Photo courtesy Bob Schneider - Brad Maynes describes the city's gas well abandonment program Wednesday at city hall.

By Alex McCuaig

Abandonment program

Gas City to abandon majority of gas wells through $90 million program

Sep 11, 2019 | 5:37 PM

Medicine Hat, AB – The City of Medicine Hat will be spending $90 million over the next three years as it commences a program to abandon more than 2000 of its gas wells, officials announced on Wednesday.

Including the wells which are currently in the abandonment and reclamation process, Medicine Hat will see a nearly 90 per cent reduction in operational gas wells by the end of the abandonment program.

“We estimate right now, if we were to abandon and reclaim all of our properties it would be somewhere between $200-, $300-million dollars,” said Brad Maynes, city commissioner of energy and utilities. “This will just be the first set though. We expect, though, next year to take about $30-million dollars that we currently don’t have budgeted but have set aside in reserves. So that’s the approximate net impact next year and we expect a similar amount over the following two years of this program.”

The city also has a number of oil wells within the NGPR division portfolio.

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The move will see a substantial reduction in the amount of the city’s current gas well inventory with Maynes estimating only 450 wells will remain with approximately 2,800 being reclaimed – including 800 which are currently in the reclamation process, according to Maynes.

With the reduction in the size of the city’s natural gas portfolio comes an anticipated drop in the number of staff required in the NGPR division to manage the remaining wells.

“We don’t have absolute numbers,” said Maynes, “it will depend on where we’re able to put people in place. We’ll try and minimize that with attrition and retirement as well. But it will be significant.”

The NGPR division currently employes approximately 100 people split between field operators and office managers.

On the flip side, the abandonment program will see a number of individuals hired to do the work of reclaiming the wellsites.

“We’ll see a lot of economic activity in this area and also in our fields in Saskatchewan,” said Maynes. “That will hopefully generate some optimism and some new jobs there . . . We will supervise those sites, we’ll plan the programs, but generally we’ll bid out that work to others and hopefully stimulate that economic activity.”

The abandonment process for wells, “involves the preparation of an extensive abandonment plan and there are significant costs involved for it to be done correctly,” according to the city’s website on the subject, with the land requiring being returned to its natural state.

That process also includes looking at possible sub-surface contamination. That contamination will require to be removed to standards set out by provincial regulations.

Maynes said the city is hoping for support from the province for the abandonment program which will run from 2020 until the end of 2022.

“And we very much welcome their support and help in this. We know that we’re just one part of a very complicated puzzle. And it would be really nice to see a unified effort on this,” said Maynes.

Unlike private oil and gas operators, the cost of remediation of city-owned wells will be borne by city coffers if the wells can’t be sold to private operators. This is due to requirements under the provincial Orphan Well Fund which is only available to abandon wells from companies which have become insolvent. However, the city is not exempt from paying an annual levy to the fund.

Maynes said $150-million reserve fund has been set up by the city to deal with these environmental liabilities and he added he doesn’t expect there to be a dramatic tax increase associated with the program.

The release issued by the city on Wednesday cites the Growth Strategy launched by the Natural Gas and Petroleum Resources (NGPR) division in 2015 and its mandate to explore for new oil assets, sale of non-core assets and evaluation of alternative revenue streams. It states the program oil and gas discoveries were not found in sufficient quantities, low gas prices affected sale of natural gas assets and risks associated with production of helium were too high.

The city estimates revenue of approximately $600-million from oil and gas assets in the last four decades.

Mayor Ted Clugston was not available Wednesday for comment on the move.

The city’s Wednesday release states the program will be discussed at the next council meeting on Monday September 16 at 6:30 p.m.