Lexin Resources sues Alberta energy watchdog for $200M
An embattled oil and gas company forced into receivership by Alberta’s energy watchdog has filed a $200-million lawsuit against the regulator, accusing it of acting “unlawfully and with intent to cause harm.”
Lexin Resources Ltd. has been at loggerheads with the Alberta Energy Regulator for more than a year over the watchdog’s orders calling for spill cleanup and infrastructure repairs, along with its demand for levies and security deposits.
After losing confidence in Lexin’s ability to safely manage its properties, the regulator shut the company down in February, launched a $1-million lawsuit and forced the junior natural gas producer into receivership.
Lexin is already appealing the receivership, but the company has raised the stakes with a counterclaim seeking $200 million, plus $1 million in “punitive and exemplary damages.”
“The AER has acted unlawfully and with intent to cause harm to Lexin,” the lawsuit states. “As a result of the AER’s actions, Lexin has suffered damages to its business.”
None of the claims have been proven. The energy regulator said it disputes the allegations.
Lexin ran a sour gas processing plant in Mazeppa northeast of High River and nearly 1,400 wells across Alberta before the shutdown in February.
A central argument in its litigation with the regulator is the company never intended to be the licence holder for the processing plant, but the regulator “coerced” it into taking over the licence from an affiliate. The company claims the regulator had threatened to revoke the Mazeppa plant’s licence entirely unless LR Processing Ltd., an affiliated company, transferred the licence to Lexin in 2013.
According to the company’s counterclaim, the watchdog took issue with the structure of oil and gas licences held by Lexin and its affiliates. The company says it applied for the transfer “reluctantly” but claims the move was “illegal,” because Lexin allegedly didn’t have a working interest in the plant when it took over the licence, violating oil and gas legislation.
Michael Smith, a Lexin director, said in a sworn affidavit in July 2016 as part of unrelated litigation that LR Processing — the company that held the licence prior to the transfer and used to be called MPP Ltd. — is a Lexin subsidiary.
As a result of the licence transfer, Lexin took on additional liabilities, which meant it had to pay more to offset the costs of future cleanup. When the company didn’t pay, the regulator issued orders garnishing funds from the company’s income, which Lexin said damaged its ability to run its business.
“The AER’s actions have been undertaken in bad faith, in breach of the AER’s statutory duties, and constitute an unlawful interference with Lexin’s economic relations,” the counterclaim alleges.
The regulator denies the allegations, saying oil and gas licence transfers are voluntary. In a statement to Postmedia, it said even though the transfer occurred in 2013, the regulator wasn’t made aware of any dispute until three years later. The watchdog said it told Lexin at the time, in 2016, that the company could transfer the disputed licence to another party with a working interest in the Mazeppa plant.
“To date, the company has not submitted an application for transfer.”