Troubled Alberta oil and gas company faces regulatory ultimatum

An Alberta oil and gas exploration company with a nearly decade-long history of safety and environmental infractions is now facing an ultimatum from the province's energy regulator.

If the Calgary-based Rally Canada Resources Ltd. fails to get its operations into compliance and post a security deposit of $1.6 million, it will be forced to suspend all operations, according to an Alberta Energy Regulator order issued June 27.

Under the order, Rally Canada has been given three months to pay up, and just two weeks to submit a plan to bring its operations into compliance. 

The latest order sheds new light on a company that has repeatedly been sanctioned for neglecting its operational requirements.

Infractions, dating back more than a decade, include toxic gas leaks, forgotten pipelines, missing financial statements and repeated refusals to co-operate with regulatory investigators.

The latest order raises questions about the future of Rally Canada's assets, which include a vast network of pipelines, 300 light oil wells and nearly 50 light oil facilities near Bashaw in central Alberta, as well as Redwater and Utikuma Lake to the north.

The company has not responded to repeated requests for comment. 

'Unreasonable risk'

According to the latest order, the company has suffered both financial and operational declines. Areas of concern identified in the AER order include its oversized portfolio of inactive wells, escalating financial liability and increasingly poor field performance.

The regulator found that the majority of the company's wells, facilities and pipelines have turned sour due to the presence of hydrogen sulphide — a flammable gas known for its pungent rotten egg smell — which is hazardous to humans and the environment.

The vast majority of Rally Canada's wells — about 70 per cent — are inactive and about 71 per cent of them are not compliant with suspension requirements, meaning they have not been safely shut down.

The company's field inspection rating has plummeted to 23.1 per cent, compared to the industry average of 75 per cent, the order states. 

Production has also waned, down to an average of just 423 barrels per day in 2025 from 678 barrels per day in 2022.  The company has failed to meet its mandatory closure spend quota for 2022, 2023 and 2024 —  an annual sum oil and gas operators must pay to the AER for the remediation and reclamation of inactive industrial sites.

Under the order, the company has 90 days to pay all outstanding environmental payments. The $1.6 million security deposit is due by Oct. 25.

A plan to bring its operations into compliance must be submitted by July 11, and must include a plan to reduce the risk of pipeline ruptures and timeline for when Rally Canada's field inspection rating will be brought up to the industry average of 75 per cent.

The company has been placed on a limited licence eligibility since March 2020 when AER determined that the company's operations posed an "unreasonable risk."

Limited eligibility rules are designed to ensure that only responsible companies are granted the right to operate in Alberta.  

Companies found incapable of compliance can face restrictions on their ability to hold or access certain types of licenses or approvals.

As sanctions against the company have piled up, so too have the restrictions placed on Rally Canada. Today, the company remains prohibited from obtaining any new well, facility or pipeline license.

The order is among more than 20 formal sanctions or letters of warning the company has faced for breaches since 2016. 

Most recently, last September, the company was issued a notice of non-compliance for conducting unsafe excavation work adjacent to one of its pipelines and for failing to report the infraction to the AER. 

Corrosion concerns

In 2020, it faced another notice of non-compliance in Strathcona County, for operating discontinued metallic pipelines. 

The investigation found the company did not investigate the need for internal corrosion mitigation measures within their metallic pipes, leaving them susceptible to rusting from the inside out.

The company was issued another warning letter in 2020 for its facility near Bashaw.  

The investigation began following a complaint from the public in April 2018 about how the site had been flaring, uninterrupted, for two weeks.

The investigation found that the company had flared hydrogen sulphide gas from its sites repeatedly at concentrations above allowed limits.

Rotten eggs, neglected lines

In 2021, the company was fined $5,000 for a pipeline infraction at a site in Lacombe County in October 2019. 

For over a year, the company had neglected to shut down a pipeline, and it had begun to leak sour gas. 

The investigation followed a public complaint and found that nearby residents were being exposed to strong and hazardous sour gas odours, resulting in burning eyes, cough and runny noses. 

"However, the nature of these reported impacts appears pale in comparison to the potential for loss of damage," the order reads.

Investigators found that the company intended to reactivate the defunct pipeline, but while the company underwent a management change, the pipeline was simply forgotten about.

Rally Canada did not have a system to keep track of which pipelines were not in active service, the investigation found.

The company was ordered to address 26 pipelines that were in a similar state of neglect. The AER found that issues were "systemic" and admonished the company for a lack of due diligence. 

Rally Canada has been placed on "Global Refer" status since 2023, signifying that the regulator no longer believes the company is willing or able to comply with regulatory requirements.