'Money for free': Critics warn proposed Alberta well cleanup plan a royalty giveaway

A pumpjack draws out oil and gas from a well head as the sun sets near Calgary, Alta., Sunday, Oct. 9, 2022. THE CANADIAN PRESS/Jeff McIntosh

EDMONTON - Critics fear Alberta's new United Conservative premier is preparing to bring in a program that would use billions of dollars in taxpayer-funded royalty breaks to subsidize energy companies to fulfil their legal duty and clean up old wells.

The so-called RStar proposal, developed by an industry group, has been criticized by legal experts, energy economists and the province's own internal analysts.

But for more than a year, Danielle Smith and newly appointed members of her cabinet have been outspoken advocates of the plan, which would enable companies to use reclamation spending to gain credits against royalty payments.

“I love it,” Smith said on a 2021 YouTube broadcast, when she was a lobbyist for the pro-business Alberta Enterprise Group. She also wrote a supportive letter that July as group president to then-energy minister Sonya Savage.

Peter Guthrie, now Smith's energy minister, has expressed his support in the legislature.

“I'm encouraging all members of this house and the community at large to support RStar,” he said in April 2021.

On Oct. 22, the day after joining cabinet, Guthrie told the Airdrie Today newspaper that RStar was one of his top priorities.

“RStar is a pilot project that incentivizes the cleanup and reclamation of wells, and in doing so, it creates a royalty credit for future drilling,” Guthrie told the outlet.

Other newly fledged cabinet ministers such as Jeremy Nixon of Seniors, Community and Social Services have also expressed support for RStar.

The Canadian Press has asked both Smith and Guthrie if they still support RStar. Neither have responded.

But critics say the idea appears to remain high on the agenda for the new Smith-run government.

“(Smith) has made it perfectly clear this is a screaming hot, flashing-neon priority for her,” said Regan Boychuk of the watchdog group The Alberta Liabilities Disclosure Project, whom Smith consulted on the program.

Under RStar, companies would earn credits for remediating old wells up to the total liability the well represents as calculated by Alberta's energy regulator. That credit would then apply against revenue earned from new production to reduce royalties or be sold to another operator.

“It's like moving more of your income into a lower tax bracket,” said Andrew Leach, a University of Alberta energy economist who has seen the proposal's details.

Proponents say the program would encourage new drilling, help clean up Alberta's 170,000 abandoned wells and create jobs doing both. In the letter written when Smith was still a lobbyist, she quotes a consultant who says $20 billion in RStar credits would create 366,000 jobs and $8.5 billion in royalties.

Critics aren't so sure.

Leach said RStar would subsidize work that almost all companies do anyway as a legal condition of their drilling licence.

“The companies that are going to be able to take advantage of this are the companies that aren't distressed,” he said.

“We're not worried about companies that have active drilling programs and are meeting their reclamation targets. They're doing exactly what they're supposed to do and (we'd be) giving them additional credits with substantial value.”

There's even less need for the program when oil prices are high, Leach said. He said it's more likely $20 billion in RStar credits would simply cost the government $5 billion in foregone royalties.

Boychuk said in addition to transferring wealth to companies that don't need it, RStar would use a taxpayer-owned resource to bail out hundreds of Alberta companies that have run their wells dry without cleaning them up.

“Danielle Smith's program would hand them money for free,” he said. “It's flabbergasting. It's sheer robbery.”

Opposition New Democrat Energy Critic Kathleen Ganley said the plan reverses the foundation of environmental law.

“It's a violation of the polluter-pay principle,” she said.

Ganley said there are no guarantees the program would create new work. Nor would it be open to scrutiny.

“There's no clear, straight line that it would start new work as opposed to work that's already underway except the public would be paying for it. And they would be paying for it in a way that's not clear to them.”

Even Alberta Energy staff have expressed doubts.

In a June 30, 2021, letter obtained by The Canadian Press, Savage wrote to the Freehold Owners Association, a group representing private owners of mineral rights.

Savage, then energy minister and now in the Environment and Protected Areas portfolio, said: “The proposal does not align with the province's royalty regime or our approach to liability management and upholding the polluter-pays principle.”

Nevertheless, said Boychuk, it may be coming Alberta's way.

“It has been (Smith's) personal priority for two years. Alberta is very close to having it rammed down its throat.”

Ganley warned that RStar could be brought in without going through the legislature - unless second thoughts prevail.

“One can only hope that being briefed on the file and having information from the department will assist them in making better decisions. Many might consider that optimistic.”

This report by The Canadian Press was first published Oct. 31, 2022.