AER Redwater Appeal: Will the courts protect the rich, make ordinary Canadians pay for industry’s abandoned oilfield messes? Alberta Court of Appeal to decide who will pay for Redwater’s abandoned wells after bankruptcy (using the law to intentionally avoid responsibility after years of profit-taking?)

Redwater Energy Corp. — the tiny energy company whose bankruptcy made huge waves in the oilpatch — is back in the spotlight as the Alberta Energy Regulator appeals a decision made by a lower court that gave creditors priority over the cleanup of oil wells.

[Is Glenn Solomon representing AER in the Redwater appeal, the way he is in Ernst vs AER?]

• Creditors get priority over environment in Redwater Energy insolvency: judge
• Bankrupt energy firms add to Alberta’s abandoned well problems

The appeal was heard Tuesday in Calgary, with the Alberta Energy Regulator (AER) and Alberta’s Orphan Well Association (OWA) arguing that the lower court made a mistake last spring when it ruled that that federal bankruptcy law took priority over provincial environmental regulations.

To give a sense of the far-reaching implications of this appeal, Saskatchewan’s attorney general and B.C.’s Ministry of Natural Gas Development, supported the AER in the appeal. [Attorney Generals of BC, Saskatchewan, and Canada filed notice to interview in Ernst vs AER at the Supreme Court of Canada, but all three caved at the last minute in December 2015, and did not file any arguments, or present any at the hearing.]

The AER has long said that when a company applies for a well licence, it agrees to take on the costs of cleaning up the well at the end of its life and that obligation is not in conflict with bankruptcy law.

Can environmental rules and bankruptcy law work in harmony?

“The [lower] court found there was a conflict between federal insolvency law and operation of this provincial regime,” said David Bish, an insolvency lawyer with Torys.

“Essentially, the AER said the court was wrong, that there is no operational conflict such that the court had to pick one trumping the other. They seem to be suggesting that the two could exist in harmony.”

• Saskatchewan, B.C., toughen deposit requirements for cleanup of oil and gas wells
• Alberta looks at different ways of making sure companies clean up old wells

Redwater Energy was a tiny company that went into receivership in 2015, owing $5 million to ATB Financial, a financial institution owned by the province. At the time of its bankruptcy, Redwater had few producing oil and gas wells, as well as many more assets that were not producing and would need to be reclaimed.

Under provincial regulations, proceeds from the producing wells are to be used to pay for cleanup on the old wells. But ATB and Redwater’s receiver, Grant Thornton, challenged that rule.

They were looking to sell the producing wells to pay back the loan, and to leave the non-producing wells to be cleaned up by the Orphan Well Association, which is funded by industry. [And ordinary Albertans]

Alberta vs. Alberta

The lower court ruled in favour of ATB and Grant Thornton, saying that federal bankruptcy law had paramountcy over provincial regulations. That decision allowed Grant Thornton to renounce 100 of Redwater’s assets, while putting the other 20 up for sale.

The renounced assets become the responsibility of the Orphan Well Association, which is funded by industry [and the Alberta public] and already has thousands of wells and old pipeline segments to properly abandon and reclaim.

Also arguing in favour of the appeal was the Canadian Association of Petroleum Producers, which funds the OWA, and Alberta Justice. [But, Alberta Justice and CAPP were glaringly nowhere to be seen at the Ernst vs AER hearing before the Supreme Court of Canada]

Interestingly, this case pits two arms of the Alberta government against each other, since ATB Financial argued against granting an appeal, while the AER argued in favour of the appeal, with support from the provinces of B.C. and Saskatchewan, and Alberta Justice.

The Alberta Court of Appeal reserved its decision.

“It’s a significant issue,” said Bish. “There is always that prospect of a further attempt to appeal, seeking leave to appeal to the Supreme Court of Canada, so I think they will take their time.” [Will the Court of Appeal of Alberta take as long to rule as they did in Ernst vs AER? Emphasis added]

Some of the comments:

Jack Richards
The Shareholders should have to cover the costs of the cleanup.

Jack Hill
@Jack Richards

Bankruptcy is designed to protect shareholders.

Like the Lac Megentic disaster; where the railway was set up as a wholly owned subsidiary of a US corporation, who immediately declared bankruptcy to protect its shareholders. In the end; Harper quietly spent $100m Canadian tax dollars to clean up the mess and make restitution.

Kinder Morgan and Trans Mountain are set up exactly the same way for exactly the same reasons.

And Alberta wonders why no one trusts them.

Darryl McBride
I’m an Albertan. I hope the appeal wins. The ATB took the risk of lending the money and they lost. They should also loose more until the wells are cleaned up.

