Who will clean up when the tenant walks away?

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

When a residential tenant vacates a farmhouse, they may leave behind personal items; they may leave behind a mess.  The landlord might succeed in requiring the former tenant to clean up, or the landlord himself or herself might have to clean up.  When there’s a change in a farm land tenancy, the landlord or the new tenant may need to apply fertilizers or pesticides, pick stones, or conduct extra tillage to transition from the previous tenant’s cropping practices to new ones.  But what happens when an industrial tenant or occupant of a farm property walks away or goes bankrupt?  What happens when an oil well, a pipeline, or a wind turbine is abandoned in place?

The Supreme Court of Canada very recently addressed this question in the context of orphaned oil wells in Alberta.  An orphan well is one for which the cost of remediation required for abandonment of the well exceeds the actual monetary value of the well.  The Supreme Court was tasked with deciding whether a bankruptcy trustee, in administering the estate of a bankrupt oil and gas company, can renounce or disclaim the company’s interests in orphan oil wells (and walk away from remediation obligations) while at the same time selling off the company’s other valuable wells and assets in order to maximize the recovery by creditors. 

The case involved Redwater Energy Corporation, a publicly traded oil and gas company. In 2015, Redwater's principal secured creditor, the Alberta Treasury Branches ("ATB"), commenced enforcement proceedings after Redwater couldn't meet its financial obligations.  On May 12, 2015, Grant Thornton was appointed Receiver for Redwater under the Bankruptcy and Insolvency Act ("BIA").  In July, 2015, Grant Thornton told the Alberta Energy Regulator (“AER”) that it would be taking control of only 20 of the 127 Redwater oil and gas licences.  The AER responded by issuing orders "for environmental and public safety reasons" requiring the abandonment and remediation of the 107 wells that the Receiver was looking to “disclaim”.  In October, 2015, a bankruptcy order was issued for Redwater.  In November, 2015, Grant Thornton, now trustee in bankruptcy for Redwater, disclaimed the assets it had previously renounced in its capacity as Receiver, and indicated to the AER that it did not intend to comply with the environmental remediation orders.

The AER and the Orphan Well Association ("OWA") brought court applications for declarations that the disclaimer was void.  They also sought an order compelling Grant Thornton, as trustee, to comply with the abandonment and remediation orders issued by the AER.  Grant Thornton brought a cross-application for approval of the sale of certain assets, and a ruling on the constitutionality of the AER's position.  At first instance, the Chambers Judge sided with the trustee in bankruptcy.  On appeal before the Alberta Court of Appeal, two of three judges sided with the Trustee, while one judge would have ruled that a portion of the sale proceeds from the viable wells must be set aside to meet the expected cost of remediating the orphan wells.

The Supreme Court of Canada was also split on the case (5-2), but this time in favour of the AER position.   The majority found that the AER’s use of its regulatory powers to require remediation of the environment was not in conflict with the BIA, so that the doctrine of federal paramountcy (which would resolve the conflict in favour of the federal bankruptcy legislation and against the provincial energy and environmental legislation) was not triggered.  The Court found that the BIA did not empower the bankruptcy trustee to walk away from the environmental liabilities of the estate it was administering.  Also, as the AER was not asserting any claims provable in the bankruptcy, the AER’s exercise of its authority did not upend the priority scheme established by the BIA.  The AER regulatory scheme and the federal bankruptcy scheme co-existed with and applied alongside each other.

As Chief Justice Wagner wrote:

Bankruptcy is not a licence to ignore rules, and insolvency professionals are bound by and must comply with valid provincial laws during bankruptcy. ... The Abandonment Orders and the LMR requirements are based on valid provincial laws of general application — exactly the kind of valid provincial laws upon which the BIA is built. … End-of-life obligations are imposed by valid provincial laws which define the contours of the bankrupt estate available for distribution.

Leases, easement agreements, and other similar land use agreements can and often do contain clauses requiring the tenant or occupant to remove its facilities and to restore the land to previous conditions once the tenant or occupant ceases operations and vacates the land.  However, the protection afforded to landowners in such clauses is only as good as the tenant or occupant – if operations have ceased, and there is no money left, the promise to clean up and restore the property is an empty one.  Wherever possible, landowners should require additional security to guarantee fulfillment of contractual clean-up and restoration obligations by tenants and occupants.  Landowners should not assume that government funds for orphaned and abandoned facilities will be sufficient or even available.

