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Significant Developments in Canadian Energy – For the Month of July 2016

Conventional

  • July 26, 2016 – TORC Oil & Gas Ltd. entered into an agreement with Zargon Oil & Gas Ltd. to acquire light oil assets in southeast Saskatchewan. The acquisition includes 1,120 boe per day (roughly 95 per cent light oil and liquids) of producing assets for total cash consideration of $89.5 million, subject to customary closing adjustments.
  • July 13, 2016 – In response to industry requests, the Alberta government announced that oil and gas producers can apply to opt in to Alberta’ new Modernized Royalty Framework for wells that otherwise would not have been drilled. This represents a change to the previously announced schedule, which had the Modernized Royalty Framework slated to take effect January 1, 2017. The stated intent of this change is to allow producers to make new investments, or decide to keep investments in Alberta. Further discussion of the Modernized Royalty Framework can be found in previous Dentons articles, available here and here.
  • July 6, 2016 – Seven Generations Energy Ltd. (7G) reached an agreement to acquire approximately 30,000 bbls of oil equivalent of daily production, 155 net sections in the Montney play having 199 million boe in proved reserves from Paramount Resources Ltd. for approximately CAD$1.9 billion in total consideration consisting of cash, 7G shares and the assumption of a portion of Paramount’s debt. This acquisition will significantly expand 7G’s ownership in the Montney Nest liquids-rich natural gas play.

Midstream

  • July 18, 2016 – Husky Energy Inc. closed a transaction to create a new entity, Husky Midstream Limited Partnership, which will assume ownership of certain midstream assets in the Lloydminster region of Alberta and Saskatchewan. Husky received $1.7 billion in cash proceeds from the transaction, which will be applied to strengthening the company’s balance sheet.
  • July 15, 2016 – TransCanada Corporation announced the signing of a memorandum of understanding with four major unions and the Pipe Line Contractors Association of Canada for work on the Energy East pipeline project. The MOU provides that thousands of the skilled pipeline trade jobs required to build the project will be awarded to members of the PLCAC and the four union partners, including the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, Labourers International Union of North America, International Union of Operating Engineers and Teamsters Canada.
  • July 15, 2016 – Reuters, citing sources familiar with the situation, reported that Williams Cos. Inc. attracted at least seven bidders for the sale of its Canadian business unit, which could pay up to $2 billion for the acquisition.
  • July 14, 2016 – Devon Energy Corporation announced that it had entered into a definitive agreement to sell its 50 per cent interest in Access Pipeline to Wolf Midstream Inc., a portfolio company of Canada Pension Plan Investment Board, for consideration of CAD$1.4 billion

Alternative / Green

  • July 18, 2016 – Canada’s Energy minister, Catherine McKenna, announced that the Canada will implement a national price on carbon emissions by the end of this year. The federal government will publish an emissions reduction plan this fall that could include expanded, standardized emissions disclosure requirements for companies. Currently, the provinces are working on an agreement that could see the provinces implementing a mandatory carbon price. Not all provinces support this initiative, and the effect of the proposed federal provincial carbon price on existing provincial measures has yet to be determined.
Significant Developments in Canadian Energy – For the Month of July 2016

Alberta announces new drilling incentive programs

The Government of Alberta recently announced the introduction of two new drilling incentive programs that will commence on January 1, 2017: the Enhanced Hydrocarbon Recovery Program and the Emerging Resources Program. These new programs will replace the drilling incentive programs that are currently in effect. This announcement follows from recommendations made in the Alberta’s Royalty Review Panel’s report of January 29, 2016, which recommended the implementation of a new modernized oil and gas royalty framework. Further discussion of the new drilling incentive programs, as well as background on Alberta’s new modernized oil and gas royalty framework, can be found here.

