Matter considered: Alternatives North, Notice of Motion, Mackenzie Gas Project, asking the National Energy Board to order the proponent to provide the Board with an update on the North American gas market

PDF version:   The Mackenzie Gas Project and Shale Gas

The Joint Review Panel issued its assessment of the Mackenzie Gas Project (MGP) at the end of 2009 and attention now turns to the National Energy Board (NEB) which must decide whether (subject to the approval of the Governor in Council) to issue a certificate of public convenience and necessity for the pipeline.

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Case considered: Canpar Holdings Ltd v Petrobank Energy and Resources Ltd and Gentry Resources Ltd, unreported transcript of reasons for judgement October 9, 2009 and December 11, 2009, available here.

PDF version:  Damages for production on a dead oil and gas lease

In this case Justice Miller decided that: (1) a an oil and gas lease that contains a no-deduction form of royalty clause (royalty calculated by reference to sales price and not by reference to value at the wellhead) means just that - no deductions (whatever the industry custom or practice to the contrary), (2) a lessor can terminate a lease by following the default clause of the lease where the lessee has not being paying royalty in accordance with the terms of the lease, and (3) at least in the circumstances of this case, a lessee that produces on a lease that has been terminated by the lessor triggering the default clause may be exposed to an accounting on the basis of sales value of production minus operating costs. Given the importance of each of these issues it is unfortunate that Justice Miller decided to dispose of the matter by way of oral reasons from the bench.

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PDF version:  The ten biggest legal and regulatory developments for the oil and gas sector from the first decade of the new millenium

Unlike my colleagues I was not prepared to plump for just one case or event and so here are my thoughts on ten notable legal and regulatory events for the oil and gas sector in Alberta over the first decade of the millennium. They are in no particular order; I tried to group some together thematically but some are just here in the order in which they came to mind.

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Case considered: Lyatsky Geoscience Research and Consulting Ltd v. Geocan Energy Inc, 2009 ABPC 392

PDF version: Provincial Court royalty calculation decision

Very few oil and gas contract matters come before the Provincial Court, principally because of the cap of $25,000 on monetary awards (Provincial Court Act, R.S.A. 2000, c. P-31. s.9.6 and Provincial Court Civil Division Regulation, Alta. Reg. 329/1989, s.1.1). In this case the plaintiff claimed a gross overriding royalty (GORR) and sought to recover from the defendant the difference between a 3% royalty paid on 7.5% of production from a property and 3% royalty paid on 100% of production. According to the plaintiff, the difference amounted to some $17,000 between 2006 and November 2008. Presumably, the plaintiff would also use any judgement from the Provincial Court in their favour to argue (absent the right to obtain a declaration from that Court) that future payments should also be based upon the terms of the judgement. The case was complicated by the fact that there was no direct privity between the parties. Judge J.T. McCarthy ruled in favour of the plaintiffs. (more…)

Case considered: Re: AltaGas Ltd, Applications for Two Pipeline Licences, An Amendment to a Facility Licence, and Approval for an Acid Gas Disposition Scheme, Pouce Coupe Field, ERCB Decision 2009-073

PDF version: ERCB decision on an acid gas disposal scheme: further lessons for the regulation of carbon capture and storage schemes

During the fall of 2009 the province of Alberta signed letters of intent for funding with four proponents for carbon capture and storage schemes (CCS): (1) Swan Hills Synfuel for an in situ goal gasification and enhanced oil recovery (EOR) project, (2) Enhance Energy and Northwest Upgrading for a CO2 trunkline, (3) Shell for the Quest project and (4) TransAlta for Project Pioneer. As these proponents move to implement their projects we will start to see how the existing and proposed regulatory scheme accommodates CCS projects. There are perhaps four types of legal and regulatory issues that project proponents face in relation to the storage elements of any project: (1) property issues (e.g. pore space ownership); (2) regulatory issues (Energy Resources Conservation Board (ERCB) approvals); (3) liability issues (will long term liability for storage sites transfer to the province?), and (4) crediting issues (how will CCS projects be treated within the context of Alberta’s Specified Gas Emitters Regulation, Alta. Reg. 139/2007; will CCS projects create emission performance credits or offset credits?). The Carbon Capture and Storage Development Council (Accelerating Carbon Capture and Storage Implementation in Alberta, Final Report, March 2009) has urged the province to provide guidance and regulatory certainty on these issues but, by and large, the province has yet to act.