Read the Supreme Court's decision at: Orphan Well Association v. Grant Thornton Ltd.

Environmental Obligations and Bankruptcy - Alberta Court of Appeal says bankruptcy trustee can disclaim orphaned wells

The Alberta Court of Appeal has released a split decision on the following question:  can the trustee administering the estate of a bankrupt oil and gas company renounce or disclaim the company's interest in orphan oil wells (i.e. wells for which the cost of remediation required for abandonment exceeds the value of the well), but keep and sell off other valuable wells in order to maximize the recovery of secured creditors?  Justices Slatter and Schutz ruled that the trustee is permitted to disclaim the orphan assets.  Justice Martin, writing in dissent, sided with the Alberta Energy Regulator ("AER") and would have ruled that a portion of the sale proceeds from valuable wells must be set aside to meet the expected costs of remediating orphan wells.

The case involved Redwater Energy Corporation, a publicly traded oil and gas company. In 2015, Redwater's principal secured creditor, the Alberta Treasury Branches ("ATB"), commenced enforcement proceedings after Redwater couldn't meet its financial obligations.  On May 12, 2015, Grant Thornton was appointed Receiver for Redwater under the Bankruptcy and Insolvency Act ("BIA").

In July, 2015, Grant Thornton told the AER that it would be taking control of only 20 of the 127 Redwater oil and gas licences.  The AER responded by issuing orders, "for environmental and public safety reasons", requiring the abandonment and remediation of the 107 wells that the Receiver was looking to disclaim.  In October, 2015, a bankruptcy order was issued for Redwater.  In November, 2015, Grant Thornton, now trustee in bankruptcy for Redwater, disclaimed the assets it had previously renounced in its capacity as Receiver, and indicated to the AER that it did not intend to comply with the environmental remediation orders.

The AER and the Orphan Well Association ("OWA") brought court applications for declarations that the disclaimer was void.  They also sought an order compelling Grant Thornton, as trustee, to comply with the abandonment and remediation orders issued by the AER.  Grant Thornton brought a cross-application for approval of the sale of certain assets, and ruling on the constitutionality of the AER's position.

The Chambers Judge hearing the matter ruled that the claim of Redwater's secured creditor, ATB, has priority over Redwater's obligation to reclaim its wells.  The Court of Appeal heard appeals of that ruling focusing on "whether a receiver or trustee in bankruptcy must satisfy the contingent liability inherent in the remediation of the worthless wells in priority to the claims of secured creditors."  The appeal involved questions of law for which the standard of review is correctness (i.e. it's not enough for the lower court decision to have been reasonable - it has to have been correct on the law).

As noted above, the majority of the panel hearing the appeals upheld the decision of the Chambers Judge, ruling that the bankruptcy trustee is not bound to comply with the abandonment and remediation orders and does not have to divert the value from valuable assets to cover the environmental costs related to other assets.  The reasons are extensive, and include discussion of the interplay between the provincial environmental legislation (the oil and gas regime) and the federal BIA regime.  The majority concluded that, "Under the proper interpretation of the BIA, the Regulator cannot insist that the bankruptcy trustee devote substantial parts of the bankrupt estate in satisfaction of the environmental claims in priority to the claims of the secured debtor.  To the extent that the interpretation of the provincial legislation leads to a different result, the [federal] paramountcy doctrine is engaged."

The majority also pointed out that the provisions in Alberta's Oil and Gas Conservation Act and Pipeline Act that purport to make receivers and trustees personally liable for the duty to abandon oil wells and pipelines, the costs of remediation performed by other persons, and the duty to obey orders of the Regulator, are in operational conflict with the BIA.  For example, the BIA contains provisions that exempt a trustee and a receiver from personal liability and that allow them to disclaim assets.  As such, the majority concluded, the personal liability provisions in the Alberta legislation are unenforceable against BIA receivers and trustees.

