Author Archives: Nigel Bankes

About Nigel Bankes

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.

When is a Non-Operator Entitled to a Constructive Trust over the Operator’s Own Assets?

Cases Considered: Brookfield Bridge Lending Fund Inc. v. Vanquish Oil and Gas Corporation, 2008 ABQB 444

PDF Version: When is a non-operator entitled to a constructive trust over the operator’s own assets?

In this case Justice Bruce McDonald ruled that a joint operator may be entitled to a constructive trust remedy over the assets of an operator, where the operator is in receipt of production revenues attributable to the joint operator and where the operator fails to preserve an amount representing those monies in its commingled bank account. As a result, the joint operator was allowed to take priority over the interests of both secured and unsecured creditors.

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When Does a “Participant” Earn Under the Terms of a Farmout and Participation Agreement?

Case Considered: Solara Exploration Ltd v. Richmount Petroleum Ltd., 2008 ABQB 596

PDF Version:  When does a “participant” earn under the terms of a farmout and participation agreement?

In this decision Justice Sheilah Martin concluded that a participant in a farmout and participation agreement did not earn an interest in the farmout property when it elected to go non-consent on an operation to frac a particular formation, even when that operation was proposed after the parties had already installed a well head, outlet valve and production tubing. However, Justice Martin went on to hold that the farmor was estopped from denying that the participant had earned in the circumstances of the particular case. The decision is an important one for several reasons. It is a first decision on the definition of “completion” in the 1990 CAPL operating procedure, but it also serves to draw attention to the vulnerability of a “participant” in a farmout and participation agreement, especially where the farmor (as here) is wearing multiple hats and serving as both farmor and as operator for the purposes of the test well to which the participant is contributing. The case also highlights some of the difficulties associated with borrowing definitions from other agreements.

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Water management planning and the Crown’s duty to consult and accommodate

Cases Considered: Tsuu T’ina First Nation v. Alberta, 2008 ABQB 547

PDF Version: Water management planning and the Crown’s duty to consult and accommodate

*Thanks to Christina Smith and Monique Passelac-Ross for comments on an earlier draft.

Alberta’s new Water Act (R.S.A. 2000, c. W-3) calls for the development of water management plans (Part 2(1) of the Act). Once adopted, a water management plan will guide decision-making within the area of the plan on a range of matters, including the issuance and transfer of water licences. Because of concerns that the waters in parts of the South Saskatchewan River Basin (SSRB) were already over-allocated, the Government put a priority on developing a plan for the SSRB. The first phase of the plan was approved in June 2002 and the second and final phase was approved by Cabinet in August 2006 (http://environment.alberta.ca/documents/SSRB_Plan_Phase2.pdf).

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When Does a Royalty Owner not have to Pay for a Share of Processing Costs?

Case Considered: 570495 Alberta Ltd. v. Hamilton Brothers Exploration Company, 2008 ABQB 413

PDF Version:  When does a royalty owner not have to pay for a share of processing costs?

When does a royalty owner not have to pay for a share of processing costs? The answer of course should be that the royalty owner does not have to pay unless it is required to do so by the terms of the agreement that created the royalty. And that in fact is exactly what Justice Alan Macleod concludes in this judgement. Just as there is no rule of law that precludes an oil and gas lease from being kept in force beyond the end of its primary term by the mere existence of a shut-in well in “accordance with oil field practice” (see Kensington Energy Ltd v. B & G Energy Ltd 2008 ABCA 151 and my post on this decision), so too there is no rule of law that requires a royalty owner to pay a share of post-severance processing costs. This judgement confirms that processing costs are issues of contract between the parties and that the job of the court is to give effect to the terms of the agreement that the parties have negotiated. Continue reading →

The ERCB asserts its jurisdiction to determine the validity of an oil and gas lease

Cases Considered: In re Desoto Resources, Joffre Field, ERCB Decision 2008-47

PDF Version:   The ERCB asserts its jurisdiction to determine the validity of an oil and gas lease

In an unusual decision the ERCB has asserted its jurisdiction to determine the validity of an oil and gas lease. While the Board has in recent years been forced to make rulings on complex questions of property law such as the competing rights of coal owners and natural gas owners to coal bed methane (In re Bearspaw Petroleum, EUB Decision 2007-24) as well as the competing interests of bitumen producers and natural gas producers (Alberta Energy Company Ltd. v. Goodwell Petroleum Corporation Ltd., 2003 ABCA 277, reviewing EUB Decision 2000-21) this is, so far as I am aware, the first reasoned decision of the Board in which it has passed on the validity of an oil and gas lease. Desoto’s application in the Court of Queen’s Bench for a declaration as to the validity of the leases was pending at the time of the Board’s decision.

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