Canada: Redwater Revisited – Should The Buck Stop Here?

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


Nearly one year ago, the Alberta Court of Queen's Bench released its eagerly awaited decision in Redwater Energy Corporation (Re), 2016 ABQB 278 (Redwater). In that decision, Chief Justice Wittmann held that a receiver and trustee (together, a Trustee) is permitted to renounce or disclaim an insolvent debtor's interest in uneconomic licensed assets, while retaining and selling its valuable licensed assets to maximize recovery for its secured creditors  (see our previous Osler Update – Implications of the Redwater decision – Where does the buck stop?).

On April 24, 2017, in a decision that underscores the significant implications of that decision for the regulation of Alberta's oil and gas resources, the Alberta Court of Appeal affirmed the lower Court's decision. Writing for the 2-1 majority, the Honourable Mr. Justice Slatter held that the provisions of Alberta's regulatory regime under the Oil and Gas Conservation Act1 (OGCA) and the Pipeline Act2 (PA) are inoperative to the extent such provisions require a Trustee to satisfy the liability inherent in the abandonment and remediation of an insolvent debtor's oil and gas wells in priority to the claims of its secured creditors. The majority decision determined that the obligations imposed under the OGCA and the PA on Trustees were in operational conflict with the provisions of the Bankruptcy and Insolvency Act3 (BIA) and frustrated its federal purposes of winding up insolvent corporations and settling the priority of creditor claims.

Reframing the issues before the court in her dissent, the Honourable Madam Justice Martin disagreed with the majority and the lower court, holding that "there is no more important arena for co-operative federalism than the environment." Finding no conflict between the provincial regulatory regime and the BIA, and no frustrated federal purpose, Justice Martin held that: (a) the oil and gas licensing regime in Alberta creates end-of-life obligations owed by license holders that are part of the general law of Alberta and exist outside a bankruptcy; (b) continued application of the end-of-life obligations established by the regime is not a monetary claim or an unauthorized priority in bankruptcy, nor does it reorder creditor priorities established by the BIA; and (c) a Trustee cannot, under the BIA or otherwise, renounce the end-of-life obligations of certain licensed assets in favour of transferring other, more valuable, licensed assets for the benefit of the debtor's lenders.

As Justice Martin noted in her dissent that, "The implications [of this decision] for the regulation of Alberta's publicly owned resource, and for the Alberta public, are significant." The "cradle to grave" approach adopted by the AER to the regulation of exploration and development activities has become a "cradle to insolvency" approach, foisting the "to grave" portion of a producer's obligations onto Alberta landowners, the Alberta public and the oil and gas industry. In the words of Justice Martin, such a system alters the "polluter pays" policy to a "third party pays" system. A thoughtful and broad review of the federal insolvency regime by Parliament is necessary to ensure it accounts for the distinct character of the oil and gas regulatory regime in situations of insolvency.  In the meantime, the AER and provincial legislators must rethink how best to ensure the public is not left holding the proverbial bag.


The background to Redwater is well known in Alberta. Redwater Energy (Redwater) was a publicly listed junior oil and gas producer. When its principal secured lender, Alberta Treasury Branches, demanded repayment of its indebtedness, Grant Thornton was appointed Redwater's receiver pursuant to section 243 of the BIA.

Upon appointment, the receiver conducted an assessment of Redwater's licensed assets and advised the AER that it would only take control of approximately 20 of the 127 Redwater properties licensed by the AER. The receiver determined these 20 licensed assets held value, while the rest did not, and so were purportedly renounced or disclaimed.

In response, the AER issued closure and abandonment orders in respect of the renounced assets and filed an application to compel the receiver to comply with the orders and fulfill all statutory obligations of Redwater in relation to the abandonment, reclamation and remediation of the licensed assets.

On October 28, 2015, a bankruptcy order was issued for Redwater, appointing Grant Thornton as trustee in bankruptcy. The trustee disclaimed the assets it had renounced as Receiver and indicated that it did not intend to comply with the closure and abandonment orders.

As discussed in our previous Osler Update, the Alberta Court of Queen's Bench concluded that the claim of Redwater's secured creditor had priority over the obligation to reclaim wells, thereby determining that Trustees were permitted to renounce an insolvent debtor's interest in its licensed assets while keeping and selling valuable licensed assets to maximize recovery for secured creditors. 

The AER and the Orphan Well Association (OWA) both appealed the decision of the Court of Queen's Bench.

Decision of the majority

Writing for the majority, Mr. Justice Slatter found that the abandonment orders and, more broadly, the obligations imposed on Trustees under the OGCA and the PA to abandon and remediate licensed assets as a "licensee" created an operational conflict between the provincial regulatory scheme and the BIA and frustrated the purposes of the BIA.