Alberta announces new drilling incentive programs

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

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

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

Conventional

  • May 3 – Freehold Royalties Ltd. entered into an agreement with Husky Energy Inc. to acquire royalty production and lands for an aggregate purchase price of $165 million. The transaction closed on May 25, 2016 and takes effect as of January 1, 2016.
  • May 5 – Certarus Ltd. has acquired Cangas Solutions Inc. from Trinidad Drilling Ltd. The acquisition added 30 additional CNG transportation trailers to Certarus’ operations allowing Certarus to expand their capacity and meet their forecasted growth for 2016. The asset purchase also included surplus compression, flare gas capture and other field equipment.
  • May 11 – Husky Energy Inc. has announced an agreement for the sale of select assets in southwest Saskatchewan for $595 million to Whitecap Resources Inc.
  • May 11 – Reliance Oilfield Services, LLC announced the execution of an agreement to acquire the North American assets within FMC Technologies, Inc.’s wireline services business. It has been reported that Reliance intends to offer employment to the majority of FMC Technologies’ employees.
  • May 17 – The plan of arrangement between Long Run Exploration Ltd., Calgary Sinoenergy Investment Corp. and Long Run’s security holders received an extension date from May 30 to June 29 for completion, due to the transaction’s pending review under the Investment Canada Act. The arrangement was previously approved under the Competition Act (Canada) on April 20.
  • May 17 – Strategic Oil & Gas Ltd. has executed an asset exchange agreement, assuming a 100% working interest in the Bistcho gas processing facility and 14 wells capable of production, while also assigning 68 wellbores to their joint interest partner.
  • May 26 – Chinook Energy Inc. has entered into an agreement to sell certain assets located in the Gold Creek area in Alberta. The disposition is effective May 1, 2016 and anticipated to close on or before June 30, 2016. The divested assets include a 75% working interest in 20 sections of land and related pipelines and production facilities.
  • May 26 – RMP Energy Inc. has acquired 100% working interest in 20 sections of acreage prospective for Montney light oil with significant exploration and development potential, predominantly attached to RMP’s existing Gold Creek lands. The transaction includes key Montney assets, which expands RMP’s drilling inventory and provides infrastructure in its Gold Creek area.

Unconventional

  • May 18 – Suncor Energy Inc. bought a rare cargo of North Sea crude amidst speculation that the company was forced to import oil to feed its refinery due to a forest fire in Albert that has disrupted supply. According to shipping sources Suncor is importing nearly one million bbls of Ekofisk Blend crude from Teesport in northern England.
  • May 18 – Connacher Oil and Gas Limited obtained court protection under the Companies Creditors Arrangement Act from its creditors for a period expiring June 16, 2016. The company will use this time to restructure and reorganize its assets, business and financial affairs. The company has received commitments from some of its existing lenders for up to US$20 million in interim financing, which was approved by the initial court order and is subject to certain terms and conditions in order to support continued operations.
  • May 24 – AltaGas LPG Limited Partnership, a wholly owned subsidiary of AltaGas Ltd., has entered into a memorandum of understanding with Astomos Energy Corporation with respect to the sale and purchase of liquefied petroleum gas from the proposed propane export terminal on Ridley Island, British Columbia. The export terminal will provide AltaGas’ customers with the opportunity to realize incremental value through access to Asian markets and pricing for western Canadian propane.
  • May 31 – Pengrowth Energy Corporation has received regulatory approval under Alberta Environmental Protection and Enhancement Act (EPEA) for the second commercial phase of its Lindbergh thermal project. The approval follows approximately 30 months of project review by stakeholders and regulators. Capital cost estimates and commitments for the second phase have not been finalized, however, the second commercial phase is designed to add 17,500 bbls per day of incremental capacity, resulting in total nameplate capacity from Lindbergh of 30,000 bbls per day at a steam oil ratio of 3.6.

Midstream

  • May 3 – Secure Energy Services Inc. has entered into an agreement to purchase all of the operating assets of PetroLama Energy Canada Inc., except working capital, for an aggregate price of approximately $53.5 million. PetroLama is a privately owned Calgary-based midstream company specializing in the physical trade, storage, terminalling and transport of crude oil from Western Canada to the North American market.
  • May 10 – Sempra U.S. Gas & Power completed a transaction with Tallgrass Energy Partners, LP to sell Sempra’s 25% interest in Rockies Express Pipeline LLC for approximately $440 million. Rockies Express Pipeline is one of the largest natural gas pipelines ever constructed in North America. It extends over 1,712 miles from Opal, Wyoming, and Meeker, Colorado, to Clarington, Ohio.

