Category Archives: Oil & Gas

Change of Operator: Norcen v Oakwood of no Application in the Case of a Bankruptcy

By: Nigel Bankes

PDF Version: Change of Operator: Norcen v Oakwood of no Application in the Case of a Bankruptcy

Case Commented On: Bank of Montreal v Bumper Development Corporation Ltd, 2016 ABQB 363 (CanLII)

This case involves the 2007 version of the CAPL Operating Agreement as well as a construction, ownership and operation agreement for a battery (COO Agreement). In his judgment Justice Alan Macleod enforced the immediate replacement provisions of the operating agreement in favour of a co-owner (Eagle Energy Inc.) and against the purchaser of the assets (Forent Energy Ltd.) from the receiver\manager appointed under under s 243 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3. Continue reading →

From Telecoms to Pipelines: Good News from the Supreme Court of Canada for Pipeline Builders

By: Nigel Bankes

PDF Version: From Telecoms to Pipelines: Good News from the Supreme Court of Canada for Pipeline Builders

Case commented on: Rogers Communications Inc v Châteauguay (City), 2016 SCC 23 (CanLII)

In this decision the Supreme Court of Canada (unanimous in the result) concluded that the actions of the City of Châteauguay in creating a reserve as to certain real property were directed at frustrating Rogers’ efforts to install an antenna system on property located within the City and were therefore unconstitutional as a measure dealing with the siting of telecommunications infrastructure. The majority found that Châteauguay’s notice of reserve was ultra vires (but also went on to offer an analysis that would have rendered the reserve inapplicable on the basis of the doctrine of interjurisdictional immunity (IJI)). The minority (Justice Gascon) preferred to find for Rogers solely on the basis of IJI.

While this is no doubt an important decision for the telecommunications industry it will almost certainly prove to be more important for the more tightly networked elements of the energy sector and in particular oil and gas pipelines given the highly contentious nature of current proposals to construct new pipelines or expand existing pipelines. Continue reading →

Of Busted Butterflies and the Duty of Good Faith – A Saskatchewan Right of First Refusal Case

By: Nigel Bankes

PDF Version: Of Busted Butterflies and the Duty of Good Faith – A Saskatchewan Right of First Refusal Case

Case commented on: Northrock Resources v ExxonMobil Canada Energy, 2016 SKQB 188

What is the legal position if N has a right of first refusal (ROFR) in the event that E agrees to sell its interest, unless E’s sale is to an affiliate; E transfers the interest to its wholly owned affiliate, NSCo and C then buys the shares of NSCo. Does the second transaction or the two transactions taken together (known in tax parlance – for reasons that, as with much of tax law, entirely escape me – as a “busted butterfly” trigger N’s ROFR entitlement (perhaps on the basis that E should not be able to do indirectly what it cannot do directly)? Justice Currie of the Saskatchewan Court of Queen’s Bench answered in the negative and as a result dismissed Northrock’s (N’s) claims which sounded in both contract and in tort (inducing breach of contract and conspiracy). Continue reading →

The Power of a Trustee in Bankruptcy to Disclaim Unproductive Oil and Gas Properties and the Implications for the AER’s Liability Management Program

By: Nigel Bankes

PDF Version: The Power of a Trustee in Bankruptcy to Disclaim Unproductive Oil and Gas Properties and the Implications for the AER’s Liability Management Program

Case commented on: Redwater Energy Corporation (Re), 2016 ABQB 278 (CanLII)

In a much anticipated decision Chief Justice Neil Wittmann has concluded that there is an operational conflict between the abandonment and reclamation provisions of the province’s Oil and Gas Conservation Act, RSA 2000, c O-6 (OGCA) and Pipeline Act, RSA 2000, c P-15 and the federal Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA). Thus, a trustee in bankruptcy is free to pick and choose from amongst the assets in the estate of the bankrupt by disclaiming unproductive oil and gas assets even where (and especially so) those assets are subject to abandonment orders from Alberta’s oil and gas energy regulator, the Alberta Energy Regulator (AER). As a result, the value of the bankrupt’s productive assets is preserved for the benefit of secured creditors. AER abandonment orders do not bind a trustee with respect to the disclaimed properties and do not constitute costs of administration of the bankrupt’s estate. Since the trustee has no responsibility for disclaimed assets, the trustee should be in a position to transfer non-disclaimed producing assets to a third party purchaser without objection from the AER on the basis of any deterioration in the liability rating associated with the unsold non-producing assets. If either the AER or the Orphan Well Association (OWA) carries out the abandonment of the disclaimed assets such costs may constitute a provable claim in bankruptcy but, as a general creditor, the AER/OWA would likely only recover cents on the dollar.

The practical effect of this decision is that the AER’s authority to enforce abandonment orders at the cost of the licensee is unenforceable at precisely the time when the AER most needs to be able to exercise that power i.e. when the licensee is insolvent. Continue reading →

The AER Provides Useful Guidance in a New Pool Delineation Decision

By: Nigel Bankes

PDF Version: The AER Provides Useful Guidance in a New Pool Delineation Decision

Decision commented on: Proceeding 336 Application 1820596 Pool Delineation, Crossfield Basal Quartz C & V Pools, June 2, 2016, 2016 ABER 007

Alberta’s Oil and Gas Conservation Act, RSA 2000, c O-6 (OGCA) defines a pool as “(i) a natural underground reservoir containing or appearing to contain an accumulation of oil or gas, or both, separated or appearing to be separated from any other such accumulation”. Wells are identified as producing from particular pools and many provisions of the OGCA and the Oil and Gas Conservation Rules, Alta Reg 151/1971 (OGCR) turn on the question of whether or not a particular well is producing from a particular pool. For example, s 15(3) of the OGCA provides that “No person shall apply for a licence for a well for the purpose of obtaining production from the same pool as that from which another well is obtaining or capable of obtaining production in the same drilling spacing unit …”.

In this particular case, the applicant, Bearspaw Petroleum Ltd wanted its well classified as producing from the Crossfield Basal Quartz C Pool (BQ C Pool) rather than the single well BQ V pool in order to be able to gain access to the gas processing plant operated by the C Pool working interest owners – if necessary by means of a common processor order under s 53 of the OGCA. Since it is usually necessary to establish drainage as a pre-condition to obtaining a common processor order (i.e. that H’s well or wells are draining production from underneath B’s leased lands) (see Directive 065, Resources Applications for Oil and Gas Reservoirs, Unit 1, Equity) B first had to establish that its well was in the same pool as H’s wells. Continue reading →