The Supreme Court of Canada says it will hear an appeal from Alberta’s energy regulator over a ruling that could allow energy companies to walk away from cleaning up abandoned oil wells. The decision could affect industrial sites across the country.

The question is whether a cleanup order from a provincial body is a legal obligation or a financial liability, says Nigel Bankes, dean of natural resources law at the University of Calgary.

“When a provincial regulator issues someone a cleanup order, under what circumstances is that just re-emphasizing an existing obligation or is it actually amounting to a provable claim in bankruptcy?” he said Thursday.

In May 2016, an Alberta Queen’s Bench judge ruled in favour of the bankruptcy trustee of Redwater Energy Corp., saying proceeds from the sale of assets from bankrupt energy companies should go first to creditors, not to cleaning up the mess from the company’s operations.

Redwater’s trustee and its lender wanted to sell off the company’s remaining producing wells to pay creditors, arguing a bankruptcy trustee is free to pick and choose from among the company’s assets and disclaim unproductive oil and gas wells.

Disclaimed wells would be abandoned and left to the Orphan Well Association, an industry-funded and government-backed group, to clean up.

An orphaned gas well on the ranch of Tony Bruder and family as been in active for 60 years. The Bruder ranch is located near Twin Butte, Alberta. Postmedia photo by David Rossiter

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An orphaned gas well near Twin Butte, Alberta.

In a split decision last April, Alberta’s Appeal Court backed the original judge, saying federal bankruptcy law takes precedence over provincial environmental rules.

Previous case law has simply asked if the liability was a debt incurred before the bankruptcy with a monetary value attached to it. If the answer was yes, the liability was considered a “provable claim” — an unsecured debt settled out of what’s left after secured creditors are paid off.

The Supreme Court agreeing to hear the case suggests it may be reconsidering that test, said Bankes.

“Should we be forcing provinces to deal with these issues in a bankruptcy context?” he asked.

“Or should we be simply saying these are the general rules for doing business in the province — you’ve known about them from day one. Your secured creditors knew …read more


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Supreme Court to decide whether companies can walk away from abandoned wells in Alberta

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