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    Regulator Blocks Licence Transfer in Shell Sale to Pieridae [UPDATE]


Updates to clarify that AER decision has no impact on asset sale

by: Dale Lunan

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Regulator Blocks Licence Transfer in Shell Sale to Pieridae [UPDATE]

The Alberta Energy Regulator (AER), in a May 13 decision, has blocked the transfer of licences associated with Shell Canada’s sale of its Foothills natural gas assets in Alberta to LNG developer Pieridae Energy.

Pieridae Energy closed the C$190mn (US$145mn) acquisition, which gives it access to enough natural gas to supply both trains at its proposed 10mn mt/yr Goldboro LNG project in Nova Scotia, in October 2019. Shell Canada is the Canadian operating subsidiary of Anglo-Dutch major Shell.

In a statement issued May 15, Pieridae CEO Alfred Sorensen said the company was "disappointed” with the AER’s decision.

“The decision has nothing to do with Pieridae’s financial position nor its ability to clean up certain assets,” Sorensen said. “The issue for denial was the fact that there is no precedent for splitting a licence or no ability under the current legislation to do so.”

And contrary to earlier reports, the AER ruling does not affect the sale of the assets from Shell to Pieridae, only the transfer of licences associated with some of those assets, a Pieridae spokesman later told NGW in an email communication.

“It is business as usual for us. Our contract states that we have ‘beneficial ownership’ which has not changed. Also, we have the right to operate the asset; that has not changed. What is next is that we will work with Shell and the AER on solutions – there are options here which include submitting another application, which the AER highlighted in its letter.” 

The AER recognised the commercial arrangement between Shell and Pieridae, and that Pieridae is the operator of the assets. “This current arrangement between Shell and Pieridae accords with the AER’s regulatory framework.”

In its decision, the AER cited plans outlined in the transaction agreement that would have left Shell responsible for reclaiming existing contaminants at two gas plants that are part of the deal, while Pieridae would be responsible for decontamination resulting from operations after it takes over the plant operations.

“The initial flaw with this approach is that the scope and extent of the contamination at the site is not well known and is not well described in the applications,” the AER says in its decision letter. “To date, the contamination at the sites has not been fully understood.”

Without accurate information about the contamination at the two sites, the agency said, it is not clear how contamination associated with historical operations could be distinguished from contamination from ongoing operations under Pieridae’s ownership.

“Hence, the parties are requesting that the AER move away from a situation of regulatory certainty regarding operational and closure obligations for the sites [with Shell as the entity responsible for reclamation] and approve a far less certain situation, where the parties will have separate and partial regulatory obligations regarding different aspects of operations, remediation, monitoring and reclamation of the sites.”

Shell Canada and Pieridae “are moving swiftly to evaluate options on the transfer applications and will continue to attempt to seek clarity from the regulator to define an appropriate path forward,” Sorensen said. “The company is confident that the Shell asset acquisition, having previously closed and been successfully integrated into Pieridae's operations, can be aligned to address the concerns of the AER.”