Control of Licensee – Time of Failure to Comply with Order – S. 106 Order
In this decision the AER revoked the declarations made under section 106(1) of the Oil and Gas Conservation Act (“OGCA”) naming Darren O’Brien and Jeffrey Young (collectively, “the Requesters”), former directors of Trident Exploration (Alberta) Corp. (“Trident Alberta”) and Trident Exploration (WX) Corp. (“Trident WX”) (collectively, “Trident”).
Background and History
The Requesters served as directors of Trident from September 6, 2016 to April 30, 2019. Mr. O’Brien also served as Trident’s president from January to April 30, 2019.
Trident held well, pipeline, and facilities licences issued by the AER. According to the Requesters, Trident produced mainly shallow, dry natural gas from coalbeds and had ownership interest in 4700 wells and ownership of 29 gas plants. The Requesters stated that, in February 2019, 2700 of Trident’s wells were still producing, 22 of its gas plants were in operation, and Trident’s production was 85 million cubic feet of oil equivalent per day.
The Requesters said that they were appointed directors of Trident following the recapitalization of Trident because of their involvement with Origami Capital Partners, LLC, which had, by the end of 2016, invested over $60 million in Trident with the goal to improve operations.
On April 29, 2019, the AER’s Compliance and Liability Management Branch (“CLM”) issued an order (the “Order”) to Trident:
(a) restricting its eligibility for AER licences and requiring it to submit an updated Schedule 1 pursuant to Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals by June 1, 2019;
(b) requiring that, by June 14, 2019, Trident either apply to transfer its well, facility, and pipeline licences to a person, or persons, eligible to hold AER licences; post a security deposit of $245,714,822.00 for the total deemed liabilities of Trident Alberta and $13,294,700.50 for the total deemed liabilities of Trident WX; or submit a compliance plan to the AER for approval; and
(c) requiring that, by June 14, 2019, Trident update the working interest participant records associated with its licences and confirm that all fluids had been removed from its inactive sites.
No evidence was presented in this proceeding demonstrating that before April 29, 2019, Trident’s operations caused any risk to the safety of the public, or the environment, or that Trident squandered any resources.
On April 30, 2019, Trident shut in what it perceived to be its highest-risk sites, ceased operations, terminated its staff, and Mr. O’Brien and Mr. Young resigned as Trident’s only directors.
On May 2, 2019, the Orphan Well Association filed an application with the Alberta Court of Queen’s Bench to appoint a receiver for Trident. On May 3, 2019, the court heard the application, and by order appointed PricewaterhouseCoopers Inc. as receiver.
The receiver’s first report indicated that on April 30, 2019, Trident’s contractors and field staff shut in all of Trident’s facilities, most of their compressor stations, and approximately 700 wells. After April 30, 2019, about 1700 wells continued to flow and accumulate pressure in Trident’s pipeline system. The receiver also indicated that following its appointment on May 3, 2019, its primary concerns were to shut in the remaining producing wells and to generate funds for the shut-in work and the receivership.
CLM issued the declarations on October 9, 2019, imposing various restrictions on the Requesters’ future activities regulated under the Oil and Gas Conservation Act (“OGCA”) and the Pipeline Act. The declarations and reasons for the decision were signed by Mr. Robert Wadsworth, who was then Vice President of the AER’s Closure and Liability Branch (as it was then known).
CLM stated that Trident’s cessation of operations occurred without an orderly transition for the care and custody of the assets, leaving wells, facilities, and pipelines in an unsecured state. It further maintained that by ceasing operations and failing to comply with the order, the Requesters exposed the Province of Alberta to end-of-life liabilities of about $259 million. According to CLM, these were aggravating factors it considered in issuing the declarations.
Requests for Regulatory Appeal
The Requesters filed requests for regulatory appeal of the declarations under Part 2, Division 3, of the Responsible Energy Development Act (“REDA”) and Part 3 of the Alberta Energy Regulator Rules of Practice, which were granted on May 4, 2020.
Section 106(1) sets out the substantive elements that must be met to issue a declaration, section 106(2) establishes the process the AER must provide before issuing a declaration, and section 106(3) sets out the actions the AER may take with respect to any entity regulated by the AER that is, in the AER’s opinion, directly or indirectly controlled by the person named in a declaration.
