Supreme Court of Canada overturns the Alberta Court of Appeal’s decision in Redwater
On February 1, 2019, the Supreme Court of Canada (SCC) released its highly anticipated decision in the Orphan Well Association v Grant Thornton Limited, 2019 SCC 5 (Redwater).
In overturning the Alberta Court of Appeal (ABCA) decision in Orphan Well Association v Grant Thornton Limited, 2017 ABCA 124, the SCC ruled that while trustees will not be personally liable for abandonment and reclamation obligations, the estate will remain liable for such obligations. The most immediate and profound effect of this decision relates to the relative financial priority between the company’s creditors and the cost to reclaim and abandon wells. Prior to the SCC decision, a trustee was entitled to sell economic wells and direct the proceeds to the bankrupt’s creditors (usually, its secured lender) and disclaim uneconomic wells without paying or accounting for the costs required to abandon and reclaim such wells. In short, the SCC has settled this issue by holding that reclamation and abandonment liabilities must be dealt with before there can be any distribution to the insolvent party's creditors, including its secured creditors.
This decision has far-reaching implications for all of the stakeholders (including the Alberta Energy Regulator (AER) and Orphan Well Association (OWA), the Crown, surface rights holders, producers, lenders, receivers and bankruptcy trustees, in the upstream production of oil and gas. This decision may also affect other provinces and industrial sectors as well.
A full discussion of the SCC decision can be found here on our Restructuring Roundup Blog.