Natural gas price slump and tighter regulations drive record bankruptcies in Alberta's energy sector
A sustained downturn in natural gas prices pushed insolvencies in Western Canada’s oil and gas sector to a three-year high in 2024, according to Financial Post.
Data compiled by Insolvency Insider Canada shows that producer bankruptcies, receiverships, creditor proposals, and filings under the Companies’ Creditors Arrangement Act (CCAA) surpassed the combined totals of 2022 and 2023.
Insolvent oil and gas companies collectively owed over $1.2bn in 2024, marking a 700 percent increase in distressed filings compared to the previous year. At least 12 producers entered insolvency, compared to five in 2023 and three in 2022.
Calgary-based Long Run Exploration Ltd. filed the largest case, burdened by $308.5m in environmental obligations.
Should its restructuring fail, Alberta’s Orphan Well Association could inherit responsibility for Long Run’s 4,856 licensed wells and 523 facilities.
Environmental liabilities have played a significant role in the sector’s financial struggles. Regulatory changes have escalated decommissioning and reclamation costs for inactive wells, pushing struggling companies into insolvency.
Keely Cameron, a partner at Bennett Jones LLP, said, “What we’re seeing as a result of some of these new regulatory changes is that they are pushing some companies that were struggling over the edge; they simply can’t proceed any further.”
Erikson National Energy Inc. also filed for insolvency in 2024, citing $54m in environmental obligations, depressed natural gas prices, and operational disruptions from wildfires near its British Columbia sites.
Mounting requests from the BC Energy Regulator for clean-up and security deposits further strained its finances.
Erikson recently sold its assets to Las Vegas-based cryptocurrency miner Gryphon Digital Mining Inc. for $2m under a deal that transfers environmental liabilities to the buyer.
Alberta Energy Regulator (AER) regulations have also increased financial pressures. The AER requires companies deemed at risk to post large security deposits, with non-compliance leading to shutdowns.
Cameron noted that while regulators are addressing accumulated liabilities, shutting down companies without robust systems can exacerbate issues.
Stakeholders warn that regulatory uncertainty could discourage investment, with the AER’s new liability management rules expected in March. Meanwhile, critics argue the current changes do not go far enough to compel the industry to address its environmental liabilities fully.
Producer insolvencies are rippling through rural economies, affecting service companies, landowners, and municipalities.
Bill Whitelaw, former publisher of Oilweek Magazine, described the impact as “a slow and painful waltz” that reduces incomes and hinders tax payments in affected communities.
Oilfield contractor Chris Simeniuk highlighted how insolvencies affect vendors. “Vendors are always last to get paid, first to get burned,” he said.
His platform, PayScore.ca, tracks delayed payments, which now affect over 20 percent of producers.
Simeniuk shared how financial strain from unpaid invoices forced him and his wife to sell grain from their farm to cover payroll, underscoring the widespread challenges caused by failing oil and gas companies.
Despite some responsible operators, the growing number of insolvencies and the priority given to environmental obligations over creditors are reshaping the financial landscape for the sector.
Experts expect more bankruptcies as junior producers struggle to navigate regulatory and market pressures.
