Supreme Court rules companies must fund reclamation of abandoned oil and gas wells, even if bankrupt

The abandoned Redwater oil well site in Alberta. — Photo courtesy Codie McLachlan/Postmedia News

The Supreme Court of Canada ruled at the end of last week that bankrupt oil and gas companies in Alberta must use funds to reclaim oil and gas well sites before paying debtors.

Here are some of the details as documented by The Jurist website, “The case, Orphan Well Association v. Grant Thornton Ltd, involved oil and gas company Redwater that went bankrupt in 2015. The trustee in the bankruptcy attempted to disown several non-producing sites and avoid paying clean-up costs. Out of 84 wells, seven facilities and 36 pipelines, the trustee sought to disown all but 17 wells, three facilities and 12 pipelines.

The Alberta Energy Regulator requires that licenses for extracting, processing, or transporting oil and gas include an obligation to plug and cap wells, dismantle surface structures, and restore the surface to its previous condition. Grant Thornton argued that the obligations for site cleanup were an unsecured debt, and should only be paid after all secured debtors were paid. The regulator ordered Grant Thornton to cleanup the abandoned sites.

The court determined that the cleanup obligations were not debts, but instead duties of Redwater. The regulator was not considered to be a creditor because the regulator was not the entity that receives payment and the province does not gain financially from meeting the obligations. Instead, the “public is the beneficiary of those environmental obligations.” Therefore, the cleanup obligations were outside of the bankruptcy payment order requirements.

The trustee has already sold or transferred all of Redwater’s assets. The money obtained must now be used to cleanup the abandoned well sites before other debtors can be paid.”

The environmental law charity, Ecojustice made the following statement, “The Supreme Court of Canada ruled (last week) that cleaning up abandoned oil and gas wells must come before the interests of creditors after a company has gone bankrupt.”

Ecojustice lawyer Barry Robinson issued the following statement in response:

“The Supreme Court of Canada has ruled that bankruptcy trustees must put the environment first. This is a win for the environment and good news for landowners and Albertans.

“However, the fact remains that, by the time oil and gas companies go bankrupt, they are often worth little to nothing. This means that even if the court says bankruptcy trustees must make cleaning up orphaned well sites a priority, there might not be enough money left over to cover those costs.

“The longer Alberta’s 89,000 orphaned wells languish, the greater the risk of environmental contamination and harm to the Albertans who own the land where the wells are located. While Ecojustice welcomes the court’s decision, we maintain that the best way for the province to address the problem of abandoned oil and gas wells is to require companies make a security deposit before drilling.”

Source: The Jurist and Ecojustice Canada