Win for environmental cleanup / loss to borrowers, lenders, restructurings, and oil & gas sector
February 1, 2019
Yesterday, the Supreme Court of Canada released a significant decision that will impact the oil and gas sector in Alberta. In Orphan Well Association and Alberta Energy Regulator v. Grant Thornton, 2019 SCC 5, the Supreme Court held that the Orphan Well Association could seize abandoned oil wells to pay for remediation, striking a blow for the trustee of affected wells and creditors hoping to be repaid by the trustee’s sale of those oil wells.
In doing so, the Court avoided applying the doctrine of federal paramountcy, which would have provided that where the Bankruptcy and Insolvency Act conflicts with provincial statutes, the BIA would apply.
This is a win for the OWA and environmental remediation - but a loss for trustees in bankruptcy, creditors of insolvent oil and gas companies, and other oil and gas companies seeking restructuring.
This decision will likely result in lenders tightening their lending criteria and/or increasing the costs of borrowing. The other longer term and broader impacts on the western oil and gas sector will remain to be seen.