Alberta Energy Regulator appealing orphan well decision to Supreme Court

Orphan Wells decisions may be going to Canada’s Supreme Court QEP Resources photo.

Decision may lead to more wells, facilities, and pipelines being sent to Orphan Well Association

The Alberta Energy Regulator (AER) will be seeking leave to appeal to the Supreme Court of Canada a recent Alberta Court of Appeal decision, according to a press release.

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.

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“It is premised on the assumptions that licence obligations are debts not public duties, and that there is a conflict between the legislative schemes,” according to Nigel Banks, University of Calgary energy law professor.

The only dissenting vote was Justice Martin.

“We are disappointed in the decision of the majority. 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,” said AER CEO Jim Ellis.

While the AER is appealing the decision because its effects are significant for Albertans, the decision will have significant ramifications across the entire country, which explains the participation of interveners to the suit, including Alberta, Saskatchewan, British Columbia, and the Canadian Association of Petroleum Producers(CAPP).

Justice Martin in her dissenting vote also made reference to the “fundamental principle of bankruptcy law that ‘creditors should not gain on bankruptcy any greater access to their debtors’ assets than they possessed prior to bankruptcy,” said Banks.

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. It was intended to address true orphans, not to be used as a place for liabilities that companies no longer want to deal with,” said Ellis.

“If the Court(Supreme) grants leave I suspect that much of the focus will be on the scope of the power to disclaim (renounce a legal claim to a property or title). Justice Martin has made a brave effort to contain that power in favour of an outcome that makes policy sense and preserves the idea that the polluter should pay. But in doing so she has created a sector specific exception from the power to disclaim. That may be reaching too far,” said Banks.