by Elizabeth Lappin, P.Geo
Elizabeth is the Geothermal Ambassador Coordinator at CanGEA, and the Founder of Castle Rock Consulting Ltd. 

In Part 1 of this series on geothermal energy, I outlined the potential of it for both the oil and gas industry and consumers.  It’s a feel-good story, that can get a lot of leverage with only a little co-operation.

But there’s also a more direct angle for the industry–geothermal heat could be marketed as a solution to the orphan well problem in Alberta.

Wells owned by defunct companies often become orphaned because there’s no cash leftover for the abandonments. According to the Redwater ruling from earlier in 2016, the bank will get paid first when an oil and gas company goes bankrupt. And that means that a bankrupt company’s well abandonment liabilities may end up with no owner – meaning they are “orphaned”.

With a current total of 1360 orphaned wells to be abandoned as of this week, there’s a growing fear that the increasing number of orphan wells could one day overwhelm the industry-funded orphan well fund.

This would leave taxpayers to pick up the tab for the P&A—Plug and Abandon—liability of wells with no owner – some of which may cost over a quarter million dollars each to remediate.

Then there’s also smaller producers in financial trouble due to LMR (Licensee Management Ratio) obligations.  The LMR is a basic ratio of assets (measured in netbacks, over a three-year rolling average) over liabilities. Anything less than a ratio of 2, and a company has to put money up to the bank in the form of bonds to protect against their growing liability.

These companies are looking to geothermal retrofits for rebranding their liability wells as assets. But not all wells are created equally, nor do they have equal geothermal potential.

The Alberta government has commissioned a “Filtering Study”, to determine which of the over 440,000 wells in the province are best suited to convert to geothermal.

CanGEA (www.cangea.ca) is doing the work, which is expected to be finished and submitted to the Alberta government in the winter of 2017. According to Alison Thompson, the chair of CanGEA, “there is no technical barrier” to these conversions.

The barrier, she explains, “is  a policy barrier. We need the Alberta government to legally define who owns the heat”.  Thompson expects that the study will ultimately “bring the materiality of the opportunity to light.”

There are several factors to consider when it comes to well suitability, including bottom-hole temperature, depth, casing size, geology, age of the wellbore, and casing integrity.

These are just a few.  Newer wells will carry less risk than decades-old wells that may require expensive wellbore repairs before conversion.

Deeper wells generally are hotter, and should yield better heat flow. Whether the bore will be producing formation fluids, or act as a single borehole heat exchanger isolated from the formation is another consideration.

Finally, who’s going to use the heat? And all of this begs the question – just how big, or small, is this geothermal opportunity in the oil patch, really?

The filtering study, if it is made public by the government, can help key stakeholders – producers, geothermal developers, community stakeholders and heat market end-users – understand both their geothermal opportunity and risk relating to geothermal retrofits.

The Deep Basin in Alberta, an area with thousands of deep, hot wells, has been the focus of ongoing geothermal research at the University of Alberta.

The study has engaged several municipalities including Grand Prairie, Hinton and Fox Creek to understand the size of the geothermal prize in thermal megawatts, and perhaps most importantly, heat markets and end-users.

Deep Basin players such as Tourmaline (TOU-TSX) and Peyto (PEY-TSX), in addition to heat-intensive industry in these areas (who pay a premium on heat distribution costs) potentially have the most to gain from a filtering study like CanGEA’s.

And there are already projects in the works. At the Leduc #1 Disovery Centre, an old water injector well is being converted into a space heating well.

The town of Hinton, nestled in the foothills, is working with Alberta-based Epoch Energy to assess potential for geothermal district heat in the municipality. Both of these projects will rely on strategic partnerships with E&P companies and oil patch service companies to make progress.

And that’s why this is buzzworthy.

With oil and gas companies, geothermal developers, regulatory bodies and stakeholders all on board together – there’s a real chance of hitting this one way out of the park.

Keith