Author: Nigel Bankes Page 23 of 89

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.

Governance and Accountability: Preconditions for Committing Public Funds to Orphan Wells and Facilities and Inactive Wells

By Nigel Bankes

On April 24, 2020

In Environmental, Oil & Gas

By: Nigel Bankes, Shaun Fluker, Martin Olszynski and Drew Yewchuk

PDF Version: Governance and Accountability: Preconditions for Committing Public Funds to Orphan Wells and Facilities and Inactive Wells

Announcement commented on: Department of Finance Canada, Canada’s COVID-19 Economic Response Plan: New Support to Protect Canadian Jobs, April 17, 2020

As any resident of this province knows, the Alberta oil and gas sector’s problem of underfunded environmental liabilities has been growing for decades. On April 17, 2020, in response to the impact of both the COVID-19 pandemic and the Saudi/Russian price war, the federal government announced an injection of $1.7 billion of public funds to support the ‘clean up’ of inactive and orphan wells in Saskatchewan, Alberta and British Columbia. With respect to Alberta, $200 million will go to the Orphan Well Association as a loan to deal with orphan wells (i.e. wells that have no owner) while $1 billion will go to the Government of Alberta to deal with inactive wells (i.e. wells that are not producing but have not been properly closed and remediated).

The first part of this post examines the background to the Orphan Well Association and how it has moved from being an industry funded organization to the recipient of significant public funds. We suggest that this change in the source of funding is likely permanent and thus demands a complete rewrite of the governance structure for orphan wells in the interests of transparency and accountability. The second part of this post offers comments on the proposed program for inactive wells. This part of the post is shorter and more speculative because the announcement is remarkably vague and lacking in important details on this part of the program.

Two Manitoba Oil and Gas Lease Termination Cases

By Nigel Bankes

On April 14, 2020

In Energy, Oil & Gas

By: Nigel Bankes

PDF Version: Two Manitoba Oil and Gas Lease Termination Cases

Cases Commented On: Corex Resources Ltd. et al. v 2928419 Manitoba Ltd., 2020 MBQB 47 (CanLII) and 6660894 Canada Ltd. v 57110 Manitoba Ltd., 2020 MBQB 50 (CanLII)

Two Manitoba oil and gas lease termination cases; two days apart – March 10, 2020 and March 12, 2020; same judicial district (Brandon); same outcome (leases terminated); but different judges and significantly different analytical and doctrinal approaches. The Corex decision is grounded in the specialized body of case law which recognizes that oil and gas leases can terminate automatically in accordance with their terms. The 6660 decision takes a contractual approach and frames the case in terms of fundamental breach and repudiation. While both decisions get to the same point (the lease in each case had terminated), the reasoning in Corex is far more consistent with the relevant authorities.

Bill 12: A Small Step Forward in Managing Orphan Liabilities in Alberta

By Nigel Bankes

On April 9, 2020

In Energy, Environmental

By: Nigel Bankes

PDF Version: Bill 12: A Small Step Forward in Managing Orphan Liabilities in Alberta

Matter Commented On: Bill 12, Liabilities Management Statutes Amendment Act, 2020

Bill 12 addresses some issues related to the province’s orphan fund and the responsibilities of the Orphan Well Association (OWA). While my overall conclusion is that the Bill is to be welcomed, the procedure under which the Bill was adopted was unfortunate. Furthermore, while the Bill does plug some gaps and extends the authority of the OWA and the orphan fund in helpful ways, the Bill is most notable for what it doesn’t address. In particular, it does not address the systemic drivers of the growing orphan liability problem in the province.

More Competition For Underground Disposal Space

By Nigel Bankes

On April 3, 2020

In Energy, Environmental

By: Nigel Bankes

PDF Version: More Competition For Underground Disposal Space

Decisions Commented On: 2020 ABAER 005, Pure Environmental Waste Management Ltd. Applications for the Hangingstone Project February 27, 2020 and 2020 ABAER 004, Pure Environmental Waste Management Ltd. Regulatory Appeal of Approval WM 211 for Pure Environmental Waste Management Ltd.’s Hangingstone Facility February 27, 2020

Conventional and non-conventional oil and gas operations frequently seek to dispose of liquid oilfield waste in underground formations that have suitable injectivity and sealing properties. Not all formations are suitable for injection purposes and even those that are suitable may have limited capacity, especially where the characteristics of the formation limit opportunities for pressure leakoff. Locally limited capacity or scarcity may lead to competition for the available disposal capacity.

These two decisions (and especially 2020 ABAER 005) address the licensing of disposal wells in such a competitive setting. These are not the first such examples we have seen in Alberta. I commented on an earlier AER decision (2014) on a disposal well application here. See also Bankes, “Disputes between the owners of different sub-surface resources” in Don Zillman et al (eds), The Law of Energy Underground (Oxford University Press, 2014) p 433.

Net Profits Interest Decision

By Nigel Bankes

On March 11, 2020

In Energy

By: Nigel Bankes

PDF Version: Net Profits Interest Decision

Case Commented On: Hudson King v Lightstream Resources Ltd, 2020 ABQB 149 (CanLII)

William Hudson (WH) of Texas discovered hydrocarbons in a reservoir near Rocanville, Saskatchewan. Lacking the resources to develop the discovery WH assigned the Rocanville properties to Triton (a Texas based corporation) in 1977 in return for $900,000 and a net profits interest (NPI). The NPI Agreement was executed in favour of a trust that WH and his wife had established for the benefit of their three children EHK, AH and CH. The trust was collapsed in 1986 when the youngest child reached 21 and the three children became the counterparties to the NPI Agreement. AH assigned his interest to ACH Holdings in 2009. I refer to EHK, AH, CH and ACH Holdings as the Hudson parties or as the plaintiffs. On the Triton side of the NPI Agreement the interests in the Rocanville properties passed through several hands including TriStar which continued as Petrobakken Energy which changed its name to Lightstream Resources. In September 2014 Lightstream sold and assigned its entire interest to Crescent Point. Lightstream, Crescent Point and the Hudson parties entered into an assignment and novation agreement (reproduced and discussed further below). In what follows, I sometimes refer for the sake of simplicity to the party from time to time holding the Triton interest in the NPI Agreement as the operator.