Brighter Horizon: Decline in Oilpatch Bankruptcies Offers Hope for Alberta's Orphan Well Challenges

In a notable shift for Alberta's oil and gas sector, higher commodity prices are proving to be a game-changer, ushering in a period of financial stability after years of persistent challenges. The province, once plagued by corporate insolvencies fueled by low commodity prices, is now experiencing a rare trend – a decline in the number of companies failing. This shift is not only reshaping the economic landscape but is also offering relief to Alberta's orphan well dilemma.

With fewer companies facing insolvency, the province is witnessing a corresponding reduction in the abandonment of assets, a situation that often results in environmental and safety hazards. The orphan well problem, a consequence of companies relinquishing assets in the face of financial difficulties, has long been a concern. When companies fail, numerous oil and gas wells, along with facilities and pipelines, are left ownerless, necessitating cleanup efforts.

Lars DePauw, the executive director of the Orphan Well Association, an industry-funded organization, highlights the significant impact of this trend. "If we're not having receiverships, the number of orphans goes down dramatically," he explains. The organization, currently facing an inventory of 1,987 orphan wells for decommissioning, underscores the importance of the financial rebound in mitigating environmental risks.

Decommissioning a well averages around $35,000, while reclaiming a site averages $24,000, with costs varying based on factors such as size, age, and complexity. As Alberta experiences a decline in oil and gas insolvencies, industry professionals, including insolvency lawyers, point to the surge in commodity prices as the driving force behind this positive change.

The shift marks a departure from the challenging era that began in 2014, marked by an oilpatch downturn triggering a wave of insolvencies and a surge in orphaned wells. While the situation reached its peak in 2018, subsequent years continued to pose financial struggles for many companies. However, the recent surge in commodity prices, driven in part by geopolitical events such as the Ukraine war, has resulted in record-breaking profits for companies. These windfalls are being used to reward shareholders and rapidly reduce debts, ushering in a more stable and optimistic chapter for Alberta's oil and gas sector.

A significant shift in mindset among oil and gas executives is reshaping the dynamics of Alberta's energy sector, with a newfound aversion to heavy debt becoming a prevailing sentiment. Jeremy McCrea, Managing Director of Energy Research at Raymond James, notes this fundamental change, stating, "We do not want to employ nearly as much debt as we once had." This strategic shift is a key contributor to the decline in corporate insolvencies, marking a departure from the era of persistent financial challenges.

Beyond financial considerations, the reduction in insolvencies can also be attributed to a fundamental change in the industry landscape. The decline is, in part, due to the consolidation of smaller companies, with many junior oil and gas firms either closing or being acquired by larger entities. Kelsey Meyer, a partner with Bennett Jones LLP, explains that the absence of a new wave of junior companies has contributed to the overall decrease in insolvencies.

This transformation has yielded a leaner industry where surviving companies are experiencing robust profits and adopting a cautious approach to spending. The industry's financial health is further bolstered by a decrease in orphaned wells, a longstanding environmental concern arising from corporate insolvencies.

The decline in insolvencies has significant implications for the Orphan Well Association, facilitating progress in addressing the backlog of orphaned wells dating back to the 2014 downturn. Lars DePauw, Executive Director of the Orphan Well Association, notes that recent regulatory changes are expected to further alleviate the orphaned-well challenge. Mandatory annual expenditures on cleanup and remediation have increased, reaching $700 million. Additionally, enhanced scrutiny on new well license applications ensures that companies demonstrate the financial capacity to fulfill cleanup and closure responsibilities.

While optimism prevails, DePauw acknowledges that challenges persist, with some companies potentially excluded from asset acquisitions under the new regulatory framework. Nevertheless, the collective industry shift and regulatory enhancements signal a positive trajectory, ushering in a more sustainable and responsible era for Alberta's oil and gas sector.

As the pace of corporate insolvencies in Alberta's oil and gas sector slows down, insolvency lawyers find themselves with an unexpected surplus of time on their hands. This lull in their typical caseload has led some lawyers to explore alternative avenues, such as venturing into other legal practice areas, penning articles, and even relishing a bit of downtime.

In this transitional phase, insolvency lawyers have been spotted engaging in activities that were once rare during busier times. Josef Kruger, a seasoned Calgary insolvency lawyer with Borden Ladner Gervais LLP, humorously notes the shift, saying, "When things go slow … suddenly you see insolvency lawyers attending conferences where you would never have seen them in busy times." He adds that these lawyers are seizing the opportunity to build connections by taking licensed insolvency trustees and bankers to lunches and even enjoying a round of golf. The adaptability and resilience of these professionals shine through as they navigate this altered landscape.

This period of relative calm allows insolvency lawyers to diversify their professional interests and cultivate new skills. Some have embraced the chance to attend conferences outside their usual scope, demonstrating a willingness to adapt and explore broader legal horizons.

While the environment may be changing for insolvency lawyers, their ability to "swing with the punches" reflects their resilience and versatility. The evolving landscape prompts a reevaluation of professional priorities and opens doors to a range of experiences, demonstrating the legal community's ability to navigate shifting tides.

Paula Duhatschek, a CBC Calgary reporter with a focus on business, provides insights into this dynamic period, capturing the multifaceted roles of insolvency lawyers as they navigate this unexpected phase in Alberta's legal landscape.

In conclusion, the changing dynamics of Alberta's oil and gas sector, marked by a decline in corporate insolvencies, have left insolvency lawyers with a surplus of time. This unforeseen shift in their workload has prompted these legal professionals to explore alternative avenues, from engaging in other legal practice areas to writing articles and even enjoying some well-deserved downtime.

The adaptability of insolvency lawyers shines through as they navigate this period of relative calm. Rather than viewing it as a setback, many have embraced the opportunity to broaden their professional horizons. Conferences and activities that were once rare during busy times have now become commonplace, showcasing the resilience and versatility of these legal professionals.

As the legal landscape evolves, insolvency lawyers demonstrate their ability to "swing with the punches," leveraging this transitional phase to build connections, explore new areas of law, and engage in activities that contribute to their personal and professional growth. The narrative captured by Paula Duhatschek, a CBC Calgary reporter, reflects the resilience and resourcefulness of the legal community in adapting to changing circumstances. The legal professionals' ability to navigate these shifts not only speaks to their individual adaptability but also underscores the broader capacity of the legal sector to embrace change and explore new opportunities.