The Alberta Court of Appeal has dismissed the appeal brought by the Alberta Energy Regulator and the Orphan Well Association from the decision of the Court of Queen’s Bench of Alberta in Re Redwater Energy Corporation. A majority of the panel held that the provisions of the provincial legislation governing certain actions of licensees of oil and gas assets do not apply to receivers and trustees in bankruptcy of insolvent companies, given the paramountcy of the Bankruptcy and Insolvency Act over provincial legislation where the governing provisions conflict.

Last year we reported (here) that Alberta’s Redwater Energy Corporation decision signaled good news for lenders and noteholders secured by Alberta O&G assets because the federal Canadian Bankruptcy and Insolvency Act (“BIA”) prevailed over conflicting provisions in the provincial regulations promulgated by the Alberta Energy Regulator (“AER”).

In a much anticipated decision, a 2-1 majority of the Alberta Court of Appeal (the ABCA) has upheld the Alberta Court of Queen’s Bench (ABQB) decision in Re Redwater Energy Corporation, 2016 ABQB 278.

In this Update

• on April 24, 2017, the Alberta Court of Appeal affirmed the Alberta Court of Queen’s Bench’s decision in Redwater Energy Corporation (Re), 2016 ABQB 278 (Redwater)
• reasons for the Redwater decision
• the issues in Redwater raise various important policy concerns regarding land owners, the public at large and the oil and gas industry
• background and significant implications of Redwater

Introduction

From the public policy standpoint, there has been a shift towards more environmental stewardship in Canada, evidenced by heightened media attention on environmental issues and by an expanded legal framework relating to the management of environmental liabilities. For example, directors may be personally liable for violation of environmental statutes1 and may face reputational harm if the corporations they manage are found to have breached environmental rules or norms.

The challenging commodity price environment will likely bring renewed focus on the rights and obligations that will be impacted if insolvency overtakes exploration and production companies. The British Columbia Supreme Court’s recent decision in Re: Walter Energy Canada Holdings, Inc. is a case in point. The case dealt squarely with the question of whether a mineral royalty “runs with the land” – a question that takes on significantly greater importance in the insolvency context.

As a service to energy industry participants, the lawyers of the Oilfield Services and Bankruptcy Practices at Haynes and Boone, LLP have been tracking and reporting industry developments in oilfield service restructurings. Our research includes details on 100 bankruptcies filed since the beginning of 2015, including secured and unsecured debt totals for each case. The total amount of aggregate debt administered in oilfield services bankruptcy cases in 2015- 2016 is more than $14 billion and the average debt of these cases exceeds $144 million.

The much-debated and closely-monitored Re Redwater Energy Corp.

Operating agreements for oil and gas assets typically contemplate the immediate replacement of the operator by another working interest owner in the event of the operator’s insolvency.

The long-running conflict between insolvency professionals and the Alberta Energy Regulator (AER) that was (temporarily) clarified by the Court of Queen’s Bench of Alberta decision in Redwater Energy Corp. was previously analyzed in a blog post