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What I’m about to describe probably sounds a bit like a conspiracy theory, or at the very least something drawn from the filthiest swamps of American politics. But Alberta Premier Danielle Smith’s potential $20-billion giveaway to her province’s oil and gas industry might be the most brazen act of corporate welfare we’ve seen in a long, long time — one that’s happening right out in the open, no less. Rather than asking companies to clean up their old wells, as they’re legally obligated to, she’s proposing Albertans pay them to do it instead.

This terrible idea isn’t a new one. Before she became Jason Kenney’s replacement as United Conservative Party leader and Alberta premier, Smith was a registered lobbyist and the president of an organization called the Alberta Enterprise Group, a collection of conservative-leaning companies with deep and strong ties to the oil and gas industry. While there, she lobbied for a program called “R-Star,” which would have given oil and gas companies $20 billion worth of tax credits for cleaning up old wells, which they could use to reduce the royalties they pay or sell those credits to another company.

Even in a normal year (and what even are those, anyways?), this would be a ludicrous proposal. As University of Alberta professor and energy expert Andrew Leach noted in a CBC piece last year, “It's a free lunch. Or, more properly, a lunch paid for by Albertans. It's a wealth transfer to the oil and gas industry.”

To its credit, even Kenney’s version of the UCP understood that. In a June 30, 2021, letter The Canadian Press obtained, then-energy minister Sonya Savage wrote: “The proposal does not align with the province’s royalty regime or our approach to liability management and upholding the polluter-pays principle.”

Well, so much for that. Almost as soon as she took the reins from Kenney last fall, Smith started doing the work her former lobbyist self had recommended. She shuffled Savage out of the energy portfolio and into Environment and Parks, while her successor, Peter Guthrie, had the program written into his mandate letter. “Develop a pilot program to effectively incentivize reclamation of inactive legacy oil and natural gas sites and enable future drilling,” it reads. Notice the verb choice here: not explore, not discuss, not evaluate. No, it’s “develop.” In other words: just do it.

As to the $1.3 million Smith raised (in a very short period of time) to fund her leadership campaign? Well, thanks to Alberta’s lax election finance laws around leadership races, we only just found out who made those donations — and still don't know what they expected to get in return. But it’s not hard to imagine that some of the people who donated to it could benefit from this pilot program, never mind the full $20-billion version. “Danielle Smith is giving min. $100 million to her leadership donors - companies who don’t feel like cleaning up their old oil wells,” NDP MLA Shannon Phillips tweeted.

The program might be defensible on some level if it actually addressed the most stubborn problem here: the so-called “orphan” wells that were dumped on the public by companies that either went bankrupt or no longer exist. But as Daryl Bennett, a director with both the Action Surface Rights Association and Alberta Surface Rights Federation, told the Calgary Herald, Smith’s energy minister told his group the funds will not be used to clean up the orphan wells for which there are no owners.

Instead, according to a recent Scotiabank report, the biggest beneficiaries could include Canadian Natural Resources, Cenovus Energy, Paramount Resources and Whitecap Resources. Over just the first nine months of 2022, those four companies made a combined $16.8 billion in profit — or almost $2 billion a month. Do they sound like they’re in need of corporate welfare?

They’re hardly alone. The entire oil and gas industry just had its most profitable year ever in 2022, and 2023 is shaping up to be a pretty decent one for them as well. As Prof. Leach wrote last year, “In periods of low prices, we should worry that companies might struggle to meet reclamation obligations. R-Star does little for producers when prices are low, but offers big rewards when prices and profits are high. It's backward.”

When she was a lobbyist, Danielle Smith tried (and failed) to get the UCP to give oil companies $20 billion to clean up their own messes. Now that she's premier, it's a whole new ballgame, writes columnist @maxfawcett. #ableg

If you were trying to create the perfect example of moral hazard, you couldn’t do any better than Smith’s proposed program. And if you wanted to make it even harder for Alberta to address its growing inventory of toxic tailings ponds, for which cleanup costs could run as high as $260 billion, just show oil producers that they can get the government to throw money at them if they wait long enough.

Smith doesn’t seem to care, though, and nobody should expect her to get shamed off this path any time soon. The only people who can stop this now are Albertans when they cast their ballots in the provincial election widely expected this May. For a thus far listless Alberta NDP campaign, this is a golden opportunity to take control of the narrative — and their fortunes. Rather than fighting (and almost certainly losing) the election over who’s better at standing up to Ottawa, they can shift the debate to far more favourable ground: who’s better at standing up to Alberta’s billionaires? As this fiasco-in-waiting makes clear, it’s clearly not Danielle Smith.

Updates and corrections

| Corrections policy
February 17, 2023, 08:55 am

This story has been corrected to reflect that Elections Canada has released the list of donors who contributed to Premier Danielle Smith's leadership campaign.

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I guess we shouldn't be surprised because the whole "conservative movement" is an astroturf entity pretty much owned by Big Oil and Big everything else. Albertans need to realize they are in an abusive relationship with Big Oil. It just pretends to love them back. A friend who has dealt with Danielle Smith personally says she is not stupid but she is gullible. Sounds about right.

