Prioritizing environmental clean-ups could make lenders wary
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A ruling by the Supreme Court could impact lenders’ decisions on providing credit to the oil and gas industry according to financial analysts.
The court ruled Thursday that the trustee for bankrupt Redwater Energy cannot refuse to pay the cost of cleaning up uneconomic oil wells.
The Alberta Energy Regulator and provincial government’s case was that firms should not use bankruptcy as a way to dodge environmental responsibilities.
But financial analysts are concerned that the case may lead to caution among lenders and even insolvency practitioners who may be concerned that their costs would have low priority behind environmental costs.
“Bankruptcy is not a license to ignore rules, and insolvency professionals are bound by and must comply with valid provincial laws during bankruptcy,” said Supreme Court Justice Richard Wagner.
But the Canadian Association of Petroleum Producers has welcomed the Supreme Court decision.
“CAPP has argued on behalf of industry that when a company declares bankruptcy, the value of any assets should go to abandonment and reclamation costs first,” said Brad Herald, Vice-President Western Canada Operations.
He said The Orphan Well Association, which is funded by industry, should be a last resort and only used after all other sources of funding are exhausted.
“CAPP believes that this judgment restores the balance between environmental obligations and creditor interests to that which existed for many years before this case. CAPP will continue reviewing the details of the judgment to assess the full implications of the ruling,” concluded Herald.
