A significant portion of Canada’s oil and gas infrastructure is fast approaching its functional end of life. In Alberta, Canada’s largest oil and natural gas producing province, approximately 30% of its pipelines are greater than 25 years old, while 5% are greater than 50 years old. The potential environmental and other liabilities associated with this infrastructure, from both a regulatory and civil perspective, are significant. As the frequency of environmental incidents involving this infrastructure increases, complex legal and practical issues will begin to emerge at an accelerating pace, which will have to be addressed.
With respect to Alberta’s legislative and regulatory framework, on June 17, 2013, the Responsible Energy Development Act (“REDA”) was proclaimed in force.
With the implementation of the final of three phases on March 31, 2014, the Alberta Energy Regulator (“AER”) has, under REDA, become Alberta’s single regulator of energy developments situated within Alberta’s provincial boundaries.1
In addition to REDA2, the AER has been delegated regulatory authority under the Pipeline Act and the Oil and Gas Conservation Act with respect to all pipelines, and all wells and facilities, falling within provincial jurisdiction. To the extent there exists an environmental component to an incident, the AER also has jurisdiction under the Environmental Protection and Enhancement Act. Under these Acts, the AER has broad authority to order, among other things, the discontinuance and abandonment of pipelines, wells and facilities, the suspension of operations, and the clean-up of spills, with the ability to effect these things itself and recover the costs incurred from the parties involved.
The regulators in Canada’s other key oil and gas producing Provinces have been given similarly broad legislative regulatory powers regarding infrastructure under their jurisdiction, as have a number of Federal agencies responsible for the regulation of interprovincial and international oil and gas infrastructure. In addition, given the concurrent federal and provincial jurisdiction over Alberta’s environment, there also exists the potential for the application of Federal legislation directed primarily at environmental and wildlife protection, and the concurrent involvement of Federal agencies in the case of an environmental incident involving a provincially regulated pipeline, facility, well or other oil and gas infrastructure.
Not surprisingly, the insolvency of an industry participant may impact the recovery by parties, including Crown agencies, of costs incurred in the course of addressing an infrastructure incident. A number of recent decisions have considered issues involving what some have termed the “untidy intersection” of orders issued under the Companies Creditors Arrangement Act and environmental remediation orders issued by regulators, directing the remediation of contaminated property.3 Where Government agencies are unable to recover costs incurred in these and other circumstances, resort may be had to the orphan fund, established to fund the costs related to abandonment, reclamation and suspension of orphaned wells and other facilities.4
Layered on this regulatory framework is a complex private framework under which Canadian oil and gas industry participants may attempt to limit their exposure to this liability and pursue cost recovery from current or past owners under statute, contract, common law property principles, and tort.
These and other related issues will be canvassed in depth by Michael G. Massicotte and Michael A. Marion, partners of BLG’s Calgary office, and Kristen Read, Legal Counsel, Devon Canada Corporation, at the Canadian Energy Law Foundation Jasper Seminar, taking place June 11 to 14, 2014 in Jasper, Alberta.
ALBERTA ENVIRONMENTAL MONITORING AGENCY IS OPERATIONAL
On April 28, 2014, the Protecting Alberta’s Environment Act was proclaimed to be in force. As a result, the new Alberta Environmental Monitoring, Evaluation and Reporting Agency, or AEMERA, is now operational.
As previously reported in our Fall 2013 Newsletter (located here), the Alberta Environmental Monitoring, Evaluation and Reporting Agency (“AEMERA” or the “Agency”) aims to promote the use of scientific methods to report, analyze and evaluate Alberta’s environment. The Agency will do so by gathering comprehensive data from land, air, water and biodiversity throughout the province.