Danielle Smith's plan is nothing short of corporate welfare. Instead, Oil & Gas should be taken to court to force them to clean up their own wells on their dime, from their record profits. If I was an Albertian, I would be really ticked off giving them any money to clean up what they legally should be doing anyways.

I've said this many times, Danielle Smith is bat-shit crazy, there is something mentally wrong with her thinking. But then again, the entire UCP has gone off the rails.

Danielle Smith seems unwilling or unable to kick her fossil fuel habit. Unfortunately, very few in Canada even know about their 2022 windfall profits, much less understand how they have been the recipients of government assistance that would make any welfare bum blush. Keep shining the light, truth is the only disinfectant.

Excellent work. The situation in Alberta is soooo similar to what is occurring in Ontario in the development industry. The very foundations of democracy are being threatened in both Alberta and Ontario: people must stand up.

To be a bit more precise, rather than proposing Canadians pay them to do it, Smith is actually proposing Canadians pay them to probably keep on not doing it. I mean, we're talking money up front with no penalties for failing to deliver, right?

Correct that giveaways like RStar encourage O&G companies to delay clean-up and reclamation, because they can count on government to sail in and pay the bills. Companies that delay clean-up are rewarded. No reward for responsible companies that clean up on time.

However, RStar is not money up front. Clean-up and reclamation must be completed before RStar royalty credits are issued on future production. Alternatively, companies may sell the credits, but clean-up comes first.

Fawcett: "Alberta Premier Danielle Smith’s potential $20-billion giveaway to her province’s oil and gas industry might be the most brazen act of corporate welfare we’ve seen in a long, long time"

Yes, nothing like it since at least 2020.
In 2020, Alberta allocated more than $400 million from $1.7 billion in total federal funding for well cleanup.
"Half of the more than $400 million went to sites held by eight companies — including CNRL, Cenovus, Husky Oil, Imperial Oil, and Torxen."
About one quarter of Alberta's outlay went to CNRL — with "an average annual profit of $1.9 billion over the last decade."
"Despite its losses in 2020, the company's shareholder dividends were increased by 11% in March (2021)."
"$100 million in federal funding for cleanup of Alberta oil and gas wells went to sites licensed to CNRL" (The Narwhal, 2021)

Of course, that was Trudeau and Kenney, not Smith.

The oil & gas industry has been digging into taxpayers' pockets for reclamation and cleanup costs for over a decade. Now it wants our tax dollars to cut emissions.

The industry has reached into taxpayers' pockets three times since 2009 for site cleanup.
In 2009 PM Harper gave the oil industry a $30 million handout to clean up orphan wells.
In 2016, the oilfield service lobby asked for half a billion federal dollars to clean up old wells. In the end, the AB Govt issued a $235-million loan to the Orphan Well Association, with interest covered by Ottawa. So far taxpayers are on the hook for at least $30 million.
The AB Govt increased the loan by $100 million in Feb 2020.
April 2020: Trudeau's $2.45-billion aid package for oil & gas workers, including $1.72 billion to help clean up oil and gas wells, with a $200-million loan to the OWA. AB's share $1 billion.
Since 2017, the OWA has received $535 million total in govt loans. (2020)

Smith is just carrying on a noble tradition.

Fawcett: "the so-called 'orphan' wells that were dumped on the public by companies that either went bankrupt or no longer exist."

It's actually more nefarious than that. For decades, it has been common practice for large companies to dump their liabilities on small companies that could not afford to pay:
As Danielle Smith acknowledges in her July 2021 RStar letter to Energy Minister Savage:
"Meanwhile, ... the regulator permitted well financed large companies to offload significant liabilities to small companies that have become overburdened with wellsite cleanup responsibilities that exceeded their ability to pay."

From Smith's 2021 op-ed in The Herald:
Smith: "The main reason to offer a credit is most junior companies that exist today inherited their problem. They didn't create it. I visited a well site this week that was drilled by Shell in 1963. It's passed hands multiple times until most recently being transferred from Exxon-Imperial Oil to a small company called Loyal Energy. It's got a flare pit so it's going to be a nasty cleanup; it has the potential to be well in excess of a million dollars. Everyone made money on the site for 60 years: the government that approved the flare pit and the companies that owned it along the way. But a pot of money didn't travel along with the site to clean it up. In this game of musical chairs, Loyal is the one left standing when the music stops."
Smith: "Royalty credit is the solution to Alberta's legacy well problem" (Calgary Herald, Jul 09, 2021)

Obvious scam. Shell and Imperial Oil knew exactly what they were doing, and they got away with it.
Loyal Energy knew about the liability when they purchased it.

