Author: Nigel Bankes Page 46 of 88

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.

Interest Clause in a Drilling Contract Not a Penalty

By Nigel Bankes

On October 22, 2015

In Contracts, Oil & Gas

By: Nigel Bankes

PDF Version: Interest Clause in a Drilling Contract Not a Penalty

Case Commented On: Precision Drilling Canada Limited Partnership v Yangaarra Resources Ltd, 2015 ABQB 649

This decision of Master Prowse follows on from his earlier decision on the merits of the dispute between the parties: Precision Drilling Canada Limited Partnership v Yangaarra Resources Ltd 2015 ABQB 433. The case involved so-called knock-for-knock provisions in a standard form drilling contract. My post on that decision is here and I note that it has also been the subject of a comment in The Negotiator here. This matter was back before Master Prowse because the parties could not agree on the terms of the formal judgement and in particular could not agree on two issues relating to Yangarra’s liability to pay interest on the amounts found to be owing. The contract provided for the payment of interest at 18% commencing 30 days after an invoice was tendered. If that clause were applicable Yangarra would be liable for approximately $2.4 million. Yangarra contested the validity or applicability of the interest provision on two grounds. First Yangarra argued that the clause operated as an unenforceable penalty. Second, Yangarra argued that a clause in the contract which afforded it the opportunity to contest an invoice meant that the interest clause was inapplicable so long as the invoices in question were subject to a bona fide dispute.

Upstream UK Oil and Gas Contract Case of Interest to the Energy Bar

By Nigel Bankes

On October 21, 2015

In Contracts, Oil & Gas

By: Nigel Bankes

PDF Version: Upstream UK Oil and Gas Contract Case of Interest to the Energy Bar

Case Commented On: Scottish Power UL Plc v BP Exploration Operating Company Ltd et al, [2015] EWHC 2658 (Comm)

This case involved a long term agreement for the sale and purchase of natural gas between BP and its fellow working interest owners in the offshore Andrew field (Andrew owners\vendors) and Scottish Power, the purchaser. The dispute arose because the Andrew owners decided to shut-in the Andrew field and platform in order to allow the processing and related facilities to be reconfigured so as to permit resources from the adjacent Kinnoull field to be tied into the Andrew facilities and platform, as well as production from a deeper pool in the Andrew field. The entire project was referred to as the Andrew Area Development (AAD). The Andrew field was ultimately shut-in from 9 May 2011 – 26 December 2014 with full production not being attained until March 2015. During that period there were no deliveries to Scottish Power under the contract. The shut-in continued for longer than originally anticipated by the Andrew partners but nothing seems to turn on that. There was considerable common ownership in the Andrew and Kinnoull fields such that at the time of the litigation two of the Andrew owners (BP and Eni between them held a 79% interest in the Andrew field) also owned a 93% interest in the Kinnoull field.

The matter came on for hearing as a trial of certain preliminary questions. A central issue in the case was whether (assuming liability on the part of the Andrew owners) Scottish Power should be confined to the specific “default gas” remedies provided by the contract for default delivery or whether it could sue for damages at common law and claim, inter alia for the difference between the price of gas under the contract and the price it had to pay for make-up gas. The decision also discusses contractual interpretation issues (see discussion of the factual matrix at paras 24 et seq), force majeure issues and the reasonable and prudent operator standard. The post begins with this last issue.

The Regulatory Treatment of Stranded Assets in Alberta

By Nigel Bankes

On October 15, 2015

In Energy, Utility Regulation

By: Nigel Bankes

PDF Version: The Regulatory Treatment of Stranded Assets in Alberta

Case Commented On: Fortis Alberta Inc v Alberta (Utilities Commission), 2015 ABCA 295

