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Prior to this decision, lenders operated with the knowledge that the AER would ensure that a bankrupt company’s well assets were first used to satisfy its abandonment and reclamation obligations, before creditors would get a penny from the sale. When the lenders approved loans to exploration and production companies, they based their assessment of credit risk on these rules of the game.

How dire is it that financing for the abandonment and reclamation of wells is lost?

No one, including lenders, predicted the dramatic collapse of oil prices in 2014, but lenders were more prepared to cope than others. Lenders set the interest rate of a given loan in proportion to the risk of lending (which includes such unforeseeable contingencies as the notorious volatility of oil markets). Lenders increase the rate of interest for high-risk borrowers. The premium charged to such borrowers acts as a form of insurance for lenders against the higher risk of default.

The rub is that these lenders did not expect to have access to these assets in the event of bankruptcy, and set interest rates accordingly. In other words, the lenders already hedged their bets on these companies, demanding a higher interest rate than the credit risk otherwise demanded at the time. If the appeal court’s ruling stands, lenders get a windfall.

This windfall comes at the expense of Alberta’s oil and gas industry, taxpayers and landowners who are faced with un-remediated wells, environmental degradation and unexpected clean-up bills. These additional financial pressures on an economy already bludgeoned by the collapse in oil prices will not help Alberta’s high unemployment rate — Statistics Canada in October reported that Edmonton had the highest unemployment rate for any city in the country, with Calgary a close second. This isn’t just a story of Big Oil versus the banks.