Industry and the public may face significantly higher costs as a
result of the much anticipated decision of the Alberta Court of
Queen's Bench in Redwater Energy Corporation (Re),2016 ABQB 278,
issued on May 19, 2016. The Court held that trustees and receivers
of insolvent companies can disclaim uneconomic oil and gas assets
under the federal Bankruptcy and Insolvency Act, then sell
the valuable oil and gas assets for the benefit of secured
Currently under appeal by the Alberta Energy Regulator (AER) and
Orphan Well Association (OWA), the Redwater Decision leaves in its
wake serious questions regarding responsibility and liability for
the immediate care and custody, and the ultimate abandonment,
reclamation and remediation of such disclaimed assets.
AER Bulletin 2016-16
On June 20, 2016, as part of its response to the Redwater
Decision the AER has released a bulletin, Bulletin 2016-16:
Licensee Eligibility – Alberta Energy Regulator Measures to
Limit Environmental Impacts Pending Regulatory Changes to Address
the Redwater Decision that implements three important changes
to the Licensee Liability Rating (LLR) program and the related
regulatory regime, which are effective immediately and are likely
to stay in effect until resolution of the Redwater litigation or
implementation of further regulatory measures.
Bulletin 2016-16 follows on the AER's previously released
Bulletin 2016-10 Obligations of Licensees When in Insolvency or
When Otherwise Ceasing Operations which did not introduce new
regulatory requirements, but served nonetheless to remind licensees
and their directors and officers of their statutory
responsibilities (as well as the expansive rights and powers of the
AER) in cases where a company ceases operations because of
insolvency or for any other reason.
The changes implemented by Bulletin 2016-16 are as follows:
The AER will consider and process all applications for licence
eligibility under Directive 067: Applying for Approval to Hold
EUB Licences as non-routine and may exercise its discretion to
refuse an application or impose terms and conditions on a licence
eligibility approval if appropriate in the circumstances.
For holders of existing but previously unused licence
eligibility approvals, prior to approval of any application
(including licence transfer applications), the AER may require
evidence that there have been no material changes since approving
the licence eligibility. This may include evidence that the holder
continues to maintain adequate insurance and that the directors,
officers, and/or shareholders are substantially the same as when
licence eligibility was originally granted.
As a condition of transferring existing AER licences,
approvals, and permits, the AER will require all transferees to
demonstrate that they have a liability management ratio (LMR) of
2.0 or higher immediately following the transfer.
The first and second changes relate to the potential for
increased scrutiny on initial and "gone stale"
eligibility, respectively, to hold AER well, pipeline and facility
The third change relates to an increase in LMR requirements at
time of licence transfer. This change in particular is anticipated
to have an immediate impact on the timing, structure and fiscal
metrics of all transactions involving the transfer of oil and gas
assets in Alberta. According to this month's liability records
released from the AER, there are over 200 licensees with a
non-security adjusted LMR between 1.0 and 1.99, and total deemed
liabilities of $10 billion. If any such licensee has contracted to
or is planning to acquire AER licensed assets, it will be required
to increase its LMR to at least 2.0 pro forma closing the
acquisition, either by posting additional security, discharging
existing abandonment obligations or disposing of other assets.
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.
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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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