Last week the Supreme Court of Canada issued its ruling on the Redwater Energy Corp. appeal. The Supreme Court of Canada has ruled that oil and gas production companies’ environmental liabilities should take precedent over debt re-payment to creditors in the event of an insolvency. This means that the proceeds from asset sales of insolvent oil and gas companies will now be used for environmental clean-up purposes first and foremost. This has been a closely monitored case with major implications to all parties involved, including oil and gas producers, regulatory bodies and financial institutions. Although this was a welcome outcome by Edge Liability Risk Management (“Edge”) and many other industry groups, there are a number of potential repercussions that need to be considered.
There are two immediate areas of focus:
- Understanding Environmental Liabilities
This ruling will result in a significant shift in risk tolerance from financial institutions associated with funding oil and gas companies. It will be of paramount importance for lenders, financial institutions, private equity firms and other providers of capital to have a complete picture of the environmental liabilities associated with producers. While many of these arrangements would have fit the risk appetite of capital providers at the time, when debt repayment got priority, this is no longer the case.
How can Edge Liability Risk Management Help?
Edge has developed and successfully implemented an industry-leading due diligence program for analyzing environmental liabilities with a focus on abandonment and reclamation risk assessment. Our experienced team has worked in conjunction with global engineers, actuaries and insurance underwriters to build our due diligence program to offer the most comprehensive environmental liability risk management tool in the industry.
- Reducing Risk Exposure
Given the ruling, operators and lenders will have a limited risk appetite for taking on any environmental liabilities. Companies that took on significant abandonment and reclamation liabilities to execute growth plans will struggle to attain funding while capital providers will push for their clients to start shedding liability.
How can Edge Liability Risk Management Help?
In conjunction with our global insurance partners, Edge has developed a business model and insurance solution that can help clients to shed environmental liability. Our model increases property values, reduces liability exposure and expands the list of potential buyers, creating a valuable exit strategy for management teams and capital providers.
Overall, Edge believes that the right decision was reached by the Supreme Court of Canada and that it is a step in the right direction to help mitigate the risks associated with oil and gas environmental liabilities in western Canada. However, this is only the first of many steps required to tackle this issue. Disruption and innovation will be the key to making a lasting impact on the problems at hand, of which Edge Liability Risk Management is at the forefront.
This is a pivotal time for the energy industry. Edge Liability Risk Management’s suite of innovative and value-added solutions can help operators and lenders navigate, and thrive in, this new climate of environmental liabilities.
Sincerely,
Lex Ewen
CEO
Edge Liability Risk Management
Contact:
Greg A. Sawchenko
VP Business Development
greg.sawchenko@edgelrm.com
(587) 438-6410
ABOUT EDGE LIABILITY RISK MANAGEMENT:
Edge Liability Risk Management (“Edge”) is a firm that specializes in the management of oil and gas environmental liabilities, with a focus on risk assessment. Edge’s industry leading solutions allow operators to realize higher sale multiples on properties and unlock deals for properties that were once seen as unsellable. Our goal is to help operators turn their liabilities into opportunities.