Lexin & AER swing a deal; Lexin agrees it broke the law: “litany of violations.” Ex Director Michael Smith pays peanuts; Lexin drops lawsuit against AER

Lexin agrees it breached environmental, industry rules by Reid Southwick, July 10, 2017, Calgary Herald

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 misdeeds in a stunning reversal. [Or was it staged the way AER vs Redwater case appears staged?]

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 life-time ban from controlling any company involved in exploring for, producing or transporting oil and gas in Alberta. [How much money exchanged hands under the table offshore, in exchange for this pretty deal?]

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 more than year-long 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 license holder for the Mazeppa processing plant, a move it then called illegal.

As a result of having the license 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 from this earlier position. An email to Smith triggered an automatic reply that said he was on vacation “till further notice.”

The agreed statement of facts says 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. [Emphasis added]

ALBERTA ENERGY REGULATOR
File No.: 2015-016
Date: 2017 06 12
AGREED STATEMENT OF FACTS AND UNDERTAKING BETWEEN MICHAEL J. SMITH LEXIN RESOURCES LTD. AND ALBERTA ENERGY REGULATOR
(collectively “the Parties”)

Whereas the investigation confirmed, and Michael J. Smith (“Mr. Smith”), a director of Lexin, does not contest, that Lexin was in contravention of sections of the Environmental Protection and Enhancement Act, RSA 2000, c E-12 (“EPEA”), and Oil and Gas Conservation Act, RSA 2000, c O-6 (“OGCA”), as amended, referred to in this Agreed Statement of Facts and Undertaking (“Agreement”) and as set out in detail in the orders issued by the AER….

Lexin is an AER licensee that currently holds 1662 operational licences (1380 wells, 81 facilities, and 201 pipelines) and licences for 134 abandoned wells, 5 abandoned facilities, and 6 abandoned pipelines.

On March 20, 2017, the Court appointed Grant Thornton Limited the receiver pursuant to section 234(1) of the Bankruptcy and Insolvency Act and Section 13(2) of the Judicature Act of all of Lexin’s current and future assets, undertakings, and properties, excluding any oil or gas wells, pipelines, or facilities located outside the province of Alberta or regulated by an entity other than the AER.

13. On June 13, 2016, the AER issued a notice of garnishment as a result of Lexin failing to pay AER issued administrative levies. The levies owed amount to more than $1 million.

The substances identified in the Mazeppa EPO are known to have an adverse effect
on the environment and include sulfolane/sulfanol, hydrocarbon liquids, sulphur, and sulphur recovery catalyst, as well as other oilfield wastes.

34. Since the appointment of the receiver, the AER has learned that Lexin failed to maintain its insurance, which is also a contravention of AER requirements.

14. Lexin has also failed to provide more than $70 million of security required to offset its liabilities.

Uncontested Breaches of Alberta Environmental and Oil and Gas Laws
35. Based on these agreed facts, as director and person responsible under EPEA, Mr. Smith does not contest that Lexin breached section 108(2) and 108(1)(a) of the OGCA and section 227(h) of EPEA by failing to comply with the terms and conditions of the Metering and Removal Order, the Mazeppa Order, the Closure and Abandonment Orders, the Clean-Up Order, the Mazeppa EPO; by the unauthorized sale and removal of the Lexin-licensed assets of the Callum gas plant; by failing to record and report hydrocarbon production according to AER Directive 007: Volumetric and Infrastructure Requirements; by failing to pay the issued levies and security owing, by failing to maintain insurance in accordance with AER Directive 067: Applying for Approval to Hold EUB Licences (“Uncontested breaches”).

36.5. Mr. Smith waives any right existing under AER administered legislation or otherwise, to a hearing, review, judicial review, or appeal of this matter

[Refer also to:

2017 04 24: Lexin claims AER violated the company’s charter rights

2017 04 05: Lexin & AER, Both a Disgusting Mess. Ralph Klein’s multibillion dollar liability is about to blow up in Alberta’s face. Or did it years ago but Albertans were too greedy & selfish to care?

2017 02 16: AER shuts Lexin Resources down way too late: AER fails Albertans & oil patch workers, yet again; AER saves the day for oil patch executives, yet again; AER keeps shareholders off the hook, yet again. And AER still hasn’t criminally charged Encana for law violations, frac’ing Rosebud’s drinking water aquifers!

2016 04 30: Lexin Resources complies with safety orders after AER sounds alarm; What about the leaking methane ordered repaired? Is that fixed yet? Is the “watchdog” monitoring area aquifers and citizen water wells for methane and H2S contamination? Or not, the way it’s not at Rosebud?

2016 04 10: AER: Toothless, Legally Immune (even for acts in bad faith and gross negligence), Charter Violating, Best in the World Wonder. Why hasn’t AER shut rogue Lexin Resources Ltd. down? Why leave Albertans in danger of being killed or poisoned? “The regulator said in an order released Tuesday that if Lexin and its related company, LR Processing, fail to provide sufficient oversight, sour gas could be released into the environment with potentially dangerous effects.” ]

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