First priority is cleanup of old wells, top court says in critical ruling
In a victory for landowners and the Alberta government, the Supreme Court of Canada has ruled trustees for bankrupt oil and gas companies cannot refuse to pay environmental cleanup costs for uneconomic oil wells.
In a 5-2 decision, the Court sided with the Alberta Energy Regulator and the provincial government, which had argued the trustee for bankrupt Redwater Energy should not be allowed to disclaim the responsibility for remediating inactive oil and gas wells.
“The court’s decision means that Albertans are better protected from the few irresponsible producers and operators in the system,” Alberta Energy Minister Marg McCuaig-Boyd said. “Working families across this province as well as all of Canada should not have to pay for the financial and environmental liabilities left behind when companies walk away from their obligations.”
The decision was highly anticipated across Alberta, where hundreds of thousands of inactive oil and gas wells dot the landscape, and at corporate offices in Calgary where oil and gas firms are under mounting pressure to remediate old wells.
The largest oil producers in the province applauded the ruling, but financial analysts and lawyers acting for insolvency firms say it will have a chilling effect on financing for smaller companies — especially those that have not actively remediated existing wells and have sky-high environmental liabilities.
Keith Wilson, a lawyer representing landowners in Alberta with Redwater wells on their properties, said the decision was “good news” for taxpayers and the environment.
At the heart of the case was the question of whether federal bankruptcy laws conflicted with, and therefore superseded, provincial environmental regulations, or what lawyers and judges call “the doctrine of paramountcy.”
“Bankruptcy is not a licence to ignore rules, and insolvency professionals are bound by and must comply with valid provincial laws during bankruptcy,” Supreme Court Justice Richard Wagner wrote in the decision.
The court ruled that Alberta’s reclamation rules “are based on valid provincial laws of general application — exactly the kind of valid provincial laws upon which the (Bankruptcy and Insolvency Act) is built.”
The Supreme Court found that environmental reclamation was a public duty instead of a debt, said University of Alberta assistant law professor Anna Lund, whose work was cited in the decision.