Alternative / Green

  • May 19 – Enbridge Inc. has acquired a 50% interest in a French offshore wind development company, Éolien Maritime France SAS, for $282 million inclusive of transaction costs and past and future pre-final investment decision development costs. Enbridge will co-own Éolien Maritime with EDF Energies Nouvelles, a subsidiary of Électricité de France S.A that is dedicated to renewable energy.
Significant developments in Canadian energy – for the month of May 2016

Alberta’s Bill 20: Climate Leadership Implementation Act

The Alberta Government introduced Bill 20, the Climate Leadership Implementation Act, on May 24, 2016. The Bill proposes a carbon levy on fuel consumption and marks the Government’s first step towards executing Alberta’s Climate Leadership Plan. Additional legislation aimed at eliminating emissions from coal-fired electricity generation, capping oil sands emissions and reducing methane emissions is still pending. Currently, the Specified Gas Emitters Regulation remains in full force and effect.

Bill 20 proposes two new statutes, the Climate Leadership Act and the Energy Efficiency Alberta Act, while also making minor, corollary amendments to three existing pieces of provincial legislation. The proposed legislation passed its first reading in Parliament and will become law upon receiving Royal Assent.

Under the Climate Leadership Act, all fuel consumption—including gasoline and natural gas consumption—will be subject to a carbon levy to be effected through a series of payment and remittance obligations throughout the fuel supply chain. Commencing on January 1, 2017, consumers of fuel will pay levies at rates based on CA$20 per ton of carbon (e.g. 4.49 cents/litre for gasoline), with the carbon price increasing to CA$30 per ton on January 1, 2018 (6.73 cents/litre). There are certain exemptions from the carbon levy, including fuel used in the operation of a specified gas emitter and fuel used in farming operations. The Climate Leadership Act creates mechanisms for the assessment of the levy and the enforcement of payment, while providing that directors can be held jointly or severally liable for payment if their corporation fails to remit the required carbon levy.

The revenue generated from the carbon levy will be applied to provincial climate change initiatives, while also producing rebates for qualified individuals and businesses. Initial estimates state that more than 60 percent of Albertans will be eligible for full or partial rebates.

The Energy Efficiency Alberta Act establishes a new Crown corporation, Energy Efficiency Alberta. The provincial agency will have a mandate to raise awareness among energy consumers, design and deliver programs related to energy conservation and small scale renewable energy systems, and to promote the development of an energy efficiency services industry. Energy Efficiency Alberta will consult with stakeholders and citizens to encourage a reduction in energy use and to raise awareness of consequences of energy consumption.

Amendments to the Corporate Tax Act will reduce the small business tax rate from three to two percent in order to allow businesses to adapt to the carbon levy, while amendments to the Alberta Personal Income Tax Act will provide for the eligibility and calculation methods pertaining to the Alberta Climate Leadership Adjustment Rebate. Finally, amendments to the Climate Change and Emissions Management Act broaden the accepted use and purpose of the Climate Change and Emissions Management Fund to encompass education initiatives and outreach programs.

The Dentons Climate Change group will continue to track and report on further legislation, including the pending regulations referred to above. If you wish to receive our Climate Change Newsletter please contact us.

This article was co-authored by Alex MacWilliam and Cameron Hughes, Partners in Dentons’ Calgary office.

Alberta’s Bill 20: Climate Leadership Implementation Act

Insolvency and energy insights: The Redwater decision

The Alberta Court of Queen’s Bench decision in Redwater Energy Corporation Re, 2016 ABQB 278, written by Chief Justice Neil Wittmann, clarifies that the provisions of the Bankruptcy and Insolvency Act (BIA) addressing the environmental liability of trustees render certain provisions of provincial regulatory legislation addressing wells and pipelines inoperative to the extent they conflict with the BIA.

This is a significant decision that will directly impact the conduct of oil and gas receiverships and bankruptcies in Alberta, and affect the position of secured creditors in those proceedings.

You can find Dentons’ commentary on this decision in our recent Insights publication found here.

