Business·CBC Investigates

Oilpatch in 'crisis' as energy regulator executives travelled the world launching a side project called ICORE

ICORE's operation has led to questions about the direction and priorities at the provincial regulator, which has already been a target of criticism for executive travel, how long it takes to approve oil and gas projects and the rising cost of abandoned energy infrastructure, like old oil wells, in Alberta.

ICORE initiative raises questions about priorities while spurring three provincial probes

Foreign Affairs Minister Chrystia Freeland is on hand for the signing of a letter of intent between ICORE and the Ukraine Government. Zeeshan Syed with ICORE is pictured on the left, Ukranian Economic Development Minister Stepan Kubiv is on the right, while Ukraine's Prime Minister Volodymyr Groysman is behind Freeland. (kmu.gov.ua)

Two years ago, Jim Ellis — the top boss of Alberta's oil and gas watchdog — stood shoulder-to-shoulder with Mexico's secretary of energy and Canada's Minister of Natural Resources, Jim Carr, as they celebrated the launch of the International Centre of Regulatory Excellence (ICORE) at a ceremony in Mexico City.

It was billed as a big win. Not long before, the centre was merely an idea at the Alberta Energy Regulator — to create a global platform for innovation, training and collaboration for regulators everywhere.

By February 2017, ICORE was on its way.

Established as a federal not-for-profit corporation, it was described as an institute built by regulators for regulators, with the aim of helping improve oversight of the energy and mining sectors around the world. 

"It is a model for everyone," Ellis was quoted saying at an event in Mexico a few weeks later. "The work we are doing … will be recognized at a [global] level." 

In subsequent months, ICORE inked agreements with Alberta post-secondary institutions. Officials met with Ukraine's prime minister. It spent weeks training lawyers, engineers and economists in Mexico. 

Still, less than two years later, it's not the world's notice that ICORE — or the AER — has attracted with its ambitious goals to create such a centre.

Instead, ICORE has got the attention of investigators from three different organizations including Alberta's Public Interest Commissioner and the Auditor General.

Regulating the regulator

The AER, funded by a levy charged to the energy sector, is one of Alberta's most recognized public agencies. It oversees the massive energy sector and is expected to ensure the safe and environmentally responsible development of the industry.

But ICORE's operation has led to questions about the direction and priorities at the provincial regulator, which has already been a target of criticism for executive travel, how long it takes to approve oil and gas projects and the rising cost of abandoned energy infrastructure, like old oil wells, in Alberta.

"The whole ICORE situation is symptomatic of a broader problem of a lack of focus on the mandate," said Tristan Goodman, president of the Explorers and Producers Association of Canada, which represents junior and mid-sized oil and gas producers. 

Alberta has about 100,000 abandoned and inactive wells throughout the province. An industry leader says the AER should have focused on issues like this instead of traveling internationally to promote ICORE. (CBC)

The investigations into the AER come at a time when there is growing mistrust of energy regulators in the country.

In an interview, Amanda Clements-Harvey, communications manager with the Public Interest Commissioner's office, said its investigation is "thorough" and focusing on "allegations of gross mismanagement relating to the use of public funds, public assets and AER human resources to establish and support the operation of ICORE."

Documents show about a dozen employees were assigned away from their regular duties to do work for ICORE, including one senior staff member who told CBC News he worked up to 70 hours a week to keep up with both jobs.

The AER did not publicly disclose how much money it spent on ICORE.

However, documents obtained by CBC News show expenses piled up — such as stays at luxury hotels in Mexico — while at the same time concerns grew about whether ICORE was going to be paid for the training and whether the AER would be reimbursed. The AER tried to keep track of the hours staff spent on ICORE business and the travel expenses they incurred. 

In the end, the complicated relationship between the AER and ICORE resulted in a $2.6-million lawsuit, with the regulator suing the institute it created. 

As Alberta's regulator, the AER's mandate is clear: to ensure the safe, efficient, orderly, and environmentally responsible development of oil, oilsands, natural gas, and coal resources. Training international regulators was beyond its scope. 

"The AER is a regulator, not a trainer, therefore the creation of ICORE can address work that's beyond our mandate," the AER said in its 2016-17 annual report.

