Category Archives: Oil & Gas

“Contract Depth” Does Not Mean Optimal Depth

By: Nigel Bankes

PDF Version: “Contract Depth” Does Not Mean Optimal Depth

Case Commented On: Shallow Gas Drilling Corp v Legacy Oil and Gas, 2015 ABQB 606

It would be nice to know a little more about the facts of this case; but what appears to have happened on the basis of the rather cryptic record provided by Justice Bensler’s judgement is as follows. 1346329 Alberta Ltd (134) drilled a series of wells to earn interests in the Pierson properties. Earning was contingent on drilling the wells to contract depth which was defined as “a subsurface depth sufficient to penetrate 15 metres into the Spearfish.” The wells were drilled between late 2007 and January 2008. It was admitted that all of the wells were drilled to depths between 28.3 and 30.65 metres into the Spearfish.

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Provincial Environmental Appeal Boards: A Forum of Choice for Environmental (and First Nation) Plaintiffs?

By: Nigel Bankes

PDF Version: Provincial Environmental Appeal Boards: A Forum of Choice for Environmental (and First Nation) Plaintiffs?

Decision Commented On: Chief Gale and the Fort Nelson First Nation v Assistant Regional Water Manager & Nexen Inc et al, Decision No. 2012-WAT-013(c), BC Environmental Appeal Board, September 3, 2015

In this important (and lengthy) decision (115pp), British Columbia’s Environmental Appeal Board (EAB) revoked Nexen’s commercial water licence for two reasons: first, the terms and conditions of Nexen’s licence were not technically supportable, and second, the Crown was in breach of its constitutional obligation to consult the First Nation with respect to the decision to issue the water licence.

I think that the decision is important for at least four reasons (notwithstanding the fact that the days for the version of the Water Act, RSBC 1996, c 483 in force at the time of this licence decision are numbered since it is due to be replaced by the new BC Water Sustainability Act in early 2016 and for comment see here). First, and most generally, it is an excellent example of the important role that environmental appeal boards can play in shining a light on the administrative practices of line departments. In the same vein, it is also offers a dramatic illustration of the differences between the role of an EAB and the role of a court on a judicial review or statutory appeal application. An EAB can offer a searching, de novo, technical re-assessment of the merits of the department’s decision; a court is inevitably more deferential and precluded from engaging in an assessment of the merits. I have written at length on this important role that EABs serve, see “Shining a light on the management of water resources: the role of an environmental appeal board” (2006), 16 Journal of Environmental Law and Practice 131 – 185.

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The Federal Crown Fulfilled its Consultation Obligations when the National Energy Board Approved a Seismic Program in Baffin Bay

By: Nigel Bankes

PDF Version: The Federal Crown Fulfilled its Consultation Obligations when the National Energy Board Approved a Seismic Program in Baffin Bay

Case Commented On: Hamlet of Clyde River, Nammautaq Hunters and Trappers Organization – Clyde River and Jerry Natanine v TGS-NOPEC Geophysical Company, Petroleum Geoservices Inc, Multi Klient Invest AS and the Attorney General of Canada, 2015 FCA 179

This case is of interest for two principal reasons: (1) issues of standing (although the Court seems to have ducked the hard issues), and (2) the circumstances in which the Crown can rely on the procedures of a regulatory board to fully and completely discharge the Crown’s constitutional obligation to consult and accommodate.

The Facts

TGS-NOPEC Geophysical Company ASA (TGS), Petroleum Geo-Services Inc. (PGS) and Multi Klient Invest AS (MKI) (the proponents) applied to the National Energy Board (NEB, the Board) for a Geophysical Operations Authorization (GOA) under the terms of paragraph 5(1)(b) of the Canada Oil and Gas Operations Act, R.S.C. 1985, c. O-7 (COGOA). The proponents proposed to undertake a 2-D offshore seismic survey program in Baffin Bay and the Davis Strait (the Project) over a period of five years. The Board granted the GOA subject to terms and conditions. As part of its decision-making on the GOA, the Board also had responsibilities under the Canadian Environmental Assessment Act, S.C. 1992, c. 37 (CEAA, 1992) (no longer in force but it was at the relevant time and none of the parties took issue with its applicability (at para 53).) In fulfillment of its responsibilities under that statute the Board conducted an environmental assessment (EA) and reached the conclusion that (at para 6):

…. with the implementation of [the project operator’s] commitments, environmental protection procedures and mitigation measures, and compliance with the Board’s regulatory requirements and conditions included in this [Environmental Assessment] Report, the Project is not likely to result in significant adverse environmental effects.

