​Trident bankruptcy may show lenders viewing oil and gas differently: CAPP

Image: JWN

The bankruptcy of an energy company that plans to walk away from thousands of gas wells may be a sign lenders are changing how they look at the industry in light of a recent Supreme Court ruling.

“The credit industry is evolving the way it looks at risk,” said Brad Herald, a vice-president with the Canadian Association of Petroleum Producers. “We knew there could be some increased defaults because of that evolving assessment.”

On Wednesday, Trident Exploration of Calgary announced it was shutting its doors and abandoning 4,392 licensed wells, pipelines and other facilities.

“The combination of extremely low natural gas prices and high surface lease and property tax payments has exhausted the liquidity of the company,” Trident said in a release.

“Ultimately, the recent Redwater decision, regulatory uncertainty and a lack of egress has created a treacherous environment for energy investors that dare to risk their capital in Canada.”

The high court's Redwater decision says failing companies can't escape their cleanup responsibilities by declaring bankruptcy. The costs must be covered before remaining assets can be sold to pay creditors.

That ruling came after thousands of wells from bankrupt companies were off-loaded to the Orphan Well Association, which pays for cleanup from a levy paid by all energy companies. So many wells have been abandoned during the industry's ongoing downturn that the Alberta government had to lend the group $250 million.

The ruling is having an impact, said Herald.

“I think the way (lenders) look at end-of-life obligations and risk is changing. They're probably doing more diligence with companies.”

That's a good thing, said Nigel Bankes, a resource law professor at the University of Calgary.

“Now (creditors) know they're not first in line because public law obligations take precedence. I would have thought that is generally in the public interest.”

The Alberta Energy Regulator said Trident owned 3,358 operating wells, 294 abandoned wells, 502 pipeline licences, 211 operating facilities and 27 abandoned facilities.

The regulator said the estimated remediation cost for the sites is $259 million.

Many, if not most, are likely to be sold, Herald said.

`”he headline number is big, but all of those may not crystallize as orphans. There may be somebody who's better financed or has a longer view to overcome some of the short-term tumult.”

Any proceeds would go toward the cleanup. Many of the wells were probably part-owned by another company and the regulator could go after them as well, Bankes suggested.

“The AER would be within its rights to issue an order to one of those parties saying, ‘You take over the licencee responsibility for this well.’”

A spokesman for the regulator said it's on the case.

“The AER will pursue all options to ensure that Trident's infrastructure is transferred to responsible operators, safely decommissioned, or, as a last resort, transferred to the Orphan Well Association,” said Shawn Roth in an email.

Alberta still hasn't found the right way to encourage investment while ensuring failing companies clean up their mess, said Nina Lothian of the Pembina Institute, a clean energy think-tank.

She said the government and regulator could start by providing a clearer picture of the energy industry's environmental liabilities in the province.

“It continues to be an example of weaknesses in our regulatory framework around how we address end-of-life obligations,” Lothian said.

© 2019 The Canadian Press