Alberta may relax rules on oil asset sales
This story is the follow-up to the announcement.
In the below, in addition to accelerating bankruptcies and increasing the number of orphaned wells (opposite of what was intended)
By restraining the transfer of assets from one company to another, the policy is hindering those companies attempting to improve their standing as a going concern by removing potential buyers from the sale process,” they wrote, adding that only 28 per cent of energy companies in Alberta could meet the regulator’s new liability management ratio threshold.
There is also a good interview on this on BNN here.
- 28 Jun 2016
- Calgary Herald
- GEOFFREY MORGAN
Province may relax rules on oil asset sales
Move comes after industry worries more firms would go bankrupt
The Alberta Energy Regulator is poised to relax a key part of a new rule governing who can buy and sell assets in response to angry calls from oil executives and bankers worried that the changes could send some companies into bankruptcy.
The outcry from the oilpatch followed an AER bulletin last week announcing that any company buying or selling licensed assets in Alberta would need to meet a new, higher threshold for proving they are financially capable of cleaning up old wells.
The rule change was intended to prevent oil and gas companies from filing for bankruptcy without cleaning up and remediating their idle assets, as Redwater Energy Corp. recently did, but critics warned the change could force additional companies into bankruptcy.
“What is most puzzling about the change in policy is the unintended consequences of potentially accelerating bankruptcies, that will see an influx of wells enter the (Orphan Well Association) fund, not stem them,” a team of AltaCorp Capital analysts wrote in a report on Monday.
“By restraining the transfer of assets from one company to another, the policy is hindering those companies attempting to improve their standing as a going concern by removing potential buyers from the sale process,” they wrote, adding that only 28 per cent of energy companies in Alberta could meet the regulator’s new liability management ratio threshold.
The AER confirmed Monday, however, that it would look at proposed deals on a “case by case” basis and signalled that some deals that have already been announced could be allowed to proceed.
AER spokesperson Jordan Fitzgerald said the bulletin released last week was intended to protect Albertans from the financial liability of cleaning up orphaned oil wells.
“Now that the AER has ensured that Albertans are protected in the interim, if a company has been in discussions on an acquisition, is operating in good faith and can demonstrate to the regulator that their liabilities are covered, the AER is willing to review their situation on a case-by-base basis,” AER spokesman Jordan Fitzgerald said in an email.
Explorers and Producers Association of Canada president Gary Leach said he was relieved the regulator had listened to suggestions made by his industry association and a handful of its concerned members.
“We urged them to look at grandfathering transactions that were in the queue prior to the release of the bulletin,” Explorers and Producers Association of Canada president Gary Leach said. “I believe that they’re taking that approach.”
Executives at numerous companies, including Penn West Exploration, were concerned about the rule change because they feared it would prevent deals that had already been struck.
In Penn West’s case, the rule change could have scuttled a $975-million deal to sell its Saskatchewan assets to Teine Energy Ltd., a company backed by the Canada Pension Plan Investment Board. Penn West president and CEO David Roberts expressed his concerns about the bulletin at the company’s annual meeting last week and indicated he would be talking directly with the AER.
FirstEnergy Capital Corp. analyst Michael Hearn said in a note when the deal was announced that it “materially reduces the company’s outstanding debt position while ensuring it stays onside with its debt covenants for the foreseeable future.”
Now, assuming that Penn West can demonstrate an ability to cover its liability, the deal will at least be considered by the AER.