Canada: AER Signals Stringent Approach To Issuance Of Reclamation Certificates

In Decision 2016 ABAER 006, a hearing panel (the "Panel") of the Alberta Energy Regulator (the "AER") upheld an AER decision to refuse to issue a reclamation certificate to Canadian Natural Resources Limited ("CNRL").

Pursuant to environmental legislation in Alberta, operators of oil and gas wells must conserve and reclaim disturbed land to restore the landscape, soil and vegetation to a productive state so that the land can be used as it was prior to commercial development. A reclamation certificate is issued to an operator when a site is successfully reclaimed to the standards set by the AER. In this decision, the Panel affirmed the decision of the AER's Reclamation Programs Group (the "RPG") that determined that CNRL failed to adequately control the growth of undesirable plants on a site and had accordingly not reclaimed the site in question to the applicable standards.

To our knowledge, this is the first reported decision arising out of proceeding of this type for the AER and is significant in outlining and affirming the considerations and procedure of the AER in handling reclamation certificate applications. In particular, the AER made a number of important comments about introducing new evidence at the appeals stage which has implications in the broader regulatory context. While reclamation costs are not typically hugely significant for oil and gas operators (in particular in comparison to the costs of abandonment and remediation that can be extreme), they are a source of indeterminate liability for an operator that must be continually monitored and addressed. This decision fits within a trend by the AER of taking a stringent approach to enforcing environmental obligations and is noteworthy for operators who are already very cognizant of environmental liabilities in Alberta's struggling economy.

Background

In 2001, CNRL drilled a well at a site located in northwestern Alberta near Peace River (the "Well Site"). The well never produced and was subsequently abandoned and reclaimed in October of 2001 when CNRL seeded the Well Site with fescue, a type of grass. For the next 10 years, CNRL maintained the Well Site through spraying and mowing.

In May of 2014, CNRL applied to the AER for a reclamation certificate for the Well Site. In October of 2014, the AER decided to refuse to issue the reclamation certificate on the grounds that there was an increased amount of incompatible vegetation, in particular quack grass (a type of weed common in Alberta), on portions of the Well Site and access road. In the decision, the RPG noted that the quack grass interfered with the landowner's use of the adjacent lands.

In November of 2014, CNRL requested a regulatory appeal of the AER's decision under Part 1, Division 3 of the Responsible Energy Development Act, SA 2012, c R-17.3 and Part 3 of the Alberta Energy Regulator Rules of Practice, AR 99/2013 ("AER Rules of Practice").

On September 9, 2015, the AER decided to set the matter down for a public hearing. The purpose of the hearing was to determine whether the AER should confirm, vary, suspend or revoke its decision to refuse to issue a reclamation certificate.

Applicable Legislation

The obligation of an operator to reclaim land stems from section 137 of the Environmental Protection and Enhancement Act, RSA 2000, c E-12 ("EPEA"), which provides that an operator has a duty to conserve and reclaim land and obtain a reclamation certificate. "Reclamation" is defined in EPEA as follows:

"reclamation" means any or all of the following:

(i) the removal of equipment or buildings or other structures or appurtenances;
(ii) the decontamination of buildings or other structures or other appurtenances, or land or water;
(iii) the stabilization, contouring, maintenance, conditioning or reconstruction of the surface of land; and
(iv) any other procedure, operation or requirement specified in the regulations.

Reclamation must be completed in accordance with the terms and conditions of EPEA, any applicable approval, code of practice, environmental protection order or direction of the Director (EPEA, s 137(2)).

Section 2 of the Conservation and Reclamation Regulation, AR 115/1993 (the "CRR"), provides that "the objective of conservation and reclamation of specified land is to return the specified land to an equivalent land capability". "Equivalent land capability" is defined in Part 1 of the CRR as "the ability of the land to support various land uses after conservation and reclamation is similar to the ability that existed prior to an activity being conducted on the land, but that the individual land uses will not necessarily be identical". The definition of "specified land" under the CRR includes "land that is being or has been used or held for or in connection with the construction, operation, or reclamation of a well." The CRR also states that an operator must reclaim specified land in accordance with applicable standards, criteria and guidelines. These include the 2010 Reclamation Criteria for Wellsites and Associated Facilities for Cultivated Lands, 2013 update (the "2010 Reclamation Criteria").

