Author: Nigel Bankes Page 23 of 88

By: Nigel Bankes

PDF Version: Two New Offset Well Cases

Cases Commented On: Canadian Natural Resources Limited v Lisafeld Royalties Ltd., 2019 SKQB 201 (Can LII); Whitecap Resources Inc. v Canadian Natural Resources Limited, 2019 ABQB 698 (Can LII)

This post examines two recent decisions dealing with offset well obligations under petroleum and natural gas leases. An offset well obligation is a clause in a lease that requires the lessee to drill a well on the leased lands where production has been obtained from a contiguous property and there is no similar well on the leased lands producing from the same formation. The purpose of the clause is to protect the lessor from the risk of drainage (i.e. where the well on the neighbouring property is or may be capturing hydrocarbons from under the lessor’s lands). While the primary obligation of the lessee is to drill to the target formation, more modern versions of the clause create additional options and allow the lessee instead of drilling to surrender all or some part of the lease, or pay a compensatory royalty to the lessor (i.e. a royalty paid on the production on the offsetting well as if it were occurring on the leased lands). This compound obligation is frequently described as drill, drop or pay obligation.

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By: Nigel Bankes

PDF Version: Clean-up Liability for Wells in the Mackenzie Delta

Case Commented On: ConocoPhillips Canada Resources Corp and Shell Canada Limited, 2019 ABQB 727 (CanLII)

Gulf, Conoco’s predecessor, undertook exploratory drilling in the Mackenzie Delta in the 1970s including the seven wells referenced in this case, most particularly the I-37 well. The wells had sump pits for the disposal of drilling waste and fluids. In 1973 Gulf obtained approval to suspend the I-37 well and fill the top two thousand feet of casing with diesel fuel. Gulf subsequently abandoned the I-37 well in the mid-1980s, installing a cement plug, but by then the diesel oil (at para 29) “was no longer in place”. “All of the well sites received final clearance under the Territorial Lands Use Regulation, CRC, Vol XVIII, c 1524, p 13645, ss 18, 33(5), 37 in September, 1986. This approval meant that the site had been satisfactorily reclaimed and the regulator was satisfied that the conditions of the land use permit had been met.” (at para 29) Prior to abandonment Gulf had used the data from these wells to procure significant discovery licences (SDL) under the terms of the Canada Petroleum Resources Act, RSC, 1985, c. 36 (2^nd Supp) for some of its properties.

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By: Nigel Bankes

PDF Version: The Canadian Energy Regulator Shuts Down the Open Season for Enbridge’s Mainline

Decision Commented On: Canadian Energy Regulator, Letter Decision re Suncor Energy Inc. (Suncor), Shell Canada Limited (Shell), The Explorers and Producers Association of Canada (EPAC), and Canadian Natural Resources Limited (CNRL), Complaints regarding Enbridge Pipelines Inc. (Enbridge) Mainline Open Season, 27 September 2019

In what must be one of its first formal decisions, the Commission of the Canadian Energy Regulator (CER) (which replaced the National Energy Board (NEB) as of August 28, 2019) has required Enbridge to shut down the open-season that it was conducting for its mainline. The decision is brief (4 pages) and while it contains many references to the decisions and practice of its predecessor, the decision contains not a single reference to any statutory provision that it may be relying upon as authority to make this order. While I think that the conclusion is sound, I hope that the failure to reference statutory authority does not become common practice for the new regulator. Any decision maker claiming to exercise a statutory authority must satisfy itself that it has the authority to act and it should do so in a transparent and reasoned manner. There was perhaps a particular need to do so in this case since the application was filed under the terms of the National Energy Board Act, RSC 1985, c N-7 (NEBA),but resolved by the CER.

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By: Nigel Bankes

PDF Version: The Rate Treatment of the Costs of Acquisition of a Utility Distribution System

Decision Commented On: AUC Decision 24405-D01-2019, Generic Proceeding to Review Rate Treatment of Distribution System Acquisition Costs Under Performance-Based Regulation, September 6, 2019

From time to time utility distribution systems change hands. In particular, in recent years we have seen investor owned distribution utilities purchasing municipally owned distribution systems and distribution systems owned by rural electrification associations (REAs) and gas co-operatives. The AUC convened this Generic Proceeding through Bulletin 2019-03 of March 12, 2019 to consider the rate treatment of the acquisition costs of a utility within the context of performance based regulation (PBR).

This post begins with brief summaries of PBR and the regulation of distribution systems. It then turns to examine the list of issues identified by the AUC in this proceeding.

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