Another legal battle over environmental clean-up heads to the SCC

By Yves Faguy November 9, 20179 November 2017

Another legal battle over environmental clean-up heads to the SCC


The Supreme Court of Canada has agreed to hear the expedited appeal of the Redwater decision, a ruling that would spare a hurting energy industry from cleaning up orphaned wells.

Why it’s important: 

The Alberta case will have major implications on the priority and treatment of environmental claims in bankruptcy.

Following the downturn in commodity prices over the last few years, the province has seen a spike in the number of orphaned wells – oil and gas wells that have been taken out of production and abandoned by owners gone bankrupt and without the means to pay for the cleanup.

According to a recent C.D. Howe Institute report, Alberta has roughly 155,000 inactive wells scattered across the province that have not yet been fully remediated

The crash in commodity prices of the past three years has been linked to a dramatic increase in orphans – oil and gas wells assigned to the OWA because there's no owner financially able to seal the wells, remove equipment and restore the land when their productive life ends.  The industry and eventually taxpayers in the province could find themselves on the hook for clean-up costs reaching as high as $8 billion, the report says.

Redwater Energy Corporation is a bankrupt energy company that held licences in oil and gas properties, including orphan wells.  Redwater’s trustee, Grant Thornton, has been trying to disclaim the bankrupt’s interest in those wells, and sell only the valuable assets.  In Alberta, disclaimed wells fall under the responsibility of the Alberta Energy Regulator and the Orphan Well Association, who argue that the trustee has fulfill end-of-life obligations before it can distribute proceeds to any creditors. The regulator even issued abandonment and remediation orders to the trustee, who refused to comply. Alberta’s Court of Appeal held that the trustee has the right to renounce oil and gas assets encumbered with environmental obligations.

What to expect:  Predictions are always a mug’s game.  But in 2012 the top court did rule against the government of Newfoundland and Labrador in its effort to force insolvent AbitibiBowater Inc. to pay for an environmental cleanup of one of its mills. The Alberta Court of Appeal drew heavily upon the decision, but it appears the courts are still struggling with the inherent conflicts between insolvency and environmental policy objectives.  And the provinces outside Alberta will be watching the case closely. If anything, this might be an area ripe for legislative reform.

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