As a federal not-for-profit corporation, ICORE's financial dealings are not subject to Canada's freedom of information laws.

Still, CBC News obtained about 1,000 documents from the AER about ICORE, through Freedom of Information requests. 

Among the plethora of records, the documents show the close nature of the relationship between the two organizations as well as some of the bills AER staff tallied in completing training on ICORE's behalf in Mexico. 

More than two dozen AER staff — including senior executives — were involved with ICORE. Through documents and interviews, CBC News has learned several key figures are no longer associated with either organization.

AER president Jim Ellis (centre) stands with Canada's then-Natural Resources Minister Jim Carr (right) and Mexico's Secretary of Energy, Pedro Joaquin Coldwell (left), during the launch of ICORE in Mexico City on February 2, 2017. (@AER_news/Twitter)

Original goal was to help

The idea that led to ICORE originated in 2013, shortly after the AER was created by the merger of two other regulatory bodies.

At the time, the executives were looking for best practices for the new organization, but found there wasn't any channel for regulators to share information. If there was a way to bridge the gap, the idea was that regulators could become much more efficient and effective.

Ellis described the idea in an AER article published in 2017.

"I should've been able to talk to a senior regulator, to hear someone say, 'It's OK Jim, you don't need to worry about this, you're going through huge change management right now but you're on track.'"

The article, which is no longer posted on the regulator's website, described this as a "trigger moment" that would "eventually lead to the creation" of ICORE.

The AER knew there was a demand for this type of service since officials from several countries such as the UK, Poland and Jordan would come to Alberta to learn about the AER's work in regulating the energy industry, including the monitoring of oil and gas fracking technology. No money was paid for these informal workshops, according to a former executive with the organization.

A few months after the ICORE announcement in Mexico in 2017,  Ellis was named as a director of the new organization, according to federal filings. He was also president of both the AER and ICORE.

Outsiders might assume the two organizations were operating at arm's length from each other.

But the AER was fundamental to the creation and operation of ICORE, with some executives holding job titles with both organizations.

For its part, the AER described ICORE as a partner and the relationship directly supported the regulator as it "further enables the important work of building and continuously improving regulators that excel in engagement, technical acumen, and regulatory innovation — initiatives that will benefit all Albertans through increased sharing of best practices and collaboration with global regulators."

ICORE also announced in 2017 it had inked agreements with the University of Alberta and the Southern Alberta Institute of Technology.

However, neither SAIT nor U of A said the relationships amounted to much.

"There was no formal agreement in place. SAIT did undertake the development of some curriculum for ICORE, but has not participated in the delivery of that curriculum," a SAIT spokesman said in an email.

Part of the pitch to foreign countries was that by creating a stable regulatory framework and standards, they could attract foreign investment from large multinational oil and gas companies.

Federal records also indicate ICORE brought on a consultant in 2018 to act as a lobbyist on its behalf in Ottawa, seeking government funding and support.

Alberta Premier Jason Kenney has ordered a broad review of the regulator, fulfilling an election promise he made this spring. (Kyle Bakx/CBC)

Central and South America

ICORE was able to sell its services to the Mexican government and the Inter-American Development Bank (IDB).

For the IDB, ICORE was supposed to develop six different two-day training modules about unconventional gas and regulatory development.

The first IDB training program was in Calgary in June, 2018, with another in the fall in Colombia. Regulators from countries such as the Dominican Republic, Suriname, Guyana and Peru attended the sessions organized by ICORE and delivered by AER staff.

"Those were exceptionally well received," said Corey Froese, in an interview with CBC News. 

Froese worked at the AER for 13 years and was heavily involved with ICORE as Innovation Lead. As a senior engineer, he was tasked with finding out which countries would have interest in joining ICORE.

ICORE was able to attract some international attention, including from Ukraine. Federal Foreign Affairs Minister Chrystia Freeland and Ukrainian Prime Minister Volodymyr Groysman signed a letter of intent with ICORE in Copenhagen in June, 2018.

"From what I saw, it was a symbolic signing," said Froese, and nothing came of it.

Freeland's office did not return a request for comment, nor did the office of Carr, the federal natural resources minister at the time.

Mexico training

Meanwhile, documents obtained by CBC News show the training program in Mexico was underway in the summer of 2018.

