Canadian Lawyer InHouse

JULY 2016 6 INHOUSE News Roundup Environment, future of companies take back seat to creditors in oil well case I t's being viewed as a win for the banks but a loss for insolvent oil companies and the environment. Alberta Court of Queen's Bench Chief Justice Neil Wittmann ruled last week in favour of insolvent Redwater Energy and against requirements around dealing with non-performing oil wells in an insolvency situation. In the May 17 decision, Wittmann de- cided in favour of Grant Thornton Ltd., the bankruptcy trustee in the Redwater Energy Corp.'s receivership and bankruptcy pro- ceedings, upholding its right to "disclaim" Redwater's non-producing oil wells and sell its producing wells. Redwater was a junior oil and gas produc- er that went into insolvency in the spring of 2015. It owed its bank, ATP Financial, about $5 million. Upon appointment, the receiver conduct- ed an assessment of Redwater's assets and advised the Alberta Energy Regulator that of the 91 wells to which Redwater held li- cences, it would only be taking possession of 20 wells, facilities, and associated pipelines. It was a case being watched closely by those in the oil sector — especially the banks. At issue was whether the provincial regulatory regime under the Oil and Gas Conservation Act and the Pipeline Act con- fl icted operationally with the federal Bank- ruptcy and Insolvency Act. Wittman looked to the Supreme Court of Canada's 2012 decision in Newfoundland and Labrador v. AbitibiBowater to decide if it is something that in fact falls within the jurisdiction of the federal legislation. The decision dismissed the application of the AER and Orphan Well Association, which argued that Grant Thornton should have to carry out the abandonment, rec- lamation, and remediation obligations of Redwater's non-producing wells or perform abandonment orders as issued by the AER, which included paying a security deposit. The implications of this decision for the Alberta oil and gas industry are far-reach- ing, says Melanie Gaston, a partner with Osler Hoskin & Harcourt LLP in Calgary. "Typically, a receiver takes the less prof- itable wells or those that require decommis- sioning and sells them as packages. Now, with this decision, it's clear that doesn't need to happen. They can go in and pick the good, producing wells and leave the non-profi table ones," says Gaston. "If I'm an oil company and I'm restructuring, what I'm left with post-restructuring is not nec- essarily all that helpful." The question now becomes how to fund dealing with the non-producing wells of companies in an insolvency position. The court's decision may lead to a dramatic in- crease in the number of wells determined to be "orphaned" by the AER. This will un- doubtedly increase pressure on industry to fund the completion of work to abandon and remediate such wells, and on the boards of di- rectors who serve companies in the industry. "With these decisions, the regulator is in a tough position because it will now be bur- dened with, potentially, exponentially more wells to manage with the Orphan Well Fund," says Gaston. If the legislation remains the same, the regulator will be left to fi nd other sources of funding to manage it — possibly an in- creased levy on the oil companies already hurt by low prices and the fi res in Fort Mc- Murray, or approaching the government for an injection of funds from the taxpayers — just another hit for Albertans. "The oil companies are now going to be challenged by what happens to them because it does give them some uncertainty. Is the AER, through the Orphan Well Fund, now going to increase levies so they have to pay more and, therefore, essentially support oth- er players in the industry without having the necessary liquidity to do that right now?" The court's decision (which has not yet been posted publicly) does, however, pro- vide certainty to secured lenders that the priority is maintained over their interests. "This certainty should result in contin- ued access by the oil and gas industry to readily available credit," Gaston wrote in a post last week about the decision. Gowling WLG and Cassels Brock LLP served as co-counsel to Grant Thornton throughout the proceedings. They were not available for comment at time of posting. It is expected an appeal will be launched. IH Are women GCs more conscious of the value, cost of legal services? G ender drives different buying be- haviours in-house, according to a new survey that looks at the infl u- ence diversity has on the legal market, and the gap in pay for women. The Acritas Diversity Report released last week found a defi nite difference in how men and women choose legal service pro- viders for different reasons. The survey of 1,771 senior in-house counsel found that, overall, male general counsel get paid more than female general counsel, and that male GCs spend more on legal services than female GCs. It also found just 25 per cent of legal teams are diverse and yet the payoff is demonstrat- ed in increased share of spending and more likely to be recommended to client peers. While quality and specialized knowledge top the list for both genders, senior male in-house counsel base their preferences for legal support on results, fi rm reputation, relationships, breadth of service, and na- tional/local coverage and knowledge. However, senior women in-house counsel are more attracted to fi rms that understand their business, are effi cient, client focused, and commercially minded — business savvy and strategic in the way they deliver advice. Lisa Hart Shepherd, CEO of Acritas, says

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