Lawyer: Alberta Ruling Leaves Oil Cleanup Responsibilities in Limbo

A recent ruling by Alberta's Court of Queen's Bench could favor creditors over environmental concerns when determining the priority placed on cleaning up abandoned oil wells, a Canadian lawyer told Bloomberg BNA.

As the province at the heart of Canada's oil production struggles with the cascading effects of low oil prices, Chief Justice Neil Wittmann ruled in Redwater Energy Corp. (Re)(Alberta Ct. of Queen's Bench, ABQB 278, 5/17/16 ) that—as a result of conflict between federal and provincial laws—the receivership trustee of an Alberta oil company is not responsible for abandonment, environmental reclamation and remediation of the wells of a company in bankruptcy.

The ruling leaves open the question of who will cleanup such abandoned and orphaned wells, Melanie Gaston, a Calgary-based partner with Canada's Osler law firm who followed the case, told Bloomberg BNA May 24.

“Who's paying? That's the question,” she said. “The energy industry isn't in a position to pay right now.”

In his ruling, Wittmann said the law regarding protection of creditors and the environment must be clarified.

The issue highlights the federal-provincial split in Canada's constitutional responsibilities, according to Gaston. “That's not easy to change,” she said.

Bankruptcy Filing

Redwater Energy is a small, publicly listed oil and gas corporation holding properties licensed under the provincial Oil and Gas Conservation Act.

Grant Thornton Ltd. was appointed receiver May 12, 2015, after the company's principal lender, Alberta Treasury Branches, demanded repayment of debt.

Under the receivership order, Grant Thornton was not liable for environmental damages.

But in its lawsuit, the Alberta Energy Regulator argued that Grant Thornton had to meet Redwater's environmental obligations under the Oil and Gas Conservation Act and provincial Pipeline Act.

The Alberta Energy Regulator and province's Orphan Well Association—a joint government effort to manage the abandonment and reclamation of upstream oil and gas orphan wells, pipelines, facilities and their associated sites—sought an order compelling Grant Thornton to clean up the Redwater wells.

But Chief Justice Wittmann ruled that Alberta Energy Regulator could not force the trustee to comply with abandonment orders and the statutory duties of a licensee in respect to abandonment, reclamation and remediation of the properties.

The Oil and Gas Conservation Act and Pipeline Act do not allow trustees to renounce licensed assets, while the Bankruptcy and Insolvency Act does, according to Wittmann.

The Alberta Energy Regulator is reviewing the decision and will provide comment once that review is complete, spokesman Ryan Bartlett told Bloomberg BNA May 24.

“In the meantime, the AER continues to assert that companies must not be allowed to walk away from their responsibility, even when facing economic uncertainty,” Bartlett said. “While we are disappointed in the court's decision, the AER will continue to protect public safety and the environment in the regulation of oil and gas development in this province.”

For More Information

The Redwater Energy Corporation Re, 2016 ABQB 278 filing is available at .