Proposed AB strategy could put taxpayers at risk for abandoned oil well cleanup

Critics warn that taxpayers and local communities could be on the hook for cleaning up a growing inventory of abandoned oil wells and fossil fuel infrastructure in Alberta under a new “mature assets” strategy proposed by industry veteran David Yager.

The report, published in April, reflects a well-known pattern the industry has used for decades to avoid responsibility for clean-up costs.

Yager’s report acknowledges the scale of the problem: the province houses more than 270,000 wellbores that are barely profitable, inactive, or decommissioned—with reclamation not yet complete. In addition, about half of the 38,000 production facilities built by the industry are inactive or decommissioned, but not reclaimed. And about 40 per cent of the 440,000 kilometres of pipelines criss-crossing the province are decommissioned or not operating.

This aging infrastructure hasn’t been properly cleaned up and poses environmental and financial risks—yet industry players have so far largely avoided the full cost of closure. Yager’s advice, now being reviewed by the province, on how to deal with these “mature assets” align with industry interests: extract more value from old wells and extend their life, speed up reclamation by adopting “flexible regulatory frameworks,” breathe “new life” into a challenged sector with higher gas prices that reflect well closure costs, and introduce asset insurance that could be managed by the province.

Some of these strategies are part of a well-documented “playbook” used by oil and gas producers in the Permian Basin, reported ProPublica in December.

Oil and gas producers—having received generous government subsidies and tax breaks to pump oil profitably—sidestep their cleanup obligations through asset transfers and legal loopholes.

As oil companies operating in Canada post record earnings, Yager writes this “apparent profitability” is a cause of growing public concern over the pace of well closures. His own picture of the oil industry is bleak—it is beleaguered by a growing inventory of failing assets, collapsing gas prices, limited access to capital, increasing costs from carbon taxes, and regulatory complexity.

He also blames public investment in low-carbon energy and “widespread belief that oil and gas resources are an existential environmental threat.”

“These challenges forced many companies into bankruptcy or financial distress, prompting cost-saving measures, including non-payment of surface leases and municipal taxes,” Yager writes.

Municipalities Raise Alarm on Unpaid Taxes

One of the industry’s cost-saving measures—its tax delinquency—could lead to insolvency for some municipalities, warn advocates. It has forced some local governments in Alberta to cut staff and suspend critical infrastructure repairs.

Yager calls for more communication, engagement and consultation to solve the problem. He also suggests municipalities must get real. “Municipalities must balance financial sustainability with the realities of resource maturity, while producers face mounting fixed costs,” he writes.

After Yager’s document. was released, the Rural Municipalities of Alberta (RMA) released data showing that at least $253.9 million of municipal property taxes have gone unpaid by oil and gas companies. The RMA also announced it will co-lead a new working group with the provincial energy ministry.

“We are not happy with any of the recommendations and we will be pushing back with solutions,” RMA President Kara Westerlund said in an interview posted online.

Westerlund said her municipality—Brazeau County in central Alberta—was owed over a million dollars.

“Some municipalities are just trying to keep the lights on right now and employ the handful of people that they have left,” she said. “I’ve got a municipality up in the north that’s owed 34 per cent of their revenue from one company’s unpaid taxes.”

These details are barely mentioned in Yager’s strategy document, even though municipal representatives were engaged in three of the six working groups. “Unpaid obligations have led municipalities and landowners to demand well closures and land reclamation,” wrote Yager. “However, financially distressed companies often cannot retire mature assets, exacerbating tensions.”

He blamed an “outdated property assessment model that fails to account for declining asset and production values, leading to inequitable tax burdens on mature assets.”

Westerlund said in a statement that property taxes were “a huge point of contention” during the mature assets engagement. “In a process dealing with assets obviously impacted by low commodity prices, production declines, and massive regulatory gaps related to asset transfers, the obsession with property taxes made little sense.”

“It seems like organizers saw taxes as an easy way to cut costs on mature assets, and it took tremendous time and effort to constantly counter this assumption.”

Critics Point to Industry Bias

Yager’s report was produced after three months of engagement with six different working groups in late 2024. It triggered concern that the mature assets review process itself was flawed—and skewed toward deregulating the cleanup process.

In a letter to members, Alberta Surface Rights Federation President William Heidecker wrote [pdf] that the process involved “limited stakeholder engagement, isolated working groups, undisclosed stakeholder recommendations, lack of group discussion on these recommendations, and the use of anecdotal evidence and folksy stories to raise doubts regarding various regulations and requirements.”

