Category: Natural Resources Page 14 of 17

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.

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Cases Considered: Nexxtep Resources Ltd. v. Talisman Energy Inc et al, 2007 ABQB 788; aff’d 2008 ABCA 246

PDF Version: What happens when the deep rights you just purchased are being drained by the vendor’s shallow rights well?

What happens when a purchaser obtains the deep rights under certain oil and gas leases (along with a producing horizontal well) and the parties exclude another vertical well on the basis that it is producing from the shallow rights retained by the vendor and later the purchaser forms the view that the well is producing from the deep rights and not the shallow rights? That is the issue on the merits in Nexxtep – barring disagreements as to just where the vertical well was producing from. At present the case is reported only on certain preliminary matters, Nexxtep’s request for an injunction and Talisman’s request for summary judgment.

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Cases Considered: Adeco Exploration Company Ltd. v. Hunt Oil Company of Canada Inc. 2008 ABCA 214, varying unreported oral reasons for judgement of May 3, 2007.

PDF Version: The legal implications of failing to continue a Crown oil and gas lease: the duty of the operator to its joint operators and to the holder of a royalty interest

One of the most important events in the life of a Crown oil and gas lease or licence in Alberta is the point of continuation at the end of the primary term (a lease) or at the end of the intermediate term (a licence). It is important because a lease or licence lapses at the end of its primary or intermediate term except to the extent that it is continued (Mines and Minerals Act, R.S.A. 2000, c. M-17, s.82(1)). And when a lease lapses as to some or all of the leased area so too will any royalty interests with respect to that area of the lease.

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