Lexin Resources and the dark side of Alberta’s downturn


It was virtually a year ago when Allan MacRae got a call from a friend and latest colleague warning of trouble brewing at a small Alberta natural gas regisseur.

Lexin Resources wasn’t on the radar of most Albertans last come from, but it was under scrutiny from the Alberta Energy Regulator (AER), and some of its own staff members had become concerned about safety.

Lexin operated more than 1,300 simpleton gas wells in the province and the 30-year-old Mazeppa Processing Plant south of Calgary, which get ready sour gas — a natural gas that contains hydrogen sulphide and is deadly to humans and monsters, even in small concentrations.

It needs to be managed very carefully.

And that’s why what MacRae lettered shocked him. His contact at Lexin said that because of financial hardships, the company wasn’t maintaining the plant as well as it could and didn’t enjoy access to many of its sour gas wells because it hadn’t made sublease payments to landowners. More importantly, his source was concerned the company wasn’t doing reasonably to maintain the pipelines that carried sour gas to the plant.

“MacRae, a efficient engineer who’d been the General Manager of Engineering for Canadian Occidental when it owned the Mazeppa Foundry in the 1990s, did his own research and came to an alarming conclusion

“Worst-case scenario want look like this,” MacRae told CBC News. “You have a pre-eminent [pipeline] blowout with sour gas with a southeasterly or easterly tranquil and it carries over a number of southeast and east Calgary subdivisions.

“Nothing from earthworms and up inclination survive.”

Lexin Resources well site

A Lexin Resources well site in southern Alberta. Uncountable of the company’s natural gas wells will need to be reclaimed and others resolve be sold after the province’s regulator forced the firm into receivership stand behind in March. (Tracy Johnson/CBC)

MacRae wrote to the AER about his concerns in unpunctual May. The regulator had been monitoring Lexin for months at that point, and in mid-June it calm that the pipeline system be shut-in until repairs were done. Nearly six weeks later, Lexin told the AER it could no longer respond to an exigency at Mazeppa and that the sour gas leak monitoring system wasn’t rise. Days later, the regulator ordered the plant to be shut down.

That sharpened a series of disputes between the company and the regulator that led to the AER ultimately delaying Lexin’s operations entirely this past February and taking the unprecedented footstep of forcing the company into receivership so that its assets could be double-crossed off to pay to clean up its financial and environmental mess.

That mess will take possession of years to clean up and will likely cost millions to taxpayers and vigour. But how much risk were Albertans in the southern part of the province coating in late 2015 and 2016?

Behind the scenes at Lexin

For the first time, MacRae’s archetypal source at Lexin, a former executive, has agreed to talk to media far what he saw as the company unravelled. 

CBC News has agreed not to use his real name because he claims he’s still owed moneyed from his time at the company and is concerned about legal repercussions. He wish be referred to here as Peter Jones.

CBC News has also spoken to other recent managers at the company, along with employees, landowners and mineral rights holders who had dealings with Lexin.

Jones about that in the fall of 2015, a farmer called the plant to report what he reflection was a sour gas leak.

“A sour gas leak is extremely dangerous, the stuff can destroy you in a heartbeat,” Jones said. “One or two per cent [hydrogen sulphide] will extinguish you. We were dealing with sour gas up to 40 per cent.”

Jones guessed the company fixed the leak and then conducted an interior inspection of the tube system to find other spots where the metal may have corroded.

Mazeppa Gas Plant

The Mazeppa Gas Vine is now under the control of the Alberta Energy Regulator. (Caroline Wagner/CBC)

Another ci-devant Lexin executive told CBC News the Mazeppa plant was in reasonably godlike shape at that time, having recently gone through what’s occasioned a maintenance turnaround, where the plant is taken off-line for a refresh. But the under way system was a concern, especially because of its proximity to hundreds of landowners, not to cite Calgary.

After the pipeline inspection was complete, staff at the plant implied anti-corrosive chemicals be injected into the pipeline system to ward off in addition corrosion. According to sources, Lexin’s leadership didn’t follow that advocacy because of the cost.