In her dissenting opinion, Justice Martin disagreed with the majority that the provisions of the Alberta oil and gas legislation actually conflict with the BIA.  She found that the BIA does not permit the trustee to renounce the end of life obligations imposed by the provincial regulatory regime. Therefore, the BIA does not release the trustee from its ongoing regulatory obligations with respect to the Redwater wells.  If there is no entitlement to renounce those obligations under the BIA, then there is no conflict between the BIA and the enforcement of the regulatory obligations (to abandon and remediate wells).

Justice Martin was also of the opinion that the abandonment and remediation regime in Alberta does not frustrate the purposes of the bankruptcy legislation (which include providing for the orderly liquidation and winding up of the insolvent debtor, distributing realizable assets fairly among the creditors, having regard to the legal priority of various types of debt, and providing the bankrupt with a "fresh start"):

The cost of abandoning licensed wells and reclaiming well sites is an ongoing regulatory obligation and an inherent part of the licensed asset, well known and understood by the debtor licensee and the licensee’s lenders. The record makes clear that it was well understood by the respondent ATB, the primary lender here. The end of life obligations associated with licensed assets, being compliance costs to generally applicable laws, are factored in to the lender’s risk assessment and its decision to lend on the strength of the debtor’s collateral. 

The continued application of the regulatory regime following bankruptcy does not determine or reorder priorities among creditors, but rather values accurately the assets available for distribution. The value of the debtor’s estate must take into account the end of life obligations associated with the licences that form a part of that estate. If this means that, in the end, there is less value available for distribution to the creditors, that is part of the bankruptcy scheme and the risk that the creditor takes when lending on the basis of the debtor’s assets, with their associated obligations. [emphasis added]

We'll have to see whether this case goes to the Supreme Court for a further review.

Read the decision at: Orphan Well Association v Grant Thornton Limited.

Ontario Energy Board says landowners should have right to decide on removal of abandoned pipelines

In its decision last week approving (with conditions) Union Gas' Hamilton to Milton NPS 48 pipeline project, the Ontario Energy Board ("OEB") filled a number of gaping holes in Ontario's pipeline abandonment regime.  As noted by the Gas Pipeline Landowners of Ontario ("GAPLO") in its submissions to the OEB, Ontario has virtually no rules or regulations to deal with the abandonment of provincially-regulated pipelines.  Decisions about how a pipeline will be abandoned (mainly, whether it will be removed from the ground or abandoned in place) are left to the pipeline company, with no public approval process or public hearing process in place.

GAPLO requested that the OEB require Union Gas to offer affected landowners a form of easement agreement that includes a landowner option for removal of the pipeline upon abandonment.  As part of its project approval function under the Ontario Energy Board Act, the OEB must approve the form of easement agreement to be offered by a company to affected landowners.  In its recent decision, the OEB accepted GAPLO's position and ordered Union to offer an easement agreement that includes the landowner option for pipeline removal on abandonment.

The following are excerpts from the OEB's reasons related to this issue:

The overriding consideration for the OEB is the control the landowner should have with
respect to how the land is to be treated upon pipeline abandonment. The OEB heard
evidence from Union that leaving an abandoned pipeline in place would be less
disruptive to the land than removing it. The OEB also heard evidence from GAPLO that
this might be true over the short term, but that over the longer term impacts such as
subsidence could be more disruptive if the pipeline were not removed. GAPLO
witnesses testified that for agricultural land the condition of the land is fundamental.
Their testimony indicated that this is not just a question of a farmer’s passion for the
land; it is that the condition of the land is fundamental to the farmer’s livelihood.

The OEB finds that the landowner should have the right to decide whether an
abandoned pipeline should be physically removed from the ground or dealt with through
whatever other means of abandonment may be proposed by Union. Once construction of a pipeline on a piece of property is approved, the landowner is giving up certain rights to Union, as a distribution utility, in the public interest. However, should that pipeline no longer be needed, the landowner should be able to make the fundamental decision about how the land is to be restored.

This is not a debate about deciding in advance what should be done with a pipeline that
is abandoned at a point potentially decades from now. The issue is who should make
the decision at that time. [emphasis added]

Read the full decision at: Union Gas Dawn to Parkway.

Court declines to find that shared driveway right-of-way was abandoned

The drawing above shows three adjacent residential properties in Toronto (in blue, pink and yellow) along with a right-of-way that is shared by the three properties (in green).  The street adjacent to the three properties runs down the left side of the drawing; the right-of-way is a driveway that runs back behind the properties in an L-shape.

