If you ran an oil and gas company into the ground while also helping dump hundreds of millions of dollars in environmental liabilities onto the Orphan Well Association, you’d think it would be cause for a bit of embarrassment. In Alberta, it’s apparently worthy of celebration.
On Sept. 18, the Canadian Chamber of Commerce honoured Perpetual Energy CEO Sue Riddell Rose as its “Canadian Business Leader of the Year” at a Calgary gala sponsored by oil and gas lobby groups, banks, and a wide variety of oil and gas companies. According to the description, “the evening was marked by heartfelt tributes, smooth jazz, and a room full of distinguished guests eager to celebrate these remarkable individuals.”
Notably absent from the evening's festivities was the truth. Perpetual’s share price is down 99.9 per cent since its debut on the Toronto Stock exchange in 2002, a performance that doesn’t exactly scream “leadership” to me. But as new reporting by the CBC’s Kyle Bakx makes clear, it’s not just her shareholders who have borne the brunt of her management decisions over the years. And maybe, just maybe, that’s the leadership the dinner’s organizers set out to honour.
Let’s all flash back to 2016, when Perpetual, under the guidance of Riddell Rose, struck a deal with a company called Sequoia Resources that included transfering almost 2,000 old gas wells with environmental liabilities worth an estimated $225 million to it for the princely sum of $1. That wasn’t the only red flag. As a case summary by the law firm Osler notes, the deal “was structured such that the legacy assets could be transferred without triggering a regulatory review process from the Alberta Energy Regulator (AER).”
Sure enough, Sequoia Resources filed for bankruptcy 18 months later, leaving the Orphan Well Association — and by extension, the public — holding the bag on all of those old wells. The company’s court-appointed bankruptcy trustee, PwC, sued Perpetual for its conduct, alleging that it knew the very nature of the deal would inevitably sink the buyer under the weight of the liabilities it had taken on. As Drew Yewchuk, a staff lawyer with the University of Calgary’s Public Interest Law Clinic, wrote back in 2022, “The Trustee takes the position that the Perpetual Group transferred non-producing wells to Sequoia knowing that Sequoia would carry the Perpetual Group’s ARO [asset retirement obligations] into bankruptcy, allowing the surviving members of the Perpetual Group to evade the ARO management system.”
As if to add even more insult to this financial injury, Perpetual shifted most of its remaining assets into a new company called Rubellite Energy in 2021 that just happened to share the same employees and office space as Perpetual. As both the Orphan Well Association and PwC argued in court, this amounted to an attempt to shield them from any potential court judgments. “The Rubellite transactions and the proposed arrangement represent a radical solution to Perpetual's overwhelming financial problems: the establishment of Rubellite as a successor entity, free of Perpetual's obligations, to its creditors and other stakeholders," PwC submitted in a court filing.
Eventually, after a series of court decisions, the trustee and the company settled the case in March of this year. Perpetual agreed to pay $30 million to PwC “without any party admitting liability, wrongdoing or violation of law, regulations, public policy or fiduciary duties.” In what is surely just a coincidence, Perpetual and Rubellite were merged back into one entity after the settlement was reached.
Why did the plaintiffs settle the case? Because, it seems, bringing it to trial wasn’t worth the legal costs the bankruptcy trustee and other plaintiffs would continue to incur, given that the settlement amount was already equivalent to Perpetual’s market value. “Even if the trustee is successful ultimately, the Perpetual defendants are unlikely to be able to pay any significant monetary judgment in favour of the trustee,” PwC senior vice president Paul Darby said in an affidavit. “Any attempt to enforce a monetary judgement against (Riddell) Rose personally would likely mean significant further delay and expense.”
It’s tempting to suggest that folks like Riddell Rose have learned their lesson here, but it’s just as likely that her peers in the oil and gas industry have learned that there’s no real punishment — legal or social — attached to her sort of failure. As Energy Minister Brian Jean hinted at last month, the public will end up covering a larger share of the cost associated with addressing Alberta’s growing pool of reclamation liabilities, whether it’s through direct incentives to companies or some other form of carrot-based encouragement. That’s on top of the $1.7 billion Ottawa already sent to Alberta, BC, and Saskatchewan to help them clean up the old wells left behind by failed oil and gas companies like Sequoia.
And as the Globe and Mail’s Emma Graney reported on last week, the government won’t be asking oil sands companies to put more money up to cover the multi-billion dollar bill on cleaning up their massive messes either. “Liabilities have skyrocketed by billions of dollars since 2010,” Graney writes, “even though oil companies have added just a single dollar into the province’s cleanup coffers.”
Less than a dollar, actually. But in time, and perhaps not that much of it, the cleanup costs Perpetual Energy helped foist onto the Orphan Well Association (and by extension, the public) may seem like a mere rounding error compared to what the oil sands has in store for us. The CEOs who helped create these messes will probably continue to be feted as great business leaders, all evidence to the contrary notwithstanding.
Comments
"The CEOs who helped create these messes will probably continue to be feted as great business leaders, all evidence to the contrary notwithstanding."
Yes, great business leaders in corruption and enrichment of a corrupt industry, while screwing over tax payers. The CEO should be up for fraud & corruption and serving jail time, not being praised as a faux business leader.
This obsenity can drive any sane person mad!!!
It is obviously «the common sense policy» of PP; the middle class must pay for the orphan wells so that rich Oil executives can have a party at taxpayers' expenses.
And the UCP wants to highjack 53% of Canada's pension funds to help pay for all those orphans wells!!!
