Regulators seek indicators of poor performance before granting licenses, regulator could possibly revoke licenses retroactively, working on requirement to have drillers post bond before granting permits

From The Canadian Press

EDMONTON — Alberta’s energy regulator wants to keep bad operators out of the oilpatch to reduce the ballooning number of bankrupt companies who have walked away from unprofitable wells.

“We will be requiring more information at the time a person or a company applies for license eligibility,” Jim Ellis, head of the Alberta Energy Regulator, said Wednesday. “We’ll have more discretion to deny license applications where the applicant poses a risk to the public or to the environment.”

Surge of abandoned wells since 2016 court ruling

Alberta has been dealing with a surge of abandoned wells since a 2016 court ruling allowed a bankruptcy trustee to cut unprofitable wells loose from the tally of company assets. A Queen’s Bench judge and the Alberta Court of Appeal have found that federal bankruptcy law supercedes  provincial environmental rules. That case is now before the Supreme Court.

Since the so-called Redwater decision, more than 1,800 wells representing more than $100 million in liabilities have been abandoned.

What’s different now — regulators will research company history, and that of their directors, looking for poor record of compliance and tax and royalty payment lapses

The regulator will now examine the histories of companies — as well as their directors — applying for licenses to drill a well. Staff will look for evidence of poor regulatory compliance or non-payment of bills such as taxes, royalties and other industry levies.

“Those are indicators of past poor performance and we’re going to have a look to ensure that these are companies that aren’t going to continue that.”

The regulator won’t have the power to examine an applicant’s books, although it does require companies to meet a certain asset-to-liability ratio.

Ellis said the problem lies in federal legislation, as well as a three-year downturn that has left many good-faith operators in dire straits. But he said closing what he called a loophole will help.

“I don’t want to (suggest) that we’ve got a huge issue, that we’ve got hundreds and hundreds of companies doing this.”

He said the changes should reduce the number of failing companies transferring good assets to a new entity and abandoning the bad ones.

“Nobody saw us in a low cycle for three years. Our systems weren’t designed for what we’re seeing right now so we’re having to close these loopholes.”

Ellis said the regulator is considering applications from “a couple” of companies that have directors who have had previous problems.

He also said the regulator could possibly revoke licenses retroactively.

The agency is working with the government on a requirement for potential drillers to post a bond before moving ahead, he added.

Energy Minister Margaret McCuaig-Boyd said Alberta’s current license requirements of a provincial address, some insurance and $10,000 no longer suffice.

“While we wait for the Supreme Court to hear a challenge to the Redwater case, we’re here today to tell those operators who would circumvent their responsibilities that enough is enough,” she said.

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