Insolvency and energy insights: The Redwater decision

Significant Developments in Canadian Energy – For the month of April 2016

Conventional

  • April 21, 2016 – The Alberta government announced the technical formulas that will be used to calculate royalties and payout cost allowances on oil, natural gas, propane and butane starting in 2017. Discussion of these formulas can be found in our article of April 27, 2016.
  • April 18, 2016 – Penn West Petroleum Ltd. closed the previously announced sale of its properties in the Slave Point area of northern Alberta for cash consideration of CDN$148 million. In addition, Penn West closed approximately CDN$50 million of its previously announced non-core asset sales of CDN$80 million. It has also entered into a definitive agreement to sell the balance of such non-core assets for cash consideration of CDN$30 million, subject to closing adjustments. The sale is expected to close in the second quarter.
  • April 12, 2016 – Enerplus Corporation entered into a definitive agreement to sell certain non-core assets located in northwest Alberta, including its Pouce Coupe asset. The total cash consideration is CDN$95.5 million, subject to closing adjustments, and the transaction is expected to close in the second quarter of 2016. Enerplus has used its 2016 divestment proceeds, which will total CDN$288.5 million, to reduce its outstanding debt, including repurchasing a portion of its senior unsecured notes.

Unconventional

  • April 27, 2016 – Suncor Energy Inc. announced that it will acquire a further 5% interest in Syncrude Canada Ltd. from Murphy Oil Corporation’s Canadian subsidiary for a purchase price of CDN$937 million, subject to closing adjustments. Through this transaction, Suncor’s share in Syncrude will increase from 48.74% to 53.74% (36.74% of which is held through Suncor’s interest in Canadian Oil Sands Limited). The transaction remains subject to closing conditions, including regulatory approval under the Canadian Competition Act and is expected to close in the second quarter of 2016. The remaining ownership interests of Syncrude will continue to be held by Imperial Oil (25%), Sinopec Limited (9%), Nexen Inc. (7.23%), and Mocal Energy (5%). Suncor indicated that it does not intend to become the operator of Syncrude.

Midstream

  • April 25, 2016 – Husky announced that it has reached an agreement to sell 65% of its ownership interest in select midstream assets in the Lloydminster region of Alberta and Saskatchewan to Cheung Kong Infrastructure Holdings Limited and Power Assets Holdings Limited. Husky will receive CDN$1.7 billion of gross cash proceeds, will retain a 35% ownership interest, and will remain operator. The sale price represents about 13 times the expected 2016 EBITDA of approximately CDN$180 million.
  • April 20, 2016 – TransCanada Corporation completed its public offering of cumulative redeemable minimum rate reset first preferred shares, Series 13. TransCanada issued 20 million Series 13 preferred shares for aggregate gross proceeds of CDN$500 million through a syndicate of underwriters co-led by TD Securities Inc., BMO Capital Markets and Scotiabank. Net proceeds of the offering will be used for general corporate purposes and to reduce short-term indebtedness of TransCanada and its affiliates.
  • April 11, 2016 – Pembina Pipeline Corporation and Petrochemical Industries Company K.S.C., a subsidiary of the Kuwait Petroleum Corporation, announced their participation in a joint study for the evaluation of a world-scale combined propane dehydrogenation (PDH) and polypropylene upgrading facility in Alberta. The project could consume approximately 35,000 bbls per day of propane and produce up to 800,000 metric tonnes per year of polypropylene. This announcement follows the adoption by the Alberta government of the Petrochemicals Diversification Program, the intent of which is to encourage the construction of such facilities in Alberta, and which is discussed in our blog post of March 2, 2016.
  • April 11, 2016 – TransCanada Corporation announced that it was awarded a contract to build, own and operate the USD$550 million Tula – Villa de Reyes natural gas pipeline in Mexico. Construction of the pipeline is supported by a 25-year natural gas transportation service contract for 886 mmcf a day with the Comisión Federal de Electricidad, Mexico’s state-owned power company.
  • April 1, 2016 – TransCanada Corporation completed its previously announced bought deal offering of subscription receipts. The total gross proceeds of $4.4 billion will be used to finance a portion of the purchase price of the previously announced acquisition of Columbia Pipeline Group, Inc.

Off-Shore

  • April 7, 2016 – the Canada-Newfoundland & Labrador Offshore Petroleum Board announced two Calls for Bids for 2016 comprising thirteen parcels (totaling 2,949,252 hectares) in the Eastern Newfoundland Region and three parcels (totaling 354,552 hectares) in the Jeanne d’Arc Region. The deadline for the 2016 Bid Round is November 9, 2016 and as in previous rounds, the sole bid selection criteria will be the size of the work commitment that is bid. This follows the successful conclusion of last year’s Call for Bids, which resulted in companies bidding over CDN$1 billion in work commitments in respect of 11 parcels totaling 2,581,655 hectares.

