Naming Declaration – Compliance Assurance
In January 2015, the liability management (“LM”) staff at the AER provided a recommendation for the AER to issue a declaration naming an individual pursuant to section 106 of the Oil and Gas Conservation Act (“OCGA”).
The LM alleged that the individual was in control of three different companies:
(a) Copper Creek Petroleum Inc. (“Copper Creek”);
(b) Reid Resources Inc. (“Reid Resources”); and
(c) Savant Energy Ltd. (“Savant”),
(collectively, the “Licensees”).
The LM also alleged that the Licensees failed to comply with a total of 18 orders issued by the AER over a period of three years beginning in 2010.
The LM submitted that it followed the requirements set out in Directive 019: Compliance Assurance by giving notice to the operator at the time of the identification of the noncompliance. Following failure to address the situation to the AER’s satisfaction, the AER issued a number of escalating enforcement actions, including fees, penalties, suspensions and abandonment orders.
The AER described the test for a decision to issue a declaration naming an individual under section 106 of the OCGA as a two-step test:
(a) Section 106(1) requires that the licensee, approval holder, or working interest participant contravene or fail to comply with an order of the AER or has an outstanding debt to the AER; and
(b) Section 106(2) requires the AER to give the person who may be named at least ten days to show cause why they should not be named.
The AER noted that section 106 of the OGCA is a reverse onus provision, and requires the AER to balance the public interest, while ensuring public fairness. Therefore, once the LM established a prima facie case, the onus shifted to the individual to show why the declaration and order under section 106 of the OCGA should not be made.
The AER noted that the individual provided no evidence to show cause why the declaration should not be made, and that he was given ample time to do so, including a time extension at the individual’s request. The AER found that the procedural history showed the individual was provided more than ample opportunity to know the case against him and respond under section 106(2) of the OCGA. The individual failed to respond in any meaningful way to the allegations made by the LM.
Accordingly, the AER cancelled the hearing, and proceeded to issue a declaration on the basis of the evidence submitted by the LM.
The AER considered the following issues, each as elements of the test for issuing a declaration under section 106 of the OGCA:
(a) Were there contraventions of or failures to comply with AER orders (“Issue 1”);
(b) If there was a contravention or failure, was the individual a director, officer, or other person in direct or indirect control of the relevant company at the relevant time (“Issue 2”); and
(c) If there was a contravention or failure, and the individual was in control, is the requested declaration and order in the public interest (“Issue 3”)?
Since the individual failed to file evidence to rebut the prima facie case established by LM, the AER panel considered whether the evidence filed by the LM satisfied the OGCA section 106 test on a balance of probabilities.
Issue 1
With respect to whether the individual contravened or failed to comply with AER orders, the LM submitted copies of 18 orders issued to the Licensees between 2010 and 2013.
Accordingly, the AER determined that there were 18 orders from the AER that the Licensees failed to comply with: 6 to Copper Creek; 10 to Savant; and 2 to Reid Resources.
Issue 2
With respect to whether the individual was directly or indirectly in control of the Licensees, the AER noted that the control in question must be the authority to cause the Licensees to meet their respective financial obligations to the AER and to comply with AER orders, regardless of title or position. The AER described such a description of control as being consistent with section 101(1) of the Alberta Business Corporations Act (the “AB Corp. Act”). Section 101(1) of the AB Corp. Act provides that the directors must manage or supervise the management of the business and affairs of a corporation, unless there is a unanimous shareholder agreement otherwise.
The LM submitted that each of the Licensees were Alberta corporations. The LM provided evidence that the individual was the sole director of each of the Licensees, as well as the president of Copper Creek at the relevant times that the orders were issued. The LM provided evidence that the sole shareholder of Savant was Reid Resources. In turn, Reid Resources was wholly owned by both the Family Trust, which the LM submitted the individual was involved in, and an individual, whom the LM submitted the individual was related to. The LM also submitted that the individual was the sole shareholder of Copper Creek.
Without any evidence of a unanimous shareholder agreement to the contrary, the AER found that the LM had provided prima facie evidence of control of the Licensees by the individual. Since section 106 of the OGCA is a reverse onus provision, and noting that the individual did not provide evidence, the AER held that the individual was, on a balance of probabilities, in control of the Licensees at the relevant times.
Issue 3
With respect to public interest considerations, the LM submitted that the AER had previously articulated its view of the public interest elements of section 106 of the OGCA in Decision 2006-006. The LM quoted the AER’s predecessor as stating in Decision 2006-006: “to prevent a licensee or person in control of a licensee from continuing to breach EUB requirements or Board orders or from incurring abandonment costs or incurring new breaches or additional debts.”
The LM submitted that approximately $430,389.00 had been spent to abandon the Licensees’ wells and pipelines, noting that the remaining seven wells, one facility and two pipeline segments remain suspended and are awaiting abandonment.
The AER held that it was in the public interest to name the individual under section 106 of the OGCA. A failure to sanction the individual’s behaviour would undermine the credibility of the regulatory and enforcement processes of the AER. Noncompliant conduct should be deterred.
The LM requested certain terms be included in the declaration naming the individual. However, the AER rejected the LM’s proposed terms on the basis that such terms would amount to a ban on the individual’s involvement in or with companies that hold, require, or seek to acquire any licence or approval from the AER.
The AER instead preferred to incent the individual to address impacts resulting from noncompliances and demonstrate an ability to be a responsible operator. Therefore, the AER set terms in Appendix 2 of its decision, available here.
The AER held that the terms in Appendix 2 of the decision would:
(a) Advance the public interest;
(b) Incent the individual to address impacts resulting from the non-compliances;
(c) Publicly name the individual so that others in the business or who may consider doing business with him can make an informed decision whether to involve him or not and in what way; and
(d) Enable the AER to manage the risk posed by the individual being in control of an entity involved in regulated energy resource activities.
A full listing of the well licences, facility licences and pipeline licences affected by this decision can be found in Appendix 1 of the decision, available here.
