Canada watchdog says funds for inactive oil well clean-up may fall short

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An oil pump jack pumps oil in a field near Calgary, Alberta, Canada on July 21, 2014. REUTERS/Todd Korol/File Photo

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CALGARY, Alberta/OTTAWA, Jan 25 (Reuters) - Funds allocated by the Canadian government to help clean up the country's orphan oil and gas wells may fall short if the main oil-producing province of Alberta continues to allocate the money to financially viable companies, the parliamentary budgetary watchdog said on Tuesday.

About half the funds in Alberta went to 10 companies that are expected to remain financially viable over the next few years, including some of Canada's largest energy producers - Canadian Natural Resources Ltd (CNQ.TO), Imperial Oil (IMO.TO), and Cenovus Energy (CVE.TO), budgetary officials said. All have benefited from surging oil prices in recent months.

Canada is the world's fourth-largest oil producer and sixth-largest natural gas producer and its western provinces are dotted with hundreds of thousands of oil and gas wells. Some of those wells are orphans, meaning the companies that owned them have gone bankrupt or ceased to exist.

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In April 2020, the federal Liberal government allocated C$1.7 billion ($1.3 billion) to clean inactive oil and gas wells.

There are approximately 225,000 inactive and plugged wells in Alberta and Saskatchewan, the two largest energy-producing provinces. Around 11,000 are orphans and the watchdog estimates the clean-up cost for those wells will reach C$1.1 billion by 2025.

While the amount set aside by Ottawa should be enough to cover the orphan well clean-up cost, Parliamentary Budget Officer Yves Giroux warned the funding could fall short if Alberta continued to allocate federal money to firms that are not in financial trouble.

"If that trend continues, it's possible that the funding set aside would not be sufficient to clean up all of the inactive orphan wells into the future," Giroux told a conference call.

Canada has a "polluter pays" principal, in which the companies that extract natural resources are expected to set aside funds to cover the cost of clean-up.

Giroux noted the federal funding was set up to clean up inactive wells, not necessarily orphan wells, and it was up to Alberta to determine which companies received funding.

Alberta government spokesperson Jennifer Henshaw said the funds went directly to oilfield services companies specializing in well clean-up, rather than the well licensees.

"The program has accelerated the cleaning up of inactive sites and has created more than 1,900 jobs," Henshaw added.

A Cenovus spokesperson said in a statement the company had accessed Alberta's site rehabilitation program during the economic downturn in 2020, and would continue doing so until its completion this year.

Canadian Natural and Imperial did not immediately respond to request for comment.

($1 = 1.2639 Canadian dollars)

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Reporting by David Ljunggren Editing by Mark Potter, Marguerita Choy, Bernard Orr and Aurora Ellis

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