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Deep Rights, Shallow Rights, and the Interpretation of a Purchase and Sale Agreement

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On February 13, 2012

In Oil & Gas

PDF version: Deep rights, shallow rights and the interpretation of a purchase and sale agreement

Case commented on: Nexxtep Resources Ltd v Talisman Energy Inc, 2012 ABQB 62

The oil and gas industry splits petroleum and natural gas rights by substances to create severed estates in gas and petroleum but it also splits rights along the vertical axis into different formations. Split rights may be created along the vertical axis for several reasons. In some cases the Crown or other lessor initiates the severance in order to encourage exploration (e.g. deep and shallow rights reversions – explore non-producing horizons in your lease or lose them). In other cases rights will be severed as part of farmout agreements since farmors will be reluctant to allow the farmee to earn interests in formations that are deeper (and in some cases shallower) than those formations to which the test well is to be drilled. But these vertical splits cannot always be determined with accuracy and in some cases the Energy Resources Conservation (ERCB) may be asked to classify or reclassify whether a pool is part of deeper rights or shallower rights for the purposes of different conservation rules including, spacing rules, first well in the pool rules etc.: see Oil and Gas Conservation Act, RSA 2000, c O-6, s 33.

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The Northern Gateway Joint Review Panel and the Governor in Council

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On February 2, 2012

In Environmental, Oil & Gas

 PDF version: The Northern Gateway Joint Review Panel and the Governor in Council

Documents commented on: (1) An open letter from the Honourable Joe Oliver, Minister of Natural Resources, on Canada’s commitment to diversify our energy markets and the need to further streamline the regulatory process in order to advance Canada’s national economic interest, January 9, 2012;

(2) National Energy Board Act, RSC 1985, c N-7, s 52;

(3) Canadian Environmental Assessment Act, SC 1992, c 37, s 37.

On January 9, 2012, the day before the hearings by a Joint Review Panel (JRP) were due to open for the proposed Northern Gateway pipeline (NGP), the federal Minister of Natural Resources, Joe Oliver took the extraordinary step of issuing an Open Letter to Canadians. He followed this up with a series of media appearances. In his letter Minister Oliver made four main points. First, Canada needs to diversify its export markets for many products including oil. Second, “environmental and other radical groups” seek to block this opportunity and any underlying projects. Third, these “radicals” will “hijack our regulatory system,” stack public hearings, “kill good projects,” exploit any opportunity they can to delay project reviews. These radicals have access to foreign money to implement their goals. The delays that ensue are unacceptable. Fourth, Canada needs a fair and independent process to assess projects based on science and the facts – but the current system is out of balance and “is broken.”

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The theory and the practice of well abandonment and surface reclamation in Alberta: the latest episode in the dismal saga of Sarg Oils Limited

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On December 13, 2011

In Environmental, Oil & Gas

PDF version: The theory and the practice of well abandonment and surface reclamation in Alberta: the latest episode in the dismal saga of Sarg Oils Limited

Decision commented on: Sarg Oils Limited, Review of Abandonment Orders AD 2006-17, AD 2006-17A, AD 2006-18, AD 2006-19 and AD 2006-20, November 15, 2011, 2011 AERCB 032.

Well over ten years ago Sarg Oils sold oil and gas assets to another party. The Energy Resources Conservation Board (ERCB) refused to consent to the transfer of the well licences associated with those assets and as a result Sarg was left with the responsibility of abandoning those facilities. And when Sarg refused, the ERCB did the job itself and sent the bill to Sarg; and when Sarg didn’t pay (and the Court of Appeal ruled that this was a lawful debt owing to the Board: ERCB v Sarg Oils Ltd, 2002 ABCA 174) the ERCB garnisheed other assets of Sarg (the Southern Alberta assets). Sarg didn’t like that and shut the facilities in – owing by this time in excess of $1 million. The Board informed the province of this dastardly deed and the province triggered the procedures under the Petroleum and Natural Gas Tenure Regulation (Alta Reg 267/1997, s18) to terminate the leases on those Southern Alberta assets. Since Sarg no longer had the right to exploit the resources on those terminated leases, the ERCB ordered Sarg (2006) to abandon the related wells and facilities. Sarg did nothing about this except to seek a section 40 review (this application) under the Energy Resources Conservation Act, RSA 2000, c E-10) of the Board orders. And now, five years later, the Board has concluded that the orders “are valid and will be upheld” (at para 148). And now, Sarg must really get on with it! Whew! Unless of course Sarg seeks leave to appeal.

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Bill 16, 2011: Alberta Paves the Way for Cleaner Coal with In Situ Coal Gasification

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On November 8, 2011

In Climate Change, Environmental, Oil & Gas

By: Astrid Kalkbrenner

PDF Version: Bill 16, 2011: Alberta Paves the Way for Cleaner Coal with In Situ Coal Gasification

Legislation Commented On: Bill 16 – Energy Statutes Amendment Act, 2011

On 13 May 2011, the Legislative Assembly of Alberta passed the Energy Statutes Amendment Act (“Bill 16, 2011”). Bill 16, 2011 amends the following acts: the Alberta Utilities Commission Act, RSA 2007, c A-37.2, the Coal Conservation Act (CCA), RSA 2000, c C-17, the Electric Utilities Act, RSA 2003, c E-5.1, the Gas Utilities Act, RSA 2000, c G-5, the Oil and Gas Conservation Act (OGCA), RSA 2000, c O-6, the Oil Sands Conservation Act (OSCA), RSA 2000, c O-7, and the Pipeline Act (PA), RSA, c P-15. The amendments entered into force on 13 May 2011.

Bill 16, 2011 implements two central amendments to the regulatory regime of the above mentioned energy laws. The first amendment removes the Industrial Development Permit (IDP) legislation (see ERCB Bulletin 2010-42). In short, section 51 of the CCA, section 111 of the OGCA and section 27 of the OSCA cancel existing IDPs. The general repeal of these provisions makes it unnecessary to apply for an IDP in the future. See previous post by Nigel Bankes here. The second amendment clarifies the ERCB’s authority to regulate in situ coal development and sets out the requirements for in situ coal projects (see ERCB Bulletin 2009-36).

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Section 19 of the Perpetuities Act and the oil and gas lease as a fee simple determinable estate of a profit à prendre

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On November 1, 2011

In Oil & Gas, Property

PDF version: Section 19 of the Perpetuities Act and the oil and gas lease as a fee simple determinable estate of a profit à prendre 

Statute commented on: Perpetuities Act, RSA 2000, c P-5.

In a couple of years we will “celebrate” the fortieth anniversary of the Perpetuities Act of 1972, SA 1972, c 121. They may not know it yet, but the wildest celebrations will be heard from those who hold oil and gas leases granted after July 1, 1973 which are still in force. Here’s why. After that date, as each and every oil and gas lease reaches its fortieth birthday, the lessor’s possibility of reverter for terminating the lease for want of production comes to an end; thenceforward the lease can only be terminated for cause (as described in the default clause of the leases) such as the non-payment of royalties, which causes can typically be cured without losing the lease. Lessees will become the effective owners of the oil and gas estate.

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