http://business.financialpost.com/commodities/energy/alberta-to-crack-down-on-oil-executives-that-dumped-orphan-wells-on-to-taxpayers
Alberta to crack down on oil executives that dumped orphan wells on
taxpayers
More changes are expected in the coming months as the province is
conducting a review of how orphaned oil and gas wells, for which there
is no financially solvent owner, are regulated in the province
Geoffrey Morgan
December 6, 2017 4:31 PM EST
CALGARY — Alberta regulators will scrutinize oil and gas executives more
closely to try to stop a rising number of energy companies from dumping
their environmental clean-up costs on the province and its taxpayers.
The Alberta Energy Regulator announced Wednesday that it would conduct
background checks on directors and executives to see if they’ve
previously been involved with companies that have unpaid taxes, owe
money to regulators or haven’t complied with existing rules. For those
directors or executives with questionable backgrounds, the AER may
refuse to issue new oil and gas licenses in the province.
Previously, all that was needed to obtain an oil and gas license in
Alberta was a $10,000 down payment, an address within the province and a
nominal amount of insurance.
However, changes to the rules come after 12 insolvent oil and gas
companies handed off responsibility for cleaning up over 1,600
properties to the province over the last year-and-a-half, which saddled
a clean-up agency called the Orphan Well Association with over $100
million in new costs.
Bankrupt oil companies dump $100 million in clean up costs on Orphan
Well Association in under two years
“As it stands now, there is a loophole that allows directors and
officials from oil and gas companies to use bankruptcy as an excuse to
walk away from the wells that they are responsible for cleaning up,”
Alberta Energy Minister Marg McCuaig-Boyd said during a news conference.
She said the changes announced Wednesday are designed to close that
loophole and make it more difficult for companies to dump responsibility
for their unprofitable properties on the OWA in bankruptcy proceedings.
In certain cases recently, executives and directors from bankrupt oil
producers started new companies in an attempt to buy profitable assets
out of receivership but leave the unprofitable ones for provincial
agencies to remediate.
“We had seen a couple companies that are doing this,” AER president and
CEO Jim Ellis said. “We recognize that there was a gap in the directive
and we need to close it. From my perspective, operators shouldn’t profit
from bad behaviour.”
More changes are expected in the coming months as the province is
conducting a review of how orphaned oil and gas wells, for which there
is no financially solvent owner, are regulated in the province.
The AER has also taken increasingly assertive actions in recent months
in an attempt to prevent companies from walking away from clean-up costs
by implementing new rules for buying assets and intervening more
frequently in bankruptcy proceedings. Wednesday’s rule change marks
another attempt to prevent the situation from worsening.
“Details will matter but this seems like a move in the right direction.
Something that, frankly, should have always been in place,” University
of Calgary economist Blake Shaffer said of the change, adding that more
details are needed.
Shaffer recently co-authored a report for the C.D. Howe Institute that
estimated cleaning up all the unproductive oil and gas properties in
Alberta would cost $8.6 billion.
The report noted those cost risks flowing to taxpayers without policy
changes, especially given a recent court decision in Alberta that
allowed the receiver for Redwater Energy Corp. to disclaim
responsibility for its uneconomic oil and gas wells while marketing
profitable assets for sale.
That decision confirmed that Canada’s bankruptcy laws supersede
Alberta’s environmental rules, which allowed for more companies to
disclaim clean-up liabilities in bankruptcy.
“If these weak firms go bankrupt, and creditors are still kept whole
through the implications of the Redwater case, this sets up a serious
moral hazard problem. Increasing the scrutiny on who can hold or acquire
licenses helps to mitigate, somewhat, the proliferation of that type of
activity,” Shaffer said.
The AER has appealed that decision all the way to the Supreme Court of
Canada, which will hear arguments on the case in February.
In response to the decision, McCuaig-Boyd is also urging Ottawa to tweak
existing bankruptcy laws to ensure that environmental obligations are
not neglected until after debt holders are repaid. “If we don’t take
action, the inventory at the OWA will likely keep growing,” she said.
Oil and gas industry leaders welcomed the additional scrutiny on
directors. Canadian Association of Petroleum Producers vice-president
Brad Herald said at a news conference alongside Ellis and McCuaig-Boyd.
“It’s time to put an end to companies that can walk away from oil and
natural gas infrastructure without following through on their
commitments to clean up sites,” he said.