http://www.cbc.ca/news/business/redwater-orphan-wells-supreme-court-1.4533626
Fight over bankrupt oil company lands at Supreme Court
Who gets paid first? Creditors, or the cleanup efforts on orphaned wells?
By Tony Seskus, CBC News Posted: Feb 15, 2018 4:06 PM ET Last Updated:
Feb 15, 2018 6:08 PM ET
An Alberta legal battle over whether creditors take priority over the
cleanup of old oil wells has landed at the Supreme Court of Canada —
with seven justices now tasked with a decision that could have
implications for industry and the environment across the country.
The nation's highest court heard the contentious case on Thursday,
centred on the failure of Redwater Energy, a junior oil and gas company
that slipped into receivership in 2015 in the wake of the oil price
collapse.
Redwater's receiver wanted to sell the company's few good wells to pay
off the company's debts, but the Alberta Energy Regulator (AER) said
such proceeds should help pay to clean up after Redwater's inactive
wells as required by provincial regulations.
Two lower court rulings have sided with Redwater's receiver.
But now the Supreme Court will determine if the country's bankruptcy
laws are in conflict with Alberta's regulatory regime — and if those
federal laws are paramount to the province's environmental rules.
The AER and the Orphan Well Association (OWA), an industry-funded group
that cleans up such wells, say billions of dollars in future cleanup
costs and Alberta's right to decide how it manages its own resources are
both potentially at stake.
"It's not just an issue for the oil and gas industry in Alberta but for
all of Canada and all of the resource sectors," Lars De Pauw, executive
director of the OWA, said after Thursday's hearing.
"It's really important that regulators be able to enforce rules to
protect the public and the environment, even through the insolvency
processes. And it's important that creditors have to follow those same
rules and someone's not left holding the bag at the end of the day."
But insolvency professionals and banks have long argued they should not
be held personally liable for an energy company's activity, warning that
reversing the lower court rulings could lead to more orphan wells and
potentially decrease the amount of financing available to the oil and
gas industry.
"The bankers' association supports the 'polluter-pays' concept," lawyer
Howard Gorman, speaking for the Canadian Bankers' Association in support
of Redwater's receiver, told the court.
"'Polluter pays' doesn't mean polluter's lender pays… It means what it
says: the polluter pays."
The case has seized the attention of provinces, environmentalists and
the energy industry, each with representatives in court Thursday. They
believe the ruling could affect the state of co-operative federalism.
Saskatchewan, British Columbia and Ontario, in submissions to the court,
contend that federal bankruptcy laws do not allow a bankrupt company to
avoid its environmental remediation obligations.
James Fyfe, with Saskatchewan's attorney general, told the court that
the regulatory regime that Alberta developed — and Saskatchewan now uses
— is the product of good ideas and regulatory innovation.
"If there's any reform to [Alberta's] regime… it should be because the
province sees a better way to protect the public interest, not because
the province is having to react against the constraints of paramountcy
and the long shadow of bankruptcy law," Fyfe said.
An Alberta farmers group said when a government takes the right to use
land away from its owner — like in the case of a mineral lease — the
government should maintain its power to protect that land from harm
until it is safely returned.
"We would like to be made whole again," said Ronald Huvenaars, chairman
of the Action Surface Rights Association, following the hearing.
"It seems to me receivers want to walk away without making surface
rights whole again."
But lawyers representing receivers and the banks argue they should be
protected from being personally liable for an oil company's activity.
Submissions made on behalf of Redwater's receiver say without the lower
court's decisions, the AER would be able to impose liability on court
officers, such as receivers and bankruptcy trustees.
If that happened, they might not take on insolvent oil and gas industry
companies, which could increase the number of properties with
environmental damage left to the public purse, the Canadian Association
of Insolvency and Restructuring Professionals said.
"There will be no receiver or trustee overseeing the transition of
environmentally affected properties to the [Orphan Well Association],
and even properties that may otherwise be cleaned up and sold to…
[other] operators will be left to the OWA," the organization said in its
filings.
Ryan Zahara, one of the lawyers representing Redwater's primary lender,
ATB Financial, said at the heart of dispute is the priority of the
Bankruptcy and Insolvency Act.
"We have to have a consistent bankruptcy practice across all of the
provinces of Canada, not just Alberta," he said outside court.
"The tenets and… fundamental principles of the Bankruptcy and Insolvency
Act need to be upheld in all circumstances and can't be altered or
affected in different ways by different regulators in different provinces."
The Supreme Court's decision is expected in spring or summer.
