Author: Nigel Bankes Page 43 of 87

Nigel Bankes is emeritus professor of law at the University of Calgary. Prior to his retirement in June 2021 Nigel held the chair in natural resources law in the Faculty of Law.

By: Nigel Bankes

PDF Version: Of Busted Butterflies and the Duty of Good Faith – A Saskatchewan Right of First Refusal Case

Case commented on: Northrock Resources v ExxonMobil Canada Energy, 2016 SKQB 188

What is the legal position if N has a right of first refusal (ROFR) in the event that E agrees to sell its interest, unless E’s sale is to an affiliate; E transfers the interest to its wholly owned affiliate, NSCo and C then buys the shares of NSCo. Does the second transaction or the two transactions taken together (known in tax parlance – for reasons that, as with much of tax law, entirely escape me – as a “busted butterfly” trigger N’s ROFR entitlement (perhaps on the basis that E should not be able to do indirectly what it cannot do directly)? Justice Currie of the Saskatchewan Court of Queen’s Bench answered in the negative and as a result dismissed Northrock’s (N’s) claims which sounded in both contract and in tort (inducing breach of contract and conspiracy).

The Power of a Trustee in Bankruptcy to Disclaim Unproductive Oil and Gas Properties and the Implications for the AER’s Liability Management Program

By Nigel Bankes

On June 17, 2016

In Bankruptcy and Insolvency, Constitutional, Oil & Gas

By: Nigel Bankes

PDF Version: The Power of a Trustee in Bankruptcy to Disclaim Unproductive Oil and Gas Properties and the Implications for the AER’s Liability Management Program

Case commented on: Redwater Energy Corporation (Re), 2016 ABQB 278 (CanLII)

In a much anticipated decision Chief Justice Neil Wittmann has concluded that there is an operational conflict between the abandonment and reclamation provisions of the province’s Oil and Gas Conservation Act, RSA 2000, c O-6 (OGCA) and Pipeline Act, RSA 2000, c P-15 and the federal Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA). Thus, a trustee in bankruptcy is free to pick and choose from amongst the assets in the estate of the bankrupt by disclaiming unproductive oil and gas assets even where (and especially so) those assets are subject to abandonment orders from Alberta’s oil and gas energy regulator, the Alberta Energy Regulator (AER). As a result, the value of the bankrupt’s productive assets is preserved for the benefit of secured creditors. AER abandonment orders do not bind a trustee with respect to the disclaimed properties and do not constitute costs of administration of the bankrupt’s estate. Since the trustee has no responsibility for disclaimed assets, the trustee should be in a position to transfer non-disclaimed producing assets to a third party purchaser without objection from the AER on the basis of any deterioration in the liability rating associated with the unsold non-producing assets. If either the AER or the Orphan Well Association (OWA) carries out the abandonment of the disclaimed assets such costs may constitute a provable claim in bankruptcy but, as a general creditor, the AER/OWA would likely only recover cents on the dollar.

The practical effect of this decision is that the AER’s authority to enforce abandonment orders at the cost of the licensee is unenforceable at precisely the time when the AER most needs to be able to exercise that power i.e. when the licensee is insolvent.

The AER Provides Useful Guidance in a New Pool Delineation Decision

By Nigel Bankes

On June 10, 2016

In Natural Resources, Oil & Gas

By: Nigel Bankes

PDF Version: The AER Provides Useful Guidance in a New Pool Delineation Decision

Decision commented on: Proceeding 336 Application 1820596 Pool Delineation, Crossfield Basal Quartz C & V Pools, June 2, 2016, 2016 ABER 007

Alberta’s Oil and Gas Conservation Act, RSA 2000, c O-6 (OGCA) defines a pool as “(i) a natural underground reservoir containing or appearing to contain an accumulation of oil or gas, or both, separated or appearing to be separated from any other such accumulation”. Wells are identified as producing from particular pools and many provisions of the OGCA and the Oil and Gas Conservation Rules, Alta Reg 151/1971 (OGCR) turn on the question of whether or not a particular well is producing from a particular pool. For example, s 15(3) of the OGCA provides that “No person shall apply for a licence for a well for the purpose of obtaining production from the same pool as that from which another well is obtaining or capable of obtaining production in the same drilling spacing unit …”.

