SCC Says Orphan Wells Cannot Be Ignored

"[B]ankruptcy is not a license to ignore rules"—so said the majority in Canada's highest court in the Redwater decision, holding that there was no conflict between Albertan energy and environmental legislation and federal bankruptcy law. This decision has serious implications for sector participants and lenders in the oil and gas landscape in Alberta.

What You Need To Know

• Impact on lending: For secured lenders, the decision underscores how important it is to consider the financial implications of environmental end-of-life obligations when assessing whether, and on what terms, to extend financing to oil and gas companies. Considerations will include what types of financial reserves will have to be held against traditional lending values to account for these obligations as it would be unrealistic to expect lenders to bear the risk of a company's management (or lack thereof) of such obligations, where such obligations, by the SCC's admission, are too remote and