In Alberta we revere the "community builders" who turn the oilsands region into an ecological sacrifice zone, imperil public health, trample the human rights of indigenous communities on the frontlines of "development", generate dead-end jobs, dump billions of dollars of liabilities onto the public purse, milk governments for endless subsidies, and, when the oil price is up, fill our treasuries with illusory wealth.
"That’s on top of the $1.7 billion Ottawa already sent to Alberta, BC, and Saskatchewan to help them clean up the old wells left behind by failed oil and gas companies like Sequoia."
Or, more accurately, left behind by failed oil and gas companies like Perpetual and oil barons like Sue Riddell Rose.
This practice is known as "liability dumping".
It's not just the small companies either.
In spring 2020, the federal government committed $1.7-billion for inactive and orphan ($200 M) site clean up in the 3 western provinces. Half of the more than $400 million went to sites held by 8 companies — including CNRL, Cenovus, Husky Oil, Imperial Oil, and Torxen. $100 million went to sites licensed to CNRL with "an average annual profit of $1.9 billion over the last decade".
The oil & gas industry has been digging into taxpayers' pockets for reclamation and cleanup costs for over a decade. Now it wants our tax dollars to cut emissions via CCS.
Recall O&G lobbyist/Premier D. Smith's RStar scheme to reward delinquent O&G companies for inactive well clean up. $100 million in royalty credits for pilot project — $20 billion with a B for the full-blown plan. That obscene project has not gone away.
The companies that stand to benefit most from RStar are viable companies making record profits:
According to Scotiabank, the companies that stand to benefit most from the program are CNRL, Cenovus Energy, Paramount Resources and Whitecap Resources. "In their last quarterly reports, those companies recorded a combined net income of nearly $5 billion." (CP, 10-Feb-23)
As UofA energy economist Andrew Leach notes, "The R-Star subsidy will go mostly to healthy companies with large reclamation liabilities. More than 85% of cleanup liabilities are held by companies in strong financial positions. These companies have a lot of required cleanup work to do and the money to do it."
RStar was designed by industry. Formulated by the same O&G interests who are responsible for the problem and now want to be rewarded for it.
For decades, large companies have dumped their liabilities on small companies that could not afford to pay. As Smith acknowledged in her July 2021 RStar letter to Energy Minister Savage:
"Meanwhile, ... the regulator permitted well financed large companies to offload significant liabilities to small companies that have become overburdened with wellsite cleanup responsibilities that exceeded their ability to pay."
In bad times, the oil industry says it can't afford to clean up. In good times, the oil industry invests in more production instead.
Well cleanup is delayed indefinitely, until it can be dumped onto taxpayers.
That's the game. Ethical oil.
"Unscrupulous operators have been known to suspend wells indefinitely rather than pay to remediate and reclaim the site." (Calgary Herald, 2016)
Crony capitalism at its finest.
"Hustle in the oil patch: Inside a looming financial and environmental crisis" (Globe and Mail, 2018)
"In the oil patch, pliant regulators have enabled well-known companies, including Husky Energy Inc., Enerplus Corp. and others, to foist cleanup costs onto small companies that are buying up the distressed wells of those bigger players. In some cases, those smaller players are purchasing the assets even though they are unable to secure financing from major banks."
"Keith Wilson, an Edmonton-based lawyer who represents landowners in disputes with energy companies, is blunt. 'The commerce of the business is to take high-value producing wells, produce them as much as you can, and then, as soon as the economics become marginal, hand them off to someone else and include the liability within it.'
"...At least 140,367 oil and gas wells have changed hands in Western Canada since 2015, some for as little as $1.
"The sellers include big names in the oil patch, while many of the buyers are little-known companies."
"...A booming trade of unprofitable oil and gas wells in Western Canada is allowing companies to evade cleanup costs. Just a few years after the oil boom, energy companies are shedding distressed wells in Alberta, B.C. and Saskatchewan for next to nothing. And it's going virtually unchecked by regulators. Who will pay to clean it up?"
https://www.theglobeandmail.com/canada/article-hustle-in-the-oil-patch-…
"'Blindsided': Alberta farmers fret as regulator eyes moving bankrupt company's idle oil wells to new insolvent firm" (Financial Post, Sep 22, 2021)
"Companies have been using the bankruptcy process to separate their profitable assets from their unprofitable ones, dumping the old and unwanted wells in a shell company bound for bankruptcy, which more often than not causes the wells to end up in the care of the Orphan Well Association (OWA)."
https://financialpost.com/commodities/energy/oil-gas/blindsided-alberta…
Moral of the story:
Small-scale looters may be shot on sight.
Looters in the big leagues are wined and dined.
That about nails it. Alberta's natural resources have been mismanaged often deliberately in industry's favour ever since Peter Lougheed left office. The most irksome thing is how pliant the feds are in giving a highly profitable industry money to clean up its own mess and to expand, in theory with unrealistic technology. This applies to Liberals and Conservatives alike, and probably the NDP too given their industrial labour base.
Max Fawcett makes a good point in drawing our attention to the grand daddy of all looming cleaups: The moonscape created by oilsands operations. When that giant bird finally lumbers home to roost, my guess is that most of the foreign owned oil companies (80% of CAPP's clientele) will have already pulled out of Canada. And there will be no wind or solar or geothermal power to take their place in future.
With no plan to build a clean modern industrial base, Alberta will be back to cattle and wheat and probably even more resentment for the Eastern Bastards who, so their narrative goes, are to blame for every ill that ever befell Alberta and perhaps even for individual bad hair and burnt toast days too.
The politics of resentment and rage never looks inward. The rest of Canada needs to ignore it.