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Creditors, Not Cleanup, First Priority For Bankrupt Canadian Energy Firms

Orphan Well

A Canadian court has upheld a previous decision that, in case of bankruptcy, the creditors of an energy firm will be paid what they are owed before any money is allocated for cleanup. The Alberta Court of Appeal voted 2-1 against the appeal brought in front of it by the Orphan Well Association and its parent, the Alberta Energy Regulator, who are worried their finances will be further strained by the bankruptcy prioritization.

Orphan wells in Alberta exceeded 1,500 as of early February, but by the middle of the month they doubled to almost 3,000, when the Alberta Energy Regulator suspended the production licenses of energy firm Lexin Resources. In total, there are 82,000 inactive oil and gas wells in the province.

AER suspended all of Lexin’s oil and gas well facility and pipeline licenses, saying the private company must cease production after failing to comply with orders and demonstrating its inability to manage more than 1,600 sites.

When well owners are unable to financially handle the abandonment and decommissioning of a well, the cleanup costs fall on OWA, which is why the agency appealed the initial court decision.

Last month, the federal government in Ottawa provided Alberta with US$22.5 million (C$30 million) in financial aid in a bid to stimulate the province’s economy, which is heavily reliant on the oil industry. The provincial PM, Rachel Notley, said that most of the money will be spent on the cleanup of orphan wells.

Related: The Bullish Case For Oil Is Fading Fast

At the time, a representative of the Petroleum Services Association of Canada said that the organization had asked Ottawa for US$375 million (C$500 million) to clean up the orphan wells, as a loan, adding that the actual amount received was 10 percent of what aerospace company Bombardier received in loans from the government. “Ironically, those airplanes won’t fly without oil and gas,” he said.

By Irina Slav for Oilprice.com

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