Bankrupt Oil Companies can NOT walk away from wells without reclamation

[Donkey Oatey]

https://edmonton.ctvnews.ca/supreme-...IJDnKJUZEASWE4

Good news for landowners and the environment. Can't just declare bankruptcy and walk away.

[schmedlap]

The media reports, as usual, are simplistic and miss important context and the real points. The real point of the decision is that the assets of the bankrupt oil/gas wells owner must go towards costs of abandonment/remediation in priority to going to the secured creditor(s) who has a valid security interest. The trustee/receiver, as such is not liable to pay all the costs. They are liable to apply proceeds of asset realization to those costs, up to the net amount of such realization, as between those competing claims. If the insolvent entity is bereft of sufficient assets at the time of bankruptcy, then the landowners/government will still not see some or all of these costs covered.
Obviously, this is good news for landowners and government. One problem is going to be that lenders will be reluctant or just unwilling to extend any significant credit to "smaller" companies in this sector, due to the risk of their security having no value. Also, it will make it very difficult to find a trustee or receiver willing to act in liquidating assets of insolvent such businesses, as they may risk not getting paid unless indemnified by a third party.

[The Elkster]

Good ruling. It'll certainly have a chilling effect as things correct to account for proper liability. C'est la vie. AB has paid basically no attention to building abandonment liabilities since development began so now we are left to correct for it in a short amount of time as the liabilities mount. The problem is that abandonment requirements weren't clearly defined long ago. The system always should have had a mechanism in place to ensure abandonments were done to prevent the buildup of abandonment liabilities in the first place ie we won't issue you a new well license until your ratio of abandoned wells/producing wells is X.

Companies should not be happily drilling away and stripping profits whilst building a backlog of dead wells and facilities only to eventually declare bankruptcy. Then having lenders cherry pick the remaining good stuff leaving all liability to the AB citizens and other more responsible companies to clean up through the orphan well fund which is funded by industry.

[Ceilidh69]

The AER needs to do a better job as well reviewing liabilities and allowing well and facility license transfers to companies that are hanging on by their finger tips. Over the past several years they have allowed a significant number of transfers where companies subsequently went defunct and the liability went to working interest partners or the OWA. Delicate balancing act as they don't want to kill all the A&D action in our province but this aspect needs more attention from the regulator. The next logical steps should be stronger mandates for reclamation and remediation timing as well as still more direction on liability management.

[AndrewM]

Originally Posted by Ceilidh69

The AER needs to do a better job as well reviewing liabilities and allowing well and facility license transfers to companies that are hanging on by their finger tips. Over the past several years they have allowed a significant number of transfers where companies subsequently went defunct and the liability went to working interest partners or the OWA. Delicate balancing act as they don't want to kill all the A&D action in our province but this aspect needs more attention from the regulator. The next logical steps should be stronger mandates for reclamation and remediation timing as well as still more direction on liability management.

Directive 6 and Directive 13 are already doing this. May need to be tightened up a bit but there rules in place to prevent this. Has already tightened up a lot since this lawsuit began.

[Unregistered user]

Snotly and the dope destroy the energy sector and then want their pound of flesh from the companies they force into bankruptcy. Luv muh gubmints.

[Deer Hunter]

Originally Posted by AndrewM

Directive 6 and Directive 13 are already doing this. May need to be tightened up a bit but there rules in place to prevent this. Has already tightened up a lot since this lawsuit began.

Directive 6 isn't working real well. No working interest correlation, over inflated asset value (especially natural gas) and low liability calculations.
I agree it's an attempt but there have been several companies put into receivership when their directive 6 calculation would have led you to believe they were financially healthy.

[Sundancefisher]

Originally Posted by Donkey Oatey

https://edmonton.ctvnews.ca/supreme-...IJDnKJUZEASWE4

Good news for landowners and the environment. Can't just declare bankruptcy and walk away.

It is good news for oil companies and tax payers. Oil companies ran under this world until the Redwater decision changed the world. Prior to lenders were investing. Like any investment you have to run the economics.

The AER is to manage company health. Their assets must be worth more than liabilities. If not they must pay an abandonment security deposit.

This is good news and I believe most oil companies are happy.

[AndrewM]

Originally Posted by Deer Hunter

Directive 6 isn't working real well. No working interest correlation, over inflated asset value (especially natural gas) and low liability calculations.
I agree it's an attempt but there have been several companies put into receivership when their directive 6 calculation would have led you to believe they were financially healthy.

For sure a blanket calculation doesn't work for the whole industry but it definitely helps and companies are starting to focus a lot more on the number.

[Ceilidh69]

Originally Posted by AndrewM

Directive 6 and Directive 13 are already doing this. May need to be tightened up a bit but there rules in place to prevent this. Has already tightened up a lot since this lawsuit began.

Agree these Directives have made companies much more aware of liabilities, how to deal with problem sites and high site specific liabilities. The recent Area Based Closure program is also a step in the right direction but much of the problem lies with non-viable assets being transferred to companies with insignificant financial resources. These companies are ultimately bound for failure and yet they are still allowed to buy assets and have the licenses transferred.

[Ceilidh69]

Originally Posted by Deer Hunter

Directive 6 isn't working real well. No working interest correlation, over inflated asset value (especially natural gas) and low liability calculations.
I agree it's an attempt but there have been several companies put into receivership when their directive 6 calculation would have led you to believe they were financially healthy.

True - a companies Liability Management Rating is not always indicative of the actual strength of their assets, their cash flow, op costs, skill at operating, corporate philosophies, management skill or lack thereof etc. It is an indicator tool when you look at all the companies with a <1 ratio but it still needs improvement.

[AndrewM]

Originally Posted by Ceilidh69

Agree these Directives have made companies much more aware of liabilities, how to deal with problem sites and high site specific liabilities. The recent Area Based Closure program is also a step in the right direction but much of the problem lies with non-viable assets being transferred to companies with insignificant financial resources. These companies are ultimately bound for failure and yet they are still allowed to buy assets and have the licenses transferred.

That's why companies are required to put down security deposits to cover the abandonment liabilities.
Year over year there is the same amount of companies under the industry threshold yet there is 43Million more securities held.

[6.5 shooter]

Interesting how this "win" comes out just prior to a Provincial election....Just sayin.

[Donkey Oatey]

Originally Posted by 6.5 shooter

Interesting how this "win" comes out just prior to a Provincial election....Just sayin.

Because the supreme court cares about provincial politics..........just saying

[colroggal]

Originally Posted by 6.5 shooter

Interesting how this "win" comes out just prior to a Provincial election....Just sayin.

Hello voter short term memory

Colin

[dgl1948]

My understanding is it not only applies to wells but the mining industry as well.

[Big Grey Wolf]

Interesting history of Leduc and Redwater oilfields. Both developed by Imperial Oil/Exxon. When wells were almost dry they spun both oilfields off to small operators with not much money. Low and behold both companies went bankrupt and said they could not clean up Exxon mess. Who should be held liable to clean up both these oil fields??

[Deer Hunter]

Originally Posted by dgl1948

My understanding is it not only applies to wells but the mining industry as well.

Interesting. I remember the wind farms in the USA that operators walked away from due to power prices, excessive maintenance and newer technology. One day that might happen here as well...

[Scott h]

Originally Posted by Deer Hunter

Interesting. I remember the wind farms in the USA that operators walked away from due to power prices, excessive maintenance and newer technology. One day that might happen here as well...

Good point. Thankfully this clarifies who has to pay then.

[Deer Hunter]

Originally Posted by Scott h

Good point. Thankfully this clarifies who has to pay then.

Is there an orphan wind farm fund?