In finding that an operational conflict existed between the provincial regulatory regime and the BIA, Justice Slatter considered both the effects of section 14.06 of the BIA and whether abandonment orders issued by the AER were properly construed as claims provable in bankruptcy according to the principles outlined by the Supreme Court of Canada in Newfoundland and Labrador v AbitibiBowater Inc.4, 2012 SCC 67.

In reviewing section 14.06 of the BIA, Justice Slatter held that:

(a) absent the specified forms of misconduct in s. 14.06(2)(b), a Trustee is not personally liable for environmental liabilities, meaning that the obligation to remedy that type of damage is are limited to the assets available in the bankrupt estate;

(b) a Trustee can renounce property burdened with environmental liabilities pursuant to both s. 14.06(4) and the BIA more generally;

(c) funds spent remediating environmental issues are not part of the administration costs in the bankruptcy (s. 14.06(6));

(d) a claim arising from environmental damage can be a claim provable in bankruptcy (s. 14.06(8)); and

(e) section 14.06 does not alter the order of payment of claims in bankruptcy under s. 136 of the BIA which provides that all distributions are "subject to the rights of secured parties."

In determining whether the abandonment orders constituted a claim provable in bankruptcy, Justice Slatter applied the three-part test established by the Supreme Court of Canada in AbitibiBowater and found that, among other things, the effect of the abandonment orders was to divert value from the bankrupt estate to ensure that remediation was done, thereby upsetting "the priorities of the BIA," effectively giving environmental claims a super priority over other creditors.

Finding that the abandonment orders constituted provable claims, Justice Slatter concluded that the abandonment orders and, more broadly, the obligations imposed on Trustees under the OGCA and the PA to abandon and remediate licensed assets as a "licensee," conflicted with the provisions of the BIA that exempt a Trustee from personal liability, the provisions allowing a Trustee to disclaim assets, and the provisions respecting the priority of remediation costs. Justice Slatter also held that the obligations imposed on Trustees under the OGCA and the PA to abandon and remediate licensed assets frustrated the federal purpose of managing the winding up of insolvent corporations and settling the priority of claims against them. Accordingly, he held that such licensing obligations were unenforceable by the AER against a Trustee within an insolvency proceeding under the BIA.

The dissent

Madam Justice Martin disagreed with the majority, finding that the framing of the issue by the chambers judge, and the majority as "whether the Regulator can effectively create a priority for abandonment and environmental liabilities in bankruptcy" was incorrect. She found that the premise ought not to be the assumption that licence obligations are debts. Rather, such licensing obligations, including asset end-of-life obligations, are public duties, and the real issue before the Court was better posited as: whether the license obligations created by intra vires provincial legislation conflicted with or frustrated the BIA priority scheme. She found no such conflict or frustration and that the oil and gas licensing regime could co-exist with the BIA priority scheme.

Starting from the proposition that "there is no more important arena for co-operative federalism than the environment," Justice Martin held that "To allow trustees in bankruptcy to pick and choose when they will comply with valid and generally applicable provincial law would be a power so extraordinary that it would require clear and express articulation." Her Ladyship found no such clear and express articulation in the BIA.

Instead, Justice Martin found that licensing abandonment and remediation obligations imposed on Trustees did not constitute claims provable in bankruptcy:

There is no monetary claim that can be compromised in a bankruptcy proceeding here; what we are dealing with are public duties and regulatory obligations that survive the bankruptcy. In law, the end-of-life obligations are licence conditions which must be assumed before an entity may profit from resource extraction. These are costs to comply with generally applicable laws. Even if end-of-life obligations are seen as part of the price of obtaining the desired licence, this does not transform them into a monetary claim in bankruptcy.

Importantly, Justice Martin acknowledged that AER Directive 006: Licensee Liability Rating (LLR) Program and Licence Transfer Process treats all licenses held by a licensee as a "package" and the liability management ratio (LMR) of a licensee, which affects whether and how such assets may be transferred to others, is not assessed on an individual licence or segregated asset basis. She identified three difficulties with the Trustee's proposal to take possession of only 20 of Redwater's licensed assets: 1) there would be no responsible party to respond to any emerging safety or environmental issues; 2) the Trustee, in segregating some of the licensed assets and then avoiding the posting of security normally required to effect the transfer of assumed licenses directly contravened the LLR program and; 3) the debtor's full estate is considered when licenses are granted, and continues to be the guiding factor in any license transfer. Licenses are granted on the basis that the value of all of a licensee's licensed assets are available to satisfy end-of-life obligations, and lenders know this system. Justice Martin considered that, by avoiding the regulatory end-of-life obligations associated with some of a debtor's licenses, the Trustee "seeks to increase the value of the estate above what it would have been but for the bankruptcy."

