A closure of an oil and gas company operating in southern Alberta will have a major impact on the local economy.
The Alberta Energy Regulator (AER) issued a corporate-wide closure order against Lexin Resources Ltd. on Feb. 15, suspending all well licences, facility licences and pipeline licences held by the company and requiring Lexin to cease production.
“The AER is taking this step because of a history of non-compliance and failing to follow direction issues in multiple orders, extensive debt owed to the Alberta Energy Regulator, and insufficient staff to manage their some 1,600 sites,” said AER public affairs representative Cara Tobin.
She said the AER will be working with companies operating at working sites to secure the wells and help with shut-in, which involves implementing a production cap on the well.
Those wells not currently working will be handed over to the Orphan Well Association, which will provide care and custody to the sites and shut them in, secure them, and provide emergency incident response, she said.
“We are not ordering abandonment at this time,” said Tobin. “So while these licences do go to the Orphan Well Association, the cost associated with abandonment is not on the table at this time.”
Abandoning a well site typically includes removal of all equipment and plugging the well with cement, and any necessary environmental clean-up. The cost of routine abandonment can be as much as $5,000, she said.
The closure of Lexin sites is one more blow to Foothills residents who have been waiting to receive well payments from the company for more than a year.
Richard Miller, whose family has close to a dozen wells on its land near Blackie, said it’s been an exercise in frustration. His parents were one of the last people to receive a payment from Lexin, for a producing well, he said.
When payment stopped last year, they applied to the Surface Rights Board for payment, but some of the wells are coming into arrears again and they’ll be reapplying, he said.
“They’ve tried to streamline the process a little bit, and it has been working a little better, but it’s a pain,” said Miller.
He said the crux of the matter is landowners had no choice when their parcels were chosen as well sites, and are now owed an average of $3,500 to $4,000 per well.
There have also been maintenance issues, with weeds growing out of control on well sites, he said. Landowners are prohibited from entering the sites and taking action on their own.
He said it probably won’t be much better with the wells coming under the Orphan Well Association.
“From what I gather, they have more on their plate than they can deal with already, and this just adds to that,” said Miller.
He said beyond the money owed to landowners, the larger issue is the impact on the economy in general as landowners aren’t being paid their well fees. At $3,500 to $4,000 per well, that’s a significant amount of money staying out of people’s pockets, he said.
“For most people, that went to going out an buying corral panels at Home Hardware, or going and buying supper at one of the local restaurants with part of it,” said Miller. “That’s where the biggest problem with this is, it’s money out of our local economy.”
There are also huge implications for the MD of Foothills as it considers its 2017 budget.
Currently, the municipality is carrying $4.1 million in debt from the past two years, due to non-payment of taxes from Lexin, according to Bill Robinson, MD budget and finance officer.
“We’ve set up everything they owe us because we don’t anticipate collecting,” said Robinson. “We’re going with the worst-case scenario that we’re not going to collect anything.”
It’s putting the MD is a deficit situation for 2016, and the municipality is being forced to consider tax increases and a drop in service levels as it works through the 2017 budget, he said.
Currently, the mill rate increase for the MD is projected at 2.8 or 2.9 per cent, due solely to the debts incurred by Lexin, he said.
The issue won’t be resolved any time soon, he said. As long as annual assessments are done on the parcels, the MD will continue to incur debt on the land.
“It’s an ongoing issue,” said Robinson. “It’s not going to go away immediately. They’d have to become producing parcels again, and somebody would have to start paying the taxes on them.”
In addition to ceasing production at well sites, an environmental protection order was issued against Lexin Resources Ltd. and LR Processing for the Mazeppa Gas Plant, which was suspended in August and has been out of operation for the past six months.
“There are some outstanding issues on the site that we want to make sure are addressed so that they don’t pose an environmental or public safety risk over the long term,” said Tobin.
All of the Lexin sites could be reinstated in the future if the company brings its sites and staffing levels into compliance with AER legislation, she said.
“If you’re going to operate, you’re going to produce Alberta’s energy resources, it has to be done in compliance with our regulations,” said Tobin.