"Hustle in the oil patch: Inside a looming financial and environmental crisis" (Globe and Mail, 2018)
"In the oil patch, pliant regulators have enabled well-known companies, including Husky Energy Inc., Enerplus Corp. and others, to foist cleanup costs onto small companies that are buying up the distressed wells of those bigger players. In some cases, those smaller players are purchasing the assets even though they are unable to secure financing from major banks."
"Keith Wilson, an Edmonton-based lawyer who represents landowners in disputes with energy companies, is blunt. 'The commerce of the business is to take high-value producing wells, produce them as much as you can, and then, as soon as the economics become marginal, hand them off to someone else and include the liability within it.'
"...At least 140,367 oil and gas wells have changed hands in Western Canada since 2015, some for as little as $1.
"The sellers include big names in the oil patch, while many of the buyers are little-known companies."
"...A booming trade of unprofitable oil and gas wells in Western Canada is allowing companies to evade cleanup costs. Just a few years after the oil boom, energy companies are shedding distressed wells in Alberta, B.C. and Saskatchewan for next to nothing. And it's going virtually unchecked by regulators. Who will pay to clean it up?"
*
"Companies have been using the bankruptcy process to separate their profitable assets from their unprofitable ones, dumping the old and unwanted wells in a shell company bound for bankruptcy, which more often than not causes the wells to end up in the care of the Orphan Well Association (OWA)."
"'Blindsided': Alberta farmers fret as regulator eyes moving bankrupt company's idle oil wells to new insolvent firm" (Financial Post, Sep 22, 2021)

In bad times, the oil industry says it can't afford to clean up. In good times, the oil industry invests in more production instead.
Well cleanup is delayed indefinitely, until it can be dumped onto taxpayers.
That's the game. Ethical oil.
"Unscrupulous operators have been known to suspend wells indefinitely rather than pay to remediate and reclaim the site." (Calgary Herald, 2016)

Moral of the story for O&G companies: Don't buy assets with liabilities you can't afford to pay.
Moral of the story for Albertans: Don't give deadbeat O&G companies a nickel.

Good work Geoffrey.

The angle that everybody seems to forget, is the lack of proof that this isn't simply a cash giveaway that STILL won't get the wells cleaned up.

Is Smith planning to hand out the cash, only across the barrelhead (as it were), handing out money only for completed jobs, as they are completed, not before?

Or is the proposal to just hand out the money and hope that this time, unlike the last time (for 30 years) where they just simply didn't do it? We'd be back here, with money gone.

The stories should be about Smith's results-requirements, and proposed enforcement. When she even equivocates, or said it's not defined yet, your headline is "Will We Get Fooled Again? Smith Will Hand Out Money But Not Require Results".

This has been going on for decades. Not just in Alberta, but worldwide. Governments all over the planet spent over one trillion US dollars in subsidies for the fossil fuel industry in 2022 alone (source: Carbon Brief).

The problem is so huge that it has become nearly invisible, like looking at an elephant's hide from 10 cm.

Meanwhile, the IEA has not just warned the international community that emissions must be wound down, but that no new fossil fuel expansion efforts should be approved. We have a two-faced federal government that hands out said subsidies and carbon project approvals with one hand while concurrently enacting a carbon tax and subsidizing heat pumps and transit with the other. We have the province of Alberta that didn't just drink the corporate dole Kool Aid, but willingly got a full-emersion baptism in a gargantuan vat if it.

The only upside of Smith's 20 billion dollar slush fund for industry is that the source of the money stays contained in Alberta. For now. Let Albertans pay for the political conditions and environmental problems they created. The feds are probably going to kick in more for clean up and for economically illiterate concepts like CCUS, but the rest of Canada will not tolerate excessive public expenditures directed to the wealthiest province before lighting up the media.

The IEA also issued another idea. The low cost of renewables has made it an ideal poster child for investment, and the field has enormous room for growth in demand and thus great returns on investment. Even BP admits that peak oil demand has likely already arrived at a plateau and will see declines moving forward, despite high recent profits resulting from higher prices. Technology in renewables and batteries is moving in that direction. It must be remembered that higher fossil prices not only result in higher profits for industry, but the reverse for consumer demand. Smith and Poilievre can't blame Trudeau for consumers choosing less expensive and far cleaner energy.

The next step for the feds is to catalyze the electrification of the Canadian economy. It is possible for Ottawa to do this while largely leaving Alberta's fossil industry alone, mainly to let it adjust on its own to lower local demand for its oil and gas, though exports to the US will continue for as long as demand makes it profitable. The EU is leading the way in new renewables and a peak in carbon demand is within sight after the blatant Russian aggression in Ukraine erupted and caused a rupture in the stability of oil prices and the security of supply and had everyone looking at displacing all fossil fuels with a greater proportion of clean electricity, not just displacing Russian fossil products in the short term.

We need federal grants to provincial public grids and private power companies to double their capacity (triple where necessary). Planning now for a national (federal) smart grid would help. I love the fact that while Smith et al smoke from their ears about renewables, the Crowsnest Corridor is mushrooming with large-scale wind mills and PV arrays right under their noses, largely unsubsidized.

Smith's main contribution is that she does out in the open what Conservatives have been doing for more than 75 years.