PDF version: Accounting issues left unresolved in split title litigation

Case considered: Anderson v Amoco Canada Oil and Gas Co, 2011 ABCA 268

The Court of Appeal has finally brought an end to the phase gas, split title litigation known under the style of cause of Anderson v Amoco. The Court did so (at the behest of the petroleum owners (the defendants)) under the cover of the drop dead rule of the old Rules of Court. As a result of this decision the accounting issues, one of the key issues in split title litigation which has been around since the Privy Council’s decision in Borys v CPR, [1953] AC 217, will remain unresolved. While this dismissal will bind the particular plaintiffs listed in this litigation it will not preclude disgruntled gas owners from returning to the fray in the future – either individually or as part of a class action. Thus, while the defendants and their lawyers may have cracked open a few bottles of champagne last week to celebrate the end of this long-running litigation I am not sure that the accounting issues related to production from split title lands are going to go away.

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PDF version: Production in meaningful quantities: commercial realities should inform the interpretation of an oil and gas lease

Case commented on: Omers Energy Inc. v Alberta (Energy Resources Conservation Board), 2011 ABCA 251

In important and rare “reasons for judgement reserved” the Alberta Court of Appeal, in unanimous reasons authored by Justice Carol Conrad, affirmed the decision of the Energy Resources Conservation Board (ERCB) to the effect that a petroleum and natural gas lease had expired in its secondary term in accordance with its own terms when the gas well (the 100/05-4 well) on the lands was unable to produce for more than very short periods of time (minutes or hours) because of large volumes of produced water. The lease in question (the CAPL 91 form) provided for continuation beyond the end of its primary term by “operations”; the term “operations” was defined to include “the production of any leased substances” and was further extended by the language of the shut-in wells clause which defined the existence of a well “capable of producing the leased substances” to serve as “operations” for the purposes of the habendum. Both the Board and the Court concluded that the lease could not be continued. The words “capable of producing” did not mean just any production no matter how miniscule the quantities, and instead must be read to mean “production in meaningful quantities”. Since it followed from this that the lease had expired, Omers was not entitled to maintain well licences for two other wells that it had drilled on the leased properties since it could no longer meet the requirements of s 16 of the Oil and Gas Conservation Act, RSA 2000, c O-6 to the effect that:

16(1) No person shall apply for or hold a licence for a well
(a) for the recovery of oil, gas or crude bitumen, or
(b) for any other authorized purpose
unless that person is a working interest participant and is entitled to the right to produce the oil, gas or crude bitumen from the well or to the right to drill or operate the well for the other authorized purpose, as the case may be.

ERCB Decision 2009-037 is available here.

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