Oilfield Services

  • Hallmark Tubulars Ltd. announced the acquisition of two tubular running services businesses in Western Canada: Canarctic Inc., based out of Vermillion and Davy Crockett’s Oilfield Services Ltd., based out of Valleyview. These acquisitions are anticipated to augment Hallmark’s existing tubular running operations in Nisku and Bonnyville through the addition of all the employees of both companies, an enlarged equipment fleet and expanded geographic coverage.
  • April 5, 2016 – Sanjel Corporation announced that it had signed two agreements for the sale of assets to two separate North American pressure pumping providers. Sanjel announced a definitive agreement for the sale of its Canadian fracturing, coiled tubing and cementing assets to STEP Energy Services Ltd., an ARC Financial Corp. sponsored company. Concurrently, Sanjel signed a definitive agreement for the sale of its United States fracturing, coiled tubing and cementing assets to Liberty Oilfield Services.

Alternative / Green

  • April 1, 2016 – Enbridge Inc. announced its updated climate policy, which includes: commitments to develop multi-year plans for emissions reduction and energy efficiency in its business segments; building on the $5 billion Enbridge has already invested in renewable energy to double renewable energy generation capacity in five years; and investing in programs that will enable its residential and commercial natural gas customers to reduce energy use, emissions and costs. Enbridge has committed to providing an annual review of its progress in achieving its policy commitments.
Significant Developments in Canadian Energy – For the month of April 2016

Alberta’s Metis Consultation Framework

On April 4, 2016, the Government of Alberta (“GoA”) released The Government of Alberta’s Policy on Consultation with Metis Settlements on Land and Natural Resource Management, 2015 (the “Policy”) as well as The Government of Alberta’s Guidelines on Consultation with Metis Settlements on Land and Natural Resource Management, 2016 (the “Guidelines”). Additional information on the Policy and the Guidelines including the text of each can be found here.

The modest aim of this post is to outline some of the key features of the Policy and Guidelines as they relate to energy project proponents.

Alberta Metis Settlements

The term “Metis” refers to people of mixed European and indigenous heritage who developed their own customs, way of life, and recognizable group identity separate from their settler or indigenous ancestors. Metis people are expressly included within the definition of “aboriginal peoples of Canada” in section 35 of the Constitution Act, 1982. Accordingly, Metis practices that were historically important features of these distinctive communities and that persist today as integral elements of Metis culture are constitutionally protected. According to the Alberta Indigenous Relations website, approximately 5,000 people live on the eight Metis Settlements in the province which collectively cover 1.25 million acres in the central and northern part of the province.

Policy and Guideline Highlights

The stated objective of the Policy is to establish a meaningful consultation process to address potential adverse impacts to Metis Settlement members’ harvesting or traditional use activities. The Guidelines are intended to clarify expectations of all parties participating in the consultation process including project proponents, the Aboriginal Consultation Office (the “ACO”), Metis Settlements, and government agencies.

According to the Policy, and consistent with Supreme Court of Canada decisions on Aboriginal consultation, the GoA policy is to consult with Metis Settlements when:

  1. GoA has real or constructive knowledge of Metis Settlement members’ harvesting or traditional use activities;
  2. GoA is contemplating a decision relating to land and natural resource management; and
  3. a GoA decision has the potential to adversely impact the continued exercise of Metis Settlement members’ harvesting or traditional use activities.

The Policy, therefore, will impact not only strategic resource planning decisions made by the GoA, but also project specific decisions including land dispositions, facility and pipeline approvals, and water use authorizations. It will not, however, apply to leasing or licencing Crown mineral rights.

Borrowing from the GoA’s approach to consultation with First Nations, the Guidelines establish a framework for determining the level of consultation required based on the impact of the project and the sensitivity of the affected location. The level of consultation informs how deep the consultation should be, what process steps are required, and the timelines for completing consultation.

