WC129 MarApr2023 - Flipbook - Page 32
LEGAL
Alberta’s Liability
Management Framework
End-of-life environmental stewardship for
oil and gas resources BY TYSON WAGNER AND MEGAN KENNEDY
Failure to comply with environmental duties may have significant
impacts on water resources, especially where damaged or improperly abandoned oil wells or pipelines can leak contaminants into the
groundwater
Tyson Wagner
Tyson Wagner is a partner in the
Edmonton office of Miller Thomson LLP,
experienced in real estate, financing
and energy project development
Megan Kennedy
Megan Kennedy is an associate solicitor at
Miller Thomson LLP. She practices in real
estate transactions, estate planning, and
general corporate matters.
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WATER C AN ADA • M ARCH/APRIL 2023
WAT E R C A N A D A . N E T
Getty Images
O
IL AND GAS are well known as cornerstones of Alberta’s
economy. The nature of the industry necessarily exposes
the province’s water resources to certain risks of contamination. The Alberta Energy Regulator (AER) assesses and
issues licences to access and exploit oil and gas resources
subject to various end-of-life obligations regarding abandonment
and reclamation of affected areas.
The Supreme Court of Canada’s decision in the case of Orphan
Well Association v. Grant Thornton Ltd.1 has instigated a new look
at those obligations and a renewed emphasis on the need for environmental stewardship. Grant Thornton Ltd. (GT), the trustee
in bankruptcy for Redwater Energy Corporation (Redwater), disclaimed all of Redwater’s unproductive oil and gas assets, effectively renouncing any interest in or responsibility for them, including
the end-of-life obligations previously imposed by the AER. The
AER argued that such obligations could not be disclaimed. The
majority of the Court agreed, ruling that GT could not walk away
from Redwater’s environmental regulatory obligations.
Among GT’s arguments was that Alberta’s regulatory scheme
conflicted with the federal Bankruptcy and Insolvency Act,2 as it
allowed the AER’s order to rank ahead of Redwater’s secured
creditors. While the AER was successful, the decision did not
fully resolve the conflict between environmental regulations and
bankruptcy law. Given a somewhat different set of facts, bankruptcy law could take precedence. A bankrupt company might lack
capacity to honour its regulatory obligations, or might pay out its
secured creditors first, leaving it without that capacity.
The failure to comply with environmental duties may have significant impacts on water resources, especially where damaged or
improperly abandoned oil wells or pipelines can leak contaminants
into the groundwater. Organizations such as the Orphan Well
Association (OWA), who operate under the authority of the AER,
decommission improperly abandoned oil and gas sites but face a
growing burden3 After the Supreme Court’s Redwater decision,
the AER indicated they must improve liability management “to
ensure that end-of-life obligations are addressed in order to continue protecting Albertans, our environment, and our province’s
many responsible operators.”4
The new liability management framework was announced by
the Government of Alberta in July 2020, and the AER developed
a new directive and manual to improve liability management while
the new framework is being implemented.5 The new framework,