Energy watchdog forces firm into receivership

Regulator shut down Lexin’s assets last month over safety of sour gas wells

CALGARY Alberta’s energy watchdog says it has taken the unprecedented step of forcing a Calgary oil and gas company into receivership for allegedly failing to look after its assets safely and responsibly.

Lexin Resources Ltd.’s more than 1,600 wells, pipelines and facilities will be put up for sale by a courtappointed receiver, the Alberta Energy Regulator said Tuesday.

All of the Calgary company’s assets were shut down by the regulator last month after Lexin raised doubts it could ensure the safety of its sour gas wells, which contain potentially deadly gas.

“We believe that this is the most appropriate course of action following Lexin’s continued disregard for AER requirements to ensure public safety and environmental protection,” Cara Tobin, a spokeswoman for the watchdog, said Tuesday.

The regulator has never before forced an oil and gas company into receivership.

Lexin could not be immediately reached for comment, but it has previously blamed most of its problems on the energy regulator.

Michael Smith, a Lexin director, said in a recent letter to Postmedia that the AER has improperly demanded tens of millions of dollars in security deposits along with “grossly overstated” fees and other charges.

As a result of these actions, and an associated lien against Lexin property, it has been “virtually impossible” for the company to obtain financing, sell its assets and deal with creditors, Smith said in a written memo.

“Lexin made numerous attempts to address the foregoing dispute with the AER with a view to cooperate with the AER to address health and safety matters,” Smith wrote.

“However, the AER took no cooperative action to address the situation.”

Lexin ran a sour gas processing facility in Mazeppa, northeast of High River, along with nearly 1,400 oil and gas wells across Alberta.

The company’s ownership structure is complex. Most of its assets were previously owned by Compton Petroleum Corp. before a 2012 sale to MFC Industrial Ltd., then a New York-based commodity supply chain company.

The parent company later changed its name to MFC Bancorp Ltd. after acquiring an overseas bank, and sold a 95 per cent “economic interest” in its southern Alberta oil and gas properties to private buyers.

Smith, now the interim chief executive of MFC Bancorp, declined to name the buyers.

Still, MFC Bancorp retained all of Lexin’s shares in a “fiduciary or trustee capacity,” which means it continues to be the registered shareholder, according to court records.

MFC Bancorp is a Vancouverbased publicly traded merchant bank valued at $110 million on the stock market.

Lexin first made headlines last summer after the company told the energy regulator its leak detection system was no longer working, sparking fears about safety at its wells and facilities, especially those with poisonous sour gas.

It also warned at the time it had laid off most of its staff and could no longer respond to emergencies.

According to the regulator, Lexin later complied with orders to return its remaining sour gas pipelines to a safe state, having already shut down its plant.

Still, the regulator had outstanding concerns, including claims the company failed to clean up a spill, which triggered an environmental protection order.

Things took a dramatic turn after Lexin sent the regulator a strongly worded letter in late January.

Smith told the watchdog their ongoing dispute over regulatory fees and conditions at company facilities had “adversely affected our operations, liquidity 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.”

After receiving the letter, the regulator suspended all of Lexin’s assets last month, effectively shutting down the company.

Most of Lexin’s wells were transferred to the Orphan Well Association, an industry-funded group responsible for ensuring the assets are safe until a buyer could be found or until Lexin complies with the rules and resumes control.

The regulator ordered companies with working interests in the remainder of Lexin wells to oversee safety during this interim period.

The watchdog said Tuesday it concluded a receiver is necessary to facilitate an orderly approach to creditor claims and oversee the sale of Lexin assets, along with their associated mineral and surface rights holders.