 

The owners of the blue lot wanted to use the driveway pursuant to the deeded right-of-way.  The owner of the yellow lot challenged this use on the basis that the blue lot owners had abandoned the right of way.  She claimed that she was entitled to park her car beside her house so as to block the laneway.  In fact, both the yellow lot owner and the pink lot owner (or their predecessors in title) had fenced off the right-of-way adjacent to their backyards.

 

The owners of the blue lot applied to the Superior Court of Justice for an order enforcing their rights to use the right-of-way.  In reviewing the application, the Court noted that the rights-of-way of the three lot owners were duly registered on title.  However, the registered owner of the right-of-way lands (the laneway) had passed away and none of his heirs were made parties to the application by the owners of the blue lot.  For that reason, Justice Myers stated, "I am reluctant to declare any rights in the laneway that may affect the owners' interests."

 

Justice Myers did comment that he would not find as a fact that the applicants (owners of the blue lot) or their predecessors in title abandoned their right-of-way over the laneway, but he did not think that he had the proper parties before him (including the owners of the laneway) to make a formal determination that the owners of the blue lot had not abandoned the right-of-way.  Justice Myers was prepared, however, to enforce the applicants' deeded right-of-way as against the other two residential lot owners (pink and yellow) in personam so that neither of those two owners would be permitted to block the laneway.  He specified that, "nothing herein is intended to bind the true owner(s) of the laneway and my order is expressly without prejudice to any and all rights of the true owner(s) to assert abandonment or any other causes of action or defence that he, she, it, or they may have against the [residential owners]."

Read the decision at: Currie v. Chatterton.

CBC Radio Day 6 - Interview with CAEPLA CEO & Director, Dave Core

Coming on the heels of the Federal cabinet's decision to approve the Enbridge Northern Gateway project, CBC Day 6's Brent Bambury interviewed Dave Core, the CEO and Director of CAEPLA (Canadian Association of Energy and Pipeline Landowner Associations).  Listen to Core explain what happens when the land agent comes knocking at: What the pipeline decision could mean for private landowners.

OMB declines to award landowner pre-expropriation costs where expropriation did not proceed

The City of Hamilton moved successfully for the dismissal of expropriation-related Notices of Arbitration and Statements of Claim on the basis that the Ontario Municipal Board (OMB) had no jurisdiction to hear the matters; no expropriations had taken place.

The proposed expropriations related to construction in Hamilton for the 2015 Pan American Games, and the landowner claimants had retained counsel to advise them with respect to the land acquisition process.  The City and the landowners then entered into negotiations, and when offers were refused by the landowners, a notice of application for approval to expropriate was served.  However, not longer after that notice was sent the City decided that it did not require the properties in question, though it was still open to purchasing the properties for the amounts previously offered.

By that time, the landowners had incurred legal costs and forwarded to the City a Bill of Costs.  They then served Notices of Arbitration and Statements of Claim to commence a claim to the OMB for consequential damages arising from the City's abandonment of the expropriation.

The City asked the OMB to throw the claims out, which the OMB did.  The OMB confirmed that pre-expropriation costs are compensable when there is an expropriation, but found that costs are not generally compensable under the Expropriations Act where there is no expropriation.  The OMB decided that this was not a circumstance in which it could exercise its discretionary powers to find that the term "expropriation" applies to the overall process for the taking of land (as had been argued by the landowners) and not just to an expropriation commenced by way of a formal Notice of Expropriation.

The OMB concluded:

In the absence of a formal registered expropriation, an expropriating authority should not be bound to compensate for damages or costs in a case where there is a potential for an expropriation. Furthermore, in the absence of a taking of land, negotiations for the purchase of the lands does not, and should not, attract a claim for costs, merely because the potential buyer has the power, if fully exercised, to expropriate.

Landowners in Ontario should question whether to engage in any negotiations whatsoever with an expropriating authority prior to receiving a Notice of Expropriation without an agreement in place requiring the authority to pay the landowner's legal costs of the negotiations.

Read the decision at: Marsdin v. Hamilton (City).

