Alberta Energy Regulator finalizes financial disclosure rules

The Alberta Energy Regulator (AER) has finalized its new oil and gas licensee financial disclosure rules with the publication of a new edition of AER Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals. Licensees and approval holders must now annually file with the AER financial statements and a new financial summary. This financial information will be used by the AER to assess a licensee’s eligibility to hold oil and gas regulatory licences and approvals and a licensee’s capabilities in meeting its legal and regulatory obligations throughout the oil and gas development cycle.

The new Directive 067 also expands the list of types of material changes requiring notice to the AER to include significant changes to a licensee’s arrangements with any working interest partners. It also introduces a new requirement for licensees to provide the AER with a frequently monitored email for regulatory and emergency communications with the AER.

The new Directive 067 is part of the AER’s rollout of its new Liability Management Framework (LMF).

The new financial disclosure requirements

A licensee must file audited financial statements within 180 days of its fiscal year end or when the audited financial statements are available. If audited financial statements are not prepared, management-prepared financial statements may be acceptable.

A new Schedule 3: Financial Summary must also be filed with the financial statements. Schedule 3 summarizes a licensee’s balance sheet, assets, current and long-term liabilities, shareholder equity, revenues, expenses and cash flow. Disclosure of any breaches of debt covenants or defaults of debt agreements is also required, as are significant financing arrangements and material acquisitions and divestitures. New companies with no financial history must also disclose their financing arrangements and include relevant documents.

If the licensee’s financial information is consolidated within a larger corporate group, then in addition to the licensee’s financial statements and Schedule 3, the consolidated group’s financial statements and a group Schedule 3 must also be provided.

Schedule 3 also requires a licensee to disclose if there are any doubts regarding the company’s ability to continue as a going concern, whether disclosed in the financial statements or otherwise. A director or officer must sign the new Schedule 3 and declare the information and supporting documents are complete and accurate to the best of his or her knowledge after having made reasonable inquiries.

The AER can request more information and must keep the financial information confidential for five years.

Working partner material changes

The new version of Directive 067 expands the list of material changes that trigger a filing with the AER to include a “significant change” to a licensee’s working interest participant arrangement, including information about working interest partners and their working interests in the licensee’s assets. What is considered a significant change is not discussed.

This addition adds to the list of material changes that includes changes to a licensee’s legal status or corporate structure, addition or removal of any affiliates, changes to directors, officers and shareholders directly or indirectly holding 20% or more of the licensee’s outstanding voting securities, any plan of arrangement or other transaction that results in a significant change to a licensee’s operations, any debt defaults or debt covenant violations, the sale of all or substantially all assets, amalgamations, mergers, acquisitions, any insolvency proceedings and cancellation or significant reduction in insurance coverage.

A material change requires the filing of an updated Directive 067 Schedule 1 within 30 days.

Immediate notification

Directive 067 requires the licensee to maintain and frequently monitor an email address for the AER to use for regulatory and emergency communications and to immediately notify the AER of any changes to that email address.

Immediate notification to the AER is also required if a licensee’s insurance coverage is cancelled or significantly reduced or if it initiates or is subject to insolvency proceedings.

More to come

The new Directive 067 is another part in the AER’s roll out of its new LMF (discussed here and here).

The LMF’s goal is to provide a comprehensive and accurate assessment of the capabilities of oil and gas companies to meet their regulatory obligations, including their well, facility and pipeline closure obligations. The LMF will be used by the AER in making regulatory decisions for determining if an entity is eligible to hold AER licences and approvals, granting new licences, approving licence transfers and determining if a licensee must post security.

Parts of the LMF that have not been released but are expected in the summer of 2021 include mandatory well abandonment and reclamation spending requirements and details on how landowners may nominate oil and gas assets on their land for priority in site closure.