By October 20, 2017 2 Comments Read More →

Is Pengrowth dumping $63 million of well/facility cleanup liability?

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Orphaned Well Source: CBC

“Sale was to one company and we are not disclosing the buyer nor the exact proceeds.” – Pengrowth

Pengrowth Energy Corporation announced Wednesday that it has entered into an agreement to sell “matured legacy assets” from 36 properties – including  270 facilities and 1,600 wellbores – for a nominal cash consideration, ridding itself of perhaps millions of dollars of liability for clean up and reclamation.

According to a Pengrowth press release, the combined assets generate an average daily production of approximately 5,500 barrels of oil equivalent per day (Boe/d), 80 per cent weighted towards natural gas.

The unnamed purchaser assumes all “abandonment and reclamation liabilities,” according to the release.

The company refused to release details of the sale.

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“The sale was to one company and we are not disclosing the buyer nor the exact proceeds. I would direct you to the news release for details regarding the sale,” Pengrowth’s spokesperson Wassem Khalil said in an email.

The problem of abandoned and inactive wells has been a growing problem in Alberta for decades, with future cleanup costs estimated in the billions on taxpayers, and Alberta now has an estimated 83,000 inactive wells, and 69,000 abandoned wells, according to the Alberta Energy Regulator.

The average production per well was just 3.43 boe – commonly referred to as “stripper wells.” The majority of the 1,600 wells are weighted toward gas, which has seen a dramatic drop in price since 2008.

Source: Alberta Energy Regulator

According to the Orphan Well Association’s 2016-17 annual report, the non-profit organization spent an average of $35,100 per abandoned well. That cost is lower than last year, as costs have gone down due to cost efficiencies, aggressive bidding, and better planning

If Pengrowth’s buyer declared bankruptcy, the 1,600 wells could be abandoned.  At a cost of $35,100 each, the total to the OWA could be as high $56,160,000.

In 2016-17, the OWA completely decommissioned two facilities, with the sites prepared for reclamation activities, and three licensed facilities were partly decommissioned, at a total cost of $138,000 ($27,600 per facility).

If the buyer of Pengrowth’s 260 facilities became insolvent, the total cost to the OWA could be as high as $7,176,000.

Well abandonment figures do not include reclamation, which could lead to even higher costs.

According to North American Energy News calculations, the buyer of the Pengrowth assets may have assumed a possible $63 million plus of future cleanup liabilities even though it paid only a “nominal cash consideration” for 1,600 wells averaging just 3.4 boe/d weighted toward natural gas.

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Posted in: Jude on Alberta

2 Comments on "Is Pengrowth dumping $63 million of well/facility cleanup liability?"

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  1. Glen Schmidt says:

    AER has to approve the well transfers which would include the requisite deposits.In light of more recent solvency questions & AER’s court filings I would expect the party who has picked up the licences has satisfied our regulator who I would expect has set a bar to insure this does not become a problem, the letters of credit would be in the Bank. For those that know Mr. Ellis, the head of the AER, he & his team would be all over this.

    Why would someone by mature wells?, within the package maybe assets that satisfy an exploitation program at a scale Pengrowth has no interest in pursuing. Having Sold Forgan, Viking oil, was 3-5 BOPD wells, now a tight oil program, there is a logic to why some assets are sold vs. abandoned.

    • Regan Boychuk says:

      There won’t be any deposits because the buyers are almost certainly Chinese, who’ve been pouring billions into worthless companies in Alberta get money past their tight capital controls and exit visas for those managing strategic assets such oil investments. The purchased assets are beyond worthless — unless — there is no intent to live up to the reclamation obligations. Lexin was a giant flashing neon sign illustrating what you can get away with in Alberta. The buyers weren’t named to avoid embarrassing the regulator, which claims to be cracking down on this sort of money laundering. But did they stop a similar sale by the Riddell empire in May? No. Are they likely to stop this one? No. The conventional oil and gas industries in Alberta are drowning in liabilities and the whole system is teetering near collapse, which is why sellers, bankers, and regulators all welcome this money fleeing China — it keeps the sinking ship afloat a little longer. If you think it is hard to hold Albertans accountable for the mess in the oil patch, try getting money out of foreign nationals running their investments through offshore tax havens…

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