Canada: Alberta Energy Regulator Reiterates Position On Interim Measures Post-Redwater But Indicates Some Flexibility On 2.0 LMR Requirement

Last Updated: July 20 2016
Article by Matti Lemmens and Leanne Desbarats

Most Read Contributor in Canada, September 2016

On July 8, 2016, the Alberta Energy Regulator (the "AER") issued Bulletin 2016-21 Revision and Clarification on Alberta Energy Regulator's Measures to Limit Environmental Impacts Pending Regulatory Change to Address the Redwater Decision ("Bulletin 2016-21"). Bulletin 2016-21 was issued in order to clarify and revise the interim rules outlined in the AER's Bulletin 2016-16 [discussed previously by BLG in The Alberta Energy Regulatory Reacts to the Redwater Decision – Who Suffers?] where the AER took drastic measures in response to the Alberta Court of Queen's Bench's decision in Redwater Energy Corporation (Re), 2016 ABQB 278 ("Redwater").

Bulletin 2016-21 does not significantly alter the AER's interim measures and, pending the outcome of an appeal or a likely overhaul of the licencee liability rating program, it seems clear that the AER is committed to its interim rules, notwithstanding the strong criticism across industry of their implementation. However, Bulletin 2016-21 does revise and clarify the AER's initial characterization of the conditions for transfer, clarifying that the AER can take into account contextual factors in considering approval of pending and future transfers and may allow transfers where a transferee can demonstrate it can meet its obligations notwithstanding that it has an LMR of less than 2.0. This clarification may provide some relief to stakeholders as it indicates that the AER will have a more flexible approach in considering transfers, but does not address many of the significant concerns raised by stakeholders with respect to the widespread implications of the interim rules.


On June 20, 2016, the AER issued Bulletin 2016-16 following the Alberta Court of Queen's Bench decision in Redwater. The interim rules were presented by the AER as follows:

1. 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.

2. 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.

3. 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 most notable change was the increase in the minimum LMR from 1.0 to 2.0. As BLG discussed in its previous post, this represents a significant change that has widespread impacts on pending and future transactions.

Bulletin 2016-21

Bulletin 2016-21 clarifies and revises the conditions of transferring existing AER licences, approvals and permits as outlined by the AER in Bulletin 2016-16, providing that the AER will permit licensees to acquire additional AER-licensed assets if:

(i) the licensee already has an LMR of 2.0 or higher;

(ii) the acquisition will improve the licensee's LMR to 2.0 or higher; or

(3) the licensee is able to satisfy the AER by other means that they will be able to meet its obligations throughout the life cycle of energy development with an LMR of less than 2.0.

Bulletin 2016-21 also provides that the AER encourages licensees with transactions in progress to contact the AER to arrange a review of its specific circumstances.


Bulletin 2016-21 introduces a new way for a transferee to meet the conditions for transferring an AER licence, approval or permit, by providing that a licensee can demonstrate to the AER "by other means" that it can meet its obligations throughout the life cycle of a project with an LMR of less than 2.0. It is unclear what "other means" would satisfy the AER. Licensees can already achieve an LMR of 2.0 or higher by posting security, addressing existing abandonment obligations or transferring other assets so it appears that other factors may come into play as part of these changes.

Another important clarification in Bulletin 2016-21 is that the AER appears to be assessing transactions that are already in progress on a case-by-case basis. Bulletin 2016-21 expressly provides that the AER encourages licensees with transactions in progress to contact the AER to arrange a review of its specific circumstances. This is likely welcome news for licensees whose licences have been approved but have not yet acquired assets, as a requalification or delay in the issuance of the new license may be able to be avoided.

However, Bulletin 2016-21 does not address the multitude of concerns raised by stakeholders with respect to the implications of Bulletin 2016-16 (which are further outlined by BLG in its previous post). Pending the outcome of an appeal or a likely overhaul of the regulatory regime, it seems clear that the AER is committed to its interim rules, notwithstanding the strong criticism across industry to their implementation. Such commitment may contribute to increased abandoned wells and less value realization in insolvencies.

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