The 2010 Reclamation Criteria are applied to evaluate whether a site has met equivalent land capability. In applying for a reclamation certificate, an operator must include in its application an evaluation of whether the lease site meets the reclamation criteria, which compares the reclaimed area to adjacent lands in terms of vegetation, soil quality and landscape. The 2010 Reclamation Criteria does not require lease sites to be returned to the exact state that they were in before the activity occurred. Rather, equivalent land capability is "based on land function and operability that will support the production of goods and services consistent in quality and quantity with the surrounding lands."

After the issuance of a reclamation certificate, the operator no longer has to pay the annual rental for the lease but remains responsible for surface reclamation for 25 years and for underlying contamination of the site in perpetuity.

Decision

The landowners of the Well Site and the RPG participated in the Hearing and both testified that quack grass was an undesirable plant which interfered with the landowner's future use of the Well Site or ability to integrate the Well Site with the landowner's adjacent property. Accordingly, they asserted that CNRL failed to meet the 2010 Reclamation Criteria. CNRL refuted those positions.

a) Procedural Issues – New Evidence

Prior to considering the substantive issues, the Panel considered a procedural matter of what point in time was appropriate for assessing a site's compliance with the reclamation criteria. The issue was whether new information about the site conditions, not available when the RPG made its initial decision, should be admissible.

The RPG took the position that the regulatory hearing was in part a de novo hearing and that the Panel therefore could consider new information so long as it was relevant and material, regardless of when it was collected. The RPG argued that new information, taken by the RPG and also taken by the Panel itself through visits to the Well Site in advance of the Hearing, was admissible.

CNRL argued that the Panel should not consider information about the Well Site from any time before or after the site was assessed for compliance with the 2010 Reclamation Criteria. In support of this decision, CNRL relied the Alberta Court of Appeal's decision in Imperial Oil Resources Ltd. v 826167 Alberta Inc., 2007 ABCA 131 ("Imperial Oil"), where the Court of Appeal held that parties must follow the process established by the decision maker, and deference must still be given to the original decision in terms of presenting additional evidence.

The Panel, relying on AER Rule 31.1 and Environmental Appeals Board Decision 94-014, concluded that it had broad authority to consider all information that was relevant and material to the appealed decision. Rule 31.1 provides:

Additional information

31.1 The Regulator may allow new information to be submitted in a regulatory appeal if the information is relevant and material to the decision appealed from and was not available to the person who made the decision at the time the decision was made.

A similarly broad approach to the admission of new evidence was taken in the Environmental Appeals Board Decision 94-014. As the EAB stated in that decision "the test for receiving evidence is whether that evidence is relevant and material to the issues raised in the appeal, not when the evidence became available to the parties".

In this case, the Panel determined that photos taken of the Well Site in 2014 by AER field staff, RPG information compiled after the initial decision relating to site conditions and a release from Alberta Infrastructure that was obtained and filed by CNRL during the Hearing was admissible. The Panel stated that the new evidence would not "undermine the underlying facts of the initial decision or lessen the value of the decision maker's expertise" and did not offend the Imperial Oil decision.

b) Definition of "Undesirable Plant" under the 2010 Reclamation Criteria

The first substantive issue that the Panel considered was whether quack grass is an "undesirable plant" under the 2010 Reclamation Criteria. The 2010 Reclamation Criteria provides that "undesired plants (i.e., volunteer crop, incompatible species) shall be controlled so that they do not impede land manager operability and/or management". The Panel rejected CNRL's argument that quack grass was not undesirable because it is not a prohibited noxious weed under Alberta's Weed Control Act, SA 2008, c W-5.1 and is not a listed weed under the 2010 Reclamation Criteria, concluding that quack grass can be an undesirable plant under the 2010 Reclamation Criteria depending on whether it interferes with the landowner's use of the site.