NOVA/TransCanada withdraws application to "decommission" 266 km line

In August, 2012, NOVA Gas Transmission Ltd. (part of TransCanada Pipelines) applied to the National Energy Board (NEB) for permission to "decommission" a 266-km stretch of pipeline.  Essentially, the application would see the abandonment of the line in place, but NOVA contended that it was "decommissioning" the line because service on its "pipeline" would continue.  The NEB disagreed and directed that it would consider the application as one to abandon a pipeline.

On February 8, 2013, NOVA wrote to the NEB to withdraw its application, saying that it was reviewing its proposal in light of the NEB's comments: February 8, 2013.  The NEB confirmed this development in its letter to NOVA dated February 25, 2013.

Landowners should keep an eye on these developments.  It appears that pipeline companies are taking the position that, as long as they continue to transport materials somewhere on their pipeline systems, none of their abandonments are actually "abandonments" within the meaning of the NEB Act.  Instead, the companies will suggest that they are "decommissioning" pipelines, depriving landowners and other interested parties from public hearings, participant funding, etc.

NEB Decommissioning - Pipeline Abandonment without landowner participation

Recently I wrote about an application filed by TransCanada Pipelines Limited for the "decommissioning" of part of its NOVA pipeline system in Alberta.  The National Energy Board (NEB) has created a category of "decommissioned" for pipelines permanently removed from service, but in situations where service on the "pipeline" system continues (i.e. customers are not affected).  The responses to information requests issued to TransCanada by the NEB reveal the dangerous position into which this "abandonment but not abandonment" places landowners.

Essentially, TransCanada is abandoning its pipeline in place.  However, since there is no abandonment application required under Section 74 of the NEB Act, there does not need to be a public hearing and there does not need to be landowner participation in the decision-making process.  Even if there was participation available, landowners would have no access to participant funding from the NEB; this is not one of the types of applications for which funding is made available (much like the ongoing abandonment cost estimate hearing process in which landowners must fund their own participation).

Read TransCanada's responses to the information requests at: NOVA response.

TCPL files major decommissioning application with NEB

The NOVA Gas division of TransCanada Pipelines Limited (TCPL) has filed a major pipeline "decommissioning" application with the National Energy Board (NEB).  TCPL proposes to "decommission" in place the vast majority of a 266 km length of pipeline, capping it, filling it with an inert gas, and leaving it to corrode in the ground.  The application is at the following link: Decommissioning Application. 

Several years ago, the NEB introduced the concept of "decommissioning", which effectively allows a pipeline company to abandon its pipeline in place without having to make an application to abandon.  Where there is no application for abandonment, landowners have no access to participant funding to support their involvement in the approval process. 

Trial ordered for pipeline right-of-way abandonment case

Calgary landowner Genstar Development Company applied to the Alberta Court of Queen's Bench remove a right of way held by Plains Midstream Canada ULC from title to its property.  Plains Midstream opposed proceeding on the basis of an application with written materials, arguing that a trial was necessary.

In the 1950's, Cremona Pipe Lines Ltd. constructed the Cremona Pipeline stretching 444 km between Calgary and Sundre.  Cremona had an Easement Agreement with one of Genstar's predecessors in title.  The Agreement provided that it would be binding on all future owners of the land and would remain in effect from May 19, 1956 and "for so long thereafter as [Cremona] may desire to exercise" its rights and privileges.

While the northernmost 314 km of the pipeline remains in operation, operation of the southernmost 130 km was suspended by Pembina Pipeline Corporation (a Genstar predecessor) in 1997; the pipeline under the lands owned by Genstar was removed from the ground.  In 2009, Plains Midstream purchased the line from Pembina, including the rights of way under all lands along the Cremona Pipeline.

In 2010 and subsequently, Genstar asked Plains Midstream to discharge the right of way on its lands.  Plains Midstream responded with an offer to re-route its right of way, but Genstar eventually commenced the court application. 

In reviewing the application materials, the Court concluded that a trial would be necessary in order to have all of the evidence required to answer the legal issues in play: "Given the complex and unsettled legal issues identified above, it is my view that any decision in this case should be founded on complete and nuanced findings of fact resulting from a trial, rather than on a paper record resulting from an originating application."

Read the decision at: Genstar Development Company v. Plains Midstream Canada ULC.

