Canada: Alberta's Oil And Gas Licensing Regime Found To Be Unconstitutional

In Redwater Energy Corporation (Re) (Redwater Energy), the Court of Queen's Bench of Alberta (Court) held that certain sections of the Oil and Gas Conservation Act (OGCA) and Pipeline Act (PA) are inoperative to the extent that they are used by the Alberta Energy Regulator (AER) to prevent the abandonment or renunciation of an insolvent debtor's assets by a court-appointed receiver or trustee.

Redwater Energy Corporation (Redwater) was a publicly listed oil and gas corporation that held approximately 130 properties licensed under the OGCA and the PA. In May 2015, after Redwater's inability to consummate an out-of-court sale of its assets in order to repay its lender in full, Grant Thornton Limited (GTL) was appointed receiver (Receiver) over the assets of Redwater pursuant to section 243 of the Bankruptcy and Insolvency Act (BIA). In October 2015, Romaine J. granted an order assigning Redwater into bankruptcy and GTL was named trustee of Redwater's estate (Receiver/Trustee).

Two applications were filed during the course of the proceedings:

First, the AER and the Orphan Well Association (OWA) filed a joint application seeking:

  1. To prevent the Receiver/Trustee from renouncing certain AER licensed assets of Redwater (Renounced Assets)
  2. Declaring the Receiver/Trustee the licensee in respect of the Renounced Assets
  3. Forcing the Receiver/Trustee to comply with a number of abandonment and closure orders (Abandonment Orders) in respect of the Renounced Assets

Second, the Receiver/Trustee brought a cross-application seeking the approval of a sales process that excluded the Renounced Assets and seeking a determination of the constitutionality of AER's licensing regime under the OGCA, the PA and Directive 006: Licensee Liability Rating (LLR) Program and Licence Transfer Process to the extent that it (i) prevents the Receiver/Trustee from abandoning the Renounced Assets, and (ii) imposes an obligation on the Receiver/Trustee to expend funds to comply with the Abandonment Orders as a condition precedent to the AER approving a transfer of Redwater's AER licences.

Chief Justice N. Wittmann, in his written decision, dismissed the AER's application and granted GTL's application to commence a sales process to dispose of Redwater's assets. The sales process proposed by the Receiver is expected to proceed on the basis that the AER will be directed to transfer any licences associated with the assets sold by the Receiver without including the Renounced Assets in the calculation of Redwater's post-transfer Liability Management Rating.

Regarding the constitutionality of the Receiver/Trustee's ability to abandon the Renounced Assets, the Court recognized that a plain reading of section 14.06 of the BIA indicates that its purpose is to permit receivers and trustees to make "rational economic assessments of the costs of remedying environmental conditions" and provides them with the discretion to determine whether to comply with regulatory orders or renounce the property subject to those orders.

The Receiver/Trustee is entitled to disclaim assets under the BIA but there is no corresponding mechanism for it to disclaim assets under the provincial legislation. Where the Receiver/Trustee disclaimed all interest in the Renounced Assets under the BIA, the liability imposed by provincial legislation remained. Therefore, the Court held that dual compliance with the OGCA, the PA and section 14.06 of the BIA was not possible and that an operational conflict existed between the provincial and federal legislation.

Moreover, the provisions of the OGCA and the PA, which deemed the Receiver/Trustee to be a licensee, were declared inoperative to the extent they conflicted with the BIA. The Receiver/Trustee was expressly held not be the licensee of the Renounced Assets and was found not to have assumed any liability in respect of the Renounced Assets. Section 14.06(4) of the BIA expressly allows the Receiver/Trustee to disclaim the Renounced Assets and, as long as the statutory requirements of that section are met, the AER is unable to require the Receiver/Trustee to abandon, reclaim or remediate the Renounced Assets on the basis that it is a licensee.

Compliance with the Abandonment Orders would have required the Receiver/Trustee to expend estate funds on orders that were in substance monetary claims. The result of the Receiver/Trustee's compliance with the Abandonment Orders would have seen the AER's unsecured claims paid out from the assets of the estate prior to the claims of Redwater's other creditors. Thus, the usual order of priority in bankruptcy would have been rearranged to the detriment of other creditors and the AER's application would have seen a "third-party-pay" principle substituted for the "polluter-pay" principle recognized by the Supreme Court of Canada in Newfoundland and Labrador v. AbitibiBowater Inc. In this regard, Chief Justice Wittmann found that the AER was not a public enforcer taking steps to enforce the general law, but was instead an "enforcing authority clothed as a creditor".

It is clear from the wording of section 14.06 of the BIA that parliament balanced a number of competing considerations when adopting the provision. Chief Justice Wittmann affirmed that the Court's role is limited to interpreting and applying the existing legislation and held that the purpose of sections 14.06(4) and (6) of the BIA was frustrated by the AER's requirement that the Receiver/Trustee pay or rectify the environmental conditions as costs of administration regardless of whether the Renounced Assets had been properly abandoned. Additionally, the payment of a security deposit or performance of the Abandonment Order obligations was held to frustrate the legislative purpose of sections 14.06(5), (6), (7) and (8) of the BIA, where payment or compliance was a condition precedent to the AER's approval of a licence transfer application by the Receiver/Trustee.

The Redwater Energy decision clarifies the existing law with respect to protection of receivers and trustees, the ability of the receiver or trustee to sell and disclaim licensed assets and the rights and priority of creditors where the AER is actively involved in a distressed sale process. The decision has also affirmed that the principles set out in PanAmericana de Bienes y Servicios v. Northern Badger Oil & Gas Limited may no longer be applicable to the extent that they purport to deal with priorities in relation to the payment of environmental remediation costs in insolvency proceedings. It appears that this area is now exclusively occupied by sections 14.06(6), (7) and (8) of the BIA, which establish the rank of environmental claims in receivership and bankruptcy proceedings.

Blakes acted for Alberta Treasury Branches, Redwater's principal secured lender, in this matter.

Please also see our May 2016 Blakes Bulletin: AER Seeks to Hold Directors, Officers Personally Liable for Obligations of Insolvent Corporate Licensees, our June 2014 Blakes Update: Alberta Licensee Liability Rating Program Imposes Financial Challenges for Junior Oil & Gas Companies and our September 2013 Blakes Bulletin: Increases to Alberta Licensee Liability Rating Program.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
23 Nov 2018, Other, Toronto, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

28 Nov 2018, Speaking Engagement, Toronto, Canada

Arbitration has a number of advantages and some disadvantages for the resolution of domestic and international commercial disputes.

Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions