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Canada’s Supreme Court: Bankrupt Oil, Gas Firms Can’t Abandon Orphan Wells

Orphan Well Alberta

The Supreme Court of Canada ruled on Thursday that bankrupt oil and gas companies must first clean up their old inactive wells before selling active profitable wells to repay creditors, overturning two lower court decisions and setting a precedent for the entire Canadian energy industry.

“Bankruptcy is not a licence to ignore rules, and insolvency professionals are bound by and must comply with valid provincial laws during bankruptcy,” Chief Justice Richard Wagner wrote in the Supreme Court’s 5-2 ruling.

The Supreme Court heard the case, which stemmed from the bankruptcy of a small Canadian oil and gas company, Redwater Energy Corp, in 2015. The following creditor claims created a legal dispute over who should pay for abandoned wells and whether creditors should have priority over environmental cleanup in case of energy bankruptcies.

In the receivership proceedings that followed, the receiver, Grant Thornton, disclaimed the non-producing wells, and wanted to sell producing profitable wells to pay the creditors, leaving the non-profitable wells to the industry-funded Orphan Well Association to clean up. The Alberta Energy Regulator (AER), however, argued that it is the energy companies that must pay for abandoned wells, and receivers should sell producing wells to pay for remediation of non-producing wells.

The Supreme Court’s ruling overturns two lower court decisions that had sided with the receiver. The Supreme Court essentially said that bankrupt oil and gas firms can’t walk away from their responsibilities to clean up the old abandoned wells and leave the energy regulators or other associations to clean up their wells.

Commenting on the Supreme Court’s ruling, Keith Wilson, a lawyer representing landowners with oil and natural gas wells on their land, told CBC News: “This is good news for landowners, taxpayers and the environment.” 

“The concept of polluter pays is alive and well in Canada,” Wilson said.

According to the Orphan Well Association, as of January 28, 2019, Canada had 3,127 orphan wells for abandonment.

By Tsvetana Paraskova for Oilprice.com

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