How a new legal ruling may help clean up cottage country

Updated: February 15, 2019

Dump trucks driving in a limestone gravel quarry Parmna/shutterstock

Cabin-owners near abandoned gravel pits, quarries, and oil and gas wells may welcome this news: A January 31 ruling by the Supreme Court of Canada may finally kickstart the process of getting defunct resource extraction sites cleaned up.

The background: The case, centred out of Alberta, involved Redwater Energy, a junior oil and gas company that went bankrupt in 2015. Redwater Energy’s trustee wanted to sell off the company’s remaining good wells to pay its debts, but the Alberta Energy Regulator argued that the proceeds should go towards cleaning up the company’s dried wells.

The ruling: After two lower courts ruled in favour of the creditors getting the money, the Supreme Court examined the bankruptcy laws in place and ruled that provinces have the authority to stop bankrupt companies from abandoning energy sites and leaving other companies or the public to pay for their cleanup. Instead, the company’s remaining assets must go towards cleaning up the sites before paying off creditors.

Who holds the bag: But each energy site is slightly different. In the case of oil and gas wells, they’re typically found on farm or crown land in Alberta, Saskatchewan, and British Columbia, meaning the company has a lease. “When a well is spent and done, the usual process is then that the oil company would decommission the well, basically seal it off. Then they have to remediate, reclaim the land back to the equivalent surroundings,” says Barry Robinson a lawyer with Ecojustice, a non-profit environmental law organization. Whereas the land used to operate gravel pits, quarries, and other sites more common in cottage country in central Canada is typically owned by the company. Regardless, “if the Ontario government were to say, ‘There’s some contamination on this land or there’s some reclamation that needs to be done,’ under this ruling, they could give that order to the trustee who’s now holding the bankrupt property,” Robinson says.

The catch: The one glaring issue is that the trustee is only required to do something if they’re holding assets from the company. So, if the company goes bankrupt and doesn’t have the assets to pay for the cleanup, it doesn’t happen, regardless of who gets paid first. “Being first in line for zero is the same as being fifth in line for zero. It doesn’t matter.”

The trustee is not obligated to pay out of their own pocket for the cleanup. And if the property is the company’s only remaining asset then “the government can’t force them to do anything, even under this ruling,” Robinson says. There is, however, another provision in the bankruptcy act that states that if the government issues an order to cleanup contaminated land and the trustee doesn’t, then the government may step in and cleanup the land themselves, obtaining a lien—a right to the possession of the property until the debt is paid—on the land.

But Robinson says this would likely only happen if it was valuable to the government. “A government’s not going to step in and spend $2 million to clean up a property that’s only going to be worth $1 million when it’s sold.”

The upshot: While this ruling certainly doesn’t mean all abandoned energy sites will suddenly be cleaned up, it is a step towards keeping companies accountable for the land they use. In the case of Redwater Energy, for instance, they had $4 million in assets remaining, which normally would have gone towards paying off their $5 million debt to the Alberta Treasury Branch, but is now going towards cleaning up oil and gas wells.

This also has ramifications on money lending. The next time an energy company comes looking for funds, “I think the banks are going to be looking for a lot more security up front.” Which may force the companies to be more environmentally accountable knowing they’ll have to pay for the cleanup and their debts. “What the court clarified in Redwater was the trustee does have to do the work,” Robinson says. “If there’s some kind of environmental order on the land, they can’t just disclaim it, they have to do some work.”

 

 

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