Section 106(1) is clear and specific in setting out the elements that must be met to issue a declaration. It requires evidence that an individual named in a declaration was “directly or indirectly in control of the licensee…at the time of the contravention, or failure to comply” with an order. The Panel noted that it could not ignore parts of section 106(1) to fulfil broader purposes as urged by CLM. Therefore, in this decision the Panel had to determine whether the Requesters had direct or indirect control of Trident at the time Trident failed to comply with the order.
Furthermore, the parts of section 106 are to be applied sequentially. The Panel agreed with the Requesters’ submissions that section 106(1) must be satisfied before section 106(3) is engaged, and that the broad nature of section 106(3) does not expand or modify the ordinary meaning of section 106(1).
The Panel noted that the purpose of section 106 of the OGCA is to ensure compliance and to prevent further noncompliance by any licensee controlled by a named person. A person named in a declaration, and any licensee or approval holder controlled by that person, may be subject to limitations on their participation in the oil and gas industry in Alberta. The parties agreed that section 106 declarations can have significant effects on individuals and their activities. The Panel found that such impact favours applying section 106 in accordance with its ordinary meaning, as argued by the Requesters.
A valid OGCA section 106 declaration must meet the substantive requirements in subsection (1) as follows:
A licensee, approval holder, or working interest participant has contravened or failed to comply with an order of the AER, or has an outstanding debt to the AER, or to the AER to the account of the orphan fund, in respect of suspension, abandonment, or reclamation costs;
The person to be named was, in the AER’s opinion, in direct or indirect control of the licensee, approval holder, or working interest participant at the time of the contravention, failure to comply, or failure to pay;
The AER considers it in the public interest to issue the declaration.
In this proceeding, the following facts were not contested by the parties and were established to the AER Panel’s satisfaction:
Trident did not comply with an order of the AER;
The Requesters were directors of Trident from September 6, 2016, to April 30, 2019. Mr. O’Brien also served as Trident’s president from January to April 30, 2019.
The section 106 requirements that remained at issue were:
whether the Requesters were in direct or indirect control of Trident at the time Trident failed to comply with the order, and
whether the declarations were in the public interest.
Also, at issue during the hearing was the matter of whether the Requesters had a reasonable apprehension of bias regarding the decision maker, Mr. Robert Wadsworth, who signed the declarations.
Control of Licensee
Section 106 requires evidence that a party named in a declaration was “directly or indirectly in control of the licensee…at the time of the contravention, or failure to comply” with an order.
The Panel found, in accordance with section 108 of the Alberta Business Corporations Act, that the Requesters resigned as directors and officers of Trident effective April 30, 2019, after which time they had no direct control of Trident. Further, the Requesters did not have indirect control of Trident after their authority was terminated on May 3, 2019, by appointment of the receiver with authority to take possession and exercise control of Trident’s assets and to manage, operate, and carry on Trident’s business.
Time of Failure to Comply with the Order
There was no dispute that Trident had not complied with the order when the Requesters resigned as Trident’s directors and Trident ceased operations on April 30, 2019. The parties also agreed that the order required Trident to fulfil certain obligations by June 1, 2019, and other obligations by June 14, 2019.
After the Requesters resigned on April 30, 2019, and until the receiver’s appointment on May 3, 2019, Trident was in limbo and unable to legally operate. However, the Requesters’ resignations did not trigger an immediate presumption of contravention of the order. The Panel noted that the legislature chose to link control of the licensee to the time of contravention or noncompliance as a necessary element of section 106(1) of the OGCA. Had the legislature intended otherwise, it could have used language to that effect.
The Panel found that Trident’s failure to comply with the order did not occur until June 2, 2019, once the first deadline for compliance lapsed, at which time the Requesters were not in direct or indirect control of Trident.
Each element of OGCA section 106(1) must be met to issue a declaration. Failure to satisfy any element means the legal requirements have not been met and a declaration cannot be issued. In the Panel’s view, CLM did not err in concluding that Trident failed to comply with an order of the AER. However, CLM failed to establish that the Requesters were in direct or indirect control of Trident at the time of noncompliance. Given that the Panel found that the Requesters were not in control of Trident at the time it failed to comply with the order, the requirements under OGCA section 106(1) could not be met. The AER revoked the decision to issue the declarations naming the Requesters.