BC’s Dormancy and Shutdown Regulation – Another example of BC making the right decisions in regulating our oil and gas industry

I have written a lot about the BC natural gas and liquefied natural gas (LNG) industry. I have pointed out how BC produces some of the lowest greenhouse gas LNG on the planet; how we regulate flaring and venting better than most other jurisdictions; and how our industry can help reduce global greenhouse gas emissions. But that is not all.

In this post I want to talk about a groundbreaking new feature of the Oil and Gas Activities Act called the Dormancy and Shutdown (D&S) Regulation. In my opinion, the D&S Regulation represents a best-of-class regulatory tool and should serve as an exemplar for other jurisdictions (are you listening Alberta?) on how to more effectively regulate oil and gas wells to ensure the responsible development and management of our oil and gas industry.

The British Columbia Oil and Gas Activities Act (OGAA) is the legislative tool that controls oil and gas activities in the province of British Columbia. It regulates everything from “wells, facilities, oil refineries, natural gas processing plants, pipelines and oil and gas roads, through permits, authorizations, orders and regulations”.

The D&S Regulation is the most recent regulation for the OGAA and it shows how seriously our government takes the development of a sustainable and environmentally responsible oil and gas industry in BC. The D&S Regulation speeds up the rate at which inactive oil and gas well infrastructure are restored so the land they formerly occupied can go back to its original state. It does so by setting new, stricter, timeline requirements to hold companies to account for timely cleanup. 

The BC Oil and Gas Commission (BCOGC) has a Comprehensive Liability Management Plan (CLMP) to address the risks associated with the approximately 25,500 oil and gas well in British Columbia (all stats from the CLMP). As described in the CLMP:  

  • 40% of the oil and gas wells in BC are “active” (defined as “a well that is producing oil and gas and has a viable operator”)
  • 30% of the wells are inactive (“a well that is not producing oil and gas, but has not been filled with cement or had its wellhead removed and capped and has a viable operator”)
  • 13% have been abandoned (“a well that has been filled with cement and its wellhead has been removed and capped and has a viable operator”) and
  • 17% are wells with a Certificate of Restoration (a CoR this is “a site that has been satisfactorily restored to its original state and has a Certificate of Restoration, certifying it has met all necessary requirements”).  

The D&S Regulation targets those 43% of wells that are “inactive” or “abandoned” and have a viable operator, but which have not yet been restored and and thus have not yet received a CoR. Most importantly, it sets a definitive and mandatory timeline for the decommissioning of dormant oil and gas wells. This is a big deal because unlike in the past, the D&S Regulation forces companies to deal with their environmental liabilities in the here and now rather than allowing them to simply sit on liabilities indefinitely.

This requirement, that companies that are generating income from the oil and gas resource use a portion of their income to do remedial work now, reduces the likelihood that these liabilities will be pushed onto the public purse sometime in the not-too-distant future. Consider the situation in Alberta where companies that have generated profits for decades are now claiming poverty when their environmental liabilities come to roost. In BC that won’t be allowed to happen.

By forcing companies to deal with their environmental liabilities in the present, fair decisions can be made as to the valuation of these companies. Instead of being able to push decommissioning costs deep into the future, companies will now have to account for how they will meet their environmental liabilities. The Regulation thus provides a fair means to ensure that industry, and not the public, has to pay to clean up the mess once oil and gas facilities are no longer generating revenue.

To avoid companies playing games with their numbers, the D&S Regulation sets a high bar for wells to be considered “active”. Companies won’t simply be able to run a well for a day or two to avoid the well being declared “dormant”. Instead the D&S Regulation requires that a well must be used for a total of 720 or more hours in a calendar year over the preceding 5 years to avoid being declared a dormant well (okay there are other qualifiers but this is the big one).

To avoid overloading producers, the D&S Regulation provides some grace for companies with large numbers of historic wells. During the initial implementation of the Regulation producers are allowed to phase their decommissioning work through to 2031 and their restoration through 2036. Given the limited number of practitioners able to oversee the restoration work and the lead time necessary to complete restoration, this is a pretty reasonable compromise.

Another critical consideration is the process ensures affected parties are both informed and allowed to provide input about work done on wells on their properties or within their historic territories. This incorporation of rules ensuring administrative fairness represents a very important, but poorly reported, feature of the environmental law in BC.

As an environmental professional in British Columbia, I am rightly proud of the system the BC NDP Government put in place and successive BC Liberal and BC NDP governments have built upon. This is not a partisan topic but one that our successive governments have come to understand is far more important than petty partisan politics. The BC approach is based on a “polluter pays” principal that ensures that the BC taxpayer is not put on the hook for environmental costs associated with resource development in BC. This differs from the historic approach where companies were able to develop resources and then disappear once the profits were banked.

As I mentioned in a previous post, BC has an aggressive environmental liability regime that prevents producers from offloading their liabilities on the public. The BC model is one that could serve as a model for our neighbours in Alberta as orphan wells make up just over 1% of oil and gas wells in British Columbia. As suggested by the OGC  

The Commission’s Plan is comprehensive, it’s underway and it’s working to reduce the number of inactive and orphan sites in the province, while upholding the ‘industry pays‘ model. It holds industry accountable, addresses unrestored oil and gas sites, protects public safety and safeguards the environment.

