+ RMA Rural Municipalities
of Alberta

Resolution 1-21S

Alberta Energy Regulator Directive 006 – Licensee Liability Rating (LLR) Program and License Transfer Process

Date:
March 16, 2021
Expiry Date:
April 1, 2024
Active Status:
Active
Sponsors:
Woodlands County
District:
3 - Pembina River
Year:
2021
Convention:
Spring
Category:
Municipal Governance and Finances
Status:
Intent Not Met
Vote Results:
Carried
Preamble:

WHEREAS municipalities in Alberta are dependent on property tax revenues to provide essential municipal services; and

WHEREAS the ability of a municipality to recover property tax arrears for non-titled land is affected by provincial acts and regulations; and

WHEREAS the current legislation has limited options without liabilities for municipalities to recover tax arrears owed from oil and gas companies; and

WHEREAS Alberta Energy has established the Alberta Energy Regulator (AER), whose mandate is to ensures the safe, efficient, orderly, and environmentally responsible development of oil, oil sands, natural gas, and coal resources over their entire life cycle; and

WHEREAS the AER set out directives that contain requirements and processes that energy companies operating in Alberta must follow; and

WHEREAS Directive 006 – Licensee Liability Rating (LLR) Program and License Transfer Process uses a formula to determine whether a company has sufficient financial resources to purchase assets from another company;

Operative Clause:

THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta advocate to the Alberta Energy Regulator to amend Directive 006 to include as a condition of transfer of all oil, oil sands, natural gas, and coal resource assets from one company to another that municipal property tax arrears be paid in full.

Member Background:

Attached is a copy of a letter from an oil and gas company that proposed a tax arrears settlement. The company has been operating in the municipality for a number of years and has not paid their municipal taxes for the last four years. Recently the company applied through the AER for 12 facility and 149 well license transfers from a bankrupted oil and gas company, that also owed three years in tax arrears.

The same company has also made offers to pay landowner lease agreements at a reduced rate for the new acquired assets.

Several resolutions relating to unpaid property taxes by the oil and gas industry have been recently endorsed by RMA membership, and advocated on by RMA, with no resulting action on the issue from the Government of Alberta.

Woodlands County is asking the RMA and its members to continue to advocate to the Alberta Energy Regulator to change Directive 006 to require full disclosure of oil and gas company financial situations, including unpaid property taxes, and not just a formula as currently defined in Directive 006.

The current formula measures the assets of an eligible producer licensee based on the sum of its cash flow derived from oil and gas production reported to Petrinex from wells for which it is the licensee calculated in accordance with section 1, and the cash flow derived from midstream activity from wells or facilities for which it is the licensee calculated in accordance with section 3.

LLR attachment

RMA Background:

6-19F: Municipal Recourse for Solvent Companies Choosing Not to Pay Taxes

THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta advocate that the Government of Alberta direct the Alberta Energy Regulator to add unpaid municipal taxes to the grounds for which a company may be denied a licence to operate in Alberta.

Click here to view the full resolution.

Government Response:

Alberta Energy

I recognize that unpaid municipal taxes on oil and gas properties continues to be a concern to RMA members and appreciate the information you have shared.

I am pleased to let you know that the Government of Alberta is taking the boldest and strongest action to tackle oil and gas liabilities in the province’s history. The Liability Management Framework, announced in July 2020, includes a series of mechanisms and requirements to enable industry to better manage its regulatory obligations at every step of the process. The framework sets clear expectations throughout the life cycle of oil and gas projects, helping provide certainty for investors and ensuring that industry will be able to bear the costs of site obligations. For more information about the framework please visit www.alberta.caloil-and-gas-liabilities-management.aspx.

As part of the framework, the Licensee Capability Assessment System will replace the AER’s current Licensee Liability Rating program, providing an improved method of assessing the capabilities of oil and gas operators to meet their regulatory obligations at each stage of the development lifecycle. The new assessment system will be more comprehensive by taking into account a wider variety of assessment parameters. Furthermore, the AER’s Licensee Special Action function allows the AER to work with struggling operators on a case-by-case basis on mitigations and actions that can help them manage their liabilities, maximize their assets, and maintain their operations.