Joel Whitfield
@Darryl McBride

Agreed. Let’s take care of the environment first, before some company’s off-shore bank accounts.

Max Burke
@Darryl McBride Agree with you I do, the bank should eat it – no one should be able to trump the Crown. Only problem is the taxpayer is left with the crap sandwich because ATB is the taxpayer and so is the AER. So Albertans pay one way or the other in this case and the only upside is for the lawyers making a mint on the fight.

Linda Simard
Well I would say so. Oil companies are attempting to spin that they are very environmentally responsible then shirk their responsibilities to cleaning up after themselves.

Dave MacKenzie
@Henri Bianchi Too bad so sad. Tax the industry seize individual shareholders assets and pay for the well remediation. They should have put money aside from the profits they enjoyed previously.

Bea Westy
@Ellis Purdue

Not everybody is against oil but if you make a mess its your responsibility to clean it up. Why do you support corporate welfare? Why should the tax-payer be paying to clean up the industries mess? Unless you think that the oil industry should be nationalized I see no reason why the overburdened tax-payer should pay for this.

Gerry Manley
They are correct that this needs to be re-examined. As it stands now any small oil company can pump the wells dry, declare bankruptcy and walk away from the clean-up of the wells. The orphan wells have been a serious issue in Alberta. There are thousands of them and the cleanup has been slow. [Intentionally slow and enabled by the banks and AER?]

Jack Hill
More evidence of why Canadians don’t trust Albertans with the land and water.

And you serious expect us to allow pipelines and tankers through our land and water.

No. No way. No how.

Bea Westy
@Jack Hill

To be fair, many Albertan’s are against this. Especially ranchers and farmers. The shrill cries most likely originate in Beijing, China or Houston, Texas.  Having to clean up abandoned wells and spills is what Nexen and CNOOC refer to as “red tape”

Morgan Smith
Privatize the profit…use tax dollars to clean it up.

No thanks.

you made the mess …you clean it up!
or go to jail!

Dwight Williams
No one should wonder why petro-boys who make claims about the rules in place requiring companies to clean up their messes are looked upon with skepticism, and sometimes derision. There are thousands and thousands of abandoned wells and nowhere near enough money in the cleanup fund to do even a basic job of dealing with them just to make them safe to be near. Forget about real ‘cleanup’ as in fixing the environmental mess these wells have made.

In the real world this issue is not being dealt with, no matter what the chattering classes say on social media.

Now expand this to the entire tarsands and in situ area and you get some idea why people who care about the environment are worried. Justifiably so.

Richard Griffith
The land belongs to Canadians and the restore the land is a debt owed to Canadians. If there is a single well anywhere whose cleanup is unfunded then there should be a 100% tax on all oil production until the cleanup is funded. If the industry wants to come up with a more equitable solution then they can come up with it. But under no circumstances should Canadians be left with the bill for cleanup.The problem is on the industry and the industry must be made to pay if they will not come up with their own solution that guarantees the cleanup will be paid for.

Andrew Gilmour
The common good should override corporate interests.

Chris Maurier
@Andrew Gilmour ((The common good should override corporate interests.)) The common good IS Corporate interest or do you plan to retire in isolation?

Graham Greene
@ Chris Maurier

“The common good is corporate interest.”

Nope. Not in my world.

Dan Rasmussen
@ Chris Maurier
That’s called fascism. Civilized people find it disgusting.

John McLane
They invest and take the profits but when things go sideways they expect the tax payers to foot the bill. This is not just an oil industry thing but is part of our corporate mentality.
To the creditors, win some lose some. To our legal system, do what is right for a change and stop protecting the corporate crooks.

Laine Vos
Again, it brings to mind that, before, any, oil and gas project is approved, that the cost of cleanup should be calculated into the cost of the project, including every single well site.
This abomination with the mess of old, leaking well sites, etc. is unconscionable.  And then it is expected that us taxpayers are on the hook for cleanup?!  The oil and gas industry is, plain and simple, used to operating carte blanche, with impunity. Some of us Albertans are sick and tired of it.  It’s time for the industry to pay the piper.

Jack Richards
Go after the assets such homes and vehicles of those companies who declared bankruptcy. Declaring bankruptcy is too easy and tax payers should never be on the hook to clean the mess, go after the major shareholders and take their assets.

Art Lipon
The Supreme Court of Canada has stated that the polluter pays for the clean up. I do not believe that if it does go to the Supreme Court that they will reverse their decision on the polluter pays principle. ATB should never have borrowed that amount of money without more assets. Somebody made a bad judgement call.

[Emphasis added]