AER to appeal Redwater decision to Supreme Court of Canada

CALGARY, Alberta, April 28, 2017 (GLOBE NEWSWIRE) -- The Alberta Energy Regulator (AER) will be seeking leave to appeal to the Supreme Court of Canada a recent Alberta Court of Appeal decision.

In the 2-1 Alberta Court of Appeal decision, the majority dismissed the AER’s appeal of a Court of Queen’s Bench decision allowing the receiver/trustee to disclaim, or walk away from, unproductive energy assets and their associated liabilities.

“We are disappointed in the decision of the majority,” said AER president and CEO Jim Ellis. “It fails to recognize that the AER is not acting as a creditor when it takes steps to ensure that the public is protected from the environmental costs associated with suspension, abandonment, and reclamation when companies enter into insolvency proceedings.”

While the AER is appealing the decision because its effects are significant for Albertans, this decision will have significant ramifications across the entire country, as demonstrated by the participation of other parties as interveners.

The decision may lead to more wells, facilities, and pipelines being sent to the Orphan Well Association (OWA), as receivers and trustees pick and choose which sites will maximize returns to creditors. The OWA is a nonprofit organization that abandons and reclaims orphan infrastructure and associated sites and is funded by industry.

“The OWA is an extremely important backstop that ensures energy companies—not Albertans—pay for final closure of energy facilities when a licensee has no other assets to cover the costs,” Ellis added. “It was intended to address true orphans, not to be used as a place for liabilities that companies no longer want to deal with.”

The Alberta Energy Regulator ensures the safe, efficient, orderly, and environmentally responsible development of hydrocarbon resources over their entire life cycle. This includes allocating and conserving water resources, managing public lands, and protecting the environment while providing economic benefits for all Albertans.

Backgrounder: Redwater Energy Corp. timeline of events and the Orphan Well Association

The Alberta Energy Regulator (AER) intends to appeal a decision by the Alberta Court of Appeal that allows receivers and trustees to disclaim, or walk away from, unprofitable oil and gas assets and their associated abandonment and reclamation liabilities despite Alberta legislation intended to ensure that energy developers—not Albertans—pay for final closure of energy sites.

Redwater operated 84 wells, seven facilities, and 36 pipelines, mostly in the Edmonton area, before the company filed for receivership on May 12, 2015, and for bankruptcy on October 16, 2015.

On May 27, 2016, the AER appealed the Court of Queen’s Bench decision that allowed the receiver to disclaim select energy sites. The Alberta Court of Appeals heard the appeal in October 2016.

On April 24, 2017, the AER’s appeal was dismissed in a 2-1 decision by the Alberta Court of Appeal. Justice Martin’s dissenting reasons fully reflect the AER’s concerns.

The AER’s appeal was supported by the Alberta, British Columbia, and Saskatchewan governments, the Orphan Well Association, and the Canadian Association of Petroleum Producers.

On December 5, 2015, the AER’s liability programs assessed the liabilities associated with Redwater’s wells and facilities at $7.3 million to abandon and reclaim.

Orphan Well Association

The Alberta Energy Regulator (AER) works closely with the OWA to ensure that Albertans never have to pay for energy industry abandonment and reclamation costs. Should a company go into insolvency, its wells, facilities, and pipelines may be referred to the OWA for suspension, abandonment, or reclamation. Wells, facilities, and pipelines are referred to the OWA—an industry-funded not-for-profit organization—as a last resort. The OWA’s $30 million annual budget is funded by an annual industry levy. The OWA’s inventories have increased dramatically since 2014. The table below shows the association’s year-over-year inventory.