Strange bedfellows: Greenpeace, CAPP Team Up in Court Case on Alberta’s Abandoned Wells

The Alberta government and an unlikely crew of allies — including Greenpeace, an oil lobbying firm, Ecojustice and attorneys general of four different provinces — are squaring off with ATB Financial in a Supreme Court case that could let polluters off the hook when they go bankrupt.

The question being tried is whether creditors, like banks, can pick and choose the best assets an oil company owns when it goes bust, or whether governments can use a company’s good assets to pay to clean up its messes before the banks get paid.

At the granular level, the specific case at issue began when Redwater Energy went under in 2015. Its bank, ATB Financial, turned its nose up at nearly 80 per cent of its assets instead of taking the lot.

“Of the 97 or so properties owned by Redwater energy, [ATB] purported to accept only 20 wells — the profitable wells — and leave behind the unprofitable wells and a pipeline,” says Ecojustice lawyer Kurt Stillwell.

“The Alberta Energy Regulator ordered the trustee to properly abandon the wells. It refused.”

That attempt to ditch the bad assets kicked off a series of court cases and appeals, the most recent of which was argued before the Supreme Court in mid-February. The verdict isn’t expected for several months.

In an odd twist of fate, the case has the Canadian Association of Petroleum Producers fighting on the same side as Ecojustice and Greenpeace.

“It’s unusual…we didn’t have necessarily the same arguments,” said Keith Stewart, climate and energy campaigner at Greenpeace. “They’re trying to make sure solvent companies shouldn’t have to pay for these costs; we’re trying to make sure the environment doesn’t bear the cost.”

Ramifications for Other Sectors

The Alberta Energy Regulator’s CEO Jim Ellis put out a statement emphasizing the potential scope of the case.

“We can’t emphasize this enough: this is not an Alberta problem,” Ellis wrote. “This is not an oil and gas problem. It can be applied to industrial sites left behind by companies in other industries, allowing receivers to take and sell for the benefit of creditors the good assets and walk away from the bad ones and the end-of-life obligations associated with them.”

Greenpeace echoes the energy regulator; Stewart says the result could affect the way a whole swath of resource extraction companies are regulated.

“This case is really important because it’s not just oil and gas,” Stewart says. “The precedent it’s setting could apply to mines or forestry companies — boom and bust industries.”

The case could also determine how other sectors — like forestry or mining — manage their own environmental cleanup https://t.co/hjwmehsQHn

— DeSmog Canada (@DeSmogCanada) February 23, 2018

Spike in Orphan Wells

Ellis blames the original ruling (in favour of the bank) for causing a jump in the number of oil wells that have been “disclaimed” or not remediated (“abandoned,” in industry-speak, is actually a good thing, meaning the well has been capped and is ready for remediation).

For the oil industry, this means an extra financial burden for the companies that haven’t gone bankrupt — and in a financial downturn, that is usually smaller players, not the Exxons and BPs of the world — via the Orphan Well Association, an industry-funded organization that manages wells that haven’t been properly abandoned and reclaimed. The number of wells on the Orphan Well Association’s books has shot up more than threefold since the Redwater ruling, from 1,200 to 3,700.

Since funding is collected from well owners depending on their estimated liabilities, a crash in oil prices, like in 2014, and a series of bankruptcies like that of Redwater Energy, can mean provincial taxpayers are left holding the bag for cleanups.

Tony Bruder has experienced that firsthand on his own land. Two inactive sour gas wells on his property were left idle for decades before the Alberta Energy Regulator ordered its owners to clean up the mess, and when the company failed to comply, the regulator did the job itself.

“There’s no doubt in my mind that the companies have to be held responsible,” says Bruder. “And in order for that to happen properly, the Alberta government, which gave those companies the right to drill…they have to be willing to stand behind the decisions they’ve made, and hold those companies accountable.”

But the Redwater case could mean the provincial government loses its authority to hold companies responsible. The deciding factor will be whether the government’s jurisdiction over environmental regulation means it can overrule federal bankruptcy laws.

The case is being anxiously watched by all sides. In an emailed statement, ATB Financial said the ruling will provide certainty to a law that has been on the books for over 25 years.

“Whatever the decision of the Supreme Court, the clarity and certainty it will provide is important to all parties in the oil and gas sector and financial institutions who lend to those companies,” it said.

“We, and all the other creditors to the industry, are interested observers in the outcome.”