As part of the implementation of the new Licensee Capability Assessment System, the AER updated Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals, increasing the scrutiny the AER can apply to ensure that only responsible oil and gas companies are eligible to hold a licence to operate in Alberta. I understand that the AER provided RMA a response to Resolution 1-21 S as well, highlighting your conversation with the regulator on the recent release of the updated Directive 067 and the fact that the AER may now consider unpaid municipal taxes and surface lease payments as risk factors when assessing licensee eligibility.

As the AER shared with you in its response, it is currently working on revising Directive 006 as part of implementation of the framework and there will be upcoming opportunities for the public to provide feedback on the proposed changes. I encourage RMA to provide feedback through the AER process.

Alberta Energy Regulator

The Government of Alberta has updated their policy on managing oil and gas liability and directed the AER to revise and create new liability programs. In the coming months, the AER will invite the public to provide feedback on proposed changes to Directive 006. We invite the RMA and your members to provide feedback regarding unpaid municipal taxes at that time. Our bulletins announcing the request for public feedback, as well as our recent announcements and decisions, can be found by visiting the What’s New section of our website, aer.ca. You can also subscribe to receive this information in a weekly email, if that is of interest.

We’ve also updated Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals to increase the scrutiny the AER can apply to ensure that only responsible oil and gas companies are eligible to hold a licence to operate in Alberta. Under Directive 067, companies are now required to provide financial information to the AER when they apply to hold a licence, annually, or at any other time when required by the regulator. With these changes, the AER is able to better asses if a company has the financial capacity to maintain their eligibility to hold a licence and if they are able to meet their regulatory responsibilities, including closing energy infrastructure.

While the AER is not involved with the collection of unpaid municipal taxes and does not have jurisdiction to enforce payment of these taxes, under the updated directive, we may now consider unpaid municipal taxes and surface lease payments as risk factors when assessing licensee eligibility. In addition, when requested by the AER, an applicant, licensee, or approval holder must disclose if they have any unpaid municipal taxes and the amount they owe. These changes are a result of the feedback we received during the public comment period on the draft directive held earlier this year.

Last, Alberta’s municipalities can share their concerns regarding unpaid municipal taxes with us by submitting a statement of concern related to a transfer application under Directive 006 or an application to acquire and hold a licence or approval under Directive 067. The AER posts all applications received on the public notice of application page on aer.ca.

Development:

The Government of Alberta announced a new Liability Management Framework which includes a series of mechanisms and requirements to improve and expedite reclamation efforts and set clear industry expectations throughout the life cycle of oil and gas projects. Under this new framework, the Government of Alberta directed the Alberta Energy Regulator (AER) to develop new liability management programs to implement this framework. In December 2021, the AER released Directive 088: Licensee Life-Cycle Management, which replaces Directive 006: Licensee Liability Rating (LLR) Program and Licensee Transfer Process. Directive 088 includes new tools to manage oil and gas liability which include a holistic assessment of the licensee that considers more than 40 different factors, including those listed in section 4.5 of Directive 067. The AER revised Directive 067 in early 2021 to state that the AER may consider unpaid municipal taxes and surface lease payments when assessing licensee eligibility and will reach out directly to the company for those records.

While the tools introduced in Directive 088 are a step in the right direction towards effective liability management through the life cycle of an energy project, there are still outstanding questions about the new tools, including to what extent municipal tax payments will be considered during the review of licence transfer applications and throughout the project lifecycle.

As Directive 067 does not introduce any mandatory tax payment requirements into the regulatory process, it is inadequate in addressing the intent of this resolution. RMA is continuing to advocate on this issue to the AER and Government of Alberta. RMA assigns this resolution a status of Intent Not Met.

Provincial Ministries:
Energy
Provincial Boards and Organizations:
AER
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