The Sundre Petroleum Operator’s Group (SPOG) is encouraged by a recent Supreme Court of Canada ruling that when oil and gas companies go bankrupt, the value of any assets should first go to abandonment and reclamation costs, says executive director Tracey McCrimmon.
In a recent ruling, the Supreme Court overturned a lower court decision regarding Redwater Energy. The court found that before paying back creditors in the case of bankruptcy or insolvency, an energy company must first fulfil its environmental obligations.
In a 5-2 ruling, the court said environmental obligations must be fulfilled even in the case of bankruptcy.
“We are very much in favour of the ruling,” said McCrimmon. “What would happen without the decision is that companies that go into receivership would be able to walk away from their liabilities.
“Now when banks and receivers take over (bankrupt) companies they don’t just get to pick and chose the good stuff and then walk away from the bad stuff. They have to take the liability with it if they are going to take it over.
“They can’t just take the asset and then turn around and say the liability is on the public purse. Industry has always been committed to their responsibilities for reclamation.”
SPOG is a collection of oil and gas companies with operations in the Sundre area. It includes associate members such as Mountain View County and the Town of Sundre.
There have been very few companies in the SPOG area that have gone bankrupt over the years, she said.
The Canadian Association of Petroleum Producers (CAPP) has also come out in support of the recent Supreme Court of Canada ruling.
“The Canadian Association of Petroleum Producers is encouraged with today’s decision from the Supreme Court of Canada,” said CAPP’s Brad Herald, vice-president Western Canada operations.
“CAPP has argued on behalf of industry that when a company declares bankruptcy, the value of any assets should go to abandonment and reclamation costs first.
“The Orphan Well Association, which is funded by industry, should be a last resort and only used after all other sources of funding are exhausted. CAPP believes that this judgment restores the balance between environmental obligations and creditor interests to that which existed for many years before “
The association is continuing to examine the ruling to assess its full implication, he said.
Alberta Energy Minister Marg McCuaig-Boyd said she too is pleased with the Redwater decision.
“We’re pleased that they (court) have upheld the polluter-pay principle,” McCuaig-Boyd said. “There will be more onus on people to clean up. In the past we’ve made it easier to pay rent rather than clean up the wells.”
Meanwhile, Gordon Lambert, president and CEO of the Alberta Energy Regulator (AER), says the regulator is pleased with the Redwater decision.
“One of the Alberta Energy Regulator’s responsibilities is to protect Albertans,” Lambert said in a press release. “This duty recently took us to the highest court in Canada. The AER is steadfast in our belief that the public should not be on the hook for the closure and reclamation costs of insolvent licencees.”
The AER oversees all oil and gas development in the province.
“The AER appreciates that the courts at all levels took the time to carefully consider this important matter and in each instance issued clear, well-reasoned decisions,” he said.
“We are pleased that the Supreme Court recognized the potential massive impacts that this issue could have caused – not just for the energy sector – but for many industries across the country.
“We are now working to understand the full implications of the Supreme Court of Canada’s ruling and what it means for the AER and Albertans – we expect our review to take several weeks.
“It has been clear to us since we embarked on this journey that we must manage liability differently in order to continue protecting Albertans, our environment, and our province’s many responsible operators.”
The AER has already taken action in response to the decision, including that companies must now provide more financial information to the regulator, he said.
“Improvements made to Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals gives us more discretion on who can hold a licence and to impose additional conditions on licences,” he said.
“We are also developing a framework to assess risk using financial, behavioural, and inventory risk factors to identify which companies might be unable to meet their obligations.
“In 2018, we announced a program to encourage collaboration between companies to reduce inactive well inventory. But even with all those improvements, we know more must be done.”
The AER plans to “align our plans with the court ruling as we continue to build a new liability management framework.
“While there has been uncertainty in the energy sector as we waited for the Supreme Court decision, I am confident our regulatory system will be stronger, based on the decision and the lessons we learned through the process,” he said.
“Albertans can be certain that the AER will continue to ensure that Alberta’s energy industry is regulated in a safe, efficient, orderly, and environmentally responsible manner.”
