THE UNIVERSITY OF CALGARY FACULTY OF LAW BLOG ablawg.ca | 1 November 15, 2017 Orphan Well Association v Grant Thornton Limited: What’s at Stake in Redwater By: Fenner L. Stewart Case Commented On: Orphan Well Association v Grant Thornton Limited, 2017 ABCA 124 (CanLII) (leave granted) I. Introduction This week, the Supreme Court of Canada (SCC) granted leave to the Alberta Energy Regulator (AER) to hear its appeal of Orphan Well Association v Grant Thornton Limited (Redwater) (for more on the Redwater decision, see Nigel Bankes’ post). The Court of Appeal’s decision in Redwater has punched a hole in the AER’s program for ensuring that licencees of oil and gas wells have the capital necessary to satisfy their reclamation and abandonment obligations. The ruling effectively allows trustees in bankruptcy to disclaim worthless assets (e.g., non-producing wells where the abandonment process is not yet complete), while selling valuable assets (e.g., producing wells). Redwater grants secured creditors the best chance possible to be compensated from the bankrupt’s assets, while guaranteeing that Alberta’s oil and gas industry (and potentially taxpayers) pay the cost for the bankrupt’s reclamation and abandonment obligations. As things stand today, if Redwater is not reversed, even more wells will be orphaned, adding to the already alarming number on the books of the Orphan Well Association (OWA). Redwater is only the tip of the iceberg for the problems facing the AER. Following the collapse in oil prices in 2014, the weakness of the AER’s regulatory framework became apparent. Last month, the C.D. Howe Institute released a report, documenting that the number of orphan wells has jumped in Alberta from less than 100 to over 3,000 in 5 years. Moreover, of the 450,000 wells in Alberta today about 35% (i.e., approximately 155,000 wells) are neither producing nor remediated. After applying a variety of stress tests to these wells, the researchers reported the potential “social cost” for orphan wells could range from $130 million to $8 billion. Social cost is a term of art in economics that does not equal the cost to taxpayers, rather it means the sum of private costs (buyer’s costs) plus external costs (other than buyer’s costs). Who pays what portion of these future external costs is still undecided, but as things stand today, these external costs will be paid by the solvent oil and gas companies operating in Alberta. However, if the more dramatic scenarios within the C.D. Howe Report come to pass, it is hard to imagine that Alberta’s taxpayers would not be on the hook for at least a portion, considering the provincial government has stepped in to help in the past (Re Redwater Energy Corporation, 2016 ABQB 278 (CanLII) at para 34). The below outlines how Redwater complicates the daunting challenge facing the Alberta government and the AER to deal with the problem of orphan wells. Part Two sketches the AER’s