By: Nigel Bankes

PDF Version: Gross Negligence and Set-off Rights under the 2007 CAPL Operating Procedure

Case Commented On: Bernum Petroleum Ltd v Birch Lake Energy Inc., 2014 ABQB 652; unreported transcript of reasons of Master Robertson, July 31, 2013

Bernum and Birch Lake held interests (60:40) in five sections of land (sections 3, 7, 8, 17 and 19) governed by the 2007 version of the CAPL operating procedure. Bernum was the operator. Birch Lake elected to participate in drilling two horizontal wells, the 4-3 well and the 6-19 well. The 4-3 well was a success and is still producing. The 6-19 failed and was subsequently abandoned. Birch Lake failed to meet cash calls under the authorizations for expenditure (AFEs) for the two wells; Bernum commenced an action and applied for summary judgement. Bernum also set off Birch Lake’s share of production against Birch Lake’s indebtedness.

Birch Lake defended Bernum’s application for summary judgement on the basis that Bernum had been grossly negligent in drilling the two wells. The 2007 CAPL provides that:

4.02 The Operator … will not be liable to any of the Non-Operators for any Losses and Liabilities resulting from or in any way attributable to or arising out of any act, omission or failure to act, whether negligent or otherwise, of the Operator or its Affiliates and their respective directors, officers, agents, contractors or employees in the performance of the Operator’s duties under this Agreement (including those in planning or conducting any Joint Operation), except insofar as:

(a) those Losses and Liabilities are a direct result of, or are directly attributable to the Gross Negligence or Wilful Misconduct of the Operator …;

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By: Nigel Bankes

PDF version: What happens when A sells B a working interest in the thermal or enhanced production from an oil and gas property and A or its successors in interest continue with primary production?

Case Considered: IFP Technologies (Canada) v Encana Midstream and Marketing, 2014 ABQB 470

What happens when A sells B a working interest in the thermal or enhanced production from an oil and gas property and A or its successors in interest continue with primary production? This was the issue at the heart of this decision. The answer is that B gets shafted; B should have taken better steps to protect itself rather than simply assuming that all future production from the property would take the form of enhanced or thermal production.

In the course of his lengthy 73 page judgement Chief Justice Neil Wittmann (acting in place of Justice Ron Stevens (deceased)) addressed a number of questions of oil and gas law which will be of interest to the energy bar including the following: (1) What property interest did IFP acquire? (2) What is the test for determining whether a working interest owner has reasonable grounds for refusing consent to an assignment of shared interest lands under the 1990 CAPL Operating Procedure? (3) What is the legal position where a working interest purports to withhold consent and the Court subsequently determines that the withholding of consent was unreasonable? (4) Did the development of the property through primary production techniques substantially nullify the benefit for which IFP (B) had bargained so as to amount to a breach of contract? (5) Assuming that there was a breach of contract how should damages be assessed? (6) Assuming liability should any claim for damages be capped by a contractual agreement between the parties? Continue reading →

By: Nigel Bankes

PDF Version: Competition for Underground Disposal Space

Decision Commented On: Alberta Energy Regulator, Canadian Natural Resources Limited, Application for Disposal, Lloydminster Field, 2014 ABAER 008

Previous posts on ABlawg have commented on sub-surface resource conflicts especially as between gas storage operations and oil and gas production: see Kallisto # 1 here and Kallisto # 2 here. This decision involving Canadian Natural Resources Limited (CNRL) illustrates that there may also be competition for good disposal sites and that the disposal operations of one party may affect the disposal operations of another party. While this decision involves the use of pore space for water disposal operations we can also anticipate competition for the use of pore space for carbon dioxide disposal purposes (i.e. carbon capture and storage, CCS) if that technology rolls out as anticipated to mitigate Alberta’s greenhouse gas emissions.

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By: Shaun Fluker

PDF Version: What Happens When an Insolvent Energy Company Fails to Pay its Rent to a Landowner?

Decision commented on: Petroglobe v Lemke, 2014 ABSRB 401

The law in Alberta provides an energy company with the right of surface access on private lands to drill for oil and gas.  This access allows the company, among other things, to construct an access road and clear lands for the well site.  In most cases, the company and the landowner enter into a surface lease whereby the company agrees to pay rent in exchange for this access.  In other cases, surface access is governed by a Right of Entry Order issued by the Alberta Surface Rights Board (website) whereby the company obtains access in exchange for the payment of rent.  This case is about what happens when an insolvent company fails to pay its rent.

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