OIL 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 contami-nation. 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

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The Supreme Court of Canada's decision in the case of Orphan Well Association v. Grant iornton Ltd.1 has instigated a new look at those obligations and a renewed emphasis on the need for envi-ronmental stewardship. Grant Thornton Ltd. (GT), the trustee in bankruptcy for Redwater Energy Corporation (Redwater), dis-claimed all of Redwater's unproductive oil and gas assets, effective-ly 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, bankrupt-cy 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 sig-nificant 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 con-tinue 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, among other things, upholds the "polluter-pay principle," provides guidance to struggling operators to help them manage and maintain their assets and operations, improves the sys-tem of assessing the capabilities of oil and gas operators prior to issuing regulatory approvals, and creates five-year rolling spending targets for reclamation that active site operators must meet.6

In 2020, the Liabilities Management Statutes Amendment Act came into effect, enabling the OWA to accelerate and better manage clean-up operations. The OWA may provide care for sites when the licensee is unable and introduce measures to pre-vent damage to the on-site assets. The OWA may manage, main-tain, operate, and sell assets for transitions to a new responsible party. When a licensee ceases operations, the OWA may apply to appoint a receiver to assist in the transition to a new responsible party who will assume the associated obligations. The OWA may also enter into an agreement to conduct work on behalf of remaining owners of a well or facility, when the AER so directs.7

Further to Directive 067: Eligibility Requirements for Acquir-ing and Holding Energy Licences and Approvals,8 the AER has greater discretion in requiring licence applicants to provide

"The nature of the oil and gas industry necessarily exposes the province's water resources to certain risks of contamination."

detailed financial information and in imposing additional con-ditions on licensees.9 Such conditions may include the types and number of licences or approvals that may be held, additional scrutiny at the time of application for licences and approvals, a requirement to provide security, requirements concerning the minimum or maximum working interest percentage permitted, and a requirement to address outstanding noncompliances of current or former AER licensees that are associated with the applicant or its officers, directors, or shareholders.10

These changes are welcome and promising but must be monitored diligently to ensure they are and remain effective. The need to protect water resources is constant and economic conditions may pose greater challenges from time to time.

Footnotes

1 Orphan Well Association v Grant Thornton Ltd., 2019 SCC 5

2 Bankruptcy and Insolvency Act, RSC 1985, c B-3p>

3 Alberta Government, “Liability Management Framework” (July 2020), pdf

4 Alberta Energy Regulator, “Redwater Decision” (last visited 23 January 2023), online: Alberta Energy Regulator https://www.aer.ca/protecting-what-matters/holding-industry-accountable/redwater

5 Alberta Energy Regulator, “Liability Management” (last visited 23 January 2023), online: Alberta Energy Regulator https://www.aer.ca/providing-information/by-topic/liability-management

6 Government of Alberta, “Oil and Gas Liabilities Management” (last visited 27 January 2023), online: Government of Alberta https://www.alberta.ca/oil-and-gas-liabilities-management.aspx#:~:text= Ministry%20responsible%3A%20Energy-,Overview,not%20have%20a%20responsible%20owner

7 Alberta Energy Regulator, “Orphan Well Association” (last visited 30 January 2023), online: Alberta Energy Regulator https://www.aer.ca/regulating-development/project-closure/liability-management-programs-and-processes/orphan-well-association

8 Gordon Lambert, “Alberta Energy Regulator pleased with Supreme Court of Canada Redwater decision” (31 January 2019), online: Alberta Energy Regulator https://www.aer.ca/providing-information/news-and-resources/news-and-announcements/news-releases/public-statement-2019-01-31

9 Ibid

10 Alberta Energy Regulator, “Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals” (7 April 2021), online: Alberta Energy Regulator https://www.aer.ca/regulating-development/rules-and-directives/directives/directive-067

Originally Published by Water Canada, March/April 2023

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