By Heather Douglas
The chickens have finally come home to roost. This notion of bad deeds, specifically curses, returning to haunt their instigator, is a long established literary tradition of the English language, and was first noted in 1390 by Geoffrey Chaucer in The Parson’s Tale.
The Alberta Energy Regulator (AER) has finally put teeth into its public musings that it needed to hold directors and officer liable for failing to comply with health, safety and environmental (HSE) legislation. In this case, failure to obey a multitude of orders.
The AER and Calgary-based Lexin Resources Inc. have a tangled relationship. The regulator doesn’t appear to believe or trust the company and its directors. Lexin’s directors seemingly have managed to flicked their feathers at the AER.
On February 6, 2017 the AER issued a declaration against three directors of Lexin Resources Inc. (a producer of oil, natural gas, and natural gas liquids [NGLs] in Alberta holding more than 1,500 well licences, 80 facility licences, and 200 pipeline licences) — specifically Michael J. Smith, Jasmina Cezak, and Rob Jennings — saying they had “contravened or failed to comply with AER orders.” They owe the regulator more than $1 million for contravening Section 106 of the Oil and Gas Conservation Act.
The charges levied against the trio? They, as directors of Lexin, failed to fulfil the company’s obligations to the Orphan Well Fund for the improper or incomplete suspension, abandonment, or reclamation costs of two wells, totaling $1,188,910.55. They ignored their duty to pay surface lease rentals to area residents. They failed to pay their taxes to municipal governments. They disregarded the edict to ensure that bags of spent catalyst were removed. They neglected to clean up a hydrocarbon spill.
It gets worse. The directors did not adequately manage safety concerns as operator of the very sour Mazeppa gas plant and gathering system. The plant, built in 1986, was designed to process 2,200 bbl/d of pentanes and 576 tonnes/day of sulphur. In June, 2016 Lexin informed the AER it had fired most of its employees and there was a skeleton staff of six left to operate the plant. Its leak detection system wasn’t operational. There was no capacity to respond to any type of sour gas leak.
The AER ordered the company to return the plant “to a safe state and draft a new emergency response plan.” Lexin responded by shutting in the sour facilities and promising to only process sweet gas. The regulator was not amused, citing the latent risks in wells, tie-ins, pipelines and processing facilities that had previously handled sour gas. In August, the AER said the company had “complied with its orders to ensure its facilities are in a safe state” as a sweet facility.
Area residents believe that Lexin’s decisions are made in Hong Kong and are doubtful the three directors will show up to defend themselves. They are also skeptical the fine will be paid. In reality, whose chickens are coming home to roost?
*On Feb 15, 2017 the AER ordered Lexin to shut-in all operations.
1. “The nature of the environment affected – the more sensitive, special or unique the environment endangered, the greater should be the penalty.
2. The extent of the damage afflicted – the more severe the damage to human and animal health and the environment, the great the penalty.
3. The deliberateness of the offence – the intent to commit an offence is not a necessary element of most EHS offences, but is a significant aggravating factor. Ignoring warning and attempts at concealment are also serious aggravating factors.
4. The attitude of the accused including:
a. The speed and efficiency of corporate actions to rectify the problem(s);
b. Voluntary reporting versus whistleblowing; and
c. The personal appearance of corporate directors in court outlining the company’s genuine regret and future plans for compliance.
5. The size, wealth, nature of operations, and power of the corporation – to ensure the fines are ‘felt’ and not treated as mere license fees, the larger and wealthier the offender, the larger must be the fine.
6. The extent of attempts to comply – any efforts made by the corporation to prevent the offence are mitigating factors, even if they were not adequate to show due diligence.
7. Remorse – speedy and effective action to remedy the problem and to prevent its recurrence are important mitigating factors, although cleaning up spills is no more than the company’s legal duty. Similarly, reporting a spill or discharge, while an independent legal duty, has some weight in mitigation. Personal appearance of senior corporate executives in court, compensation paid to those who suffered damage or losses as a result of the offence, and similar means of making public amends are also important indications of remorse.
8. Profits realized by the offence – if the defendant has profited through the commission of an offence, whether by benefiting from cheap waste disposal or by avoiding necessary repairs and equipment, no fine will be a deterrent if it is cheaper to pay the fine than to comply. The amount of the fine which would otherwise be imposed should be increased by the amount of the financial benefit.
9. Criminal record or other evidence of good character – repetitions of offences require a higher penalty, even if the current offence is not a “subsequent conviction” in the legal meaning of the phrase.”
*”Holding Directors and Officers Liable for Environmental Problems: Sentencing and Regulatory Orders” by Dr. Dianne Saxe, Saxe Law, and Meredith James, Envirolaw.com, published by the Canadian Institute of Resources Law and Dalhousie University (February, 2014).
#AER #AlbertaEnergyRegulator #Lexin #LexinResourcesInc. #HSE #HealthSafetyEnvironment #oil #naturalgas #naturalgasliquids #NGLs #Oil&Gas #Regulations #Alberta
