Canada: Changes To The Regulation Of Oil And Gas In Saskatchewan

In May of 2011, Saskatchewan passed changes to The Oil and Gas Conservation Act (OGCA),¹ the act governing the regulation of resource development operations in the province. Although the associated Bill² received Royal Assent on May 18, 2011, it was not proclaimed into force until April 1, 2012, in conjunction with the release of The Oil and Gas Conservation Regulations, 2012 (OGCR)³ and The Petroleum Registry and Electronic Documents Regulations (Registry Regulations).⁴

The aim of the amendments to the OGCA, and associated regulations, is to provide resource companies investing in Saskatchewan's energy and resource industries with the best support services and business and regulatory systems available.⁵ Included in those amendments was the introduction of vicarious liability and liability for directors, officers and agents of a corporation in certain circumstances; and the requirement that all licensees that enter into an agreement to sell or otherwise dispose of their interest in a well or facility apply for a transfer of the associated licence within 14 days after the signing of a purchase and sale agreement, or within 14 days of the relevant section coming into force (April 1, 2012) if an agreement has already been signed. For more details regarding the amendments to the OGCA, please see the Bennett Jones Update, "Saskatchewan Modernizes its Oil and Gas Conservation Act" (May 11, 2011).

With the enactment of the Registry Regulations and the OGCR, Saskatchewan has implemented a number of operational and procedural aspects of the amendments contemplated in the OGCA and detailed in the Explanatory Notes on the Bill.⁶ Some of the changes likely to impact operational and procedural aspects of energy and resource operations in Saskatchewan are summarized below.

Operational

The OGCR contemplate a number of operational changes that are likely to expand the scope of those persons impacted by the regulations. For example, a number of sections in the OGCR have been amended such that obligations are now imposed on operators⁷ of wells or facilities rather than simply on the owners. In addition, some requirements under the OGCR (including record keeping (s. 100)) are now applicable not only to "oil or gas" activities but also to "water, products or other substances".

As a result of changes to the OGCR, there are increased record-keeping requirements. For example, operators are now legally obligated to record certain information in the tour reports of every drilling rig (s. 103). In addition, where damage is done to a well by perforating, chemically treating or fracturing, and repair or abandonment is reasonably necessary in accordance with the applicable section of the OGCR, there is now a requirement for the operator to notify Saskatchewan's Minister of Energy and Resources of any such repair or abandonment conducted (OGCR, s. 57(2)).

There have also been changes to setbacks, such that all wells drilled on or after July 1, 2013, will have increased setback requirements from a water body, an occupied dwelling, a public facility, or an urban centre (OGCR, s. 25(2)). Even prior to July 1, 2013, the existing 100 m setback will be measured from the centre of the well rather than in proximity to drilling or associated equipment.

Furthermore, prior to the publication of the OGCR, there had been a prohibition on venting more than 900 cubic metres per day of gas. However, with the implementation of the OGCR, this prohibition has been clarified to explicitly include flaring (s. 51(1)).

There are now increased testing requirements for injection wells. Reduced from two years under the prior regulations, operators must now test and inspect injection wells at least once every year to ensure that there are no production casing, tubing or packer failures, the tubing-production casing annulus is filled with a satisfactory corrosion inhibiting fluid, and injection flow lines are in good working order without leakage or risk of leakage due to corrosions or material defects.

Finally, and consistent with amendments to the OGCA aimed at increasing penalties and providing for greater enforcement and investigation powers, section 122 of the OGCR contemplates the imposition of penalties for failing to comply with the submission or filing requirements pursuant to certain sections of the OGCR. The associated penalties are set at various amounts per day or per month, depending on the section of the OGCR under which the submission or filing was late.

Procedural

In addition to changes to operational aspects of oil and gas operations, the publication of the Registry Regulations and OGCR will result in a number of procedural changes that are likely to impact licensees, owners and operators. For example, licensees are now required to apply for and obtain the approval of the Minister prior to suspending normal drilling operations, resuming drilling or servicing operations after a previous completion, suspension or abandonment of the well, abandoning or plugging back the well, or undertaking remedial operations for the purposes of eliminating a vent flow, gas migration or leaking open-hole abandonment (OGCR, s. 22).

In addition, the OGCR clarify that upgraders, refineries, and single-well batteries are exempt from the requirement to obtain licences under the OGCA, and additionally provide for an exemption from the licensing requirement for caverns for the storage of gas, crude oil or products, not including any associated surface facilities (OGCR, s. 15).

As detailed in the prior update, amendments to the OGCA are intended to facilitate Saskatchewan's participation as a partner in the Petroleum Registry of Alberta, the purpose of which is to provide identified users and stakeholders centralized access to comprehensive and reliable petroleum-related information such as volumetric infrastructure, valuation and royalty information. With the enactment of the Registry Regulations and various changes contemplated by the OGCR (ss. 105-108 and 110), certain reports and documents must now be submitted electronically to the Registry and will thereafter be considered original and legally enforceable.

Significantly, pursuant to revisions to a number of provisions, licensees and operators may apply to the Minister to vary certain requirements under the OGCR. In this manner, if a licensee or operator is unable to comply with specified provisions of the OGCR (for example certain provisions relating to decommissioning and abandonment requirements for well and facility sites: OGCR, s. 56) it can make an application to the Minister to have that particular requirement varied. On receipt of such an application, the Minister may approve the application subject to terms and conditions it considers appropriate, or refuse to approve the application for variation.

Finally, section 124 of the OGCR provides for the transition from the prior OGCR, now repealed, to the new OGCR. According to that section, the repealed OGCR remain in force and apply with respect to all regulatory activities related to oil and gas conducted before April 1, 2012. This transitional provision does not apply to the provisions of the OGCA, including the requirement that all vendors of a well or facility apply for a transfer of a licence within 14 days after the signing of the agreement, or within 14 days of April 1, 2012, if an agreement for sale had already been signed as at that date.

Conclusion

Changes to the regulation of oil and gas activities in Saskatchewan will, no doubt, have impacts on resource companies operating in Saskatchewan. If you would like more information on how these changes will impact your current or planned operations, please contact a member of Bennett Jones LLP's energy or regulatory groups.

Footnotes

1 RSS 1978, c O-2.

2 Bill 157, The Oil and Gas Conservation Amendment Act, 2011, SS 2011, c 11, available at: http://www.qp.gov.sk.ca/index.cfm?fuseaction=publications.details&p=31600 .

3 RRS, c O-2, Reg 6.

4 RRS, c O-2, Reg 5.

5 Saskatchewan, Legislative Assembly, Hansard, No 14A (22 November 2010) at 6144-6145 (Honourable Bill Boyd).

6 Saskatchewan, Legislative Assembly, Explanatory Notes to Bill No 157, An Act to amend The Oil and Gas Conservation Act.

7 "Operator" is defined in section 2(aa) of the OGCR as "(i) a person who, as owner, licensee, lessee, sublessee or assignee, has the right to carry on drilling, construction, operation, decommissioning or abandonment of a well or facility and the reclamation of the well or facility site; (ii) a contractor who on behalf of the person mentioned in subclause (i) engages in any of the activities described in that subclause; or (iii) the person designated by the minister as the operator of the well or facility..."

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