In this particular case, the applicant, Bearspaw Petroleum Ltd wanted its well classified as producing from the Crossfield Basal Quartz C Pool (BQ C Pool) rather than the single well BQ V pool in order to be able to gain access to the gas processing plant operated by the C Pool working interest owners – if necessary by means of a common processor order under s 53 of the OGCA. Since it is usually necessary to establish drainage as a pre-condition to obtaining a common processor order (i.e. that H’s well or wells are draining production from underneath B’s leased lands) (see Directive 065, Resources Applications for Oil and Gas Reservoirs, Unit 1, Equity) B first had to establish that its well was in the same pool as H’s wells.

Stewart Estate: Finalizing The Judgment Roll and Costs

By Nigel Bankes

On May 17, 2016

In Contracts, Oil & Gas

By: Nigel Bankes

PDF Version: Stewart Estate: Finalizing The Judgment Roll and Costs

Decisions commented on: Stewart Estate v TAQA North Ltd, 2016 ABCA 143 and Stewart Estate v TAQA North Ltd, 2016 ABCA 144

The Court of Appeal handed down its main decision in Stewart Estate v TAQA North Ltd, 2015 ABCA 357 (hereafter the main decision) in November 2015. In my post on the main decision I suggested that “while Stewart Estate is certainly a significant decision (which grapples with important issues including, the standard of review applicable to lease interpretation questions, the rules surrounding the termination of oil and gas leases and the question of remedies for wrongful production), it is ultimately a disappointing decision because, in the end, with three separate judgments, this three person panel of the Court agrees on very little.”

We now have two further decisions from the panel of the Court that heard the case, one decision settling the judgement roll (hereafter the judgment roll decision) and the second dealing with the costs award (the costs decision). The judgment roll decision expressly describes itself (at para 1) as providing supplementary reasons to the main decision. This post not does provide a systematic account of either of these decisions but it does aim to identify where these decisions have added to the reasoning in the main decision or have provided dicta that may be of interest beyond this case.

The Annex VII Tribunal in The “Enrica Lexie” Incident Makes New Provisional Measures Order

By Nigel Bankes

On May 12, 2016

In Arbitration, International Law, Law of the Sea

By: Nigel Bankes

PDF Version: The Annex VII Tribunal in The “Enrica Lexie” Incident Makes New Provisional Measures Order

Decision commented on: Annex VII Arbitral Tribunal, Order on Prescription of Provisional Measures in the “Enrica Lexie” Incident, Registry of the Permanent Court of Arbitration, 29 April 2016

The “Enrica Lexie” incident has already been the subject of an earlier post here in relation to the provisional measures order made by the International Tribunal for the Law of the Sea (ITLOS) pending the establishment of the Annex VII Tribunal in the matter. The facts of the matter and the unusual nature of ITLOS’s jurisdiction in cases of this sort are canvassed in that earlier post. The characterization of the dispute as summarized by the Annex Tribunal VII is as follows (at para 5):

According to Italy, the Parties’ dispute arises from an incident approximately 20.5 nautical miles off the coast of India involving the “MV Enrica Lexie”, an oil tanker flying the Italian flag, and India’s subsequent exercise of criminal jurisdiction over the vessel and two Italian marines from the Italian Navy, Chief Master Sergeant Massimiliano Latorre and Sergeant Salvatore Girone, in respect of that incident. According to India, the “incident” in question concerns the killing of two Indian fishermen, on board an Indian vessel named the “St. Antony”, and the subsequent exercise of jurisdiction by India. It is alleged that the fishermen were killed by the two Italian marines stationed on the “Enrica Lexie”.