The EA report is available on the Board’s website here. The applicants, Hamlet of Clyde River, Nammautaq Hunters and Trappers Organization (HTO) – Clyde River and Jerry Natanine (a resident and the Mayor of Clyde River) brought this application for judicial review. The application belongs before the Federal Court of Appeal because of section 28(1)(f) of the Federal Courts Act, RSC 1985, c F-7. For more general discussion of judicial supervision of the NEB see my earlier post here.

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Implementing the New Liability and Financial Assurance Rules for Oil and Gas Operations on Federal Lands in the Arctic and for the East Coast Offshore

By: Nigel Bankes

PDF Version: Implementing the New Liability and Financial Assurance Rules for Oil and Gas Operations on Federal Lands in the Arctic and for the East Coast Offshore

Regulations Commented On: [Draft] Canada Oil and Gas Operations Financial Requirements Regulations and accompanying Regulatory Impact Assessment Statement (RIAS), Canada Gazette, vol. 149, No. 28, July 11, 2015, [Draft] Canada-Newfoundland and Labrador Petroleum Financial Requirements Regulations, Canada Gazette, vol. 149, No. 28, July 11, 2015 and [Draft] Canada-Nova Scotia Petroleum Financial Requirements Regulations, Canada Gazette, vol. 149, No. 28, July 11, 2015

The current liability and assurance rules for oil and gas operations on federal lands and for the east coast offshore are, by any account, outdated and inadequate. The federal government undertook to review these rules following the Montara and Macondo spills and the National Energy Board (NEB) undertook its own review, The Past is Always Present: Review of Offshore Drilling in the Canadian Arctic, Preparing for the Future (2011). As a result of these initiatives the government introduced Bill C-22 which became the Energy Safety and Security Act, SC 2015 c.4 (ESSA). ESSA obtained Royal Assent on February 26, 2015 but will not (s.119) enter into force until 12 months after Assent or on an earlier date prescribed by Order in Council. The delay permits the development of the necessary regulations, including the three related regulations (supported by a common RIAS), that are the subject of this post. Bill C-22 once in force will, inter alia amend the liability and financial assurance provisions of the Canada Oil and Gas Operations Act, RSC 1985, c. O-7 (COGOA), the Canada-Newfoundland and Labrador Atlantic Accord Implementation Act, SC 1987, c.3 and the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act, SC 1988, c.28. This post will focus on the COGOA rules although what is said here for the most part applies equally to the areas covered by the Accord Acts. The first part summarizes the current COGOA provisions. The second part summarizes the changes that ESSA makes to COGOA. The third part discusses the regulations and the accompanying RIAS. The fourth part offers some comments on the regulations while the final part asks what is missing from this regime.

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Alberta Decision on Knock-for-Knock Allocation of Liability in a Standard Form Drilling Contract

By: Nigel Bankes

PDF Version: Alberta Decision on Knock-for-Knock Allocation of Liability in a Standard Form Drilling Contract

Case Commented On: Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd, 2015 ABQB 433

This case involves the interpretation of a standard form drilling contract. Under that contract, said (at para 5) to be negotiated between the Canadian Association of Oilwell Drilling Contractors and the Canadian Association of Petroleum Producers, the drilling contractor (here Precision) and the oil and gas operator (here Yangarra) agreed to accept an allocation of risks and liabilities based essentially on ownership interests rather than fault. Thus, Article 10.1 of the contract, subject to some listed exceptions, provided that:

Precision shall at all times assume all of the risk of and be solely liable for any damage to, loss of, or destruction of Precision’s Surface Equipment, regardless of the negligence or other fault of Yangarra or howsoever arising and Precision specifically releases Yangarra in regard to any claims that Precision may otherwise have in regard thereto.

By the same token, Yangarra (Article 10.3 and 10.4) agreed to accept risks and provide an indemnity in relation to any downhole issues:

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