Energy watchdog shuts down Lexin over safety concerns

In a rare move, Alberta’s energy watchdog publicly admonished an oil and gas company for refusing to comply with a litany of orders to properly care for its wells and facilities, citing concerns for the environment and public safety.

The Alberta Energy Regulator said Wednesday it has suspended all licences held by Lexin Resources Ltd., including nearly 1,400 wells.

It also issued an environmental protection order against the company and an affiliate, requiring them to address outstanding environmental concerns at a sour gas plant in Mazeppa northeast of High River.

Mark Taylor, a vice-president at the regulator, said the case is highly unusual because of the Calgary-based company’s scale of operations, with more than 1,600 licences spread across Alberta, and its long-standing refusal to comply with orders.

The watchdog has not ruled out criminal charges against Lexin as its investigation continues.

“The AER has very little confidence in Lexin’s ability to conduct their operations safely,” Taylor told reporters. “We’re taking measures to prevent any increase in public safety, environmental or financial risk.”

Lexin did not immediately respond to requests for comment. Bonnie Roberts Jones, the company’s lawyer, declined to comment on the regulator’s allegations because the file is before the courts.

The regulator has obtained a court order preventing Lexin from removing equipment from its properties, arguing the suspension order extends to company equipment. Several companies claim they have financial interests in Lexin equipment.

The rebuke and fresh orders against the company came weeks after Lexin sent the regulator a letter arguing its more than year-long dispute with the watchdog has “adversely affected” its operations and access to capital.

“We also advise that because of the dispute and your actions, we are not sure that we will be able to continue to provide proper health and safety overview and measures for the sour wells particularly beyond Feb. 15,” Michael Smith, a Lexin director, wrote in the Jan. 31 letter.

“We believe the situation creates serious health and safety risks for all concerned.”

Taylor said the regulator’s assessment of Lexin’s wells, pipelines and facilities suggest they do not pose any immediate environmental or public safety threats.

Lexin told the regulator in June 2016 that its leak-detection system at its Mazeppa site was no longer operational, that it had laid off most of its staff and that it could not respond to any potential emergencies.

Following orders from the regulator, Lexin later returned its remaining sour gas pipelines to a safe state, and replaced all sour gas – a poisonous substance — with sweet gas. It had already shut down its plant and removed all sour gas from it.

Still, the regulator has several outstanding problems with the Mazeppa operation, including the company’s failure to clean up a spill, which triggered the environmental protection order.

Officials at the regulator said they don’t know how many Lexin wells are still producing oil and gas because the company has not reported production for months. The company’s 16 sour gas wells in southern Alberta have been shuttered.

The watchdog outlined even more concerns with the company, including that it has received reports equipment has been removed from Lexin sites, violating provincial rules.

Lexin owes more than $1 million in fees and levies to pay for the future cleanup of wells and facilities, and more than $70 million in security deposits.

The regulator has ordered companies with working interests in Lexin’s operations to shut them down and provide emergency services to those sites, which account for a minority of the company’s holdings.

The rest of Lexin’s properties are now under the control of the Orphan Well Association, an industry-funded group that cleans up abandoned wells. Taylor said the association is responsible for ensuring the wells have ceased production and do not pose any safety concerns, but it is not responsible for cleanup.

The regulator is still holding out hope that Lexin will become compliant with the rules and regain custody of its facilities, or that the wells can be sold off to interested parties.

The AER has very little confidence in Lexin’s ability to conduct their operations safely.