BANK­RUPT OIL FIRMS DUMP EX­TRA $100M IN CLEANUP COSTS ON OR­PHAN WELLS AS­SO­CI­A­TION.

National Post (Latest Edition) - - FRONT PAGE - Ge­of­frey Mor­gan

• The Al­berta gov­ern­ment has been keep­ing a tab of the clean-up costs bank­rupt oil com­pa­nies have handed over to the Or­phan Well As­so­ci­a­tion since a con­tro­ver­sial court de­ci­sion last year made it eas­ier for com­pa­nies to dump li­a­bil­i­ties.

That tab has now passed $100 mil­lion.

The Fi­nan­cial Post has ob­tained a copy of the Al­berta En­ergy Reg­u­la­tor’s list of as­sets that have been trans­ferred to the OWA, which cleans up the oil and gas sites whose own­ers have gone bank­rupt, since a Court of Queen’s Bench de­ci­sion in May 2016, which the Supreme Court of Canada said Thurs­day it will re­view.

The lower- court de­ci­sion al­lowed the trus­tee for Red­wa­ter En­ergy to send the com­pany’s un­eco­nomic oil and gas wells to the OWA but keep con­trol of bet­ter- per- form­ing wells, which could be sold to re­pay the com­pany’s debt. The de­ci­sion pri­or­i­tized the rights of debt hold­ers over en­vi­ron­men­tal re­me­di­a­tion in in­sol­vency pro­cesses.

Al­berta ap­pealed the de­ci­sion to the Supreme Court out of con­cern it would lead to more com­pa­nies strip­ping off bad as­sets and hand­ing the bill to the OWA and, po­ten­tially, onto tax­pay­ers. The OWA is an in­dus­try-funded and gov­ern­ment-backed group.

The Supreme Cout de­ci­sion could af­fect in­dus­trial sites across the coun­try.

The list ob­tained by the Post shows how many as­sets have been dis­claimed since the lower court de­ci­sion: 12 de­funct oil and gas com­pa­nies have dis­claimed re­spon­si­bil­ity for 1,628 li­censed oil and gas sites. The deemed li­a­bil­i­ties for those sites ex­ceed $100 mil­lion.

Uni­ver­sity of Cal­gary econ­o­mist Blake Shaf­fer said that ex­tra $ 100 mil­lion in clean-up costs would adds to OWA’s bur­den.

Shaf­fer re­cently co- au­thored a re­port for the C. D. Howe In­sti­tute that pegged recla­ma­tion costs for or­phan wells in Al­berta at be­tween $ 129 mil­lion and $ 257 mill i on based on data from 2015-2016. The $100-mil­lion tab con­tained in the AER’s post- Red­wa­ter list would be in ad­di­tion to that es­ti­mate.

“This is 10 years of steady clean-up, as­sum­ing no more wells go into the Or­phan Well As­so­ci­a­tion. So this is go­ing to be a prob­lem for quite some time and the prob­lem with Red­wa­ter is who bears that cost?” Shaf­fer said.

Sig­nif­i­cantly, t he list does not in­clude as­sets dis­claimed in two other closely watched in­sol­vency pro­ceed­ings in­volv­ing Cal­gary-based Lexin Re­sources, which owned more t han 1, 500 wells, and South­ern Pa­cific Re­sources, whose re­ceiver has ap­plied to send an oil­sands project to the OWA for the first time.

The cost of clean­ing up or­phaned oil wells has be­come a po­lit­i­cal flash­point in Al­berta, where hun­dreds of thou­sands of oil and gas wells dot the land­scape and thou­sands have been or­phaned.

This year, the Al­berta gov­ern­ment pro­vided $235 mil­lion to the en­ergy in­dus­try to help pay for clean-up costs of or­phaned wells, with Ot­tawa agree­ing to cover $30 mil­lion in in­ter­est pay­ments on the loan.

Ex­am­ples from the list of 12 in­sol­vent com­pa­nies also show that the AER is con­cerned that some in­sol­vent com­pa­nies, such as Sy­dco En­ergy, ap­pear to be fol­low­ing the prece­dent set by Red­wa­ter.

Sy­dco went into re­ceiver­ship in Fe­bru­ary. Le­gal docu- ments from the re­ceiver­ship pro­ceed­ings show that in the fol­low­ing months, the AER re­fused to al­low a sec­ond com­pany, called 2032951 Al­berta Ltd. with “vir­tu­ally the same” prin­ci­pals as Sy­dco, to trans­fer some of Sy­dco’s wells to it­self.

The doc­u­ments also say AER has also re­fused to al­low third com­pany, Worm­wood Re­sources Ltd., to as­sume Sy­dco’s well li­cences un­less it can show that it is not re­lated to Sy­dco.

In a brief filed in Sy­dco’s re­ceiver­ship process, the AER said it has “con­sis­tently and pub­licly ex­pressed its con­cerns that the de­ci­sion of this Court in ( the Red­wa­ter case) would re­sult in li­censees or­ga­niz­ing their af­fairs and choos­ing i nsol­vency pro­ceed­ings as a man­ner in which to shed their end of life obli­ga­tions. This is ex­actly what ap­pears to have oc­curred in this sit­u­a­tion.”

AER spokesper­son Ryan Bartlett con­firmed the de­tails of the list ob­tained by the Post and added the reg­u­la­tor has kept a close watch over ex­actly what re­spon­si­bil­i­ties have been shed since the Red­wa­ter case.

“By all means, we’re keep­ing track of it,” he said, adding the AER in­ter­vened in more court cases since the de­ci­sion, im­ple­mented new rules for other oil and gas com­pa­nies look­ing to buy or sell as­sets and is ad­vis­ing the gov­ern­ment on a re­view of how clean- up li­a­bil­i­ties are man­aged.

“Any pol­icy that comes out of this re­view, we will im­ple­ment,” Bartlett said.

Shaf­fer said t he Red­wa­ter case, by pri­or­i­tiz­ing the rights of debthold­ers in bank­ruptcy pro­ceed­ings over the en­vi­ron­ment, forced t he gov­ern­ment to act. “Clearly, changes will have to hap­pen,” he said.

The AER also took the “un­prece­dented step” of ap­ply­ing to be­come the cour­tap­pointed re­ceiver in Lexin’s case, Osler, Hoskin & Har­court LLP lawyers Me­lanie Gas­ton, Jan­ice Buck­ing­ham and Emily Paplawski wrote in a pub­lished com­men­tary on Red­wa­ter ear­lier this year.

Cal­gary’s le­gal com­mu­nity watched the Red­wa­ter case care­fully as it was con­sid­ered prece­dent- setting and Osler lawyers said it could lead to a sit­u­a­tion where dis­claimed oil and gas wells “could in­crease dra­mat­i­cally.”

JEFF MCIN­TOSH / THE CANA­DIAN PRESS FILES

A de­com­mis­sioned pump­jack near Cre­mona, Alta.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.