The Orphan Well Association Annual Report 2024/2025: The Sequoia Settlement Hits the Orphan Inventory

By: Drew Yewchuk

Matter Commented On: Orphan Well Association Annual Report 2024/2025

PDF Version: The Orphan Well Association Annual Report 2024/2025: The Sequoia Settlement Hits the Orphan Inventory

On July 15, 2025 the Orphan Well Association (OWA) released their Annual Report for 2024/2025. OWA annual reports provide insight into Alberta’s orphan oil and gas site problem and the pace at which the problem is being addressed (see the ABlawgs on past OWA annual reports: 2022/2023 and 2023/2024). The OWA annual report is separate from the Alberta Energy Regulator (AER)’s annual liability management performance reports, which ABlawg covered for 2022 and 2023. This blog summarizes the current state and foreseeable future of Alberta’s current orphan oil and gas site problem.

Terminology: Assets, Debris, or Sites?

In past blogs, I used the word ‘asset’ for all oil and gas sites. I have realized the word ‘asset’ typically implies a thing that has value and therefore can create confusion about the situation. A small number of inactive oil and gas sites (sites that are not currently producing but have not been decommissioned) have value and are ‘assets’, but the majority are only liabilities – debris or debt with no value. Nearly no orphan oil and gas sites (sites with no solvent owner) have value. The word ‘asset’ can give the mistaken impression that Alberta is full of old but potentially valuable oil and gas equipment that could be reactivated: more accurately, Alberta is full of the debris from oil and gas extraction. In this blog I use the asset-or-liability neutral phrase ‘oil and gas site’.

The Basics of Orphan Oil and Gas Sites

I begin with a quick refresher on the orphan oil and gas site problem. When they no longer serve a useful purpose, oil and gas sites need to be decommissioned (which Alberta law confusingly calls ‘abandonment’) and reclaimed. Decommissioning is the permeant sealing of any borehole and removal of surface equipment, and reclamation is the removal of contamination and restoration of vegetation comparable to what existed prior to the site being used to access oil or gas. The entire process is referred to as site ‘closure’.

The orphan fund program, initially established around 1994, was intended as a safety net to prevent the Albertan taxpayer from bearing the costs of closure when an oil and gas licensee becomes insolvent or defunct. The AER sets an annual orphan fund levy for the oil and gas industry, and the money is used by the industry-controlled OWA to decommission and reclaim oil and gas sites.

From 2002 to 2020, a catastrophically poorly designed liability management system failed to require oil and gas companies to perform closure or collect financial security for closure costs, so oil and gas companies have amassed 89,000 inactive sites and 100,000 sites requiring reclamation (counting both wells and facilities) and the AER holds little security for their closure. The inventory of orphan wells and sites first shot up during a period of low gas prices in 2016 and the AER and Alberta government have been slowly restructuring the regulatory approach since 2020. For an extensive background, see my paper with Shaun Fluker and Martin Olszynski from 2023.

OWA Inventory & The End of Sequoia’s Bankruptcy Litigation

The major issue impacting the OWA in 2024/2025 was the conclusion of the long-running Sequoia litigation by a court approved settlement. 1,800 wellsites requiring decommissioning and reclamation and 565 sites requiring reclamation were passed from Sequoia’s estate to the OWA (at 2 and 4). This wave of orphans is only slightly offset by the $30 million plus interest attached to the Sequoia litigation settlement.

The wells from Sequoia’s bankruptcy sent the OWA’s inventory to record highs for wells to decommission and sites to reclaim at the end of their 2024/2025 fiscal year (at 18) and it has continued to climb. The OWA inventory of wellsites to decommission went from 3,388 in March 2025 to 3,921 in August 2025. The OWA inventory of sites requiring only reclamation went from 7,594 at the end of March 2025 to 8,122 in August 2025.

The number of wells the OWA decommissioned fell from 2023/2024 to 2024/2025 as the OWA decommissioned more complex wellsites (meaning the decommissioning was more expensive and time consuming), but the OWA anticipates reversing this trend next year as they decommission some of the simpler and cheaper sites recently added to their inventory (at 19). The number of reclamation certificates the OWA received increased from 2023/2024 to 2024/2025 (at 21).