Regarding section 14.06 of the BIA, Justice Martin held that:

(a) sections 14.06(2) and (4) were intended to protect Trustees in order to avoid them being saddled personally with liabilities the debtor estate could not cover. Neither section prevents the assets of the estate from being used to comply with the order;

(b) sections 14.06(4), (7) and (8) refer to "real property," and s.14.06(4) contemplates the Trustee releasing "an interest in any real property affected by the condition." Alberta's regulatory regime, however, addresses AER-issued licences, which are not real property, and therefore s.14.06(4) "does not grant [Trustees] the right to renounce end-of-life obligations imposed by the regulatory regime." With no entitlement to renounce these obligations, she concluded there is no operational conflict between the BIA and the provincial legislation; and

(c) section 14.06(7) grants the Crown a super-priority in the debtor's real property requiring remediation so that the Crown may recoup some of the costs incurred to clean up the environmental damage on that same property. This provision, and the compromise inherent in it, is effective only in respect of the debtor's real property. It has no application to the oil and gas licensing regime in Alberta, which involves licenses, and not real property.

Finding that: (i) abandonment orders did not constitute a provable claim in bankruptcy; (ii) attempting to file abandonment orders under Alberta's oil and gas licensing regime into s. 14.06 was an "awkward shoehorning"; and (iii)  section 14.06 cannot apply as broadly as submitted by the Trustee; Justice Martin held that the provincial regulatory regime did not clearly conflict with the BIA. As a result, she held that there were no grounds for a declaration that the OGCA and PA were inapplicable in bankruptcy. Trustees are not permitted, by the BIA or otherwise, to disclaim AER-issued licensed assets and avoid the associated of end-of-life obligations owed by the debtor.


Since the lower Court's decision in Redwater last year, the AER has adopted increasingly proactive measures to avoid the Redwater situation. Effective June 20, 2016, substantive changes were made to the transfer requirements for licensees, and licensee eligibility pursuant to Bulletin 2016-16 (see our previous Osler Update - Alberta's Energy Regulator Imposes Further Restrictions on Embattled Energy Industry in Response to Redwater). The changes were designed to "minimize risks to Albertans" arising from the impact of Redwater, while the AER and the Government of Alberta worked to develop "appropriate regulatory measures" to more permanently address Redwater. That work must continue. With the release of the Court of Appeal's decision affirming the lower court's decision, the urgent need for appropriate regulatory measures has increased.

Similarly, in March 2017, the AER took the unprecedented step of seeking the appointment of a receiver to realize upon the assets of Lexin Resources Ltd. to attend to stakeholder and creditor issues and assist with the outstanding environmental and safety issues at the sites owned by Lexin in a court-supervised process.

As discussed both by Justice Slatter and Justice Martin, the issues in Redwater raise various important policy concerns regarding land owners, the public at large and the oil and gas industry. Justice Martin accurately observes that the current regime prescribed under section 14.06 of the BIA for addressing environmental issues does not address the distinct nature and structure of the oil and gas regulation. The complex social, financial, and environmental issues raised in this case demand a broad and thoughtful analysis by Parliament regarding the application of the federal bankruptcy regime to the unique Alberta oil and gas industry.

Interestingly, the majority decision focuses on the risk that if "inchoate environmental claims" (i.e. the AER's control of license transfers) are given a "super priority over even the claims of secured creditors" that lenders will resile from financing industry players. The amount of financing available to the oil and gas industry can only decline substantially should the "contingent risk" of the enforcement of end-of-life obligations continue through bankruptcy. In contrast, in her dissenting reasons, Justice Martin references evidence on the court record that such end-of-life obligations had been expressly considered by ATB and used in calculating the debtor's borrowing base, and acknowledged the AER's concern that permitting a Trustee to shed a debtor's end-of-life obligations would incentivize other licensees to similarly organize their affairs, resulting in more orphaned wells. "If [licensees] are allowed to avoid or evade the end-of-life responsibilities attached to their licenses, abandonment and reclamation ... would likely be among the first sacrifices made in times of fiscal difficulty."

While secured creditors may be satisfied that the buck should stop here, Madam Justice Martin's dissent opens the door to a compelling opportunity for Parliament to resolve the debate, and for an appeal to be made to the Supreme Court of Canada. Until then, an industry still regaining its optimism from stabilizing commodity prices and growing transaction levels after having slashed costs and employees to survive the last 2.5 years, must now brace for anticipated additional economic pressure to fund the work necessary to abandon, reclaim and remediate the wells of others no longer capable of funding their share. We expect that any uncertainty created by the appeal of the lower court's decision regarding the treatment of uneconomic wells in an insolvency will dissipate, while the number of wells renounced by Trustees could increase dramatically. 

Regulation of the oil and gas industry requires a careful balance of the competing interests, rights and obligations of numerous stakeholders. Achieving that balance just got more difficult as sharing the risk of development now takes on a new meaning.


1. Oil and Gas Conservation Act, RSA 2000 c. O-6.

2. Pipeline Act, RSA 2000, c. P-15.

3. Bankruptcy and Insolvency Act, RSC 1985 c. B-3.

4. Newfoundland and Labrador v AbitibiBowater Inc., 2012 SCC 67.

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

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

In association with
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.