The Policy lists a number of “guiding principles” which it considers will lead to meaningful consultation. These guiding principles will generally not surprise energy project proponents who are accustomed to engaging with First Nations. In some cases, the guiding principles provide reassurance regarding the GoA position on consultation. Notably, the guiding principles include the following:

  • Consultation will take place with the Metis Settlements, not their individual members;
  • GoA will consult with honour, respect, and good faith, with a view to reconcile Metis Settlement members’ harvesting and traditional use activities with the GoA’s mandate to manage provincial Crown lands and resources for the benefit of all Albertans;
  • Consultation requires all parties to demonstrate good faith, reasonableness, openness, and responsiveness;
  • Metis Settlements have a reciprocal onus to respond with any concerns specific to the anticipated Crown decision in a timely and reasonable manner and work with Alberta and project proponents to resolve issues as they arise during consultation;
  • Consultation does not give Metis Settlements or project proponents a veto over Crown decisions nor is the consent of Metis Settlements or project proponents required as part of Alberta’s Consultation process.

The Policy and Guidelines contemplate direct consultation by the GoA as well as GoA delegation of procedural aspects of consultation. In either case, the ACO will “direct, monitor and support consultation activities”. ACO support includes providing staff to assist with consultation, advising both Metis Settlements and proponents when disputes arise, and evaluating consultation records. Energy project proponents will recall that the Alberta Energy Regulator (“AER”) has no authority under the Responsible Energy Development Act to assess the adequacy of Crown consultation. In matters before the AER, the ACO will make a consultation adequacy determination and advise the AER of its decision.

For their part, project proponents may need to carry out certain tasks if the GoA decides to delegate procedural aspects of the consultation process. The Guidelines state that “proponents are encouraged to notify and consult with Metis Settlements as early as possible in the pre-application stage”, “document their consultation activities, share their consultation record with Metis Settlements and provincial staff and advise the GoA of any issues that arise”. The Policy and Guidelines identify a number of consultation activities that may be passed to proponents, such as providing Metis Settlements with plain language information on the project, meeting with Metis Settlements to discuss their concerns, developing and implementing mitigation strategies, and preparing consultation records.

Finally, the Guidelines state that “although the optimal outcome of consultation is that all consulting parties reconcile interests, agreement of all parties is not required for consultation to be adequate”.

Comments for Energy Project Proponents

The Policy and Guidelines closely model the GoA’s approach to engaging with First Nations in Alberta and will be familiar to many project proponents. They serve as a useful starting point for setting expectations on how consultation will proceed and the roles of each party. However, they are just that – a starting point.

The Guidelines acknowledge that consultation must remain flexible. They do not state, however, whether Metis Settlements will be consulted on how the Policy will be implemented in any given case. Further, while the Policy and Guidelines clearly contemplate delegating consultation activities to proponents, there is no commitment by the GoA to communicate the fact of delegation to the concerned Metis Settlements.

Clear communication at every stage of the consultation process is important to avoid delays as the process unfolds. Proponents should ensure from the outset when they undertake delegated consultation activities, such as in-person meetings, that the Metis Settlement representatives understand the consultation activities were delegated and are meant to contribute to fulfilling the Crown’s duty to consult.

Alberta’s Metis Consultation Framework

Canada East Coast (Newfoundland and Labrador) Oil and Gas Update

Call for Bids

 On April 7, 2016, the Canada-Newfoundland & Labrador Offshore Petroleum Board announced two Calls for Bids for 2016 (the “2016 Bid Round”). Call for Bids NL16-CFB01 comprises thirteen parcels and a total of 2,949,252 hectares in the Eastern Newfoundland Region and Call for Bids NL16-CFB02 comprises three parcels and a total of 354,552 hectares in the Jeanne d’Arc Region.

The deadline for the 2016 Bid Round is November 9, 2016 and as in previous rounds, the sole bid selection criteria will be the size of the work commitment that is bid.

This follows the successful conclusion of last year’s Call for Bids NL15-01EN (the “2015 Bid Round”). The 2015 Bid Round resulted in companies bidding over CDN$1 billion in work commitments in respect of 11 parcels totalling 2,581,655 hectares. This represented a strong result, particularly in the context of current low commodity prices.

Royalty Regime

Immediately prior to the closing of the 2015 Bid Round, the government of Newfoundland and Labrador announced significant changes to its offshore oil royalty regime (the “New Regime”). The New Regime was to apply on a go-forward basis from November 2015 to new production licenses issued, whether pursuant to exploration and significant discovery licences existing at that time or new exploration and significant discovery licences issued in the future. Existing production licenses remain subject to the previous regime, implemented in 2010. At the time of writing, however, no legislation or new regulations have been issued to implement the New Regime and at present it is not clear when the New Regime will come into force.

