Redwater case update: appeal may impact environmental claims in bankruptcy

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The Alberta Court of Appeal last week heard an appeal of a precedent setting decision allowing for bankrupt oil and gas companies to walk away from unproductive wells and leave the cleanup costs to the province. The appeal decision is expected to clarify the law regarding priority between federal bankruptcy law priority and provincial environmental regulations.

Redwater Energy had gone into receivership in May 2015, followed by bankruptcy a few months later in October. The trustee in bankruptcy had decided to sell 20 of Redwater’s productive wells while renouncing 100 unproductive ones. The move effectively shifted a sizeable responsibility and financial burden to Alberta’s Orphan Well Association (OWA) – the province’s now-backlogged organization, created to reclaim abandoned wells belonging to insolvent companies.

When the case was first heard, the trustee in bankruptcy had argued that complying with provincial regulations – by using the proceeds from the sale of the 20 productive wells to pay for cleaning up the remaining unproductive ones – frustrated the fundamental purposes of the federal Bankruptcy and Insolvency Act.

The case has gained significant attention across the country, with supporters of the appellant, Alberta Energy Regulator, including Saskatchewan’s attorney general, B.C.’s Ministry of Natural Gas Development, the Canadian Association of Petroleum Producers and Alberta Justice.

If the lower court ruling is overturned, the cleanup costs are likely to fall back onto Redwater’s bankrupt estate, significantly reducing creditors’ recovery. The upcoming decision may also shed light on whether both pieces of legislation can somehow work in tandem and without conflict.

With the possibility that the case could eventually be pushed even further for scrutiny by the Supreme Court of Canada, watchers are expecting the Court of Appeal to take its time to release judgment on the matter.

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