The following is an update to our prior Energy bulletin regarding the statement of claim filed on Aug. 6, 2018, by PricewaterhouseCoopers Inc., in its capacity as trustee in bankruptcy for Sequoia Resources Corp., against Perpetual Energy Inc., certain of its subsidiaries, and Susan Riddell Rose (CEO of Perpetual Energy). The plaintiff seeks to unwind or obtain damages in the amount of $217 million in relation to an asset sale from Oct. 1, 2016.
On Aug. 27, 2018, the Perpetual parties filed statements of defence and applications for summary dismissal.
The defendants introduce context, referring to the marketing, due diligence and negotiation activities leading up to the transaction. The defendants state that the transaction was "entered into by an informed buyer and an informed seller, in a free market, dealing with each other in their own self-interest and at arm's-length."
The defences also reference Sequoia's post-deal transactions in further support of the position that there is no responsibility for Sequoia's bankruptcy and associated liabilities. The defendants argue that Sequoia's subsequent business transactions, including further acquisitions and the sale of a stable gas-marketing contract, combined with market forces, were the causes of Sequoia's bankruptcy.
Public Policy Issues
Of specific note to industry is the significant public policy issues raised in this matter. In response to public policy concerns, the Perpetual entities state that:
"The Transaction was fully compliant with the Oil and Gas Conservation Act (Alberta), the Oil and Gas Conservation Rules (Alberta), the Alberta Energy Regulator's (the AER) Directives 001, 006, and 011 (the Regulatory Regime), public policy reflected in the Regulatory Regime, and with the law. Specifically, the Transaction fully complied with well license transfer requirements and the AER's Licensee Liability Rating (LLR) Program."
The Perpetual entities describe the plaintiff's claim as:
"an abusive attempt by Sequoia's trustee to indirectly pursue the agenda of the AER and energy companies that make significant contributions to the orphan well fund, by suing the Perpetual Defendants in relation to a Transaction that fully complied with the Regulatory Regime and the law. That agenda should not be pursued through an abusive lawsuit".
All materials filed can be found on Perpetual's website at www.perpetualenergyinc.com.
As this case may have a significant impact on A&D and M&A activity in Alberta and will provide insight as to how third parties may seek to review or recharacterize a transaction post-closing, we will continue to monitor and report on developments associated with the case and the decisions of the Court.
If you have any questions or would like to discuss this further, you can contact members of Gowling WLG (Canada) LLP's Natural Resources Group.