Canada's top court overturns Redwater Energy lower court decision

An orphan well site near Carstairs, Alta., awaiting proper abandonment and reclamation. (Government of Alberta)

Energy companies cannot abandon old oil and natural gas wells in the case of bankruptcy, the Supreme Court of Canada says in a decision released Thursday.

The top court's ruling overturns two lower court decisions that said bankruptcy law has paramountcy over provincial environmental responsibilities in the case of Redwater Energy, which became insolvent in 2015. That meant energy companies could first pay back creditors before cleaning up old wells. In practical terms, that means energy companies could walk away from old oil and gas wells, leaving them someone's else's responsibility.

The top court ruled 5-2 to overturn the earlier ruling. In doing that, it said bankruptcy is not a licence to ignore environmental regulations, and there is no inherent conflict between federal bankruptcy laws and provincial 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. 

After 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 cleanup.

The OWA is funded by the energy industry.

'Concept of polluter pays is alive'

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

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

The Redwater case has been watched closely across the country. Ontario, British Columbia and Saskatchewan all intervened, supporting the Alberta Energy Regulator's position that the polluter must pay for cleanup before creditors are paid back 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.

"This is good news for landowners, taxpayers and the environment," said Keith Wilson, a lawyer who represents landowners with oil and natural gas wells on their properties. Among his clients are those with wells sitting idle on their land for decades.

"The concept of polluter pays is alive and well in Canada."



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