Saskatchewan Modernizes its Oil and Gas Conservation Act

Written By Patrick T. Maguire, Marie H. Buchinski and Marianne (Chuck) Davies

On May 10, 2011, Saskatchewan passed changes to its Oil and Gas Conservation Act (OGCA), the act governing the regulation of resource development operations in the province. The aim of the amendments is to provide resource companies investing in Saskatchewan's energy and resource industries with the best support services and business and regulatory systems available.¹ The amended legislation also introduces vicarious liability and liability for directors, officers and agents of a corporation in certain circumstances. The amendments additionally require, on a retroactive basis, that all vendors of a well or facility apply for a transfer of a licence within 14 days after the signing of a purchase and sale agreement, or within 14 days of the relevant section coming into force if an agreement has already been signed. Companies that fail to do so face the potential for Saskatchewan's Minister of Energy and Resources to shut down a well or facility. Resource companies need to be mindful of these new provisions.

Broadly speaking, the four areas of change arising from Bill 157: The Oil and Gas Conservation Amendment Act, 2010 (Bill 157)² are:

1. A move toward a single electronic registry system and the recognition of electronic service and filing;
2. Clarification and changes to the licence application and transfer processes;
3. Expansion of regulation-making powers and clarification that such powers exist in relation to carbon dioxide and other non-hydrocarbon resources; and
4. Increased penalties and broader inspection, investigative and enforcement powers.

Background

According to the Saskatchewan government, Bill 157 was proposed, in part, to harmonize the OGCA with Alberta's Oil and Gas Conservation Act,³ and to support the Saskatchewan Government's Process Renewal and Infrastructure Management Enhancements (PRIME) policy initiative.⁴ The PRIME policy initiative, which is to be completed by 2013, supports a single-window, web-based information management system intended to streamline and modernize business and regulatory systems and provide 24-hour access to petroleum-related data.⁵

Electronic Registry System

The amendments to the OGCA facilitate Saskatchewan's participation as a partner in the Petroleum Registry of Alberta, the purpose of which is to provide identified users and stakeholders centralized access to comprehensive and reliable petroleum-related information such as volumetric infrastructure, valuation and royalty information. Through the amendments to the OGCA and expanded regulation-making power in relation to the conduct of electronic business, the Saskatchewan Ministry of Energy and Resources will be able to electronically receive and disseminate industry forms, reports, plans, surveys, and maps and approve applications for records, statistics and other information. The amendments to the OGCA also allow for electronic service of documents, through e-mail or via the Petroleum Registry mailbox system.

Changes to the Application and Transfer Processes

Amendments to the OGCA expand and clarify the licensing of wells and facilities and it is now more apparent that companies are prevented from levelling and preparing a well site prior to a licence being issued. Notably, however, proponents will still be permitted to survey or conduct operations to suspend or abandon a well or facility site without a licence being issued. In addition, waste processing facilities must be licensed; therefore, a transitional section provides the Minister with the ability to issue retrospective licences for such facilities.

The amendments to the OGCA prohibit wells and facilities from being owned and operated without the licence being held in the name of the owner or working interest participant. In this regard, the Minister is authorized to shut-down a well or facility if a vendor has not applied for a transfer of licence within 14 days after the signing of an agreement for purchase and sale of a well or facility. Significantly, the provision applies retroactively to agreements predating the coming into force of the section (date currently unknown) such that any affected licensees (vendors) must apply for a licence transfer within 14 days after the day on which the section comes into force.

Aimed at avoiding undue strain on the orphan levy fund, the Minister is now authorized to direct the transfer of a licence where such transfer is in the public interest (including back to the legal and responsible owner of the property), without an application, where the Minister believes the proposed transferee has the right or obligation to receive it, "whether or not the person consents to the transfer."

