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Brandon Blog Post

REDWATER ALBERTA NEWS: $1.7B TO CLEAN UP ORPHANED WELLS DUE TO COVID-19

redwater albertaThe Ira Smith Team is absolutely operational and both Ira, as well as Brandon Smith, are right here for a telephone appointment, conference calls and also virtual meetings.

Stay healthy and safe everybody.

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom of this page and click on the podcast

Introduction

When it went insolvent in 2015, Redwater Energy Corp. (Redwater Alberta or Redwater) might have been a small business, with only 19 generating wells and 90 dormant wells. However, a relatively small oil producer was responsible for a huge Supreme Court of Canada (SCC) decision.

Basically, the SCC decided in the Redwater Acase, that if a business goes belly up, its environmental obligation needs to be paid before secured creditors. I have written before on the Alberta Courts’ decisions and the SCC decision. As a result of COVID-19, the Canadian government just announced a $1.7 billion fund to create jobs in the Canadian oil patch.

Redwater Alberta history of cases

In my previous blogs, I described the Alberta court decisions. The Alberta Courts concurred with the receiver and held that the regulator’s enforcement activities to force Redwater’s adherence to its previously agreed requirements to clean up and permanently cap its oil site, in bankruptcy was not enforceable.

The Courts stated that given the bankruptcy of the company (in addition to a receivership), the Bankruptcy and Insolvency Act (Canada) (BIA) took paramountcy over the provincial law. The provincial Courts said that the BIA took paramountcy because:

  1. Allowed the receiver protection from the promises of Redwater Alberta as the licensee in connection with the Redwater properties disclaimed by the receiver/trustee, according to s. 14.06(4) of the BIA.
  2. The priority for the distribution of a bankrupt’s assets is regulated under the BIA, not provincial legislation. If the provable claim of the Regulator, an unsecured creditor, was paid in advance of the claims of Redwater’s secured creditors, that would not be the regime laid out in the BIA.

The SCC decision

In the SCC 5 to 2 judgment in the Orphan Well Association v. Grant Thornton Ltd. case, the SCC ruled that financially troubled companies like Redwater can no longer disclaim or merely bow out of properties they don’t want. In this situation, non-producing oil wells, when abandoned or orphaned, leave the resulting ecological cleaning to Alberta’s Orphan Well Association. It is a non-profit operating for the Alberta Energy Regulator.

What the SCC decision in the case of the Redwater Alberta receivership means is that the costs of properly and permanently sealing an oil well that is to be abandoned is a first ranking charge against the producer’s assets. In the Redwater case, the receiver had to turn over the proceeds (about $600,000) from the asset sales to the Alberta regulator. There was absolutely nothing left for any other creditor, either secured or unsecured.

This case was obviously difficult and contentious, given that it was a 5-2 decision and not unanimous. The majority decision stated that:

  • The regulator’s use of its provincial powers is not in conflict with the BIA to trigger the doctrine of federal paramountcy.
  • Section 14.06(4) of the BIA deals with the personal liability of receivers and trustees and does not let a trustee ignore the environmental liabilities of the estate.
  • The regulator is not asserting any claims provable in the bankruptcy.
  • There is no attempt by the regulator to upset the scheme of priorities stipulated by the BIA.
  • There is not a conflict by the regulator tagging the Redwater receiver as a licensee under Alberta legislation.

The Supreme Court decision goes on to say that the rules cannot be ignored just because there is a bankruptcy. Insolvency professionals must abide by valid provincial laws in administering corporate bankruptcy. It also found that receivers and trustees must:

  • conform with non-financial requirements the insolvent company must still adhere to that do not create a provable claim in the insolvency administration; and
  • Adhere to the parts of the provincial legislation that does not go against the BIA, notwithstanding that it might prove harmful to the position of one or more groups of creditors.

COVID-19 and orphaned wells

Near the end of March 2020, Finance Minister Bill Morneau said that help for the oil and gas industry would be announced. This industry has been hit by two different factors:

  1. Reduced demand due to people self-quarantining because of COVID-19 and therefore there is less demand for oil and gas.
  2. The price battle between Russia and Saudi Arabia. Oil on the world market is at an all-time low. At one point, a barrel of Canadian oil was selling for less than $5. The industry cannot operate with oil prices that low.

