The report released Monday from the Alberta Energy Regulator follows hearings into complaints from people near Peace River who say Baytex Energy Corp.'s operations are creating powerful gassy smells.
The report said steps must be taken to eliminate gas venting, reduce flaring and conserve all produced gas where feasible.
"The Panel’s main finding in this section is that odours from heavy oil operations in the Peace River area have the potential to cause some of the symptoms experienced by residents; therefore, these odours should be eliminated," the report says.
"The Panel recommends that further study be conducted to examine linkages between odours and emissions and health effects."
Some families have moved away because of the odour.
Others have reported severe headaches, dizziness, sinus congestion, muscle spasms, popping ears, memory loss, numbness, constipation, diarrhea, vomiting, eye twitching and fatigue.
Calgary-based Baytex (TSX:BTE) uses an unusual method of heating bitumen in above-ground tanks to extract oil. Four other companies in the area use a similar process.
Andrew Loosely, a Baytex spokesman, said the company is reviewing the report but accepts its main findings.
Loosely said the company is moving to install equipment to capture emissions from the tanks.
"We are already doing or are committed to do everything that the panel has recommended," he said. "We may have a challenge meeting the four-month time frame."
Mike Hudema, a Greenpeace Canada spokesman, hailed the report's findings. He said it reaffirms what people in the region have been saying for years.
"It is unfortunate that it takes this long for the government to finally listen," Hudema said.
"The government should move quickly to fully implement these recommendations in the Peace River region and look at what else can be done to help."
The report recommends that an air-quality monitoring program should be established in the area.
It also calls for stepped up enforcement of environmental standards.
Geologists have said the bitumen in the area is high in sulphur, a common component of smelly chemicals.
— By John Cotter in Edmonton
Also on HuffPost