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AER Approves Prosper OSE Program Following Regulatory Appeal

Author(s): Sander Duncanson, Shawn Denstedt, QC

Dec 3, 2014

On November 5, 2014, following more than two years of regulatory process and the first regulatory appeal under the Responsible Energy Development Act (REDA), the Alberta Energy Regulator (AER) issued decision 2014 ABAER 013 approving the Prosper Petroleum Ltd. (Prosper) oil sands exploration (OSE) program. This decision marks the second time that the AER has held a hearing to consider an OSE program (the first being the Teck Resources OSE Program that was approved in 2013 [2013 ABAER 017]). There are several aspects of this proceeding that are important for oil sands developers to be aware of when planning future OSE programs.

Background and Chronology of Events

Prosper’s OSE program is relatively small in scope (24 OSE wells), but it is located immediately south of Buffalo (Namur) Lake, an area of importance for the Fort McKay First Nation (Prosper’s lease is adjacent to the Dover Commercial Project, a project that was fervently opposed by Fort McKay in 2012 and 2013). Prosper’s OSE program was initially proposed for the winter of 2012-13. During the consultation in the fall of 2012, Fort McKay expressed its desire for a no development “buffer” in the program area and chose not to meet with Prosper. Fort McKay’s unwillingness to meet caused Alberta Environment and Sustainable Resource Development (ESRD) to delay issuing a consultation adequacy decision on the program until early February 2013. At that time, Prosper applied for Public Lands Act (PLA) approvals from ESRD and, since Fort McKay had never formally objected to the program, Prosper applied for well licences from the AER (the Energy Resources Conservation Board at the time) on a routine basis. These approvals were issued quickly and Prosper was able to drill eight of the 24 OSE wells prior to the end of winter season in March 2013.

In August 2013, after the REDA had come into force, Fort McKay requested a regulatory appeal of the Prosper well licences on the basis that it had raised concerns with Prosper’s OSE program in fall 2012, and Prosper should have applied for the program on a non-routine basis. Fort McKay also commenced judicial review proceedings in the Alberta Court of Queen’s Bench challenging ESRD’s consultation adequacy decisions and PLA approvals. These approvals were ultimately upheld by the Court in Fort McKay First Nation v. Alberta (Minister of Environment and Sustainable Resource Development), 2014 ABQB 393.

The AER agreed with Fort McKay that Prosper’s well licence applications should have been filed on a non-routine basis and granted Fort McKay’s request for a regulatory appeal on November 14, 2013. The AER issued Prosper a high-risk enforcement action and Prosper voluntarily suspended work on the program. After AER-directed alternative dispute resolution proved unsuccessful, the AER proceeded to a public hearing between January and August 2014. At the request of both parties, the hearing was conducted by way of a written process. Both parties filed evidence regarding the need for the program, the need for a no development “buffer” around Namur Lake, and the effects that the program would have on Fort McKay’s traditional land use activities. Fort McKay filed extensive materials detailing the cumulative effects of oil sands development across their territory and the need to preserve the Namur Lake area from oil sands development. The hearing record ultimately closed on August 19, 2014, over a year after Fort McKay’s request for a regulatory appeal and more than two years after consultation on the program commenced.

AER Decision

The AER’s decision in 2014 ABAER 013 reconfirmed many of its previous findings in the Teck decision, including that the effects of OSE programs are “localized, temporary, and of relatively short duration” (para. 131) and that regional management frameworks such as the Lower Athabasca Regional Plan are the appropriate mechanisms to address concerns related to regional effects of oil sands development (para. 121). The AER concluded that “Fort McKay’s evidence regarding the exercise of traditional and cultural activities on and near the OSE program area was mostly general in nature and did not persuade the panel that the limited physical impacts of the OSE program will directly affect Fort McKay’s cultural and traditional practices” (para. 139). As a result, the AER reinstated the well licences and refused to impose any additional conditions on the approvals.

Implications for Oil Sands Developers

There are several important implications of the Prosper proceeding for oil sands developers:

  • Given the potential regulatory timing associated with Aboriginal opposition to OSE programs, as well as the narrow window for winter drilling activities, companies should file applications for OSE programs as early as possible to avoid delays in drilling.
  • The AER’s position is that a company should apply on a non-routine basis whenever it is aware of unresolved concerns of an Aboriginal group in the area, regardless of whether the concerns have been raised specifically in relation to the current application. In light of Prosper’s experience, companies should take a conservative approach to determining whether applications should be made on a non-routine basis.
  • Although regulatory appeals do not automatically act as a stay of the AER approval, public hearings are mandatory for regulatory appeals (see section 4 of the Responsible Energy Development Act General Regulation), resulting in a lengthy regulatory process post-approval if a request for regulatory appeal is granted. Companies should be aware of the risk of a regulatory appeal and factor this into their project planning.
  • The Prosper proceeding is a rare example of an AER hearing being conducted by way of a written process. Although this likely reduced the overall cost of the process for both parties, the written process took several months longer than an oral hearing would have and was less efficient (i.e., questioning of the parties by the AER took several weeks, while this could have been done in less than a day at an oral hearing).
  • The AER’s decisions for both Prosper and Teck confirm that the environmental effects of OSE programs are negligible and should have minimal effects, if any, on Aboriginal groups in the area. These findings should allow the AER to approve future OSE programs without the need for public hearings or regulatory appeals unless an Aboriginal group can demonstrate there are exceptional circumstances.