As a result, there have been massive job losses in British Columbia, Saskatchewan and Alberta oil patches. As well, the regulators do not have the money to reclaim and permanently seal off the abandoned orphaned wells. It is currently estimated that the total cost could be in the $8 billion range.

On Friday, April 17, Prime Minister Justin Trudeau announced that the federal government will invest at least $1.7 billion to the orphaned well cleanup. The money is to be used to create oil patch jobs to allow for the environmental cleanup.

So COVID-19 or coronavirus, has forced the Canadian government to create this support for the Canadian oil and gas industry. It will create jobs badly needed and allow for the cleanup of some orphaned oil wells.

Details of the support package have not been released. Presumably, the legislation will have to be drafted and passed in the House of Commons. No doubt, more information will come out in the coming days or weeks.

Summary

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We are all citizens of Canada and we need to coordinate our initiatives to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly use clean, safe and secure routines in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses.

If anyone needs our assistance, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

Are you now worried just how you or your business are going to survive? Those concerns are obviously on your mind. This pandemic situation has made everyone scared.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

The Ira Smith Team is absolutely operational and both Ira, as well as Brandon Smith, are right here for a telephone appointment, conference calls and also virtual meetings.

Stay healthy and safe everybody.

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Brandon Blog Post

BANKRUPTCY CANADA NEW EVENTS (2019)

Introduction

There has been two recent bankruptcy Canada new events that I believe are important to discuss. I believe you will hear more about it over the next few months. The two are unrelated.

One deals with the insolvency of oil and gas companies. The other with the rights of retired people and their company pensions and health benefits when their former employer goes into insolvency proceedings.

Bankruptcy Canada – The Redwater decision fallout

I have previously written about the Supreme Court of Canada decision in the Redwater Energy Corporation matter. On January 31, 2019, the top Federal Court released its decision in the case of Orphan Well Association v. Grant Thornton Ltd. The Supreme Court reversed 2 Alberta lower Court decisions. It is now the law of the land that, prior to lenders or creditors getting any type of repayment, the receiver or trustee will need to invest the funds from the sale of assets on the environmental remediation costs on all orphaned wells, that provincial legislation may need.

The decision made it clear that the receiver or trustee does not need to spend cash it does not have from the sale of assets or other recoveries. However, whatever amount it recoups from the sale of assets, on a net basis, will initially need to go to provincially mandated clean-up costs of the financially troubled company’s wells. This is before secured or unsecured creditors see a penny.

Trident Exploration Corp.

Now for the fallout. Natural gas producer Trident Exploration Corp. (Trident) ceased operations on April 30, 2019. On May 3 on application to the Court by the Alberta Energy Regulator’s Orphan Well Association, Trident was placed in receivership.

Its staff and contractors have been terminated and its 3,600+ wells are being transitioned to the Alberta regulator.

The company claimed it had functioned openly and collaboratively with its lenders and the regulator since February. It further reported that it was unable to see that a successful restructuring could be accomplished in a timely fashion. Therefore, Trident’s lender stopped supporting the business. Due to this, Trident does not have the funds to run its infrastructure or enter into insolvency proceedings. Consequently, they have determined to walk away, leaving greater than 3,600 sites, a number of them active, without an operator.

The regulator then issued its order for the sites to be properly decommissioned and capped off. On April 30, Trident, without replying to the regulator’s order or addressing their environmental obligations, the Directors ceased operations, terminated its staff and contractors. The Board then resigned. Trident’s wells will soon be transferred to the Orphan Well Association.

The Redwater effect

Trident blamed the recent Redwater Supreme Court decision which ruled that capping of orphan oil and gas wells and environmental remediation should take priority over lenders when a business goes bankrupt and leaves behind orphan wells.

Trident also said that the Redwater decision, regulatory uncertainty and current low pricing has developed a treacherous setting for energy companies that dare to risk their capital in Canada.

Trident estimates that its total abandonment and improvement obligations are about $329 million. They estimate that with those costs, any recovery by secured lenders is unsure and there would be no funds for either unsecured creditors or shareholders.

The Redwater effect is that the Court’s decision has had the unintended result of increasing Trident’s financial distress and accelerating the abandonment of its wells, has it had no funds to live up to its obligations.