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Cases considered: Brookfield Bridge Lending Fund Inc. v. Vanquish Oil and Gas Corporation, 2008 ABQB 444, reversed 2009 ABCA 99, leave to appeal denied November 19, 2009

The Supreme Court of Canada has denied leave to appeal to the joint operators in the Brookfield Bridge case. The case involves the circumstances under which a joint operator might be able to establish a constructive trust over assets of the operator other than those already impressed with an express trust by the language of clause 507 of the CAPL Operating Procedure in a situation where the operator expends monies from the commingled account for its purposes.

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Case considered: Hunt Oil Company of Canada Inc v. Shell Canada Limited, 2009 ABQB 627

PDF Version:  When, if at all, does a pooling agreement trigger an area of mutual interest obligation?

In a 1994 decision, Luscar v Pembina Resources Ltd (1994), 162 AR 34, the Alberta Court of Appeal cast doubt on the proposition that Y, a lessee of a tract within a drilling spacing unit (DSU), who enters into a cross conveyance pooling agreement with Z, a lessee of a different tract within the same DSU, will invariably trigger an area of mutual interest (AMI) obligation that Y owes to X with respect to the undivided interest that Y acquired within Z’s tract by virtue of the pooling agreement.

In this decision, Justice Alan Macleod has extended that line of reasoning and has decided (subject to the language used in any particular case) that Y will not trigger an AMI obligation, not only in the narrow situation described above but also in the situation where Y and Z, holding adjacent lands, enter into a pooling agreement to improve project economics and not for the purpose of forming a drilling spacing unit.

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Case considered: Montreal Trust Co v. Williston Wildcatters Corp., 2009 SKCA 85

PDF version: Williston Wildcatters: bluster no substitute for reasons and yet another judicially created leave and licence

Over the last decade we have seen litigation in both Saskatchewan and Alberta on the question of how to calculate damages where an operator continues to produce hydrocarbons on a dead lease. The Alberta case is Lady Freyberg v. Fletcher Challenge Oil and Gas, 2007 ABQB 353 (on the damages issue - following 2005 ABCA 46 on the lease validity issue). This matter has been settled on a confidential basis and unfortunately we cannot expect to see an appeal judgement on the damages question. I say “unfortunately” because the trial judgement seems to have proceeded on the basis that the continued production was tortious; but there is at least some ground for thinking that the operator’s activities were continued with the permission of a co-owner. If that is correct, then the co-owner/lessor’s claims should have been dealt with on the basis of a co-owner’s claim for an accounting of more than a just share received, rather than on the basis of tort (trespass or conversion). The Freyberg decision is the subject of lengthy comment by Chris Simard et al, “Lady Freyberg: Examples of How Contemporary Courts in Alberta Approach the Modern Business Realities of the Freehold Petroleum and Natural Gas Lease” (2009), 46 Alberta Law Review 299.

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Cases Considered: Tribute Resources Inc v. McKinley Farms Ltd, 2009 CanLII 33043 (ON S.C.) 

PDF version: Ontario Oil and Gas Case of interest to the Calgary Bar.

While most of the country’s oil and gas cases are decided in Alberta courts (even if in some cases the property to which the litigation pertains is, for example, in British Columbia - see eg Canadian Natural Resources Ltd. v. Encana Oil & Gas Partnership, 2008 ABCA 267 dealing with right of first refusal issues in relation to a property in British Columbia), sometimes the courts in other Canadian jurisdictions do get to add to the body of Canadian oil and gas law.

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Case considered: Brookfield Bridge Lending Fund Inc. v. Vanquish Oil and Gas Corporation, 2009 ABCA 99, reversing 2008 ABQB 444

PDF version:  Court of Appeal rejects the constructive trust analysis in Brookfield

The Court of Appeal by a 2:1 majority (Justices Frans Slatter and Patricia Rowbotham for the majority, Justice Ronald Berger dissenting) has overruled the decision at trial by Justice Bruce McDonald to impose a constructive trust on the assets of an operator beyond the express trust provided for by clause 507 of the CAPL Agreement. (more…)