Canada: AER Revises Eligibility Requirements For Acquiring And Holding Energy Licences And Approvals

On December 6, 2017, the Alberta Energy Regulator (AER) released a new edition of Directive 067 (New Directive), dealing with the eligibility requirements for acquiring and holding energy licences and approvals in Alberta. This was announced to the public though AER Bulletin 2017-21.

The New Directive increases the scrutiny the AER will apply to ensure that licences and approvals are only granted to, and retained by, "responsible parties". The changes in the New Directive, discussed in detail below, have potential wide-reaching impacts to current or prospective licence and approval holders, including the following:

  • Day-to-day, current licensee and approval holders will have to continually assess changes to their businesses for materiality and, where required, will have to provide updated information to the AER or risk a change to the type of licence eligibility. Any such change could have a significant impact on a licensee's business or operations.
  • The changes set a high standard for directors and officers in terms of disclosure obligations relative to other jurisdictions and past insolvency proceedings. A failure to provide this information or persuade the AER that there is no "unreasonable risk" might negatively impact a licensee's licence eligibility.
  • The discretion afforded to the AER in assessing "unreasonable risk" gives it the ability to refuse a licence or approval application or change licensee eligibility through what appears to be a subjective analysis. The latitude given to the AER in this regard will allow it leeway in making decisions about who, in its view, ought to hold a licence or approval and under what terms and conditions. However, there is little guidance that would help the current or prospective licensee or approval holder determine how this standard might be applied in any given circumstance, resulting in a level of uncertainty not seen under the prior regime.

The increased scrutiny under the New Directive comes in the form of several significant changes to the previous version of Directive 067 (Original Directive), which had been in force since July 11, 2005:

  1. License eligibility types: These have been simplified to three types: no eligibility, general eligibility and limited eligibility. The changes in the New Directive primarily affect the limited eligibility category, which is eligibility to hold only certain types of licences and approvals or on certain terms and conditions. Limited eligibility licences will take the place of the following eligibility types under the Original Directive: well, facility or pipeline (all types) that were granted with conditions; public educational institution; government; water wells deeper than 150 m; farm gas well licence and gas well licence for domestic use; and mineral exploration test hole licences.
  2. Requirements to become a licensee: The New Directive includes a number of new requirements that must be met to become a licensee. Most significant, however, is the discretion given to the AER to consider whether in its opinion, the applicant does not pose an "unreasonable risk". The question of unreasonable risk appears to be a subjective determination to be made by the AER in respect of any given licensee or approval holder based on the following factors:

    • Compliance history of the applicant, including its directors, officers and shareholders, in Alberta and elsewhere, including in relation to any current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its principals
    • Compliance history of entities currently or previously associated or affiliated with the applicant or its directors, officers and shareholders
    • Experience of the applicant, including its directors, officers and shareholders
    • Corporate structure
    • The applicant's financial health
    • Outstanding debts owed by the applicant or current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers or shareholders
    • Outstanding non-compliances of current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers or shareholders
    • Involvement of the applicant's directors, officers or shareholders in entities that have initiated or are subject to bankruptcy or receivership proceedings or in current or former AER licensees that have outstanding non-compliances
    • Naming of directors, officers or shareholders of current or former AER licensees under section 106 of the Oil and Gas Conservation Act.
    Depending on its assessment, the AER may refuse to grant licence eligibility or may grant licence eligibility with or without restrictions, terms or conditions.
  3. Ongoing compliance: All existing licence or approval holders must meet licence eligibility requirements on an ongoing basis and ensure that the information the AER has on file is kept accurate. An updated Schedule 1 must be provided by licensees within 30 days of any material change (the scope of materiality is described in the New Directive). When, in the AER's opinion, a change results in an unreasonable risk, the AER may revoke eligibility or restrict eligibility by imposing terms and conditions.

    A licensee may request an advance ruling from the AER on whether the change is likely to be considered an unreasonable risk, although no process or guidelines are established under the New Directive in this regard.
  4. Restriction of licence eligibility: There are three main circumstances in which the AER may revoke or restrict licence eligibility: (1) the licensee fails to provide complete and accurate information and ensure that information remains complete and accurate by advising the AER of material changes within 30 days; (2) the AER finds that, as a result of a material change or compliance history, the licensee possesses an unreasonable risk; and (3) the licensee fails to acquire or hold licences or approvals within one year after having been granted eligibility.

    The repercussions for a party that is offside any of these requirements will depend on the circumstances. For a party that holds licences or approvals, licence eligibility will be restricted, general eligibility (if applicable) will be changed to limited eligibility with potential terms and conditions and the licensee will not be permitted to acquire additional licences or approvals unless general licence eligibility is reacquired or terms and conditions are lifted.
  5. Schedule 1 information requirements relative to directors and officers: Schedule 1 of the New Directive now requires applicants to disclose whether any director or officer has been a director of officer of an energy company in any jurisdiction in the past five years, including of an energy company that has been subject to insolvency proceedings either while that person was a director or officer or during the 12 months prior to such insolvency proceeding. Directors and officers must also now provide a current piece of government-issued identification that contains a photograph and affidavit of attestation of instrument and declaration. The AER specifically acknowledges in Schedule 1 that this information is being obtained to, among other things, conduct compliance and enforcement proceedings.

The New Directive is effective immediately, with current licensees and approval holders required to provide an updated Schedule 1 by January 31, 2018.

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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