Supreme Court rules energy companies cannot abandon old wells

The Supreme Court of Canada has ruled that energy companies cannot abandon their responsibility to clean up old oil and natural gas wells in the case of bankruptcy.

This overturns two lower court decisions that ruled bankruptcy law has paramountcy over provincial environmental   responsibilities in the case of Redwater Energy, which became insolvent in 2015.

The court ruled 5-2 to overturn the earlier ruling. In doing that, it said that bankruptcy is not a license to ignore environmental regulations.

Redwater Energy owned a stake in 17 producing oil and natural gas wells, as well as many more inactive wells. At the time of its insolvency, the company owed its bank, ATB Financial, just over $5 million.

When Redwater became insolvent in 2015, its bankruptcy trustee wanted to sell the firm’s valuable wells to repay debt to its bankers and walk away from the non-producing wells — leaving them to Alberta’s Orphan Well Association (OWA) to clean-up.

The OWA is funded by the energy industry.

The Alberta Energy Regulator (AER) argued that Redwater must sell the producing wells and use the funds to clean up the inactive wells.

In 2016, Alberta’s Court of Queen’s Bench ruled that creditors came first in line before environmental obligations, a decision that was upheld by the Alberta Court of Appeals.

The Redwater case has been watched closely across the country. Ontario, British Columbia and Saskatchewan all intervened in the case, supporting the Alberta Energy Regulator’s position that the polluter must pay for clean-up before creditors are paid back their loans.

Alberta has been dealing with a tsunami of orphaned oil and gas wells in the past five years. In 2014, the Orphan Well Association listed fewer than 200 wells to be reclaimed. The most recent numbers show there are 3,127 wells that need to be plugged or abandoned, and a further 1,553 sites that have been abandoned but still need to be reclaimed.