The Court of Appeal has now handed down its unanimous decision on the appeal of the Alberta Utilities Commission’s (AUC) decision known as the Utility Asset Disposition (UAD) Decision in which the AUC endeavoured to provide guidance to both electric and natural gas utilities as to the implications of the Supreme Court of Canada’s majority decision in Stores Block, ATCO Gas and Pipeline Ltd v Alberta (Energy and Utilities Board), 2006 SCC 4. I posted on the AUC’s decision here. The Court, in a reserved judgment written by Justice Myra Paperny (Justices Rowbotham and Watson concurring), declined to interfere with the AUC’s decision. In its judgment, the Court of Appeal emphasized that Stores Block and its progeny (see below) were still good law in Alberta. Furthermore, even though other jurisdictions had been able to distinguish Stores Block based upon the language of their utility statutes, or to confine it to its particular facts and circumstances, that was not possible in Alberta. Indeed, the jurisprudential record suggested (Fortis at para 74) that the Court of Appeal in Alberta had not taken a narrow and restrictive approach to Stores Block but had instead “applied the principles set out in that case more broadly”. As a result (Fortis at para 76):

The Commission, and this Court, are bound by Stores Block and the subsequent decisions from this Court. Only legislative amendment, reconsideration, or a reversal of Stores Block by the Supreme Court of Canada can change that.

For ease of reference the Stores Block progeny are as follows: ATCO Gas & Pipelines Ltd v Alberta (Energy & Utilities Board), 2008 ABCA 200 (CanLII), 433 AR 183 (Carbon), ATCO Gas & Pipelines Ltd v Alberta (Energy & Utilities Board), 2009 ABCA 171 (CanLII), 454 AR 176 (Harvest Hills), ATCO Gas & Pipelines Ltd v Alberta (Utilities Commission), 2009 ABCA 246 (CanLII), 464 AR 275 (Salt Caverns I), ATCO Gas & Pipelines Ltd v Alberta (Utilities Commission), 2014 ABCA 28 (CanLII), 566 AR 323 (Salt Caverns II).

Methodological Pluralism: Canadian Utility Law Does Not Prescribe any Particular Prudent Expenditure or Prudent Investment Test that a Regulator Must Apply

By Nigel Bankes

On October 9, 2015

In Energy, Supreme Court of Canada, Utility Regulation

By: Nigel Bankes

PDF Version: Methodological Pluralism: Canadian Utility Law Does Not Prescribe any Particular Prudent Expenditure or Prudent Investment Test that a Regulator Must Apply

Case Commented On: Ontario (Energy Board) v Ontario Power Generation Inc., 2015 SCC 44, (OPG) and ATCO Gas and Pipelines Ltd v Alberta (Utilities Commission), 2015 SCC 45 (ATCO)

The last two weeks of September 2015 saw the release of three important court decisions dealing with utility regulation, two from the Supreme Court of Canada, the OPG case and the ATCO case, and one from Alberta’s Court of Appeal, the Utility Asset Disposition case (UAD): Fortis Alberta Inc v Alberta (Utilities Commission), 2015 ABCA 295. The two Supreme Court cases (which were heard together) deal with a utility’s opportunity to recover operating costs and the application of prudency tests to those costs. Justice Rothstein is the principal author of both judgments. The ATCO case is unanimous while Justice Abella offers a dissent in the OPG Case. The UAD case deals with what I have previously referred to as the continuing fall-out from the majority decision of the Supreme Court in Stores Block (ATCO Gas and Pipelines Ltd. v Alberta (Energy and Utilities Board), 2006 SCC 4, [2006] 1 S.C.R. 140).

This post summarizes the holdings in the ATCO and OPG decisions and then offers some preliminary comments on their implications. The post begins with some general observations on utility regulation statutes. I will aim to do a separate post on the UAD case.

“Contract Depth” Does Not Mean Optimal Depth

By Nigel Bankes

On October 5, 2015

In Oil & Gas

By: Nigel Bankes

PDF Version: “Contract Depth” Does Not Mean Optimal Depth

Case Commented On: Shallow Gas Drilling Corp v Legacy Oil and Gas, 2015 ABQB 606

It would be nice to know a little more about the facts of this case; but what appears to have happened on the basis of the rather cryptic record provided by Justice Bensler’s judgement is as follows. 1346329 Alberta Ltd (134) drilled a series of wells to earn interests in the Pierson properties. Earning was contingent on drilling the wells to contract depth which was defined as “a subsurface depth sufficient to penetrate 15 metres into the Spearfish.” The wells were drilled between late 2007 and January 2008. It was admitted that all of the wells were drilled to depths between 28.3 and 30.65 metres into the Spearfish.