The Panel then considered evidence as to the landowner's current and future use of the land. The Panel accepted the landowner's evidence that once the Well Site was ready to be integrated into the adjacent field, it intended to use the Well Site for grains prior to reverting to using the Well Site for perennial grasses in accordance with his crop rotation. The Panel determined that the quack grass is an undesirable plant because it would interfere with this proposed use.

c) 2010 Reclamation Criteria

The Panel then considered whether the Well Site met the 2010 Reclamation Criteria. The Panel noted that the 2010 Reclamation Criteria does not require complete eradication of all weeds and problem plants before a reclamation certificate can be issued and only requires that prohibited noxious weeds be destroyed and noxious weeds be controlled. The 2010 Reclamation Criteria states "undesired plants (i.e., volunteer crop, incompatible species) shall be controlled so that they do not impede land manager operability and/or management." The Panel held that, in this instance, if the Well Site were to be integrated into the adjacent field, the presence of quack grass could require a different management practice than what is applied to the remainder of the field, which confirmed that the Well Site does not meet equivalent land capability.

The Panel decided that based on the presence of quack grass and other perennial grasses on the Well Site and their incompatibility with the cultivated crop in the adjacent field, the Well Site did not meet reclamation criteria and had not been returned to an equivalent land capability.

Implications

(a) Procedural Issues

This decision sets out some key procedural considerations for parties contemplating an appeal of a decision by the RPG refusing a reclamation certificate. In particular:

  • While the AER did not determine whether the regulatory appeal was a de novo hearing, it did find that the Panel could consider new information that was not before the RPG when it made its initial decision. This is important and may have ramifications in other areas;
  • Such information can include anything that is relevant and material to the appealed decision;
  • This can include up-to-date facts on a regulatory appeal including new evidence, information obtained through site visits (including, those of the Panel itself) and additional information requested by the AER; and
  • Allowing new evidence that is relevant and material does not undermine the underlying facts of the initial decision or lessen the value of the decision maker's expertise as referred to in Imperial Oil.

It seems clear from this decision, and from the express provisions in AER Rule 31.1, that the AER's approach to new information will also apply to regulatory decisions outside of the reclamation certificate context.

(b) Surface Disturbance of Grasslands

This decision affirms that the AER takes the issue of site reclamation seriously. On September 1, 2016, the Alberta Government issued two guidelines, Principles for Minimizing Surface Disturbance in Native Grassland and Industrial Activity in the Central Parkland and Northern Fescue Native Grasslands, which sets out best practices for conservation and reclamation. Operators should be aware of these guidelines and take steps to perform to best practice when dealing with site reclamation.

(c) Accountability to Communicate with Landowner

The Panel also made a number of comments about how an operator is ultimately responsible for ensuring effective communication with a landowner. The Panel criticized CNRL's communication with the landowner and was also critical of both the RPG and CNRL in delaying the resolution of the dispute. In a subsequent costs hearing, CNRL was found liable for costs of over $25,000 which operators should also consider in deciding whether to appeal a decision of the RPG.

(d) Parties Considering an Appeal of a RPG Decision

In light of the AER's more assertive and stringent approach to addressing environmental liabilities (as outlined in a blog post from the AER), this decision is noteworthy for Alberta operators, who are likely already very keenly aware of the significant costs associated with environmental compliance. Operators should ensure that sufficient funds are available for reclamation and should take these costs into account reclamation costs in balance sheets (as BLG discussed in Shifting Environmental Liabilities After the Redwater Decision). If an operator is insolvent and cannot cover reclamation costs, the result is resort to Alberta's Orphan Well Fund. In light of a recent decision of the Alberta Court of Appeal (discussed by BLG in Where do we go from here? Alberta Court approves renouncement of AER-licensed assets by Trustees and Receivers to avoid monetary environmental obligations), many fear whether the fund will be able to cover existing liabilities in light of Alberta's struggling economy. This decision is indicative of the AER's commitment to stringently enforcing its environmental standards notwithstanding the current strains on operators and fears of strain on the Orphan Well Fund in the Province.

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