Expanded Regulation-Making Powers and Clarification of Oversight for Non-Oil-and-Gas Substances

The amendments to the OGCA clarify the government's regulatory oversight of non-oil-and-gas substances in Saskatchewan, in particular with respect to the storage and sequestration of carbon dioxide and other greenhouse gases in subsurface caverns. For example, the Minister is now authorized to make orders respecting the processing and storage of non-hydrocarbon substances, and to approve all plans related to the injection, storage or disposal of oil and gas wastes or non-oil-and-gas substances in subsurface formations.

The amendments also expand the regulation making power under the OGCA, providing for the creation of regulations relating to noise and for the purposes of controlling, restricting or prohibiting noise levels. With the growth of industry and the result that individuals and residences may find themselves in closer proximity to resource development, such regulations are likely to form an important piece of the province's regulatory regime. Other expanded regulation-making powers include: regulations in relation to the completing, chemical treating and fracturing of wells; regulations which would require the submission to the Minister of various sales and marketing contracts related to oil, gas, water, products or other substances; and regulations related to the electronic registry system as discussed above.

Bill 157 also expands the scope of Saskatchewan's orphan well and facility liability management program and confirms the scope and purposes of the OGCA, which expand beyond the oil and gas industry to the regulation of wells for other non-renewable resource management purposes, such as the storage of carbon dioxide for carbon sequestration.

Increased Penalties and Greater Enforcement and Investigation Powers

The amendments will authorize the Minister to make a public declaration regarding a licensee or working interest participant who has failed to comply with the OGCA or orders under the Act, or who has significant outstanding debt to the Crown. Such a public declaration may be made against directors, officers, agents, or other persons who were directly or indirectly in control of the licensee or working interest participant at the time of the failure, regardless of whether such failure arose before or after the coming into force of the relevant section. For persons named in such a declaration, the Minister may: refuse to consider licence or transfer applications; require the submission of abandonment and reclamation deposits before granting any licence or transfer applications; and suspend any operations of a licensee.

In addition to an administrative penalty section, which allows the Minister, through regulations, to develop meaningful and suitable penalties to deter improper conduct, the amendments increase the maximum fine for offences under the Act to $500,000 for each day or part of a day during which the offence continues, or a prison term of up to one year, or both. The convicting court may also issue additional orders, including orders requiring that the convicted persons repair or mitigate damage to the environment, and compensate for the cost of corrective actions taken. Significantly, the OGCA now includes provisions imposing vicarious liability, and liability for directors, officers and agents of a corporation in certain circumstances.

The amendments recognize the distinction between investigative and inspection powers and strengthen the powers granted to the courts and the Oil and Gas Conservation Board to include, for example, broad warrant-issuing powers for the purposes of enabling the Board's investigations.

Conclusion

Bill 157 passed through third reading on May 10 and is expected to receive Royal Assent the week of May 16; however, it will not come into force until proclamation. In its Explanatory Notes on the Bill, the government states that the associated regulations and the Petroleum Registry need to be in place before the Bill can be proclaimed.⁶

Marie Buchinski and Chuck Davies are called to the bar in Saskatchewan.

Notes

1. Saskatchewan, Legislative Assembly, Hansard, No. 14A (22 November 2010) at 6144-6145 (Honourable Bill Boyd).
2. Bill 157, available at: http://www.qp.gov.sk.ca/index.cfm?fuseaction=publications.details&p=31600, was introduced for first reading on November 17, 2010, with what the Minister dubbed a "companion piece" of legislation, Bill 156, The Freehold Oil and Gas Production Tax Act, 2010. Bill 156, available at: http://www.publications.gov.sk.ca/details.cfm?p=31599&cl=1, received Royal Assent on December 9, 2010, and will repeal The Freehold Oil and Gas Production Tax Act on proclamation.
3. Saskatchewan Legislative Assembly, Explanatory Notes to Bill No. 157, An Act to amend The Oil and Gas Conservation Act.
4. Hansard, No. 14A, supra note 1 at 6145 (Honourable Bill Boyd).
5. Ibid.
6. Explanatory Notes to Bill 157, supra note 3 at 44.