Significant developments in Canadian energy – for the month of June 2016

by Dentons
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[co-author: Kim Martyn]

Conventional

  • June 22, 2016 – In response to the Redwater decision (discussed below) and pending the outcome of an appeal, the Alberta Energy Regulator (AER) implemented interim changes to its regulatory measures “to minimize risks to Albertans.” Among these changes, the AER will require all transferees of existing well licenses to demonstrate that they have a liability management ratio (LMR) of 2.0 or higher immediately following the transfer. In response to industry concerns, the AER subsequently indicated that it will assess whether to implement the interim changes on a case-by-case basis. Additional Dentons commentary on the AER changes can be found here.
  • June 21, 2016 – Encana Corporation entered into an agreement to sell its Gordondale assets in northwestern Alberta to Birchcliff Energy Ltd. for a total cash consideration of C$625 million. The sale includes approximately 54,200 net acres of land and associated infrastructure.
  • June 17, 2016 – Longshore Resources Ltd. announced the closing of an acquisition of certain producing assets in the Peace River Arch area of Alberta and the closing of a $150 million equity financing by ARC Financial Corp.
  • June 13, 2016 – Penn West Petroleum Ltd. announced that it had entered into a definitive agreement for the sale of all of its Saskatchewan assets, including its Dodsland Viking area, for cash consideration of $975 million, subject to normal closing adjustments. The purchaser is Teine Energy Ltd., a Viking producer backed by the Canada Pension Plan Investment Board.
  • June 8, 2016 – Suncor Energy Inc. entered into an agreement to sell 71.5 million common shares from treasury, on a bought deal basis, at a price of $35 per share. Net proceeds will be used for the previously announced acquisition of an additional five per cent interest in the Syncrude Canada Ltd. oilsands joint venture and to reduce outstanding indebtedness.
  • June 3, 2016 – The Alberta Court of Queen’s Bench decision in the Redwater Energy Corp. sparked widespread debate regarding who pays for the remediation of Alberta’s orphan wells. At issue in the Redwater case was whether trustees managing insolvent oil companies may “cherry-pick” among a bankrupt producer’s oil and gas assets, selectively disclaiming properties, along with any attached environmental liability. Alberta Chief Justice Neil Wittmann ruled that insolvency trustees could ‘renounce’ assets. Dentons analysis of the Redwater case can be found here.
  • June 1, 2016 – Raging River Exploration Inc. and Rock Energy Inc. entered into an agreement for the acquisition by Raging River of all the issued and outstanding Rock common shares, pursuant to a plan of arrangement. Rock’s assets include 2,550 boe per day (95 per cent oil) of production and approximately 25 net sections of land prospective of Viking light oil in the Kerrobert area of southwest Saskatchewan. Through this transaction, Raging River is also acquiring interests in heavy oil assets at Mantario (Laporte) and Onward, both in southwest Saskatchewan.

Unconventional

  • June 20, 2016 – Athabasca Oil Corporation granted a contingent bitumen royalty to Burgess Energy Holdings LLC on its thermal assets for total consideration of $129 million. Concurrently, the company repaid its US$221 million first lien term loan.
  • June 16, 2016 – Bear Head LNG Corporation, Inc. has received Governor in Council approval for a licence to import natural gas from the United States and a licence to export LNG from its project site on the Strait of Canso in Richmond County, Nova Scotia. The National Energy Board’s approval was previously issued in August 2015, but was subject to the approval of the Governor in Council.

Midstream

  • June 14, 2016 – TransCanada Corporation announced that its joint venture with IEnova, Infraestructura Marina del Golfo (IMG) has been chosen to build, own and operate the US$2.1-billion Sur de Texas-Tuxpan natural gas pipeline in Mexico. The project will be supported by a 25-year natural gas transportation service contract for 2.6 bcf a day with Mexico’s state-owned power company, the Comisión Federal de Electricidad.
  • June 2, 2016 – The National Energy Board recommended that the federal government approve NOVA Gas Transmission Ltd.’s (NGTL) proposed expansion to its existing system in northern Alberta. The board’s final report, released Wednesday, lists 48 conditions that NGTL would have to meet should the project go ahead. On March 31, 2015, NGTL applied to the board to construct and operate approximately 230 kilometres of pipeline in five pipeline section loops and two compressor station unit additions in northern Alberta, mostly adjacent to existing sites. The total estimated cost of the project is $1.29 billion and the planned in-service date is April 1, 2017.

Off-Shore

  • June 10, 2016 – Statoil completed the drilling of nine wells using the Seadrill West Hercules in the Flemish Pass Basin. The drilling program included four exploration wells in the vicinity of the 2013 Bay du Nord discovery, as well as three appraisal wells on the discovery. In addition, two exploration wells were drilled in areas outside the Bay du Nord discovery.
  • June 8, 2016 – Royal Dutch Shell plc has voluntarily contributed more than 860,000 hectares of offshore exploratory permits in the waters of Baffin Bay, near Lancaster Sound, to the Nature Conservancy of Canada. This contribution will support the establishment of a national marine conservation area off the coast of Nunavut. The Nature Conservancy of Canada subsequently released the permits to the Government of Canada. A government moratorium on oil and gas activity has been in place for nearly 40 years in the Lancaster Sound and Baffin Bay regions and Shell had not conducted any exploration activities on these lands during that period.

Alternative / Green

  • The federal government’s 2016 budget provided $50 million over two years to support the development of clean technologies for Canada’s oil and gas sector. Natural Resources Minister Jim Carr announced this week that the government is seeking proposals to access the Oil and Gas Clean Tech Program. Projects selected under the fund will demonstrate industry-led clean technologies that, once commercialized, could be more widely adopted across the oil and gas industry to improve environmental performance and help reduce greenhouse gas emissions both domestically and globally.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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