The Court Of Appeal Upholds The Redwater Decision

Field Law's Energy Group continues to follow developments regarding the Redwater Energy case. This Energy Alert summarizes the Alberta Court of Appeal's recent decision on the matter.

Highlights

In a 2-1 decision, the Alberta Court of Appeal has upheld the Court of Queen's Bench decision in Redwater Energy Corporation (Re) (Redwater)1 Federal Bankruptcy laws prevail to the extent of a conflict with otherwise valid provincial law. Receivers may renounce uneconomic assets as part of their mandate and only deal with economic assets in the receivership process The Alberta Energy Regulator (AER) does not have a super priority over secured creditors. Receivers are not bound by closure or abandonment orders in respect of renounced assets The AER is reviewing the decision. It is not yet known whether the AER will seek leave to appeal the decision to the Supreme Court of Canada Background

In the spring of 2016, the Court of Queen's Bench issued a decision in Redwater that had significant effects in the oil and gas industry. In that decision, the Court held that sections of the Oil and Gas Conservation Act2 and Pipeline Act3 were inoperative to the extent they conflicted with section 14.06 of the federal Bankruptcy and Insolvency Act (BIA),4 which allows a receiver or trustee to renounce the uneconomic assets of a bankrupt energy company. Chief Justice Wittman determined that federal bankruptcy laws prevail to the extent of a conflict with otherwise valid provincial law. Receivers may renounce uneconomic assets and the AER does not have a super priority over secured creditors. Receivers are not bound by closure or abandonment orders in respect of renounced assets. As a result, a receiver or trustee can renounce AER-licensed assets (i.e., wells and facilities) along with their associated abandonment and reclamation obligations and those renounced licensed assets cannot be included in the calculation of the company's Liability Management Ratio. A more detailed discussion of the Court of Queen's Bench Redwater decision and its implications can be found in the Field Law Energy Group's previous Energy Alert.

The AER was concerned that "The decision may encourage further receiverships and bankruptcies as a means of avoiding end of life obligations and poses a risk of a significant increase in the number of orphaned AER licensed assets." The AER appealed the decision and put in place a number of interim measures in Bulletin 2016-16 and 2016-21 with a view...