UPDATE: ON JANUARY 31, 2019 THE SUPREME COURT OF CANADA RELEASED ITS DECISION ON THE APPEAL BY THE PROVINCE OF ALBERTA ET AL. READ OUR UPDATE, REDWATER ENERGY SUPREME COURT DECIDES, PUBLISHED 9 PM ON MONDAY, FEBRUARY 4, 2019.
Redwater Energy Corp.: Introduction
By now you have no doubt read articles on the decision in the Redwater Energy Corp. (“Redwater”) case. In a 2-1 decision, the Alberta Court of Appeal has upheld the Redwater ruling of the lower Court. The lower Court decision protects, in a bankruptcy, a lender’s secured priority over provincial ecological clean-up requirements.
Redwater Energy Corp.: The Court decision heading to the Supreme Court of Canada
In their majority decision, the Alberta Court of Appeal judges discovered “no mistakes” in the Alberta Court of Queen’s Bench judgment. The May 2016 lower Court ruling was that provincial laws which are in conflict with the federal bankruptcy legislation, do not supersede the federal Bankruptcy and Insolvency Act (Canada).
The situation centred on a little energy firm which entered into receivership in 2015. It owed $5 million to ATB Financial. At the time of its bankruptcy, Redwater had some producing oil and gas wells. However, it had a lot more properties that were not so productive. The Trustee wanted to sell off the productive wells, and leave the others behind for The Orphan Well Association to deal with.
An appeal from the Alberta Court of Appeal decision will be heard by the Supreme Court of Canada. The Supreme Court of Canada will hear the case on February 15, 2018.
Redwater Energy Corp.: Federal bankruptcy trumps provincial law
The Court addressed a fundamental public policy dilemma. Which has top priority: federal government bankruptcy legislation, or provincial energy law. The Alberta Court of Appeal sided with the lower Court in deciding that the federal Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) is the law that must be looked at. The Province has no ability to force the secured creditor in a bankruptcy scenario to follow the provincial rules. The lender does not need to incur the costs of remediating the unproductive wells when realizing upon the productive assets.
Redwater Energy Corp.: The Alberta Energy Regulator reaction
In response, on December 6, 2017, Alberta introduced more stringent regulations for giving business permits to oil and gas firms. The constraints intend to hold firms responsible for deserting wells as well as disregarding ecological clean-up. Permits that are currently issued can possibly be withdrawn.
It likewise enables the Alberta Energy Regulator (AER) to do continuous reviews of licensees to aid in taking care of the threat and costs of abandoned unproductive energy assets.
The Orphan Well Association‘s supply currently consists of greater than 1,800 wells needing improvement in Alberta, claimed organization chair Brad Herald. He is also vice-president of the Canadian Association of Petroleum Producers.
What the AER is going to be taking a look at is earlier history of the corporate operator, and its Directors. So if an operator has:
- a history of previous issues; or
- has solvency issues
the regulator is going to want to take a closer look. Presumably this will also apply to the Directors of the applicant. The limitations intend to hold firms answerable for deserting wells as well as overlooking ecological clean-up.
Redwater Energy Corp.: Current status
So currently, trustees can simply ensure that unproductive wells that need cleanup are just capped, leaving the Alberta taxpayer to pay for the cleanup bill. Previously, an oil and gas well permit called for a tiny deposit, an address and insurance coverage. The AER’s position is environmental cleanup costs must be paid by the cash from the sale of the producing wells.
Mr. Herald stated there have actually been various other situations since the Redwater decision where a receiver wishes to disclaim a financially troubled owner’s responsibilities.
The AER and the Orphan Well Association are hoping that the dissenting point of view could boost their chances of success at the Supreme Court of Canada. How will corporate bankruptcies affect the oil and gas markets after more than 2 years of reduced pricing?
Redwater Energy Corp.: How to restructure before your company goes bankrupt
Is your company experiencing cash flow problems? Does your business not have enough funds to meet all of its obligations? Do you know that your company has exposure to environmental cleanup costs and just like Redwater Energy, you know it cannot afford the costs from doing phase i environmental site assessments?
If so, then you need the help of a professional trustee immediately. Call Ira Smith Trustee & Receiver Inc. If we consult with you early, we could develop a restructuring and turnaround strategy. By doing this your business will once again thrive.
Our approach for every person is to develop an outcome where Starting Over, Starting Now takes place. You’re just one telephone call away from taking the important actions to return to leading a healthy, balanced, and stress free life.
