On April 8, 2016, the Alberta Energy Regulator (“AER”) sent a sombre reminder to licensees and their directors and officers, of their corporate responsibilities when ceasing operations because of insolvency or for any other reason. Bulletin 2016-10 reinforced the need for compliance with all AER requirements when ceasing operations. Among several other obligations, such as ensuring continued care of AER licensed properties and maintenance of records, the bulletin stressed that either approval for transfer of licences, approvals and permits to an eligible party (i.e. with an LMR of at least 1.0 post-transfer) under Directive 006 be obtained; or abandonment and reclamation of all sites be in compliance with AER requirements; or that security be posted in accordance with Directive 006. If a licensee fails to meet these obligations, the AER may pursue various enforcement measures not only against the licensee but may also name individual directors and officers of the licensee under Section 106 of the Oil and Gas Conservation Act ("OGCA").
Section 106 of the OGCA provides, among other things, that where a licensee, approval holder or working interest participant contravenes or fails to comply with an order of the AER, or has an outstanding debt to the AER, or to the AER to the account of the orphan fund, in respect of suspension, abandonment or reclamation costs, and where the AER considers it in the public interest to do so, the AER may make a declaration setting out the nature of the contravention, failure to comply or debt and naming one or more directors, officers, agents or other persons who, in the AER's opinion, were directly or indirectly in control of the licensee, approval holder or working interest participant at the time of the contravention, failure to comply or failure to pay.
In past AER decisions, including Decision 2015 ABAER 005, citing Decision 2011 ABERCB 037, the AER has confirmed that the purpose of a Section 106 declaration is to prevent a licensee or a person in control of a licensee from continuing to breach AER requirements and orders and from incurring abandonment costs or incurring new breaches or additional debts, thereby safeguarding the public interest.
The test for a section 106 declaration, as set out by the AER in Decision 2015 ABAER 005 (at para 16), is as follows:
- Were there contraventions of or failures to comply with AER orders?
- If there was a contravention or failure, was the director, officer, or other person in direct or indirect control of the relevant company at the relevant time?
- If there was a contravention or failure, and such person was in control, is the requested declaration and order in the public interest?
Further, the AER has indicated in Decision 2015 ABAER 005 (at para 41) that the public interest purposes of a section 106 declaration include:
- To protect the public and the environment,
- To ensure confidence in the regulatory scheme,
- To deter like-minded individuals from engaging in similar conduct, and
- To serve as a warning to others who may engage in business with the named individuals.
Bulletin 2016-10 does not break new ground in terms of adding new obligations. But it does remind officers or agents of companies that should a company fail in its AER obligations it could be subject to enforcement proceedings by the AER. In addition to other sanctions, notably Section 106(3) of the OGCA provides that named officers, directors or agents may be responsible for payment of abandonment and reclamation deposits in an amount determined by the Regulator.
What are the implications of this? This is merely a reminder of already existing sanctions available to the AER. However, at a time in the industry where we are likely to be seeing more insolvencies, officers, directors or other persons in control of companies should heed this warning and be aware of whether such companies are AER non-compliant.
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