AER staff developed the course material and then flew down to Mexico City to deliver the training. It wasn't an inexpensive venture.

Some AER staff stayed in a five-star hotel, used private drivers and were given a per diem on top of having their meals and other expenses covered, according to documents. 

Regardless, some difficulties arose in the country such as drivers not showing up to pick up the trainers and inconsistent course attendance, among other challenges.

One of the courses was about the development of unconventional oil and gas, while the other was about stakeholder engagement.

The courses were provided on evenings and weekends when lawyers, engineers, economists, geoscientists and university faculty members involved in the oil and gas industry were able to attend.

Gerald Feschuk, a senior technical advisor with the AER, was one of the people selected to be an instructor in Mexico. He had to keep up with his work in Alberta, so he put in 70-hour weeks while in Mexico. Still, he has no complaints about the experience.

"This was the single most rewarding thing that I've ever done as an employee of an organization. As a professional, it stretched me technically, it stretched me emotionally, culturally," he said in an interview.

The Alberta government suspended all ICORE-related activities after it learned of multiple investigations surrounding the organization. (International Centre of Regulatory Excellence)

But the training was causing strife back in Alberta, he said, since a lot of people at the AER would have benefited themselves from the training. Instead, Feschuk and others were sent to train foreign officials.

"There was a lot of pissed off people," he said. "They were saying 'Here we have AER staff traveling the Western world and delivering courses and they haven't even bothered with us yet.'"

Still, Feschuk said he felt like he was making a difference as the course material was soaked up by those in the classroom. That's where he was also exposed to troubles developing between ICORE and Mexican officials.

"We were having to try and manage the senior people down in Mexico City while trying to develop and deliver a course," he said. 

"It was a very daunting situation and I felt bad for the folks down in Mexico City, [since] they were getting signals from Calgary that I was unable to interpret for them."

Documents show AER and ICORE staff were worried about getting paid for the courses they were providing, while Mexican officials were concerned about the amount of money they were being asked for.

"There were issues about payment and timing of payment," said Feschuk. "They were getting frustrated with the communication of ICORE."

At the same time, back in Alberta, Froese said the financial pressure was building since expenses were piling up, while payments weren't arriving from Mexico.

Pedro Joaquin Coldwell, Mexico's Secretary of Energy in 2017, was quoted by a university publication as saying nearly $10 million would be designated to start the first two projects of ICORE, which would be completed over a four-year term culminating in 2020. 

It's not clear how much of that funding was to be paid to ICORE and how much would go to a partnered university in Mexico City.

AER documents obtained by CBC News show the contractual payments for just a single set of courses delivered in Mexico was $1.7 million.

Mexican officials had pushed back about some of the expenses they were expected to cover. They told ICORE they would only pay for one instructor per course, not pay for accommodation when instructors weren't teaching and not cover expenses such as transportation, food and incidentals unless proper paperwork was filled out. Those forms were described by Dawoud as something "we'll never be able to process."

Ellis and other staff working for ICORE discussed the situation and decided to move ahead with the training, despite the risk of non-payment or partial-payment from Mexico.

ICORE officials were concerned they wouldn't be paid for offering the second round of training and "the total estimate for potential bad debt is $178K," wrote one ICORE official, in a November 7, 2018 email.

Documents show officials were needing to decide quickly whether to go ahead with further training or not.

"Sally [Dawoud], Martin [Krezalek], Zeeshan [Syed] I need you to prepare an immediate plan for my review/discussion with Jim [Ellis] this Friday on what communication we will execute over the course of the next 3 weeks," wrote an email by Jennifer Steber on October 10, 2018.

At the time, Steber was the executive lead of ICORE.

The cause of the payment problems — or its resolution — is unclear.

A change in Mexico's government may have been one reason for the delay, since the new regime is opposed to the use of fracking technology, which was covered in one of the courses.

"They weren't paying on time. They were difficult to work with contractually as well," said Froese. 

The training took place at Panamerican University, a private Catholic university in Mexico City. One former AER executive said ICORE did not receive any money from Mexico at the time of its launch in 2017. The total amount Mexico ever paid is also unknown.

Mexican government and university officials would not provide comment.

