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Agriculture

Bankrupt energy companies can’t abandon old wells, Supreme Court rules

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OTTAWA — The Supreme Court of Canada says the trustee for a bankrupt Alberta energy company cannot simply walk away from unprofitable wells on agricultural land without having to clean up.

The high court’s 5-2 ruling comes with a recommendation from Chief Justice Richard Wagner for Parliament to clarify the confusion between the federal bankruptcy law and the regulations provinces rely on to protect the environment.

“Bankruptcy is not a licence to ignore rules, and insolvency professionals are bound by and must comply with valid provincial laws during bankruptcy,” Wagner wrote.

The effect will be to reduce what creditors of bankrupt companies can get back when the companies’ assets are liquidated, because some of the proceeds will have to go to environmental cleanups instead of to repaying loans.

In Calgary Thursday, Alberta Energy Minister Marg McCuaig-Boyd praised the court’s decision and said it gives the province more clout.

“We’re pleased that they’ve upheld the polluter-pay principle,” said McCuaig-Boyd. “It does give clear direction that companies that go bankrupt don’t get to walk away from their responsibilities.”

McCuaig-Boyd said the province continues to work with industry and has been closing loopholes and tightening the rules while it explores long-term solutions, including hard timelines and targets on when companies have to act to clean up orphan wells.

“There will be more onus on people to clean up. In the past we’ve made it easier to just pay rent rather than clean up (the wells),” said McCuaig-Boyd.

She said the province’s energy regulator also has been given more legal authority to stop companies from abandoning a well only to “pop up as another company elsewhere.”

She said 2,400 wells have already been cleaned up, adding that most energy companies are responsible and that the problem is tied to a small number of “bad actors.”

The opposition Alberta party’s leader Stephen Mandel said in a statement that although the decision will likely make it more difficult for oil and gas companies to borrow money, “we also believe that this is the right decision for our environment and that producers must fulfill their environmental obligations to Albertans for reclamation and remediation.”

Thursday’s decision overturns an Alberta Court of Appeal ruling that upheld a 2016 decision in the Alberta Court of Queen’s Bench that allowed a bankrupt energy company to sever its connection with unprofitable and unreclaimed wells when the company’s assets were sold off to creditors, as if the wells were debts that the company couldn’t cover.

The Supreme Court ruled that Redwater Energy Corp.’s bankruptcy trustee, Grant Thornton Ltd., cannot walk away from the company’s obligations to render abandoned wells environmentally safe.

When Redwater went bankrupt, Alberta’s provincial energy regulator ordered Grant Thornton to comply with end-of-life requirements to render Redwater’s abandoned properties environmentally safe.

The trustee did not comply, and filed its own counterclaim that included a challenge to the regulator’s action, citing the paramountcy of federal bankruptcy law.

Alberta’s energy regulator and the Orphan Well Association, an industry-funded group that cleans up wells that nobody else will, appealed the ruling to the high court.

“The end-of-life obligations the Regulator seeks to enforce against Redwater are public duties. Neither the regulator nor the Government of Alberta stands to benefit financially from the enforcement of these obligations,” Wagner wrote. “These public duties are owed, not to a creditor, but, rather, to fellow citizens, and are therefore outside the scope of ‘provable claims’.”

Since the case went to court in 2016, an estimated 1,800 wells representing more than $100 million in liabilities have been abandoned.

The Orphan Well Association’s last annual report said low oil prices had meant a sharp increase in the number of unprofitable wells it has had to take on from bankrupt companies. In 2012, it had 74 dud wells in its inventory; by the end of 2017, the number was 1,778.

“The work we do varies from straightforward to highly complex,” that report said. “On one side of that spectrum is restoring the land on an orphan property that may, for  example, have a low impact in a rural area. On the more complex side, we have safely decommissioned wells with potentially dangerous levels of hydrogen sulphide gas near more densely populated residential areas.”

Orphaned wells are often on rented agricultural land and a group with the support of thousands of farmers also wanted to see the high court reverse the decision. The Action Surface Rights Association intervened in the case because it believes rights of landowners have been overlooked in the case.

Saskatchewan’s government welcomed the decision, too, saying it has 249 orphan wells and a program similar to Alberta’s for dealing with them.

“The Court has made it clear that in the case of receiverships and bankruptcies, the environmental obligations of oil and gas companies take precedence over a company’s other debts,” the province’s Ministry of Energy and Resources said in a statement.

The case featured a novel legal twist.

The previous Alberta appeal court decision that favoured Redwater and Grant Thornton was not unanimous — one judge dissented, Justice Sheilah Martin.