Only time will tell if other insolvent energy producers take the route of Trident by just shutting down and abandoning its business and leaving its wells for the regulator to deal with.

Bankruptcy Canada – Retiree pension and health benefit rights protection in insolvency proceedings

Another topic I have previously written about is the lack of protection for retirees for pension and health benefit payments when the former employer enters insolvency proceedings. Rank-and-file members of the United Steelworkers (USW) from across Canada were on Parliament Hill to consult with MPs and requesting a commitment to legislate protection for retired workers. The USW very much want to make this a 2019 federal election issue.

The 2019 federal budget plan was very quiet on any type of commitment to shield workers and retirees by treating them as protected or priority creditors in our insolvency laws.

As a result of high-profile cases such as Nortel in Ottawa, Stelco in Hamilton and Sears, the USW is committed to campaigning for retirees to have a safe future.

Retirees understand just how unsecure their pension plans and benefits might be if a firm gets into restructuring under the Companies’ Creditors Arrangement Act (CCAA) or any proceeding under the Bankruptcy and Insolvency Act (Canada) (BIA).

Pensions are delayed earnings and, by the time financial institutions as well as various other creditors are paid, there is nothing left for workers for any shortfall or benefit payments. The USW feels that all Canadians ought to be outraged by the treatment of retired Canadians in corporate insolvency matters.

This is why they met with MPs Senators. They want to focus on a collection of recent Bills presently before the House of Commons and the Senate. Two are before the House of Commons but they have not progressed. One is sponsored by the New Democratic Party, and the other by the Bloc Québecois. They are focused on reforming the CCAA and the BIA to offer top priority to claims by workers arising out of an underfunded pension plan and the removal of benefits.

An additional Bill, presented in the Senate late last year by now-retired Senator Art Eggleton, likewise aims to grant secured standing for pension claims.

It will be interesting to see if the Conservative Party picks up on this important debate and turns it into an election issue. The Liberal Party had promised to deal with this issue in the last four years, but alas, they have not delivered.

Bankruptcy Canada – Summary

Corporations that cannot afford to properly shut down their business and retirees losing out on benefits they worked their whole life for are important issues in insolvency. Does your company not have enough cash to continue its operations? Did you not receive all amounts you are entitled to and now are facing personal financial problems?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people and companies trying to find financial restructuring or a financial debt negotiation strategy. As a licensed insolvency trustee, we are the only professionals licensed, recognized and supervised by the federal government to supply insolvency advice and carry out strategies to aid you to stay clear of personal bankruptcy.

Call the Ira Smith Team today so you can cut the stress, anxiousness and pain from your life that your financial issues have caused. With the special roadmap, we establish just for you, we will immediately return you right into a healthy and hassle-free life.

You can have a no-cost analysis so we can help you fix your debt troubles. Call the Ira Smith Team today. This will most certainly allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

 

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Brandon Blog Post

REDWATER ENERGY SUPREME COURT DECIDES

redwater energy supreme court

If you would prefer to listen to the audio version of this Redwater Energy Supreme Court Brandon’s Blog, please scroll to the bottom for the podcast.

Redwater Energy Supreme Court decision: Introduction

On January 31, 2019, the Redwater Energy Supreme Court decision was released. The 5-2 decision, in this case, Orphan Well Association v. Grant Thornton Ltd. overturned two Alberta lower Court decisions. It is now the law of the land that, before creditors receive any money, the receiver or trustee will have to spend the funds in its possession on reclamation or other environmental costs that provincial law may need.

The decision also made it clear that the receiver or trustee does not have to spend money it does not have. However, whatever money it recovers from the sale of assets, on a net basis, will first have to go to provincially mandated cleanup costs of the insolvent company’s property, before secured or unsecured creditors see a penny.

Redwater Energy Supreme Court decision: What the decision means

In my opinion, this is an important decision. Where provincial laws require companies to spend money to take certain steps when the business ceases, the assets of the company will be available to pay such costs.

Any company which is either a provincially regulated industry, or where provincial laws such as environmental laws have a real impact, will be affected. A Province will be able to insist that when a company ceases operating or is in receivership or bankruptcy, the company and its receiver or trustee, must use up to the full net realization from the sale of assets, to do what the provincial law requires, such as remediation of the real property.

