A significant portion of Canada's oil and gas infrastructure is fast approaching its functional end of life. In Alberta, Canada's largest oil and natural gas producing province, approximately 30% of its pipelines are greater than 25 years old, while 5% are greater than 50 years old. The potential environmental and other liabilities associated with this infrastructure, from both a regulatory and civil perspective, are significant. As the frequency of environmental incidents involving this infrastructure increases, complex legal and practical issues will begin to emerge at an accelerating pace, which will have to be addressed.
With respect to Alberta's legislative and regulatory framework, on June 17, 2013, the Responsible Energy Development Act ("REDA") was proclaimed in force.1 With the implementation of the final of three phases on March 31, 2014, the Alberta Energy Regulator ("AER") has, under REDA, become Alberta's single regulator2 of energy developments situated within Alberta's provincial boundaries.3
In addition to REDA4, the AER has been delegated regulatory authority under the Pipeline Act and the Oil and Gas Conservation Act with respect to all pipelines, and all wells and facilities, respectively, falling within provincial jurisdiction. To the extent there exists an environmental component to an incident, the AER also has jurisdiction under the Environmental Protection and Enhancement Act. Under these Acts, the AER has broad authority to order, among other things, the discontinuance and abandonment of pipelines, wells and facilities, the suspension of operations, and the clean-up of spills, with the ability to effect these things itself and recover the costs incurred from the parties involved.
The regulators in Canada's other key oil and gas producing Provinces have been given similarly broad legislative regulatory powers regarding infrastructure under their jurisdiction, as have a number of Federal agencies responsible for the regulation of interprovincial and international oil and gas infrastructure. In addition, given the concurrent federal and provincial jurisdiction over Alberta's environment, there also exists the potential for the application of Federal legislation directed primarily at environmental and wildlife protection, and the concurrent involvement of Federal agencies in the case of an environmental incident involving a provincially regulated pipeline, facility, well or other oil and gas infrastructure.
Not surprisingly, the insolvency of an industry participant may impact the recovery by parties, including Crown agencies, of costs incurred in the course of addressing an infrastructure incident. A number of recent decisions have considered issues involving what some have termed the "untidy intersection" of orders issued under the Companies Creditors Arrangement Act and environmental remediation orders issued by regulators, directing the remediation of contaminated property.5 Where Government agencies are unable to recover costs incurred in these and other circumstances, resort may be had to the orphan fund, established to fund the costs related to abandonment, reclamation and suspension of orphaned wells and other facilities.6
Layered on this regulatory framework is a complex private framework under which Canadian oil and gas industry participants may attempt to limit their exposure to this liability and pursue cost recovery from current or past owners under statute, contract, common law property principles, and tort.
These and other related issues will be canvassed in depth by Michael G. Massicotte and Michael A. Marion, partners of BLG's Calgary office, and Kristen Read, Legal Counsel, Devon Canada Corporation, at the Canadian Energy Law Foundation Jasper Seminar, taking place June 11 to 14, 2014 in Jasper, Alberta.
1. Save and except for certain specified sections.
2. The implementation of the single regulator occurred in 3 phases. Initially, under phase 1, which occurred on June 17, 2013, the AER only assumed the energy development regulatory functions formerly administered by the ERCB. Under phase 2, which occurred November 30, 2013, the AER also assumed regulatory functions and responsibilities from Alberta Energy under Part 8 of the Mines and Minerals Act; and from Alberta Environment and Sustainable Resource Development ("ESRD") under the Public Lands Act. On March 31, 2014, upon assuming the regulatory functions and responsibilities from ESRD under the Environmental Protection and Enhancement Act and the Water Act, the AER assumed regulatory functions from each of the Energy Resources Conservation Board, ESRD and Alberta Energy, thereby becoming Alberta's single regulator for upstream oil, gas, oil sands and coal development.
3. Including more than half of Alberta's pipelines, amounting to approximately 400,000 kms.
4. Under REDA, the AER is tasked with providing for the efficient, safe, orderly and environmentally responsible development and decommissioning of Alberta energy resources. It is given broad powers under the Act to "do all things that are necessary for or incidental to the carrying out of" any of its functions or duties, including oversight over the abandonment and closure and subsequent remediation and reclamation of oil and gas infrastructure.
5. See the Supreme Court of Canada's 2012 decision in Labrador v AbitibiBowater Inc. The issue was again considered more recently in the fall of 2013 in two decisions released simultaneously by the Ontario Court of Appeal – Re Northstar Aerospace Inc. and Re Nortel Networks Corporation. In considering whether orders issued by the regulator constituted monetary claims that could be stayed and compromised under the CCAA, the decisions held that: a) if a regulator issues a remediation order to a debtor who obtains CCAA protection; and b) the Regulator has no realistic alternatives apart from performing the remediation work itself and then seeking reimbursement from the debtor (as opposed to the prospect of a subsequent purchaser stepping forward and being subject to the order), then the order will almost certainly constitute a provable claim that is subject to the CCAA stay of proceedings, which can then be compromised in the debtor's claim process. It was held that provincial regulatory orders are not entitled to any priority under the CCAA scheme of distribution.
6. In Alberta, over $193 million has been collected since 1992 to fund orphan activities. For the past 5 years, the orphan fund levy has been approximately $12 million annually. Arguably, the increasing costs of Alberta's aging oil and gas infrastructure are reflected in the 2014/15 industry levy of $15 million.
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