Martin has since been appointed to the Supreme Court. But she did not participate in Thursday’s case.

Nonetheless, Martin’s previous ruling guided the Supreme Court’s ruling on how the key section of the federal bankruptcy act — section 14.04(4) — ought to be interpreted. 

Martin interpreted Parliament’s intent in writing the law as “aimed at concerns about the protection of trustees, not the protection of the full value of the estate for creditors,” Wagner wrote. “I agree with Martin … that there is no basis on which to read the words ‘the trustee is not personally liable’ in s.14.04(4) as encompassing the liability of the bankrupt estate.”

—With files from Dean Bennett in Edmonton.

Mike Blanchfield, The Canadian Press


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Agriculture

PM worries China could target more Canadian goods as fears about soybeans rise

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OTTAWA — Prime Minister Justin Trudeau says he’s worried an ongoing diplomatic dispute could see China target imports of other Canadian agricultural products as concerns grow about soybean shipments in particular.

One industry leader said Thursday that, without a clear explanation, Canadian soybean exports to China plunged suddenly from 3.2 million tons over the final four months of 2018 to just 3,700 tons through the first four months of this year.

Relations between Canada and China have deteriorated since the December arrest in Vancouver of Huawei senior executive Meng Wanzhou at the behest of the United States.

China was outraged by Meng’s arrest and has since detained two Canadians on allegations of espionage and sentenced two other Canadians to death for drug-related convictions. 

Chinese authorities have also blocked imports of Canadian canola seeds, alleging they found pests in shipments, and have increased inspections and paperwork related to pork.

“When it comes to China, obviously, our top concern is the release of Canadians who are detained in an arbitrary way by the Chinese for political reasons,” Trudeau said in French on Thursday during a visit to France, where he marked the 75th anniversary of D-Day. “We are also concerned by their actions on canola and the potential of other actions on other products.”

Trudeau told reporters that he will see if it’s “appropriate or desirable” to have a conversation directly with Chinese President Xi Jinping about a number of bilateral difficulties later this month at the G20 summit in Japan.

Later Thursday, Agriculture Minister Marie-Claude Bibeau told a parliamentary committee that she’s heard concerns about shipments of Canadian soybeans to China.

Ron Davidson, executive director of Soy Canada, said in an interview that China’s purchases of Canadian soybeans collapsed at the end of last year following a run of very strong exports.

“It’s not a slowdown — it’s a virtual halt,” said Davidson, whose members have reported the drop to Bibeau. “We can see what’s happening, but we aren’t certain why.”

He said it’s not unusual to see soybean exports decrease during winter months, but the speed, magnitude and timing of the crash this time around has alarmed the industry.

Davidson said he’s received reports of Canadian soybean containers held up in Chinese ports for longer than usual as authorities there conduct additional tests. It’s possible, he added, that the drop is partly due to an increased reliance by China on soybeans from other parts of the world.

Soybeans are Canada’s third-most valuable agricultural export after canola and wheat, he said.

Any prolonged crackdown by Canada’s second-biggest trading partner on shipments of key products like soybeans and canola could deliver a blow to the national economy.

New data released Thursday from Statistics Canada showed overall exports of canola fell 14.7 per cent in April after China started turning away Canadian canola seed.

Conservative Leader Andrew Scheer’s spokesman said it’s not enough for Trudeau to be concerned because he’s not a casual observer when it comes to the dispute with China.

“He needs to actually do something,” Brock Harrison wrote in an email Thursday.

“Mr. Scheer has on several occasions urged him to take concrete steps to respond to China’s actions against Canada and send a message that Canada won’t be pushed around. He has refused to act.”

The federal government says it has tried unsuccessfully to send a delegation of inspectors to China to examine Chinese evidence of pests in canola shipments. Canada has also been unable to schedule high-level engagements on the matter despite multiple efforts.

Bibeau told MPs Thursday that Canadian scientists finally had a conversation Wednesday night with Chinese customs officials about their canola concerns.

“They agreed to have more sustained discussions, telephone conferences on the subject — and they did not close the door to the delegation,” she said. “We are still asking for that, but the conversation has been re-activated and yesterday we could feel that we were at a different level … This is encouraging.”

Earlier this week, China’s ambassador to Canada said in an interview that Chinese officials investigated Canadian canola based on regulatory and scientific principles, and provided “concrete” documents to Canada to justify their concerns.

Lu Shaye added that the relevant Chinese departments no longer maintained contact with their Canadian counterparts, suggesting the matter was closed.

