“The Polluter Pays” – The Supreme Court of Canada rules that energy companies must clean up old oil and gas wells before paying off creditors

Canada’s Supreme Court has ruled that when energy companies go bankrupt, the cleanup of their old oil and gas wells must take priority over paying off creditors. This is welcomed news for aboriginal groups, in which orphaned wells have been left abandoned on traditional lands without the prospect of cleanup.

The decision comes after Redwater Energy declared bankruptcy in 2015, and its bankruptcy trustee tried to sell its old wells to pay off creditors, leaving the wells to be cleaned up by the Orphan Well Association.  Both lower courts upheld this approach, finding that bankruptcy law has paramountcy over provincial environmental responsibilities. This in effect meant that that energy companies were required to pay back creditors before cleaning up old wells, and allowing them to walk away from old oil and gas wells leaving them to be someone else’s responsibility to clean up.

In a 5-2 decision, the Supreme Court held that bankruptcy is not a licence to ignore environmental regulations, and there is no inherent conflict between federal bankruptcy laws and provincial environmental regulations. In its decision brief, the Supreme Court said that the “BIA [Bankruptcy and Insolvency Act] was meant to protect trustees from having to pay for a bankrupt estate’s environmental claims with its own money. It did not mean Redwater’s estate could avoid its environmental obligations.”

Alberta has been dealing with an increasing number of orphaned oil and gas wells in the past five years. In 2014, the Orphan Well Association listed fewer than 200 wells to be reclaimed. The most recent numbers show there are 3,127 wells that need to be plugged or abandoned, and a further 1,553 sites that have been abandoned but still need to be reclaimed.

A link to the case can be found here.