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
This requirement may raise some concerns for transacting
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
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
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
Adding a covenant as to the transfer
at Closing of all the necessary pipeline files;
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.
Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).