An email from Sally Dawoud explains how much money could be spent delivering a second round of training in Mexico. There was risk Mexican officials would not pay ICORE for the work. (CBC)

The downfall

It's unclear what events eventually led to ICORE's inauspicious end, but the organization had been told to cease operations as 2018 drew to a close.

That's when the financial payment concerns were apparent and investigations in Alberta were underway.

When Alberta's then-NDP government learned of the issues being probed around ICORE, it took action, a spokeswoman said.

"We are aware of the two investigations into the AER by independent offices and we fully complied with requests from those offices," Leah Ward, spokesperson for NDP Caucus, told CBC News in an email in July.

"When we learned of these concerns we suspended all ICORE-related activities."

The NDP's Energy Minister, Margaret McCuaig-Boyd, first became aware of the Public Interest Commissioner's review last November, according to the Globe and Mail. It's understood the Auditor General's probe was also launched by the end of last year. 

Shortly after, the remaining training for the IDB came to an end.

"Earlier this year, AER notified us that ICORE could no longer utilize its officers as instructors. As a result, and following discussions with ICORE, the contract was cancelled," said Pablo Bachelet, an IDB spokesperson, in an email. He would not provide further details.

From his experience working on ICORE, Froese said he began to have questions about the goals of the venture and whether there was really a public benefit.

Froese said he went to Ellis with his concerns, but was told by Ellis that the focus of ICORE was on helping other regulators.

In mid-October, Froese said he went to human resources with his concerns. Ten days later, Froese said he was told his skill set was no longer required and was terminated.

Froese said he has interviewed by all three of the provincial probes in Alberta about ICORE.

Froese said Ellis and others always thought ICORE would be able to attract more business than it did. For instance, Froese said there were hopes that the preliminary agreement with the Ukraine could lead to a $10-million contract.

The problem, he said, was private companies already offered services similar to what ICORE was trying to sell.

The thought was "this was going to be a huge money maker and they would make millions and millions of dollars but it did not come to fruition," Froese said.

Ellis left the AER at the end of 2018, following an announcement in early November that he'd be retiring. About the same time, he removed himself as a director of ICORE.

Ellis was facing a pay cut following the former NDP government's review of top public sector earners. His salary was set to drop from $721,680 to $396,720.

Executive departures

But Ellis isn't the only AER executive to work on ICORE, nor is he the only one to leave the regulator in the last year. 

Zeeshan Syed held various titles with the AER, including executive vice-president of corporate development. He commanded a salary of over $200,000 before his departure in 2018. On some trips, he flew business class and expensed the cost of airport lounges as he traveled to Mexico, the Middle East, and other countries to drum up business for ICORE. In addition to Ellis, Syed was the other original director of ICORE.

Other AER executives who worked on ICORE were Jennifer Steber and Ellis' former chief of staff, Martin Krezalek. In 2018, Steber collected a salary of about $380,000, while Krezalek earned about $175,000, according to the provincial government's sunshine list of salaries paid by the AER. 

All four are no longer employed at the AER. It's not known whether ICORE was a factor in their departures.

Jim Ellis, Jennifer Steber and Martin Krezalek were leaders at the AER who worked on ICORE. (AER 2015-16 Annual Report)

Multiple investigations

ICORE has spurred three different investigations in Alberta by the Auditor General, Public Interest Commissioner and the Ethics Commissioner.

The probes by the Auditor General and the Public Interest Commissioner are ongoing. The findings of both reports are expected this summer.

The Public Interest Commissioner's office said the report will only be finished when the matter is investigated "fully and completely."

The AER is not providing answers to several queries from CBC News.

"It is not appropriate for any AER personnel to address these questions while an investigation is underway. We must respect the investigation process," said spokesperson Cara Tobin in an email. Tobin, herself, was one of the AER staff who traveled to Mexico as an instructor.

The third investigation by the Office of the Ethics Commissioner, concerns an individual and not the AER as an organization. 

"Due to the confidentiality provisions respecting ethics investigations, the AER will not comment on this investigation," said Tobin.

AER executives and staff working on ICORE business would often stay at the Hyatt Regency while in Mexico City. (Hyatt.com)

Ellis responds

In light of those ongoing investigations, Ellis said he doesn't want to discuss what happened with ICORE.