—Follow @AndyBlatchford on Twitter

Andy Blatchford, The Canadian Press


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China-Canada differences go beyond Beijing’s critical, outgoing envoy: Carr

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OTTAWA — Canada’s trade minister is downplaying the forthcoming departure of China’s outspoken envoy to Ottawa, saying differences between the countries stretch beyond anything at the ambassador’s level.

In an interview Wednesday, Jim Carr said the federal government is awaiting China’s decision on its replacement for outgoing ambassador Lu Shaye, who has had harsh words for Canada during a tenure that began in 2017.

“I don’t think that personalities are what would be at the centre of the issue here,” Carr said when asked about Lu’s past criticisms.

“The job of the ambassador is to express the view of his government. I would only assume that whatever is being spoken by the Chinese ambassador to Canada has the full support of the government, so this is an issue that goes beyond the ambassadorial level.”

Sources say Lu, who appeared to be more comfortable speaking French than English, will leave his Ottawa post in the coming weeks for a new position in Paris. Lu, 54, has also served as China’s ambassador to Senegal and as a counsellor for its foreign service in France, according to a biography on the embassy’s website.

His departure comes at a time, as Lu himself described in an interview Tuesday, of “serious difficulties” between the two countries.

Canada’s relationship with its second-biggest trading partner has deteriorated rapidly since the December arrest of a senior Huawei executive in Vancouver following an extradition request by the United States.

China was outraged by the arrest of Meng Wanzhou and has since detained two Canadians on allegations of espionage, sentenced two Canadians to death for drug-related convictions and blocked key agricultural shipments such as canola.

Lu has used strong words when talking about the relationship — for example, he has called Meng’s arrest the “backstabbing” of a friend and evidence of white supremacism.

He also warned of unspecified “repercussions” if the federal government bars Huawei from selling equipment to build a next-generation 5G wireless network in Canada.

Lu was critical of Canada before Meng’s arrest. Soon after arriving in Canada, Lu said he was struck by the negative view of China that he saw taking shape. In a 2017 interview, he blamed the Canadian media for disseminating a negative portrait of his country that depicted it as an abuser of human rights and of lacking democracy.

He said Canadian politicians sometimes had to “bow before media.”

In Lu’s interview Tuesday with The Canadian Press, he said China was not to blame for the ongoing dispute.

“But the Chinese government is waiting to make a joint effort with the Canadian side and meet each other halfway,” he said without specifying the necessary steps toward a resolution.

When asked about the possibility of freeing Michael Kovrig and Michael Spavor — the Canadians detained in China on espionage charges — Lu said their fates are in the hands of Chinese authorities. On China’s rejection of Canadian canola imports over Chinese allegations of pests, he considers the matter closed.

Carr said the Liberal government still hopes to solve the bilateral differences by engaging China on many levels, not just through an ambassador.

“We will reach out to whomever is in that place and make the same arguments to him or her that we’re making now,” Carr said before leaving for Japan on a trade mission to find new markets for Canadian products, including canola.

Carr said Canada is still keen to send government inspectors to China to explore evidence of pests in the canola shipments. But, he added, China has not invited Canadian experts to do so, and there has been no high-level engagement on the matter despite Canada’s efforts.

This week, China increased inspections of Canadian pork products over its concerns about smuggling and African swine fever — an illness that can be devastating among pigs. It came in addition to previously stated Chinese complaints over the labelling of Canadian pork.

Asked Wednesday if the inspections were a sign the dispute had reached a new level, Agriculture Minister Marie-Claude Bibeau declined to speculate and said: “I don’t want to escalate the situation.”

Word of Lu’s departure comes at a time when Canada does not have an ambassador in Beijing. Last winter, Prime Minister Justin Trudeau fired Canada’s ambassador, John McCallum, for going off-script in the government’s efforts to win the release of Kovrig and Spavor. Before his posting to Beijing, McCallum was a longtime Liberal MP and cabinet minister.

Former Canadian diplomat Colin Robertson, who is now vice-president of the Canadian Global Affairs Institute, said Lu’s departure presents an opportunity to reset the relationship.

“We need to find a way to engage,” he said. “Not having ambassadors who are reliable or trusted is a major handicap.”

Lu did a good job of publicly reflecting the Chinese government’s positions and “seemed to take relish in putting it to us,” Robertson added.

“His words aggravated the situation. Behind closed doors ambassadors are also expected to find solutions and try to nuance divisions. Here I see no evidence of serious effort by Lu Shaye.”

Andy Blatchford and Mike Blanchfield, The Canadian Press

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