“The concerns raised in the media are valid and we have many additional concerns as well,” wrote Heidecker. “Broadly speaking, for landowners the few positive recommendations in this report are dwarfed by the negative impact of recommendations to loosen regulations on industry and reduce their liabilities which can only be at the expense of landowners and taxpayers.”

Yager’s 21 recommendations include a call for seven working groups, three new partnerships or collaborations, and new legislation at the provincial level. He also suggested working with the federal government on legislative changes.

The Energy Mix reached out to the energy ministry for an update on progress but did not receive a reply by deadline.

Westerlund said that “voices were missing at the table” during an engagement phase that was “heavily industry-led.” About 70 per cent of the participants in the engagement came from exploration and production, oilfield services, power generation, or technical/engineering fields.

‘Everything’s Being Cooked’

Another step in the playbook outlined by ProPublica involves creating a “firewall” between companies and their cleanup liabilities. This is accomplished in a number of ways, including by setting up various numbered shell companies.

Yager doesn’t directly address this problem, despite a high-profile court case in Alberta just last year. Perpetual Energy created a company it called “Rubellite Energy” after selling its inactive oil and gas assets to a smaller company, Sequoia Resources, which went bankrupt, CBC News reported at the time. The bankruptcy trustee sued Perpetual, saying the creation of the new company was a deliberate move to protect it from creditors.

The courts disagreed and a $30 million settlement was eventually reached. Perpetual paid that amount to the Alberta Orphan Well Association (AOWA)—a non-profit funded by the oil industry that has also received millions in loans from the provincial and federal governments to clean up spent oil wells that have been abandoned by their bankrupt owners. CBC wrote that following the court decision, Perpetual and Rubellite merged back together. Meanwhile, the AOWA inherited thousands of wells and a clean-up cost of about $200 million from Sequoia, almost doubling its inventory.

Yager recommends having liabilities remain with the wellsite—which could give prospective purchasers, like Sequoia, more transparency about what they might be getting into.

He also calls for the creation of a new fund for clean-up costs and two new entities to recover as much of the remaining resource as possible from each site. Any revenue generated would fund the environmental clean-up.

Phillip Meintzer with the Coalition for Responsible Energy told The Mix that the language in Yager’s strategy is vague, making it unclear who should be paying for what.

“It feels like everything’s being cooked in a way that’s letting companies off the hook.”

In a written statement emailed to media, the coalition of environmental, Indigenous, scientific, public health, and civil society organizations questioned the two new entities Yager proposed in his report, dubbed HarvestCo. and ClosureCo. They said the plan could put taxpayers at risk for cleanup costs that companies are obligated to pay.

Martin Olyszynki, chair in energy, resources and sustainability at the University of Calgary’s faculty of law, told the Globe and Mail back in March that “any plan that does not involve individual companies or their industry paying for well abandonment and reclamation amounts to a form of public support.”

Alberta Energy Minister Brian Jean told reporters at that time that “we will not put public tax dollars into cleaning up wells,” CBC reported.

ProPublica noted that as oil and gas production slows, companies sometimes sell off their low-producing wells to smaller businesses known as “scavenger companies.” In turn, as their profits slow, the wells are sold again to even smaller companies with less financial capacity for maintenance or environmental clean-up.

Yager referred to this in his report as “the historic ownership cycle of wells and fields,” describing it as a three-step process.

Delaying Closure

ProPublica wrote that once companies idle their wells and walk away, regulators are left to ensure that the dregs are extracted—in the event that fuel prices surge and the effort becomes profitable. The result is that wells sit around unplugged, with the industry pitching  “grand plans” about repurposing them for ideas like bitcoin mining, carbon sequestration, or hydrogen fuel synthesis—all of which require open wells.

Seven of Yager’s 21 recommendations involve ideas like the adoption of enhanced oil recovery technology, new collaborations on innovation, “increasing production through new technologies,” “repurposing infrastructure,” and “small-scale electricity generation.”

These plans would keep wellsites from being closed or transferred to the industry-funded orphan well association.

When all other steps have been exhausted, ProPublica says companies claim that any fines by regulators or extra costs for clean-up could force their business into bankruptcy, “leaving your unplugged wells as orphans and taxpayers on the hook.”

Westerlund told the Edmonton Journal there are clear indications when a company is becoming insolvent, such as not paying vendors. She added that legislation could be introduced to catch companies before they get to that point and hold them accountable.

“The majority of oil and gas companies that operate in this province are very conscientious of their communities,” Westerlund said. “We’re dealing with kind of an offshoot of an industry that with some strong legislation and regulations, through the Alberta Energy Regulator, we can certainly fix this issue.”