Oil firm forced into receivership admits fault
Former sour gas plant operator and well owner takes responsibility for violations
Alberta’s energy watchdog has closed its investigation into a junior oil and gas company — which it shut down and forced into receivership — after the natural gas producer accepted responsibility for many incidents in a stunning reversal.
It ends a more than year-long dispute between the Alberta Energy Regulator and Lexin Resources Ltd. over alleged offences at the company’s operations in southern Alberta, including a sour gas processing plant near High River.
In an agreed statement of facts with the regulator, Lexin accepted that it breached environmental and industry rules with a litany of violations. They include failing to clean up two spills at sour gas facilities, failing to report its production volumes and declining to pay industry levies.
Michael Smith, Lexin’s sole director before he resigned last month, “accepts responsibility for and on behalf of Lexin and its directors and officers for Lexin’s non-compliances,” states the agreed statement of facts.
Smith paid the regulator a $175,000 penalty for his role in Lexin’s misdeeds, and accepted a lifetime ban from controlling any company involved in exploring for, producing or transporting oil and gas in Alberta.
Lexin’s $200-million lawsuit against the energy regulator, in which the company alleged the AER “acted unlawfully and with intent to cause harm to Lexin,” has been adjourned. The watchdog said Monday it was optimistic the litigation would not resume.
The company has also agreed to co-operate with its ongoing receivership — which it previously contested — while the energy regulator closed its investigation into Lexin and its former directors and officers.
Lexin ran a sour gas processing plant in Mazeppa northeast of High River and nearly 1,400 wells across southern Alberta before it was shut down by the energy regulator in February.
The regulator said at the time it had lost confidence in Lexin’s ability to safely manage its operations before issuing the largest closure order in its history.
The watchdog later sued Lexin for $1 million and took the unprecedented step of forcing the company into receivership over similar concerns.
The agreement between the company and regulator marks a major turnaround from Lexin’s previous claims that the AER was to blame for most of its troubles.
In its $200-million counterclaim against the watchdog, Lexin had alleged the AER had “coerced” it into becoming the licence-holder for the Mazeppa processing plant, a move it then called illegal.
As a result of having the licence transferred from an affiliate to Lexin, the company said at the time it was forced to pay more to offset the costs of future cleanup. When the company didn’t pay, the regulator issued garnishing orders against Lexin’s income, which the company had claimed damaged its business.
Smith did not respond to a request for comment Monday on what triggered the reversal. An email to Smith triggered an automatic reply that said he was on vacation “till further notice.”
The agreed statement of facts states Smith is a non-resident of Canada — he’s listed as chief executive of the Vancouver-based merchant bank MFC Bancorp Ltd. — and he “relied upon in-country managers and other personnel for the operations of Lexin.”
“As a result of the global downturn in the oil and gas industry and other factors, Lexin was unable to obtain sufficient capital to operate its business in the ordinary course,” the agreed statement says.