Brian Zinchuk is editor and owner of Pipeline Online
Sun Country Well Servicing abandoning a well northeast of Bienfait in the fall of 2022. Photo by Brian Zinchuk
REGINA – The onset of the COVID-19 global pandemic was shocking for many reasons, and to many industries. One of those initially hit hardest was oil and gas. While shutdowns affected everything from restaurants to retail stores, not many saw the price of their primary product go into negative territory, if only briefly.
Oil did, in April, 2020.
For Saskatchewan, oil, the second-largest industry after agriculture, was in serious trouble. Enormous numbers people were being laid off in almost every oilfield-related company. Activity ground to a stop, as did revenue. Calls to the federal government for support were indeed answered, with $400 million from the Government of Canada to properly abandon and clean up inactive wells and flowlines. The program came to be known as the Accelerated Site Closure Program. It was administered by the Saskatchewan Research Council.
Funding went to more than 900 unique Saskatchewan-based oil and gas service companies, supporting an estimated 2,500 jobs over the life of the program. That includes about 1,790 jobs directly in the oil and gas service sector, according to the Ministry.
Over $90 million of program funds were spent in support of Indigenous participation. Over $32 million was used for projects on reserve lands and eligible Indigenous service companies completed over $59 million in site closure work under the program.
“The program provided an opportunity for a number of First Nations and Métis businesses to continue to operate through the Covid-19 pandemic in the oil and gas sector,” Saskatchewan First Nations Natural Resource Centre of Excellence President and CEO Sheldon Wuttunee said in a release. “This means that many First Nations and Métis people were also working and the investment in reclaiming inactive sites and facilities means continued use for generations to come.”
The Accelerated Site Closure Program has now spent its last dollar, having been fully subscribed, according to Energy and Resources Minister Jim Reiter.
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It took some time to get up and running, and it only focused on one part of the industry – the services associated with well abandonments. It didn’t help drilling, for instance. But at least it was something, and it got people moving again, which was the stated purpose of this pandemic relief program.
One of the key tenants of the program was to get those service companies paid in a timely manner, within 30 days when possible, as cashflow was in a serious crunch. And that was a big deal in and industry that often doesn’t see invoices paid for 90 days, sometimes even longer. These service companies couldn’t wait that long. If it was going to take 90 days to get paid, their doors would have closed beforehand.
On April 6, Reiter said, “I think it did, because ministry folks are telling me they the words they used were that, in the vast majority of cases, payments were made within the 30 days. Now there’s always some extenuating circumstances, if there’s some issues with invoices or anything like that, but they said in the vast majority, they were paid within 30 days.”
Reiter noted it did take a while to lay out the groundwork and get the program going, “but once it did get operating, it operated very well. It was super effective. The full amount of $400 million, my understanding is it’s all going to be spent. Other provinces, that wasn’t necessarily the case. So, kudos to the SRC and the ministry folks and everybody that was involved in this.”
He added, “Usually in a program like this, not everybody’s happy, but boy, I’ll tell you, all the industry folks I’ve talked to about this have been very happy with how this was run.”
The tail end of the program, in 2022, saw COVID restrictions lifted, largely a “return to normal,” and that included oil prices. Then war in Ukraine then saw oil prices spike to levels not since since 2014. Those higher prices, plus the continuation of this program saw substantial activity for service rigs, especially, and a sharp need for workers. That was quite a change, compared to the desperation of 2020.
The program also succeeded in taking a substantial number of inactive wells off the books. Asked if any oil companies had left money on the table, and decided not to take part in the program, Reiter said, “My understanding is it was fully subscribed, as it’s wound down. I get your point. I saw on the news, where I think Alberta there were some significant dollars returned or about to be returned. That wasn’t the case here. It was fully utilized.
In all, over 8,800 inactive oil and gas wells and facilities were capped or closed under the program.
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The Minister’s office provided the following data:
Average Cost of a Well Abandonment: $25,500
- Note that the cost of a well abandonment varies significantly based on the depth of the well, the age of the well, and the substance produced (ex: oil vs. natural gas), among many other factors. This average value was calculated using program-wide data and excludes outliers that affect the overall average costs.
Average Cost of a Wellsite Restoration: $20,500 to $33,000
- Note that the cost of site restoration varies significantly based on the size of the site, the region of the province, among many other factors. This average value was calculated using program-wide well data, excludes outliers that affect the overall average costs, and is provided as a range to account for whether or not a Phase 2 site assessment was required as part of the site restoration work. This does not include remediation costs for contamination.
Average Cost of a Flowline Abandonment: $4,300
- Note that the cost of a flowline abandonment varies significantly based on the length of the segment and age of the flowline, among many other factors. This average value was calculated using program-wide flowline data, excludes outliers that affect the overall average costs, and does not attempt to differentiate between the length of a flowline segment.
Average Cost of a Facility Decommissioning: $62,500
- Note that the average cost of a facility decommissioning varies significantly based on the type of infrastructure present, among many other factors. This average value was calculated using program-wide facility data, excludes outliers that affect the overall average costs, and does not attempt to differentiate the facility type or absence of presence of certain infrastructure.
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