COURT FILE NUMBER 2001- COURT COURT OF QUEEN’S BENCH OF ALBERTA JUDICIAL CENTRE CALGARY APPLICANT ORPHAN WELL ASSOCIATION RESPONDENT BOW RIVER ENERGY LTD. DOCUMENT BRIEF OF ARGUMENT OF THE ORPHAN WELL ASSOCIATION AND THE ALBERTA ENERGY REGULATOR ADDRESS FOR SERVICE MLT Aikins LLP AND CONTACT 2100, 222 3rd Avenue SW INFORMATION OF PARTY Calgary, Alberta T2P 0B4 FILING THIS DOCUMENT Phone: 403.693.5420/4347 Fax: 403.508.4349 Attention: Ryan Zahara/Catrina Webster Email: [email protected]/[email protected] File: 0147836.00001 22927695 TABLE OF CONTENTS A. INTRODUCTION - 1 - B. BACKGROUND - 2 - The SISP Application - 3 - Following Completion of the SISP - 3 - C. ISSUES - 6 - D. LAW AND ARGUMENT - 6 - Terms of the SH APA - 8 - The SAVO - 9 - Whether the process leading to the proposed sale or disposition was reasonable in the circumstances - 10 - Whether the monitor approved the process leading to the proposed sale or disposition - 11 - Whether the monitor filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy; - 12 - The extent to which the creditors were consulted - 12 - The effects of the proposed sale or disposition on the creditors and other interested parties - 12 - Whether the consideration to be received for the assets is reasonable and fair, taking into account their market value - 14 - It is Just and Convenient to grant a Receivership Order - 17 - Serious Issue to be Tried - 20 - Balance of Convenience Test - 21 - Receivership is Appropriate in the Circumstances - 24 - The Objection to the SAVO is not a Collateral Attack - 25 - The Approval of the SISP and the SH APA does not make SAVO Res Judicata - 28 - The AER has acted in Good Faith - 33 - Interim Injunction - 34 - 22927695 A. INTRODUCTION 1. This Brief is submitted on behalf of the Applicant, Orphan Well Association (the “OWA”), and the relief sought herein is supported by the Alberta Energy Regulator (the “AER”), in support of an application (the “Receivership Application”) for the appointment of BDO Canada Limited as receiver and manager (the “Receiver”) over the property, assets and undertakings located in the Province of Alberta (the “Property”) of Bow River Energy Ltd. (“Bow River”) and in opposition to the application (the “SAVO Application”) by 2270943 Alberta Ltd. (“227 Alberta”) for a sale approval and vesting order (the “SAVO”) in respect of certain assets (the “227 Assets”) of Bow River. 2. The AER and OWA are seeking to enforce compliance with the end-of-life obligations of Bow River with respect to the licensed wells, facilities and pipeline segments of Bow River (the “Licensed Assets”), are acting in a bona fide regulatory capacity, do not stand to benefit financially and are not acting as a creditor of Bow River. The AER and the OWA’s ultimate goal is to have the environmental and end-of-life obligations (collectively, the “EOL Obligations”) of Bow River associated with the Licensed Assets satisfied or addressed by Bow River to the fullest extent possible. 3. The AER and the OWA at all times advised Bow River that it would not agree to any transaction that did not fully deal with the outstanding EOL Obligations of Bow River within the Companies’ Creditors Arrangement Act RSC c C-36, as amended (the “CCAA”) proceedings.1 The AER and the OWA cannot now be estopped from objecting to the SAVO and to any return of value to the creditors of Bow River prior to the satisfaction of the EOL Obligations of Bow River. There is no proposed sale or result presently before the Court that would allow Bow River to fully satisfy all of its EOL Obligations. 4. There is no legal precedent or authority for the approval of the transaction as contemplated by 227 Alberta’s stalking horse asset purchase agreement dated July 17, 2020 and as amended on July 21, 2020 (the “SH APA”) and the AER and the OWA submit that any SAVO in respect of the SH APA would be contrary to the decision of the Supreme Court of Canada (the “SCC”) in the case of Orphan Well Association and 1 Companies’ Creditors Arrangement Act, 1985, c C-36, at TAB “1”. 