Canada court upholds judgment favoring oil firm creditors

CALGARY, Alberta (Reuters) - A Canadian court on Monday upheld a decision to grant lenders priority over environmental clean-up costs in oil-and-gas bankruptcies, raising chances more disused wells from defunct companies could become a government responsibility.

That could further strain the government-run, industry-funded Orphan Well Association (OWA), which cleans up wells for which no party is legally responsible. The group has said it needs extra funding and upping levies for producers is an option.

Last year, a court in Canada’s oil heartland of Alberta ruled that proceeds from the sale of assets belonging to privately held Redwater Energy Corp would go first to secured creditors, rather than toward cleaning up the company’s inactive oil and gas wells.

The OWA and its parent, the Alberta Energy Regulator (AER), had appealed that decision.

Alberta’s Court of Appeal on Monday ruled 2-1 against them, saying the previous decision contained no errors.

The AER said in a statement it is disappointed at the decision and is studying it to determine whether to appeal further.

The number of so-called orphan wells in Canada spiked after the 2014 oil price crash as layoffs swept the oil patch and companies went bankrupt. Alberta, which produces about 80 percent of Canada’s crude, had more than 1,500 orphan wells in February, up from 26 in 2012.

This year’s federal budget allocated C$30 million to Alberta to stimulate economic activity and employment in the resource sector, which Premier Rachel Notley said would be used to clean up orphan wells.

Reporting by Ethan Lou in Calgary, Alberta; Editing by Andrew Hay