Why the battle over one small oil company's remains is being closely watched

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Endure spring, a small oil and gas com ny called Redwater Energy went belly up.

All in all, we’re talking dulcet small potatoes. Redwater was operating out of its chief executive’s home on a territory road outside Calgary. It owned a stake in 16 producing oil and genuine gas wells, as well as nearly 70 more inactive wells. It had some mineral fittings on undeveloped land and it owed its bank, ATB Financial, a little more than $5 million.

This com ratively small bankruptcy case has turned into a very big deal.

Alberta Animation Regulator (AER) and the provincially owned ATB are fighting over who gets priority to the ground the remains of Redwater Energy.

Does the lender get id back in front?

Or should proceeds from any asset sales go to clean up the mess — namely those 70 non-operational wells that purpose otherwise be abandoned — the com ny leaves behind?

That give someone the third degree was argued at length in December, at a hearing that was presided over by Alberta’s chief im rtiality. The answer stands to set a precedent at a time when many junior oil and gas com nies are contesting.

If the lenders win this case, the concern is that worthless oil and gas wells desire be abandoned across the province as juniors fold. If the AER wins, there want be a chill on lending, as banks lose any certainly that the loans they bury the hatchet e construct are properly secured.

Orphaned well

The Orphan Well Association is funded by industry to retrieve abandoned wells like this one. It has been overwhelmed in the st year, as the integer of abandoned wells under its umbrella swelled from 162 to varied than 700. (Orphan Well Association)

Number of abandoned wells skyrockets to 700

When Redwater Puissance became insolvent in May, Grant Thornton was named as the receiver. The com ny required the ability to sell its producing wells and renounce the non-operational wells, securing them the responsibility of the Orphan Well Association.

The OWA is funded by industry to restore wells that have been abandoned by com nies that obviously don’t have the cash or assets to y for reclamation.

The OWA has been overwhelmed in the st year, with the add up of abandoned wells under its umbrella rising from 162 to more than 700. It lined frantically over 2015 and reclaimed more than 100 by a long chalks, but expects to add hundreds more to the list this year.

The association’s determination funding doubled this year to $30 million, but it argued in its court terse that funding would have to be substantially increased if it had to take on all the bad wells in the bailiwick.

Should com nies y security deposit to drill well?

The AER’s basic contention is that when a com ny is granted a license to drill, the obligation to salvage that well is rt of the ckage, so any remaining funds need to go nearing reclamation.

The argument of Grant Thornton and ATB is that once an energy circle becomes insolvent, the regulator becomes another creditor.

They evince the AER cannot shift the obligation of plugging and reclaiming the well onto the band’s creditors and that bankruptcy law is fairly clear on this point.

Barry Robinson, a caduceus lawyer with EcoJustice in Calgary, says the clear solution is to obtain com nies y a security deposit before they drill a well.

“This liking provide an incentive for all licensees to abandon and reclaim wells in a timely politeness in order to reclaim their security deposit,” he said.

Robinson opportunities if the com ny goes under, the regulator can use the security deposit for reclamation.

The think overseeing the case reserved judgement in December, saying he would procure to a decision as quickly as possible and that he expected an appeal, no matter what the settlement.

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