Notwithstanding uncertainty as to the date and specifics of implementation, the New Regime as announced in 2015 is to be based on an “R Factor”, which is calculated as a ratio of revenue over allowed costs, and comprises two different royalty rates. “Basic Royalty” is payable on gross revenue starting at first production and ranges from 1-7.5%, depending on a project’s R Factor. Upon a project achieving payout, the Basic Royalty is replaced with “Net Royalty”, which is payable on net revenue and ranges from 10-50%. Basic Royalty and Net Royalty are calculated as follows:

(a)           Basic Royalty: first oil to R<0.25 – 1%; 0.25≤R<1 – 2.5%; 1≤R<1.25 – 7.5%

(b)           Net Royalty: R<1 – 0%; 1≤R<3 – sliding scale, 10-50%, were rate = [0% +(R-1)/(3-1)] x (50% – 0%), R>3 – 50%

The New Regime as proposed will represent a significant change in approach when implemented as it is intended to be a “generic” royalty, applicable to all new production whereas our experience to date in this region has been that royalties have been heavily negotiated on a project-by-project basis. Although the “generic” New Regime is intended to provide a consistent and clear royalty environmental for producers in this basin, we would not rule out negotiated exceptions in certain circumstances.

UNCLOS

As offshore bid rounds move beyond Canada’s 200 mile exclusive economic zone, it remains to be seen how Canada will meet its commitments as set out in Article 82 of the United Nations Convention on the Law of the Sea (“UNCLOS”). To address these obligations, current offshore bid documents contain a proviso indicating that, “additional terms and conditions may be applied through legislation, regulations, amendments to licences or otherwise” to any licenses granted thereunder.

UNCLOS sets out a 200-mile offshore exclusive economic zone for coastal states and Article 82 requires coastal states exploiting natural resources beyond their 200-mile zone to pay royalties on production to developing countries. Canada was one of the original coastal state signatories to UNCLOS, which it ratified on November 7, 2003. Certain parcels comprising the 2016 Bid Round are outside the 200-mile zone and therefore production from these parcels could be subject to an Article 82 royalty.

To date however, the International Seabed Authority (the “ISA”), which administers UNCLOS, has neither collected nor distributed any Article 82 royalties, and is still in the process of developing a regulatory framework in this regard. Further, no commercial production has yet occurred on Canada’s continental shelf outside the 200-mile zone. As such, Canada has neither collected nor remitted Article 82 royalties nor have the federal or provincial governments implemented a royalty framework to address what Article 82 royalties would amount to in practice. However, Statoil ASA and Husky Energy Inc. have made discoveries in the Flemish Pass basin that are expected to yield significant production to which Article 82 would appear to pertain; this may require a reaction from Canada.

It remains to be seen how Canada will meet its obligations, particularly as the current royalty regimes in offshore Canada are incompatible with UNCLOS. Currently, royalties are collected by and on behalf of the provinces, not by the federal government (which is obliged to collect Article 82 royalties and make remittances to the ISA). There has been no indication from the federal and provincial governments to date regarding: (1) resolution of these apparent inconsistencies; (2) which level of government will be responsible for paying the Article 82 royalty; (3) and whether additional royalties will be imposed on producers in offshore Newfoundland and Labrador in order to offset the cost incurred by Canada in respect of the Article 82 royalty.

At Dentons Canada LLP, we continue to monitor developments relating to Canada’s east coast offshore oil and gas industry and would be pleased to answer questions you may have.

Canada East Coast (Newfoundland and Labrador) Oil and Gas Update

Daniels v. Canada: Métis and non-status Indians fall under Parliament’s legislative authority

On April 14, 2016, the Supreme Court of Canada (SCC) rendered its decision in Daniels v. Canada (Indian Affairs and Northern Development), 2016 SCC 12.

Members of the Dentons Canada LLP Aboriginal Law practice addressed the significance of the decision in their latest Insights post. You can find that post here.

Daniels v. Canada: Métis and non-status Indians fall under Parliament’s legislative authority