The Alberta Energy Regulator (AER) amended Directive 067 yesterday to allow the AER greater scrutiny in granting licences to responsible parties and ensuring existing licence holders remain responsible parties. This will have an impact on asset sale transactions, mergers, amalgamations and acquisitions (it appears this will apply to corporate change of control transactions, though it is ambiguous) in Alberta.
Asset Sale Transactions
Before a company can purchase oil and gas assets which include AER licences and approvals, such purchaser must have a BA code and an AER identification code that permits it to hold all licence types that it seeks to purchase from a vendor. Once a company has obtained a BA code, it must then apply for license eligibility (ie the AER identification code) from the AER. The AER can now deny license eligibility if the applicant poses an unreasonable risk. In assessing whether the applicant poses an unreasonable risk, the AER may consider any of the following factors:
- 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;
- the compliance history of entities currently or previously associated or affiliated with the applicant or its directors, officers, and shareholders;
- experience of the applicant, including its directors, officers, and shareholders;
- corporate structure;
- the financial health of the applicant;
- 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;
- outstanding noncompliances of current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders;
- 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 noncompliances; and
- naming of directors, officers, or shareholders of current or former AER licensees under section 106 of the Oil and Gas Conservation Act.
The AER will assess the information provided in the application, along with any other relevant information, and will determine whether the applicant meets the eligibility requirements for acquiring and holding AER licences or approvals. The AER may refuse to grant licence eligibility or may grant licence eligibility with or without restrictions, terms, or conditions.
For an asset sale transaction, the AER currently reviews the compliance record of both the transferor and transferee as part of its licence transfer application process. If either the transferor or transferee has a “Refer” status or there is evidence of other significant non-compliances on the part of either party, the application is considered non-routine. The AER may determine that it is not in the public interest to approve the licence transfer application based on the compliance history of one or both parties or their directors, officers, or security holders. It seems likely that the AER will now consider these factors noted above regarding unreasonable risk when looking at non-routine transfer applications.
Amalgamations, Mergers or Acquisitions
All existing licence or approval holders must meet licence eligibility requirements on an ongoing basis and ensure that the information the AER has on file is kept accurate. If a company that holds AER licences and approvals undertakes or is involved in an amalgamation or merger or is acquired, then this is now considered a material change under Directive 067 and an updated schedule 1 of Directive 067 must be provided within 30 days of such material change and 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. It should be noted that Directive 067 simply lists an “acquisition” as being a material change – this appears to be aimed at corporate change of control transactions (ie. more than 50% of the shares of the company are purchased by another person or group of persons), but it is ambiguously drafted.
Material changes also include:
- changes to legal status and corporate structure;
- addition or removal of a related corporate entity;
- changes to directors, officers, or control persons;
- appointment of a monitor, receiver, or trustee over the licensee’s property;
- plan of arrangement or any other transaction that results in a material change to the operations of the licensee;
- the sale of all or substantially all of the licensee’s assets; or
- cancellation of insurance coverage.
Before effecting a material change, licensees may request an advance ruling on whether the AER would consider the change an unreasonable risk. The AER may revoke or restrict license eligibility if, after consideration of the factors noted above regarding unreasonable risks, a finding by the AER that, as a result of a material change, the licensee poses an unreasonable risk.