Orphaned wells are growing, but strong companies are still seeing strong business in Alberta
The number of orphaned wells in Alberta has shot up over the last year as many companies struggle with lower commodity prices. Alberta’s Orphan Well Association (OWA) says it currently has a backlog of 704 orphaned wells, up dramatically from 164 last year.
The “industry is not doing as well, and it’s due to the low commodity prices … and declining production,” said Pat Payne, the Orphan Well Association’s manager. “Declining reservoirs [are] catching some of the companies and they’re not able to survive.”
The orphan wells the Alberta association has to reclaim can cost from $50,000 to more than $1 million, and most of the money used to reclaim comes from the industry itself, reports CBC News.
Alberta oil and gas companies pay into an orphan well fund to help cover the costs of reclaiming well sites. Last year, companies contributed $15 million to the fund, but that number has increased along with the number of wells, doubling to $30 million this year.
Brad Herald, vice-president of the Canadian Association of Petroleum Producers, and director of the Orphan Well Association, said the amount companies pay into the fund is calculated monthly, and varies for each company based on a number of factors including how much the company holds in assets and its ability to pay future cleanup costs.
“This program protects the taxpayer from any liability for those orphan wells. It’s an industry-supported program and it scales with the needs of the program,” said Herald.
The OWA does not always pay for the cost of reclaiming orphan wells on its own, however. In 2009, when the association was faced another larger backlog, the Alberta government gave the fund an additional $30 million.
On average, the OWA handles about 43 sites per year, but with such a large backlog to manage, the association is hoping to reclaim 150 this year.
While the Orphan Well Association is dealing with a log of wells that has more than quadrupled over the last year, there are still some bright spots in Alberta’s oil patch. Alberta-based Manitok Energy (ticker: MEI) continues to boast impressive rates of return on many of their Alberta wells.
MEI has drilled four wells in the Basal Quartz at Carseland, where it is seeing internal rates of return (IRR) of 82% based on the three-year strip pricing as of April 30, 2015, according to the company’s corporate presentation. Manitok’s two horizontal Lithic Glauc wells have seen IRRs of 210%, with combined flowing rates over 1,565 BOEPD.
Bellatrix Exploration (ticker: BXE) also has a number of wells in Alberta that have also seen strong IRRs. Its Spirit River position has seen IRRs in excess of 60%, according to a company presentation.
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