Bankrupt oil firms must clean up inactive wells -Canada court (updated)

Cardinal Energy (Alberta)

31/01/2019 16:26

(Adds details on ruling, orphan wells, analyst comment on
investment risks)
    By Dale Smith and Rod Nickel
    OTTAWA/WINNIPEG, Jan 31 (Reuters) - Canada’s Supreme Court
ruled on Thursday that bankrupt oil companies must clean up
inactive wells, overturning lower court decisions that
prioritized paying creditors and potentially raising the risks
of investment in the industry.
    The 5-2 ruling means that the Alberta Energy Regulator,
which had appealed the earlier court decisions, can order the
cleanup of inactive wells even when their owners have filed for
bankruptcy protection.
    "Bankruptcy is not a license to ignore rules," the court
said in a written decision.
    Alberta had 3,127 wells requiring cleanup that had no
financially responsible owner - sites that are called orphan
wells - as of late January, according to the Orphan Well
Association, which is funded by levies paid by Canadian oil
producers.
    The ruling reduces the cleanup burden on the association,
which is overseen by the regulator, but may raise the perceived
risk of investing in the Canadian oil industry.
    Investors may now avoid companies with higher risk of
abandonment liability, such as Cardinal Energy  CJ.TO ,
Bonavista Energy Corp  BNP.TO  and Obsidian Energy Ltd  OBE.TO ,
analysts at Raymond James said in a note. 
    The Canadian oil industry has been dogged in recent years by
pipeline constraints that have reduced prices and a reputation
for environmentally damaging production methods, factors that
have driven some investors away.
    In 2016, an Alberta judge ruled that proceeds from asset
sales of insolvent producer Redwater Energy Corp should go first
to secured creditors, rather than towards cleanup. The decision
was upheld by the provincial's appeal court.
    At the time of Redwater's bankruptcy, it owned 84 wells,
most of which were inactive, and owed C$5.1 million to its bank,
ATB Financial.
    The receiver and trustee in the Redwater proceedings, Grant
Thornton, and the Alberta Energy Regulator, could not be
immediately reached for comment.
    The province's energy minister is scheduled to speak about
the ruling later on Thursday.

 (Reporting by Dale Smith in Ottawa and Rod Nickel in Winnipeg
Editing by Bernadette Baum)
 ((rod.nickel@thomsonreuters.com
1 204 230 6043
Reuters Messaging: rod.nickel.thomsonreuters.com@reuters.net
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