From industry’s perspective the environmental regime in BC has the benefit that it provides clear requirements, phased-in timelines and readily understandable means to reduce liabilities and obtain regulatory closure at their sites. Industry can adapt to any set of rules, but really hates situations where the rules are uncertain. BC provides that regulatory certainty in its regulatory regime.

I could write a dozen posts about the regulatory regime in BC and while our regime has its flaws, it is easily the best in Canada for transparency, administrative fairness and balancing the responsibility of the regulator to protect human and ecological health with the needs of our industrial partners to generate the wealth upon which our province depends. This differs it from Alberta where it is unclear what message the government is trying to present. As I wrote on Twitter with respect to the way Alberta does business:

I do not understand how a free market Conservative can demand we socialize risk while privatizing profits. Alberta should be looking at models that ensure that the public purse is protected from poorly financed companies looking to make a quick buck before fleeing/folding

As I have demonstrated above, if Alberta is looking for a better way to handle this topic looking across their western border will give them some great ideas on how to protect their industry while protecting human and ecological health and our shared environmental heritage.

This entry was posted in Canadian Politics, LNG, Uncategorized. Bookmark the permalink.

9 Responses to BC’s Dormancy and Shutdown Regulation – Another example of BC making the right decisions in regulating our oil and gas industry

  1. Gary Stewart says:

    Really and why all the dams . Is that your environmental protection program. Also when you. Have all the energy you will ever need from the shales … do you know how they got figured out ….be very careful with answer. They didn’t come out of thin air!

    You should kissing our asses for figuring it out for you instead proclaiming how green you are by building an environmental nightmare dam on the Pease !

    Like

    • Blair says:

      I’m not sure what you mean by “all the dams”. If you are talking about the retention ponds, I have dealt with that issue in a previous post.

      Like

      • Gary Stewart says:

        https://blog.friendsofscience.org/2019/01/01/cher-alec-castonguay/

        Site C dam is Going environmental footprint is huge and not required…better to look at the Politics and money trail on that….questionable economics,unstable banks, expensive, foreign influence s , and will cause irreversible damages and micro climate change….talk to o the old timers about the Bennett dam.

        You have all the Gas you ever need to build scalable power plants at the fraction of f the cost and less than 1% of the environmental footprint . Dams are not GREEN energy!

        Like

      • Gary Stewart says:

        Both B.C. and Norway took there O&G regs from Alberta’s guidelines….l have worked in both . We were the best at it with our professionals without undue political dim wits.

        Sent from Yahoo Mail for iPhone

        Like

  2. Neodymigo says:

    Many of Alberta’s non-producing wells are simply shut in due to lack of present demand with the easiest to keep running left on stream. The assumption that presently “non-producing” is the same as “needing to be reclaimed” immediately is false. Reserves decline, and it’s more economically sound to bring on an old well than to drill a new one. The problem of orphaned wells is far less serious than claimed by the eco-economists….

    Liked by 1 person

    • Blair says:

      and the process has a means to allow companies to make that point to avoid being called dormant. But the assumption is held that a well that is not used for 5 years is blocking the use of land and is best returned to its former state.

      Liked by 1 person

      • Neodymigo says:

        I don’t think 5 years is long enough….there are ‘good’ wells especially in BC that would be good producers if there was a pipeline nearby…it takes more than 10 years to build out that gathering system. A 5 year plan is going to have higher economic constraints that will make it less favourable to build.

        Like

  3. Twolf says:

    Good article Blair. One thing that you may not know is that the Orphan Well Association was formed and is wholly funded by the industry itself and administered by the AER. Each producer pays a fee based on the number of non-producing wells they have. I have worked on the proper abandonment of a well drilled in 1912 and abandoned in 1918 that had been leaking natural gas into the Battle River for 90 years.
    The AER hires the services required for proper abandonment from the industry and proceeds from the worst case to best case as the work is completed. The wells with no viable owner do not cost the taxpayer as seems to be the perception.

    Like

  4. Michael Woofter says:

    Hi Blair, thank you for your thoughtful posts.

    I don’t see any reference in this post about Alberta Energy Regulator (AER) Directive 13, and the Inactive Well Compliance Program – which is very similar to the BC O&GC Dormancy and Shut Down Regulation you have discussed. This AER program along with the LLR initiative (AER Directives 1, 6 and 11) address the issues you have brought up. Further, as mentioned in another comment, Alberta has an Orphan Well program that is industry funded with the objective of dealing with the problems left behind by insolvent companies.

    Alberta’s challenge is vastly larger than BC’s, both in terms of the number of wells, wellsites, plant sites, etc and in terms of the number of companies attempting to operate in the upstream extraction business – big and small.

    As a closing comment, I have observed over many years acting within the oil and gas regulatory structures of BC and Alberta that BC’s regulatory structure mimics Alberta’s in an uncanny fashion. I heard once that creativity might be described as undetected plagiarism.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.