204 sites remain to be addressed, while 465 have been certified as properly abandoned and reclaimed.

There are 2,342 currently in the reclamation stage, meaning infrastructure has or is being removed and a period of environmental monitoring has begun.

Eventually, the division expects to retain 642 wells within the historic Northwest field near the city, where production levels remain high and forecast is to be economically viable for eight to 10 years.

That production represents about 10 to 15 per cent of the gas the city’s distribution company supplies to residents.

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