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Oil and gas well clean-up to cost $1.1B by 2025

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An oil well in a field near Drumheller.
On Tuesday, 28 September 2021, in Drumheller, Alberta, Canada. (Photo by Artur Widak/NurPhoto via Getty Images)
An oil well in a field near Drumheller. On Tuesday, 28 September 2021, in Drumheller, Alberta, Canada. (Photo by Artur Widak/NurPhoto via Getty Images)

The cost to clean up Canada's orphaned oil and gas wells is expected to reach $1.1 billion by 2025, according to the Parliamentary Budget Officer (PBO).

Parliamentary Budget Officer Yves Giroux said in a report released on Tuesday that 36 per cent of wells in Alberta and Saskatchewan are currently active, the lowest share on record. Inactive and plugged wells make up roughly 37 per cent, the report says.

There are approximately 460,000 wells in Alberta and 140,000 in Saskatchewan as of 2020, according to the Alberta Energy Regulator and Government of Saskatchewan. According to the PBO, over the last five years, the number of orphaned wells in the two energy-producing provinces climbed at an average growth rate of 35 per cent per year.

"As the number of orphan wells increase, so does the expected cost for cleaning up environmental liabilities," Giroux stated in a press release.

The PBO estimates the cumulative cost for orphan well clean-up on a national level to be $361 million as of 2020. It says $1.7 billion in funding from the federal government through the COVID-19 Economic Response should cover the estimated clean-up of inactive wells in the medium term.

Provincial regulators require oil and natural gas companies to close inactive well sites. Based on "the polluter pays" principle, they must fund the cost of well clean-up. When there is no known, financially viable operator capable of cleaning and closing a well, it is considered an orphan.

In Alberta, the number of orphaned wells has increased from 700 to more than 8,600 over the last 10 years. The PBO says most of this growth occurred in the last five years, and was likely driven by decreasing oil prices since 2014, and the industry downturn.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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