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Supreme Court Holds Bankrupt Fossils Responsible for Cleaning Abandoned Sites

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A Supreme Court of Canada ruling that holds bankrupt fossils responsible for cleaning up their abandoned oil and gas wells will produce lasting impacts across western Canada, but may not completely address the massive environmental liabilities the companies leave behind, according to initial reporting and analysis of the decision.

The court ruling on the Redwater Energy case means companies must prioritize cleaning up their work sites over repaying their creditors if they go out of business. “Bankruptcy is not a licence to ignore rules,” wrote Chief Justice Richard Wagner.

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“Though centred in Alberta, the 5-2 decision sets a precedent across Canada, empowering provincial governments to stop defunct companies from offloading their messes onto other companies or the public,” The Star Calgary reports. “The judgment is expected to resonate across the western provinces, where the number of companies walking away from old wells has skyrocketed amid low oil prices.”

But while the decision “reinforces the growing understanding that polluters are responsible for their cleanup obligations,” said [2] Pembina Institute analyst Jodi McNeill, it “does not alleviate broader challenges posed by insolvent operations. While the Supreme Court’s decision ensures bankrupt companies’ remaining assets first go to clean up, those assets are often insufficient to cover full costs.”

McNeill added that “Canadian taxpayers are already paying billions to clean up former operations, including the Faro Mine in the Yukon, the Giant Mine in the Northwest Territories, and numerous mines in B.C.” Late last year, a senior executive with the Alberta Energy Regulator placed [3] the cost of the province’s unfunded fossil liabilities as high as C$260 billion.

“Over the last five decades Alberta’s clean up obligations have steadily grown, and now include over 80,000 inactive oil and gas wells, facilities, and pipelines as well as 1.4 trillion litres in fluid oilsands tailings,” McNeill stated. “The Government of Alberta officially estimates it will cost $57 billion to clean up these sites, though there are ongoing concerns about the accuracy of this figure. Conversely, only $1.2 billion is currently held in securities to protect the public.”

Action Surface Rights, a group that helps farmers with inactive wells on their land, expressed similar concerns about the issues left unresolved by the court decision. “The fact of the matter is that when these companies go bankrupt, they have very little resources left,” said ASR Director Daryl Bennett. “We still have a huge problem…with the energy regulator not holding companies to account, not requiring companies to post security deposits.”

Meanwhile, Nigel Bankes, chair of natural resources law at the University of Calgary, said the decision might affect fossils’ ability to obtain loans. “Creditors should be a little more risk-averse,” he told The Star Calgary. “It will have some implications in the future for how much money a company will be able to borrow.”

Alberta Energy Minister Margaret McCuaig-Boyd blamed the previous Progressive Conservative political dynasty for failing to address the problem sooner. “The vast majority of companies are responsible…they as well need to be protected from the bad actors in the system,” she said. “Working families across this province, as well as all of Canada, should not have to pay for the financial and environmental liabilities left behind when companies walk away from their obligations.”

But while the province had accelerated its cleanup schedule for orphan wells, McCuaig-Boyd wouldn’t say whether the new deadlines would be set before the provincial election this spring.

“The good players don’t want to pay for the bad actors,” she said [4]. “We’re taking the time to do this right.”

Alberta opposition leader Jason Kenney told The Star Calgary he wasn’t aware of the ruling.

With its decision, the Supreme Court overturned two lower court rulings that gave federal bankruptcy laws primacy over provincial environmental protection rules. “The case revolved around the failure of Redwater Energy, a small, Calgary-based oil and gas company that went bankrupt in 2015 amid the global oil price collapse,” The Star Calgary explains. “The dispute was between the Alberta Energy Regulator (AER) and accounting firm Grant Thornton, which is Redwater’s receiver—a bankruptcy trustee appointed to liquidate a failing business.”

When Redwater folded, it had a few wells that were productive and profitable, others that needed expensive, provincially-mandated cleanup work, and a $5-million debt to provincially-owned ATB Financial. “The receiver wanted to sell Redwater’s profitable wells to pay off the company’s debts and leave the non-producing ones to Alberta’s industry-funded Orphan Well Association (OWA), a group which handles the cleanup of sites whose owners have gone bankrupt,” The Star Calgary recalls. “Under Alberta law, the move wouldn’t be allowed — money from the sale of Redwater’s assets should be used to return the company’s well sites to a natural state, the AER argued. However, federal bankruptcy law gives priority in such cases to lenders.”

The court ultimately concluded there was no conflict between the two laws because the AER wasn’t a creditor—and federal law doesn’t allow bankruptcy trustees to walk away from a company’s environmental obligations.

While ATB had warned a decision against Grant Thornton could drive away industry investment, the AER said a decision to dismiss the appeal would load “billions of dollars in environmental costs” onto taxpayers. The Canadian Association of Petroleum Producers, one of several third-party intervenors in the case, had sided with the AER, noting that a free ride for Redwater would place an unfair financial burden on the rest of the industry.

In a release Thursday, the Orphan Well Association said [5] it was encouraged by the decision and reviewing its implications, adding that it planned to decommission more than 700 wells this fiscal year thanks to an increase in provincial funding.