This will no doubt affect how lenders view the value of their security and how much to lend to such companies. Property owners have now also been afforded some measure of protection against a commercial or industrial tenant’s activities and environmental transgressions.

Redwater Energy Supreme Court decision: Background

In my January 10, 2018 blog, REDWATER ENERGY CORP. – SUPREME COURT OF CANADA TO DECIDE WHO PAYS THE ENVIRONMENTAL CLEANUP COSTS OF THE BANKRUPTCY COMPANY, I described the 2-1 Alberta Court of Appeal decision upholding the Redwater ruling of the lower Court. The lower Court decision protected, in a bankruptcy, a lender’s secured priority over provincial ecological clean-up requirements.

Redwater Energy Supreme Court decision: The provincial environmental legislation

To work oil and gas sources in Alberta, a business requires a property interest in the oil or gas (commonly, a mineral lease with the Crown), rights and a licence issued by the Alberta Energy Regulator (Regulator). Under provincial regulation, the Regulator will certainly not provide a permit to remove, process or transport oil and gas in Alberta unless the licensee takes on end-of-life duties for plugging and capping oil wells to avoid leakages, taking apart surface area frameworks as well as restoring the surface area to its previous condition. These end-of-life responsibilities are called “abandonment” and “reclamation”.

The Licensee Liability Rating Program is one way the Regulator looks to guarantee the end-of-life commitments required of licensees. As a component of this program, the Regulator provides each business a Liability Management Rating (LMR), which is the proportion between the accumulated value assigned by the Regulator to a company’s assets under license and the accumulated liabilities determined by the Regulator to the last expense of abandoning and reclaiming those properties.

For determining the LMR, all the permits held by a business are dealt with as a bundle. A licensee’s LMR is determined monthly. Where it dips below the required ratio, the licensee is called upon to top up its LMR back up to the recommended level by paying a security deposit, executing the end-of-life responsibilities, or transferring permits with the Regulator’s authorization. If either the transferor or the transferee would have an LMR below 1.0 after such transfer, the Regulator will typically decline to authorize the permit transfer.

Redwater Energy Supreme Court decision: The insolvency of an oil and gas company

The insolvency of oil and gas firm licensed for operation in Alberta involves Alberta’s detailed licensing regime, which is binding on firms operating in the oil and gas market. The Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), is the federal government’s statute that controls the management of an insolvent’s estate and the organized and fair dealing of the insolvent’s property for the benefit of the unsecured creditors.

Alberta’s Environmental Protection and Enhancement Act (EPEA) makes certain that a licensee’s regulatory responsibilities will remain to be satisfied when it goes through bankruptcy by including the trustee of a licensee in the interpretation of the term “operator” for the goals of the obligation to reclaim and by ensuring that an order to execute reclamation work can be provided to a trustee.

Nevertheless, it specifically restricts a trustee’s responsibility about such an order to the value of the assets in the insolvent estate, other than for gross negligence or willful misconduct.

The Oil and Gas Conservation Act (OGCA) and the Pipeline Act take a more common method: they merely include trustees in the meaning of “licensee”. Therefore, every power which these Acts offer the Regulator versus a licensee can in theory additionally be worked out versus a trustee.

The Regulator has entrusted the authority to reclaim and abandon “orphans”– oil and gas properties and their sites left in an incorrectly deserted or unreclaimed state by inoperative companies at the close of their insolvency process– to the Orphan Well Association (OWA), an independent non-profit entity. The OWA has no power to look for compensation of its costs, however, it might be compensated up to the amount of any security deposit held by the Regulator to the credit of the licensee of the orphans once it has actually finished its environmental cleanup.

Redwater Energy Supreme Court decision: The Redwater receivership

Redwater, a publicly traded oil and gas firm, was initially given licenses by the Regulator in 2009. Its major assets were 127 oil and gas properties — wells, pipelines and related facilities — and their equal permits. A few of its licensed wells were still producing, yet the bulk was tapped out and strained with reclamation and abandonment obligations that surpassed their worth.