The Agency is part of the Integrated resource Management System that documents cumulative effects in Alberta. AEMERA will largely comprise one of three pillars identified by the Alberta Government to administer this system: the Comprehensive Environmental Monitoring System (which will integrate with the other two pillars: the Land-Use Framework, and the Enhanced Energy Regulatory Process). AEMERA will employ a system of comprehensive scientific monitoring to assess the cumulative impacts of activities over the long-term, which is anticipated to assist in the sustainable management and development of Alberta’s resources. The data is to be provided in an open and transparent manner to the general public in an effort to inform all stakeholders.
In accordance with the Act, AEMERA: a) will be an independent agency with directors appointed by the Cabinet; b) will be able to collect fees for services requested of it; and c) will collect, review and disclose data to the public. To ensure the accuracy of the data collected by the Agency and to provide for a periodic review of the Agency’s scientific basis and the components of its monitoring, evaluation and reporting activities, the Act also provides for the appointment of the Science Advisory Panel, an eight member panel which, once appointed, will review the scientific integrity of AEMERA’s activities.
The Lower Athabasca Region’s reporting regime is already underway through the Joint Canada-Alberta Implementation Plan for Oil Sands Monitoring (“JOSM”), which is anticipated to be fully implemented by 2015. AEMERA’s initial focus will be to assume, on behalf of Alberta, responsibility over the JOSM activities in the short-term, with subsequent expansion to oversee environmental reporting throughout the entire province of Alberta thereafter. Areas requiring greater attention will be identified in conjunction with the Alberta Energy Regulator and regional planning groups under the Alberta Land-Use Framework.
Dr. Lorne Taylor, formerly Alberta’s Minister of Environment between 2001 and 2004, during which time the Water for Life strategy in Alberta was initiated, was appointed Chair of AEMERA’s board of directors. Dr. Greg Taylor, former Dean of Science at the University of Alberta, was appointed Vice-Chair of AEMERA’s board. Both have been appointed for a three-year term.
There are a number of keys in order for the program to be successful, the first being its independence and perceived independence (some environmental groups have raised concerns with the Ministerial appointments of the Chair and Vice-Chair, and with the source of funding 5). We expect that the success of the program will largely be dependent upon the scientific reliability of the data made publicly available by AEMERA, public buy- in and clear sources of sufficient and ongoing funding.
THE CROWN FOUND LIABLE FOR DAMAGES FLOWING FROM FIRST NATIONS BLOCKADE
In Moulton Contracting Ltd. v. British Columbia, 2013 BCSC 2348, a BC Supreme Court found that a private company could rely on permits to claim damages from the Crown when members of a First Nation blockaded a road and prevented the company’s access to timber lots covered by the permits. In light of the case, those relying on permits to develop resources on lands affected by claims of Aboriginal rights and title should review negotiate the terms of pending permits with attention to issues flowing from the duty to consult.
Justice Saunders found the Province of British Columbia liable for $1.75 million in damages to Moulton Contracting Ltd. (“Moulton”) for breach of both an implied contractual term and an implied representation associated with Timber Sale Licences (“TSLs”) the Ministry of Forests (“MoF”) had issued to Moulton. Moulton had lost the opportunity to secure other logging contracts when George Behn and members of his family (the “Behns”), members of the Fort Nelson First Nation (“FNFN”), blockaded access to Moulton’s cut blocks. Justice Saunders found that given the Crown must know that conflict could arise if consultation was not sufficient, for business efficacy, the TSLs must have contained two implied terms:
That the Province had engaged in all necessary consultation with affected First Nations, and had discharged its duty to consult;
That the Province was not aware of any First Nations expressing dissatisfaction with the consultation undertaken by the Province, save as the Province had disclosed to Moulton Contracting (para. 291).
Justice Saunders found that FNFN’s lack of capacity meant consultation was not meaningful and MoF owed a duty to delay both the Amendment and the TSLs until the FNFN’s concerns had been addressed
However, there was not a sufficient causal connection between the insufficient consultation and the Behn’s blockade. Mr. Behn’s August 31, 2006 letter to MoF could be read as opposition to all industrial activity
in the area. On the balance of probabilities, Mr. Behn was unlikely to have been satisfied by any level of consultation and Moulton’s losses did not flow from the inadequate consultation. Moreover, the Blockade Exemption relieved the Province of liability even if the Province was at fault.
