Bulletin – Liability Management Rating – Insolvency – Licensee Obligations
In response to Redwater Energy Corporation (Re), 2016 ABQB 278 (the “Redwater Decision”) (discussed above), the AER issued a bulletin regarding interim measures to protect Albertans from additional liabilities resulting from that decision.
In the Redwater Decision, the ABQB held that a receiver and trustee in bankruptcy could denounce and disclaim an insolvent company’s non-producing well assets in accordance with Bankruptcy and Insolvency Act (the “BIA”) section 14.06. The court found that the doctrine of federal paramountcy allows a receiver to write off such assets, notwithstanding an insolvent company’s obligations related to abandonment, reclamation, and remediation as a licensee under the Oil and Gas Conservation Act (“OGCA”) and the Pipeline Act (“PA”).
The ABQB also found provincial legislation mandating compliance with AER licensee liability rating (LLR) program and related closure, abandonment, reclamation, and remediation obligations to be inoperative to the extent of conflict with the BIA.
Change to LMR Requirements
As a result, in Bulletin 2016-21, the AER states that the liability management rating (LMR) of 1.0 is no longer sufficient to ensure the licensees will be able to meet their obligations throughout the life of a project. Transferees must now demonstrate either:
(a) An LMR of 2.0 or higher; or
(b) Provide evidence that the transferee will be able to meet their obligations with an LMR of less than 2.0.
The AER encourages licensees with transactions in progress to contact the AER to arrange a review of their specific circumstances.
Interim Measures
In the bulletin, the AER notes that it is appealing the Redwater Decision to the ABCA (leave to appeal was granted on June 29, 2016).
Effective immediately, and pending the outcome of the appeal or implementation of appropriate regulatory measures (whichever occurs first), the AER summarised the following three interim measures designed to minimize the risk to Albertans:
1. The AER will consider applications for licence eligibility under Directive 067: Applying for Approval to Hold EUB Licences as non-routine and may exercise its discretion to deny an application or impose terms on approval in appropriate circumstances;
2. For holders of existing but unused licence eligibility approvals, prior to the approval of licence transfer applications, the AER may require additional evidence that there have been no material changes since the licence eligibility approval (including evidence of adequate insurance and evidence that directors/officers and shareholders are substantially the same as when the approval was issued); and
3. As a condition of transferring existing AER licences, approvals, and permits, the AER will require transferees to demonstrate that they have an LMR of 2.0 or higher or other evidence that the transferee will be able to meet its obligations throughout the life of the project with an LMR of less than 2.0.