In 2013, ATB Financial, which had complete knowledge of the end-of-life responsibilities connected with Redwater’s properties, advanced funds to Redwater and, in return, was given a security interest in Redwater’s existing and after-acquired property. In mid-2014, Redwater started to experience financial problems.

ATB appointed its receiver in 2015. Back then, Redwater owed ATB roughly $5.1 million and had 84 wells, 7 facilities and 36 pipelines. Seventy-two were non-active or spent, however, considering that Redwater’s LMR did not go down below the recommended proportion until after it entered receivership, it never paid any type of security deposit to the Regulator.

Upon being informed of Redwater’s receivership, the Regulator advised the receiver that it was legitimately bound to fulfill Redwater’s abandonment commitments for all licensed properties before dispersing any funds or completing any insolvency proceeding. The Regulator cautioned that it would not accept the transfer of any one of Redwater’s licenses unless it was satisfied that both the transferee and the transferor would have the ability to carry out all governing responsibilities and that the transfer would not create deterioration in Redwater’s LMR.

The receiver determined that it could not satisfy the Regulator’s demands since the cost of completion of the end-of-life responsibilities for the spent wells would likely surpass the realizable value for the producing wells. Based upon this evaluation, the receiver notified the Regulator that it was occupying and controlling just 17 of Redwater’s most productive wells, 3 related facilities and 12 pipelines (Retained Assets). The receiver also advised that it was not occupying or controlling of any of Redwater’s various other licensed properties (Renounced Assets).

The receiver’s position was that it had no requirement to do any regulatory requirements connected with the Renounced Assets.

Redwater Energy Supreme Court decision: The Regulator’s and the receiver’s positions

The Regulator responded by issuing orders under the OGCA and the Pipeline Act calling for Redwater to suspend and abandon the Renounced Assets (Abandonment Orders). The Regulator imposed short target dates, as it took into consideration the Renounced Assets an environmental and safety threat.

Alberta’s Regulator and the OWA applied for an affirmation that the receiver’s renunciation of the Renounced Assets was void and for orders needing it to follow the Abandonment Orders and to carry out the completion of the end-of-life responsibilities connected with Redwater’s licensed properties. The Regulator did not look to hold the receiver responsible for these responsibilities past the assets in the Redwater estate.

The receiver brought a cross-application looking for authorization to seek a sales procedure leaving out the Renounced Assets and an order directing that the Regulator cannot stop the transfer of the licenses connected with the Retained Assets based upon, inter alia:

  • the LMR requirements;
  • failure to abide by the Abandonment Orders;
  • refusal to take possession of the Renounced Assets; or
  • Redwater’s outstanding debts to the Regulator.

A bankruptcy order was made against Redwater and the receiver was appointed as trustee. The trustee invoked s.14.06(4)(a)(ii) of the BIA about the Renounced Assets. This section of the BIA allows for the abandonment of a property and to not hold the trustee personally liable for remediation costs.

Redwater Energy Supreme Court decision: The Alberta decisions

The Alberta lower Courts concurred with the receiver and held that the Regulator’s suggested use its legal powers to impose Redwater’s conformity with reclamation and abandonment commitments in bankruptcy contravened the BIA in 2 ways:

  1. It required the receiver the commitments of a licensee in connection with the Redwater properties disclaimed by the receiver/trustee, contrary to s. 14.06(4) of the BIA.
  2. It ignored the priority for the distribution of a bankrupt’s assets under the BIA by requiring the provable claims of the Regulator, an unsecured creditor, be paid in advance of the claims of Redwater’s secured creditors. The dissenting Judge in the Court of Appeal would have permitted the Regulator’s appeal on the basis that there was no conflict between Alberta’s environmental laws and the BIA.

Redwater Energy Supreme Court decision: The Redwater Energy SCC decision

The majority 5-2 Supreme Court of Canada (SCC or the Supreme Court) decision states that:

  • The Regulator’s use of its legal powers does not create a conflict with the BIA to trigger the doctrine of federal paramountcy.
  • Section 14.06(4) of the BIA deals with the personal liability of trustees and does not let a trustee to walk away from the environmental liabilities of the estate it is administering.
  • The Regulator is not asserting any claims provable in the bankruptcy.
  • The priority scheme in the BIA is not being interfered with.
  • No conflict is caused by the receiver’s status as a licensee under Alberta legislation. Alberta’s regulatory regime can coexist with and work with the BIA.