In a phone conversation with CBC News, Ellis said he would wait until the investigations are complete and the findings are made public, before he speaks about it.

"Before these processes are complete, I can't talk to you," he said.

"I've been out of the picture for months on this, so I don't have a lot of information. I know the background, but again, I apologize. I just can't talk to you until this government process is completed."

Ellis was an officer with the Canadian military for 22 years before becoming deputy minister with the environment and energy departments of the Alberta government.

Jim Ellis resigned as president and chief executive of the Alberta Energy Regulator in late 2018. At the same time, he removed himself as director of ICORE. (CBC)

Lack of focus

Beyond the money spent on ICORE, critics say the much larger concern is how the regulator was sidetracked with its international plans while growing problems within Alberta's oilpatch were not properly addressed.

In recent years, the energy sector has suffered from low commodity prices and experienced an ever-growing number of abandoned oil and gas wells throughout the province. Industry has also complained about too many regulations and too long of a wait for the regulator to review new oil and gas projects.

"I would not be supportive of the Alberta Energy Regulator continuing to do broad work internationally," said Goodman, president of the Explorers and Producers Association of Canada. 

Goodman worked for the AER for 15 years and was a senior vice-president at the time he left in 2018.

"We are in a crisis in Alberta around the development of both our oil and our natural gas. To have a regulator the size that it is, with the lack of focus, I don't think is helping our situation," Goodman said.

The oil and natural gas sector is suffering because of general competitiveness issues with the regulatory burden and cost of doing business in Alberta, according to Goodman. Market access issues are also a problem. 1:02

The AER should have paid more attention to its basic duties, Goodman said, such as looking at application reviews, conducting field inspections and incident investigations, and making sure industry is managing its environmental issues and liabilities.

"There are opportunities now for the Alberta government to step in and make sure we undertake this properly and we have a strong, focused regulator," he said.

Premier Jason Kenney recently ordered a broad review of the regulator, fulfilling an election promise he made this spring.

Blurred lines

Officially, ICORE was an independent entity from the AER. 

But there were people at the AER who were associated with both organizations, including Ellis. Some AER staff and executives had ICORE email addresses. Even though they were assigned to work on ICORE, they remained AER employees.

Froese said some foreign officials thought they were working directly with the AER, but instead were signing an agreement with ICORE.

"These people don't want ICORE, they want AER. That's the expertise they wanted," said Froese, the former Innovation Lead with ICORE.

Court action

In a lawsuit filed earlier this year, the AER alleged ICORE owed it $2.6 million for the development and delivery of training materials. By launching the suit, Alberta's regulator was suing the organization it created a couple years earlier.

It is not clear whether the $2.6 million included salaries for AER executives who worked on ICORE.

This spring, the AER received a default judgment in its favour, which allows it to garnish any funds found in ICORE's bank account. ICORE never filed a statement of defence. 

Speaking to CBC News before the judgment was known, one legal expert said it was unlikely either of ICORE's directors, including Ellis, would be on the hook for any compensation due the AER if the suit was successful. 

"There is no allegation of any wrongdoing on behalf of any director that could potentially give rise to personal liability of a director," observed Jeff Moroz, a partner with McLeod Law LLP in Calgary.

AER spokesman Bob Curran said the regulator was able to collect from ICORE "the full amount awarded by the court amounting to $2,680,637.37." The AER received the money on June 5, 2019.

ICORE's legacy

The ongoing investigations by the Auditor General and the Public Interest Commissioner should shine a further light on what happened with ICORE.

Many of those involved are eagerly awaiting the reports so all the details are made public. When ICORE was still operating, Froese said people were fearful of raising concerns about it within the AER.

The affair raises questions about whether there was sufficient oversight by the board of directors and the NDP government.

The frustrating part of the ICORE affair for Feschuk, one of the AER staff members who delivered the training in Mexico, was how much of a need some countries have to improve their oversight of the energy and mining industries.

"It's a real black spot on the Alberta Energy Regulator," he said. 

About the Author

Kyle Bakx

Reporter

Kyle Bakx is a Calgary-based journalist with CBC's network business unit. He's covered stories across the country and internationally.

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