NEB Landowner "Satisfaction" Research

The National Energy Board (NEB) has released a report of its 2011 Landowner Survey, conducted by Ipsos Reid.  1,200 landowners were surveyed, out of 32,114 identified by records provided by NEB-regulated companies.  In the Key Findings section of the report, Ipsos Reid begins with the following peculiar result: "We find that 71% of landowners mention a company other than the one indicated in the sample records we received, suggesting that many landowners may not know who the correct company is."  For instance, 35% of Kinder Morgan landowners mentioned TransCanada as their company.

4% of respondents said they did not know where the pipeline was located on their property.  22% of respondents do not know whether the limit of their right of way is. 

It does not appear that any questions were asked about pipeline abandonment issues.

Read the report at: NEB Landowner Satisfaction Research October 2011.

NEB posts summary of abandonment estimates filed by pipeline companies

The National Energy Board has posted a "Summary of Group 1 Companies Physical Information Filed", setting out data related to the mode of pipeline abandonment proposed by Group 1 companies (large pipeline systems) that filed cost estimates with the NEB.  The chart provided juxtaposes the total km contained in pipeline systems against the km of pipeline that companies propose to remove upon abandonment.  The contrast is pretty striking.  At least in agricultural areas, companies propose to remove almost no pipe.  CAEPLA had proposed that cost estimates should be based on a conservative assumption of 100% removal.  Even the NEB had proposed 20% removal as the assumption to be used.  The pipeline industry obviously disagreed. 

Sarg Oils Limited well abandonment saga continues

Professor Nigel Bankes of the University of Calgary has posted a comment on a recent review decision by the Energy Resources Conservation Board (ERCB).  The decision relates to a failure by Sarg Oils Limited to pay the costs of abandoning oil and gas wells in Alberta.  Sarg had failed to abandon the facilities itself, so the ERCB conducted the abandonment and then sought to recover its costs from Sarg.  Bankes points out the possibility that the Orphan Well Fund may end up having to cover costs of further abandonments.  He notes that, although the oil and gas industry is supposed to cover the cost of the Fund, the Alberta government injected $30,000,000 into the Orphan Fund as part of a package of incentives for the energy industry in 2009.

Read the comment at: Nigel Bankes' comment on Sarg Oils Limited.

TransCanada plans removal of 5.6% of 14,000 km of pipelines on abandonment

TransCanada Pipelines Limited has also submitted its application to the NEB for approval of its abandonment costs estimates.  TCPL has over 14,000 km of pipelines in Canada (not including the Keystone), more than half of which run through agricultural land.  Of the almost 8,000 km of pipe through agricultural lands, TCPL proposes to remove 1.7% on abandonment.  The rest of the pipe will be left in the ground with no continuing protection going forward. 

Read TransCanada's application at: TransCanada Preliminary Abandonment Costs Estimates. 

Enbridge plans to remove 0.6% of its pipelines on abandonment

Enbridge Pipelines Inc. plans to remove only 0.6% of its nearly 8,000 km of pipelines in Canada at the time of abandonment.  For agricultural land, only lands with "prospective future development" would have pipelines removed.  Pipelines would be abandoned in place in all other agricultural land with no "special treatment" for the pipelines.  This would include pipelines with a diameter of up to 48 inches.  More than 5,000 km of Enbridge pipelines run through cultivated land.   The 0.6% figure contrasts sharply with the 20% number identified by the National Energy Board (NEB) in its abandonment funding documentation.

Enbridge has applied to the NEB for approval of its plan for abandonment funding purposes.  The documents comprising Enbridge's application can be found at: Physical Plans for Abandonment and Preliminary Cost Estimates. 

Enbridge's application includes excerpts from a Praxis Research study conducted for the Canadian Energy Pipeline Association (CEPA).  The study consisted of a landowner survey, and Enbridge says that its abandonment plans took the results of the survey into consideration.  However, more than 50% of respondents with Enbridge pipelines expressed concern about Enbridge pipelines being left in the ground.  Read the study excerpt at: CEPA Landowner Survey.

NEB to hold oral public hearing for Enbridge Line 9 Reversal Application

The National Energy Board (NEB) announced yesterday that it will convene an oral public hearing to review Enbridge's application to reverse the flow of its Line 9 oil pipeline through southern Ontario.  The pipeline has been flowing westward since 1999.  When initially constructed in 1975, the flow direction was eastward. 

