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Wells, resources and an economy in transition

Lives of Albertans intertwined in history of oil and gas prosperity and abandonment

ATHABASCA/BARRHEAD/WESTLOCK - John Macoun was part of five expeditions to explore the Athabasca region in the 1870s — his mission: to analyze the economic potential of the oilsands deposits found in the area.

Before Confederation, while the land that would become Alberta in 1905 was still known as the North Western Territory, or Rupert’s Land in the south, scientists with the Geological Survey of Canada (GSC) were sent west to explore the mass of land the Dominion of Canada had just acquired from the Hudson’s Bay Company. While many had come before him, Macoun was the first sent specifically to explore the resource potential of the new territory — not in fisheries, furs, or lumber, but in the petroleum deposits that stretched across the vast, unexplored land.  

A decade later, another GSC scientist, Robert Bell, put forward the now discredited theory that the oil in the sands had come from larger pools trapped in the soil below. A decade after that, in 1894, driller A.W. Fraser arrived at Athabasca Landing to drill the first of what is now 619,503 oil and gas wells across the province. After a few months of drilling, the crew hit a large natural gas deposit, but a year later had still not struck oil, and the well was abandoned. That very same well, now inside the Town of Athabasca, near 51st Ave., was capped last month — 127 years later — after it was discovered to be leaking a small amount of methane in 2019. 

The industry has supported hundreds of thousands of jobs throughout the expansion of the oilsands in northern Alberta. In one way or another, every Albertan is tied to, and their lives are intertwined in the oil and gas industry — for better or worse — no matter where one stands on the political spectrum. It is a factor in almost all aspects of life, and a huge consideration for governments at all levels, as those commodities have come to define the province and its economic potential. 

Things were good, for a long time, as municipalities collected the taxes from those energy companies that helped provide the services to enrich their residents' lives. But now, with the price of oil in a long-lasting slump, some are wondering if the glory days are gone, and how they are going to adjust, if not to a post-petroleum economy, then to one that is not hyper-focused, and dependent on a single industry.  

According to the Rural Municipalities of Alberta, the energy industry is responsible for $245 million in unpaid taxes to its members, leading to deficit budgets and cuts to services in recent years. That number has risen from $81 million in 2019, and has substantially impacted the bottom lines of local rural municipalities. The County of Barrhead, Athabasca County, Westlock County and Woodlands County are all searching for ways to overcome the lack of revenue, while the dollars they are writing off each year continue to grow. 

The Government of Alberta introduced a plan to modernize the linear assessment model in 2020, which would see energy infrastructure taxed at a lower rate to help make the industry more competitive. Several options were provided, but all were deemed unacceptable after consultations with rural municipalities, with many predicting six or seven figure losses to revenue. That plan was put on hold for three years, but in the meantime new energy infrastructure will not be taxed. 

Joel Gehman is a University of Alberta professor of strategy, entrepreneurship and management and the Alberta School of Business chair in free enterprise. He is also the newly appointed director of the Canadian Centre for Corporate Social Responsibility and the creator of the WellWiki.org website — a project he started in 2013 that now aggregates information from regulatory bodies on 4.3 million oil and gas wells in Canada and the U.S. 

When he was starting the project, Gehman said he was often asked what the benefit of such a thing would be. Since he was collecting the data anyway, he thought he would also try to help it make sense for the average citizen, as it was admittedly cumbersome to sift through as it is available on regulatory websites. He always wondered why the information wasn’t easier to find, but soon stumbled upon an answer. 

“It turns out the answer is really simple — it's not their job. Their job is to regulate the industry. At first, I thought that was a kind of flaw or a bug, but now I just see it as, that's just the way it is,” he said. 

As a researcher, Gehman says his interest in the energy industry is all in the data, but that data is interesting to a lot of different parties and WellWiki provides everything from exact land location and status of the well, to the day it was drilled, its depth, licensing number, operator and an array of other information in a searchable database. 

The recently-capped GSC well in Athabasca for instance, was drilled to 539.5 metres, and abandoned on Jan. 1, 1896. There are 619,502 others in Alberta alone that may be of interest to landowners curious about what may be hidden on their property, or land developers, or real estate companies, and other researchers. Gehman said his team has actively been reaching out to municipalities to let them know the resource exists and is available to them.  

Abandoned, inactive and orphaned wells are a growing problem, he said, and as more companies declare insolvency, the responsibility to clean them up is falling to municipal governments. 

The federal government recently introduced $1 billion, as part of its COVID-19 Economic Response Plan, to help with the costs of reclamation. The Site Reclamation Program is being administered by the provincial government and Gehman shared he is also in the very early stages of trying to gather data to evaluate how the program is working, which could help optimize its effectiveness. 

“Clearly this is a big issue, and I think a lot of people are grappling with that, and, as a researcher, I'm looking at several different projects right now where we're trying to both understand the scope of what the problems are, and also understand how we got to where we got and then also think about some possible pathways forward that are beyond just finger pointing, because I think it's all well and good to say, ‘Well, if 20 years ago we had had a different policy and we would have had a crystal ball we could have prevented all this from happening.’ Unfortunately, that time has come and gone so now the question is, ‘What are we going to do?’ 

“I don't know what the answers are right now but absolutely, as a researcher, I'm interested in those kinds of questions,” said Gehman. 

WellWiki shows 13,611 oil and gas wells across the four counties — Athabasca (3,958), Barrhead (1,846), Westlock (2,315) and Woodlands (5,492) — in various stages of their lifecycles. Those listed as suspended wells have not been capped or reclaimed. There are 1,709 in Woodlands County; 784 in Athabasca County; 548 in Westlock County; and 409 in the County of Barrhead. 

These potential costs, along with the missing revenue from the industry’s unpaid taxes, is hitting municipalities hard. 

“This has been a huge issue for Woodlands County and all of rural Alberta,” said Woodlands County mayor John Burrows in a March 12 e-mail. “The premier did remark in a recent town hall meeting with elected officials that the prices for natural gas and oil are rebounding and they will have to address the issue. I think that we have been consistent in our discussions with the province on this issue. 

“There needs to be a clear distinction between companies that are unable and companies that are unwilling to pay their taxes. That is why Woodlands is putting forward a resolution at RMA to lobby the AER (Alberta Energy Regulator) to not transfer leases to companies that have not paid their taxes.” 

Municipal Affairs press secretary McKenzie Kibler notes the Provincial Education Requisition Credit (PERC) was extended in 2020 to help municipalities deal with uncollectable taxes on oil and gas properties. 

The Municipal Operating Support Transfer (MOST) also provided $600 million to municipalities to offset increased costs and reduced revenues associated with the COVID-19 pandemic, including unpaid property taxes. 

“We recognize the struggles many municipalities are raising, but as municipalities rely on local property taxes to pay for the services their residents expect, communities also rely on the oil and gas industry to create jobs and sustain the livelihoods of their residents,” Kibler said in an e-mail. “There are no easy solutions to this problem. We’re ready to work with both municipalities and industry to solve this issue, so municipalities collect unpaid taxes and oil and gas companies can contribute in a fair and sustainable manner.” 

 

Next week, the second half of this article will take a closer look at some more of the work being conducted by Gehman at the U of A, the notion of corporate responsibility, just how much local rural municipalities are owed, how much they are writing off, and how they are adjusting. 

With files from Kevin Berger and Andreea Resmerita 

 

czwick@athabasca.greatwest.ca