Summary

Following the November 9, 2017 decision of the Supreme Court of Canada granting leave and expedited appeal in Orphan Well Association et al. v. Grant Thornton Limited et al. (Alta.) (Civil) (By Leave) (37627), the Alberta Energy Regulator ("AER") released Bulletin 2017-21 New Edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals, and a Revised Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals on Dec 06, 2017. Critical changes include assessment by the AER as to whether licensees pose unreasonable risk, requirements for keeping corporate information up to date within 30 days of any material change, option for advance ruling prior to effecting a material change that may constitute an unreasonable risk, and consent of applicants to the release and collection of compliance information from other jurisdictions and regulators.

Background

On December 6, 2017, the Alberta Energy Regulator (AER) released a revised edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals together with Bulletin 2017-21 New Edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals. The AER emphasized that acquiring and holding a License or approval in Alberta is a privilege, not a right. The revised Directive 067 increases the scrutiny the AER applies to ensure that such a privilege is only granted to, and retained by, responsible parties.

For new applicants, Business Associate Codes ("BA Codes") are now issued through Petrinex. However, a BA Code does not automatically qualify the holder for AER Licenses or approvals. License eligibility types have been changed to the following three types: (a) no eligibility to acquire or hold Licenses to drill/construct wells, facilities, or pipelines; (b) general eligibility to hold Licenses for all types of wells, facilities, and pipelines; and (c) and limited eligibility to hold only certain types of Licenses and approvals, or subject to certain terms and conditions.

The AER may grant license eligibility with or without restrictions, terms and conditions, or it may refuse to grant License eligibility. Such restrictions, terms, and conditions may include: (a) the types and number of Licenses or approvals that may be held; (b) additional scrutiny required at time of application for or transfer of a License or approval; (c) requirement to provide full or partial security at time of application for or transfer of a License or approval; (d) requirements regarding the minimum or maximum working interest percentage permitted, or (e) requirement to address outstanding non-compliances of current or former AER licensees that are directly or indirectly associated with the applicant or its directors, officers, or shareholders.

The new requirements include, among others, a declaration of the applicant attesting to the truth and completeness of the application, consenting to the release and collection of compliance information regarding the applicant from other jurisdictions and regulators as applicable, and attorning to the jurisdiction of Alberta. It also includes an assessment by the AER as to whether the applicant poses an unreasonable risk. The AER may audit the information provided for accuracy and completeness at any time before or after granting eligibility.

In assessing whether the applicant poses an unreasonable risk, the AER may consider any of the following factors:

  1. 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 licensees that are directly or indirectly associated or affiliated with the applicant or its principals;
  2. the compliance history of entities currently or previously associated or affiliated with the applicant or its directors, officers, and shareholders;
  3. experience of the applicant, including its directors, officers, and shareholders;
  4. corporate structure;
  5. the financial health of the applicant;
  6. outstanding debts owed by the applicant or current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders;
  7. outstanding non-compliances of current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders;
  8. 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 licensees that have outstanding non-compliances; and
  9. the naming of directors, officers, or shareholders of current or former AER licensees under section 106 of the Oil and Gas Conservation Act.

All existing license or approval holders must meet license eligibility requirements on an ongoing basis and ensure that the information the AER has on file is kept accurate. An updated Schedule 1 of Directive 067 must be provided within 30 days of any material change. Failure to do so may result in the AER revoking eligibility or restricting eligibility by imposing terms and conditions where, in its opinion, the change has resulted in an unreasonable risk. All parties with current eligibility are required to provide notice of material changes by January 31, 2018.

Material changes include: (a) changes to legal status and corporate structure; (b) addition or removal of a related corporate entity; (c) amalgamation, merger, or acquisition; (c) changes to directors, officers, or control persons; (d) appointment of a monitor, receiver, or trustee over the licensee's property; (e) plan of arrangement or any other transaction that results in a material change to the operations of the licensee; (f) the sale of all or substantially all of the licensee's assets; or (g) cancellation of insurance coverage.

Failure to acquire or hold licenses or approvals within one year following granting of License eligibility may also result in the AER revoking, restricting or downgrading license eligibility. Amendment of license eligibility will require reapplication under Directive 067, including payment of an additional fee, and may result in the imposition of restrictions, terms, or conditions.

Implications

AER licensees and approval holders should be aware that certain corporate changes for unrelated purposes, such as tax saving, may constitute an "unreasonable risk" that may affect their eligibility to hold AER licenses and approvals. Licensees and approval holders should request an advance ruling from the AER on whether the AER would consider any proposed change an "unreasonable risk" prior to effecting a material change. Further, the compliance history of licensees and approval holders in jurisdictions other than Alberta now counts towards acquiring and maintaining license eligibility in Alberta.