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
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
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
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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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.
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