22927695 - 2 - Alberta Energy Regulator v. Grant Thornton Limited and ATB Financial 2019 SCC 5 (“Redwater”).2 5. Bow River has advised that it will cease operations effective October 29, 20203 and after that date will not have any directors or officers, employees or contractors, and no financial resources to provide care and control of the Licensed Assets. Accordingly, on October 21, 2020, the AER issued Order AD 2020-033 (the “Suspension and Abandonment Order”) to Bow River in respect of all of the Licensed Assets.4 After October 29, 2020 there is no entity that will be in a position to have care and control of all of the Licensed Assets or that is capable of complying with the ongoing regulatory and legislative requirements associated with the Licensed Assets.5 6. The AER and the OWA submit that it is just and convenient, as well as necessary, that BDO Canada Limited be appointed as receiver and manager (the “Receiver”) over the Property. B. BACKGROUND 7. The OWA is an independent non-profit organization that operates under the delegated legal authority of the AER. The mandate of the OWA is to safely decommission orphaned oil and gas wells, pipelines and production facilities where the owners of such wells, pipelines and production facilities are insolvent, and to restore the land on which these assets are located as close to the original state as possible.6 8. The AER was established by the Responsible Energy Development Act SA 2012 c R- 17.3 and acts as the single regulator of all upstream oil and gas activities in the Province of Alberta. The AER's mandate includes providing efficient, safe, orderly and environmentally responsible development of energy resources in Alberta. 9. The AER, in carrying out its mandate, establishes rules and issues licenses, approvals, permits, orders, decisions and directions in furtherance of the purposes of AER 2 Orphan Well Association and Alberta Energy Regulator v. Grant Thornton Limited and ATB Financial, 2019 SCC 5 (“Redwater”), at para. 128, at TAB “2”. 3 Affidavit of Lars DePauw, sworn on October 21, 2020 (the “OWA Affidavit”) at para. 14; Affidavit of Maria Lavelle, sworn on October 21, 2020 (the “AER Affidavit”) at para. 27. 4 OWA Affidavit, at para. 16; AER Affidavit, at para. 26. 5 OWA Affidavit, at para. 14; AER Affidavit, at para. 27. 6 OWA Affidavit, at para. 3. 22927695 - 3 - administered legislation, including the Oil and Gas Conservation Act RSA 2000, c O-6 (the “OGCA”).7 The SISP Application 10. On July 21, 2020, prior to the July 24, 2020 application (the “SISP Application”) of Bow River for approval of the SISP and the SH APA, the AER sent correspondence to Bow River and the Monitor’s counsel that the AER: a. reserved its position on a sales and investment solicitation process (“SISP”) and the Stalking Horse Bid proposal pending the outcome of the sales process; and b. expressed concern regarding a potential outcome of the sales process where the stalking horse bidder selectively bid on assets to reduce their debt and left unfunded liabilities remaining.8 11. On July 24, 2020, at the SISP Application, this Honourable Court granted an Order approving the SISP and the SH APA between Bow River and 227 Alberta.9 At the SISP Application, Maria Lavelle, Legal Counsel for the AER, advised the Court that the AER reserved its position respecting the SISP and the SH APA pending the outcome of the SISP. Ms. Lavelle specifically expressed concern respecting a proposal that would cherry-pick the best assets and leave the remaining assets and associated liabilities to be dealt with by the OWA. Ms. Lavelle made it clear that the AER may object to any SAVO that might arise as a result of the SISP on this basis.10 Following Completion of the SISP 12. On September 3, 2020, in response to a request for an update from the OWA on the Bow River CCAA sales process, the Monitor advised the OWA that Bow River is still in the process of conducting its evaluation of bids in consultation with Sayer Energy Advisors and the Monitor further advised that no en bloc bids were received.11 13. On September 4, 2020, the OWA advised the Monitor that the OWA’s strong preference in all CCAA proceedings, including the Bow River CCAA, was to support en bloc bids 7 AER Affidavit, at paras. 3-4. 8 AER Affidavit, at para. 8. 9 AER Affidavit, at para. 11. 10 AER Affidavit, at para. 12 and Exhibit “C”. 11 OWA Affidavit, at para. 10 and Exhibit “A”. 22927695 - 4 - and advised that any transaction less than an en bloc bid will be opposed by the OWA. The OWA also expressed it’s objection to relying on the CCAA process to transfer environmental liabilities to the OWA for the benefit of other parties without addressing the EOL Obligations of Bow River.12 14. On September 10, 2020, the AER and OWA met with Bow River and the Monitor to discuss the bids generated through the SISP and put forward a proposal (the “Proposal”) for a series of transactions to sell certain of its assets, quitclaim some of its assets and to satisfy some, but not all of the EOL Obligations. The AER and the OWA reiterated their concerns that the Proposal did not address all of the EOL Obligations of Bow River13.