BC Oil and Gas Commission welcomes Redwater decision

A Supreme Court of Canada ruling this week that puts environment remediation ahead of creditors when an oil and gas company goes bankrupt could have implications for the mining and oil and gas industries in B.C.

Earlier this week, the Supreme Court ruled in favour of the Alberta Energy Regulator, which had argued that capping of orphan oil and gas wells and land reclamation should take precedence over creditors when a company goes bankrupt and leaves behind orphan wells.

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B.C. has more than 300 orphan wells of its own, so the BC Oil and Gas Commission welcomes the ruling. In fact, the B.C. government was one of the interveners in the case.

B.C. also has roughly $1 billion in unfunded liabilities for mines in B.C., as B.C.’s auditor general pointed out in 2016.

The case revolved around a bankrupt oil and gas company called Redwater Energy, which left behind hundreds of oil and gas wells to decommission and cap when it declared bankruptcy in 2015.

Under Alberta legislation, licences granted to oil and gas companies require that the licence holders assume responsibility for plugging oil and gas wells when they are exhausted and restoring the land.

When the Alberta Energy Regulator asked the bankruptcy trustee, Grant Thornton Ltd., to release what was left of Redwater’s estate to help pay for remediation, the trustee relied on federal law that states that secured creditors must be paid first.

The regulator went to court, lost, and lost again on appeal. Both courts ruled in favour of the trustee, upholding federal laws that require creditors to be paid first.

But the Supreme Court of Canada this week overruled those lower court decisions, ruling that provincial regulators had the legal right to demand that the cost of dismantling wells and restoring the land should take precedent over creditors.

“These costs weren’t debts requiring payments—they were duties (to the public and nearby landowners),” the court explained in a brief.

There are 326 orphan wells in B.C. so the BC Oil and Gas Commission welcomes the court decision, since it presumably sets a precedent that will allow the commission to go after the trustees of bankrupt companies that leave abandoned wells behind.

“We are pleased the Supreme Court has ruled receivers and trustees are responsible for all assets, not only profitable ones,” the commission said in an email to Business in Vancouver.

“Redwater did not have any operations in B.C. However, the Supreme Court’s ruling does give regulators, including the BC Oil and Gas Commission, another tool to ensure companies are held responsible for cleaning up and restoring their sites.”

The Pembina Institute also welcomed the court decision, but pointed out that there may not be enough money to cover the cost of remediation when a company goes bankrupt.

“While the Supreme Court's decision ensures bankrupt companies' remaining assets first go to clean up, those assets are often insufficient to cover full costs,” said Pembina Institute analyst Jodi McNeill.

The ruling could have implications for other sectors and provinces, including mining.

B.C. Auditor General Carol Bellringer warned in 2016 that there is roughly $1 billion in unfunded liabilities with respect to mine reclamation in B.C.

Mining companies are required to put up financial sureties to pay for mine reclamation, once the mine permanently shuts down. But Bellringer’s report warned that the sureties may not be sufficient to cover the full costs of mine reclamation.

There has been at least one case of a mine company going bankrupt in B.C. in recent years.

In 2015, the Tel gold mine on Banks Island was shut down by the province for a number of mine permit violations. The company, Banks Island Gold, went bankrupt, leaving the province with the task of shutting it down and cleaning it up.

According to the B.C. government, the company had put up a $420,000 bond. If the remediation ends up costing more than that, the B.C. government may now have a legal remedy to get paid ahead of creditors.

Bryan Cox, outgoing president of the Mining Association of BC, said he doesn’t think remediating mines in the event of bankruptcies will be an issue, since the government has already been working to address the shortfall in sureties identified by the auditor general.

“There’s been work ongoing since that auditor general’s report,” Cox said. “The Ministry of Energy and Mines is currently updating the reclamation policy in conjunction with multiple stakeholders.

“That scenario shouldn’t ever arise in B.C. in this modern mining era, because the reclamation boding policy is in place. There should be a sufficient bond in place to be there in those circumstances.” 

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