It is a common understanding that when a purchaser acquires a working interest in a pipeline (whether or not it is purchased from the operator) (a "Pipeline"), the purchaser is entitled to, and usually receives the original or copies of the files related to the construction, operation and maintenance of the Pipeline.    Often a vendor provides a representation as to its operation of the Pipeline in accordance with good oilfield practices and its material compliance with the applicable laws.  Sometimes the vendor also provides a representation as to the maintenance of records although this representation may be quite general and may be qualified by materiality or knowledge.

With the recent release by the Alberta Energy Regulator (the "AER") of Bulletin 2015-34, the transfer of all required records will become a requirement as of April 1, 2016. On a Pipeline transfer application both parties will have to confirm that the pipeline records have been transferred as of the effective date of the licence transfer.   Theoretically, the purpose of this requirement is to ensure that the purchaser receives the relevant and complete records which are required to be held pursuant to the applicable laws.

This requirement may raise some concerns for transacting parties:

  • The transferor must confirm that it has collected and retained all records required under the Pipeline Rules and CSA Z66.

    • What if the transferor has not collected the records? 
    • What if some of the records are missing?
  • The transferee must confirm that it has received all records required to be collected and retained under the Pipeline Rules and CSA Z662.  Further, the transferee is responsible for producing these records on request by the AER. Failure to do so constitutes a noncompliance of AER requirements.

    • What if transferee has not received all the records?
    • How is transferee to confirm that it has received all the records?
    • How can a transferee protect itself from AER non-compliance?

We understand that it will be almost impossible to ensure that the records are complete and have been transferred (one may never know what is missing).  Instead, parties will want to consider ways to protect themselves or have recourse against the transferor if in the future the transferee finds itself non-compliant with the AER with respect to these particular records.

If one is a purchaser in an asset acquisition, one will want to consider the following options:

  • Adding a specific representation as to the completeness of the pipeline files (possibly with a longer survival period);
  • Adding a covenant as to the transfer at Closing of all the necessary pipeline files; and
  • Adding a separate indemnity for the completeness of the records to ensure the purchaser is held whole in circumstance where the vendor has not maintained and/or has not transferred all of the required pipeline materials. While the ordinary indemnity as to an untrue representation would certainly include the pipeline file representation, the limitation in the ordinary indemnity is that it may not address the significant impact of a pipeline suspension or other enforcement step.

If one is a purchaser in a corporate acquisition, consider adding a representation as to the completeness of the Pipeline files and for added security, a separate indemnity with respect to the files. If one is a vendor, one will want to try to limit one's exposure under the representation by qualifying or refusing to provide a representation or a separate indemnity.

While these new requirements are intended to limit the risk between the parties to a transaction, the practical implication is that after confirming receipt of all records, the transferee will no longer have the ability to excuse incomplete or missing records on a previous licensee.   By following some of the suggestions above, parties may be in a better position to allocate this compliance risk among themselves prior to the liability arising through compliance enforcement actions by the AER.

First published in BD&P's Energy Newsletter, March 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.