By: Nigel Bankes
PDF Version: Specific Performance of a Right of First Refusal in the Context of a Facilities Agreement
Decision Commented On: Canlin Resources Partnership v Husky Oil Operations Limited, 2018 ABQB 24 (CanLII)
Canlin and Husky are successors in interest to a Construction, Ownership and Operation (CO & O) Agreement for the Erith Dehydration and Flow Splitter Facility (Facility Agreement). The agreement was based on the standard form CO & O Agreement (1999) developed by the Petroleum Joint Venture Association (PJVA). The Facility Agreement provides both parties with mutual rights of first refusal (ROFR) in the event that either decides to sell the facility but also provides a number of exceptions. In particular, the Agreement provided that the ROFR would not be triggered in the event of (at para 3) “(a) disposition made by an Owner of all or substantially all … of its petroleum and natural gas rights in wells producing to the Facility …”. Husky was disposing of its interests in the area (the Ikkuma transaction) but the challenge was that there had been no wells producing into the facility since 2016 when Husky installed a “jumper” pipeline. This pipeline served to by-pass the Erith Facility with the result that gas previously processed at Erith was now processed at the Blackstone Facility. The question therefore was whether Husky could rely on the exception, there being no wells producing into the facility. Husky took the view that the exception was triggered since the wells in question were still associated with the Erith Facility in the sense of being tied-in to the Facility. Justice Romaine concluded that the exception was not triggered and accordingly declared that Canlin could exercise the ROFR; furthermore she concluded that Canlin was entitled to an order of specific performance. Continue reading