The Draft List of Issues for the hearing includes the need for the project; the engineering design and integrity of the pipeline, including the potential effects of flow reversal; contingency planning for spills, accidents or malfunctions, during construction and operation of the pipeline; the potential environmental and socio-economic effects of the project; the project’s potential impacts on Aboriginal interests; and its potential impacts on affected landowners.

Financial assistance will be made available through the Participant Funding Program to "applicants who meet the criteria and can demonstrate a need to support their timely and meaningful involvement in the proceeding."

Pipeline Abandonment Plan foreshadows future for landowners

As part of its application for a project approval from the National Energy Board (NEB), Vantage Pipeline Canada ULC (Vantage) has filed a "Preliminary Project Abandonment Plan and Cost Estimate".  Vantage plans to construct 578 km of 10" pipe through Alberta and Saskatchewan to the North Dakota border.  The terrain through which the pipeline will cross is primarily farmland - either in cultivation or pasture.  For all but 1 km of the proposed route, Vantage says that it will abandon the pipeline in place.

Only lands where there is prospective "future development" will see the pipeline removed from the ground once it has outlived its usefulness to Vantage. 

Previously, the NEB had used an estimate of 20% pipe removal on abandonment as part of the "base case" for calculating future abandonment costs (for the purpose of setting advance abandonment funding).  The 20% figure has obviously been abandoned by pipeline companies and the NEB.  The cost of pipeline removal far outweighs the cost of doing nothing.  Likewise, the cost of advance funding for doing nothing is far cheaper than advance funding for pipeline removal. 

It may be that the preference of some landowners in the future will be to leave pipelines in place rather than to have them removed on abandonment.  However, the decisions being made now by pipeline companies and endorsed by the NEB are likely to limit any choice landowners might have in the future.  Many landowners today probably don't even know that their hands are being tied in this way. 

If the NEB's abandonment funding program is premised on the assumption that pipeline companies will need to do virtually nothing in the future to deal with their obsolete infrastructure, then it is a failure.  The funding will be insufficient to allow for future contingencies, let alone to allow for any landowner choice.

Ontario Pipeline Landowners Association calls for Enbridge hearing

Enbridge Pipelines Inc. is proposing a line reversal on its aging Line 9 oil pipeline that runs through southwestern Ontario.  The Ontario Pipeline Landowners Association (OPLA), which represents landowners along the pipeline route (which also includes Lines 7 and 8), has written to the National Energy Board (NEB) to request a full public hearing process.  OPLA cites among its concerns the facts that Line 9 has thinner walls than Lines 7 and 8 and that the oil product Enbridge proposes to put through the line is more corrosive than regular sweet crude. 

Read the OPLA submission at: Letter of Comment.  OPLA is a member of the Canadian Association of Energy and Pipeline Landowner Associations (CAEPLA).

Enbridge to abandon 75 miles of the oil pipeline that contaminated the Kalamazoo River

Noel Griese of the Energy Pipeline News is reporting that Enbridge Energy Partners plans to replace 75 miles of pipeline in Michigan and Indiana related to the July, 2010 spill into the Kalamazoo River.  The Michigan Public Service Commission will be holding public hearings into the proposal, beginning with a pre-hearing conference on September 21.  Read Griese's article at: Energy Pipeline News.

The original announcement was made on May 12 in Houston:

HOUSTON, TX, May 12, 2011 (MARKETWIRE via COMTEX) --

Enbridge Energy Partners, L.P. (NYSE: EEP) (the "Partnership") today announced additional capital investments to replace portions of its Line 6B pipeline system that spans from Griffith, Indiana, through Michigan to the international border at the St. Clair River. This program will include replacement of approximately 75 miles of the pipeline in various locations in Indiana and Michigan, at an estimated cost of $286 million. These costs will be recovered through the Facilities Surcharge Mechanism ("FSM") that is part of the system-wide rates of the Lakehead system.

