Influence of Regulation on Oil and Gas Well Abandonment Rates in Alberta, Canada

As oil and gas wells age, they become unproductive. Proper abandonment of wells is an important process for both public safety and environmental health. However, well abandonment represents an opportunity cost to resource companies, as abandoned wells are more expensive to apply new production techniques to than unabandoned wells. In the early 1980’s, the government body overseeing the oil and gas industry in Alberta, Canada, observed a buildup in the numbers of unproductive, unabandoned wells in the province. From 1986 onward, a number of policies were implemented to attempt to reduce the potential government liability associated with these wells. This paper examines the influence of these different regulatory regimes on both the total number of oil and gas wells abandoned and the time lag between a well’s last production year and its actual abandonment year. The analysis is completed on a dataset of Alberta wells licensed between 1947-2011. The data is analyzed using an OLS regression. Dummy variables are used for the different policy regimes. While the different regimes generally increased the number of wells abandoned, some of the policies appear to have disincentived companies to abandon wells that had been inactive for long periods of time.