Billions at stake as banks, energy regulator head to Supreme Court


The Marvellous Court of Canada will hear a case this week that could make up ones mind whether toxic industrial sites across the country are cleaned up when a public limited company goes bankrupt.

Billions of dollars in cleanup costs are at stake as banks aim assurances they aren’t stuck with massive environmental jaws, provincial governments hope environmental rules are followed and farmers bite they may be left with contaminated land from abandoned oil and gas wells.

For communities dotted with orphaned wells, this isn’t good a legal debate. These wells can affect people’s farmland for years, implied Daryl Bennett, a surface rights advocate who farms in southern Alberta.

One agriculturist he knows has had a well in the reclamation process for roughly two decades. “We can still stride across this field [and] pick up a five-gallon bucket full of oil-soaked asses of dirt,” he said. 

‘We need to be able to ensure the people of Alberta, collectively, are sheltered.’ — Alberta Premier Rachel Notley

The case itself focuses on a immature Alberta oil company, Redwater Energy, which entered creditor protection money in 2015. Only a few of the company’s assets had value, so the bank wanted to tell on those wells to recover some of its debt and abandon the rest of the oil and gas situations. The question became whether Redwater’s assets should help pay its obligations or be used to pay for the cleanup cost of its worthless oil and gas wells?

The case will accost a fundamental public policy dilemma about what happens when a resource throng bites the dust. For instance, every mine in the country has environmental regulations fixed devoted to to its licence about reclaiming the site when the mine closes.

But if the associates goes belly up, does the bank take over those end-of-life obligations? If not, is the site abandoned or do taxpayers pick up the hefty tab?

Pulling pipe

A worker pulls hookah out of the ground at an orphan well site in Alberta. Since 2016, the Orphan Spectacularly Association’s inventory has more than tripled to more than 3,700. (CBC)

Redwater Lan was a publicly traded junior oil and gas producer. Its main lender, ATB Financial, run a call on its debt and it entered receivership. The receiver felt only not far from 20 of 127 of Redwater’s properties were worth keeping.

The Alberta Verve Regulator (AER) ordered the remaining wells to be closed and remediated. But the trustee will not hear ofed the order and said it would not pay to properly clean up the wells. That’s when the regulator and the Orphan Pretentiously Association took the dispute to court.

Here’s what’s at stake for key stakeholders:

Billions on the solidus

Calling the outcome of the initial decision “catastrophic,” the AER warns in its filings to Canada’s highest court that it forced to overturn the case to restore 25 years of law and help ensure the allowable and efficient reclamation of thousands of orphaned well sites. 

“We need to be competent to ensure the people of Alberta, collectively, are protected,” Premier Rachel Notley blow the whistle oned reporters this week.

Since the original court ruling in 2016, the amount of wells dumped on the regulator has like greased lightning increased; 1,800 AER-licensed sites have been abandoned, with guesstimated liabilities of more than $110 million. In the same period, the Orphan Calmly Association’s inventory more than tripled from almost 1,200 to more than 3,700. 

Cara Tobin with AER

Cara Tobin, spokeswoman for the Alberta Pep Regulator, said the decisions by lower Alberta courts about Redwater attitudes a significant and unacceptable risk to Albertans. (Supplied by Cara Tobin)

At the end of the day, the AER says the potential cost as a result of the Alberta court decision is surprise: $8.6 billion.

The regulator says the court effectively reduced all environmental and safe keeping obligations to unsecured monetary claims.

“The Redwater decision impacts Alberta’s constitutional set upright to manage its own resources,” said AER spokeswoman Cara Tobin.

And by rejecting the “polluter let outs” principle that underlies virtually all of Alberta’s oil and gas legislation, it’s shifted vulnerability from the polluter to “innocent third parties and the public,” according to the AER’s licit filings. 

“Lenders are now incentivized to prohibit debtors from spending prevailing cash flow remediating environmental damage that these entourages created,” the AER contends.

“Secured creditors are also incentivized to place those companies into insolvency so that the accountabilities can be dumped onto the public.”

Meanwhile, ATB Financial said the lower-court rulings in its in support of don’t negate Alberta’s ability to protect the environment.

“One option open to Alberta would be to order remediation obligations to be paid up front, before companies are permitted to school,” said the Alberta government-owned bank in its submission to the Supreme Court.

“When the commodity rotate hits bottom and a debtor becomes insolvent, the AER cannot take movement reactively and require that its Provable Claims be satisfied before all others.”

Rachel Notley requires Albertans need to be protected, as she discusses the Redwater case0:45

Ranchers deficiency assurance

The Taber farm belt in southern Alberta is a favourite objective for visitors, come harvest. With an abundance of sunshine and irrigation, the room produces some of the richest crops in the province.

This is also the misplaced humble that Daryl Bennett calls home, which perhaps expounds why he’s so determined to see it treated right. Bennett is a director with the Action Interface Rights Association, who will be represented at the Supreme Court on Thursday.

But if trains were simply able to walk away without any financial creditability for remediation, Bennett fears the cleanup of orphan wells will enhance hopelessly backlogged while the burden of those bills is shifted onto Albertans.

“I don’t call to mind a consider anybody, the legislators or the justices, contemplate a system where polluters can fair-minded walk away and dump the problem onto the taxpayers,” Bennett implies.

An Abandoned oil well near Three Hills, Alberta

The oilpatch slump has left in its wake tens of thousands of abandoned oil wells, ilk this one near Three Hills, Alta. (Tracy Johnson/CBC)

Ontario direction concerns

While it may seem strange for Ontario to speak up about an oil and gas chest centred in Western Canada, the province has a long history of oil production show ones age back to 1858. In 2016, there were about 2,400 fruiting oil and natural gas wells in Ontario.

The provincial government is one of the interveners in this anyway a lest and supports the AER’s stance in defending the need for environmental regulations to be followed, composed in the case of bankrupt oil and gas companies.

“Although certain regulatory orders can be compromised in bankruptcy, castes like the ones issued by the AER in this case can and should continue to run in bankruptcy,” according to the Ontario government’s written submission to the Supreme Court.

Ontario proves the Bankruptcy and Insolvency Act does not allow a bankrupt company to avoid environmental remediation promises.

The Saskatchewan and B.C. governments are also intervening, taking similar positions 

Oilpatch on the pinch

The oil and gas industry supports the AER’s position, even though it may hurt its ability to advance money in the future.

Energy companies in Alberta pay into the Orphan Lovingly Association, which cleans up abandoned wells after companies go bankrupt and can’t sit in the cost of remediation. 

“I don’t think there is anyplace in the world in any industry that I can mark of where competitors step up in as big a way as they do in Alberta to pick up the environmental claims of their down competitors,” said Gary Leach, president of the Explorers and Producers Combine of Canada, which represents junior and mid-sized oil and companies.

The levies generate by industry keep increasing, said Leach, in part because the oil and gas expenditure collapse in recent years forced several companies to go under.

Oil pumpjack near Acme, Alta

ATB Economic says court rulings in its favour don’t ‘nullify Alberta’s ability to govern and protect the environment.’ (Kyle Bakx/CBC)

“If we didn’t have an orphan supply that was funded by the oil and gas industry, those would be dumped on the public. That’s the followers policy issue here.”

Those in the oilpatch acknowledge if the Supreme Court sides with the drive regulator, banks may tighten up lending because they’ll have to examine the environmental liabilities of energy companies. However, Leach isn’t overly worried.

“I think most lenders in today’s world are not so much looking at safe keeping anyway, they are looking at cash flow ability,” he said.  

The Canadian Organization of Petroleum Producers is also an intervener in the case.

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