The Supreme Court decision goes on to say that bankruptcy is not a licence to ignore rules, and insolvency professionals are bound by and must follow valid provincial laws during bankruptcy.

They must, as an example:

  • adhere to non-financial responsibilities that are binding on the insolvent estate, that are not provable claims; as well as
  • the impacts of which do not contravene the BIA, regardless of the effects this might have for the insolvent’s secured creditors.

The SCC held that given the procedural nature of the BIA, the bankruptcy regimen counts greatly on the ongoing rules of provincial regulations. However, where there is an authentic problem between provincial statutes about property and civil liberties and bankruptcy regulations, the BIA dominates.

The SCC went on to say that the BIA has two main functions: (i) the fair distribution of the insolvent’s property among its creditors; and (ii) the insolvent’s financial rehabilitation. As Redwater is a company that will never arise from bankruptcy, just the first function matters.

The Abandonment Orders and the LMR demands are based upon legitimate provincial regulations of basic application — specifically, the type of legitimate provincial laws whereupon the BIA is constructed.

The Supreme Court of Canada decision found that there is no conflict between the Alberta regulatory scheme and s. 14.06 of the BIA, because, under s. 14.06(4), a trustee’s disclaimer of real property when there is an order to remedy any environmental condition or damage affecting that property protects the trustee from personal liability. The Supreme Court of Canada decision makes it very clear that although the BIA protects the trustee or receiver from personal liability, the ongoing liability of the bankrupt estate is unaffected.

The Supreme Court of Canada said that the end‑of‑life obligations binding on the trustee and receiver are not claims provable in the Redwater bankruptcy. Not all environmental obligations enforced by a regulator will be claims provable in bankruptcy.

The test that must be applied to decide whether a particular regulatory obligation amounts to a claim provable in bankruptcy is: (1) there must be a debt, a liability or an obligation to a creditor; (2) the debt, liability or obligation must be incurred before the debtor becomes bankrupt; and (3) it must be possible to attach a monetary value to the debt, liability or obligation. Only the first and third parts of the test are at issue in the Redwater case.

Bottom line, a court must decide whether there are enough facts indicating the existence of an environmental duty that will ripen into a financial liability owed to a regulator. In determining whether a non‑monetary regulatory obligation of a bankrupt is too remote or too speculative to be included in the bankruptcy proceeding, the court must apply the general rules that apply to future or contingent claims.

It must be sufficiently certain that the contingency will come to pass — in other words, that the regulator will enforce the obligation by performing the environmental work and seeking reimbursement.

Redwater Energy Supreme Court decision: BIA contemplates environmental regulators will extract value

The Supreme Court of Canada also went on to say that in crafting the priority scheme of the BIA, Parliament intended to permit regulators to place a first charge on real property of a bankrupt affected by an environmental condition or damage to fund remediation. Thus, the BIA explicitly contemplates that environmental regulators will extract value from the bankrupt’s real property if that property is affected by an environmental condition or damage.

Furthermore, Redwater’s only real assets were affected by environmental conditions or damage. Accordingly, the Abandonment Orders and LMR requirements did not seek to force Redwater to fulfill end‑of‑life obligations with assets unrelated to the environmental condition or damage. In other words, recognizing that the Abandonment Orders and LMR requirements are not provable claims and do not interfere with the aims of the BIA — rather, it facilitates them.

Redwater Energy Supreme Court decision: What about your company or client?

Is your company subject to significant costs under provincial law should it stop operating for any reason, including receivership or bankruptcy? Are you a secured creditor who loaned money to such a company and are now questioning the value of your security?

If so, you need the help of a licensed insolvency trustee (formerly called a bankruptcy trustee). Call the Ira Smith Team today. We have decades and generations of experience in the restructuring, turnaround, monitoring and liquidating insolvent companies.

Contact the Ira Smith Team today for your free consultation so that we can solve your financial problems and get you back on the right path, Starting Over Starting Now.

Categories
Brandon Blog Post

REDWATER ENERGY CORP. – SUPREME COURT TO DECIDE WHO PAYS CLEANUP COSTS

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.

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