Canada: Bulletin 2017-21 And Directive 067 Changes To Eligibility Requirements For Acquiring And Holding Energy Licences And Approvals

Last Updated: December 11 2017
Article by Canadian Energy Perspectives, Craig Spurn, Kristen N. Haines and Kimberly J. Howard

Most Read Contributor in Canada, September 2018

On December 6, 2017, the Alberta Energy Regulator (AER) issued Bulletin 2017-21, announcing the release of a new edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals (Directive 067).

Directive 067 was updated to increase the scrutiny applied by the AER in granting licences, and to licence holders generally. The AER stated that this increased scrutiny is aimed at ensuring the privilege of holding licences is "only granted to, and retained by, responsible parties". The changes to Directive 067 appear to be another attempt by the AER to address issues stemming from the ongoing litigation pertaining to the Redwater case, which allowed a trustee to disclaim certain uneconomic licenced assets under the provisions of the federal Bankruptcy and Insolvency Act. Commentary on the Redwater decisions can be found here and here.

Directive 067 was updated as follows:

  • BA Codes: The AER will no longer issue business associate (BA) codes to prospective licencees. These codes must be acquired through Petrinex. Merely holding a BA code is not sufficient for holding licences or approvals – the AER must still determine that a party holding a BA code is eligible to do so.
  • Additional and Ongoing Information Requirements: Following receipt of a BA code, in order to hold AER licences, a prospective licencee must apply to the AER for licence eligibility by submitting a completed Schedule 1. Although this requirement is not new, the schedule attached to Directive 067 includes additional information requirements, and licencees must meet eligibility requirements on an ongoing basis. In particular, licence holders must submit an updated Schedule 1 to the AER within 30 days of any material change to the information originally provided, and all existing licence holders with eligibility as of December 6, 2017 (under the prior edition of Directive 067) must provide the AER with an updated Schedule 1 prior to January 31, 2018.
  • Increased Discretion for the Granting of Licence Eligibility: The AER may reject an application where, in the AER's opinion, an applicant poses an unreasonable risk. In assessing risk, the AER may consider the following factors:

    • the compliance history of the applicant, including its directors, officers, and shareholders, in Alberta and elsewhere, including in relation to any current or former AER licencees that are directly or indirectly associated or affiliated with the applicant or its principals;
    • the 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 financial health of the applicant;
    • outstanding debts owed by the applicant or current or former AER licencees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders;
    • outstanding noncompliances of current or former AER licencees 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 licencees that have outstanding noncompliances; and
    • naming of directors, officers, or shareholders of current or former AER licencees under section 106 of the Oil and Gas Conservation Act.
  • Licence Eligibility Types: There are three standalone categories of licence eligibility – no eligibility, general eligibility and limited eligibility. Licencees granted limited eligibility may be limited as to holding only certain types of licenses or approvals or their eligibility may be made subject to certain terms and conditions. Of particular interest, we note that all current well, facility or pipeline eligibility types that were previously granted with conditions will be converted to the "limited eligibility" type.
  • Restrictions on Licence Eligibility: The AER may apply such restrictions, terms and conditions to the eligibility as the AER determines in its sole discretion to be appropriate. Such restrictions, terms and conditions may include:

    • restrictions on the types of licences or approvals that may be held;
    • restrictions on the number of licences or approvals that may be held;
    • additional scrutiny required at the time of an application for or transfer of a licence or approval;
    • requirements to provide full or partial security at the time of an application for or transfer of a licence or approval;
    • requirements regarding the minimum or maximum working interest percentage permitted; and
    • a requirement to address outstanding noncompliances of current or former AER licencees that are directly or indirectly associated with the applicant or its directors, officers, or shareholders.
  • Revocation of Licence Eligibility: If a party fails to acquire or hold licences within one year following the date on which it was granted licence eligibility, the AER may revoke or restrict the applicable licence eligibility. Similarly, licence eligibility may be revoked or restricted where a licencee fails to provide and maintain accurate information with the AER or if, following a material change, the AER determines that a licencee poses an unreasonable risk.

The release of the amended Directive 067 is the AER's most recent response to the uncertainty created by the ongoing Redwater litigation.

As discussed in prior blog posts, the AER previously enacted interim measures pertaining to licencee eligibility and licence transfers in reaction to the Alberta Court of Queen's Bench decision in Re Redwater Corporation (Redwater). Those interim measures, as detailed in Bulletin 2016-16, were said to be temporary, pending the earlier of the outcome of the Redwater litigation or the implementation of appropriate regulatory measures.

On November 9, 2017, the Supreme Court of Canada (SCC) granted leave to appeal the Alberta Court of Appeal's decision on the Redwater matter on an expedited basis. With the SCC's final word on the Redwater litigation yet to come, and the temporary measures enacted by the AER still in effect, this new edition of Directive 067 may be the AER's first attempt at instituting what it sees as appropriate regulatory measures aimed at ensuring that abandonment and reclamation obligations are borne by industry. While this is an important objective, the amendments to Directive 067, and in particular the broad and unfettered discretion of the AER thereunder, could have significant impacts to the provincial oil and gas industry, including by severely restricting the ability of new market entrants to invest in Alberta.

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