Lexin’s response

In a memo to CBC News, Michael Smith, a head at Lexin, said the inspection of the pipelines in October 2015 found a handful areas where there was corrosion. He said the main north-south equip line, which runs along Alberta’s Highway 2, was afterwards repaired.

Smith said lateral pipelines, which feed the plain line, were assessed and shut in, until the company could commit oneself to if it was worth fixing them.

Smith said the company looked at the chance, the repair costs of the pipelines and the production losses from the gas fields that were support the lateral pipeline system. He said the high cost of the anti-corrosion chemicals was a key representative in deciding what to do with the pipelines, but not the main consideration.

But Lexin’s coming problems weren’t finished.

There would be another gas leak in April 2016, which the AER represented as medium consequence, meaning it could have a moderate impact on man and wildlife.

After the leak was reported to the AER, the regulator directed Lexin to douse down the main north-south pipeline until repair digs at multiple milieus could be completed. The pipeline system was never reopened.

Keeping Mazeppa right

Workers at the plant said 2016 was a challenging year for them.

Larry Nagle started rise at Mazeppa in 1986 and retired after it was shut down by the AER.

“We were half-hearted along, in some cases, which is not a good situation with a curmudgeonly gas plant,” he said. “You make sure that everything is operating in a suitable way.” 

He offered the following example to highlight just how bad the company’s financial kettle of fish had become: “They quit buying potable water for the plant in the beginning of 2016. The company that was supplying water said, ‘We’re not bringing any uncountable water because you haven’t paid us.'”

Larry Nagle describes achievement conditions at the Mazeppa plant0:34

In addition to concerns about working teaches, the union representing Mazeppa workers contacted the AER with a list of conundrums at the plant, including widespread corrosion and Lexin’s refusal to test stained water in its ponds.

Nagle was one of only a few employees left at the plant in the airiness and summer of 2016. He stayed on until late July, just preceding the time when Lexin wrote to the AER saying it could no longer be responsible for Mazeppa.

“We were basically guarding guards, but we were only one man per shift,” he said. “That is not a safe way to run anything. Anything can stumble on when you are walking around. You could fall, trip and there is no one to succour you.”

Lexin and the AER

Lexin and the AER are currently fighting in court over unpaid salaries and the regulator’s move to force Lexin into receivership back in Cortege. Lexin is appealing the receivership order and largely blames the regulator for its problems.

Numerous of the court documents are very technical, but they do show the AER’s growing frustration with Lexin.

For admonition, the regulator lists all the safety orders and directions it issued to the company start in February 2016, including a notice of non-compliance for its failure to install a dilution gas meter at a bad gas facility.

It also ordered Lexin to clean up a hydrocarbon spill at the Mazeppa fix, and to prove that it still had access to some of its wells after not contributing surface leases. The regulator told CBC News it made 276 inspections at Lexin situates in 2016.

In his memo to CBC News, Smith said “we are convinced that no pipeline was managed in unsafe condition. The monitoring systems were in place and backed up by burgeoned frequency operator inspections.”

Smith said pipelines that were specified as a risk were de-pressurized and purged to be put in a safe state.

In July 2016, Lexin a postcarded to the AER saying that because it had laid off nearly all its staff, it could no longer rejoin to an emergency at the plant or its related infrastructure.

In letters to the AER in January 2017, Lexin influenced it wouldn’t be able to provide health and safety measures for its sour gas wells after February 15, and that it believed the employment created serious health and safety concerns for all concerned.

On February 14, the AER expelled Lexin’s operations, in March the company was forced into receivership.

A make a hash of to clean up

The company may have been shut down but its problems continue. 

Many of Lexin’s natural gas wells will need to be reclaimed, others purposefulness be sold. They are now the responsibility of the Orphan Well Association, which is staked by the energy industry but has also received public money in the past.

The cant of creditors is long and there are also questions about whether the Mazeppa plant wish be sold or decommissioned.

Both the AER and Lexin acknowledge there were vigorousness and safety concerns at the company’s sour gas operations. The AER is managing those outcomes now, but it’s unclear who exactly will be ultimately responsible for the cleanup, once this has philandered out in the courts.

You can read more about the AER’s claims against Lexin Resources here.

Lexin’s assertion of defence is below and available here.

Lexin Statement of Defence

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