{"id":9198,"date":"2020-04-20T19:00:57","date_gmt":"2020-04-20T23:00:57","guid":{"rendered":"http:\/\/www.irasmithinc.com\/blog\/?p=9198"},"modified":"2020-05-24T15:20:39","modified_gmt":"2020-05-24T19:20:39","slug":"redwater-alberta-news-1-7-billion-cleanup-orphan-wells","status":"publish","type":"post","link":"https:\/\/irasmithinc.com\/blog\/redwater-alberta-news-1-7-billion-cleanup-orphan-wells\/","title":{"rendered":"REDWATER ALBERTA NEWS: $1.7B TO CLEAN UP ORPHANED WELLS DUE TO COVID-19"},"content":{"rendered":"

\"redwater<\/a>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.<\/b><\/span><\/p>\n

Stay healthy and safe everybody.<\/b><\/span><\/p>\n

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<\/strong><\/p>\n

Introduction<\/b><\/span><\/h2>\n

\u00a0When it went insolvent in 2015, Redwater Energy Corp. (<\/span>Redwater Alberta or Redwater<\/b>) might have been a small business, with only 19 generating wells and 90 dormant wells.\u00a0 However, a relatively small oil producer was responsible for a huge Supreme Court of Canada (SCC) decision.<\/span><\/p>\n

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.\u00a0 I have written before on the Alberta Courts\u2019 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.<\/span><\/p>\n

Redwater Alberta history of cases<\/b><\/span><\/h2>\n

In my <\/span>previous blogs<\/span><\/a>, I described the Alberta court decisions.\u00a0 <\/span>The<\/span> Alberta Courts<\/span><\/a> concurred with the receiver and held that the regulator\u2019s enforcement activities to force Redwater\u2019s adherence to its previously agreed requirements to clean up and permanently cap its oil site, in bankruptcy was not enforceable.<\/span><\/p>\n

The Courts stated that given the bankruptcy of the company (in addition to a receivership), the <\/span>Bankruptcy and Insolvency Act<\/span><\/i> (Canada)<\/span><\/a> (BIA) took paramountcy over the provincial law.\u00a0 The provincial Courts said that the BIA took paramountcy because:<\/span><\/p>\n

    \n
  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.<\/span><\/li>\n
  2. The priority for the distribution of a bankrupt\u2019s assets is regulated under the BIA, not provincial legislation. \u00a0 If the provable claim of the Regulator, an unsecured creditor, was paid in advance of the claims of Redwater\u2019s <\/span>secured creditors<\/span><\/a>, that would not be the regime laid out in the BIA.<\/span><\/li>\n<\/ol>\n

    The SCC decision<\/b><\/span><\/h2>\n

    In the SCC 5 to 2 judgment in the <\/span>Orphan Well Association v. Grant Thornton Ltd.<\/span><\/i><\/a> case, the SCC ruled that financially troubled companies like <\/span>Redwater<\/span><\/a> 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.<\/span><\/p>\n

    What the SCC decision in the case of the Redwater Alberta <\/span>receivership<\/span><\/a> 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\u2019s assets. \u00a0 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.<\/span><\/p>\n

    This case was obviously difficult and contentious, given that it was a 5-2 decision and not unanimous.\u00a0 The majority decision stated that:<\/span><\/p>\n