Author: Nigel Bankes Page 82 of 89

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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