OWA Finances and the Future of the Inventory

As of March 31, 2025, the OWA’s estimated total remaining closure cost for the orphan inventory is $1.12 billion. The estimated total remaining closure cost for the orphan inventory over the past several years shows a nasty upwards trend.

*For 2021, the estimate was given as a range from $650M to 700M.

The OWA’s major source of revenue is the $135 million orphan fund levy charged to industry, which the AER did not increase for 2024. Other sources of revenue shifted, but total OWA revenue remained relatively stable (at 13-14). The OWA has repaid half of the provincial government loans it began taking in 2018, with $160,396,000 scheduled to be repaid to the provincial government until 2031, after which the OWA is scheduled to repay their other $200,000,000 loan from the federal government from 2032-203Yh5 (at 5 and 35).

The OWA’s target closure date can be determined by extrapolating from the current orphan fund levy, the estimated total remaining cost of closure, and other OWA financial information. In 2024, the OWA’s target closure date for the orphan inventory was 2036. Although the OWA anticipated the conclusion of the Seqouia bankruptcy, the impact seems a bit higher than the OWA expected – as noted, the OWA inventory has continued growing past March 2025. The OWA also writes that it is aware of “several significant insolvencies that are expected to impact our inventories in the next year or so” (at 5). The OWA does not specify companies, but ongoing insolvency processes include Long Run Exploration Ltd. (with $476 million in deemed closure liability) Alphabow Energy Ltd. (with $264 million in estimated liability), Tallahasee Exploration Inc. (with a deemed $88 million in closure liability), and Revitalize Energy Inc. (with $16 million in deemed closure liability). These insolvencies mean that the OWA total remaining closure liability is likely going to continue to grow. If the annual orphan fund levy remains at its current level, even the previous closure target of 2036 no longer seems realistic.

Minor OWA Activities and Changes

The annual report also describes an administrative change allowing the AER to send wells with active working interest participants to the OWA inventory (at 11-12) – this is an administrative change without any clear negative impacts, since the OWA was already closing sites with active working interest participants, but it does make the statistics of the orphan inventory more complicated, as there will be more fractional orphans, where the orphan fund levy will only pay a fraction of closure costs and the solvent working interest participant remains financially responsible for their fractional share (at 11-12).

The annual report also provides an update on the OWA work reclaiming former wellsites in the habitat of the endangered Greater Sage Grouse and the Greater Short-Horned Lizards, a species of special concern (at 9-10).

Conclusion

The OWA annual report for 2024/2025 is bad news, but mostly the bad news was expected. The orphan inventory continues to grow, and it will likely continue to grow for the next few years. ABlawg posts since 2022 have provided evidence the orphan fund levy is being set improperly low by the AER. Based on the OWA Annual Report for 2024/2025, the orphan fund levy is being set at a rate that will see the orphan problem drag on into the late 2030’s.

As the OWA puts it: “The goal of the Orphan Fund Levy is to provide funding to the OWA so it can ensure public safety and manage the overall inventory at an acceptable pace. The levy is established by the AER and approved by the Government of Alberta.” (at 13) The question for Albertans is whether a record high orphan inventory in 2025, nine years after the 2016 gas price crash, indicates an ‘acceptable pace’. Some Albertans do not consider this an ‘acceptable pace’ – a landowner group has already filed a regulatory appeal with the AER against the amount of the last orphan levy. The ominous change on the horizon is the ‘Mature Asset Strategy’, which threatens to provide new public subsidies for unprofitable shallow gas production and has been forcefully criticized by the rural municipalities. The ‘Mature Asset Strategy’ will be critiqued in a forthcoming post on ABlawg.

This post may be cited as: Drew Yewchuk, “The Orphan Well Association Annual Report 2024/2025: The Sequoia Settlement Hits the Orphan Inventory” (18 August 2025), online: ABlawg, http://ablawg.ca/wp-content/uploads/2025/08/ Blog_DY_OrphanWells.pdf

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