Justice Saunders did find that the Province had breached the implied term that it was not aware of any First Nations expressing dissatisfaction with its consultation. MoF did not inform Moulton of
Mr. Behn’s threat at a critical time when Moulton could have pursued other contracts. The Province was concurrently liable in negligence, based on an implied continuing representation.
The court found no liability on the part of either the Behns or the FNFN.
Following this decision, it is likely that Crown agencies will draft permits to exclude liability for inadequate consultation and the failure to warn. Proponents negotiating permits should pay particular attention to these clauses.
THE ONGOING SAGA OF THE SAGE GROUSE
The sage grouse is an endangered species. It is estimated that there are currently only 100 greater sage-grouse remaining in Canada. Environmental groups point towards habitat loss and degradation as a result of agricultural and industrial uses of land as the leading cause of endangerment. Although the sage-grouse historically inhabited many areas in western Canada, its populations are now confined to southeastern Alberta and southwestern Saskatchewan.
The federal Government has recognized the sage-grouse as an endangered species pursuant to the Species
at Risk Act (“SARA”). When a species is designated federally as endangered, the Minister of Environment is required to prepare a recovery strategy for that species pursuant to SARA. The Government of Canada issued a federal Recovery Strategy pursuant to SARA in respect of the sage-grouse on January 14, 2008.
In 2009,6 several environmental groups (the “Applicants”), applied to the Federal Court of Canada to review the Recovery Strategy for the sage-grouse. The Applicants cited an alleged breach by the Minister of Environment to identify as much critical habitat of the sage-grouse as possible based on the best available information, which is required by SARA as read together with the precautionary principle. “Critical habitat” is defined under SARA as “the habitat that is necessary for the survival or recovery of a listed wildlife species and that is identified as the species’ critical habitat in the recovery strategy or in an action plan for the species”. Instead, the Recovery Strategy included a schedule of activities that were to be completed in order to identify a critical habitat, rather than identifying the habitat itself.
The Court reviewed the issue of whether as much critical habitat as possible was identified as a question of fact on the standard of reasonableness. While the Court found that it was reasonable to conclude that
no critical winter habitat of the sage-grouse could be identified given inadequate available information
regarding such seasonable habitat, it was unreasonable to not have included the sage-grouse breeding habitat, also known as “leks”, as there was already sufficient available information regarding that critical habitat. There was evidence that the Minister had conceded that leks were necessary for the survival or recovery of the sage-grouse population, and the Government of Alberta’s
procedure of labeling and naming leks locations indicated that some leks locations were identifiable and should have been so identified in the Recovery Strategy. Ultimately, the Court struck the portion of the Recovery Strategy related to critical habitat and directed that the Minister redraft that portion of the Recovery Strategy.
SARA permits Cabinet to make an Emergency Protection Order after the Minister has determined that a species faces imminent threats to its survival or recovery
and recommends that such an order be issued after consultation with every other competent minister. After several requests by the Applicants for the Minister of Environment to issue an Emergency Protection Order in respect of the sage-grouse, the Applicants sought to judicially review the decision of the Minister regarding the issuance of an emergency protection order, while alternatively seeking to compel the Minister to make such a decision if it had not already been made.
Lastly, the Applicants sought an order for production of documents related to the decision of the Minister regarding the issuance of an emergency protection order. Ultimately, the issue of production of documents resulted in an appeal7 wherein the Federal Court of Appeal determined that the Minister and the federal
Government could not claim Cabinet privilege pursuant to the Canada Evidence Act, over whether a decision had been made by the Minister. Only when the Applicants were informed of such decision could it be determined whether the information that was brought before the Cabinet was privileged. Provision of such information would enable the Applicants to amend their application accordingly.
