Perpetual Energy Inc. is taking aim at Alberta regulators in a strident defence of a two-year-old sale of depleted gas wells to Chinese investors.
Perpetual, controlled by Calgary’s Riddell family, is being sued by the trustee of insolvent Sequoia Resources Corp., which filed for bankruptcy last March and left behind hundreds of millions of dollars in unfunded environmental liabilities and other claims.
Sequoia, led by financier Wentao Yang, took on thousands of high-liability, cash-flow negative Alberta gas wells and other infrastructure in a 2016 takeover of a Perpetual subsidiary. PricewaterhouseCoopers, Sequoia’s trustee, has sought to annul the sale on grounds that Perpetual and its chief executive, Susan Riddell Rose, knew the deal would sink the buyer.
The case is believed to be the first such attempt in Alberta by a bankruptcy trustee to unwind a previous oil and gas deal and has potential to introduce major new risks to the industry’s ability to buy and sell assets.
In a statement of defence, Perpetual said it fully complied with all regulations and dismissed the action as an abuse of process that attempts to “pursue the agenda” of the Alberta Energy Regulator (AER) and large companies, which face escalating costs to clean up the aging sites.
The family-controlled company had derided the lawsuit as “opportunistic" in light of mounting strain on an industry-funded program to clean up so-called “orphan wells” in which there is no longer a solvent operator.
“We think we acted in good faith to execute this transaction, and we think we’re being wrongly targeted through this claim,” Ms. Riddell Rose said by phone on Tuesday.
PwC launched the suit earlier this month on behalf of Sequoia creditors, including the AER, which is on the hook for $225-million to decommission Sequoia’s sites and ranks as the biggest claimant. Canadian Natural Resources Ltd., which funds the largest share of the industry cleanup program, is also listed among the creditors. The trustee is seeking $217-million in damages as an alternative if it fails to convince a judge to annul the transaction.
Stung by weak commodity prices, Perpetual sold the aging properties to Sequoia in an effort to reduce cleanup obligations and focus spending on more profitable assets.
Sequoia bought the shares of a Perpetual subsidiary that held the assets for a nominal price, bypassing a toughened solvency test used by the provincial energy regulator to gauge the financial health of companies.
The trustee has characterized the deal as “a non-arm’s length transfer at undervalue" and argued that Sequoia “was insolvent at the time or was rendered insolvent by the transaction.”
Perpetual rejected those claims. In court documents, it said it met Sequoia’s backers through its financial adviser and that it understood the principals, Hao Wang and Mr. Yang, represented “a well-capitalized, sophisticated and reputable” buyer.
Sequoia also “possessed the financial resources and capabilities to operate as a viable going concern” more than a year after the deal, Perpetual said.
It said Sequoia precipitated its own collapse, citing a string of acquisitions as well as its decision, in July 2017, to sell a gas marketing agreement, leaving the company exposed to plunging natural gas prices.