Earlier this year, the Partnership completed the replacement of 14 segments, totaling 9,000 feet, of Line 6B in southeastern Michigan and installed a new segment of pipeline under the St. Clair River, which will be operational by late June. This latest investment includes the replacement of five miles of pipeline immediately downstream of two pump stations in Indiana and three pump stations in Michigan as well as replacement of 50 miles of pipeline downstream of the Stockbridge station and delivery terminal northwest of the Detroit metro area. Subject to regulatory approvals, the new segments of pipeline will be installed in 2012 and will be staged to be placed in-service in consultation with, and to minimize impact to, refiners and shippers served by Line 6B crude oil deliveries.

The $286 million expenditures are in addition to the $210 million integrity expenditures on Line 6B recently announced by the Partnership for the year 2011, of which $175 million will be recovered through the FSM.

In actual fact, Enbridge is proposing to construct a new pipeline alongside the existing pipeline in a new 25 foot wide right-of-way.  Enbridge will abandon the existing pipeline in place, saying that this will "minimize additional disturbance along the route".  Enbridge has provided responses on its website to "frequently asked questions" for affected landowners, including questions about construction, disturbance and compensation: Frequently Asked Questions.

PetroBakken Energy seeks to abandon oil pipeline in place

In what is likely to become a more common occurrence, PetroBakken Energy Ltd. has applied to the National Energy Board for permission to abandon one of its pipelines in the ground.  The pipe is 580 metres in length and is connected to an oil well within the Alsask Gathering System, about 30 km east of Oyen, Alberta (it crosses the border with Saskatchewan).  Construction of the line was approved by the NEB in 2003, and the well ceased production in 2009. 

PetroBakken says it has no plans to put the line back into operation and now must either suspend the line, maintaining cathodic protection, or abandon it.  PetroBakken says that maintaining cathodic protection on the line to avoid corrosion is too expensive, so it chooses to attempt to clean the line and then leave it in place.  On the issue of "liability exposure", PetroBakken states in its application to the NEB:

The proposed abandonment of the pipeline segment is largely driven by legal obligation to meet the requirements of NEB regulation, which indicates that PetroBakken must either suspend or abandon any pipeline that has not operated for over 12 months.  Secondarily, but equally, or more importantly, the proposal to abandon is also being done for ethical reasons as the potential for ground contamination by the (unknown) product within the pipeline must be eliminated.  Leaving this potential risk in the ground (for no operational benefit) would be an unjustified environmental liability for PetroBakken, which could be minimized or eliminated by cleaning and abandoning the pipeline segment.

As the volume of contents remaining within the pipeline segment is uncertain, the environmental liability to the organization is unknown.  The cost to abandon is expected to be less than $10k, which is considered minimal when considering the potential environmental liability.

The Saskatchewan land affected by the line is privately owned.  PetroBakken says that it notified the landowner by phone and was told that the proposed abandonment was "fine".  The Alberta land is in a Special Area and is leased to a farmer.  Again, notification of the project was given by phone and the farmer apparently had "no issues".  The lands affected by the pipeline are apparently used for grazing purposes on both sides of the provincial boundary.

At about 1/2 a kilometre in length, this is a short pipeline to be abandoned.  However, it does give some indication of what might be in store for other landowners across the country facing pipeline abandonment in the future.  The NEB has issued a hearing order for the abandonment application, but no funding has been available for participation in the hearing either by directly affected landowners or other concerned parties.  Therefore, anyone wishing to participate in the process will do so at his or her own cost.  Unlike the situation in provincial jurisdictions, the NEB will make no costs award at the end of the process. 

This application demonstrates the failings of the NEB's recent creation of a participant funding program.  It is assumed that no funding has been made available in this case because of the relatively short length of the pipeline involved (participant funding is reserved for "large projects").  However, for the landowners directly involved, the pipeline is quite long enough to cause concern.  How long does a pipeline have to be before directly affected landowners will have access to "participant funding"?  Is the participant funding sufficient in any event to enable landowners to test the appropriateness of the abandonment plan that is being proposed? 

And can we expect moving forward that pipeline companies will choose to abandon small segments of pipeline on a continual basis rather than applying for the abandonment of large pipeline segments so as to avoid the participant funding program?  The NEB has made it quite clear in its previous decisions that it will allow companies to decide how they make their regulatory applications, even where it is clear that the manner in which those applications are made is intended to thwart the ability of landowners to participate in the process.

Read the PetroBakken application at: Abandonment Application.

Read the NEB Hearing Order at: Hearing Order dated September 6, 2011.