Author: Heather Lilles

Heather Lilles is an alumni of the U of C Law School, and she was a sole practitioner in Calgary in the areas of oil and gas and general corporate law. She is currently attending the U of C Law School in the thesis based LLM program and expects to complete her degree in early 2017.

By: Heather Lilles

PDF Version: Upholding the Lexin Equipment Order – The AER Wins the Battle, But Most Likely Will Lose the War

Case Commented On: Interim Order and Order Re Equipment (ABQB), Alberta Energy Regulator (applicant) and Lexin Resources Ltd. (respondent), Court File Number 1701-02272 and Alberta Energy Regulator v Lexin Resources Ltd., 2017 ABQB 219 (CanLII)

Lexin Resources may only be a junior oil and gas company, but recent extensive coverage by local news agencies (see here for example) has caused the name of the small oil and gas producer to become as familiar as its larger counterparts, or – perhaps – as infamous as Redwater Energy Corporation. Redwater, another junior in the Canadian industry, became notorious last October when Chief Justice Neil Wittmann of the Court of Queen’s Bench allowed the Receiver of Redwater to disclaim unproductive oil and gas assets even where those assets were subject to abandonment orders from the Alberta Energy Regulator (AER). See the post of Professor Bankes on the Redwater decision here.

Like Redwater Energy, Lexin has been petitioned into bankruptcy under the Bankruptcy and Insolvency Act, RSC 1985, c B-3. In Lexin’s case, a Receiver was appointed on the application of the Alberta Energy Regulator – an unprecedented step for the Regulator. This post addresses two of the recent court actions involving Lexin Resources and the AER: the Interim Order Re Equipment which was issued by the Court of Queen’s Bench on February 14, 2017 (the “Interim Order”) and the recent decision in Alberta Energy Regulator v Lexin Resources Ltd., 2017 ABQB 219 (CanLII) (the “Lexin Decision”). This post does not directly discuss Lexin’s bankruptcy or what effect the Court of Appeal’s decision in Redwater (not yet released) could have on Lexin’s bankruptcy and its AER licensed assets.

Independent Operations, Holdings and Common Ownership: A Letter Decision of the Alberta Energy Regulator

By Heather Lilles

On February 21, 2017

In Energy, Oil & Gas

By: Nigel Bankes and Heather Lilles

PDF Version: Independent Operations, Holdings and Common Ownership: A Letter Decision of the Alberta Energy Regulator

Decision Commented On: AER, Request for Regulatory Appeal by Westbrick Energy Ltd., Regulatory Appeal No. 1852713, 25 May 2016

Last week, ABlawg announced a new three-step project which will present the Alberta Energy Regulator’s (AER’s) published procedural and participatory letter decisions in a more usable and accessible form. As noted in that post, step one of the project, which collates the summaries of these decisions in a searchable PDF document, is now complete.

The objective of this post is to provide an example of the potentially valuable nuggets of information discoverable in this large group of decisions. The post concerns a letter decision which, while ostensibly dealing with procedural matters, also contains discussions of holdings, common ownership and independent operations within the meaning of the 1990 CAPL Operating Procedure. As such, the decision confirms the importance of publishing these decisions insofar as joint operating agreements (JOAs) are common in the industry as is the practice “going penalty”. But the decision also illustrates some confusion between the threshold question of standing and the decision on the merits. In this case it appears to us that the AER panel actually decided the merits of Westbrick’s application and then somewhat perversely denied it standing.

The Freedom to Contract Your Terms of Business (aka Spread Costs, Consequential Damages, Knock for Knock and Contract Interpretation Principles)

By Heather Lilles

On December 27, 2016

In Contracts, Oil & Gas

By: Nigel Bankes and Heather Lilles

PDF Version: The Freedom to Contract Your Terms of Business (aka Spread Costs, Consequential Damages, Knock for Knock and Contract Interpretation Principles)

Case Commented On: Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372, [2016] 2 Lloyd’s Rep 51, 165 Con LR 1, [2016] BLR 360

This decision of the English Court of Appeal (Civil Division) which came out earlier this year (April 2016) is well worth reading both for its treatment of the exclusion of liability for consequential damages and also for its modern approach to the interpretation of commercial contracts. As recognized by the Court, the case “raises some interesting questions about the freedom of two commercial parties to determine the terms on which they wish to do business” (para 1).

Transocean Drilling UK Ltd (Transocean), the owner of a semi-submersible drilling rig, entered into a contract with Providence Resources Plc (Providence) to drill an offshore appraisal well for Providence. On 18 December 2011, Transocean suspended drilling operations due to a misalignment of part of the blow-out preventer. Transocean resumed operations on 2 February 2012. The trial judge determined that the delay was caused by Transocean’s breach of contract. There was no appeal on that point, but Transocean did appeal that part of the judge’s decision in which he allowed Providence to recover the ‘spread costs’ that it had incurred as a result of the delay. The ‘spread costs’ were described (at para 10) as “the costs of personnel, equipment and services contracted [by Providence] from third parties which were wasted as a result of the delay. Examples given by the judge are well logging, well testing and cementing, mud engineers and mud logging services, geological services, diving and ROV (remotely operated vehicle) services, weather services, directional drilling services, and running casings.”

Making Sense of Nonsense? Or Perhaps Not

By Heather Lilles

On November 25, 2016

In Contracts, Oil & Gas

By: Nigel Bankes and Heather Lilles

PDF Version: Making Sense of Nonsense? Or Perhaps Not

Case Commented On: Eon Energy Ltd v Ferrybank Resources Ltd, 2016 ABQB 585 (CanLII)

What happens when two oil and gas companies enter into a joint operating agreement (JOA) to which is attached the 1981 CAPL Operating Procedure and the PASWC Accounting Procedure and then proceed to operate the properties according to a completely different set of arrangements? As one might expect, things are fine for so long as each perceives some benefit from these de facto arrangements. But when relations deteriorate it’s a mess; and then both counsel, and ultimately the Court, have to try and make sense of what has happened. And in this case that evidently proved difficult for all concerned and likely, very, very expensive. The hearing of this case took 16 days and then Justice Kim Nixon took two years to render this judgement. There were also interlocutory injunctive proceedings (unreported) and there will be a series of accounting issues to be addressed as a result of this judgement. The result is extremely unedifying. The judgement is long (53 pages), meandering, fact laden, and convoluted. Perhaps the best that can be said for it is that it might serve as a salutary warning to be used by lawyers acting for junior oil and gas companies: “this is what happens when you make things up as you go along and act as if the written agreement is a mere inconvenience.” The case is also another illustration of the hard reality that co-ownership is a messy business and fundamentally an institution for those who can get along together. Sometimes the costs of maintaining and fighting about the relationship are not worth the benefits to be obtained.

In one of the more enigmatic paragraphs of her decision Justice Nixon suggests that the parties are asking her to re-write their agreement (at para 260 and again at para 397). But the question all along is which agreement? The written agreement? Or the agreement evidenced by the conduct of the parties?

In what follows we will do our best to distill the essential facts and legal reasoning from Justice Nixon’s judgement.