Canada: AER Reminds Licensees Of Certain Obligations When Ceasing Operations

The Alberta Energy Regulator (the "AER") has published Bulletin 2016-10 – Obligations of Licensees When in Insolvency or When Otherwise Ceasing Operations (the "Bulletin") to remind oil and natural gas well licensees and their directors and officers of certain statutory obligations in insolvency and other situations that result in the cessation of that licensee's operations.

Regardless of the reason for a cessation of operations, the Bulletin reminds licensees of their ongoing responsibility for continuing care of licensed properties, responding to incidents or complaints, maintaining all required records, and obtaining AER approval for any transfer of AER licenses, approvals and permits. As such, the Bulletin states the following AER position on enforcement of these obligations:

Failure to comply with the above or any other AER requirement may result in an investigation and the AER pursuing available enforcement against the licensee and/or its directors and officers. This may include naming individual directors and/or officers of AER licensees under section 106 of the Oil and Gas Conservation Act.

In 2011, Alberta's Energy Resources Conservation Board (the predecessor regulator to the AER) was even more specific, stating that "financial issues are not an excuse for noncompliance with Board orders" (Re Dame, 2011 ABERCB 37).

On April 20, 2016, BLG will be hosting a breakfast seminar to discuss Licensee Liability Ratings and Stakeholder Exposure in Insolvency. The seminar will identify challenges and exposure and discuss possible risk management and policy solutions.

Summary of the Bulletin

Set forth below is a summary of the key observations and analysis made in the Bulletin, as well as an explanation of certain of the enforcement mechanisms referenced therein. Readers are reminded that, in addition to the obligations set out by the AER in the Bulletin, the directors and officers of corporations generally (including those engaged in oil and natural gas activities) are also subject to certain common law and statutory liabilities that should also be considered in the event of insolvency or other cessation of operations – irrespective, in some cases, of whether or not such director or officer has resigned.

The AER states its position in the Bulletin that no licensee or its creditors may remove equipment from a licensed site without the AER's consent, referring to Section 103 of the Oil and Gas Conservation Act (Alberta) ("OGCA"), which states the following at subsections 103(2) and 103(3):

(2) The (AER) has a lien in respect of a (debt owed by a person to the AER for any costs, levy, fee, penalty or other amount) on the debtor's interest in any wells, facilities and pipelines, land or interests in land, including mines and minerals, equipment and petroleum substances, and when it arises, the lien has priority over all other liens, charges, rights of set-off, mortgages and other security interests.

(3) The (AER)'s lien arises when the debtor fails to satisfy the debt when due, and expires on full satisfaction of the debt.

The AER also reminds licensees of the provisions of Section 106 of the OGCA in the Bulletin. Section 106 of the OGCA permits the AER to name licensees' directors and officers, among others, as persons in control of a licensee at the time of a contravention, failure to comply or failure to pay in respect of the OGCA. Once named, the director or officer's direct or indirect control of another licensee, approval holder, applicant, transferor or transferee ("Another AER Applicant") could result in the AER suspending operations, refusing to consider applications under the OGCA or Pipeline Act (Alberta), requiring submission of abandonment and reclamation deposits of any amount, and imposing any terms and conditions it considers appropriate on pre-existing licenses and approvals, all in respect of either the licensee at issue or Another AER Applicant.

The application of Section 106 of the OGCA, among other sections thereof, in the context of bankruptcy and insolvency proceedings is currently awaiting a decision by the Court of Queen's Bench of Alberta in Alberta Treasury Branches v. Redwater Energy Corp.

BLG will be following developments in the Redwater case and any pertinent developments in the interpretation of the obligations of licensees when ceasing operations.

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