This is the first in a two-part series on wellsite repurposing projects in the Canadian oilpatch. Part one provides background and context to the emergence of repurposing projects. Part two will look at challenges, uncertainties and what's next for such projects.
Regulatory policies, maturing basins, volatile markets and the COVID-19 pandemic are just some of the factors contributing to the increase in inactive wells in the Western Canadian Sedimentary Basin. It is estimated that there are approximately 97,000 inactive wells in Alberta and 41,000 in Saskatchewan, and these numbers are expected to rise as many participants in the oil and gas industry struggle to maintain production and operations in the current environment.
In the aftermath of the Redwater Energy decisions, and in light of the steadily increasing number of orphaned oil and gas sites, governments have been evaluating opportunities to modify their approaches to liability management and address the growing inactive well inventory. For instance, with the assistance of the federal government, all of the Western Canadian provinces have recently implemented programs aimed at facilitating the abandonment and reclamation of inactive and orphaned wells.
In addition to such wellsite cleanup programs, another approach to managing inactive wells that is gaining increased traction is repurposing of the sites. The label of "repurposing" is increasingly being used broadly to refer to activities at a wellsite which: (a) use some combination of the existing surface rights, facilities and equipment, and/or the underlying exploitation rights; and (b) involve redeploying or "upcycling" such assets either in their own right or with the addition of further assets to create a benefit (as described in more detail below).
The following are a few potential examples of repurposing projects that we have seen so far in the Canadian oilpatch:
Proponents of repurposing projects have cited a wide variety of economic benefits in pursuing the same, including the following:
In addition to the above economic benefits, repurposing projects may be considered as part and parcel of larger ESG or emission offset/reduction strategies for oil and gas and other industry participants, and may assist the site owner(s) in meeting other regulatory and stakeholder commitments.
As repurposing projects are increasingly becoming viewed by governments as ways to contribute to environmental policy goals, Alberta and Saskatchewan have both begun to adopted some formalized grant or incentive programs to encourage such developments.
Some recent examples from Alberta include:
Further support for repurposing in Alberta is expected with the Alberta government's recent announcement of the creation of an expert panel and plan to help Alberta diversify its economy and become a world leader in mineral resource production.
In Saskatchewan, the Saskatchewan Petroleum Innovation Incentive offers transferable royalty/freehold production tax credits for qualified innovation commercialization projects, including projects that have the goal of "commercializing oil and gas production byproducts or waste", which may apply at least in respect of converting wells to produce lithium and hydrogen.
Our Energy and Regulatory teams have a robust understanding of the potential upsides and challenges associated with wellsite repurposing projects. For more information on how you can evaluate potential repurposing opportunities, please contact us.