Category Archives: Oil & Gas

The Supreme Court of the United Kingdom (fka the House of Lords) Decides an Oil and Gas Case

By: Nigel Bankes

PDF Version: The Supreme Court of the United Kingdom (fka the House of Lords) Decides an Oil and Gas Case 

Case Commented On: Star Energy Weald Basin Limited v Bocardo SA, [2010] UKSC 35

It is not every day, or even every year, that the highest court in the United Kingdom passes judgement in an oil and gas case. But the Supreme Court of the United Kingdom did so at the end of July and while much of the Court’s reasoning turns on the details of the UK’s petroleum legislation, and in particular on the terms of the Crown vesting legislation in that jurisdiction, the Court also had something to say about the common law ownership rights of the surface owner. These comments merit carefully scrutiny in the context of the ongoing debate in Alberta and elsewhere about ownership rights in relation to pore space, an important issue in the context of carbon capture and storage (CCS).

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Estoppel arguments fail once again in an oil and gas lease case

PDF version: Estoppel arguments fail once again in an oil and gas lease case 

Case considered: Desoto Resources Limited v. Encana Corporation, 2010 ABQB 448

In this case Justice William Tilleman dismissed an appeal from Master Jodi Mason’s decision in chambers in which she had granted summary judgement in favour of the defendant in the action, Encana. Desoto had been seeking a declaration that it had a number of valid leases notwithstanding that the primary term of the leases had expired in the 1970s and that there had been no production on the leases for a period beginning in the late 1990s. This was apparently, at least at the outset, as a result of the properties being shut-in by order of the Energy Resources Conservation Board because of the failure of the then lessee to pay well abandonment deposits.

I blogged on Master Mason’s decision – see Successful application for summary dismissal in an oil and gas lease validity case.

On appeal, Desoto focused on estoppel arguments urging that the leases should survive on the basis of promissory estoppel, estoppel by acquiescence, or estoppel by deed.

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A century of liability for an abandoned well

PDF version: A century of liability for an abandoned well

Case considered: Dalhousie Oil Company Limited, Section 40 Review of Abandonment Cost Order No. ACO 2008-1, Turner Valley Field, ERCB Decision 2010-19

In this decision the Energy Resources Conservation Board (ERCB, the Board) confirms that the current owner of an abandoned well has a continuing responsibility to pay for the re-abandonment costs associated with that well even though the well in question had not produced since the 1920s. The decision is particularly interesting in the context of the current discussion surrounding who should assume responsibility for the long term liabilities associated with carbon capture and storage projects.

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Ontario Court of Appeal holds that oil and gas lease continued by virtue of (late) payments under a unitization agreement

PDF version: Ontario Court of Appeal holds that oil and gas lease continued by virtue of (late) payments under a unitization agreement 

Case considered: Tribute Resources v McKinley Farms, 2010 ONCA 392

The Court of Appeal has varied in part the decision in Tribute Resources v McKinley Farms that I blogged here. The trial judge held that any rights that Tribute held under the terms of an oil and gas lease or under the terms of a gas storage agreement (GSA) had terminated.

The Court of Appeal agreed with the trial judge on the GSA point but held that trial judge had erred in holding that the lease was continued by the terms of the unitization agreement. The Court of Appeal concluded that this was an ordinary commercial contract and that the Court must give effect to its terms. The agreement provided that payments under the unitization agreement were effective to deem production on the leased lands. The fact that some payments were late was not significant since the lease did not provide for automatic termination; the default clause was evidence of that and the default clause seemed to allow the lessee the right to notice and the opportunity to cure a default. There had been no notice of default and ergo the deeming was effective.

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Standing at the ERCB without an interest in land, but “no costs for you!”

Case considered: Freehold Petroleum and Natural Gas Owners Association v. Alberta (Energy Resources Conservation Board), 2010 ABCA 125

In Freehold Petroleum and Natural Gas Owners Association, Madam Justice Elizabeth McFayden dismisses an application for leave to appeal an Energy Resources Conservation Board (ERCB) hearing costs decision that relates to an earlier ERCB decision concerning a mineral lease dispute. This Court of Appeal decision and the underlying ERCB decisions are noteworthy to me for two reasons: (1) the ERCB granted full hearing participation rights to the Freehold Petroleum and Natural Gas Owners Association (the Freehold Owners Association) despite the fact it does not have an interest in land; and (2) the Court of Appeal defers to the ERCB on what I consider to be an unreasonable exercise of its discretion on the costs matter. I will comment on each of these points in turn after briefly summarizing the facts.

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