AER Tightens Eligibility Requirements for Licensees

Authors: John Gruber, Billie Fortier

The Alberta Energy Regulator (“AER”) has amended its Directive 067 to tighten the eligibility requirements for those companies in Alberta applying to acquire or currently holding a license or approval for energy development in Alberta.

This amendment comes in the wake of the decision of the Supreme Court of Canada (“SCC”) to grant leave to the AER and the Orphan Well Association to hear their appeal of Orphan Well Association v Grant Thornton Limited, 2017 ABCA 124 (the “Redwater decision”). In the Redwater decision, the Alberta Court of Appeal (in a 2-1 decision) upheld Chief Justice Wittman’s decision by finding that federal bankruptcy law takes priority over certain provisions in provincial environmental legislation.

The AER released the new edition of Directive 067 on December 6, 2017. According to the AER’s Bulletin 2017-21, the changes include:

  • requiring additional information at the time of application,
  • increased discretion regarding the rejection of applications where an applicant poses a risk, and
  • requirements for keeping corporate information up to date.

Importantly, the new edition does not only apply to those companies applying for a new license or approval, but also to existing licensees and approval holders.

The AER has given existing licensees until January 31, 2018 to provide the AER with an updated schedule 1 under Directive 067, and requires companies to update the AER of any material change within 30 days thereafter.

The AER then has the discretion to revoke or restrict the company’s eligibility where the AER finds that the change has resulted in an “unreasonable risk” (Directive 067, p. 6). The AER also has the authority to revoke eligibility based on compliance history of the applicant and its directors, officers and shareholders and the compliance history of entities currently or previously associated or affiliated with the applicant or its directors, officers and shareholders. This may hinder the ability of a non-compliant company from forming another company and applying for a new licence under the new company name.

Together with the slump in energy prices and escalating insolvencies, well abandonment in Alberta has become a serious issue.

According to a report by the C.D. Howe Institute, the number of orphaned wells in Alberta has gone from fewer to 100 to 3,200 in the past five years, and if the energy prices stay as they are, this number will only continue to rise. The report also estimated that the potential cost of well liabilities to be as high as $8 billion; who will be left with this tab is yet unclear, but as it stands it could well be solvent oil and gas companies operating in Alberta and the taxpayers.

With the new edition of Directive 067, the AER will be better able to scrutinize the financial health of applicants and existing licensees so as to limit the practice of bankrupt companies walking away from their abandoned wells. As the introduction to Directive 067 says, “[a]quiring and holding a licence or approval for energy development in Alberta is a privilege, not a right” and the new edition of Directive 067 “increases the scrutiny the AER applies to ensure that this privilege is only granted to responsible parties.”

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.