In December 2013, following the appeal, the federal Government issued an Emergency Protection Order for the sage-grouse.8 The Emergency Protection Order applies to only federal and provincial Crown lands. This
[Text Box: ENVIRONMENTAL LAW NEWS | SPRING 2014] Order is currently being challenged by participants in the oil and gas industry, who are seeking to quash the Order or suspend the effect of the Order for six months while the Minister consults with them.
Interested parties, whether they are environmental NGOs or industry players, will continue to play an active role in challenging the federal Government to tailor protection of endangered species under SARA. This case has demonstrated that SARA is a tool by which the federal Government can be called upon to address the protection of endangered species. Such protection will continue to play an active role in shaping development in various regions as it becomes recognized that, even longstanding uses of lands, such as agricultural uses, are having long-term effects on species populations in Canada. We will continue to monitor the latest challenge and report on it.
With the British Columbia Legislative Assembly in session we are monitoring a number of legislative developments. The following are developments we are monitoring closely.
BILL 24, AGRICULTURAL LAND COMMISSION AMENDMENT ACT, 2014, 1ST READING MAR. 27, 2014
The Agricultural Land Commission Amendment Act will amend the Agricultural Land Commission Act to create two Agricultural Land Commission (the “ALC”) administered zones to address the province’s regional differences. Zone 1, consisting of the Island Panel
region, the Okanagan Panel region and the South Coast Panel Region, will continue to be administered following the Act’s original principle of preserving agricultural land. The ALC will administer Zone 2, which includes the rest of the province and faces less development and population pressure, according to the original principle but will now be able to include additional considerations to provide farmers with more flexibility in supporting their farming operations.
The ALC will also be enhanced by establishing governance and accountability frameworks and service standards consistent with other government boards
BILL 18, WATER SUSTAINABILITY ACT, 1ST READING MAR. 11, 2014
The new Water Sustainability Act will replace the existing 100 year-old Act. The new Act will, among other things, allow the establishment of water objectives, extend the regulatory scheme to groundwater, continue the regulatory scheme for diversion of stream water, and require the consideration of environmental flow needs when issuing licences.
The Act will mandate a default review of water licences every 30 years with three exceptions for power and power storage, licences issued under the Industrial Development Act, and licences issued or confirmed by a review under the 1998 Water Use Plan Guidelines.
The Act allows for the imposition of penalties on persons who contravene the Act. It also requires non-domestic users of groundwater to pay an application fee and annual rent.
BILL 12, NATURAL GAS DEVELOPMENT STATUTES AMENDMENT ACT, 2014, 2ND READING MAR. 6, 2014
Bill 12 will amend both the Petroleum and Natural Gas Act and the Oil and Gas Activities Act.
The amendments to the Petroleum and Natural Gas Act will modernize the Act and streamline the administration of subsurface rights. A consistent approach will be established for permits, leases and licences which will modernize tenure practices and remove duplication in tenure laws.
The amendments to the Oil and Gas Activities Act will allow oil and gas companies to improve operations and will further define a landowner’s right to appeal. The amendments improving the appeal process will remove unnecessary appeals. The amendments will also remove exemptions for a small number of legacy pipelines. Permits will be issued retroactively and those pipelines will continue to be subject to enforcement by the Oil and Gas Commission.
BILL 4, PARK AMENDMENT ACT, 2014, 3RD READING MAR. 24, 2014
Bill 4 would amend the Park Act to allow the Minister to issue a permit for feasibility studies, which could include studies to determine the feasibility, design, location, construction use, improvement or deactivation of:
a road or highway; a pipeline; a transmission line; a telecommunications project; a prescribed project; or a structure or improvement related to any of the above.
Under the current Act, permits can only be issued when the applicant has proven that the intended activity was necessary for the maintenance or preservation of the recreational value of the park.
We will continue to monitor these and other Bills as they advance through the legislative process and will provide more detailed updates when these Bills are passed.